The jobs report from the Labor Department last Friday will call into question the durability of the stock market surge. The consensus estimate was for 210,000 new jobs according to MarketWatch The Labor Department reported that nonfarm payrolls rose by 120,000 in March. Employment Situation Summary Private sector employment increased by 121,000. This report suggests to me that the strength in the prior three months was more seasonal rather than structural. The winter was unusually warm throughout most of the U.S.
On the positive side, the U-6 number continued to trend down, falling to 14.5 from 14.9 in February. Table A-15. Alternative measures of labor underutilization The unemployment rate fell to 8.2% due to the unemployed dropping out of the workforce.
The Federal Reserve did caution the market about the durability of recent employment gains in the meeting minutes released last week (see analysis at Economist's View)
While U.S. markets were closed for Good Friday, there was an immediate reaction in the currency market Friday morning, as the USD lost some ground to other major currencies. U.S. Dollar Index (DXY) The U.S. stock futures also dropped immediately in response to this release, which was reasonable. MarketWatch
I would agree with the argument made by Rex Nutting in his MarketWatch column, where he argued that this report was not a game-changer, but it is consistent with other data justifying a cautious stance after the recent market run up.
Germany's industrial production fell 1.3% in February. Some attribute the decline to a bitterly cold first half of that month.
Spain's 10 year bond spiked to 5.74% last Thursday from about 5% a month ago. ES 10Y Italy's 10 year bond yield has also started to move back up. IT 10Y
There are several companies that pay generous dividends that need to eliminate those dividends in my opinion based on their earnings and debt. Three of those companies are R.R. Donnelly (RRD), SuperValu (SVU) and RadioShack (RSH). I do have negligible positions in the RSH and SVU shares as part of my Lottery Ticket Basket Strategy which has close to 50 positions in it. Admittedly, I have greater exposure to the bonds issued by those companies, and bondholders would benefit from an elimination of common dividends provided the funds were used to retire debt or to improve operations in a meaningful way. I do not believe that the dividend policies of those companies are providing any support now to the stock price. The opposite is probably true.
I have mentioned in a prior post that I am becoming concerned about the price signals being given by SuperValu's common stock. Item # 2 Sold 1 SuperValu 7.5% Senior Bond Maturing 2014 at 101.75 New 52 week lows are being made now in regular fashion. The stock is hovering just above $5, closing at $5.13 last Thursday, which is lower than the prices shown in a long term chart starting in 1985. SVU Interactive Chart
The company has too much debt after its ill-advised acquisition of Alberstons. The common stock dividend is not providing any support for the stock. Possibly, a few retail investors would sell after a dividend elimination. Institutional investors with a value bent might become buyers, provided management signaled a productive use for that capital.
SuperValu is scheduled to report earnings tomorrow. Forbes The consensus estimate is 36 cents, down from 44 cents a year ago. The consensus also calls for a 3.9% decline in revenues to $8.32 billion according to Forbes. The SVU analyst estimate at YF show a consensus of 35 cents on $8.31 billion in revenues. The street is certainly pessimistic about this company, so a positive surprise on earnings and revenues could cause the stock to pop, at least temporarily.
As summarized in this DJ article at the WSJ, Moody's anticipates that natural gas prices will remain low "beyond next year" and will consequently have a negative impact on several industries. Coal companies and railroads that transport coal are two of those industries likely to be adversely impacted by low natural gas prices. Demand for coal is also expected to take a hit from utilities closing coal generation due to new emissions requirements from the EPA. Since low natural gas prices impact electricity prices, the adverse impact would extend to merchant power producers like Exelon and FirstEnergy according to Moody's. I mentioned that issue when discussing a recent purchase of Exelon shares. Item # 1 Bought 50 EXC at $39.66 Of course, the most serious impact would be on highly leveraged energy producers heavily skewed toward natural gas production.
1. Bought 300 WIW at $12.75 Roth IRA Last Wednesday (see Disclaimer): This bond closed end fund will invest mostly in U.S. treasury inflation protected bonds. SEC Filed 2011 Annual Report
On the positive side, the U-6 number continued to trend down, falling to 14.5 from 14.9 in February. Table A-15. Alternative measures of labor underutilization The unemployment rate fell to 8.2% due to the unemployed dropping out of the workforce.
The Federal Reserve did caution the market about the durability of recent employment gains in the meeting minutes released last week (see analysis at Economist's View)
While U.S. markets were closed for Good Friday, there was an immediate reaction in the currency market Friday morning, as the USD lost some ground to other major currencies. U.S. Dollar Index (DXY) The U.S. stock futures also dropped immediately in response to this release, which was reasonable. MarketWatch
I would agree with the argument made by Rex Nutting in his MarketWatch column, where he argued that this report was not a game-changer, but it is consistent with other data justifying a cautious stance after the recent market run up.
Germany's industrial production fell 1.3% in February. Some attribute the decline to a bitterly cold first half of that month.
Spain's 10 year bond spiked to 5.74% last Thursday from about 5% a month ago. ES 10Y Italy's 10 year bond yield has also started to move back up. IT 10Y
There are several companies that pay generous dividends that need to eliminate those dividends in my opinion based on their earnings and debt. Three of those companies are R.R. Donnelly (RRD), SuperValu (SVU) and RadioShack (RSH). I do have negligible positions in the RSH and SVU shares as part of my Lottery Ticket Basket Strategy which has close to 50 positions in it. Admittedly, I have greater exposure to the bonds issued by those companies, and bondholders would benefit from an elimination of common dividends provided the funds were used to retire debt or to improve operations in a meaningful way. I do not believe that the dividend policies of those companies are providing any support now to the stock price. The opposite is probably true.
I have mentioned in a prior post that I am becoming concerned about the price signals being given by SuperValu's common stock. Item # 2 Sold 1 SuperValu 7.5% Senior Bond Maturing 2014 at 101.75 New 52 week lows are being made now in regular fashion. The stock is hovering just above $5, closing at $5.13 last Thursday, which is lower than the prices shown in a long term chart starting in 1985. SVU Interactive Chart
The company has too much debt after its ill-advised acquisition of Alberstons. The common stock dividend is not providing any support for the stock. Possibly, a few retail investors would sell after a dividend elimination. Institutional investors with a value bent might become buyers, provided management signaled a productive use for that capital.
SuperValu is scheduled to report earnings tomorrow. Forbes The consensus estimate is 36 cents, down from 44 cents a year ago. The consensus also calls for a 3.9% decline in revenues to $8.32 billion according to Forbes. The SVU analyst estimate at YF show a consensus of 35 cents on $8.31 billion in revenues. The street is certainly pessimistic about this company, so a positive surprise on earnings and revenues could cause the stock to pop, at least temporarily.
As summarized in this DJ article at the WSJ, Moody's anticipates that natural gas prices will remain low "beyond next year" and will consequently have a negative impact on several industries. Coal companies and railroads that transport coal are two of those industries likely to be adversely impacted by low natural gas prices. Demand for coal is also expected to take a hit from utilities closing coal generation due to new emissions requirements from the EPA. Since low natural gas prices impact electricity prices, the adverse impact would extend to merchant power producers like Exelon and FirstEnergy according to Moody's. I mentioned that issue when discussing a recent purchase of Exelon shares. Item # 1 Bought 50 EXC at $39.66 Of course, the most serious impact would be on highly leveraged energy producers heavily skewed toward natural gas production.
1. Bought 300 WIW at $12.75 Roth IRA Last Wednesday (see Disclaimer): This bond closed end fund will invest mostly in U.S. treasury inflation protected bonds. SEC Filed 2011 Annual Report
I recently sold 200 shares at $12.91 (3/15/2011 Post). That transaction was in a taxable account and occurred on the ex dividend date for the monthly distribution. Given the low yield of this security, it makes more sense to buy it in the ROTH IRA, where I do not have to pay taxes on the distributions and consequently my after tax yield is the same as my current yield. Based on the distribution rate now in effect, the yield at a total cost of $12.75 is about 3.15%. The after tax yield, assuming a 35% marginal rate, would be about 2.05%.
I am in a trading mode for this security. I have realized gains from trading WIW of $518.57.
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| 2010 WIW Realized Gains $266.07 |
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| 2011 WIW Realized Gains $215.45 |
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| 2012 WIW Realized Gains $40.05 |
On Wednesday 4/4/12, this fund had a net asset value per share of $14.3. Based on a closing price of $12.77, the discount to net asset value was -10.7% at that time. The net asset value last Thursday was reported at $14.34, up four cents from the previous day, and the discount to net asset value had expanded to -11.16.
As of 2/29/12, 83.02% of the portfolio was invested in U.S. TIPS. WIW - Portfolio At that time, 85.89% of the portfolio was rated AAA by at least one rating agency.
While I remember that the fund has used leverage in the past, it has no leverage as of 3/30/12. I would view that as advisable given the abnormally low coupons of TIPs. At the time of my purchase, Bloomberg was showing a negative yield for 5 and 10 year TIPs. One advantage of WIW is that the current yield is over 3%, with the effective duration at 7.34 years as of 2/29/12.
CEFA Page for WIW (shows expense ratio at .75%)
Sponsor's webpage: WIW - Fund Overview
Morningstar page
This fund is currently paying a monthly dividend of $.0335. The next ex dividend date will be 4/11/12. Guggenheim Investments Announces April 2012 Closed-End Fund Distributions
I also recently bought what I view as a functionally equivalent IMF in the ROTH IRA. Bought 200 IMF at $17.7-ROTH IRA I have place a AON limit order to sell those shares. I have a similar trading history for both CEFs. Sold 200 of the Bond CEF IMF at $17.78; Bought 200 IMF at $17.45; Bought 300 CEF IMF at 16.5 May 2010; Sold: 300 IMF @ 17.23 October 2010; Bought 200 of the Bond CEF IMF at 16.64 February 2011 Sold at Few Days later; Sold 200 IMF at $17.15 February 2011
Treasury Inflation Protected Securities as a Non-Correlated Asset
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW) closed at $12.75 last week.
I will check early today to see how the iShares Barclays TIPS Bond Fund and the iShares Trust Barclays 20+ Year Treasury Bond Fund react to the Labor Department's employment report. I would anticipate seeing the typical risk-off trade.
2. New York Community Bank (NYB)(own 150 shares: Regional Bank Basket Strategy): New York Community Bancorp announced that it was acquiring $2.3 billion in FDIC insured deposits from the Delaware-based Aurora Bank. NYB expects the transaction to be immediately accretive.
Citigroup started NYB with a sell rating and a $11 price target. The analyst fears that NYB will be forced by its regulators to reduce its dividend. The 2012 payout is anticipated to be in excess of 95% of net income. The current consensus estimate for 2012 is $1.05 per share. On the other hand, a KBW analyst reiterated his outperform rating and a $15 price target. Both recommendations are summarized in this article at the TheStreet.
I mentioned the possibility of a dividend cut when I last added 50 NYB shares at $12.79 (February 7, 2012 Post). As shown in a snapshot from that post, I have already booked a $331.03 gain from NYB shares. I also bought 100 shares in two fifty shares lots back in October 2009 with a total average cost per share of $11.31. Bought 50 NYB at $11.3 Added 50 NYB at $11 NYB has paid its 25 cent per share quarterly dividend since my initial purchase. The yield at the total cost number is around 8.84%. So, I have received almost 2 1/2 years of a good qualified dividend yield from these shares. If I could now sell those shares for more than $15, I would probably do so and book a long term capital gain. For now, I will just hold onto them for the income.
New York Community Bancorp closed at $13.63 last week.
3. Reddy Ice (own 1 bond): The WSJ claims that Reddy Ice is preparing to file for bankruptcy. This is expected as noted in my post from last week. Item # 2 REDDY ICE The WSJ claims that Reddy Ice is preparing a prepackaged bankruptcy that will allow it to emerge more quickly from bankruptcy court. One of the creditors, a hedge fund, is apparently willing to forgive the debt owned by it in exchange for majority ownership of the company. That suggests a total wipe out for the existing common shareholders, a common result in bankruptcy proceedings, but does not provide any clarity yet on the status of the other bondholders.
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW) closed at $12.75 last week.
I will check early today to see how the iShares Barclays TIPS Bond Fund and the iShares Trust Barclays 20+ Year Treasury Bond Fund react to the Labor Department's employment report. I would anticipate seeing the typical risk-off trade.
2. New York Community Bank (NYB)(own 150 shares: Regional Bank Basket Strategy): New York Community Bancorp announced that it was acquiring $2.3 billion in FDIC insured deposits from the Delaware-based Aurora Bank. NYB expects the transaction to be immediately accretive.
Citigroup started NYB with a sell rating and a $11 price target. The analyst fears that NYB will be forced by its regulators to reduce its dividend. The 2012 payout is anticipated to be in excess of 95% of net income. The current consensus estimate for 2012 is $1.05 per share. On the other hand, a KBW analyst reiterated his outperform rating and a $15 price target. Both recommendations are summarized in this article at the TheStreet.
I mentioned the possibility of a dividend cut when I last added 50 NYB shares at $12.79 (February 7, 2012 Post). As shown in a snapshot from that post, I have already booked a $331.03 gain from NYB shares. I also bought 100 shares in two fifty shares lots back in October 2009 with a total average cost per share of $11.31. Bought 50 NYB at $11.3 Added 50 NYB at $11 NYB has paid its 25 cent per share quarterly dividend since my initial purchase. The yield at the total cost number is around 8.84%. So, I have received almost 2 1/2 years of a good qualified dividend yield from these shares. If I could now sell those shares for more than $15, I would probably do so and book a long term capital gain. For now, I will just hold onto them for the income.
New York Community Bancorp closed at $13.63 last week.
3. Reddy Ice (own 1 bond): The WSJ claims that Reddy Ice is preparing to file for bankruptcy. This is expected as noted in my post from last week. Item # 2 REDDY ICE The WSJ claims that Reddy Ice is preparing a prepackaged bankruptcy that will allow it to emerge more quickly from bankruptcy court. One of the creditors, a hedge fund, is apparently willing to forgive the debt owned by it in exchange for majority ownership of the company. That suggests a total wipe out for the existing common shareholders, a common result in bankruptcy proceedings, but does not provide any clarity yet on the status of the other bondholders.
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