1. TheStreet.Com (TSCM): Personally, I think that Cramer is much older than me, maybe he tries to throw everyone a curveball about claiming to be just 62, leaving an impression with a wink and nod that he was really much younger, and Cramer may have done his own propaganda piece in Wikipedia, where the claim is made of a birth on 2/10/1955. Jim Cramer - Wikipedia Yeah, right, I want to see the notarized birth certificate. Whatever, I just want the World to know that I relied on that representation in making my lottery ticket purchase of 100 TSCM at $1.88 this afternoon. After all, like him or not, Cramer is TheStreet.com., and he does look pretty fit for a 72 year old man.
I was looking at the balance sheet of TSCM this afternoon, comparing the cash with the current market capitalization. Unless I am missing something it appeared to me that the cash on the balance sheet was at 80.1 million and the market cap at my purchase price was about 58.2 million according to Yahoo Finance I got the cash figure from the recent earnings release and that figure includes cash and marketable securities.
Reading this release, I was struck by the 47% decline in advertising revenue from a year ago, and subscription revenue fell 16%. Okay, that is bad and the CEO just resigned with a push perhaps. One thing to remember is that both advertising and subscription revenue for this kind of business is cyclical. If the market continues to improve and the economy starts to recover late in 2009, picking up a modest amount of steam in 2010, which appears reasonable though far from certain, I would expect to see an improvement in TSCM's revenues, as advertisers and individuals return. The firm does have enough cash to weather the storm and appears to be positioning itself for the next up cycle.
TSCM's chart reveals what I would expect to see, maybe overdone a bit. The stock peaked at over 16 as the cyclical bull market was ending in 2007, and it has been a downhill slope since then as you would expect. TheStreet.com, Inc. Share Price Chart Many of the individuals have not renewed their subscriptions, and advertisers have tightened their belts. The past may be prologue, but it generally does not pay to forecast the past 16 months as the norm for the next 16. Somehow, in the depths of a recession, the big squeamish feeling sets in, despair rules the roost, and the only assumption many humans are capable of making is that next year will be worse than the present. Sometimes, that gloom may be warranted, but more often the sun will shine once again.
Still, this is a lottery ticket which means I really don't care what happens. I am risking less than $200 and buying a stock selling for less than the net cash on its books. I expect to do better with my lottery ticket stock purchases than with my powerball selections, so far so good this year.
This purchase was made with the accumulated cash flow since 2/09, along with today's purchase of shares in Duke, and the prior buys of PHO and Intel. I still have some funds left from that stash.
2. Sold 3 International Lease Bonds: I said that I would let these go to maturity but I went ahead and sold them anyway just to quite thinking about it, taking about a $200 loss. I have more important fish to fry. I am raising funds from short term bond sales to raise another Kitty for RB's next frolic into the stock market.
3. Odd Day for the VIX: I would classify today as an anomaly for the VIX. The S & P 500 finished down slightly, falling .17%, whereas the VIX fell 4.76% to close at 28.8. This is unusual. The last close below 30 was on September 18, 2008, shortly before the Phase 2 Unstable Vix Pattern formation. Yahoo! Finance
I will be interested to see what happens tomorrow, something may need to give and it might be the VIX going back up some.
4. Junior v. Senior Bonds: I have noticed several visitors coming to an old post of mine involving the distinction between regular (also called equity) and trust preferred issues. Regular Preferred and Trust Preferred I am not sure why. It is an important distinction for U.S. taxpayers, since most equity preferred issues pay qualified dividends and QuantumOnline has compiled a list. Preferreds eligible for the 15% Tax Rate Table - QuantumOnline.com Trust Preferred issues are bonds and their distributions will be taxed as interest.
The regular preferred is a form of equity and will be found listed with common stock in the firm's balance sheet. Any form of equity will be inferior to any bond in the priority chain in the event of bankruptcy, with the lowest rung occupied by common stock, then equity preferred, then junior bonds such as Trust Preferred securities, then senior and then secured debt. But, if I am holding both a bank's equity preferred stock and a Trust Preferred when the FDIC seizes it, I would expect both pieces of paper to be worthless particularly given the priority of uninsured depositors in such an event in the FDIC's scheme of priority. The priority distinction may make a difference in a bankruptcy of a non-bank firm that has both classes of securities outstanding, such as an electric utility.
The regular preferred is a form of equity and will be found listed with common stock in the firm's balance sheet. Any form of equity will be inferior to any bond in the priority chain in the event of bankruptcy, with the lowest rung occupied by common stock, then equity preferred, then junior bonds such as Trust Preferred securities, then senior and then secured debt. But, if I am holding both a bank's equity preferred stock and a Trust Preferred when the FDIC seizes it, I would expect both pieces of paper to be worthless particularly given the priority of uninsured depositors in such an event in the FDIC's scheme of priority. The priority distinction may make a difference in a bankruptcy of a non-bank firm that has both classes of securities outstanding, such as an electric utility.
For me there is another important distinction between junior and senior bonds that always needs to be emphasized other than just priority. Senior bond covenants do not allow for deferral. If the company misses a payment, it is in default (at least that is true for the ones that I have read). In all of these Trust Preferred issues that I have read, the issuer has very liberal deferral rights, and that is why you have cumulative provisions. It is common for the issuer to have the right to defer payment for up to five years for any reason, as long as no payment is made to a holder of a junior security. If the firm first eliminates the common and equity preferred dividend, then it would have the right to defer the trust preferred dividend which will accumulate, frequently with interest, and would remain a legal obligation short of bankruptcy.
But, my point is that any institution which is so desperate to eliminate both common and preferred dividends, and to postpone junior debt payments, is already skating on very thin ice, and the market will smash the price of such junior debt issues. This will not be due just to a fear of deferral, which would be bad enough, but out of a legitimate concern that the security itself will become worthless. So, as a result, I generally prefer buying senior debt and my exposure to junior debt issues is minimal. For Trust Preferred issues, I will delve more deeply into the non-bank issues and have been a selective and opportunistic buyer of bank Trust Preferred issues, which have shown extreme levels of volatility over the past 9 months, due to the concerns expressed above. That volatility presents the investor with a profile of enhance risk and opportunity, which needs to be managed even for those willing to venture into this area.
But, my point is that any institution which is so desperate to eliminate both common and preferred dividends, and to postpone junior debt payments, is already skating on very thin ice, and the market will smash the price of such junior debt issues. This will not be due just to a fear of deferral, which would be bad enough, but out of a legitimate concern that the security itself will become worthless. So, as a result, I generally prefer buying senior debt and my exposure to junior debt issues is minimal. For Trust Preferred issues, I will delve more deeply into the non-bank issues and have been a selective and opportunistic buyer of bank Trust Preferred issues, which have shown extreme levels of volatility over the past 9 months, due to the concerns expressed above. That volatility presents the investor with a profile of enhance risk and opportunity, which needs to be managed even for those willing to venture into this area.
This comment has been added to the top of the old post where many visitors are coming to this blog. It is important to emphasize the many favorable characteristics of the senior issue compared to the junior bond. Many, though not all, Trust Certificates contain senior bonds which is important to me. The TCs that do contain Trust Preferred issues originate from banks and utility companies, the main sources of that type of security, from AON-an insurance and a few retailers such as the Dillard's issue DDT.
5. Bank of America: BAC's floated 1.25 billion shares of common stock to raise 13 billion after the close of trading today. WSJ.com I view that event as positive for preferred stock holders. I would consequently expect both the equity and trust preferred issues to rally tomorrow. It is positive also in my opinion that this much money was able to be raised. The initial reaction was to sell BAC stock in the after hours, and then investors reconsidered at least for now that this was not a negative. Sure, it dilutes existing BAC shareholders, though selling more stock at $10 is a lot better than having to do it a $5. I have no intention of doing anything this year with my BAC common or the the TC MJH or equity preferred BACPRE.
DISCLAIMER
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing readers of these posts with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments NOT A RESEARCH SERVICE/Add of PWE Last Week These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. Anyone interested in a topic may want to review all discussions contained in the blog about it by using a relevant search term in the box at the top. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.
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