Monday, June 21, 2010

Bought ETF DTD at 41.7/Bought WAG at 30.15/Sold 50 MJH at 23.6/Bought 100 ENY

Tony Hayward, BP's CEO, has finally gotten his life back. Hayward watched his yacht race over the weekend. CBS News NYT

Michelle Bachmann (R), Sarah's soul sister, called the 20 billion dollar fund set up by BP to pay for damages caused by it a "redistribution-of-wealth" fund. Minnesota Independent Michelle decided to become a republican after reading Gore Vidal's book "Burr", for reasons that would make sense only to those who have suffered a living form of brain death. Maybe this is an idea for yet another vampire movie or TV series. Among her accomplishments before rising in the ranks of the GOP was a fight to stop the release of the Disney movie "Alladin", viewing the movie as publicity for paganism and witchcraft. Wikipedia I hope that Michelle donates her brain to scientific research.

The NYT had a story over the weekend that discusses the fiasco at Fannie and Freddie, now estimated to cost the U.S. taxpayers 389 billion with the current tab at 145.9 billion. I wonder if Barney Frank and other liberal Democrats will ever admit to making mistakes in broadening the role of these GSEs. In an earlier article in the NYT, Barney was quoted as saying that he was "not worried about Fannie and Freddie’s health" and wanted them to do more. Now, does that sound like Barney is as smart as he thinks he is?

The Old Geezer attended the morning staff meeting for about ten seconds before leaving to embark on further meditation about the meaning of life. Shortly before starting his yoga routine, the OG asked the LB to perform some research on whether this article from the AP about Canada's economy being the envy of the world is likely to drive up HK's costs to implement the RB's secret plan to acquire Canada, all of it.

This article has the estimated number of millionaire households by country. The Global Millionaire Boom The U.S. has the greatest number at an estimated 4,715,000, controlling about 56% of the countries wealth, but Singapore has the greatest concentration as a percent of the population at 11.4%.

This site has a good discussion of what is happening in the Bond Market during the day.

1. Bought ETF WisdomTree Total Dividend Fund (DTD) at $41.7 (Large Cap Valuation and Dividend Growth Strategies)(see Disclaimer): With 100 shares of this ETF, I will reinvest the dividends which are paid quarterly. This ETF focuses on U.S. large cap dividend stocks and is dividend weighted annually: WisdomTree Dividend Index Its purchase is consistent with both my dividend growth strategy and the large cap valuation strategy. {See Item # 3 Large Cap Valuation Strategy-A New Long Term Strategy and Item # 6 Common Stock Dividend Growth vs. Long Term Investment Grade Bonds }

As of 6/17/2010, AT & T had the largest weight at 4.08% of assets, followed by Exxon at 3.3%, Chevron at 2.41%, P & G at 2.33%, and JNJ at 2.24%. The expense ratio is .28%. Dividends are paid quarterly. Distributions I view this purchase to be the replacement for Conoco, EWS and EXAR sold last Thursday. Item # 4 Sold COP EWS & EXAR-De-Risking Process COP is part of DTD at 1.45% of assets. With the ETF, I maintain a similar dollar exposure to stocks while achieving a greater degree of diversity compared to those 3 securities (risk dispersion). I therefore view this ETF purchase as consistent with the overall risk reduction approach currently being implemented here at HQ.

2. Sold 50 MJH at 23.60 (see Disclaimer): MJH is a trust certificate containing a BAC TP that was purchased during the Near Depression period at $7.51. Buy of 50 MJH at $7.51 I decided to take the gain for several reasons. First, I am taking some long term capital gains in 2010 since I anticipate that the tax rate will go up after this year. Second, unlike all other TPs, this one has some difficult to understand tax issues associated with it, at least according to Fidelity. I bought the security in a taxable account. Lastly, I have freed up just enough capital to buy 50 of the highest yielding BAC TP currently available in my Roth, which is where I prefer to buy TPs for several reasons. If there is a deferral of interest payments, I can avoid the tax consequences by holding the security in a retirement account. And, I prefer to have securities which pay interest in the retirement account and securities that pay qualified dividends in a taxable account. So, I will probably buy another BAC TP in the Roth before the end of June.

I am not limited to TPs originally issued by BAC, since Bank of America has acquired several companies that issued TPs. I have discussed two such examples in the past, including a purchase of a TP issued by Fleet Boston (FBFPRN & FBFPRM) and another by Countrywide (CPP). Bought 50 of the TC CPP at $24.2/ bought 100 fbfprn There are other similar examples. The other examples, some of which are exchange traded, can be found at Bank of America | Investor Relations | Capital Issuances. (click "Trust Preferred and Hybrid Securities Issues" at the top of the page for the listing)

3. Bought 50 Walgreen (WAG) at $30.15 (see Disclaimer): I am not sure what possessed me to buy WAG on Friday. I sold 50 shares at $38.55 in the Fall of last year, so I suspect my motive was to buy back those shares at a lower price, a typical trading mode decision of the LB.

It was not unexpected that CVS and Walgreens would settle their spat. WSJ This settlement did remove an issue that would have kept me from buying back those 50 shares. While WAG has been struggling some lately, the valuation at $30 per share is compelling from a long term perspective. By long term, I am referring to sitting on the shares until I can sell them again at over $38. The analyst consensus estimate is for an E.P.S. of $2.63 in the fiscal year ending in August 2011, up from $2.22 in fiscal 2010. WAG: Analyst Estimates for WALGREEN Based on the $2.63 estimate, the forward P/E is around 11.4, which is low for WAG historically. Price to sales is around .44 with a five expected P.E.G. ratio of less than 1. WAG: Key Statistics for WALGREEN I read the S & P and Morningstar reports before making this purchase. Both have WAG rated as 4 stars. The S & P 12 month target is $40.

The Walgreen Company is ubiquitous in the American landscape, with stores within five miles of 70% of the U.S. population. As of 3/31/2010, the company had 7,680 stores ( form10q.htm). Competitive pressures are intensifying however, particularly from CVS Caremark and Wal-Mart. The last quarter was disappointing with same store sales declining .2%. It is too early to know whether the same store trends mostly results from the recession or a longer term problem for WAG.

For its second fiscal quarter, which ended on 2/28/2010, WAG reported an E.P.S. of 68 cents per share which included 2 cents for restructuring. SEC Filed Press Release

The dividend has been increased every year since 2001 but at a slow pace, doubling in about a decade (14 cents in 2001 and 48 cents in 2009, annually)

The shares are currently trading below the 200 and 50 day moving average lines: WALGREEN Share Price Chart | WAG

This buy is not consistent with my de-risking process and is viewed as an exception/special situation.

If I sold the shares purchased on Friday at $38.50, the gain on the shares would be around 27%. I view the downside risk at the $30 price to be less significant than the potential upside gain. With the dividend, I could have a good gain of close to 15% annualized if that $38.5 target was hit in 2 years and more if I was able to sell the shares earlier.

4. Bought 100 of the ETF ENY at 17.56 (see Disclaimer): I have bought and sold this ETF and have discussed it in prior posts. Bought 50 ETF ENY at $13.6 Sold ETF ENY at $15.75 The sponsor is Claymore and the ETF contains Canadian energy stocks. I recently sold my positions in two canadian energy trust, PWE and PVX, and still own 210 shares of Enerplus, owning the Canadian traded shares ERF-UN.TO. This is a link to the holdings, all Canadian energy companies: Canadian Energy Income Index ETF - ENY There are several reasons for buying this ETF back after selling it at a lower price. For one, these companies are not involved in the Gulf of Mexico, except for Nexen, to my knowledge, though several have offshore drilling operations in other locations. Reuters Nexen announced only limited impact from Obama's six month moratorium on deep sea drilling in the Gulf. Reuters

I suspect that Obama's moratorium on deep sea drilling in the Gulf will make Canada's energy plays more appealing to investors. Lastly, the drilling moratorium may lead to higher energy prices this summer. Now, all of that is just a bunch of hunches strung together into a semi-coherent train of logic. This one is set up to reinvest the quarterly dividend payments.


The energy hog nation imports about 57% of its petroleum needs. Canada furnishes the U.S. about 20.1% of the net oil imports. EIA's Energy in Brief: How dependent are we on foreign oil? The energy hog nation consumes about 25% of the world's total: oil Wikipedia Oil consumption (most recent) by country The per person consumption in the U.S. is about twice that of individuals in the European Union.

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