Since starting this blog back in October 2008, I have repeatedly discussed floating rate securities and trust certificates. I started to buy those securities with some gusto in September 2008 because I viewed them to offer good buying opportunities for the individual investor. Before September 2008, I had bought and sold a couple of them such as XFL. Those buying opportunities lasted to varying degrees for about six more month after I started to discuss them. Although I have added some floaters and TCs after April 2009, those additions were mostly a response to the two year Jihad undertaken by the U.S. Federal Reserve against responsible Americans who had saved their money, spent prudently, and took on reasonable amounts of debt given their disposable income.
When I started to invest in TCs in 2008, I barely knew anything about them. I knew that they existed, and I had about five of them on a monitor list at that time, more now of course. I also took the time to understand their basic legal structure which anyone can comprehend once a decision is made to take the time to read a prospectus, which many investors unfortunately do not want to do. I mention this history in passing today to highlight a point. If you do not know about a type of security, such as equity floating rate preferred stocks or Trust Certificates, you will never be in a position to know whether or not a buying opportunity is being presented to you at a particular point in time. That is sort of an obvious point but an important one nonetheless. So, even if an investor decides to pass on the floaters due to their tremendous rise in prices since October 2008, it is nonetheless important to understand these securities in order to make an intelligent decision as to when they present a buying opportunity in the future.
The same can be said for other types of income securities, such as exchange traded baby bonds, trust preferred securities and European hybrids.
1. ST. JOE (JOE)(owned): My position in JOE was bought in March 2009 at $15.69. I am not going to make a decision about what to do with those shares until after the currently unrealized gain turns into a long term capital gain. This company is primarily an asset play. Back in March 2009, I roughly calculated the value of its Florida land at $50 to $55 per share, using the valuations discussed in that post. The company then owned 420,000 acres of land within fifteen miles of the coast, and about 75,000 of those acres are located around Panama City. The company has been hurt by the downturn in the real estate market, and that is reflected in the poor results announced for the 4th quarter of 2009. The St. Joe Company reported revenues for the 4th quarter of just 37.1 million and a net loss of 65 cents per share. As of 12/31/2009 St. Joe owns 577,000 acres and 405,000 of those acres are within 15 miles of the Gulf of Mexico coast.
2. Medtronic (MDT)(owned): Medtronic reported that net income increased by 19% in its fiscal 3rd quarter and its E.P.S. rose 21% to 75 cents per share (77 cents excluding items), up from 62 cents in the year ago quarter. Revenues rose 10% to 3.85 billion, slightly below the consensus forecast of 3.87. Adjusted for the impact on revenues relating to foreign currency exchange rates, revenues rose 6%. The E.P.S. number was 1 cent better than the forecast using the non-GAAP number of 77 cents. MDT raised the low end of its fiscal 2010 forecast and now expects earnings of $3.2 to $3.22. The fiscal year ends in April 2010. For F/Y 2011, the current estimate is for an E.P.S. of $3.52. At a $44 price, this would translate into a forward P/E for F/Y 2011 of 12.5. At a $42 price, the P/E would be 11.93.
3. Retail Earnings: I do not own common stock in any retailer, and currently own a Macy's senior bond in TC form as my sole security in this sector. I am however interested in how the retailers are doing since that data is a relevant input to my overall macro economic view which is a critical component of how I manage my money.
The retail earnings released today were good:
Sears Holdings (SHLD) beat by 15 cents earning $3.69 per share in the 4th quarter.
Target beat the estimates by 8 cents earning $1.24 per share in its 4th quarter.
Macy's beat the consensus by 8 cents with earnings of $1.10 per share.
The Home Depot beat by 7 cents and raised its dividend 5%.
4. Case Shiller Index: This index of home prices in 20 large metropolitan cities rose .3% from November to December, but is still down 30% from its peak in May 2006. On the bright side, the index has risen 3% from its bottom in May 2009. standardandpoors
5. Sold Some Lottery Tickets : RMIX, Timberwest, New York Times, Ciber (See Disclaimer): I am a tad lazy today. I am not going to go into any detail on these sales, except to note the following. RMIX and CBR were sold at a small loss, and I netted those out with gains on NYT and Timberwest. I was disappointed with CIBER's earnings report this morning. U.S. Concrete (RMIX) looks like its financial problems have taken a turn for the worse. It looks to me like RMIX is headed toward one of the highly dilutive exchange offers with bondholders. (See Posts on Buys: Buys 50 TMWEF at $3.24/ Buy of 25 NYT at $7.08, / Bought 100 RMIX AT $1.57: Speculative Lottery Ticket/ Buy of 50 Cyber at $4.5/)
6. HRPT Properties (own common HRP and senior Bond HRPN): HRPT Properties reported FFO for the 4th quarter of 27 cents, one cent better than the consensus. Revenues fell only 2.3% to 213.3 million, better than the 207.6 million consensus.
7. Consumer Confidence: The report from the Conference Board on consumer confidence placed downside pressure on the market today. In a healthy economy, the number would be in the mid 90s. Economist were expected a reading of 55.5. The number plunged to 46, its lowest reading since April 2009. The present situation component fell to its lowest reading in 27 years.
8. Disparity Between Top 1% of Americans and the Bottom 90% Grows: This article and chart from the Center on Budget and Policy Priorities illustrates in graphic form the gains made by the top 1% of Americans, and how the bottom 90% continue to participate less. The top 1% reaped 2/3rds of income gains from the last economic expansion, and their share of the nation's income growth increased to Great Depression levels.
9. Sold 50 of the 350 AEB at $19.7 (See Disclaimer): The unrealized profit on this security has just become too large to ignore entirely. So, to feel better in the case it turns south, I sold 50 of my 350 shares. See, generally Aegon Hybrids: Gateway Post for discussions of AEB and other Aegon hybrids currently owned by me. AEB has turned into a very successful investment with buys in the $4 to $8 range. The shares sold yesterday were the highest cost shares bought in September 2008, and the gain was a long term capital gain.
10. Continued Long/Short Strategy: I am not going to mention the specific double short ETFs on some of the sectors and countries that I have started to buy. I did mention recent buys of TWM and SDS, but do not plan to mention the more narrow names. I bought today one sector specific and another country specific double short ETFs that have just been mauled since March 2009. These Proshares products are notorious for losing index tracking after one day, and the sector and country specific double short ETFs appear to be worse than the ones that track major indexes. I will be using some of the sector and country double shorts to hedge a possible, though unlikely, major downdraft. If one of the double short ETFs deviates too much from tracking the index, which I will monitor daily, then that would be a reason for selling it. I understand the risks of these products, and their limitations. I am not set up to short indexes or to buy options, which leaves me with these products. ProShares ETFs: Products I am already in a position to take some short term losses since I have realized gains this year so far of close to 10 grand so I can net out some losses on these products. It is therefore no big deal to lose a thousand or two on this type of insurance. Possibly, I need to establish a margin account with the ability to trade options. But, I have been a cash only investor my entire life and I may be too old to learn a new trick.
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