Tuesday, April 13, 2010

Bought 60 EXAR at $7.15/ Sold All NYX Shares at 32.17/Bought 100 MBC at 9.84/NYB

1. Bought 60 EXAR at $7.15 (2010 Speculative Strategy)(See Disclaimer): Ever since LB had the good sense to sell RB's Yahoo position, it has had to listen to a constant whining by the RB. Admittedly, Yahoo has not cooperated by going down after the LB sold one of the RB's favorite stocks, the shares have risen about a buck in price after being sold by the ever sensible LB. The nicest characterization of the LB made by the RB thereafter can not be repeated for public dissemination, calling the LB a "girlie man" would be a compliment compared to the other descriptions used in the RB's latest harangue.

So, to buy some peace and quiet for a few hours, LB has consented to allow the RB to make a purchase yesterday, provided no more than $500 was spent.

EXAR was RB's purchase for the day, LB had nothing to do with it. EXAR was initially bought as a Lottery Ticket by the RB, so only 40 shares could be bought at $7.15. As a result of yesterday's generous dispensation by the LB, EXAR could no longer be classified as a Lottery Ticket, given that the invested amount now exceeds $300. There is no category for this stock other than the 2010 Speculative Strategy, which is where it has now been placed.
When I last discussed EXAR, I noted that Soros fund management had acquired 2,465,754 shares of this small company. I checked over the weekend to see whether there were any filings that would bring that information up to date. There was a 13-G filing dated 2/16/2010 that shows the position had been increased to 3,426,406 as of that date. This may not reflect the current position however. The Soros position would represent a 7.81% in EXAR. www.sec.gov While visiting the SEC site I also noted some other large positions in EXAR by other funds. Artis Capital Management filed a 13-G in February disclosing a 5.4% stake: exar13ga.htm Another hedge fund, Renaissance Technologies, also filed a 13-G in February disclosing a 6.22% stake in EXAR. Lastly, Dimensional Fund Advisors filed a 13-G, also last February, claiming to own a 8.25% stake. If I add all of that up, those four funds now control 27.68% of the voting stock.

I did not mention yet the last quarterly report for its fiscal 3rd quarter ending 12/27/2009 of its 2010 fiscal year. Form 10-Q EXAR reported a 9 cent GAAP loss, better than the $1.49 loss per share reported in the prior year's 3rd fiscal quarter. The firm had 218.3 million in cash and marketable securities as of 12/27/2009. Press Release The current market cap at a $7.15 price is about 309 million. Net sales did increase during the 3rd F/Q quarter of 2010 to 33.9 from 31.6 in the prior quarter. On a non-GAAP basis the firm reported close to breakeven results.

This is the link to the Reuters summary description page and to its key developments page.

Two analysts have estimates, and their consensus estimate is for a 15 cent profit in F/Y 2011 ending in March 2011 on a 150 million in revenues: EXAR

The LB, being a 16 year old Stock Stud with lots of wavy hair, does not see the attraction of this one. It does have a lot of cash per share and possibly some turnaround potential during an economic recovery. And, maybe those hedge funds are just a bunch of lemmings.

When the order was placed, the bid was 7.13 and the ask was 7.15, so a limit order was entered for 60 shares at 7.15 which was filled promptly by FDLM at the limit price.

2. CONOCO (Owned): COP was a recent acquisition. As part of its recently announced divestiture plan, COP agreed to sell its 9.03% interest in Syncrude to the Chinese company Sinopec for 4.65 billion. Added 50 COP at $51.22 Bought 50 COP at 51.35

3. Bill Gross Dumping U.S. Treasuries: The NYT published an article recently that highlighted that Bill Gross had reduced the percentage of treasuries in his fund from 50% 9 months ago to 30% now, the lowest level in the history of Pimco's Total Return fund.

4. Kenneth Posner-Author of Staking the Black Swan: Posner, a former Wall Street wizard, believes that government can never prevent a financial crisis. Tech Ticker Suppose there was a regulation issued by the federal government five years ago that required the following minimum conditions: at least a 5% down payment, all mortgage payments must include interest and a pay down of some of the principal balance, and no loan could be granted that would require a mortgage payment greater than 32% of the borrower's disposable income.

Wall Street wizards call the funky mortgage products that were in vogue in the 2002-2007 period as financial "innovations" that should not be regulated in the public interest, meaning that a government restraint would interfere with their ability to make millions for themselves. If the foregoing minimum conditions had been in place, would there have been a financial crisis and a meltdown in home prices nationwide? The answer is clearly no, because there would have never been a parabolic rise in home prices lasting several years fueled by the reckless extension of credit using funky mortgage products.

The generation that came of age during the Great Depression learned a great deal about how to prevent another one, lessons that have been forever lost on virtually all Republicans and many Democrats including the likes of Robert Rubin and Larry Summers. The removal of those regulations, advocated by the GOP and the Clinton Democrats, provided the fuel of the meltdown to come, the most notable change being the SEC Rule change in 2004 which allowed investment banks to greatly expand their leverage. The increased leverage was immediately funneled by them into funding the expansion of subprime mortgages.

5. State Rights and the GOP: States Rights is a cover phrase for those who have never been comfortable with basic civil rights for minorities. Many southern Democrats started to gravitate to the GOP with the Supreme Court's Brown v. Board of Education decision in 1954 and that natural affinity gained momentum after the passage of the Civil Rights Act of 1964 and the Voting Rights Act of 1965. By the late 1960s, the GOP had crafted a Southern strategy to bring- in the words of Kevin Phillips- the "negrophobe whites" into the Republican party, aptly named the Southern strategy.

I am bringing up these facts simply to highlight that this is not ancient history. It is living history. Over the past few days, I have noted the following news stories.

The Texas school board, now controlled by True Believers, is in the process of rewriting history for school children. The role of Thomas Jefferson as a Founding Father is downplayed and diminished, even altered, because Jefferson coined the phrase "separation of church and state". Why is Texas Afraid of Thomas Jefferson? And, who is more important than Jefferson? Some would say Glen Beck. The answer according to the TBs in Texas is Jefferson Davis, the President of the Confederate States of America, and an advocate of States Rights, which meant during the Civil War the freedom to have slaves without interference from the federal government. This elevation of the States' Rights ideology by the Texas School Board is the subject of an editorial in yesterday's USATODAY.com.

In another recent news story, the Republican governor of Virginia, Robert McDonnell, proclaimed April as Confederate History Month in Virginia, deliberately leaving out any reference in the proclamation to slavery made by the prior republican governor James Gilmore. The proclamation by McDonnell went over well with the Sons of Confederate Veterans, who lobbied the governor for it, and who have a long history of supporting segregation and white supremacy according to the Southern Poverty Law Center. If you want to understand these individuals better, the following blog contains excerpts from some articles written in their publication about Obama. It may be for the best to just ignore them altogether. {I am by the way a direct lineal descendant of confederate soldiers who fortunately survived the war. One example would be my mother's great-grandfather who had the misfortune of being in General Hood's army at the Battle of Franklin (1864), just a few miles from HQ. And I am a southerner whose ancestors arrived in Virginia in 1634, with every subsequent generation living in the south}

It is not surprising that the republican governor of Mississippi, Haley Barbour, defended the Virginia Governor's Confederate decree. The general justification advanced by these republican governors for ignoring any reference to slavery was that the Civil War was about more than slavery according to them, yes it was also about States Rights, the freedom to impose slavery without interference from the government.

6. SOLD NYSE EURONEXT at 32.17 Yesterday (NYX) (See Disclaimer): STIFEL NICOLAUS started NYSE at a buy with a $36 price target yesterday. This apparently was the cause of the NYX shares to spike over 5% in trading yesterday on above average volume. I bought shares at $14.6 on 3/6/2009: Buys of JWF KSA DIS and NYX Given my gain in those shares, I thought that I could risk another thousand in a Citigroup Funding principal protected note.

7. Bought 100 MBC at 9.84 (See Disclaimer): I entered a limit order to buy 100 at $9.84 when the bid was $9.8 and 1000 shares were for sale at $9.84. The order was promptly filled by FDLM at $9.84. My 100 shares were the first shares traded for this security.

MBC is another Citigroup Funding unsecured senior note that matures on 6/9/2014. This security has a similar structure to the others which I have recently purchased and discussed in this blog.

Par value is $10 which will be paid upon maturity provided the issuer is still solvent. I view the issuer's credit risk to be the main risk of this security.

Citigroup will pay annually a 3% guaranteed interest rate calculated on that $10 par value or $30 per year for 100 shares. As with the other Citigroup principal protected notes previously discussed, it is possible for the investor to receive more than that 3% guarantee. This particular note will pay up to 30% based on the increase in the Russell 2000 index from the starting value for each annual coupon period, with the usual proviso. I call this proviso the reversion clause. If there is one day when the Russell 2000 index closes above that 30% maximum amount, there is a reversion to the 3% guarantee and the closing value of the index is no longer relevant for that coupon period. The index could end up 28% for that period but the investor would still receive that 3% due to a maximum level violation.

For MBC, a reversion has already occurred in the first coupon period which ends on May 21, 2010 (see page PS-2 Final Pricing Supplement which sets out the annual closing dates). Thus, notwithstanding the Russell 2000 indexes climb from the starting value of 481.22 on 5/29/2009, the owner of MBC will receive an interest payment based on the 3% guarantee, since the Russell 2000 had a close during that period above 130% of the starting value. While only one day is sufficient to cause this reversion back to 3%, the Russell 2000 has had multiple violations of the 625.586 maximum level in that index (1.3 x. starting value of 481.22=625.586). So when payment is made for the first annual period, I already know that I will receive the 3% guarantee.

Since MBC has a different schedule than the other Citigroup Funding note recently purchased, MOU, also tied to the Russell 2000 index, I thought that I would pair the two. Both experienced reversions in the first annual period, but MOU has already begun its second annual coupon period whereas MBC has more than another month to go in the first period. Bought 100 MOU at $10.12

Yesterday's purchase violated my limit for Citigroup Funding notes. At some point, I will sell one to reduce my exposure. I just do not have an idea yet which one will be sold. I currently own 200 MKZ, 100 MKN, 100 MOU, 100 MYP, 100 MHC, and 100 MBC (slightly over 7 grand in exposure to Citigroup).

If I had to choose MOU or MBC, I would go with MOU since it has a larger allowable percentage gain.

8. New York Community Bank (NYB)(Owned): NYB was the first bank in the Regional Bank Stocks' strategy where I took the position to the maximum limit for this basket of stocks. At the time I made those four 50 share purchases, the stock was yielding close to 9% and Cramer was saying don't buy it. Added 50 NYB at $10.57 50 NYB at 10.9 Bought 50 NYB at $11.3 50 NYB at $11 NYB closed yesterday at $17.66.

I placed 100 shares in a taxable account and the other 100 in a regular IRA. Over the weekend, I tried to assess whether or not to continue holding the shares in the retirement account, given the conservative management strategy utilized in those accounts and giving due consideration to the yield at my cost. For now, I decided to hang onto those shares for two reasons.

First, I view the yield of over 9% at my cost to be more secure than any bond that I could buy now with the same yield. To reach a similar yield in a bond now, I would have to buy a long term junk rated bond. Second, and probably more important, I like the fact that NYB is expanding the geographic scope of its business with FDIC assisted acquisitions of failed banks. The largest such acquisition was AmSouth bank, based in Ohio, with around 11 billion in assets. New York Community Bancorp, Inc. The most recent FDIC assisted acquisition was the Desert Hills Bank in Arizona with 496.552 million in assets. www.snl.com .PDF NYB is coming out of the Near Depression a much larger banking institution with a much greater geographic service area. NYB has now 42.2 billion in assets and is the 22nd largest bank holding company in the U.S.

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