Big Picture Synopsis
Stocks:
Stable Vix Pattern (a bullish cyclical pattern)
Vix Asset Allocation Model Explained Simply
Mark Hulbert and the Use of the VIX as a Timing Model
Vix Asset Allocation Model Explained Simply
Mark Hulbert and the Use of the VIX as a Timing Model
Short Term: Slightly Bearish
Intermediate and Long Term: Bullish
Bonds:
Short Term: Neutral
Intermediate Term: Slightly Bearish
Long Term: Extremely Bearish
The framework for a generational bear market in bonds is provided by Guggenheim Partners' Chief Investment Strategist, Scott Minerd: The Keynesian Depression The end game for the gigantic U.S. budget deficits, money printing and abnormally low interest rates will be inflation.
The Keynesian approach, followed by developed countries for decades, calls for massive government borrowing and spending during the inevitable economic downturns in order to replace diminishing private demand and to prevent a serious recession from turning into another depression.
I have no problem with that approach provided it was possible for western Democracies to impose somewhat higher taxes and government belt-tightening during periods of economic growth. The general idea is to lower taxes and increase government spending during downturns, and then raise taxes and cut spending during the good times.
If western governments had followed the entire Keynesian approach, taxes would have been raised in good times either to reduce government debt or to drastically slow the rate of debt growth, but this was rarely done. And when done, the tax increase lasted only for relatively short periods (e.g. during the Clinton and Daddy Bush administrations in the U.S.). Economic growth cycles were met with more government spending rather than any restraint. The end result is that the U.S. government has ended up with four years of trillion plus dollar budget deficits, and a public debt in excess of 100% of GDP already.
While liberals like Krugman believe that the government should be running higher deficits and borrowing even more money at the current abnormally low rates, the historical record does not support his thesis that such an approach will have a favorable outcome. I do not recall Krugman discussing the work of Reinhart and Rogoff that examines the historical record on what happens after a government reaches a 90% debt to GDP ratio. At our government's existing debt load, we have already jeopardized the growth potential of the U.S. economy. September 30, 2012 US Debt-To-GDP: 102.4% | ZeroHedge; (IMF: Report for Selected Countries and Subjects) The tipping point is public debt levels exceeding 90% of GDP. Forbes.com; Rogoff and Reinhart book: This Time Is Different: Eight Centuries of Financial Folly; Bill Gross newsletter titled PIMCO | Investment Outlook - The Ring of Fire (added new link for this one post publication)
On the fiscal cliff negotiations, the GOP House Whip, Kevin McCarthy, said that matters were getting worse, not better. CNBC
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The Labor Department reported last Friday that the U.S. added 146,000 jobs in November. The unemployment rate fell to 7.7%, the lowest since December 2008. The unemployment rate fell due to a a 350,000 drop in the labor force (labor participation rate fell .2% to 63.6%). The average workweek remained unchanged at 34.4 hours, while average hourly wages rose 4 cents. Employment Situation The U-6 number declined to 14.4% from 14.6% in October. Table A-15. Alternative measures of labor underutilization Job gains for September and October were revised down by 49,000, with the revisions concentrated in the number of government jobs.
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Prospect Capital (own) increased its monthly dividend rate: Prospect Capital Raises Its Monthly Dividends by 8.2%, Increasing Its Dividend Yield to 12.8%
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The OG is far from a tech wizard. I did read with interest Tiernan Ray's Barrons' column that summarized a Merrill Lynch report on the big thing for 2013, something called 4G cellular standard long term evolution. Merrill highlighted several stocks likely to benefit from this "extravaganza" in 2013. Whenever anyone uses extravaganza and stocks in the same sentence, I am likely to reach for my wallet to make sure it is still there. Nonetheless, I was pleased to see that CISCO, which is owned, was on the list of beneficiaries. My small 152+ shares recently went positive, with an average cost per share of $19.53.
Cisco makes a lot more sense to me at its current price than Amazon. Dr. Stephen Leeb, who has been around for a long time as an investment advisor, tries to make a case for Amazon as a value investment in a recent article published by Seeking Alpha. Apparently, the current, patently ridiculous P/E is explained by the comment that Jeff Bezos has been relentlessly focused on the long term since the company started to sell products online in 1995. I appreciate that long term perspective. Eighteen years later, the GAAP earnings of the company have been erratic and trending down, not skyward.
AMAZON GAAP E.P.S.
Estimate 2013: $1.76 as of 12/12/12-AMZN Analyst Estimates
Estimate 2012: -.01
2011: $1.37
2010: $2.53
2009: $2.04 FORM 10-K at page 37
2008: $1.49
2007: $1.12
2006: $.45 2008 Form 10-K at page 19
2005: $.84
2004: $1.39
Dr. Leeb was not finding many true believers in the Amazon as value stock thesis, judging from the comments. I would agree with the several of the negative comments, including the one left by an author who placed a $50 price tag on the stock in an earlier Seeking Alpha article.
I could not resist posting a comment to Dr. Loeb's article. I have advanced my net worth steadily over the years by refusing to drink the Kool-Aid.
The OG will readily admit to being ossified, almost a fossil. One SeekingAlpha reader ask me how I arrived at a $35 price for Amazon. The OG is simple minded. If I gave AMZN an extremely generous 20 P/E on estimated 2013 earnings, I would arrive at $35 per share. Now, be honest, if you saw the numbers above and knew nothing else, how much would you pay for the stock?
I also posted a comment to a Seeking Alpha article where the author argued that General Electric could double in 12 to 18 months. I own 514 shares with an average cost $20.03, slightly up from $20.01 when I last mentioned this number. I had changed my dividend option to cash before the last dividend, but I received nonetheless 4.031 shares on 10/25/12 at a $21.53 price, which raised my total average cost by two cents. I viewed that event to be a sign from GOD and consequently changed my option back to reinvestment. It is not often that the Lord gives investment advice on stocks, so the OG was grateful for that sign.
My target price would be $28 to $34 in 12 to 18 months. I will be able to dramatically lower my average cost by selling my highest cost shares profitably at $35. The highest cost shares from 2008 (172.209 which I just calculated), purchased between $26.95 to a high of $32.63, have an average cost per share of $30.01. Most likely, I would unload those shares between $31 to $35 which would then leave me with the following, plus any future shares acquired with the dividend:
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| GE Purchases Subsequent To Lehman's Failure=342.328 Shares |
I just calculated the average cost of those shares at $15. So I have a plan now.
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CEF News
Blackrock had several closed end funds that started with the title "Blackrock Credit Allocation Income Trust" (BTZ, PSW, PSY and BPP). All of the funds had similar holdings.
BlackRock reorganized the funds by converting shares of PSW, PSY and BPP into the surviving fund BlackRock Credit Allocation Trust IV (BTZ). The conversion ratios were based on net asset values as of 12/7/12 and the conversion was effective at the market's opening on 12/1/0/12.
I sold out of my BTZ shares but still own some PSY. I will receive .80162384 shares of BTZ for each PSY share.
Most about this reorganization can be found at BLACKROCK CREDIT ALLOCATION INCOME TRUST IV (reference to tax issue is a pages v, 93-94)
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| PSY INTO BTZ |
The China Fund (own) declared a large year end distribution of $3.2688 per share, consisting mostly of a long term capital distribution estimated at $2.8995. A large distribution was made last year too. The 2011 year distribution was $2.9964 per share, of which $2.8222 was classified as a long term capital gain distribution. The China Fund, Inc. Declares Distributions (12/8/11 Press Release) I am reinvesting the dividend. If the share prices goes down more than the amount of the dividend shortly after the ex dividend date, and the discount is over 10%, I may add more shares.
Occasionally, an investor will focus on the original price paid for a fund, calling the investment a dud, without making any adjustment for the dividends paid by the fund. This is just a non-sensical approach, since the name of the game is "total return after tax." I would prefer that funds try to avoid these large distributions. However, I would prefer having that large, long term capital gain distribution paid this year rather than spreading it out over 2013 and probably several years thereafter. I know now that the 2012 maximum tax rate on a long term capital gain distribution is 15%.
Two Morgan Stanley CEFs that I own, MSF and APF, declared their year end distributions. Certain Morgan Stanley Closed-End Funds Declare Year-End Dividends Both are nominal.
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1. Bought 50 NYCB at $12.94 Regular IRA (Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST)(see Disclaimer): My prior discussions of this stock refer to the symbol as NYB which was correct at the time. The bank changed its symbol to NYCB from NYB after recently moving to the Nasdaq. When this change occurs, my broker will automatically change the symbol for historic trades to the new symbol.
Company Description: New York Community Bancorp is a bank holding company that operates, through its subsidiaries, 121 community bank branches and 34 commercial bank branches in the metropolitan NYC area, and 51 community branches in New Jersey. Through FDIC assisted acquisitions, NYCB has expanded into Ohio, Arizona and Florida, with 28 bank branches in Ohio, 26 in Florida and 14 in Arizona.
New York Community Bancorp Profile Page at Reuters
Bank Website: The NYCB Family of Banks
New York Community Bancorp Profile Page at Reuters
Bank Website: The NYCB Family of Banks
Trading History: In my regular IRA, I have bought and sold profitably two 50 share lots of NYCB. The most profitable of those two trades resulted in a realized gain of $331.03 on a 50 share lot:
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| 2010 Regular IRA 50 Shares NYB +$331.03 |
My most recent purchase was a 50 share add in a taxable account, where I currently own 150 shares. I have not been reinvesting the dividend. Added 50 NYB at $12.79 (2/7/12 Post); Bought 50 NYB at $11.3 (October 2009); Added 50 NYB at $10.57 (October 2009).
For my entire period of ownership, this bank has paid a quarterly dividend of $.25 per share. The last increase was in the 2004 second quarter. New York Community Bancorp Dividend History A dividend cut is more likely than any dividend raise given the high payout ratio.
The stock went ex dividend for its quarterly distribution on 11/5/12.
For my entire period of ownership, this bank has paid a quarterly dividend of $.25 per share. The last increase was in the 2004 second quarter. New York Community Bancorp Dividend History A dividend cut is more likely than any dividend raise given the high payout ratio.
The stock went ex dividend for its quarterly distribution on 11/5/12.
Recent Earnings Release 2012 Third Quarter:
Net Income: GAAP $128.8M or $.29 per diluted share, up from $.27 2011 3rd Q
Net Interest Margin: 3.17%
Efficiency Ratio: 40.5% (excellent; one of the lowest-Motley Fool)
Non-Covered NPL Ratio: .82%
Non-Covered NPA Ratio: .66%
Coverage Ratio: 56.38%
Holding Co. Total Risk Based Capital Ratio: 14.37% (page 81 10-Q)
Tangible Equity to Tangible Asset Ratio: 7.74%
Return on Average Assets: 1.29% on tangible assets
SEC Filed Earnings Press Release for the 2012 Third Quarter
Form 10-Q for the Q/E 9/30/12
Net Income: GAAP $128.8M or $.29 per diluted share, up from $.27 2011 3rd Q
Net Interest Margin: 3.17%
Efficiency Ratio: 40.5% (excellent; one of the lowest-Motley Fool)
Non-Covered NPL Ratio: .82%
Non-Covered NPA Ratio: .66%
Coverage Ratio: 56.38%
Holding Co. Total Risk Based Capital Ratio: 14.37% (page 81 10-Q)
Tangible Equity to Tangible Asset Ratio: 7.74%
Return on Average Assets: 1.29% on tangible assets
SEC Filed Earnings Press Release for the 2012 Third Quarter
Form 10-Q for the Q/E 9/30/12
2012 Third Quarter Investor Written Presentation
I discussed the 2011 4th quarter earnings report at Item #3 NYB.
I discussed the 2012 1st quarter earnings report at Item # 3 NYB
I discussed the 2012 2nd quarter earnings report at Item # 3 NYB
I discussed the 2011 4th quarter earnings report at Item #3 NYB.
I discussed the 2012 1st quarter earnings report at Item # 3 NYB
I discussed the 2012 2nd quarter earnings report at Item # 3 NYB
Rationale: (1) Dividend Yield Plus Some Capital Appreciation Potential: With a $.25 per share quarterly dividend, the dividend yield at a total cost of $12.94 is about 7.72%. If that rate is continued, I would need around a 2.28% annual increase to capture a 10% annualized return which would be tax free in the Roth IRA. I would be pleased with that kind of return in the ROTH IRA.
A 10% annualized would require only a 30 cent rise in the price after capturing 4 dividends plus an additional $.28 per share to cover the $14 roundtrip brokerage commissions, or a $.58 rise in the share price altogether.
My target price will be a $1 rise in price to $13.94 (a 7.72% increase before commissions), or higher, after collecting four dividends. Hopefully, that price target can be hit within a 12-15 month time period. If the target can be hit soon after collecting five dividends, then the total return will easily clear 10% annualized.
A 10% annualized would require only a 30 cent rise in the price after capturing 4 dividends plus an additional $.28 per share to cover the $14 roundtrip brokerage commissions, or a $.58 rise in the share price altogether.
My target price will be a $1 rise in price to $13.94 (a 7.72% increase before commissions), or higher, after collecting four dividends. Hopefully, that price target can be hit within a 12-15 month time period. If the target can be hit soon after collecting five dividends, then the total return will easily clear 10% annualized.
The stock traded over $14 between December 2009 to July 2011 and again briefly during October 2012. NYCB Interactive Chart The stock traded consistently over $15 between January 2002 and October 2008. There was a parabolic price spike in late 2003 and January 2004 that took the shares to over $35. NYCB Long Term Interactive Chart (November 1993 to Date)
Morningstar has a 4 star rating on NYCB with a $16 fair value estimate. A $16 price would represent about a 23.65% increase from the $12.94 purchase price.
(2) Near Zero Loan Losses in NYCB's Key Business: NYCB has carved out a niche in NYC which focuses on multi-family mortgages in rent-controlled buildings. Owners of those properties can not raise the rents unless they improve the property. NYCB loans them the money for such upgrades which have a very low delinquency rate, given the average loan value ratio of 60% and the desirability of the property, and are frequently paid off early, thereby incurring prepayment penalties.
As of 9/30/12, multi-family loans represented $18.5B or 68.9% of the loans held for investment and the vast majority of those loans were made to long term owners of property (81.2% of the multi-family loans were secured by buildings in NYC). Pages 54-55 Form 10-Q
Before NYCB used the Near Depression to expand its geographic footprint with FDIC assisted acquisitions, charge-offs totaled less than .01% of total loans. The acquisition of the failed bank AmTrust brought a traditional loan book to NYCB and access to low cost deposits as a source for loans. That acquisition will cause loan losses to increase over historic averages but will also lower NYCB's loan funding costs. The net charge offs to total loan ratio was .03% in the 2012 third quarter, see page 51 Form 10-Q.
Risks: (1) A major risk would be a dividend cut. The payout ratio is close to 90%: New York Community Bancorp Dividends Such a large payout also retards organic growth, much in the same way as dividends paid by REITs and BDCs that are required to pay out 90+% of their net income to maintain their tax status. Unlike REITs and BDCs, however, NYCB does not avoid double taxation on the net income paid out to shareholders in dividends.
(2) Net Interest Margin Is Low: At 3.17%, down from 3.33% in the year ago quarter, NYCB's 2012 third quarter net interest margin was one of the lowest among the banks in my regional bank basket. And, even that low number was juiced by a record number of prepayment penalties for mortgage refinancings. Those prepayment penalties are reported as interest income. (page 54, Form 10-Q)
(2) Net Interest Margin Is Low: At 3.17%, down from 3.33% in the year ago quarter, NYCB's 2012 third quarter net interest margin was one of the lowest among the banks in my regional bank basket. And, even that low number was juiced by a record number of prepayment penalties for mortgage refinancings. Those prepayment penalties are reported as interest income. (page 54, Form 10-Q)
Future Buys: I now own 200 NYCB shares, with 50 shares in an IRA. At most, I would buy another 50 shares in a taxable account, when and if such a purchase would lower my total average cost per share which is currently $11.86 for 150 shares.
Quote: New York Community Bancorp
2 Sold 2 U.S. Steel 7.5% Senior Bonds Maturing in 2022 at 103.5 (Junk Bond Ladder Strategy)(see Disclaimer): I am no longer tracking my gains and losses in the junk bond ladder strategy. The last item recorded was the redemption of my Edgen Murray senior secured bond at a premium to its par value, trade # 49 at Item # 5 Realized Gains Junk Bond Ladder Strategy.
I expect to break-even on the bonds purchased pursuant to this junk bond ladder strategy.
I expect to break-even on the bonds purchased pursuant to this junk bond ladder strategy.
The limit of price of 103.5 is adjusted to 103.1 to account for the brokerage commission of $8. I will receive $36.25 in accrued interest from the buyer.
The two U.S. Steel bonds were purchased in one bond lots: Bought 1 U.S. Steel 7.5% Senior Bond Maturing 3/15/22 at 94 (June 2012); BOUGHT 1 U.S. Steel 7.5% Senior Bond Maturing in 2022 at 98.95 (September 2012). The profit on the bonds will be about $116, subject to possible further obtuse calculations relating to the amortization of the discount to par value.
I still own 1 bond bought in the Roth IRA: Bought 1 U.S. Steel 7.5% Senior Bond Maturing 3/15/22 at 99
U.S. Steel Earnings Report for the Q/E 9/30/12 Form 10-Q
SEC Filed Press Release 2012 3rd Quarter Earnings
FINRA - Investor Information on 2022 Bond
Prospectus Supplement
Since I have lost some money on a few bond defaults (2 Kodak 2013 bonds) and trades (4 Edison Mission bonds), I have found it necessary to sell a number of winners, when the price spikes above par value, in order to offset those losses. I have also had a number of bonds called recently at premiums to their par value which have generated profits too (e.g. Edgen Murray, Gray Television, and a Terex bond later this month). I will hold a number of bonds until maturity which will yield a profit, assuming repayment, since all of those bonds were bought at discounts to par value.
I am winding down this strategy. I no longer find the yields of junk bonds attractive, given their risks, though I am content to hold most of my bonds that are current in their interest payments.
3. Swap Trade ROTH IRA: Bought 100 DPG at $17.31 and Sold 100 of the 150 GYB at $18.03 (see Disclaimer): In this swap trade, I pick up more yield with DPG and greater diversity. At the $17.31 price, DPG has close to a 8% yield, while the GYB is currently yielding about 4.5% at a total cost of $18.03.
Security Description and Rationale For the Swap:
GYB is a Synthetic Floater in the Trust Certificate form of ownership that pays the greater of 3.25% or .85% above the three month Libor rate on a $25 par value. Prospectus Due to the Fed's Jihad Against the Saving Class, the 3 month LIBOR rate is currently close to .5%. This short term rate would have to rise above 2.4% during the relevant computation period to trigger an increase in the 3.25% minimum coupon. Based on current Federal Reserve monetary policy, which is likely to keep the federal funds rate near zero possibly into 2015, a reasonable forecast would be a continuation of the minimum 3.25% for at least another 3 years. By buying GYB at a discount to par value, I am able to juice the yield some but GYB would have to fall to about $10.2 to generate a 8% yield based on its 3.25% minimum coupon.
I discuss some of the risks relating to GYB in several posts written in connection with previous purchases. I discussed the differences in GYB and GJN in several posts after Wells Fargo redeemed GJN and paid itself an egregious swap termination fee. The Egregious Swap Termination Fee Paid to the GJN Swap Counterparty
One notable difference between GYB and GJN is that the underlying security in GYB, a 2034 trust preferred issue, does not contain an escape hatch for a "capital treatment event" that would allow Goldman Sachs to avoid a make whole payment for an optional redemption. Stocks, Bonds & Politics: Sold 50 JBK at $22.75/Reassessment of Current Synthetic Floater Positions; Item # 3 GJN Redemption (near the end of that post)
{I am surprised that no one has apparently sued Wells Fargo and J P Morgan for the events connected to the GJN redemption. Turkle Trust v. Wells Fargo; Stocks, Bonds & Politics: District Court Decision in Turkle Trust v. Wells Fargo (N.D. Cal)/Summary of Argument: JPM Potential Obligation to Pay Make Whole for its Recent 2035 TP Redemption/Other JPM Capital Trust Preferred Securities: Language on Make Whole Payment and Capital Treatment Event}
I recently discussed the closed end fund DPG after buying 100 shares in a taxable account. Item # 1 Bought 100 of the CEF DPG at $17.3 This fund uses leverage to invest in utility, telecommunication and MLP stocks. The fund went ex dividend for its 35 cent quarter distribution shortly after my purchase on 12/12/12. Assuming a continuation of that rate, which is in no way assured, the dividend yield at a total cost of $17.31 is about 8%.
I have nothing to add to my discussion in that recent post, except that the 8% yield paid into the ROTH will be tax free and the discount has expanded some.
12/10/12 (Day of Purchase)
Net Asset Value Per Share= $18.85
Closing Market Price= $17.31
Discount= -8.17%
Net asset value information can be found at the following sites:
WSJ Closed-End Fund market data page under "specialized equity funds"
DPG Page at the CEFA
DPG at Morningstar
Sponsor's website: Duff & Phelps Global Utility Income Fund — Home
Trading Activity: I have bought and sold GYB on several occasions. The shares sold at $18.03 were bought in March of this year at $17.2-Roth IRA. My last purchase was to buy 50 shares at $16.5 in May which are still owned by me.
Bought 100 GYB at 10.95 /Will Hold Synthetic Floaters In Retirement Account; Added another 100 GYB in Regular IRA at $11 (April 2009); Sold 50 GYB at $15 (September 2009); Sold 100 GYB at 18.09; Bought 70 GYB at 18.49 in Regular IRA (March 2010); Added 30 GYB in IRA at 17.97; Sold: 100 GYB @ 19.9 (October 2010); Bought 50 GYB @19.07 (October 2010); Bought 50 GYB at 18.63 in the Roth IRA; Sold 100 GYB at 19.7 in Roth IRA (May 2011); Bought 50 GYB at 16.95 in Roth IRA (August 2011); Added 50 of the Synthetic Floater GYB at $15.56 Sold 100 GYB at $17.07 (January 2012); Bought Back 100 of GYB at 17.2-Roth IRA (March 2012); Added 50 of the Synthetic Floater GYB at $16.5-Roth IRA (May 2012).
My largest realized gain was a $691.71 gain on 100 shares bought in a regular IRA at $11 in April 2009 and sold about one year later. A 50 share lot was also flipped that year:
This last 100 share trade netted a realized gain of $64.98, bringing my 2012 ROTH IRA realized profit total for GYB to $130.28 plus interest payments:
Two fifty share lots bought and sold in 2011 yielded a $68.97 profit:
A 2009 round trip on a 50 share lot yielded a $183.98:
I will consider buying back a 50 share lot of GYB at below $16. The security does have the positive attribute of combining some inflation and deflation protection in the same security.
4. Averaged Down by Adding 50 ENY at $15.6 (see Disclaimer):
Security Description: The Guggenheim Canadian Energy Income ETF is an ETF that invests in Canadian energy companies.
I took a snapshot of the top ten holdings as of 12/11/12:
Nexen is about to be lost due to its pending acquisition by CNOOC. I have a small individual position in Suncor. Item # 2 Bought 50 SU at $28.67 (December 2011 Post).
Sponsor's webpage: Guggenheim Canadian Energy Income ETF (ENY)
The expense ratio is .65%.
Distributions are paid quarterly at a variable rate: ENY Distributions
This is a link to the current holdings: ENY Holdings
Trading History: This last purchase was an average down from a prior buy at $16.83 (October 2012)
I have had some prior minor trades:
It is just as well that I sold this small lot: Sold 50 ENY at $18.25 (February 2012)- Bought 50 ENY at $17.18 (Item # 5 January 2012 Post)
I may have been slightly better off keeping another lot: Bought 50 ETF ENY at $13.6 (August 2009)- Sold ETF ENY at $15.75 (November 2009).
Rationale: (1) Canadian Oil Sands Are a Long Lived Energy Source: I do not pretend to know where oil prices will be the coming years. With increasing demand from a hoped for cycle of worldwide economic growth (ex Europe for a couple of years), and dramatically increasing oil consumption in developing markets, particularly in China, one outcome in the coming decade would be a substantial surge in oil's price from existing levels, while natural gas may be far less susceptible to price spikes in the U.S. due to hydraulic fracking in massive oil shale deposits. I try not to over think possible future outcomes. This seems like a realistic possible outcome which is sufficient for me to put some cash into this theme.
The Canadian oil sands do contain a long life crude oil asset The government of Alberta estimates that there is about 173 billion barrels of oil that can be extracted from the oil sands located in that province using current technology and based on prevailing oil prices. There have been a number of recent acquisitions of Canadian companies exposed to oil sand production, including the recently approved purchase of Nexen by CNOOC. Government OK's foreign bids for Nexen, Progress Energy - Business - CBC News The Canadian government may not be receptive to more acquisition by oil companies controlled by foreign governments.
In previous discussions about Canadian energy companies, I referenced an interview with Charles Maxwell published in 2011 by Barrons who was then predicting $300 oil by 2020 and recommended two Canadian energy companies, Suncor and Cenovus, with heavy exposure to the oil sands. Those two companies have almost a 15% weighting in ENY with Canadian Oil Sands having another 7.32% current weighting.
(2) Large Untapped Deposits Are Frequently Located in Places With More Country Risk: Canada may at times take some action that adversely impacts profitability but nationalization is most likely never to be on the agenda. Christine Kirchner, the President of Argentina, recently nationalized a 51% interest in YPF to the dismay of Repsol, Seeking Alpha, a pattern that has been followed throughout the developing world for decades.
(3) Recently Sold 200 Husky: I recently sold my 200 shares of Husky which decreased my exposure to Canadian energy companies. Husky is one of ENY's holdings. Sold 200 HSE:CA at $28.13 CADs (October 2012 Post). By averaging down on ENY, I am inching back to my previous net exposure to Canadian energy companies.
Risks: I would describe the risks as normal ones for a sector stock ETF that invests in foreign companies. The foreign company angle adds currency and country risk. When I think about country risk, the first image that pops into my mind is Hugo Chavez. Needless to say, Canada is not likely to follow Hugo's example, but there is always the possibility that the federal or provincial countries will enact laws (particularly increased taxes) and regulations adversely impacting the profitability of its energy companies or the acquisition of those companies at premium prices by foreign entities.
5. Added 112 of STL at $8.6863 (Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST)(see Disclaimer): I had a previous fill of a 100 share limit order with 88 shares. This last purchase brings me up to 200 shares. The stock went ex dividend for a 9 cent per share quarterly dividend the day after my purchase. I do not mind buying that dividend since the stock had declined by far more than the dividend on the day of my purchase. The volume was extremely heavy on 12/11/12 at 490,885, compared to an average volume of slightly more than 73,000. I did not see any news to account for the decline. There had been no SEC filings since 11/9/12 and no news reported at the financial sites. Frequently, this kind of day results from a single institution deciding to unload or substantially pare its position in a small stock, and STL has a number of large institutional owners. STL Major Holders
Closing Price on Day of Purchase: STL: 8.62 -0.29 (-3.25%)
Company Description: Sterling Bancorp is a bank holding company headquartered in NYC whose principal subsidiary is the Sterling National Bank. Most of the branches are located in Manhattan and Queens. Sterling Bancorp Branch & ATM Locations I counted 14 branches plus some additional offices and ATM locations.
This stock has been in a narrow channel since February 2010, trading mostly between $8 to $10. STL Interactive Chart A longer term chart reveals a robust movement from about $2 in 1991 $26 in 2004: Long Term STL Interactive Chart 1987 to Date
Without the Near Depression, the stock may have steadied in the $19 price area, but instead dived in 2007-2009 until forming the current channel.
Sterling Bancorp Profile Page at Reuters
Sterling Bancorp Key Developments page at Reuters
Sterling did participate in TARP, viewed as a negative by me, but has paid the government back. And, I view even more negatively the sell of stock at a low price in order to buy back the government's preferred shares. STL sold 4.025M shares at $9.6. Sterling-SEC Form 8-k; STL Common Stock Offering While that is not as bad as a number of banks, it is still not good.
Trading History: As previously mentioned, this last purchase was a slight average down from an earlier 88 share purchase. Item # 3 BOUGHT 88 STL AT $8.98 (March 2012) I noted in that post a lot of trading activity for Sterling's Trust Preferred security. I no longer have a position having sold my last 200 shares of STLPRA. Sold 200 STLPRA at $10.5 (August 2012).
I have one prior one trip on a small common share lot: Bought 50 STL at $6.58 (December 2009)-Sold STL at $10.5 (February 2011).
Recent Earnings Release:
2012 Third Quarter:
Net Income: $5.3M or $.17 per share, up from $.14 in the 2011 third quarter
Net Interest Margin: 4.02% (up 12 basis points)
Efficiency Ratio: Not Shown
NPL Ratio: .32%
NPA Ratio: .26%
Coverage Ratio: 407.97%
Tangible Equity to Tangible Assets: 7.84%
Total Risk Based Capital Ratio: 12.82%
Tier 1 Risk Based Capital Ratio: 11.69%
Net Charge Offs: $.866M or .05% of loans
SEC Filed Press Release: 2012 3rd Q
10-Q for the Q/E 930/12
Earnings Call Transcript - Seeking Alpha
Rationale: (1) Decent Income in a Low Yield World and Solid Operations: The dividend yield is currently about 4.4% at a total cost of $8.69 per share. As noted above, the NPL and NPA ratios are very good, and the coverage ratio is comforting (allowance for loan losses as a percentage of nonaccrual loans). The net interest margin is better than most regional banks.
(2) Possible Take-Over Given Size and Location.
Risks: The main risks are those generally applicable to regional banks and include increase regulatory costs and pressures on net interest margin. STL may also need to float another stock issue, when and if it decides to redeem this relatively high cost debt (8.375% coupon). While STL does not have to phase out trust preferred securities as Tier 1 Capital under Dodd-Frank, it may have to do under a longer time period pursuant to federal reserve capital rules.
Politics and ETC:
1. Misrepresentations and False Statements About Obama's Fiscal Cliff Proposals/Senator Corker's Fiscal Cliff Proposal: FactCheck.org summarizes the misleading and false statements recently made by Boehner and Geithner in connection with the Administration's fiscal cliff proposals.
Boehner is simply incapable of being accurate. He claimed that Obama was not specific about spending cuts. The FactCheck article demonstrates that Obama had itemized specific spending cuts that were detailed and surprisingly included some Medicare benefits.
One of the few politicians making any sense is Senator Corker (R) of Tennessee. I did vote for him. He at least recognizes the need for a balanced approach that includes both spending cuts and tax increases. (summary of Corker Plan: Fox News Video; CNBC; Washington Post) Few politicians have any balance at all.
I would be in favor of using a different inflation number for Social Security, raising the eligibility age for Medicare gradually and Corker's $50,000 cap on deductions, except I would exclude charitable contributions from that cap. You want to encourage rich people to give money away.
The change in the inflation calculation for social security is not likely to garner many Democrat votes but it makes sense to me. That proposed change would use the "change-weighted CPI" rather than the current CPI index. WSJ Centrist Democrats would likely support it with major concessions from the GOP on the revenue side of the equation. The liberals would never support such a change.
With that exclusion for charitable contributions from the deduction cap, it will be necessary to raise revenues another way. I have suggested capping the 15% qualified dividend and long term capital gains rate at $100,000, with any excess amount taxed at the highest marginal rate, except for the sell of a business where the seller has more than a 20% stock ownership interest. I would want to keep the incentive of a lower tax rate to encourage the formation of new businesses but do not see any reason to give the Mitt Romneys of the world an unlimited 15% tax rate on dividends and capital gains. I would also close the carried interest loophole that allows hedge fund managers like Romney to convert ordinary income into long term capital gains.
I do not give politicians any money. Never have contributed a dime. I do not want to be a part, even indirectly, in financing the false and misleading campaign ads that are the norm. The billionaires who generously fund "conservative" PACS do not share that aversion. Once an individual of modest intelligence becomes reasonably informed, political ads are readily seen as transparent attempts to manipulate the weak minded and ignorant legions.
I will send emails to Tennessee politicians, knowing that the politician will not read the email. I sent Senator Corker an email criticizing certain aspects of his plan, while offering what I would consider better alternatives.
On one occasion, I did receive a personal response back after I gave a detailed critique of a questionnaire sent out by the politician worded in such a way that virtually anyone would give the response desired by that Congressman.
2. Tennessee Legislature Rated the Worst in the U.S.: For those who do not know anything about the origin of AIDS, Tennessee State Senator Stacey Campfield can provide the details to fill your knowledge gap. According to Stacy, AIDS started with an airplane pilot "screwing a monkey" and then having sex with another guy. Knoxville News Sentinel Stacy has one of the best minds among GOP representatives in the Tennessee legislature, as anyone can see by just looking at his picture in this
Nashville Scene article.
The liberal publication Mother Jones rated the Tennessee legislature, now dominated by republicans, as the worst in the country.
I thought that was harsh. The Tennessee Legislature is for sure the most comical provided one does not take the idiots seriously.
Who could read the Mother Jones reasons for giving Tennessee this award and not laugh? And Tennessee is providing constant fodder for Jon Stewart and Steven Colbert.
I thought the most representative member of the state GOP was an unsuccessful candidate for Governor Basil Marceaux. Basil Marceaux : The Next Governor of Tennessee - YouTube
After all, isn't it hilarious that the legislature prevents discussion about sex in sex education classes and even any reference to something called "gateway activities" to sex, which our legal scholar LB defines as kissing, hugging or staring for too long.
The republicans in the state legislature are now split among the "moderates" and "conservative" republicans on "gun rights".
All of the GOP representatives supported legislation permitting guns in bars, parks and playgrounds. There is a breed of republican that elevates the Second Amendment way above the First Amendment which is seen as embodying those pesky liberal values.
The "moderate" Tennessee state representatives are reportedly not in favor of allowing automatic weapons to be carried by children into kindergarten. There is a rumor to that effect, but the OG doubts that it true.
Another split, discussed in the Sunday's paper, involves the "guns in trucks" legislation. The moderates are in favor of requiring employers to allow guns to be stored in vehicles parked on the employer's premises but are not in favor of requiring universities to allow guns to be carried onto campus by students. The "conservatives" believe that guns should be allowed everywhere. So if an employee gets in a heated argument with a supervisor or another employee, he can run out to the parking lot to get his machine gun and then exercise his Second Amendment rights without having to wait.
3. Mark Hulbert Article on Outperformance of Low Volatility Stocks: In Mark Hulbert's recently published Barron's column, he mentions a study that found low volatility stocks outperformed high volatility stocks in each of the 33 stock markets studied between 1990 to 2011. The study was authored by Nardin Bake, the Chief Strategist at Guggenheim Partners and Robert Haugen, a retired finance professor. The title of the study is "Low Risk Stocks Outperform within All Observable Markets of the World". I found a copy of this paper at www.quantitativeinvestment.com.pdf and at Low Risk Stocks Outperform Within All Observable Markets of the World | Low Volatility Stocks Investor Tools.
Hulbert mentions one of the recently launched ETFs that focuses on low volatility stocks in the S & P 500. I have been buying some of these new products. {e.g. BOUGHT 100 of USMV at $29.29- iShares MSCI USA Minimum Volatility Index Fund (USMV)}
I previously discussed some email exchanges with Mark about the VIX. Mark Hulbert and the Use of the VIX as a Timing Model Back in 2007, I developed a simple asset allocation model based on the movement of the VIX. Vix Asset Allocation Model Explained Simply; VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern; Multiple Confirmations of VIX Model-Canary in a Coal Mine; VIX and S & P Compared 1990 to 1997; Trading and Asset Allocation in Stable and Unstable VIX Pattern; Vix Charts from 2004 2005 2006 Stable VIX Patterns Phase 1 and Phase 2
I posted a comment to the Hulbert article in Barrons.
4. The GOP's Irrepressible Irresponsibility and Recklessness on the Debt Limit: Last year, the GOP brought the U.S. to the brink of default by conditioning their approval on a debt limit increase on an agreement to cut spending. Without question, the GOP will cause a debt default by the U.S. unless they receive what they want and see nothing whatsoever wrong with their demands.
The U.S. debt is money that has already been lawfully spent by acts of Congress, including the nearly one trillion dollars borrowed to finance the GOP initiated Iraq War.
After linking their approval of a debt limit increase to spending reductions, the GOP ended up in bad place-the automatic sequestration that has angered large portions of their business supporters including the defense industry. The GOP does not really want to make cuts in defense, so they are in a bind. So, once again, they are threatening to cause a default, an incredibly irresponsible action, to obtain spending cuts that will not anger their big business supporters.
I view linking approval of a debt ceiling increase to anything to be potentially more harmful to the nation's interest than any act of treason ever committed against the nation. While I understand the GOP's frustration in not having the votes to castrate social program spending, and the Democrats unwillingness to make necessary long term changes in entitlement programs, the debt ceiling increase linkage is an extremely irresponsible way to achieve any result. It is per se irresponsible and reckless.
Senator Lindsay Graham has made it clear once again that he is willing to cause a default unless he receives what he wants in spending cuts. CNN.com
As noted above, some changes need to be made to entitlement programs that are extremely underfunded and becoming increasingly so by the day. But, will the GOP allow for cuts in tax welfare programs for large corporations as part of a bargain for those changes? I seriously doubt that the GOP will bite the hand that feeds them when pursuing their blackmail on the debt limit.
Last Thursday, Boehner once again claimed that the President had not been specific with the Administrations spending cuts, WSJ.com, repeating the false charge exposed by FactCheck.Org. The White House responded that the GOP had not made any specific proposals.
The problem with the Administration's proposal to date is not lack of specificity, but that the spending cuts do not go deep enough so as to put entitlement programs on some kind of sensible path to fiscal solvency.
The two U.S. Steel bonds were purchased in one bond lots: Bought 1 U.S. Steel 7.5% Senior Bond Maturing 3/15/22 at 94 (June 2012); BOUGHT 1 U.S. Steel 7.5% Senior Bond Maturing in 2022 at 98.95 (September 2012). The profit on the bonds will be about $116, subject to possible further obtuse calculations relating to the amortization of the discount to par value.
I still own 1 bond bought in the Roth IRA: Bought 1 U.S. Steel 7.5% Senior Bond Maturing 3/15/22 at 99
U.S. Steel Earnings Report for the Q/E 9/30/12 Form 10-Q
SEC Filed Press Release 2012 3rd Quarter Earnings
FINRA - Investor Information on 2022 Bond
Prospectus Supplement
Since I have lost some money on a few bond defaults (2 Kodak 2013 bonds) and trades (4 Edison Mission bonds), I have found it necessary to sell a number of winners, when the price spikes above par value, in order to offset those losses. I have also had a number of bonds called recently at premiums to their par value which have generated profits too (e.g. Edgen Murray, Gray Television, and a Terex bond later this month). I will hold a number of bonds until maturity which will yield a profit, assuming repayment, since all of those bonds were bought at discounts to par value.
I am winding down this strategy. I no longer find the yields of junk bonds attractive, given their risks, though I am content to hold most of my bonds that are current in their interest payments.
3. Swap Trade ROTH IRA: Bought 100 DPG at $17.31 and Sold 100 of the 150 GYB at $18.03 (see Disclaimer): In this swap trade, I pick up more yield with DPG and greater diversity. At the $17.31 price, DPG has close to a 8% yield, while the GYB is currently yielding about 4.5% at a total cost of $18.03.
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| 2012 ROTH IRA SWAP Trade |
GYB is a Synthetic Floater in the Trust Certificate form of ownership that pays the greater of 3.25% or .85% above the three month Libor rate on a $25 par value. Prospectus Due to the Fed's Jihad Against the Saving Class, the 3 month LIBOR rate is currently close to .5%. This short term rate would have to rise above 2.4% during the relevant computation period to trigger an increase in the 3.25% minimum coupon. Based on current Federal Reserve monetary policy, which is likely to keep the federal funds rate near zero possibly into 2015, a reasonable forecast would be a continuation of the minimum 3.25% for at least another 3 years. By buying GYB at a discount to par value, I am able to juice the yield some but GYB would have to fall to about $10.2 to generate a 8% yield based on its 3.25% minimum coupon.
I discuss some of the risks relating to GYB in several posts written in connection with previous purchases. I discussed the differences in GYB and GJN in several posts after Wells Fargo redeemed GJN and paid itself an egregious swap termination fee. The Egregious Swap Termination Fee Paid to the GJN Swap Counterparty
One notable difference between GYB and GJN is that the underlying security in GYB, a 2034 trust preferred issue, does not contain an escape hatch for a "capital treatment event" that would allow Goldman Sachs to avoid a make whole payment for an optional redemption. Stocks, Bonds & Politics: Sold 50 JBK at $22.75/Reassessment of Current Synthetic Floater Positions; Item # 3 GJN Redemption (near the end of that post)
{I am surprised that no one has apparently sued Wells Fargo and J P Morgan for the events connected to the GJN redemption. Turkle Trust v. Wells Fargo; Stocks, Bonds & Politics: District Court Decision in Turkle Trust v. Wells Fargo (N.D. Cal)/Summary of Argument: JPM Potential Obligation to Pay Make Whole for its Recent 2035 TP Redemption/Other JPM Capital Trust Preferred Securities: Language on Make Whole Payment and Capital Treatment Event}
I recently discussed the closed end fund DPG after buying 100 shares in a taxable account. Item # 1 Bought 100 of the CEF DPG at $17.3 This fund uses leverage to invest in utility, telecommunication and MLP stocks. The fund went ex dividend for its 35 cent quarter distribution shortly after my purchase on 12/12/12. Assuming a continuation of that rate, which is in no way assured, the dividend yield at a total cost of $17.31 is about 8%.
I have nothing to add to my discussion in that recent post, except that the 8% yield paid into the ROTH will be tax free and the discount has expanded some.
12/10/12 (Day of Purchase)
Net Asset Value Per Share= $18.85
Closing Market Price= $17.31
Discount= -8.17%
Net asset value information can be found at the following sites:
WSJ Closed-End Fund market data page under "specialized equity funds"
DPG Page at the CEFA
DPG at Morningstar
Sponsor's website: Duff & Phelps Global Utility Income Fund — Home
Trading Activity: I have bought and sold GYB on several occasions. The shares sold at $18.03 were bought in March of this year at $17.2-Roth IRA. My last purchase was to buy 50 shares at $16.5 in May which are still owned by me.
Bought 100 GYB at 10.95 /Will Hold Synthetic Floaters In Retirement Account; Added another 100 GYB in Regular IRA at $11 (April 2009); Sold 50 GYB at $15 (September 2009); Sold 100 GYB at 18.09; Bought 70 GYB at 18.49 in Regular IRA (March 2010); Added 30 GYB in IRA at 17.97; Sold: 100 GYB @ 19.9 (October 2010); Bought 50 GYB @19.07 (October 2010); Bought 50 GYB at 18.63 in the Roth IRA; Sold 100 GYB at 19.7 in Roth IRA (May 2011); Bought 50 GYB at 16.95 in Roth IRA (August 2011); Added 50 of the Synthetic Floater GYB at $15.56 Sold 100 GYB at $17.07 (January 2012); Bought Back 100 of GYB at 17.2-Roth IRA (March 2012); Added 50 of the Synthetic Floater GYB at $16.5-Roth IRA (May 2012).
My largest realized gain was a $691.71 gain on 100 shares bought in a regular IRA at $11 in April 2009 and sold about one year later. A 50 share lot was also flipped that year:
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| 2010 Regular IRA +$774.42 |
This last 100 share trade netted a realized gain of $64.98, bringing my 2012 ROTH IRA realized profit total for GYB to $130.28 plus interest payments:
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| 2011 ROTH IRA GYB +$130.28 |
Two fifty share lots bought and sold in 2011 yielded a $68.97 profit:
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| 2010 ROTH IRA +$68.97 |
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| 2009 ROTH IRA +$183.98 |
I will consider buying back a 50 share lot of GYB at below $16. The security does have the positive attribute of combining some inflation and deflation protection in the same security.
4. Averaged Down by Adding 50 ENY at $15.6 (see Disclaimer):
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| 2012 Bought 50 ENY at $15.6 |
Security Description: The Guggenheim Canadian Energy Income ETF is an ETF that invests in Canadian energy companies.
I took a snapshot of the top ten holdings as of 12/11/12:
Nexen is about to be lost due to its pending acquisition by CNOOC. I have a small individual position in Suncor. Item # 2 Bought 50 SU at $28.67 (December 2011 Post).
Sponsor's webpage: Guggenheim Canadian Energy Income ETF (ENY)
The expense ratio is .65%.
Distributions are paid quarterly at a variable rate: ENY Distributions
This is a link to the current holdings: ENY Holdings
Trading History: This last purchase was an average down from a prior buy at $16.83 (October 2012)
I have had some prior minor trades:
It is just as well that I sold this small lot: Sold 50 ENY at $18.25 (February 2012)- Bought 50 ENY at $17.18 (Item # 5 January 2012 Post)
I may have been slightly better off keeping another lot: Bought 50 ETF ENY at $13.6 (August 2009)- Sold ETF ENY at $15.75 (November 2009).
Rationale: (1) Canadian Oil Sands Are a Long Lived Energy Source: I do not pretend to know where oil prices will be the coming years. With increasing demand from a hoped for cycle of worldwide economic growth (ex Europe for a couple of years), and dramatically increasing oil consumption in developing markets, particularly in China, one outcome in the coming decade would be a substantial surge in oil's price from existing levels, while natural gas may be far less susceptible to price spikes in the U.S. due to hydraulic fracking in massive oil shale deposits. I try not to over think possible future outcomes. This seems like a realistic possible outcome which is sufficient for me to put some cash into this theme.
The Canadian oil sands do contain a long life crude oil asset The government of Alberta estimates that there is about 173 billion barrels of oil that can be extracted from the oil sands located in that province using current technology and based on prevailing oil prices. There have been a number of recent acquisitions of Canadian companies exposed to oil sand production, including the recently approved purchase of Nexen by CNOOC. Government OK's foreign bids for Nexen, Progress Energy - Business - CBC News The Canadian government may not be receptive to more acquisition by oil companies controlled by foreign governments.
In previous discussions about Canadian energy companies, I referenced an interview with Charles Maxwell published in 2011 by Barrons who was then predicting $300 oil by 2020 and recommended two Canadian energy companies, Suncor and Cenovus, with heavy exposure to the oil sands. Those two companies have almost a 15% weighting in ENY with Canadian Oil Sands having another 7.32% current weighting.
(2) Large Untapped Deposits Are Frequently Located in Places With More Country Risk: Canada may at times take some action that adversely impacts profitability but nationalization is most likely never to be on the agenda. Christine Kirchner, the President of Argentina, recently nationalized a 51% interest in YPF to the dismay of Repsol, Seeking Alpha, a pattern that has been followed throughout the developing world for decades.
(3) Recently Sold 200 Husky: I recently sold my 200 shares of Husky which decreased my exposure to Canadian energy companies. Husky is one of ENY's holdings. Sold 200 HSE:CA at $28.13 CADs (October 2012 Post). By averaging down on ENY, I am inching back to my previous net exposure to Canadian energy companies.
Risks: I would describe the risks as normal ones for a sector stock ETF that invests in foreign companies. The foreign company angle adds currency and country risk. When I think about country risk, the first image that pops into my mind is Hugo Chavez. Needless to say, Canada is not likely to follow Hugo's example, but there is always the possibility that the federal or provincial countries will enact laws (particularly increased taxes) and regulations adversely impacting the profitability of its energy companies or the acquisition of those companies at premium prices by foreign entities.
5. Added 112 of STL at $8.6863 (Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST)(see Disclaimer): I had a previous fill of a 100 share limit order with 88 shares. This last purchase brings me up to 200 shares. The stock went ex dividend for a 9 cent per share quarterly dividend the day after my purchase. I do not mind buying that dividend since the stock had declined by far more than the dividend on the day of my purchase. The volume was extremely heavy on 12/11/12 at 490,885, compared to an average volume of slightly more than 73,000. I did not see any news to account for the decline. There had been no SEC filings since 11/9/12 and no news reported at the financial sites. Frequently, this kind of day results from a single institution deciding to unload or substantially pare its position in a small stock, and STL has a number of large institutional owners. STL Major Holders
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| 2012 STL Bought 112 at $8.683 |
Closing Price on Day of Purchase: STL: 8.62 -0.29 (-3.25%)
Company Description: Sterling Bancorp is a bank holding company headquartered in NYC whose principal subsidiary is the Sterling National Bank. Most of the branches are located in Manhattan and Queens. Sterling Bancorp Branch & ATM Locations I counted 14 branches plus some additional offices and ATM locations.
This stock has been in a narrow channel since February 2010, trading mostly between $8 to $10. STL Interactive Chart A longer term chart reveals a robust movement from about $2 in 1991 $26 in 2004: Long Term STL Interactive Chart 1987 to Date
Without the Near Depression, the stock may have steadied in the $19 price area, but instead dived in 2007-2009 until forming the current channel.
Sterling Bancorp Profile Page at Reuters
Sterling Bancorp Key Developments page at Reuters
Sterling did participate in TARP, viewed as a negative by me, but has paid the government back. And, I view even more negatively the sell of stock at a low price in order to buy back the government's preferred shares. STL sold 4.025M shares at $9.6. Sterling-SEC Form 8-k; STL Common Stock Offering While that is not as bad as a number of banks, it is still not good.
Trading History: As previously mentioned, this last purchase was a slight average down from an earlier 88 share purchase. Item # 3 BOUGHT 88 STL AT $8.98 (March 2012) I noted in that post a lot of trading activity for Sterling's Trust Preferred security. I no longer have a position having sold my last 200 shares of STLPRA. Sold 200 STLPRA at $10.5 (August 2012).
I have one prior one trip on a small common share lot: Bought 50 STL at $6.58 (December 2009)-Sold STL at $10.5 (February 2011).
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| 2011 STL 50 Shares +$120.9 |
Recent Earnings Release:
2012 Third Quarter:
Net Income: $5.3M or $.17 per share, up from $.14 in the 2011 third quarter
Net Interest Margin: 4.02% (up 12 basis points)
Efficiency Ratio: Not Shown
NPL Ratio: .32%
NPA Ratio: .26%
Coverage Ratio: 407.97%
Tangible Equity to Tangible Assets: 7.84%
Total Risk Based Capital Ratio: 12.82%
Tier 1 Risk Based Capital Ratio: 11.69%
Net Charge Offs: $.866M or .05% of loans
SEC Filed Press Release: 2012 3rd Q
10-Q for the Q/E 930/12
Earnings Call Transcript - Seeking Alpha
Rationale: (1) Decent Income in a Low Yield World and Solid Operations: The dividend yield is currently about 4.4% at a total cost of $8.69 per share. As noted above, the NPL and NPA ratios are very good, and the coverage ratio is comforting (allowance for loan losses as a percentage of nonaccrual loans). The net interest margin is better than most regional banks.
(2) Possible Take-Over Given Size and Location.
Risks: The main risks are those generally applicable to regional banks and include increase regulatory costs and pressures on net interest margin. STL may also need to float another stock issue, when and if it decides to redeem this relatively high cost debt (8.375% coupon). While STL does not have to phase out trust preferred securities as Tier 1 Capital under Dodd-Frank, it may have to do under a longer time period pursuant to federal reserve capital rules.
Politics and ETC:
1. Misrepresentations and False Statements About Obama's Fiscal Cliff Proposals/Senator Corker's Fiscal Cliff Proposal: FactCheck.org summarizes the misleading and false statements recently made by Boehner and Geithner in connection with the Administration's fiscal cliff proposals.
Boehner is simply incapable of being accurate. He claimed that Obama was not specific about spending cuts. The FactCheck article demonstrates that Obama had itemized specific spending cuts that were detailed and surprisingly included some Medicare benefits.
One of the few politicians making any sense is Senator Corker (R) of Tennessee. I did vote for him. He at least recognizes the need for a balanced approach that includes both spending cuts and tax increases. (summary of Corker Plan: Fox News Video; CNBC; Washington Post) Few politicians have any balance at all.
I would be in favor of using a different inflation number for Social Security, raising the eligibility age for Medicare gradually and Corker's $50,000 cap on deductions, except I would exclude charitable contributions from that cap. You want to encourage rich people to give money away.
The change in the inflation calculation for social security is not likely to garner many Democrat votes but it makes sense to me. That proposed change would use the "change-weighted CPI" rather than the current CPI index. WSJ Centrist Democrats would likely support it with major concessions from the GOP on the revenue side of the equation. The liberals would never support such a change.
With that exclusion for charitable contributions from the deduction cap, it will be necessary to raise revenues another way. I have suggested capping the 15% qualified dividend and long term capital gains rate at $100,000, with any excess amount taxed at the highest marginal rate, except for the sell of a business where the seller has more than a 20% stock ownership interest. I would want to keep the incentive of a lower tax rate to encourage the formation of new businesses but do not see any reason to give the Mitt Romneys of the world an unlimited 15% tax rate on dividends and capital gains. I would also close the carried interest loophole that allows hedge fund managers like Romney to convert ordinary income into long term capital gains.
I do not give politicians any money. Never have contributed a dime. I do not want to be a part, even indirectly, in financing the false and misleading campaign ads that are the norm. The billionaires who generously fund "conservative" PACS do not share that aversion. Once an individual of modest intelligence becomes reasonably informed, political ads are readily seen as transparent attempts to manipulate the weak minded and ignorant legions.
I will send emails to Tennessee politicians, knowing that the politician will not read the email. I sent Senator Corker an email criticizing certain aspects of his plan, while offering what I would consider better alternatives.
On one occasion, I did receive a personal response back after I gave a detailed critique of a questionnaire sent out by the politician worded in such a way that virtually anyone would give the response desired by that Congressman.
2. Tennessee Legislature Rated the Worst in the U.S.: For those who do not know anything about the origin of AIDS, Tennessee State Senator Stacey Campfield can provide the details to fill your knowledge gap. According to Stacy, AIDS started with an airplane pilot "screwing a monkey" and then having sex with another guy. Knoxville News Sentinel Stacy has one of the best minds among GOP representatives in the Tennessee legislature, as anyone can see by just looking at his picture in this
Nashville Scene article.
The liberal publication Mother Jones rated the Tennessee legislature, now dominated by republicans, as the worst in the country.
I thought that was harsh. The Tennessee Legislature is for sure the most comical provided one does not take the idiots seriously.
Who could read the Mother Jones reasons for giving Tennessee this award and not laugh? And Tennessee is providing constant fodder for Jon Stewart and Steven Colbert.
I thought the most representative member of the state GOP was an unsuccessful candidate for Governor Basil Marceaux. Basil Marceaux : The Next Governor of Tennessee - YouTube
After all, isn't it hilarious that the legislature prevents discussion about sex in sex education classes and even any reference to something called "gateway activities" to sex, which our legal scholar LB defines as kissing, hugging or staring for too long.
The republicans in the state legislature are now split among the "moderates" and "conservative" republicans on "gun rights".
All of the GOP representatives supported legislation permitting guns in bars, parks and playgrounds. There is a breed of republican that elevates the Second Amendment way above the First Amendment which is seen as embodying those pesky liberal values.
The "moderate" Tennessee state representatives are reportedly not in favor of allowing automatic weapons to be carried by children into kindergarten. There is a rumor to that effect, but the OG doubts that it true.
Another split, discussed in the Sunday's paper, involves the "guns in trucks" legislation. The moderates are in favor of requiring employers to allow guns to be stored in vehicles parked on the employer's premises but are not in favor of requiring universities to allow guns to be carried onto campus by students. The "conservatives" believe that guns should be allowed everywhere. So if an employee gets in a heated argument with a supervisor or another employee, he can run out to the parking lot to get his machine gun and then exercise his Second Amendment rights without having to wait.
3. Mark Hulbert Article on Outperformance of Low Volatility Stocks: In Mark Hulbert's recently published Barron's column, he mentions a study that found low volatility stocks outperformed high volatility stocks in each of the 33 stock markets studied between 1990 to 2011. The study was authored by Nardin Bake, the Chief Strategist at Guggenheim Partners and Robert Haugen, a retired finance professor. The title of the study is "Low Risk Stocks Outperform within All Observable Markets of the World". I found a copy of this paper at www.quantitativeinvestment.com.pdf and at Low Risk Stocks Outperform Within All Observable Markets of the World | Low Volatility Stocks Investor Tools.
Hulbert mentions one of the recently launched ETFs that focuses on low volatility stocks in the S & P 500. I have been buying some of these new products. {e.g. BOUGHT 100 of USMV at $29.29- iShares MSCI USA Minimum Volatility Index Fund (USMV)}
I previously discussed some email exchanges with Mark about the VIX. Mark Hulbert and the Use of the VIX as a Timing Model Back in 2007, I developed a simple asset allocation model based on the movement of the VIX. Vix Asset Allocation Model Explained Simply; VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern; Multiple Confirmations of VIX Model-Canary in a Coal Mine; VIX and S & P Compared 1990 to 1997; Trading and Asset Allocation in Stable and Unstable VIX Pattern; Vix Charts from 2004 2005 2006 Stable VIX Patterns Phase 1 and Phase 2
I posted a comment to the Hulbert article in Barrons.
4. The GOP's Irrepressible Irresponsibility and Recklessness on the Debt Limit: Last year, the GOP brought the U.S. to the brink of default by conditioning their approval on a debt limit increase on an agreement to cut spending. Without question, the GOP will cause a debt default by the U.S. unless they receive what they want and see nothing whatsoever wrong with their demands.
The U.S. debt is money that has already been lawfully spent by acts of Congress, including the nearly one trillion dollars borrowed to finance the GOP initiated Iraq War.
After linking their approval of a debt limit increase to spending reductions, the GOP ended up in bad place-the automatic sequestration that has angered large portions of their business supporters including the defense industry. The GOP does not really want to make cuts in defense, so they are in a bind. So, once again, they are threatening to cause a default, an incredibly irresponsible action, to obtain spending cuts that will not anger their big business supporters.
I view linking approval of a debt ceiling increase to anything to be potentially more harmful to the nation's interest than any act of treason ever committed against the nation. While I understand the GOP's frustration in not having the votes to castrate social program spending, and the Democrats unwillingness to make necessary long term changes in entitlement programs, the debt ceiling increase linkage is an extremely irresponsible way to achieve any result. It is per se irresponsible and reckless.
Senator Lindsay Graham has made it clear once again that he is willing to cause a default unless he receives what he wants in spending cuts. CNN.com
As noted above, some changes need to be made to entitlement programs that are extremely underfunded and becoming increasingly so by the day. But, will the GOP allow for cuts in tax welfare programs for large corporations as part of a bargain for those changes? I seriously doubt that the GOP will bite the hand that feeds them when pursuing their blackmail on the debt limit.
Last Thursday, Boehner once again claimed that the President had not been specific with the Administrations spending cuts, WSJ.com, repeating the false charge exposed by FactCheck.Org. The White House responded that the GOP had not made any specific proposals.
The problem with the Administration's proposal to date is not lack of specificity, but that the spending cuts do not go deep enough so as to put entitlement programs on some kind of sensible path to fiscal solvency.
Reinhart and Rogoff have provided some mixed comments about the debt/gdp issue. In this link, http://www.mcclatchydc.com/2010/08/17/99285/what-should-we-do-about-national.html#none, they seem to regard the long-run growth problems as trade-off to avoid the risk of a exacerbating short-run downturn (which would presumably lead into a worse long-run outcome than in the higher debt/gdp scenario).
ReplyDeleteKrugman has framed the debt/gdp argument as being an issue of currency repudiation. He focuses upon the currency reserve status, and bond vigilante arguments, to explain why "stable" economies with currency sovereignty have experienced multi-generational bond bull markets, in opposition to rising deficits and debt.
AL: Given the massive budget deficits, any substantial near term spending cuts could easily tip the U.S. back into a recession, particularly if accompanied by tax increases. The economy is receiving life support from borrow and spend. Withdrawing the heroin too fast could kill the patient. So there is a trade-off. Withdrawing the crack too fast would end up costing us more as revenues go down again and safety net expenditures skyrocket (e.g Unemployment) Now, if they can't do anything serious, going over the cliff may be the only way to come to grips with it due to the dysfunctional political system.
ReplyDeleteThe spending issue has to be addressed long term and it needs to be done now. This would be an easy problem to solve among sensible people, assuming there are enough of those in both political tribes to form a majority.
Raising the eligibility age for Medicare very gradually over the next 20 years would be one idea, already rejected by the Dems.
Another would be changing the CPI calculation to the chain weighted CPI. That change alone, which makes sense to me, could shave $300 billion off spending over the next years.
http://factcheck.org/2012/12/chained-explained/
Obama has suggested some changes in Medicare and other entitlement programs that seem doable.
There are a lot of inefficient tax welfare loopholes that could be closed.
Personally, I believe that we are already well along the path of currency debasement with QE 1, QE 2, QE 3 and now the latest one which is just huge.
The only question may be when the USD hits the skids, not whether or not it is going to happen. Currency reserve status? Who knows how long that is going to last. I saw a report last week that China was expected to have a larger GDP than the U.S. by 2030. http://www.cnbc.com/id/100301791/US_to_Lose_1_Economic_Ranking_to_China_by_2030_Study
The U.K. probably thought they would stay on top of the world forever with the Pound Sterling as the reserve currency for much of the 19th century and into the 20th, until around 1945. Will the U.S.D. last that long?
Admittedly, I am not much of an economist. Never have had a course.
In any event, I own CADs, hope to add more and to establish a position in the AUD whenever there is a major pullback.