Sold 100 GYB at 19.7 in Roth IRA-Reducing Exposure to GS Bonds to Zero/Sold 50 STDPRD at 20.34/Travelport Earnings/Added 50 ARCC

Google (own common stock), which is sitting on a mountain of cash, sold 3 billion dollars worth of bonds last week.  As of 3/31/2011, the company had $34.975 billion in cash, cash equivalents and marketable securities with no long term debt. There was some 2.7 billion in short term commercial paper outstanding as of 3/31. Form 10-Q  More than 9 billion dollars of orders were placed for the those bonds with maturities of 3, 5 and 10 years, with the five year note yielding 2.125%.   Prospectus  Yes, investors are falling over one another, desperate to receive what will likely be a negative real rate of return on that five year note before taxes.

JNJ also recently sold some bonds, paying 2.15% for a note maturing in 2016 and 4.85% for another maturing in 2041.  Prospectus

I watched the HBO Film "Too Big To Fail" last night. It was riveting for a financial nerd who recognized that the world was on the edge of another Great Depression in September 2008.  While entirely predicable, it is perpetually unfortunate that virtually all members of one political tribe were unable to perceive reality in real time and do not recognize even now how close the world came to Financial Armageddon in 2008. HBO: Movies: Too Big to Fail: Home

1. Travelport (private company-own bonds only):  I mentioned in an earlier post that Travelport closed the sale of its GTA business and used $655 million of the proceeds to pay down part of its secured debt facility.  SEC Filing Subsequent to that note, Travelport reported a first quarter loss of 23 million on net revenues of 531 million.   Form 10-Q  The long term debt is discussed in note 9 at page 13. The GTA transaction is discussed at page 32.  The company claims at page 32 that it had 142 million of "unlevered free cash flow" in the first quarter (see page 32).

I own 3 separate Travelport bonds, maturing between 2014 to 2016, and view all of them to be extremely risky.  I believe that all of them are slightly in the red. 

1 Travelport 9.875% Senior Bond Maturing in 9/1/2014

1 Travelport Senior 9% Maturing 3/1/2016

1 Travelport 11.875% Senior Sub Maturing 9/1/2016

I mentioned recently that American Airlines filed an antitrust suit against Travelport.  Bought 1 AMR 9% Senior Bond Maturing 9/1/5/2016 at 99.375  I further referenced Travelport's response. Travelport The filing of private antitrust suits will sometimes draw inquiries from the Justice Department which has apparently happened with AMR's complaint. WSJ.com This is not surprising when the company operates in a concentrated industry with few competitors.  

2. SOLD 50 of 100 STDPRB at $20.34 on Friday (see Disclaimer): STDPRB is a floating rate, non-cumulative, equity preferred stock issued by Santander Finance that pays the greater of 4% or .52% over the 3 month LIBOR rate.  Given the extended Jihad by the Federal Reserve against all savers, the applicable rate has been 4% for an "extended period of time" as the Fed likes to say in its minutes when deciding to keep the Federal Funds rate near zero which will keep other short term rates like treasury bills and the short LIBOR rates abnormally low too.

I sold my highest cost shares held in a taxable account, bought for a total cost of $18.66, acquired in March 2010:

Added 50 STDPRD at $18.54  I am keeping for now my lower cost shares bought @ 17.96. (January 2011 Post).

My concerns involve the potentially worsening financial crisis in Spain.  A recent article discussing some hidden debt at local government levels was published last Friday in the  WSJ.com.

For this security I have netted capital gains of $265.01 in 2010 and $143.16 from sales in 2011, plus $228.61 in qualified dividends, which includes a distribution that recently went ex-dividend:

STDPRB Realized Capital Gain 2010 +$265.01

STDPRB REALIZED LT GAINS 2011 =$143.16

3. Sold 100 GYB at $19.70 in the Roth IRA on Friday (see Disclaimer):  I have been reducing my GS bond exposure, keying off a couple of developments.  I may be overreacting but I will frequently operate under the rule "better safe than sorry".

First, it would not be surprising to see another government civil case against GS growing out of the recently released 646 page bipartisan report from Senator Levin's committee: FinancialCrisisReport.pdf Criminal indictments against GS and/or one or more of its senior officer are certainly possible. At a minimum there is significant headline risk to owning GS securities now. I have been selling GS bonds since the release of that report, and Levin's referral of the matters discussed in that report to the  Justice Department  and the SEC. Bloomberg

I recall buying some GS bonds after they hit the skids after the civil complaint was filed against GS and its former employee, the Fabulous FAB. (SEC 2010  Complaint online.wsj.com.pdf)  Trust Certificates Containing a Senior Goldman Sachs' Bond Maturing in 2033/Goldman's Defense and Possible Penalties in the SEC Case (4/19/2010 Post).  I am selling these bonds at a profit.

My approach is to wait for the headline risk to actually hit, see what happens in the ensuing days thereafter to the GS bonds, and then decide whether I want to take the risk back at a much lower price.  I doubt that I will be buying any GS security back until there is a complete house cleaning at the top.

There are a lot of recent articles about the ongoing investigation that highlight some of Goldman's potential problems: TheStreet  WSJ One of those articles is by Matt Taibbi, recently published in Rolling Stone, probably the most scathing article on GS in my memory. Taibbi summarizing the case against GS in easily understandable terms for those who do not want to read Levin's 646 page scathing report.  GS is the main focus of the report, and evidence against the company is discussed from pages 376 to 636.  Financial_Crisis/FinancialCrisisReport.pdf  GS's behavior described in that report can only be characterized as disgusting.

There can be no doubt that Taibbi believes that criminal indictments are justified against the firm and several of its top officers and managers.

Another recent article from Taibbi that discusses some of the evidence in more detail can be found at Taibblog.

Needless to say, even if I had a billion dollars to invest, I would not do any business with GS or the other Masters of Disaster.  I would never trust any of their employees to act in my best interest, and do want to spend an inordinate amount of time trying to figure out how I was being screwed in pursuit of their greed.

The second point is that the common stock is telegraphing problems ahead.  After hitting $175 in January 2011, the stock has moved decisively under its 200 and 50 day moving average and has accelerated its decline in recent weeks. GS Interactive Chart

GYB is a trust certificate that contains a 2034 fixed coupon GS TP as its underlying security. It is also a Synthetic Floaters which means that the owner of GYB will not receive a fixed coupon for as long as a swap agreement remains in effect. Instead, the independent trustee for GYB  will swap the fixed coupon payments made by GS with a brokerage company who will pay the trustee the greater of 3.25% or .85% over the 3 month LIBOR rate but no more than 8.25% on GYB's $25 par value.

Given the Fed's 3+ year Jihad against savers, the applicable rate is the minimum payment.  www.sec.gov Interest payments are made quarterly.

Prior to this last transaction, I have done well trading GYB, realizing $1,071 in trading profits while never owning more than 100 shares at one time.   Item # 3  Bought 50 GYB @19.07 The trading activities can be found in these posts: Added another 100 GYB in Regular IRA at $11 (April 2009 Post); Bought 50 GYB at $11  (April 2009 Post); Sold 50 GYB at $15 (September 2009 Post);  Pared Trades in Roth: Sold 100 PYT at 19.25 & Bought 100 GYB at 18.98 (October 2010) Sold 70 PYT at 18.66 and Bought 70 GYB at 18.49 in Regular IRA (March 2010 Post);  Sold 50 GJS @ 16.20 & 100 GYB @ 19.9 (October 2010 Post) Sold 100 GYB @ 19.4 (October 2010 Post)

As of October 2010, the total capital gains realized from trading the 3 GS synthetic floaters  (GJS, PYT and GYB), was $2,411.49. About 1/2 of that total came from two of the trades:

100 GYB Shares 2010 Realized +671.71 Regular IRA on $1109 Investment

100 PYT 2010 Sale Roth IRA +$685.02 on $1233 Investment

I started to invest in the Synthetic Floaters in the Spring of 2009 and will own them only in my IRAs. Fidelity no longer allows their customers to buy them.

I bought the 100 shares sold last Friday in two 50 share lots:   Bought 50 GYB at 18.63 in the Roth IRA (1/24/2011 Post); and last October at $19.07.

Floaters: Links in One Post

4. Added 50 ARCC in Regular IRA at $16.9 in Regular IRA Last Friday (see Disclaimer):  I now own again 150 shares of this Business Development Corporation.  The other shares were bought at lower prices: Bought 50 of the BDC ARCC at 16.17 and at $16.3  I basically bought back the 50 shares sold a few days ago at at $17.7. (5/4/2011 Post). I have nothing to add to my prior discussions, except to note that this company missed earnings expectations for the first quarter: Reuters The 10-Q for the last quarter can be found at  www.sec.gov. As of 3/31/2011, the net asset value per share is shown at $15.45, up from $14.92 at the end of December 2010 (page 2). 

A recent favorable article about this BDC can be found at Investopedia.

The current quarterly dividend is 35 cent per quarter which gives me about a 8.28% yield at a total cost of $16.9.

I would also incorporate my generally negative comments about BDCs in general made in this recent Post: Item # 3 Bought Shares in BDCs in IRAs: 50 AINV at 10.8 and 50 PSEC at 11.2

A recent article found at Seeking Alpha, written by Nicholas Marshi, discusses ARCC and four other BDCs.

Ares Capital declined with the market yesterday, falling 38 cents to close at $16.45.