The RB was so dumbfounded by the Headknocker's decision to promote it to Head Trader that it had no idea what to do. Making plans ahead of time is not exactly the forte of the RB. Well, finally, late in the day, it decided to sell that stinking stock hedge that the Old Geezer just bought, for less than a $100 loss, for the RB has no need for hedges or anything else that hints or even smells of caution. The RB asked the LB about its plans, since RB had none, and the LB replied: " just continue with the regional bank purchases that LB was doing last Thursday before it was so rudely interrupted by that Old Goat having one of his anxiety attacks.
Well, the RB finally found the right gear and quickly entered the following six trades on Friday, and then decided it was time to take a holiday after working for about seven minutes, give or take five minutes, more like two minutes actually, saying that it was being overworked, almost cruel and unusual punishment for the RB, and needed some more R & R. LB can take over explaining the purchases since RB can not be bothered with explaining or justifying anything anyhow, and don't sweat the details is after all its motto. Before leaving though, the RB would like to thank Headknocker for showing confidence in it, and finally recognizing the true star of the operation here at HQ with RB's appointment as Head Trader and the demotion of that boring nerd LB. But it would be much better if HK would free the RB completely from that ball and chain LB so it can do its thing! It is only the LB after all who has kept the HK from having enough funds to make a tender offer for Canada. RB really like Canada, would like to own all of it.
1. Added to CEF Swiss Helvetia Fund (SWZ) at $12.15 (see Disclaimer): This CEF was selling at about a 16% or so discount to net asset value based on the data at the SWZ web site on Friday: SWZ.com - Swiss Helvetia Fund The fund invests primarily in companies based in Switzerland. The largest holdings include Nestle, Novartis and Roche. The fund will soon pay a small distribution of $.2111 which goes ex on the 12/09: SWZ.com Normally I would wait to add until after the year end distributions but this one is small enough that it does not make any difference from a tax point of view. Besides, I already own shares bought all over the price spectrum.
This is a link to the last quarterly report for the Q/E 9/30/09: http://www.swz.com/pdfs/swsep09.pdf
2. Added to CEF ING Global Real Estate (IGR) at $6.05 (see Disclaimer): This is a link to the web site for this closed end fund: ING Clarion Global Real Estate Income Fund - ING Clarion Real Estate Securities The last report can be assessed from that site or at the SEC: The current expense ratio is 1.28% which is okay for this type of fund that includes foreign companies. This fund uses leverage which worked against it in a major way during the bear market. Several closed end funds that used leverage to invest in REITs, both common and preferred shares, fell to close to a buck or even below during the meltdown. The leverage just added to their woes, as many had to unload shares near the bottom to reduce leverage, an event that I previously discussed and attempted to use to my benefit by buying some REIT preferred shares that were heavily owned by them during the meltdown phase. Based on Thursday's closing price, which is all the information I had when making the purchase on Friday, IGR was selling at about at 16% discount to net asset value with a distribution yield at the price of $6.06 at 8.9% paid monthly : Fund Price and Dividend Yield Information - ING Clarion Real Estate Securities I have been reinvesting the dividends, and I am under water on this investment.
This kind of specialized CEF can be checked daily at the WSJ Market Data page for NAV: Closed-End Funds by Category - Markets Data Center - WSJ.com
3. Bought 50 Forest City Enterprises exchange traded senior bond (FCY) at $18.75 in retirement account for income generation (see Disclaimer): FCY is what I call an exchange traded baby bond. It is rated junk. Par value is $25 and the coupon is 7.375%. At a total cost of $18.75, the yield is about 9.7%.
This is a link to the prospectus: www.sec.gov
If this one sounds familiar, it was bought and sold at much lower levels. This is the prior history of minor trades involving this heavily indebted real estate firm which is not organized as a REIT. First, I bought 50 shares of FCY at a tad under $10 (much better than a tad under $19), collected one or two interest payments and sold those shares for $14.6. LOTTERY TICKET PURCHASE: 50 SHARES OF FCEA-FOREST CITY COMMON/ADDED: SOLD FCY I then turned around and bought 50 shares of the common shares FCE/A at $6.3 with the profits on the bond transaction and then sold those shares on a pop to $13.23: Bought 100 STDPRB at $15.3/Sold FCE/A LT at $13.23/
I have been critical of the management, primarily for failing to take proactive measures prior to the onset of the recession or during its first year, waiting until it had to sell shares in a public offering at $6.6 to raise funds. (item # 4: Forest City) I am slightly more confident now that the firm will survive the downturn in commercial real estate, but I am not exactly brimming with confidence as reflected in a mere 50 share purchase of this senior bond. Forest has a boatload of secured debt and the senior bondholders come after the secured debt. I discussed in prior posts, written almost a year ago, the problem of trying to ascertain the value of Forest's real estate over and above the amounts of the secured loans, which is the relevant inquiry for an owner of senior debt when most of the outstanding debt is secured by the assets. FCY: Forest City Enterprises Senior Bond (FCY)/FCZ This post was written in April of this year: Forbes Article on Land Rich Companies:FCE/A JOE and TRC I still can not answer that question with any clarity.
Debt and maturity information can be found in the SEC filings: (see pages 18-19 e10vq)
Since my last transaction, there has been some positive news. One open issue a few months ago was the extension of Forest's credit line. Forest City announced in November that it had reached an agreement on a two year extension of a 500 million dollar line of credit. The company also received a positive legal ruling from the highest court in New York about its Atlantic Yards project in Brooklyn: Forest City
I periodically discuss Forest and here is a link to a few of the discussions:
4. Bought 70 shares of Wilmington Trust (WL) at $12.36 rounding lot to 100 shares (see Disclaimer): This regional bank based in Delaware was originally a lottery ticket purchase which means that my investment was limited originally to less than $300: LOTTERY TICKET PURCHASES: LINKS IN ONE POST So, I only bought 30 shares at $9.98 in March. BOUGHT 30 WL=Lottery Ticket After reviewing the last earnings report, I took Wilmington out of the LT category and placed it in Category 2 for regional bank stocks, which meant my exposure could increase to $2000. Regional Bank Stocks On Friday, I rounded the odd lot up to a 100 share round lot by buying 70 shares at $12.36. The only other bank stock purchase taken out of category 1 and placed in category 2 to date was East West (EWBC) which has just about tripled in price since my purchase as an LT. Buy of 50 EWBC as Lottery Ticket (see Item # 2: Bought 50 of UBSI on taking EWBC out of Category 1)
5. Bought 50 shares of New Alliance Bancshares at $11.76 (NAL) (see Disclaimer): NAL is being placed in Category 2 of the Regional Bank Stocks. This is one of Cramer's five regional stocks touted in his new book, at page 156 to 158. This bank did not accept TARP funds, a major plus from my point of view. It operates primarily in Connecticut. The dividend yield at my cost is around 2.5%. It is also one of the bank's mention in this article from TheStreet.com.
6. Bought 100 of the ETF FVL at $9.96 in Roth IRA- a short term momentum play (see Disclaimer): This ETF is too high cost for me to hold long term. The current expense ratio is capped at .7% but may rise after May 15, 2010. First Trust This ETF owns the 100 stocks rated 1 for timeliness by the Value Line rating system. I have viewed that system to be primarily a momentum based stock selection process, and not a growth at a reasonable price which is a more comfortable way for me to pick stocks. This ETF is rebalanced on or about the last Thursday of each quarter, which means that some of the stocks currently in the portfolio are not rated 1 now by VL. The current holdings are listed at the web site: First Trust I did not see a single stock in that list that I currently own which is fine. VL does things a lot differently than I do as a rule. The purchase of this kind of security gives me in one purchase exposure to stocks which hopefully will display some upside momentum in the event stocks rally into year end. If I can make a hundred bucks on this 100 share purchase, then I will be content to harvest that profit.
7. Richard Lehman's article in Forbes: I am frequently critical of Richard Lehmann's recommendations contained in his column about income investments for Forbes. I was critical of his recommendations of several Trust Certificates in a prior article.Article in this Week's Forbes on Trust Certificates/ & CREDIT SUISSE BOND: TCs DKY & PYE/FINRA I am now going to raise a few issues with his most recent column in Forbes. He recommends for example a floating rate equity preferred issue from Goldman Sach, GSPRA, that I recently sold. A rigorous analysis would compare that floater with other equity floaters issued by Goldman as well as the synthetic floaters tied to Goldman bonds, all of which are exchange traded securities with $25 par values. Analysis of Prior Question about Goldman Sach's Floaters There is no substitute for a thorough analysis of the advantage and disadvantage of these securities, and no short cuts for determining which one provides the most bang for the buck at their respective current prices.
For my purpose I will just take two of them now, one is PYT and the other is GSPRA. Assume that I have 5 grand to invest in one or the other which one do I choose.
PYT is linked to a GS trust preferred whose dividends can be deferred but not eliminated. It pays the greater of 3% or .85% above 3 month Libor. The closing price on Friday was $16.20 and the effective yield now is based on the guarantee. PYT has a maturity date. GSPRA is a non-cumulative equity preferred, which pays qualified dividends, and ranks junior in priority to the bond that is the underlying security in PYT. GSPRA is a perpetual security. Its dividend can be eliminated provided no payment is made to the common shareholders. It pays the greater of 3.75% or .75% above 3 month Libor. At first glance, that looks better on the guarantee but is it? The closing price last Friday of GSPRA was $20.55.
So, for $5000 at the closing prices, and without regard to commissions, I could buy about 309 shares of PYT or 243 shares of GSPRA. Which one do I buy? For my purposes, I have funds in the retirement and taxable issue and can take away the tax issue by putting the security in the retirement account.
For one thing, if GS survives to 2/15/2034, I know that I will receive $25 per share for PYT or a profit on the shares of $2,719 or 35% (divide 35% by remaining life of the bond, about 24 years, and you get 1.46% per year). I do not have that guarantee with a perpetual security like GSPRA. And even if GS elected to call GSPRA, I would receive less given the smaller discount to par value. I would not expect it ever to be called unless there was a prolonged period of an inverted yield curve where the 3 month LIBOR had spiked to very high levels and long terms rates were far more subdued. Now, how much income will I receive now based on current conditions?
PYT .03% x $25= $.75 per share per year x 309 shares: $231.75
GSPRA .0375% x $25= $.9375 per share per year x 243 shares= $227
So I give that advantage to PYT by a tad.
But let's assume the 3 month LIBOR rate rises to 3%, a low rate historically speaking, what happen then:
PYT .0385% x $25=$.9625 x. 309= $297
GSPRA has not yet triggered its float and is still at $227
Now, just to see how this works, let's assume Libor has risen enough to trigger both floats, by rising to 6%:
PYT .0685% x. 25=$1.7125 x. 309 shares = $529
GSPRA .0675% x. 25=$1.6875 x. 243 shares=$410
So which one do you choose for a retirement account purchase? If I had only a taxable account, I would give weight to the qualified dividend paid by GSPRA. I sold GSPRA after running this type of analysis and bought more PYT. More on ING/Sold GSPRA at $21.9/Dollar Finds A Bid/ Of the GS floaters, I currently own GYB and PYT. The GYB was bought at around $11: Added another 100 GYB in Regular IRA/ SOLD LQD again/ I averaged up on PYT at $15.75 after selling GSPRA with earlier buys at $11 also and at $13.34 Added 50 of the TC DKK/Bought 70 PYT at $15.75
I also own the other floating rate equity preferred issue mentioned by Lehmann, MSPRA, bought at $12.88 in May, and I considered it questionable at that price: Bought MSPRA RJZ & ADX/ COMMODITIES AS AN ASSET CLASS At its current price, I would not be interested, and I have considered selling my shares though I have held off primarily due to lack of good yielding bond investments after the recent rally. I also think that it is important to be fully cognizant of the disadvantages of these non-cumulative perpetual securities: Advantages and Disadvantages of Equity Preferred Floating Rate Securities
I own several of the Canadian energy trusts which he also recommends. One has to be mindful of the dividend cuts by those companies, as gas prices have plunged, and their greater reliance on gas compared to oil. And, the pending change in 2011 in Canadian tax law will likely cause a further reduction of those dividends, as these trust will have to start paying federal income taxes to Canada then. Canadian Energy Trusts/ MSFT/WL/Bought 100 DFP at $17.1/Added to CEF JDD at $9.45/Sold LT TRAD and Bought 50 NDAQ at $19.98
8. Jump in New York Community Bank (NYB)(owned): NYB is in my Category 2 of the Regional Bank Stocks from the start. My purchases were in beween $10.57 and $11.3. Added 50 NYB at $10.57 50 NYB at $11 50 NYB at 10.9 Bought 50 NYB at $11.3 These were all recent buys and the stock has a generous dividend. It went ex dividend a few days ago. Cramer said "don't buy" at $11. CNBC It closed up 62 cents today at $12.33. After hours, it rose another 5.84% to $13.05. NYB is expanding into Ohio with the FDIC assisted acquisition of the AmTrustBank: New York Community Bancorp, Inc. Acquires the Deposits and Certain Assets of AmTrust Bank
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