The London P.M. fix for the price of gold on 11/18, the end date for MOL's first annual period, was $1350.25. That number will also be the starting value for the second annual period. MOL, a "principal protected note" issued by Citigroup Funding and guaranteed by Citigroup, suffered a reversion during its 1st annual period to its 2% guarantee when the afternoon London fix hit $1395.50 on 11/5/2010. MOL The maximum level for the second period is computed by multiplying $1350.25 x 1.19 which equals $1606.79 (rounded). If the afternoon London P. M. gold fix exceeds $1609.79 on any day between 11/18/2010 to 11/17/2011, then the annual interest payment would revert to the 2% guarantee irrespective of the price of gold on the closing date for the second period. (see Bought 200 MOL at 9.95 Sold 100 MOL @ 10.3) MOL was ex-dividend yesterday, paying its guarantee of 2% on the $10 par value or 20 cents per share.
I do not understand why the market last week perceived a bailout of Ireland to be a positive development. The fact that hundreds of billions have to be used to keep several European governments afloat at this stage is not heartening, nor is it a positive that the Federal Reserve believes that another round of quantitative easing was necessary to jump start the anemic U.S. economy, a recipient already of an unprecedented amount of fiscal and monetary stimulus over the past two years. I added a couple of sector double shorts near the close yesterday as the market rallied toward the close. Hopefully, those two securities will continue to fall in value, in which case I will sell them, along with two recently purchased index double shorts, for a loss before year end, offsetting in very small part the ton of short term gains already realized this year. I will outperform the S & P 500 this year with a balanced portfolio including cash even if the market rallies into year end. So, I am mostly trying to preserve what I have already gained in 2010. Why did I say hopefully lose money on those 4 double shorts? The best way to hedge a stock portfolio in my view is to sell stocks, which was my approach in 2007, and I have already pared my stock positions as much as I want to do over the past few weeks. This leaves me with using the double shorts to create a temporary, small hedge for a sizable core stock position.
1. DKK-CALLED (owned-100 shares in the Roth IRA): The owner of the call warrant for the trust certificate DKK has notified the trustee of its intent to acquire all of the bonds in the trust by paying the owners of DKK the $25 par value of each certificate plus accrued interest (note: semi-annual interest is normally paid in December for DKK). Structured Asset Trust Unit Repackagings (SATURNS) Series 2003-3 Trust Receipt of Notice of Intent to Exercise Call Options in Full The settlement date is scheduled for 12/6/2010. I own DKK, KTN and KVW, all containing the same AON junior bond. That bond is trading above its par value, FINRA, so it is profitable for the owner of the call warrant to exercise it, pay off the owners of the TCs, take possession of the bonds, and then to sell them for a profit in the bond market.
The TC KTN is unusual in that there is no call warrant attached to that TC, and it is trading near $29 most days now, even though it has a $25 par value. TRUST CERTIFICATE AON BOND KTN ORDER FILLED AT 13.10 KTN add at less than $14 Sold 50 of 150 KTN at 28.17 (see also item # 5 Sold 50 of 150 DKK at $24.87 Sold 100 of 200 KVW at 24.75 (remaining shares bought at $16.08 on 9/30/2008 before starting this blog). I have bought and sold the four TCs containing this same bond based in part on their potential returns compared to each other: Functional Equivalence in Bond Trading Managing Risk in an IRA: KTN and KVW
See generally: Trust Certificates: Links in One Post
More on the Call Warrant in TCs
Call Warrants and Trust Certificates
Call Warrant Exercised on JZE and JZJ
Alert on TC DKW-Exercise of Call Warrant/SOLD 50 OF 150 DKW @ 25.20
DKK originates from Morgan Stanley, who most likely still owns the call warrant. MS has been far more aggressive than the other brokerage firms in exercising these warrants.
2. Bought 100 COMINAR Real Estate Investment Trust at 21.68 CAD (see Disclaimer): The symbol is CUF_UN:CA at Fidelity. Cominar is the 4th Canadian REIT that I have bought on the Toronto exchange, along with 200 shares of an ETF that invests in Canadian REITs. Bought: 200 XRE:CA @ 13.78 CAD (ETF), Bought: 100 CAR-UN.TO @ 17.35 Bought 200 AX-UN.TO @ 13.41 CAD Bought: 200 SRQ-UN.TO @7.53 CAD All of these securities pay monthly dividends. I take the dividends paid by all of my Canadian securities in Canadian dollars.
Normally I would not be looking for REITs to buy in Canada or anywhere outside the U.S. for that matter, but the search for yield has taken me to many places where I ordinarily do not go as investor. Coping with the Federal Reserve's Jihad Against Savers I also view the Canadian REITs favorably in terms of their occupancy rates, the dividend yields and their monthly distributions. I really needed a pretty big push, however, from everyone's Uncle Ben to start scrounging around in Canada for higher yielding REITS. Besides, I have to invest my CADs to earn a return. The alternative is to earn nothing at all on that position which is significant for me.
I do not understand why the market last week perceived a bailout of Ireland to be a positive development. The fact that hundreds of billions have to be used to keep several European governments afloat at this stage is not heartening, nor is it a positive that the Federal Reserve believes that another round of quantitative easing was necessary to jump start the anemic U.S. economy, a recipient already of an unprecedented amount of fiscal and monetary stimulus over the past two years. I added a couple of sector double shorts near the close yesterday as the market rallied toward the close. Hopefully, those two securities will continue to fall in value, in which case I will sell them, along with two recently purchased index double shorts, for a loss before year end, offsetting in very small part the ton of short term gains already realized this year. I will outperform the S & P 500 this year with a balanced portfolio including cash even if the market rallies into year end. So, I am mostly trying to preserve what I have already gained in 2010. Why did I say hopefully lose money on those 4 double shorts? The best way to hedge a stock portfolio in my view is to sell stocks, which was my approach in 2007, and I have already pared my stock positions as much as I want to do over the past few weeks. This leaves me with using the double shorts to create a temporary, small hedge for a sizable core stock position.
1. DKK-CALLED (owned-100 shares in the Roth IRA): The owner of the call warrant for the trust certificate DKK has notified the trustee of its intent to acquire all of the bonds in the trust by paying the owners of DKK the $25 par value of each certificate plus accrued interest (note: semi-annual interest is normally paid in December for DKK). Structured Asset Trust Unit Repackagings (SATURNS) Series 2003-3 Trust Receipt of Notice of Intent to Exercise Call Options in Full The settlement date is scheduled for 12/6/2010. I own DKK, KTN and KVW, all containing the same AON junior bond. That bond is trading above its par value, FINRA, so it is profitable for the owner of the call warrant to exercise it, pay off the owners of the TCs, take possession of the bonds, and then to sell them for a profit in the bond market.
The TC KTN is unusual in that there is no call warrant attached to that TC, and it is trading near $29 most days now, even though it has a $25 par value. TRUST CERTIFICATE AON BOND KTN ORDER FILLED AT 13.10 KTN add at less than $14 Sold 50 of 150 KTN at 28.17 (see also item # 5 Sold 50 of 150 DKK at $24.87 Sold 100 of 200 KVW at 24.75 (remaining shares bought at $16.08 on 9/30/2008 before starting this blog). I have bought and sold the four TCs containing this same bond based in part on their potential returns compared to each other: Functional Equivalence in Bond Trading Managing Risk in an IRA: KTN and KVW
See generally: Trust Certificates: Links in One Post
More on the Call Warrant in TCs
Call Warrants and Trust Certificates
Call Warrant Exercised on JZE and JZJ
Alert on TC DKW-Exercise of Call Warrant/SOLD 50 OF 150 DKW @ 25.20
DKK originates from Morgan Stanley, who most likely still owns the call warrant. MS has been far more aggressive than the other brokerage firms in exercising these warrants.
2. Bought 100 COMINAR Real Estate Investment Trust at 21.68 CAD (see Disclaimer): The symbol is CUF_UN:CA at Fidelity. Cominar is the 4th Canadian REIT that I have bought on the Toronto exchange, along with 200 shares of an ETF that invests in Canadian REITs. Bought: 200 XRE:CA @ 13.78 CAD (ETF), Bought: 100 CAR-UN.TO @ 17.35 Bought 200 AX-UN.TO @ 13.41 CAD Bought: 200 SRQ-UN.TO @7.53 CAD All of these securities pay monthly dividends. I take the dividends paid by all of my Canadian securities in Canadian dollars.
Normally I would not be looking for REITs to buy in Canada or anywhere outside the U.S. for that matter, but the search for yield has taken me to many places where I ordinarily do not go as investor. Coping with the Federal Reserve's Jihad Against Savers I also view the Canadian REITs favorably in terms of their occupancy rates, the dividend yields and their monthly distributions. I really needed a pretty big push, however, from everyone's Uncle Ben to start scrounging around in Canada for higher yielding REITS. Besides, I have to invest my CADs to earn a return. The alternative is to earn nothing at all on that position which is significant for me.
Cominar is the largest commercial real estate owner in the Quebec province. It owns 254 properties. Of those, 47 are office properties which were 94.7% leased as of 9/30/2010. Cominar Properties - Overview The company also has 51 retail properties with a 95.3% lease rate and 156 industrial and mixed use properties at a 92.8% occupancy rate. One reason for adding Cominar was to give me more exposure to industrial properties in Canada.
This is a link to the firm's distribution history: Investor Relations - Distribution History The current rate is 12 Canadian cents per month or $1.44 CAD annually, or about 6.65% before the Canadian withholding tax and at a total cost of $21.68 CAD. Cominar Real Estate Investment Trust, CUF.UN Stock Quote
3. Friedman Industries Inc and Added 50 to Sutor Technology Group Limited at $2 (LOTTERY TICKET strategy)(see disclaimer): Both Friedman and Sutor are two micro cap companies in the steel industry. FRD is headquartered in Texas while Sutor is a Chinese company. Yet, they have some common characteristics that make them suitable in the Lottery Ticket category.
When I purchased 50 shares of FRD at $5.76, I noted that the company was selling at below its liquidation value. It had earned $2.01 per share for its F/Y ending in March 2009, but then the recession took its toll. I then noted in a post from last September that FRD had turned profitable again, reporting an E.P.S. of 21 cents for the Q/E 6/2010 and doubled its dividend to 8 cents per quarter. Item # 5 FRD The stock had risen to $6.69 at the time of that post. Still, the stock was selling at a price to book of .79 and a price to sales of .56.
Given my number of holdings, I am not focused on my LTs, and I just periodically look at an earnings report and some news items. I noticed over the weekend that FRD had risen another dollar in price since my September post, and the company had reported another profitable quarter. For the Q/E 9/2010, the company reported earnings of 26 cents on revenues of 29.353 million dollars, much improved over the the 3 cent loss in the year ago quarter on 16 million in sales. 10Q Price to sales and price to book remain below 1: FRD Key Statistics | Friedman Industries There are no analyst estimates. The current market cap is around 53 million.
I bought 50 shares of Sutor at $2.81 last March and added 50 shares at $2 last week. Like many of the Chinese small cap companies, this one has not fared well in price this year. But, I decided to add to the position based on the last quarterly report and the stock's low valuation. Price to sales is .18 and price to book is listed at .46. The company is reporting earnings. So all of those characteristics are relevant in an LT selection when combined with a low stock price and P/E. The 2 analysts providing earnings estimate predict 35 cents per share for the F/Y ending in 6/2011 and 43 cents in F/Y 2012. If that proves accurate, and who knows about the future, the forward P/E is less than 5.
Sutor does file reports with the SEC, and this is a link to its last filed Form 10 Q. For the Q/E 9/2010, the firm earned 8 cents per share, up from 1 cent in the year ago quarter. Needless to say, I would not risk any significant amount of money on a Chinese small cap for a host of obvious reasons, and this firm was consequently assigned to the LT category which limits my exposure to a maximum of $300 with certain exceptions not applicable to SUTR.
Most of the LTs have been sold, and I am finding few suitable replacements.
4. Heinz (own- Buy of HNZ at 31.67 March 2009): Heinz reported earnings last week for its second fiscal quarter of 78 cents per share, beating the consensus estimate of 76 cents, on 2.61 billion in revenues which was less than the estimate of 2.67 billion. Revenues in its U.S. Foodservice unit fell 2.9% to 362 million on a 4.6% decline in volume. North American food products sales increased by 1.4% to 803 million. European sales fell 5.2%, due to currency exchange, while volumes increased only by .7%. Growth is occurring in emerging markets, however, where Heinz posted 10.2% organic sales growth. Global ketchup sales grew 3.3% during the quarter on an organic basis and the top 15 brands had organic growth of 2.7%.
5. Added 50 KRH at 24.3 in the Roth IRA (see Disclaimer): I am starting to receive what feels like a barrage of bond redemptions, and two of those calls in the past week involve securities held in the Roth IRA. Last week, notice was given by Delphi Financial of its intent to call its senior bond DFY, and I own 150 shares of DFY in that account. As noted above, the owner of the call warrant for DKK has indicated its intent to redeem my 100 shares held in that retirement account. Since I had some cash, recently raised from the sale of the ETF BSCE, I decided to look around for another bond that still had a half way decent yield from my perspective. That process bought me to the trust certificate KRH, which has a 7.75% coupon on its $25 par value. That equates to a 7.97% yield at a total cost of $24.3.
The underlying security in both KRH and PKM is a junior bond issue from Hanover Insurance company, whose common stock trades under the symbol THG. Hanover recently reported net income for the 3rd quarter of 52.3 million, up from 49.7 million in the 3rd quarter of 2009, beating estimates. The consensus E.P.S. estimate for 2010 is $2.77 and $4.12 for 2011, THG Analyst Estimates | Hanover Insurance Group Hanover also pays a common stock dividend which would have to be eliminated before it could defer the interest payments on its junior bond.
I am already over my comfort level in exposure to the junk rated bond that is the underlying security in both KRH and PKM. One way to relieve that anxiety is to take a chill pill and forget about it. Unfortunately, I do not have any chill pills. And LB does not need any, just to be clear on that point. The other way is to sell some of the shares of either PKM or KRH bought over a year ago in a taxable account, at much lower prices, to lock in a long term capital gain, and then keep the PKM and KRH shares in the retirement accounts. I have bought KRH as low as $19 and still own those shares in a taxable account. PKM was bought at an even more favorable price and it has a 8% coupon: Bought 150 TC PKM (100 at $17.8 in taxable account & 50 in IRA at $17.6 I still own 100 of those PKM shares.
I will discuss one more of the trades from Monday in the next post, omitting any further discussion of the specifics of my hedging activity.
4. Heinz (own- Buy of HNZ at 31.67 March 2009): Heinz reported earnings last week for its second fiscal quarter of 78 cents per share, beating the consensus estimate of 76 cents, on 2.61 billion in revenues which was less than the estimate of 2.67 billion. Revenues in its U.S. Foodservice unit fell 2.9% to 362 million on a 4.6% decline in volume. North American food products sales increased by 1.4% to 803 million. European sales fell 5.2%, due to currency exchange, while volumes increased only by .7%. Growth is occurring in emerging markets, however, where Heinz posted 10.2% organic sales growth. Global ketchup sales grew 3.3% during the quarter on an organic basis and the top 15 brands had organic growth of 2.7%.
5. Added 50 KRH at 24.3 in the Roth IRA (see Disclaimer): I am starting to receive what feels like a barrage of bond redemptions, and two of those calls in the past week involve securities held in the Roth IRA. Last week, notice was given by Delphi Financial of its intent to call its senior bond DFY, and I own 150 shares of DFY in that account. As noted above, the owner of the call warrant for DKK has indicated its intent to redeem my 100 shares held in that retirement account. Since I had some cash, recently raised from the sale of the ETF BSCE, I decided to look around for another bond that still had a half way decent yield from my perspective. That process bought me to the trust certificate KRH, which has a 7.75% coupon on its $25 par value. That equates to a 7.97% yield at a total cost of $24.3.
The underlying security in both KRH and PKM is a junior bond issue from Hanover Insurance company, whose common stock trades under the symbol THG. Hanover recently reported net income for the 3rd quarter of 52.3 million, up from 49.7 million in the 3rd quarter of 2009, beating estimates. The consensus E.P.S. estimate for 2010 is $2.77 and $4.12 for 2011, THG Analyst Estimates | Hanover Insurance Group Hanover also pays a common stock dividend which would have to be eliminated before it could defer the interest payments on its junior bond.
The FINRA site shows that this bond is rated BB- by S & P and BB+ by Fitch. I would just view as a higher quality junk bond. A Hanover senior bond, with a 2025 maturity, is rated at BBB- by S & P, FINRA. The only material difference between KRH and PKM is the coupon. While the underlying bond has a 8.207% coupon, the TC PKM has a 8% coupon and KRH is at 7.75%.
KRH Prospectus: www.sec.gov
PKM Prospectus: www.sec.gov
The underlying junior bond and the TCs mature in 2027. Interest payments are made in August and February.
I am already over my comfort level in exposure to the junk rated bond that is the underlying security in both KRH and PKM. One way to relieve that anxiety is to take a chill pill and forget about it. Unfortunately, I do not have any chill pills. And LB does not need any, just to be clear on that point. The other way is to sell some of the shares of either PKM or KRH bought over a year ago in a taxable account, at much lower prices, to lock in a long term capital gain, and then keep the PKM and KRH shares in the retirement accounts. I have bought KRH as low as $19 and still own those shares in a taxable account. PKM was bought at an even more favorable price and it has a 8% coupon: Bought 150 TC PKM (100 at $17.8 in taxable account & 50 in IRA at $17.6 I still own 100 of those PKM shares.
I will discuss one more of the trades from Monday in the next post, omitting any further discussion of the specifics of my hedging activity.
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