Tuesday, February 24, 2009

Buy of 50 AEV in IRA/Hertz/Bernanke/

The statement by the Fed Chairman that it was possible for the recession to end in 2009 was enough to spark a rally today.  Bernanke also said that he did not believe any major bank was near failure. WSJ.com

My order to buy 50 AEV at 5.75 was filled. The yield at that price is around 30%.  This is a link to the prospectus:
This is the one that I mentioned in my morning post that I had already placed a below market limit order to buy.  Masters of the Universe=Masters of Disaster/AIG & Financial Black Holes/M, CBR,TGT/BUY OF ISFThe pricing of this preferred would make sense only if bankruptcy was a realistic possibility or a deferral of the cumulative dividend for more than two years was probable, in my opinion.  Since I do not see an Aegon bankruptcy anywhere in the horizon, based on currently available information, nor do I think that a two year or longer deferral is probable, though possible, I am still buying these securities on meltdowns. But there has to be a recognition of possible adverse outcomes given the uncertainties and risks attendant to virtually all financial institutions today.  The risk to a preferred shareholder is attenuated after the common share dividend has been eliminated, as is already the case with AEG and ING.    I have about $300 or so left to invest in ING and Aegon preferred issues.  The  preferred stock issues from these two Dutch companies have been incredibly volatile.  ISF bought early in the morning at $4.6 closed at $6.2, up $1.20 or 24% after being down when I made the buy.  AEV closed  at $7.42 and my buy was at $5.7.  This may indicate good timing, only time will tell.  But all it really indicates for certain is extreme volatility both up and down.  And, if Aegon and ING do not defer any payments and stay out of bankruptcy, then these purchases will look astute.  Otherwise, they will look not so smart.  Tomorrow is the ex dividend day for most of the Aegon and ING preferred securities, including all of the ones that I now own.   
Bernanke had a good explanation of how the stress test for banks relates to the conversion of preferred shares into common.  MarketWatchThis takes some of the negative edge off the earlier reports about Citigroup  making such a request. 

I am continuing to monitor Hertz due to my 50 share position in DKR which has been cut in half since my last sale.  I was looking for a re-entry point to buy back the 50 shares sold at  14.75  but decided against it at least for now. SOLD 1/2 POSITION DKR/GE FUNK/ I DO NOT OWN ANY BANK TRUST PREFERRED issues/CURRENCY INTEREST RATE DIFFERENTIALS/FOREST CITY  HERTZ BONDS  Hertz reported a loss of 1.21 billion including a large impairment charge and an adjusted loss of 22 cents compared to net income of 29 cents in the year ago quarter.  MarketWatch
I regarded my small speculative position in a senior bond to be highly speculative last year and even more so after reviewing this report.    Hertz Reports Fourth Quarter and Full Year Operating Results: Financial News - Yahoo! Finance
I am not in a rush to buy another 50 DKR anyway.  But the dive it took late today made it more interesting, closing at $5.875. MS SATURNS HERTZ 7% | DKR | Yahoo! Finance Charts
The market is saying that Hertz will not survive to pay off this note maturing in 2012.   If it was able to survive the return would exceed 100% annualized combining the payment at maturity and the annual interest payments.  The dividend yield alone is almost 30%.  A buy of 100 at $6 would generate another $1900 if Hertz paid off at maturity in about 3.3 years.  Par value is $25 payable in 2012 so anyone can do the math (the return on the spread between cost and par value if paid is almost 100% a year + the semi-annual interest payments, but there is no free lunch)   Fitch downgraded Hertz's rating outlook to negative.   Fitch downgrades Hertz Corp.: Financial News - Yahoo! Finance 
Hertz's senior unsecured debt is rated as junk by Fitch, BB-.  So, I will read the earnings transcript and its earnings release tonight and try to ascertain the odds of survival, which will be at best just a guess.  Seeking Alpha The risk on this one is extreme which is why there is no free lunch for 100+% or so annualized return.   I have a stop loss at 2 on my existing 50 shares.  If I buy another 50, I will raise it to somewhere between 3 to 4.  

I do believe that the individuals, whose ideology is most responsible for the current turmoil, will do their best to place as many obstacles and obstructions as possible in the way of the current administration's effort to resolve it.  It is sort of like the amnesiac arsonist who wants to know why it is taking so long to put out the fire that he started and his assistance is as useful as disabling the nearby fire hydrants.

The Office for Thrift Supervision released a report on the delinquency rate of loans after modifications.  Of the home loans modified during the first 9 months of 2008,  55% had re-defaulted within six months. MarketWatch
Those whose mortgages exceeded the value of the homes were more likely to default as you would expect.   

Bank loan delinquency rates rose to 4.6% in the 4th quarter, the highest rate since 1992. Loan  MarketWatch


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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. 

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