End of Daily Posts After Today-Start of New Weekly Format 11/2/12/SOLD LT TEX at $23.27/Sold 1 First Tennessee 6.3% TP Maturing in 2034 at 96/ Earnings: FISI, XRX, FMER, RSH, GLW, CLGX, Apple/Increasing Risk Rating on RSH Bond to 9 from 7

This will be my last daily post. After this post, I am going to omit discussion of earnings reports and most transactions, and go to a Friday publication schedule.

Since starting this blog in October 2008, I have written 1749 daily posts, mostly very long ones.

The new format will be to publish one post a week. Unless there is some major event or a major shift in my asset allocation, the weekly post will be published on Friday morning each week. The new format will exclude discussions of most items traditionally discussed in the daily posts. Instead, I will start with a general overview of my big picture views and I will then select two to five trades to discuss. Those trades will be selected primarily to illustrate the process and reasons that led me to buy or sell that would have some general applicability and would be familiar already to long time readers of this blog. I am after all primarily an income and value investor.

I will not be discussing earnings reports after this post except in the context of discussing a buy or sell. I will not update my opinions about securities discussed in this blog, unless the security is selected for discussion in the Friday post.

I will be totally eliminating any discussion of Lottery Ticket selections, both buys and sells.

I will not be adding snapshots of buys and sells to any of the Gateway Posts. So the Lottery Ticket Gateway Post and the Regional Bank Basket Gateway Post are now frozen as of 10/26/12 for example. Lottery Ticket Strategy: New Gateway Post; REGIONAL BANK BASKET STRATEGY GATEWAY POST; Trust Certificates: New Gateway Post; REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages; Floaters: Links in One Post; Synthetic Floaters; Junk Bond Ladder Strategy; Advantages and Disadvantages of Equity Preferred Floating Rate Securities; Aegon Hybrids: Gateway Post; Advantages and Disadvantages of Equity Preferred Floating Rate Securities

I will not be adding any other material to prior posts. So, for example, if I sell a junk bond, that will not be noted in the Gateway Post for the Junk Bond Ladder Strategy. If I change my opinion about the risk of a junk bond, the new risk rating will not appear in the post on that subject.

The introduction of the weekly post will be in this general format:

Big Picture Synopsis:

Stable Vix Pattern in Force
Stock Outlook: Cautious & Bearish Short Term/Bullish Intermediate and Long Term
Bond Outlook: Neutral Short Term/Intermediate Term-Slightly Bearish/Extremely Bearish Long Term

My opinion about the big picture/macro type issues will drive my asset allocation and trading strategies within asset classes. Consequently, these issues are viewed as the most important ones for any individual investor. If I had any situational risks, which are absent in my current situation, I would need to take those risks into account when performing my asset allocation.  Big picture issues includes more than an analysis of what is happening in the world economy, but encompasses an appraisal of valuation and risks. In 1999, irrespective of an investors's age or risk tolerance, it would not have made any sense to maintain stock exposure at anywhere near normal levels based solely on the market's clearly excessive valuation for example.

{Some of the important posts on this subject include the following: Static v. Dynamic Asset Allocation (December 2008);  The Big Picture Questions (August 2011); The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets (June 2011);  ERROR CREEP and the INVESTING PROCESS (December 2011); Instability & Volatility in Asset Correlations (May 2009 Post); Precipitating Cause of Long Term Bear Markets (June 2011 Post); The Roller Coaster Ride of the Long Term Secular Bear Market (May 2010 Post); To Professor Siegel: Time for a Re-Think (May 2009);  Mark Hulbert and the Use of the VIX as a Timing Model (October 2011 Post)}

I would then briefly discuss some important economic and event news viewed as material to the Big Picture Synopsis. Then, there will be a discussion of two to five trades made during the prior five trading days.

The Trade section will follow the following format:

Description of Security and Trade Snapshot for Sells
Recent Earnings Release (may be no discussion for a sell)
Trading History, if any
Rationale for the Trade
Future Buy And/Or Sell Considerations

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In case anyone missed it, Richard Mourdock, one of the GOP's now dominant breed of reactionary Know Nothing Zealots, stated that a pregnancy resulting from rape was God's will. (video embedded in Richard Mourdock On Abortion: Pregnancy From Rape Is 'Something God Intended') Mr. Mourdock is endorsed by Romney in the upcoming Indiana Senate race.

Mr. Mourdock beat the sensible and grounded in reality Senator Luger in the GOP primary 60.6% to 39.4%. Richard Mourdock While I would consider voting for someone like Luger, I would never vote for Mourdock. Among Mourdock many reactionary beliefs, he is of the firm opinion that both Social Security and Medicare are unconstitutional (YouTube), and he favors the Ryan voucher program for future beneficiaries. POLITICO.com

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In an another irritating act, HCA announced a special common dividend of $2.5 per share to be "funded through borrowings under the Company's credit facilities". HCA is already over-leveraged with over $25 billion in long term debt as of 6/30/12. Form 10-Q Atrocious is the only description. Possibly, the bond owners need to exercise more care when negotiating covenants for new bond issues to pay off the maturing debt. I own two HCA bonds as part of my junk bond ladder strategy.

I do not have a position in Apple. After the market closed yesterday, Apple reported its fiscal 4th quarter earnings that slightly missed the consensus estimate, and guided its 2013 first quarter well below the consensus estimates on both earnings and revenues. Text of press release issued by Apple Inc. on October 25, 2012 (First quarter E.P.S. of $11.75 vs. consensus at $15.49, Bloomberg) This will not faze the Apple bulls, but some investors who have experienced large recent gains may start to pare their positions. I did notice at Fidelity a research report by a firm specializing in technical analysis that Apple stock had already formed a double top and had no discernible downside support yet.

Another negative for trading today is the earnings release from Amazon (no position). PRESS RELEASE

The market reacted favorably yesterday to the earnings report from Vale. Bloomberg Vale was recently added as part of the Flyer Strategy. Bought 50 Vale at $15.9 (August 2012 Post). Since that purchase, the stock has gone ex dividend. Iron Ore delivered to Qingdao China - 62% Ferrous Content - USD/dry metric ton Analysis -Bloomberg; Yesterday's Close: VALE: 18.34 +0.90 (+5.16%)

The market also reacted favorably to the Unilever earnings report: 3rd Quarter Results Unilever is a long term holding with over a 100% unrealized gain on the shares. Added to UL at 18 (March 2009 Post). Yesterday's Close: UL: 37.03 +0.92 (+2.55%)

The market reacted negatively to the report from France Telecom (discussed in this Motely Fool Article Dwindling Dividend to Rule Them All) After selling FTE shares many times profitably and collecting its oversized dividend, I am now stuck with 150 shares, with the last batch bought at $12.45. Headknocker is now what the LB calls an involuntary long term holder. Yesterday's Close: FTE: 11.45 -0.67 (-5.53%)

CoreLogic had a comforting third quarter report for bond owners. Press Release for Period Ended September 30, 2012 I own two lightly traded senior 7.55% bonds maturing in 2028, originally issued under the name of First American. The original issue amount was $100M but the company has repurchased about 40% of those bonds pursuant to a tender offer. S & P has a B+ rating. Moody's rates the bond at B1.

Ford announced that it was accelerating the transformation of its European operations. SEC Filed Press Release In this context, transformation means plant closures and layoffs. Ford increased its 2012 loss estimate for its European operations to exceed $1.5B.  (see article at Bloomberg)

I noticed last night, reviewing the WSJ dividend page, that my LT National Penn Bancshares increased its dividend to 10 cents per share from 9 cents. NPBC is scheduled to release earnings this morning, and that report will be reviewed to confirm that this stock is eligible for an upgrade to the Regional Bank Basket Strategy from the Lottery Ticket Basket Strategy. Item # 1 RB Bought as LT 30 NPBC @ $7.83

1. Sold 30 TEX at $23.27 Last Tuesday (Lottery Ticket Basket Strategy)(see Disclaimer): These shares were purchased at $14.43 last July. The realized gain on just 30 shares was $249.43 on a total investment of $440.70. This sell was my second round trip on a 30 share Terex lot this year:

2012 TEX 30 Shares (10/23/12) +$ 249.41

Those two 30 share lots have netted a total 2012 realized gain of $426.41.

A 2011 thirty share slip yielded $116.38, bringing the total for three 30 share flips to $543.08.

2011 TEX 30 Shares +$116.38

I still own 1 Terex 2017 subordinated bond.  Bought: 1 Terex 8% Senior Subordinated Bond Maturing on 11/15/2017 at 96.947 The current price of that note is close to the 104% price that Terex would have to pay for an optional redemption in the year commencing on 11/15/2012. The optional redemption premium declines to 102.677% after 11/15/13, then to 101.333% for the one year period after 11/15/14,   and then to no premium. Prospectus at page S-83 There is also a "change of control" provision set forth at that page. I suspect that Terex will redeem the notes before maturity, but may wait until the prepayment penalty shrinks.

After I sold my stock last Tuesday, the company reported better than expected earnings but reduced its forecast for revenues.  Terex Announces Third Quarter 2012 Results

Since I have bought and sold this stock three times over the past year, I will obviously buy the shares back at the right price. Most likely, I will have to raise my re-entry price above the price paid for the last three purchases.

Quote: Terex
Yesterday's Close: TEX: 21.89 -0.96 (-4.20%)

2. Xerox (own 100: $500 to $1,000 Flyers Basket Strategy): Investors reacted irrationally to Xerox's third quarter earnings report, released before the market opened on 10/23/12. The shares closed down 36 cents or 5.12% that day and declined another 2.85% on 10/25, closing at $6.48. XRX Historical Prices

Xerox met expectations of $.25 per share excluding items for the third quarter. The company did lower its 2012 estimate to $1.07-$1.09 from $1.07 to $1.12. In the third quarter, revenues from Xerox's service business rose 6% in constant currency, while revenues in the technology business (copiers, etc) declined by 7%.

I recently elevated XRX shares to the Flyer Basket Strategy from the Lottery Ticket Basket Strategy:  Added 60 XRX at $7.1

Xerox Stock Quote
Yesterday's Close: XRX: 6.5050 +0.0250 (+0.39%)

3. FISI (own 50: Regional Bank Basket Strategy): Financial Institutions (FISI) reported non-GAAP operating income of $.50 per share for the third quarter. SEC Filed Press Release The consensus estimate was for 45 cents. FISI Analyst Estimates The GAAP number included merger and acquisition charges of 9 cents per share and 12 cents per share after tax cost relating to the retirement of FISI's CEO.

As of 9/30/12, the net interest margin was 3.96%; the efficiency ratio was 64.29%; NPL ratio=.63%; the coverage ratio was 233%; NPA ratio=.43%; the tangible common equity to tangible assets ratio was 7.05%; tangible book value per share was $13.31; the total risk-based capital ratio was 12.16%; and the return on average assets for the quarter was .92%.

Bought 50 FISI at $15.55 (April 2012 Post)

Financial Institutions Stock Quote
Yesterday's Close: FISI: 18.56 +0.44 (+2.43%)

4. FirstMerit (own 137+ shares: Regional Bank Basket Strategy): FirstMerit reported net income of $35 million or 32 cents per diluted share, up from 29 cents in the year ago quarter.  The consensus estimate was for 32 cents.

As of 9/30/12, the net interest margin was 3.66% (down from 3.75% a year ago); the efficiency ratio was 61.75%; tangible common equity to tangible assets was 8.18%; NPA ratio=.77%; and the bank earned .94% on average assets during the quarter (up from .86% in the 2011 third quarter).

The current quarterly dividend is 16 cents per share. The recent dividend history of this bank indicates a steady grower from 1986 to the second quarter of 2009, when the quarterly rate was slashed from $.2858 per share to $.1577. The current 16 cent quarterly rate has been in effect since the 2009 4th quarter. FirstMerit Dividend History

Needless to say, I view that history as a negative, though nowhere near as bad of course as Citigroup and Bank of America. The CEO since May 18, 2006, Paul Greig, reportedly received compensation valued at over $6 in 2011 according to Businessweek. In my book, that is just ridiculous given the bank's performance during his tenure. The stock closed at $23.23 on 5/18/2006: FMER Historical Prices Whenever I see something remotely close to this, I will vote against the entire Board and cast my advisory vote against all compensation arrangements.

I have traded FMER shares profitably. My total average cost for the remaining shares is $14.86. I am reinvesting the dividend. I may add an odd lot before year end if and when the price falls below $13.75. 

FMER Stock Quote
Yesterday's Close: FMER: 14.13 +0.13 (+0.93%)

5. MBVT (own 50: Regional Bank Basket Strategy): Merchants Bancshares reported third quarter net income of $4M or 64 cents per share. The consensus estimate, made by two analysts, was for 58 cents. MBVT Analyst Estimates

Merchants is a community bank with 33 branches located throughout Vermont. Locations | Merchants Bank

Earlier in the month, MBVT declared its regular quarterly dividend of 28 cents, the 28th consecutive quarter at that payout level. ($.27 in the 2005 4th quarter) The good news in that statement is that this small bank did not cut its rate during the Near Depression. The bad news is that there has not been any dividend growth for a long time. .

As of 9/30/12, the net interest margin was 3.27%; the efficiency ratio was 58.64%; the NPA ratio=.16%; the NPL ratio=.26%; the total risk based capital ratio was 15.83%; the tangible capital ratio was 7%; and the return on average assets for the quarter was .97% annualized. The bank had no loan charge-offs during the quarter, and its non-performing loan ratio is the best among all of the banks in my regional bank basket.  

A non-performing loan to total loan ratio tells me a lot about the management of the bank, and gives me comfort about the safety of the dividend.

An investor can examine a wealth of information at the bank's website and by going to the SEC Edgar site. This is a link to the SEC filings for MBVT. When seeking comfort about the current dividend level, I asked myself about the bank's performance during 2008 or 2009. I can do that by scrolling to 10-K Annual Report filings. In 2008, MBVT reported net income of $1.96, up from $1.77 in 2007.  Annual Report for 2008 at page 22 I can see that the NPLs had moved up some, but the total during that dismal year in the banking industry ended at 1.37% NPLs to total loans. The bank is going to take hits during a deep recession. The only way to avoid those losses is to refuse to make any loans at all which is not exactly a prescription for success either.

While I do not know management, I can reasonably draw the conclusion that they are careful stewards of shareholder money. Their style is revealed in the financial statements. By the end of 2011, the NPL ratio was down to .24%.  2011 Annual Report at page 22 So, a review of the bank's history during the Near Depression gave me some valuable information about the future.

Now, if some bright new youngster, with a freshly minted M.B.A., gained control and started to talk about making condo development loans in Miami Beach, as a way to accelerate growth so that the Master of Disaster could receive huge bonus checks, then it would be time to exit my position for sure. During the Near Depression and its aftermath, a number of regional banks disappeared, or came close to self immolation, by venturing into non-traditional areas. MBVT is a Vermont community bank. Maybe it would be okay for the bank to gradually expand in New Hampshire, for example, or to make a prudent small acquisition in a neighboring state, but no more.

My last purchase was a 50 share odd lot last May: Bought 50 MBVT at $26.25 The dividend yield at a total cost of $26.25 is about 4.27%. The bank certainly has room to increase the dividend whenever it chooses to do so. A special $4.5 dividend was paid in 2004. Dividends | Investor Relations | Merchants Bancshares inc.

I earlier bought and sold 50 shares. Bought 50 MBVT at $22.9 (April 2010)- SOLD 50 MBVT at 26.5 (July 2011).

I passed on the opportunity to sell my 50 shares at over $30 last month. MBVT Historical Prices

MBVT Stock Quote
Yesterday's Close: MBVT: 28.25 0.00

6. Radioshack (own two 2019 unsecured senior bonds: Junk Bond Ladder Strategy) RSH continues to struggle for relevance and profits.  RadioShack reported another dismal quarter and a much wider than expected loss. For the third quarter, the company reported a loss of 33 cents per share, excluding items, compared to a consensus estimate of a 17 cent per share loss. Revenues fell to $1B from 1.03B in the 2011 third quarter. Same store sales declined by 1.6%. Fortunately for bond owners, the company eliminated its dividend to preserve much needed cash.

FITCH has reduced its credit rating to CC for the unsecured bonds. TEXT-Fitch The new senior secured loan is rated at "B" by Fitch.

Based on this last report, and the ongoing and persistent weakness in RSH's business, I have decided to raise the risk rating to 9 from 7.  Personal Risk Ratings For Junk Bonds I considered raising it to 10, but the company still has a lot of cash and bank loan liquidity, the total liquidity still exceeds total debt, and RSH appears to be on track to redeem the 2013 busted convertible bond maturing in 2013, the nearest maturity.

After today's post, I will no longer discuss changes in risk ratings.

The RSH has $325M outstanding of the 2019 bond.

7. Sold 1 First Tennessee Capital II 6.3% Maturing in 2034 at 96 Last Tuesday (see Disclaimer): This bond was sold at near break-even. Bought 1 First Tennessee Capital II 6.3% Maturing 4/15/2034 at 95.5 I was not pleased with the last earnings report. Zacks; Reuters; FIRST HORIZON NATIONAL CORPORATION FINANCIAL SUPPLEMENT

More importantly, the 6.3% coupon for such a long maturity did not seem worth it given the credit and interest rate risk. I came of age as an investor in the late 1960s and 1970s. My favorite line from that era was "how does one become a millionaire in bonds, you start with two million".

When I bought this bond, it was rated investment grade by Moody's and Fitch, and is now rated in junk territory by all three rating agencies. FINRA Fitch cut the debt ratings in June 2012: TEXT-Fitch S & P revised its outlook to negative in June: TEXT-S&P

A potential upside would be a possible call by First Tennessee. The bank will have to phase out the use of trust preferred securities as Tier 1 capital, and this TP can be called now. However, the upside is to 100 from 96, or just $40 for one bond.

I still own FHN shares as a LT selection.

6. AGY Holding (own 1 second lien 2014 bond: Junk Bond Ladder Strategy): I currently have a 10+ risk rating on this bond and fully expect to take a loss.  Personal Risk Ratings For Junk Bonds; Item # 3  AGY Holding  I do not have a risk rating higher than 10+. This purchase has turned out to be less than an optimal selection. To date, there has not been a missed interest payment.

I received an email notification that S & P had reduced its rating to "C".

Due to the change in format, I will no longer be discussing earnings issued by companies, including those companies that issued the junk bonds that I currently own. AGY filings can be found at the SEC's EDGAR site. I will review those reports, which should be routine for anyone owning the bond or contemplating its purchase or sell.  The 2014 AGY bond is currently trading below 50. I would gladly sell my bond at 48 if I see a bid at that price willing to accept that one bond. There have been some trades on 10/24 and 10/25 in the 48 range.  Otherwise, I will just hold and wait for the word.

7. Corning (own 50 shares: The $500 to $1,000 Flyers Basket Strategy): Corning announced third quarter earnings before the market opened on 10/24, and all  of my unrealized gain on a recently purchased 50 share lot went poof. Bought 50 GLW at $11.98 I thought the report was okay under the circumstances. The decline in the share price was probably due to the downbeat remarks made by the CEO, which are now being echoed by many CEOs. The comments made by Corning's CEO are discussed in this Seeking Alpha article.

Corning reported an adjusted E.P.S. for the third quarter of $.34, ahead of the $.32 consensus estimate. Revenues declined by 1.7% compared to the 2011 third quarter.

Closing Price on Day of Earnings Report: GLW: 12.15 -1.26 (-9.40%)
Yesterday's Close: GLW: 12.09 -0.06 (-0.49%)

8. Berkshire Bancorp (own: Regional Bank Basket Strategy): Berkshire Hills reported core net income per share of 52 cents per share, up from core earnings of 43 cents in the 2011 third quarter. The consensus estimate was for 49 cents. {Including non-core charges for mergers and systems conversions, GAAP net income was 46 cents compared to 22 cents in the year ago quarter.}

The Board also increased the quarterly dividend to 18 cents per share. The prior dividend rate was 17 cents. Dividends | Berkshire Bank This bank did not cut the dividend during the Near Depression period. There was a one cent quarterly dividend raise in the 2008 second quarter to 16 cents, followed by another 1 cent raise to 17 cents during the 2011 4th quarter.

As of 9/30/12, the net interest margin was 3.5%; the efficiency ratio was good at 57%; NPL ratio=.76%; NPA ratio=.59%; the coverage ratio was 126%; the tangible equity to tangible assets was 8.04%; tangible book value increased at a 10% annualized rate during the quarter to $15.86 per share; and the core return (annualized) on average assets during the quarter was 1%.

Third quarter deposit growth totaled $40M or 5% annualized with loan growth at $53M.

Bought 50 BHLB AT $21.66 (March 2012)

Yesterday's Close: BHLB: 23.70 +0.32 (+1.37%)

9. New York Community (own 150: Regional Bank Basket Strategy): New York Community Bancorp  reported GAAP net income of $128.8M or 29 cents per share, up from $.27 in the 2011 third quarter. (non-GAAP E.P.S. of $.32). The consensus estimate was for 29 cents per share. NYB Analyst Estimates The Board also declared the regular quarterly dividend of 25 cents per share.

This bank has 274 branches through two operating banks: New York Community Bank, a thrift, and New York Commercial Bank. NYB has used the Near Depression to expand beyond its base in Queens, Staten Island and Brooklyn, NYC, to include operations in Arizona, Ohio and Florida through FDIC assisted acquisitions of AmTrust based in Ohio and Desert Hills Bank. Item # 8 NYB; FDIC: Press Release on Desert Hills; FDIC: Press Release on AmTrust.

As of 9/30/12, the net interest margin was 3.17% (down from 3.33% 9/30/11); the cash efficiency ratio was excellent at 39.1%; tangible book value per share was $7.22; tangible equity to tangible assets ratio was 7.62%; cash return on average tangible assets was 1.37%; NPL ratio for non-covered loans=.82%; NPA ratio for non-covered assets=.66%; and the cash return on average assets for the quarter was 1.29%.

The capital ratios are good:

Capital Ratios of Operating Banks as of 9/30/12

Earnings Call Transcript - Seeking Alpha

My last purchase was at $12.79. Added 50 NYB at $12.79 (February 2012). Prior to that add, I bought two fifty share lots in 2009 in the main taxable account. Bought 50 NYB at $11.3; Added 50 NYB at $11.  My total average cost per share is $11.86.

NYB has been paying a $.25 per share quarterly dividend since the 2004 first quarter when the dividend was 21 cents per share. New York Community Bancorp Dividend History Assuming a continuation of the 25 cent rate, the dividend yield at my total cost of $11.86 is about 8.43%. For the time being, I am content collecting that dividend.

I sold 50 shares in an IRA for a $331.03 gain. Sold NYB in IRA at $17.51 (snapshot in Item # 1  2/7/12

Yesterday's Close: NYB: 13.90 -0.02 (-0.14%)