JOBS/ISM Services/Bought: 50 CIZN @ 18.25, 50 DHM @ 24.51, 200 JQC at 7.88, 50 STLPRA @ 10.21/Sold 300 JDD at 11.44/Bought 1 Albertsons Bond (now part of SVU) at 77

The market was doused with a bucket of cold water on Friday, as the jobs report for November was much weaker than expected by the consensus estimate. While this report made me more pessimistic, the market took it in stride, possibly due to the belief that this kind of dour report will keep the Fed's foot slamming down on the gas, peddle to the metal.  Is that a good thing?


According to the Labor Department, only 39,000 jobs were added in November, compared to a forecast of 150,000. Employment Situation Summary The private sector added 50,000 jobs, significantly below the forecast of 160,000.  Of the 15 million unemployed, 6.3 million have been out of work for over 6 months. 


Many analysts had recently revised their estimates above the consensus based on recent economic trends. The unemployment rate ticked up to 9.8%.  The U-6 measure, which is the broader gauge of unemployment and underemployment, remained at 17%. Table A-15. Alternative measures of labor underutilization Bernanke claimed a few days ago that the U.S. economy was not growing fast enough to make much of a dent in unemployment. ABC News


The ISM services index for November registered 55%, the 11th consecutive month of expansion, with the new orders index increasing 1 per cent to 57.7% and the employment index rose 1.8% to 52.7%.  

HPF, a bond CEF, declared its regular monthly distribution of $.124 with a 12/9 ex date. 

WLFCP, a preferred stock which is owned, went ex dividend for its monthly distribution on Friday.  


I am scheduled to receive the redemption proceeds today from the owner of the call warrant attached to the TC DKK. I had 100 shares of DKK in the Roth IRA, and I did receive the $2500 in redemption proceeds plus $86.11 in interest.  DKK-Called by Owner of Call Warrant 

1. Bought 50 of the trust certificate DHM at $24.51 on Thursday (see Disclaimer): I have bought and sold DHM at lower prices. Sold 100 DHM at 24.4 Bought 50 DHM at 22.84 Bought DHM at  21.35  It is one of four TCs that contains the same senior Sprint capital bond maturing in 2028. 

The four TCs that contain this bond are as follows: 

DHM: 8.33% current yield at a closing price on 12/2 of $24.51 DHM Prospectus: Prospectus Supplement (8.125% coupon)

GJD: 7.74% current yield at a closing price on 12/2 of  $21 GJD Prospectus: www.sec.gov (6.5% coupon)

PYG: 7.64% current yield at a closing price on 12/2 of $22.92 PYG Prospectus www.sec.gov (7% coupon)

JZK: 7.65% current yield at a closing price on 12/2 of $22.87 JZK prospectus:  www.sec.gov (7% coupon)

The underlying bond has a 6.87% coupon.

The yield to maturity numbers for the four TCs would be greater given the discounts to the $25 par value. I place greater weight on the current yield numbers. Since these securities are functionally equivalent, the main consideration for me is the yield at my purchase cost at the time that I place an order. Sometimes, when the underlying bond is trading a significant premium to its par value, I may give some emphasis to the TC trading at a greater discount to its par value. In this case, however, it is not likely that the 2028 Sprint Capital bond will be trading at above its $1000 par value anytime soon. 

GJD has the widest discount and its YTM is around 8.26%, using the Morningstar Bond Calculator.   The YTM of DHM, with a narrower discount and a higher current yield, is about 8.38%.

I have not bought either PYG or JZK. I have traded GJD: Bought 50 GJD at 17.49 Bought 50 GJD at 17.8-Roth IRA Added 50 GJD at 17.95 Sold 50 of the 150 GJD at 18.59  Sold 100 GJD at 20.2

All of the Sprint 2028 TCs went ex interest for their semi-annual payments in November, so I would have been better off just holding DHM.

The prospectus for the underlying security in DHM, the 2028 Sprint capital bond, can be accessed at www.sec.gov.

The FINRA information on the 2028 bond, which includes the bond ratings and recent trades in the bond market, can be found at FINRA. This is a junk rated security. This is an actively traded bond and I could buy it without much difficulty in the bond market.  At a closing price on 12/2 of 88.25, the current yield of this bond would be about 7.79%. I pick up more current yield with DHM.  The chart at Finra has shows that this bond has sold off some in recent days.  

An article in Bloomberg discusses why the price of credit default swaps for Sprint's debt rose and then fell based on the progress made by majority owned Clearwire (CLWR) to sell 1.1 billion in debt. WSJ.com

While this is a junk bond, I have built up some trading profits in the functionally equivalent DHM and GJD of $445.93 plus interest payments of over $300.  If I realize any profits on the shares of my bond positions, I am satisfied, since their primary purpose is income generation.  I do not expect to make much, if anything, on the shares of DHM bought on Thursday. A $1 profit on the shares, down the road, would be more than satisfactory along with pocking the interest payments.  

2. Bought 50 CIZN at $18.25 on Thursday (Regional Bank Stocks' basket strategy)(see Disclaimer): This purchase brings me up to 100 shares of  Citizens Holding Company, a small bank based in Mississippi, and represents an average down from my prior purchase at 18.7.  I have nothing to add to that last linked post, except to reiterate that CIZN raised its quarterly dividend by 1 cent to 22 cents.  Press Release  At a total cost of $18.25, and assuming a continuation of that penny rate for 1 year, the dividend yield would be around 4.82%.


CIZN is mentioned in an article from "Dividend Growth Investor" published this morning in Seeking Alpha.

3. Bought 200 JQC at 7.88 and Sold 300 JDD at 11.4425 on Thursday (see Disclaimer):  The addition of 200 shares of JQC brings my total up to 702.394 shares.  That purchase was financed with the disposition of 300 shares of JDD recently bought at  at $10.95 shortly before the ex dividend date for the quarterly dividend.

I still own 100 shares of JDD in the Roth IRA. Bought 100 JDD in Roth at 8.4 When I bought those shares in the Roth, the discount to net asset value was -16.7%. On 12/2, JDD closed at a -6.06 discount, WSJ.com (see also /Added to CEF JDD at $9.45  Sold 70 of 170 of JDD)

I suspected that the discount to net asset value for my JQC shares was expanding on Thursday, which proved to be case.  On 12/2, JQC closed at $8.89 and had then a net asset value of $10.12 per share. This created a discount to net asset value of -12.15.  On 12/3, the discount widened some to -12.2 based on a net asset value of $10.16 and a closing price of $9.82. 


The current distribution rate is $.175 per quarter.  At a total cost of $8.89 per share,  that equates to a yield of 7.87%. JQC - Nuveen Multi-Strategy Income and Growth Fund 2 Both JQC and JDD are leveraged CEFs.

As previously discussed, JQC is a balance fund. JQC - Holdings an Detail. As shown at that page, 46.5 % of those holdings mature in over 30 years so there is a lot of interest rate risk. Nuveen also discusses the various kind of risks on that page associated with those bonds.

JQC has less of a concentration in U.S. REITs than JDD, and I am nervous about valuations of U.S. REITS as previously mentioned and discussed.  


JPC, another recently added leveraged CEF, ended last week at a -12.16% discount. 

4. Added 50 STLPRA at $10.21 in regular IRA (see Disclaimer): Since I recently added to this security, I will just copy my earlier  discussion for convenience: 

"STLPRA is a trust preferred security that has as its underlying security a junior bond issued by Sterling Bank (STL), maturing in 2032 at $10. The coupon is 8.375%, so my current yield will be close to the coupon rate.

I have bought and sold STLPRA. Prior to yesterday, I still owned 50 shares bought in November 2009 at $8.99 I previously bought and sold shares, as previously noted in the blog: Added 50 STLPRA at 8.69 Bought 100 STLPRA at 8.87 Sold 50 STLPRA at $9.4 Sold 100 of the TP STLPRA at 10.25 I am coming back to this kind of security almost entirely due to a lack of alternative income investments after the Fed's ongoing JIHAD against savers and other responsible Americans, now in its third year.Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans & the Potential Major Correction in Bonds Down the Road

I also own the common shares as part of my Regional Bank Stocks' bank basket strategy which has over 50 banks in it: Bought 50 STL at 6.58 The realized gains and losses from that strategy are being tallied in Item # 3, 2010 Realized Gains Regional Bank Stock.

I have discussed this bank in several other posts: Item # 4 STL & Item # 3 STL.

Sterling sold 8.625 million shares in March 2010 at $8 per share.www.sec.gov This offering resulted in net proceeds of 64.9 million dollars. The bank sold 42 million in preferred stock to the government, which pays 5% for the first five years and 9% thereafter. 8-K (letter agreement: EX-10.1) This stock is classified by me as equity preferred stock which is more junior than the bond contained in the trust preferred. Consequently, for Sterling to defer payments to the owners of STLPRA, it would first have to eliminate the common stock dividend and then defer the government's cumulative preferred dividend. The stopper provision in STLPRA is typical and can be found at page 35 of the prospectus. At the present time, I would review the interest rate risk associated with this 2032 maturity bond to be more worrisome than the credit risk issue. . . . 

Prospectus: sec.gov Interest payments are made quarterly, and this security just went ex interest last month. If there is a lawful deferral of interest, the deferred payments accumulate and earn interest at the coupon rate, compounded quarterly. (see pages 4-5 and pages 19-20 www.sec.gov)  Trust Preferred Securities: Links in One Post"                      

 Bought 100 STLPRA at 10.05 


Regular Preferred and Trust Preferred

5. ADDED 50 OF THE BOND CEF PSY AT 10.10 ON FRIDAY (SEE DISCLAIMER):  I thought that I had recently changed my distribution option on my PSY shares from cash to the reinvestment option, but that was not the case.  I changed the dividend option to reinvestment on Friday.  I have been taking the distribution in cash since August 2008.  PSY is now classified as an investment grade bond CEF, though most of its bonds are in the lower rung of investment grade.  As of 12/2, the fund had a net asset value of $11.28 and closed at a -9.57 discount to its net asset value. NAV information can be found at the CEFA site, the  BlackRock web site, and at the  WSJ.com.   

The current distribution rate is $.0635 per month which gives me a 7.54% yield.  PSY Distributions   PSY is a leveraged bond fund which adds to the risks.  For the moment, given the low cost of borrowed funds, and the generally favorable market conditions for bonds, leverage is working to the benefit of PSY's shareholders, but this will change at some point.

6. Bought 1 Albertson's Senior Bond Maturing in 2029 at 77 on Friday (see Disclaimer):  Albertson's was acquired by SuperValu (SVU), a grocery store chain,  and this bond is now listed at FINRA with the rest of the Supervalu bonds.   This brings me up to two Supervalu bonds.  I discussed this company in connection with my prior bond purchase.  Bought: 1 SuperValu Bond at 98.73  I am not going to take much of a risk with this kind of junk rated security, and I do not plan to buy more SVU bonds. 

This is a link to the FINRA information on this bond.  It matures on 8/1/2029 and has a 7.45% coupon.  My current yield is around 9.68% with a YTM of over 10% given the large discount to par value.  I did find the prospectus for this one at sec.gov.

The confirmation states that my yield to maturity is 10.117%, and that this bond is rated at Ba3 by Moody's and B+ by S & P.  

 I will discuss the remaining 6 trades from Friday in the next post.   Possibly, I will need to refrain from trading today in order to catch up with my summaries.