Wednesday, February 18, 2009

Rounded KTV to 100 Shares/ More Thoughts on the Auto Bailout: The Need for a Stern Poker Face

When I bought 50 KTV, a TC with an underlying junior debenture issued by First Union, I mentioned that I would look for an opportunity to take the position up to 100 shares at 19.5 or lower. Buy of 50 AT & T/More on KTV/ Peter Kraus Bonus At Merrill

I was able to do that by buying 50 KTV at 18 this morning, actually a tad under 18. This lowers my cost for 100 to about 19.25 and brings my current yield up to about 10.67% Buy 50 KTV/CBG, GIVEN, PLD, BMY/ Senator Alexander: Spending does not Stimulate the economy

First Union was acquired by Wachovia which was in turn acquired by Wells Fargo. The bond matures in 2026.

I now have two bank Trust Preferred stocks, both junior debentures or junior debt, as distinguished from equity preferred stocks and common stock, and they are obligations of J P Morgan maturing in 2014 and Wells Fargo maturing in 2026. If I add another one, it will commit no more than a thousand to it. Needless to say, I am very concerned about the health and viability of the financial companies. Many of the Wells Fargo Trust Preferred issues are tanking today.

WSF: Summary for WELLS FARGO CAP IV 7 
Many of the Trust Preferred issues have maturity dates too far in the future for me, with 2038 being as far as I am willing to go. WPK, Wells Fargo Cap VII, matures in 2033. Final Prospectus Supplement

I have never owned it but it is at least an option considering its maturity. JWF, Wells Fargo Capital IX, is similarly an option with a maturity date of 2034. Definitive Prospectus Supplement

BWF, Wells Fargo XII, is not an option with a maturity date in 2068. Final Prospectus Supplement

Personally, when choosing one of these securities from the same issuer, I would be willing to take a 1/2% less yield to have a maturity in 2026 compared to 2033. WSF matures in 2031 with an option to extend to 2050 with certain conditions attached to that option exercise.

The KTV at 18 was still giving me a better yield with a shorter maturity than functionally equivalent junior bonds from Wells Fargo. I would have added it anyway, even if the yield was identical, just to increase my position to a round 100 share lot.

I will be making numerous bond buys in the coming days to re-deploy proceeds from recent bond sales. I am searching for more yield, more bang for the buck, without making a significant sacrifice in overall quality. Some will be a better quality issue than KTV and some may be slightly more speculative but the overall quality will not be significantly different than the bonds in LQD.

Bernanke claims that the credit easing by the Federal Reserve will not stoke inflation and can be quickly reversed whenever the economy starts to recover. MarketWatch
I have no doubt that he is correct about the greater danger now being deflation and the easing by the Fed can be quickly reversed. I am skeptical of any claim that the quantitative easing by the FED coupled with the massive fiscal stimulus will not cause serious inflation down the road.

More details of Obama's foreclosure reduction plan are contained in this article from the WSJ:

To reach the point where the auto companies, the UAW and the bondholders accept reality and make the necessary concessions, the Obama administration is going to have to be serious in willing to allow the companies to completely liquidate in Chapter 7 with no federal loans or guarantees in bankruptcy and express the President's willingness to see that option if all sides do not make substantial concessions. If you take that option off the table, then the Democrats are placing more burden than necessary on the American public, and all sides would be thinking more about how much they can keep as opposed to what they have to give up now for GM to be capable of surviving on its own. 

I would add that the links to articles that I provide in these posts are primarily intended for anyone interested in further reading on the subject, sometimes as support for a point or to provide more information relevant to the point being made. With the exception of Barron's and the WSJ, which require a subscription to review the linked articles, most of the articles are available free of charge except some publications require you to register like the NYT or the WP to view articles which is why I keep their cookies stored in my computer so I will not have to enter my log in information when visiting those web sites.

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.

No comments:

Post a Comment