Wednesday, December 31, 2008

BOND ALLOCATION: MANY MOVING PARTS IN 4TH QUARTER

I decided not to go see my oldest nephew perform tonight at the Ryman.  It is just too late for me to stay up.  I am usually well into my REM sleep when he is scheduled to appear in concert.  I would mention to Tyler that I commend him for adhering to an old man's recommendation about limiting losses, which was simply never bring more than $300 to the tables and never go into your pocket after reaching that number. If you need more than that, you need to go back to the books and to learn more from experience at lower numbers.  I would also say that even a brilliant 18 year old novice should not try to strut his stuff at $100 a hand. Really, that is my new year's piece of advice for you. It is best to understand that mental acuity is not sufficient in all circumstances and certainly not all of the time.  Playing at a $100 a clip would have made me a little nervous in my younger days, but I have not played in a long time.  I doubt that it would bother me much now.  When I say I am a gambler, I mean that I have a gambling mentality and have had it- as far as I can ascertain -from birth.  Yes, I was born with some peculiar gene I suspect. I limit my gambling to the tables at the NYSE and Nasdaq.  Now, almost nothing makes me nervous anymore.  This market in 2008 did not make me nervous.  I am ready to roll in 2009.  

There was not much to be thankful for in 2008 when focusing just on the markets.  I am just glad that I lived to see a bowl win by Vandy.  I do not remember the last one in 1955 and I doubt that it was televised anyway.  Go Dores.  I am really looking forward to basketball and baseball in 2009. 

While I normally would under-weight long corporate bonds, due to inflation risk and the need to constantly monitor them for credit risk issuesTrust Certificates: Issues with Long Term Corporate Bonds, I have recently gone to an over-weight position based on factors deemed more important than those risks.  The first consideration is my age.  A long corporate bond maturing in 2028 to 2038 would provide income to me for the likely remaining years of my life. The second consideration is that I found abnormal buying opportunities during the September to December time frame in investment grade corporate bonds, particularly for long corporate bonds contained as the underlying bonds in Trust Certificates.  Most of these long bonds will provide over 15% per year at my cost, adding both the current coupon and amortizing annually the spread between cost and par value.  Many provide more than 15% just on the current coupon. Third, as part of my dynamic asset allocation model, I am constantly alert now for any opportunity to increase my bond allocation.  I am of course increasing the percentage allocation to bonds as I age. I just kept buying over the last three months until I realized that I was significantly over-weighted in the long bond category. This was when I decided to start hedging part of the position with the double short ETF for the long treasury for the reasons previously discussed.Madoff: Need for Trades/Statements from Independent Broker/CIT bonds/Pricing Discrepancy in Aon TCs Rally In Long Term Investment Grade Corporates/TBT/BTE/AVY/REITS
The hedge will have to be managed but it does give me a degree of inflation protection for the long position and both the hedge and the long corporate bond position may work over periods of time given what I perceive to be an over-valued long treasury bond. 

I also started an allocation to floating rate preferred issues during this time period since they were being seriously mispriced in my opinion for securities that would provide some inflation protection due to the float provision and deflation protection in their guaranteed yield that only became attractive to me recently as a result of their substantial fall in price, as I have explained.Inflation or Deflation: Bond Alternatives/  Seriously, even taking into account their drawbacks, where would I get a 14% guaranteed yield that could rise if the percentage float over 3 month LIBOR gave me a higher rate than the guarantee.  I did several calculations in these blogs back in October showing how much extra yield would be generated by 3 month LIBOR moving to just 5%.  So there were many moving parts in this change in asset allocation.   I also went back into my TIP position. TREASURY INFLATION PROTECTED BONDS (TIP)  Before an individual investor delves to deeply in bonds, there is a need to become knowledgeable about them and I did provide some links that would be a mere start in that long learning process in a prior post. LINKS TO GENERAL INFORMATION ABOUT BONDS:

The individual bonds in my asset allocation are divided into terms, short, intermediate and long.  Each term has sub-categories.  The long bond will have investment grade senior or even secured bonds with a minor allocation to junk, perpetual rate preferred stocks with no maturity (under-weighted),  cumulative preferred securities with no maturity, and Trust Preferred issues usually issued by banks that will have a maturity date usually way out into the future (under-weighted since many contain unfavorable provisions such as  5 year deferrals of interest frequently permitted and many are cumulative which can have adverse tax consequences as explained in their prospectuses).   Within short bonds, the maturities will be staggered by year and spaced out during the year.  Mostly these will be senior bonds issued by seasoned issuers but sometimes a junk bond will be added such as DKR.  A term category has Bond ETFS assigned to them, with most of the intermediate bond category covered by the average maturity of several bond  ETFs.  Most municipal bonds are intermediate term with an emphasis on Tennessee municipal bonds.   Inflation protected  securities are a special category within bonds which would include ETFs, TIP and WIP, and the floating rate securities tied to LIBOR, CPI, or some other security whose price may rise due to an increase in inflation and/or inflation expectations like the 3 month treasury bills (e.g. METPRA, AEB, GSPRA, OSM, PFK (NOT OWNED), PYV AND MANY OTHERS)   

A question came into HQ about the AEGON perpetual preferred stocks.  Both AEGON and ING have been under a lot of pressure this year, with some of the reasons discussed in earlier posts. Both eliminated their last common stock dividend and received financial assistance from the Dutch government on what I viewed as favorable terms for me as a preferred shareholder. I mention back then several Aegon preferred stocks that were yielding 16 to 18%.    Whiplash By A Manic Depressive & ING Preferred   ING does not have any publicly traded floaters to my knowledge. At the time that I added AEB and the ING preferred issues, having some concern about both Aegon and ING, I elected to buy the Aegon floater (AEB) and the ING perpetual preferred stocks on an opportunistic basis.  Any buyer of junior securities has to look at the credit risk awfully hard.  As cash flow moves into my main account, I am more likely to add to other asset classes other than bonds at the current time.  However, as shown by the recent small added of a REIT cumulative preferred, I am open to securities giving me 15+% yields and the Aegon perpetual preferred stocks are on my list to seriously monitor along with close to 50 others.   

There has certainly been a great deal of discussion about bonds and bond like investments in these blogs since I started to write them. Before I reached 40, I thought a bond was some kind of old man's disease.  I do not even consider myself now a bond investor. Readers of my emails over the years know that bonds rarely entered into my discussions until 2007.  I really just like to talk about small cap stocks.  I am being forced into buying bonds due primarily to my age and views on appropriate asset allocation models.  

I am going to substitute a photo for a week or so from a time when I had more hair. I had to go a ways back to find one-like 40 something years. I wonder if Will will let me have some of his since he is starting to look a bit like that Illinois governor above the forehead. I wonder whether anyone will notice the change. 

Microsoft Buy/ISIS sold in IRA/ AEGON PREFERRED STOCKS

I decided to keep myself at the Trading Desk here at HG HQ and just watch the Vandy game on the tube.  I have to wonder why Johnson has waited until now to play the redshirt freshman. 

No one needs to here my rationale for buying Microsoft which I did near the close with a market order filled at 19.48.   This replaces at position sold at around 8 bucks higher.  It does have a dividend yield of about 2.7% at that price and has certain characteristics of a utility now. Barrons.com  I would not expect much price movement.  Possibly, if it moves back to 25 to 30 within two years, I will sell it.  I do not view it as a screaming buy but it is selling about ten times the earnings estimate for fiscal 2009 and less than 10 times for fiscal 2010. Yahoo! Finance  There was a story today in Barron's, based on a report from Caris & Co, that Microsoft might accelerate its buybacks. Barrons.com  I mentioned in some earlier posts that I viewed many of these large cap tech stocks as attractive at current prices. AGC INZ AND TECH STOCKS

Since I take less risk in a retirement account, and manage risk far more aggressively in those accounts, I sold the 50 ISIS that I recently bought near the close after I noticed that it was trading over 14 after buying it a few days ago at 10.45 on 12/3     ISIS PHARMACEUTICALS (ISIS)
I mentioned the reasons for making a sale of those fifty shares and keeping the 50 bought in a taxable account in this post.  Random Observations: Madoff, Sarah, EMO AND EHL/CIT/ISIS/VLO

I discussed AEB and some of the other perpetual preferred stocks, AEH and AEF,  in a comment to this blog. Took Tax Loss on Linta  A comment was made about these other preferred stocks yielding more than AEB.  The current yield differential is about 5%.  AEB is currently at around 11.27% based on its guarantee and price.  AEB Stock Quote - Aegon N V Stock Quote - AEB Quote - AEB Stock Price  AEH does not have a float provision but has a current yield of  16.21% based on the calculation at MarketwatchAEH Stock Quote - Aegon N V Stock Quote - AEH Quote - AEH Stock Price   If I had to choose one, I would pick AEH over AEB because the yield differential of 5% is too much to pay for a floater.  The float provision does have a lot of value in a long term asset allocation model, when part of the criteria is buying some bonds that have inflation protection like a TIP or a WIP.  I do not view it as an either/or proposition.  I view it as limiting my exposure to a disfavored asset class by choosing my buys on an opportunistic basis.  The reason for my disfavor is the lack of a maturity date and the lowly seniority level.  So I am more inclined to add the floaters on an opportunistic basis which fills a niche in my asset allocation and trade the cumulative preferred stocks which has been successful so far for me. I will buy some perpetual preferred that are not floaters, which explains my buys of INZ and IND issued by ING. I am more likely to trade those issues, managing my risks as I did recently for INZ by selling the highest cost shares at a nice profit and keeping the lowest cost shares for the large dividend at my cost and a potential long term gain.  I am open to using my cash flow to buy another preferred and I am always interested in ones yielding more than 15%.  I do not now have a position in either AEH or AEF.  I am also an opportunistic buyer by asset class.  This caused me to be a heavy buyer of senior investment grade bonds in the September to November time frame, floaters in October and November, cumulative REIT preferred stocks since September, and I am now moving into common stocks with my cash flow, starting will small and mid cap stocks whose fortunes are not highly correlated with the economy and other stocks that I am willing to hold for many years after buying at the currently depressed prices. 

The FITCH ratings on the Aegon preference shares is A+, long term. Fitch Corporate

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Brief Return to HG HQ TRADING DESK: Look at PFX go/MORE THOUGHTS ON FII/STEWART SHILLING FOR INVESTMENT ADVISORS IN MADOFF SCANDAL?

After a brief return to the trading desk from familial duties before the bowl game today. I noticed that the senior bond of Phoenix was up almost 50% today. Win some, you lose some.  I did quickly unload the 100 in my IRA but still have the other 100.
The news today had to do with recent steps taken to improve Phoenix's capital position. Yahoo! Finance  I am really not the person to ask whether the rally is justified by the reinsurance deal with Swiss RE.  Phoenix did say that this deal, along with selling some stocks, increased its statutory risk based capital by 35 to 40 percentage points.

I would take issue with James Stewart's column in the WSJ, which sort of sounds like a shill for some of these investment advisors that led their clients to Madoff.  WSJ.com From what I have read, most of the money was funneled through hedge funds and investment advisors.  To the extent Stewart is talking about any of them in his column he is way off base. I would agree with him that most individual investors lack the sophistication to see a scam operated by someone with expertise like Madoff.   But professionals and highly sophisticated individual investors would know that the returns claimed by Madoff using his purported strategy were just not possible.  The degree of due diligence required for investment advisors examining an operation like Madoff's has to be at an extraordinary level due the lack of independent checks and balances, including matters related to the in-house generation of brokerage statements and the identity of the broker conducting the trades.  A view of the accountant's office would have been enough of a red flag as well as the use of such a low profile firm.  While having a big accounting firm is better than the one Madoff used, Stewart is way too over-reliant on that one factor.  It was after all the big firms that certified the statements of Enron, Worldcom and virtually every other disaster that has come down the pike during the greed decade.  The main protection has to be independence at the source, meaning an independent brokerage firm conducting the trades and issuing the statements.   I am not sure why Stewart is shilling for those advisors who steered their clients to Madoff.  If he wants to make a distinction in the standard of care between your average individual investor and the so called professionals, then he needs to make that distinction clearly in his column.   I am very disappointed in Mr Stewart for writing that column.  He has gone way down in my opinion of him. 

It may have been better to go with TROW this morning rather than FII.  I did note prior to buying FII the recent downgrade of FII by JP Morgan and a criticism of that downgrade. Yahoo! Finance
Morgan's downgrade had to do with the fall in money market rates which might cause Federated to waive fees for its treasury offerings. 

I can not find anything else in my account that I want to sell for a tax loss.  So, I will finish the year in the black as far as short term gains go, and maybe I just need to give myself an award for a large number of positive short term trades in a terrible year. I have knocked the ST gains down to about $2,000.   

Took Tax Loss on Linta

I am having to leave HQ earlier than I expected so I made a quick decision to take a tax loss on LINTA and I am still positive in my short term gains for the year.  But I do not have the time to search for another candidate.  I will explain why I sold 50 LINTA rather than averaging down early next year.   LINTA and PBI Redux

Real Estate: REITS v Non REITS/VANDY FOOTBALL/ BUY OF FEDERATED INVESTORS/HERTZ/FLOATER RALLY & ASSET MANAGEMENT/PARTIAL SELL OF FCZ

I have been watching Vanderbilt football games for at least 50 years. Vanderbilt 7 to 3 Half/IMF SAYS ON BRINK OF A MELTDOWN I am not sure why.  Maybe, it is because there is always hope.  Tulane had a similar program and went 12-0 a few years ago.   I remember watching a comical game between Tulane and Vanderbilt many years ago at the old Sugar Bowl stadium on the Tulane campus.  Two plays from that game are still in my memory bank.  The winning play of the game was a hail mary pass by the Tulane quarterback which resulted in a touchdown after the two defensive backs covering one Tulane receiver collided, knocking each other down, and then the receiver was able to catch the ball unmolested and run for a touchdown.  The other one was when the Vandy quarterback, while deep in Vandy territory, handed the ball off to a Tulane defensive tackle who ran for a touchdown.  I was thinking about that game, and many others, in advance of Vandy's first bowl game since 1982 today against Boston College.  Since Jay Cutler is no longer busy playing for the Denver Broncos and never had an opportunity to play in a bowl game when he was Vandy's quarterback, I was just thinking that maybe he would want to suit up today- with the name Adams on his jersey.  For those of us who watch Jay play at Vanderbilt, there was no doubt that he would be a far superior NFL quarterback than Vince Young. 

Possibly, if the Dow average rises a mere 1000 points today, I will have a break even year.

The WSJ had another negative article on the prospects for REITs. WSJ.com   I thought that the chart contained in the article was interesting, which compared the S & P 500 to DJ All REIT Index using a common base line of 100 starting in 1990.  The REIT index is back now to where it started in 1990. During the last 20 years, an investor in REITs would have received generous dividends, and that is part of problem in investing in these companies.  To maintain their tax status, most of the earnings have to paid out in dividends to their shareholders.   Marty Whitman, who is a great value investor, and others correctly identify that dividend requirement as a negative long term consideration.  Whitman has always favored real estate companies like Forest City that are not organized as REITs.  The REIT status can certainly be a problem in a major downturn precipitated by a credit crisis since the REITs are in need of constant refinancing. But, as I have said, it is not like there are many if any major real estate companies who will use retained cash to build up equity in existing projects, or cautiously use their excess cash position to expand.  No, maybe you know some that are like that but all I see are a bunch of wild and crazy guys who will use cash in good times to expand  their developments and the total amount of debt used to fuel an expansion of their holdings until they eventually immolate themselves. 

 As the article in the WSJ points out, some REITS, who are heavily leveraged and have to refinance sizable debts coming due now or in the next year or so, may not make it. The next year may be a Darwinian struggle for survival.  But I am not convinced yet that the solution is to invest in a real estate company like Forest City Enterprises which is not organized as a REIT.   Forest City is in a dicey situation with its debt load and development pipeline, and its shareholders have not received generous dividends over the years like the REIT shareholders.  Instead, while many REITs have cut back on their common share dividends, Forest City has eliminated its very small dividend to preserve cash.     I am certainly monitoring Forest City for a possible common stock purchase.  I took a very small position recently in Tejon Ranch (TRC).  I am also monitoring St. Joe (JOE).  For now, due to the risks, I am limiting my exposure to real estate as a category to underweight and then concentrating it in cumulative preferred stocks within that underweight position.  I sold my positions in JOE and FCE/A at much higher prices than prevalent now.  I would most likely take a nibble at JOE sometime next year before considering a buy of Forest City.  My nibble on a Forest City senior debt issue yielding almost 20% was a highly questionable decision for this old gambler.   

Another point that I would make in response to all the negativity about REITS originates from a story told to me by my grandfather many years ago.  During the Great Depression, many folks who still had work had a lot of trouble making their car payments.  A representative from the lender would come by and want all of the late payments.  The borrower would say something like here are my keys. The lender would just stare at him and then say something like how much can you pay.  Eventually, it would get worked out because you see the lender did not really want the car back.  What exactly would they do with another repossessed car anyway?  I was thinking of that story this morning when I was trying to figure out how General Growth Properties was staying out of bankruptcy court.  At least for now, the lenders must not want those keys back. 

I will not be at HQ this afternoon so I went ahead and made my buy for today.  I bought 50 shares of Federated Investors (FII) with a market order filled at 17.32. FII: Summary for FEDERATED INV INC - Yahoo! Finance   I was considering a nibble on either Janus or Federated this morning, and I decided to go with Federated for several reasons.  FII has a much smaller debt load than Janus.  I find myself looking at debt and maturity schedules as my first consideration these days.   FII has only 166.3 million in debt with close to 60 million in cash as of 9/30/08. FII: Balance Sheet for FEDERATED INV INC - Yahoo! Finance  Janus on the other hand had 1.1 billion but it does have a lot of cash.  JNS: Balance Sheet for JANUS CAP GP CMN STK - Yahoo! Finance  My second consideration was the dividend.  The dividend yield on FII shares is close to 6% at the current level.  Janus would pay me just .6%.JNS: Summary for JANUS CAP GP CMN STK - Yahoo! Finance   I want the comfort provided by dividends now. The third consideration was the respective earnings estimates for next year.  Janus is heavily dependent on the equity market.  Stock mutual fund companies are suffering a double whammy now.  Individuals are withdrawing money and the value of assets under management has also fallen due to the precipitous drop in the markets, with both of those factors leading to lower revenues for investment companies charging management fees based on the amount of assets under management.  The estimate for Janus shows a drop from $.89 to $.53 in 2009. JNS: Analyst Estimates for JANUS CAP GP CMN STK - Yahoo! Finance While this may be way to pessimistic with a stock market recovery next year, it may still be too optimistic to predict a significant recovery.   The estimate for Federated shows a smaller decline from $2.17 to $2.12. FII: Analyst Estimates for FEDERATED INV INC - Yahoo! Finance
Part of the reason for the smaller decline predicted for FII is due to their heavy involvement in money market funds that generate close to 50% of its revenues.  After reading some reports this morning including ones from Morningstar, Value Line, and S & P, I elected to go with Federated which is one that I previously owned and sold for a profit around 37 in February 2007.  I also considered T. Rowe Price (ROWE) ,  a better company than FII, but it has not been beaten up as much as FII which was a critical point for me.   

While earnings growth at FII is dependent on a return of stability and growth in the stock market, it is not entirely dependent on investors' return to the stock market given its large exposure to money market funds which is where a lot of investors are seeking shelter now.  It's earnings are not highly correlated with the economy in my view.  The dividend appears safe to me at less than 50% of projected profits.

I mentioned the other day that I would do a stop loss on the TC containing the senior bond from Hertz maturing in 2012 (DKR).  This would be a mental stop loss.  If the target was hit on the downside, I would check out the news on Hertz, and look at the pricing of all of the Hertz bonds.  I would also pay a lot of attention to the amount of volume on the down move.  A small amount of volume may not be that meaningful in the total context.  I would also try to make a judgment on whether the down move had to do more with a temporary supply/ demand in the shares rather than to a rapid and ominous deterioration in Hertz's operations. I would review any recent analyst reports and earning's releases.  I would then make the decision on whether to take my medicine.  My preference is to try and hang on for as long as I can justify it in a rational manner hoping for the pay day in June 2012.  I also view each interest payment received as lowering my mental stop loss point.  I have received one semi annual payment to date, and now I have a mental stop loss of around 4 on DKR.  QUERY: 10%+ SHORT BONDS maturing in less than 5 years

I am seeing some serious up movement in my floaters.  I would reiterate that they do have some negative characteristics which I have discussed in these posts.  I liked them a lot when I could buy METPRA at 7 or AEB at 5.5.  They are important in my asset allocation as one of the few securities that provide protection in both deflation and inflation scenarios.  
So they have a home in the bond side of my portfolio.  It is not a permanent home.  I own both METPRA and AEB in both taxable and retirement accounts.  If I continue to see upward movement, I will manage risk in a retirement account by taking a profit by reducing rather than by eliminating a position even in an favored asset class. 

I am sure that some may not approve of my gambler's approach to the stock market.  But I have to go with who I am, and work with what I come to the table with, in the best way that I can manage.  The best gamblers are after all managers of their chips, allocators of their capital, and risk takers following often complex rules some of which are tied to evaluations of human behavior. 

I am not exactly sure why FCZ has gone from around 7 to 11 the past few days, even after going ex dividend during that brief period.  The GMAC news on receiving TARP funds is not exactly applicable to Ford Motor Credit, is it?  Here I am talking against a position that I just about swore a few days ago that I would not take.  I just sold 100 with a market order filled at 10.99 and I will keep the other 100.  Sometimes success can result from inspirations resulting from what most would call moments of temporary insanity, or maybe it is just dumb luck, most likely the latter.  

Before I leave today, I need to figure out a few more tax losses.  I am still positive for the year and it is just impossible to justify having some short term gains left at the end of a year like 2008.  

 DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Tuesday, December 30, 2008

Buy of CUZPRA

I heard on the news tonight that 2008 will be the worst year in the stock market since 1931.  I may be old but I am still young enough to say that this has been the worst year since my birth. 

Near the close yesterday, I bought 50 shares of a cumulative preferred stock issued by Cousins Properties.  This time I bought CUZPRA which has a 7.75% coupon and a $25 par value.  I think that this is the fifth time in 2008 that I have bought one or the other of Cousins preferred stocks. I am now playing with the house's money.  The other Cousins preferred has a 7.5% coupon.  I choose which one to buy solely based on best yield at my cost and the series A preferred was slightly better than the series B today. At my cost of $11.5 the yield is 16.8%.  There is no maturity date.  I am not aware of a single REIT preferred stock that has a maturity date, and would be interested to know if there is one.  This is the link to the prospectus for CUZPRAhttp://www.sec.gov/Archives/edgar/data/25232/000095014403008719/g83473b2e424b2.txt

I have discussed this REIT in prior posts and will not repeat what I previously wrote about it. 

Subsequent to my last discussion, Cousins, like many REITS, cut its commons stock dividend by 32%, reducing it from $.37 to $.25.     Yahoo! Finance  It also announced that it might repurchase up 20 million dollars of its preferred stock, series A and B. Yahoo! Finance  This announcement caused a 30% temporary spike in my Series B shares that had just been purchased so I sold them at near 15.5 after buying at around 11. COUSINS PREFERRED B (CUZPRB)  (those prices are from memory and are close)  The price has now come back close to my original purchase price and I bought the shares back choosing the A series this time.   As I have said, I am not concerned about Cousins cutting the common share dividend.  This just means that the pool of money available to pay the preferred shareholder, who has preference rights over the common anyway, is that much larger.  The preferred shareholder is not looking down at the common but up to the senior and secured debt.  I am just worried as a preferred shareholder that  those folks who own the senior and secured debt are getting paid.  If they don't, I hope that there will be a few bricks left for me after they feast on the remains in  bankruptcy court.  I could care less about the common shareholder (in a business sense of course-I have all the love for them as fellow human beings) In fact, I would like to see them receive at least a penny a year in cash dividends (divided into 4 quarterly payments).  Why?  As long as that penny is paid in dividends to the common shareholder, the preferred dividend has to be paid in full.    Some would say that the common dividend cut indicates a firm under stress and- thanks- I already knew that REITS are under some duress now.  

I did read the most recent transcript of the earnings call and the latest 10-Q.  I always look at the debt maturities which can be found on page 9 of the 10-Q FORM 10-Q  I do not see anything significant in 2009 which is good.  A couple are coming due in 2010 at around 100 million but this  appears to be manageable at least for now.   The 3rd quarter earnings showed improvement over the same quarter from last year using the standard criteria for evaluating REITs which is Funds From Operations (FFO).  Seeking Alpha
Cousins has a heavy concentration in Atlanta and Dallas with about 67% of its rentable space in Georgia.  The development pipeline, either company owned or as part of joint ventures, was close to a billion.  The report from Zachs says the company is well capitalized.  At year end 2007, debt was about 52% of gross property assets.   There is always risk in these issues but I will still do my nibble in Cousins preferred stocks at the 11 to 12 range which gives me a 16+% yield.  But I still keep my exposure small at given point in time and just manage it.  When I started investing in these two securities, the goal was to manage my position in the Cousin preferred issues until I reached the gambler's paradise, which I have now arrived at for this security.   The way that I look at it, I have none of my money invested in CUZPRA now even though 50 shares appears in my account. 

 DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

correction of minor factual error re: BACPRE float provision

I said in an earlier post that the float provision in BACPRE and MERPRL were the same. I relied on my memory without checking it.Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE MERPRL/ Gross interview Forbes  BACPRE can float .375% above 3 month LIBOR whereas the Merrill floats at 1/2% above 3 month LIBOR and both have the 4% guarantee.   Since readers of this post and my emails over the years know that I am a prolific user of words, it is someone hard to catch these mistakes buried as they are as needles in a vast haystack of verbiage.  

This is the link to the SEC Prospectus for BACPRE from November 2006:Bank of America Corporation

This is the link to the one from Merrill that I do not own which I think is the one discussed by Bary in his column:  Term Sheet

This difference is not material now since both issues are paying the minimum guarantee. 

For any original purchaser still holding on, they do not look so hot now even after their big rally this week. Both were sold to the public recently at $25. 

DEFENSE OF PFX SALE IN IRA

I had a comment just come into the email system here at HQ about my recent sale of 100 shares of the Phoenix bond (PFX) for about a $100 profit with the quarterly interest payment on a $600 investment in 3 weeks or so. DWS GLOBAL COMMODITIES (GCS)/ U.S. PHYSICAL THERAPY (USPH) BUY/TCs Ex Interest/PFX SOLD People who know me will often ask a question, which is often a thinly disguised criticism, and they know that I will just shrug my shoulders.  The question had to do with why I am bothering with these small profits and how do I plan to get ahead clipping $100 profits here and there.   I know that virtually all investment decisions can be dissected, criticized particularly with hindsight, and questioned.  What I do is just right for me and it may never make any sense to anyone else.  

This is my defense on the senior bond sale. The transaction was in an IRA so it has no tax significance.  I am in a bunt for a single mode. The sale occurred on the ex interest day when the price rose more than the amount of interest adjustment, so that I was able to capture both the interest and the profit at the same time. Part of the reason for exiting the position is its speculative nature and the account where I was engaged in the speculation.    When Phoenix (PNX) reports its results for the 4th quarter, I will read it.  I still have a position in the senior bond in a taxable account where  a loss in a security can at least reduce the amount of taxes paid which is not an option in an IRA account of course.  In other words, a loss in a taxable account still has value.   If the bond continues to fall, I reserve the right to buy it again using part of the proceeds from my last sale. The price would have to fall below 5 to tempt me before the earnings report is released.  If the earnings are okay, I might be tempted to re-enter the position at a price lower than my last purchase at $6.06 adjusted for the low online commissions.  I am flexible on a possible buy of this security at a lower price. This kind of maneuvering would not have been possible in the old days, even with a discount broker, when the trades still had to be conducted over the phone, using the keypad of a touch tone phone, with the commissions running $50 a trade.  Those $50 commission trades were still an improvement from my first stock buy back in the 1960s that was done through J.C. Bradford. 

That reminds me.  Nashville has always been a dynamic entrepreneurial city, sort of a city state, that can prosper notwithstanding what is happening elsewhere.  The economy will be impacted by a severe recession but generally jobs are plentiful, the economy is diverse, both labor, housing and land are still relatively cheap, interstates run into the city from every direction making Nashville a sort of transportation hub where a trucker can reach a good chunk of the U.S. population within a day's drive, and it is the home of the soon to be Super Bowl champions.  I was thinking about this point this afternoon when I bought Corrections, a private owner and manager of prisons founded and based in Nashville.  My first stock buy was Hospital Corporation of America back in the 1960s with money saved from mowing lawns and working at $2 bucks an hour during the summer, soon after HCA's original IPO when it owned a small hospital near Centennial Park called Parkview.  It was the original private owner of hospitals, which ultimately grew into the largest private owner of hospitals in a few years, and was taken private a couple of times in leveraged buy outs.  

ADD of Corrections Corp of America (CXW) with cash flow

Corrections Corporation of America (CXW)  has a business that is not dependent on the health of the U.S. economy.  In fact, a good argument could be made that a worsening in employment will result in more crime and hence more business for CXW.  I bought just 50 with a market order which was filled at 15.60.  Corrections is based in Nashville and it is the largest private operator of prisons in the U.S.  While I can not be positive, I do not believe that I have ever owned it or one of its predecessor companies.  I barely can keep track of what I now own, let alone remembering what I may have owned many years ago when the decades are starting to just blend into one another.  I do remember being very negative about this company at one point, probably back around 1999 to 2000, or thereabouts, because of its structure as a REIT called Prison Realty with a separate management entity that created a host of problems.  I do not remember the details but the company did suffer a near death experience around 2000.  It had a reverse 1 for 10 stock split which is never a good thing, but it recovered thereafter after being reorganized in its current form as a regular C corporation. I rose from around 1 to over 33 last year, adjusted for some splits, and entered a bear market phase falling more than 50% to its current price today.  

I have been reviewing a number of reports on the company for the past two days and a couple of its 10-Qs.   The company is either a large small cap or a small mid-cap with a market capitalization of around 2 billion.  It has about 1.115 billion in debt with all of it maturing between 2011 to 2014 as shown on p. 10 of its recent 10-Q filing.    Form 10-Q

I thought the best analysts' reports were the ones from Barclays and Zachs. The Barclays report is one of the best that I have read this year. I also reviewed reports from Value Line which was positive over the long term, Ned Davis which has a buy and Market Edge which has a sell rating.  The current earnings estimates for all the analysts is $1.18 in 2008 and  $1.34 in 2009.  If the 2009 estimate holds, then the forward P/E is around 11, with a P.E.G. of less than 1.  Price to sales is a little over 1. CXW: Key Statistics for CORR CP OF AM (NEW) - Yahoo! Finance

Part of the recent downdraft was a downward revision in management's estimate for the 4th quarter earnings by about 3 cents due in part to a delay in a ramp up at a California facility.  This was apparently cured in early November.  This seemed to be some kind of bureaucratic hang-up which required compliance with certain medical requirements established by a federal medical receiver that had jurisdiction to oversee healthcare delivery in the state prison system in California. 

I read in one of the reports that the prison population has just recently expanded to more than 1 in 100 American adults for the first time.   While prisons operated by private companies only account for less than 8% of the prison population, it appears to be a growth industry now.   One of the negatives pointed out is the pricing pressure from the local and state governments who are under strain due to the credit crisis.  I suspect that this would be true.  Conversely, the credit crisis would also make it more likely that state and local governments will turn to private operators to build and manage their prisons.  CXW plans to increase its capacity by about 10,000 beds over the next year or so.  About 23 states are operating at above their capacity with the Federal system operating substantially in excess of its capacity.  Over 40% of CXW's 2007 revenue came from the federal government.  This is pointed out on page 6 of the Barclay's report from 11/7/2008 which contains a discussion of CXW's business with the Federal Bureau of Prisons, Immigrations and Customs, and the U.S. Marshalls.  

Since I am only investing cash flow, I only bought 50 shares today.  I will be in a position to add another 50 shortly if I can average down.  Barclays has a 26 target on the stock.  I would be most satisfied with a 25 price within 3 years.  

As I finished this post, I checked the price again and it has fallen over a dime from my purchase price. 

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Completed Additions Long Bond with minor GTC limit orders in place/LOOMIS SAYLES/SNTA

I am just about finished adding positions to my bond portfolio.  I thought that bonds presented a good buying opportunity in the September to December time frame and acted on my opinions. I am currently over-weighted in long corporate bond positions and have started to hedge that position by buying the double short ETF for the long U.S. treasury.   While I hope to hold onto most if not all of my investment grade corporate bonds until maturity or early call, I will trade the preferred stocks that I lump with the long bonds in my asset allocation.  I will constantly trade the REIT cumulative preferred issues, maintaining a relatively constant dollar amount in the issues while moving it around to realize gains and to stop losses as well as finding higher yielding ones than existing ones with a similar credit profile.  I am most likely to hold onto my floaters which were bought at opportunistic prices except for GSPRA where I paid too much.    I am not likely to add to any of them due to my assessment of their risk/reward profile, unless of course there is another significant break to the downside.  I would also seriously considering selling for a long term capital gain with a price move toward 20 or in that general neighborhood.  Most likely, I will be holding most of them for some time.

I do have some GTC limit orders for some TCs significantly below the current bid/ask.  I am sometimes successful in catching a major downdraft with one of these limit orders.  I have a GTC limit order at below 18 for the TC PYV which contains the J P Morgan junior debenture maturing in 2014 for example.  I try to remain alert about mispricings for the same bond contained in different TCs which might afford an opportunity to lower my cost basis, increase my yield and reduce my risk. (see, e.g.Managing Risk in an IRA: KTN and KVW)
Fifty shares is my average weight for the Aon junior debenture that matures in 2027 in an IRA. I currently own 50 in that account of KTN with a coupon of 8.205% bought at less than 14.  If the opportunity rises, where another TC containing this bond provides me with a higher yield with less money in the position, then I would consider adding it and then wait for an opportunity to sell KTN, assuming there was no material change in Aon's credit status significant enough to cause a reconsideration of owning any bond issued by it.

Some of the TCs that I sold this year have not been discussed in this blog.  The reason is simple. The bond can be purchased directly at a materially lower price than it can be acquired through the TC form of ownership.   This would be a mispricing in favor of direct ownership of the bond.

I am now moving on into other areas.  It is important to know enough to take advantage of the best opportunities available at any given time with the limited amount of capital than any person has available to invest.  Everyone has a limited amount of capital-no matter how much money you have to invest.   I decided this morning to sell the first shares purchased in both Loomis Sayles bond funds that I own, LSGLX and LSBRX, use FIFO accounting, and the losses from those sales will offset the remaining hard earned gains in my taxable accounts.  Given their pathetic performance over the course of the past year or so, the first shares purchased were the highest cost, then the second round of purchases would be the next highest cost shares, and so on.

There is certainly no good news this morning.  U.S. consumer confidence fell to the lowest level on record.  MarketWatch
The Case-Schiller index of housing prices in 20 large markets continues to show a fall in prices returning home prices to 2004 levelsYahoo! Finance

I have two buys on my plate for this morning.  The first was placed a few moments ago when I took my position in Synta Pharmaceuticals (SNTA) up to 100 shares by buying another 50 at the market, which was filled at $5.5.  I am playing with the house's money on this one as explained in two earlier posts. OLD GAMER HATCHES A PLAN AROUND 1 P.M TODAY Jobs /DD/ TCs with AT & T BONDS
This is a small and speculative biotech play with a market cap of around 188 million at the current price. SNTA: Summary for Synta Pharmaceuticals Corp. - Yahoo! Finance
I discussed in the earlier post its main drug candidate -elesclomol- for the treatment of metastic melanoma.Yahoo! Finance  I mentioned that a late stage failure of this drug would be near catastrophic for this company which is what made it so risky, particularly since so many drugs designed to treat this disease ultimately failed.  My reason for adding another 50 this morning had to with the announcement this morning of a drug development deal with Roche for inflammatory diseases. Yahoo! Finance   I did read the details of this deal with Roche that was filed with the SEC.  While this is certainly a positive for Synta, I would not get too excited about it.  For me, it means that there may be a back up in the event its main drug fails.  I was concerned about having all of the potential value, or the lack thereof, tied up in just one drug candidate, no matter how promising it seemed to many experts.  Again, I am simply investing excess cash flow.  I am now concentrating on small and mid cap companies whose prospects are not highly or directly correlated with the health of the economy.  Synta certainly qualifies under that criteria. 

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Monday, December 29, 2008

DOW CHEMICAL/ UBP AND BERNIE/BOND ETFS/ ISHARE'S NEW TARGET FUNDS

Although I do not have any position in Dow Chemical, it is one of about two hundred large caps that I follow on a regular basis.  I agree with the comment in a WSJ article that management can place a company that has stood the test of time in jeopardy.  WSJ.com   I was already skeptical of the price being paid for Rohm & HaasNotable News 10 23 2008, which has kept me out of both the common stock as well as the bonds, and the news over the weekend will keep me on the sidelines for the foreseeable future.  The article does state that the 750 million dollar break up fee is payable only if the deal does not secure regulatory approval and does not apply otherwise, and this does mean a lawsuit for damages in the event Dow tries to walk now, assuming the WSJ has its information correct on this point.  Whatever the outcome with Rohm, the outlook is too uncertain, even precarious, for me to even take a nibble. 

I keep reading about the Swiss firm UBP and its connections with Bernie Madoff and the Fairfield Greenwich firm.   WSJ.com
Judging from this last article in the WSJ, UBP is going to claim that it was relying on the SEC's regulation of Bernie.  Wow!  That would be a shocker for us peons in the U.S. to even think that the SEC is protecting investors or monitoring funds like the one being operated by Bernie, let alone in a meaningful way.  If the UBP clients present their case to a U.S. jury, with the facts presented on how much Fairfield and UBP were paid and proof of what they did do and most importantly what they did not do, I suspect the excuses and explanations that I have read to date from these purported financial advisors will find short shrift in the jury room.  Do they have any idea how all of this sounds to an average American who may be sitting in judgment of their due diligence?  

I noticed in the dividend section of the WSJ's market date page that some bond ETFs went ex dividend today.  This included LQD at $.4215; BWX at $.1142; WIP at $.1246; and TFI at $.0737Dividends - Markets Data Center - WSJ.com  Prior to this month, I reinvested all dividends paid by bond ETFs into buying additional shares and still do, except that I now take TFI in cash. 

While I was looking at this dividend page I saw several target funds offered by Ishares that I did not know about.   I checked out one for 2010 (TZD) which has an expense ratio of .25%. iShares S&P Target Date 2010 Index Fund (TZD): Overview   I am very disappointed with the return of a mutual fund that I have with the same date.   I will monitor these target funds to see if it might make sense to dump the mutual fund and substitute one the Ishares ETFs sometime in late 2009 or 2010.   The only other one that I will monitor is the 2015 target fund (TZE)iShares S&P Target Date 2015 Index Fund (TZE): Overview   I am looking at several alternatives to my current target fund including dumping the concept altogether. The major problem with the new Ishares target funds now is that they are just too small in terms of assets and may not even  have a trade on some days.  So I will just keep it on my radar screen to see how they do compared to the mutual fund that I have the misfortune of owning, which has been pathetic in 2008.   But assets are going to have to expand to over 50 million in TZD or TZE before I would even consider one of  them as a replacement.     

As of last Friday, returns on some 2010 Target funds, which would be the most conservative of any of these funds, for 2008 are as follows based on data from Barron's:

T.RowePrice:   -  28.3%
Vanguard:        -  22.2%
Fidelity:            -27.%
Others are in a similar range.  Given the glide path, moving away from stocks as years pass, it will take some time for these funds to recover from this year's loss even with a stock market in recovery mode.  Many had failures in parts of their bond portfolios which added to their stock woes.  Bonds may at some point start to falter when inflation rears its head again. As I said earlier, I made a mistake going this route when I chose to do it. (Buy High & Sell Low /Retrospective on the Good & Bad :  listed as my third mistake in that blog, in retrospect, looking in the rear view mirror at the period starting in late 2007).  

QUERY: 10%+ SHORT BONDS maturing in less than 5 years

In response to a query about short bonds yielding over 10%, I will define that parameter as something maturing in less than  five years that could yield more than 10% per year by combining the coupon yield and capturing the spread between cost and par at maturity, limiting my response to what I have already said in this blog.  As I have said, there are two ways to make money from an individual bond purchase when it is bought at a discount to par value.  You will receive the current yield based on your cost and a profit at maturity which I amortize to an annualized return assuming payment at maturity which may not happen of course. 

I do not give recommendations.   I am bored senseless since my normal routine of buying stocks has now been restrained to almost nothing by my own VIX Asset Allocation Model.   Please see my disclaimer.  I simply discuss what I do and why I do it which is fitting only for someone in my exact financial position, which is both solid and good, risk tolerance (mostly conservative with occasional bursts of temporary insanity evidenced by speculative buys like the recent FCZ and FCY), age (somewhat advanced), and many other considerations including placement within an overall complex asset allocation scheme discussed throughout these posts.

   I would add that anyone buying DKR, one of the selections mentioned in this post, needs to be a little crazy and possessed by the animal spirits, temporarily of their rocker so to speak,  able to lose the entire investment with the same elan as using the money to light a cigarette or flushing it down the toilet, and has to completely and thoroughly understand the risk by doing their own research for that issue as well as all others mentioned by me (even more in depth and painstaking for these speculative ones).     

There is junior debenture issued by J P Morgan contained in the Trust Certificate PYV, which I recently bought because its current yield plus the annualized amortization of the spread between a par value of $25 and a cost of $18.5 would yield close to 12% annualized to maturity in 2014 provided of course JP Morgan survives to pay me in 2014. 
Paying less than $18.50, trying to catch a downdraft with a limit order, will of course increase your current yield and the potential return at maturity.  

I also own a very highly speculative senior bond from Hertz which matures in June 2012 which is the underlying bond in the TC DKR.   The annualized coupon yield plus amortization of the spread would be close to 100% yearly until maturity based on a 7 cost basis and a $25 par value with a maturity in 3 years and a few months.   This is the kind of buy that will be either a large gain or a near total loss except for the interest received.  I am going to do a stop loss somewhere near 4.   If it can stay above 4, I will keep my 100 shares for as long as I can, hopefully until maturity in 2012 at $25.  The financial position of HTZ is dicey. 
These trust certificates are traded on the stock exchange and are bought just like stocks.  Both just went ex interest.  PYV pays quarterly and the very dicey DKR pays semi-annually. 

 By going to the FINRA site, which is very good to help find securities that I briefly mention, like a Prudential short bond, it is possible to locate several short bonds that would yield over 10% and I have mentioned some of them.( referring to recommendations made in the recent SmartMoney magazine  by a manager and by James Stewart in the same issue:  Investment Grade Corporate Bond Spreads/ CPI FLOATER: OSM )     I do not discuss them at great length since they are available for purchase only on the bond exchange.  This requires a separate set of knowledge rules that I am not going to discuss in my blog.  The bond market is generally not an advantageous forum for many small investors who do not have a lot of experience buying individual bond issues.  Some sectors likely to yield above average yields now would be life insurance companies like Hartford and Prudential, and a finance company like CIT.  Bill Gross mentions in his interview in Forbes this week some short bonds from subsidiaries of AIG like International Lease Finance. Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE MERPRL/ Gross interview Forbes
Many issues with maturities to 2014 will give 10%+ annualized yields based on a combination of current yield plus a capital gain at maturity (amortized over the life of the bond to achieve an annual return percentage), with the attendant risk having to be assessed for each issue.  I would not view, for example, a 2012 senior bond from Prudential to have the same risk attached to it as one from CIT or International Lease Finance.   
  Most of the senior bonds that will yield me more than 15% per year were opportunistic long maturity bond buys (20+ years) made during meltdowns in the bond market in October through November time frame, with many mentioned in this blog. LINKS TO LONG TERM BOND BUYS IN PRIOR POSTS  By entering a search term in my blog near the top of the page, any relevant discussion in any post will pop up.   An example would be JZE, a Trust Certificate containing a senior AT & T bond maturing in 2031 bought at 12.5 with a $25 par value.   Even with no downgrades in the debt, which would increase the coupon yield, the coupon yield plus an annualized amortization of the spread would yield over 15% per year for every year until maturity or early call. 

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

DWS GLOBAL COMMODITIES (GCS)/ U.S. PHYSICAL THERAPY (USPH) BUY/TCs Ex Interest/PFX SOLD

I am not keeping up with investing cash flow into new common stock positions. I keep receiving capital gain distributions by funds that have gone down a lot this year.  I added a closed end fund this fall, as a contrarian play on the commodity sector, and it just went ex dividend today. Yahoo! Finance  (reports are available at DWS web site)  GCS declared a dividend of close to $5 which went ex today, with close to half in short term capital gains.  I will keep the fund since it serves a purpose in my overall asset allocation as does the recently added Blackrock Real Asset (BCF). Both BCF and GCS are listed in closed end fund market date page at the WSJ under specialized funds.  Closed-End Funds by Category - Markets Data Center - WSJ.com  I have almost no stock positions in the commodity area and I am currently substituting these closed end funds for individual securities, since I am unwilling to start buying individual commodity companies with any gusto now.  These funds give me some exposure and diversification, while selling at discounts to NAV.  My position in both of them is insignificant.  If and when I become more comfortable with commodity related companies, like a RIO or SQM, I will just buy the stocks. 

 Some funds manage these distributions better than others.  As I have said in this post and in my emails sent prior to starting this post, I do not really mind when the fund is returning to me- as a long term capital gain distribution -part of my unrealized profit in the position.  I do not care much, however, for the ones that declare a large dividend, in a year when the fund suffers a substantial decline in value, and the dividend is mostly just a return of my capital and an undesired creation of a tax event.  Never mind, it is just one reason why I was searching for something to buy this morning with the cash about to flow into the account from all of these dividends and interest payments.

My buy this afternoon was a small cap called U.S. Physical Therapy (USPH).   I probably discussed this one in an email from last year.   I owned it briefly for a trade in the summer of 2007 selling at a profit at around 14.5+ in September 2007 and I just bought it back at 11.50, down close to 6% today.    It has fallen about a dime since my purchase.  I have a lot of tolerance for price moves in my small cap positions.  I may do a stop loss but it would be in the 20 to 25% range below my purchase price.  I also realize that any disappointment in earnings will crater the stock price of a small company which means my stop loss will have to be a mental one, and a negative earnings report would likely result in an opening price far below the stop loss.   The market cap of this company is just 137 million.  USPH: Summary for U.S. Physical Therapy, Inc. - Yahoo! Finance  Consequently, it would not take many sellers to drive the price down.  

USPH does have some positive characteristics at the current price. It is a small cap that is not that sensitive to the economic downturn.  I am limiting my small cap buys now to those companies whose earnings are not significantly correlated to the economy.   The company reported positive earnings growth for the 3rd quarter.  Seeking Alpha  Net income grew to $.21 from $.18 a year earlier. It ended the quarter with 364 clinics. (from recent 10-q filing:  e10vq)While I do not have a figure, I would suspect that most visits are not discretionary and are related to job injuries paid by workmen's compensation insurance or other types of accidents causing a need for physical therapy, which might be reimbursed by medicare or other forms of insurance.  The provision for doubtful accounts was  1.6% of total net patient revenues during the 1st 9 months ( p.19 of 3rd q 10-q)  The provision for bad debts was higher at 7.3% of accounts receivable but that was down from 7.9% as of 12/31/2007. 

USPH has a decent balance sheet with 9 million in cash and 9.6 million in long term debt. USPH: Balance Sheet for U.S. Physical Therapy, Inc. - Yahoo! Finance 
I do not have access to a decent analyst report.  The average earnings estimate is shown at $.85 for 2008 and $1 for 2009. USPH: Analyst Estimates for U.S. Physical Therapy, Inc. - Yahoo! Finance  If their predictions come true for next year, the P.E.G. ratio would be less than 1, the P/E at about 11 using next year's earnings, and a price to sales also less than 1.   This would be part of my overall stock trading portfolio for next year.  I would sell it somewhere in the 13 to 16 range as I try to build up some profits within the first few months of 2009. 

For reasons that I will not attempt to explain, for I am too old to make an effort anymore to understand irrational behavior, some individual investors will buy a TC like KVW the day before the ex interest day, which was today, thereby creating a tax event for themselves, and then others will sell it that day unwilling to wait 6 months for another payment.  

 REVISED POST AT 2:22 P.M WITH THIS MISSIVE

After posting this comment about irrational behavior, I need to modify it some, to say it is rational to sell in an IRA a speculative bond position bought just before the ex interest date when the security rises by an amount equal to or greater than the dividend on the ex dividend day.  THIS IS NOT A TAX EVENT IN AN IRA.   This happened today with the 100 of PFX just bought a few days ago in an IRA at 6.06,CB Richard Ellis/Mortgage Rates/PFX/ SLM-OSM and it went ex interest today.  The transaction netted about $50 on the shares plus the dividend.  While this may not make a great deal of sense, I am  just attempting to manage risk in a retirement account where I try to avoid too many losses.  So this round trip on PFX in the IRA will come to an annualized gain of close to 15% realized with a holding period of less than 3 weeks, adding the dividend to the stock gain.  I am keeping the other 100 bought in a taxable account for the dividend and long term potential return.


DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 


AEGON FLOATER (AEB)/ One of many floaters

UPDATED 6/05/09: I have a Gateway Post that contains links to my discussions about equity preferred floating rate securities and synthetic floating rate issues: Floaters: Links in One Post

Updated 1/19/2010: A more in depth discussion of the Aegon hybrids, and links to my posts on them, can be found at Aegon Hybrids: Gateway Post

*******original post:

Someone inquired about the Aegon floater. I do not believe that I provided a link to the prospectus at the SEC which needs to be reviewed prior to purchase. Here is the link:
I would have to say that the AEB prospectus is more convoluted than most that I have read. The prospectus says Aegon will file for a listing on the NYSE under the symbol AEO, which is the symbol for American Eagle Outfitters. I did check the Aegon web site before making my first purchase to confirm the symbol as AEB. Capital securities - AEGON Group

Since I am already familiar with the boilerplate prospectus language typical for most preferred stocks, AEB being an exception, which seems to originate from the same word processor irrespective of the issuer, I only glance at the general language now, focusing instead on the main issues contained in a preferred stock prospectus. Is it cumulative? When and how can the dividends be deferred? Is interest payable on a suspended dividend? Is there a maturity date or is it perpetual redeemable only at the issuer's option? (generally preferred stocks are perpetual for the most part, whereas securities called "Trust Preferreds" do frequently have a maturity date but they are really junior debentures, with Trust Preferred issues having different bond characteristics than the typical preferred) The issues contained in the four corners of the prospectus are not the main issue. The main issue is always and simply the ability of the company to pay the dividend now and in the foreseeable future. While the preferred stock is considered equity, a preferred stockholder has no real equity in the business. The only consideration outside the prospectus for me as a preferred shareholder then is the solvency and dividend paying ability of the issuer.

There are many floaters, and only some of them are discussed in these blogs. Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE MERPRL/ Gross interview Forbes I generally only discuss what I own or have owned. I own close to 300 securities so I do not have the time to discuss all of them let alone what I do not own. The best floaters, right now, in my view are those that provide the greater of a minimum guarantee or a per cent above three month LIBOR. Possibly the most undesirable one which has a float tied to LIBOR, which I do not own, is UBSPRD which does not have a guarantee, which is most undesirable for this kind of issue, and it floats a mere .70 over one month LIBOR, which makes it even worse. That is why I have not discussed it. I have no plans to buy it when the alternatives are clearly better.

There are adjustable rate issues that do not provide a guarantee but float a certain per cent above CPI. I have discussed these in several posts.

There are others that float with the greater of a guarantee or some other rate other than 3 month LIBOR. I recently discussed one of those that I bought, PYV.Buys of a First Mortgage Bond EMO and a JPM TC PYV For that one, the likely rate will be the guaranteed rate until it matures in 2014, and the main reason for buying it was the combined return of the current yield and the spread between cost and par at maturity.

There are a few others similar to PYV that I will discuss in the event I decide it is worth an expenditure of my capital. There are many others that do not have a minimum yield and are tied to a narrow spread above some currently undesirable rate like the three month treasury bill. These are barely worth monitoring for me let alone discussing. How excited can one become about a 1/2% spread over a 3 month treasury bill which is now close to nil? I will just look at those kind of floaters once a month now. Only one is mildly interesting due to a substantial discount to par value, a solid issuer, but it generates nominal current interest with a distant maturity date.

When deciding to invest in a preferred stock, and this always bears repeating, remind yourself of what happened to investors in the floating rate preferred issue from Lehman and the investors in Fannie and Freddie preferred stocks. Sometimes, as Will Rogers said, the return of your money is more important than the return on your money.

ADDED AFTER AFTER ORIGINAL POSTING (at 12:02 p.m. 12/29/08):

I would add something else that I mentioned several times, floaters like AEB and METPRA have been known to me for some time, possibly extending back to their original issuance. I had no interest in them until late this year when the guarantee became enticing at the currently depressed prices. Of the ones that I discussed, only AEB still holds some interest for a possible add due to its extreme discount to par value which juices the guaranteed yield for a new purchaser. At 7, the guaranteed 4% is worth 14.2%. The LIBOR provision gives some protection against a surge in short rates caused by inflation or even a credit crisis when banks cease to trust each other, as shown a few weeks ago when this rate came close to 5% before falling back below 2 (now at 1.47% Markets Data Center Home - Market Data, Indexes, Stock Quotes & More - WSJ.com, indicating a relaxation in the credit crunch for inter-bank lending) If these securities had a maturity date, then they would be more interesting. (OSM and PFK have maturity dates which is a plus and the dates are 10 years or so in the future which is another plus, but they are tied to CPI with no guarantee.) The lack of maturity date may ultimately mean the current discount to par value has meaning only because it juices the yield, not because there is a realistic possibility of capturing the spread between the current price and the $25 par value. As mentioned earlier, the only way that one of these might be called is for the LIBOR to shoot so far up for an extended period of time, when the long term rate is lower than the short rate, so that it would make sense for the issuer to redeem the floater tied to 3 month LIBOR and replace it with other debt. This may happen, with an inverted yield curve, but this is not likely to happen anytime soon and certainly would not be a grounds for buying one now. I did not know about the Merrill floater discussed in Bary's column but look at this way. It is just as well. It was sold to the public last year at $25 and was trading below 9 last week. At last Friday's closing price, it might generate some interest in someone like myself, but I already own BACPRE and I underweight perpetual preferred stocks. If I was going to add to some position in this underweight category, why would I go with MERPRL, which has the same guarantee at 4% as the Aegon floater, but sells at a significantly higher price with a less advantageous Libor provision at 1/2% vs. 7/8%, unless of course you feel strongly that Bank of America is a much better credit than Aegon. But the Merrill and BAC floaters are clearly non-cumulative whereas I believe AEB is cumulative but it is a little hard to tell for sure given the convoluted nature of its prospectus.

DISCLAIMER:

I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.