1. Retail Same Store Sales-Generally Positive for February: Dillard's reported a 2% increase in same store sales for the period ending 2/27/2010. Analysts were expecting a 5% decline. I believe that was the first positive number for DDS since July 2008. I only own a TP issue from Dillard's Capital, DDT. Macy's same store sales number for February increased 3.7%, higher than the 1.4% decline expected by the consensus estimate. I own only a senior bond in TC form, DKQ. Limited's same store sales increased 10%. BusinessWeek reported that Retail Metrics estimated that same store retail sales increased by 3% in February, which was the 6th consecutive month of increases. Wal Mart also raised its dividend yesterday by 11%. WMT has increased its dividend every year since declaring its first dividend in 1974.
2. Bought 50 of the TC GJD at $17.49 (see Disclaimer): I mentioned in an earlier post that I would limit my exposure to Sprint bonds to less than $2000. I could not buy 100 of DHM, which would cost more than $2000, so I bought 50 of DHM last Monday and and 50 of GJD today. The LB can be a stickler for details and rules.
I have previously compared these two TCs containing the same junk rated Sprint Capital bond maturing in 2028. Current Yield and Yield to Maturity: Comparison of Sprint TCs Bought 50 of the TC DHM at 21.35While DHM provides me with more current income, GJD gives me more capital gains potential and has a slightly higher yield to maturity. I had an odd limit order at $17.5 which was filled at $17.49, another first for my broker. I did enter the order before the market opened today.
This is a link to the prospectus for GJD: www.sec.gov/
3. Pending Home Sales: The National Association of Realtors reported that pending home sales declined 7.6% in January from December. Pending The January 2010 level is still up 12.3% from January 2009. Pending home sales is based on contracts signed each month. The market did decline in response to this release. Most of the data relating to home sales has been disconcerting for a couple of weeks now.
4. American Software (AMSWA)(owned-Lottery Ticket Category-Bought 50 AMSWA at 6.02-LT): I periodically will go to the SEC website to check out recent filings for my holdings. I noticed a Schedule 13 G filing by a Dr. James Simmons & Renaissance Technologies disclosing the ownership of a large stake in AMSWA. www.sec.gov (See: Renaissance Technologies - Wikipedia)
AMSWA also reported this week its results for its 3rd F/Q ending 1/31/2010. Press Release Filed with SEC This small software firm reported GAAP earnings of 7 cents on 19.8 million in revenues. AMSWA ended the quarter with no debt and 53.8 million in cash. This company does pay a good dividend, slightly over 6% at the current price of around $5.9. American Software Inc, AMSWA
5. UBS Upgrades Coca Cola (owned): The UBS upgrade was to buy from neutral, apparently arguing that the market overreacted to the downside after KO announced its acquisition of Coca Cola Enterprises: WSJ
6. SCEDN (OWNED): SCEDN is a fixed to floating rate equity preferred security from Southern California Edison, now part of Edison International (EIX). The fix rate coupon is 5.349% and its lasts until April 30, 2010. The last dividend payable at that rate was declared a few days ago at $1.3373 per share with an ex date of March 31, payable on 4/30/2010. This is a $100 par value security, which is non-cumulative, that I bought at $84 last October. I had been watching it for a few weeks, but there was no trading volume. Suddenly, one day in October, a few shares were offered and I bought some. Today, the trading volume skyroketed for this security with 327,000 shares traded on the pink sheet exchange. Quote Southern California Edison Co.
The fixed coupon is the applicable rate provision until 4/30/2010 after which this security will be a floater. The float is 1.45% over the greater of the 30 year treasury CMT, the 10 year treasury CMT, or the 3 month Libor rate. Prospectus Supplement Even though I have a good percentage gain with the security trading near par value, I plan to keep it because I like that float provision, though I have no interest in it at the current price.
7. Sold Lottery Ticket OIIM at $6.5 (See Disclaimer): My aged brain can not keep track of all of my LT purchases, so I am slimming down some. I purchased shares at 5.12 last January. Bought 50 OIIM at 5.12-Lottery Ticket. And I do not really understand the firm's products. I believe that I had over 40 LTs at one point earlier in the year. LOTTERY TICKET PURCHASES: LINKS IN ONE POST I do not have a reason for selling OIIM other than my brain is starting to short circuit trying to keep up with all of these small holdings.
8. Bought 50 of STDPRB in the Roth at 18.6 (see Disclaimer): I discussed buying STDPRB in a post from last September when I purchased 100 shares in the main taxable account at $15.3. This security is a non-cumulative floating rate equity preferred stock that pays the greater of 4% or .52% over the 3 month Libor rate. It is an issue from Santander Finance, guaranteed by the large foreign bank Santander (STD).
This is a link to the prospectus: www.sec.gov Par value is $25 and payments are made quarterly. Since the Libor rate is so low now, the applicable rate is the guarantee.
I like buying floaters with guarantees in the retirement accounts since they provide some inflation and deflation protection in the same security. This allows me to focus more on credit risk . For a fixed rate coupon bond, I have to be attuned to interest rate risk and credit risk, so there are two major issues that I need to get right. Unfortunately, all of the floaters have gone up a lot in value since I started to buy them in October 2008 making them less attractive now.
The LIBOR float provision is not a perfect inflation hedge. For example, the 3 month Libor rate is hugging .25% and yet inflation in the U.S. is running at around 2.5%. The low Libor rate is due to the abnormally low benchmark rates of central banks, particularly the Federal Reserve. When the Fed starts to tighten again, raising its federal funds rate, I would expect the Libor rates to follow. For STDPRD, the 3 month Libor rate would have to rise above 3.48% during the applicable computation period for the float to provide a greater rate than the guarantee. Historically, there are lengthy periods of time when the 3 month Libor rates exceeds 3.48%. LIBOR Rates History (Historical) These floating rate equity preferred securities have several disadvantages to them which I discuss in another post: Advantages and Disadvantages of Equity Preferred Floating Rate Securities
At the guarantee and a total cost of $18.6, the yield of STDPRD would be 5.376%. A rise in the Libor to 6% during the relevant period would increase the yield at that $18.6 cost to 8.81% and to 11.45% at 8% 3 month Libor.
I also thought some about relational pricing before adding to STDPRD today. When I discuss relational pricing, I am not making a point that any of the similar securities are priced favorably for the investor, but that one or more of them are priced favorably compared to the others. For example, STDPRD is very similar to several other equity floating rate preferred stocks that I own issued by banks.
I also own STIPRA, a floating rate equity preferred stock from SunTrust Bank, that has an identical guarantee of 4% and a 3 month Libor float provision of .53% compared to Santander's .52%, a meaningless difference. I bought STIPRA at $17.2 and it closed today two dollars higher than the Santander floater at $20.61. I also own an equity preferred floater with a guarantee from U.S. Bank, USB-PH, that also closed almost 2 bucks higher than the Santander floater. I bought that floater at $17.47 and it only has a 3.5% guarantee and a slightly better .6% float above the 3 month Libor which is not relevant now. Lastly, I bought a floater originally issued by Merrill Lynch, BMLPRH, that pays the greater of 3% or .65% above 3 month Libor at $13.25 and at $13.83, and that equity preferred floater closed today at $17.22. All of these floaters are non-cumulative equity preferred stocks from banks. While this kind of relational pricing analysis does not mean that any of those prices are good ones, it does suggest that the Santander floater is out of kilter with the rest of them. All of those floaters can be found at the QuantumOnline.com, with links to the prospectuses, under the heading "preferred eligible for the 15% tax rate" The quantum site shows the Santander credit ratings on page 5 which also has the Suntrust preferred rating. One is investment grade and the other is rated junk according to this site. Preferreds
I did not confirm the Santander rating as investment grade.
9. Professor Robert Shiller: Based on the shadow inventory of foreclosed homes, people becoming less resistant to defaulting on their mortgages, and the level of government involvement in the housing market, Professor Shiller is concerned about a nascent recovery in the U.S. housing market. He referred to it as being "in a precarious state" in an interview at YF Tech Ticker. He refers to the housing bubble in the U.S as the biggest ever and the first one on a national basis. I am concerned too that it will be "very hard to get out of this mess". The tax credits are about to expire this Spring, and the Fed is going to stop buying mortgage securities at the end of this month. The government is involved in about 90% of the mortgages now, and Shiller is concerned about that level of involvement.
10. Sold 300 of the 550 shares of the TC XKK at $ 9.72 (see Disclaimer): This TC containing a Goodyear Tire senior bond maturing in 2028 has a good run since I started to discuss it at less than $6.5 and lower Buy of XKK Goodyear Tire TC XKK /Goodyear Tire TC xkk The par value is $10, and I felt that the $9.72 price was too close to par value to continue holding my entire position. So I trimmed it today down to 250 shares. XKK will go ex interest on its semi-annual interest payment on 3/10/2010. The underlying Goodyear Tire bond in XKK is a junk bond rated at BB- by S & P and B2 by Moody's according to FINRA.
I try to think about bonds in a relational manner. Functional equivalence is a major topic in my posts. Functional Equivalence in Bond Trading There are long term investment grade bonds available in TC form that have yields at their current prices close to XKK at $9.72. An example would be DKK, which I own, with a yield of slightly over 8%, similar to XKK at $9.72, and matures in 2027: Saturns Apm Cap Tr 8% 2027, DKK This TC has a junior bond in TP form from AON in it which according to Finra has an investment grade rating from all three agencies: FINRA
So, I will just make a note that I will need to redeploy the proceeds from XKK into a higher rated bond that yields more. I do not have very many junk rated bonds. Prior to today, XKK was one of my larger junk bond positions. I have also pared the Liberty Media bonds, and I recently sold out of my Hertz bond TC, DKR.
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