Tuesday, March 10, 2009

Buy of 50 JZV at 9.93/Movement in Aegon and ING Preferreds: More of A Reflection on the Human Psyche

Maybe as one becomes older some of the chemical synapses in the brain go awry.  I have no other explanation for finding entertainment value in the movements of Aegon and ING preferred stocks.  Perhaps the movement is found amusing by an old codger as mere reflections on the human psyche under stress.   Was ISF worth $2.65 on Monday and $4.35 on Tuesday?  There was no news about the issuer ING to account for the swing.  And, on what basis was the market pricing the likelihood of ING's bankruptcy at close to a 95% certainty, which would be a predicate in my opinion for pricing ISF at $2.65, a cumulative preferred issue with a 6.375% coupon and a $25 par value. Masters of the Universe=Masters of Disaster/AIG & Financial Black Holes/M, CBR,TGT/BUY OF ISF  At a $2.65 price, the yield was about 60%.  That is every year as long as the dividend is paid or accrued.   This is not to say that ING will or will not go bankrupt.  It does ask the question on what basis would an investor assume a bankruptcy with such a high level of certainty when pricing ISF.    Admittedly, after this security rose close to 50% right after my purchase and the rise occurred just after going ex dividend, I thought about selling it but said what the heck. I would not enjoy watching it so much if I did not have at least some skin in the game.  This one is just the most extreme of the bunch, similar movements have been occurring in others that I own including AEB, IND, INZ and AEV.  But I will trade them to lower my cost basis, a form of risk reduction, which I did late last year with INZ.  I am less likely to trade AEB only because it fills a niche in my asset allocation, a security that provides protection in both inflation and deflation scenarios, and my purchases are already low.Inflation or Deflation: Bond Alternatives/ BOND ALLOCATION: MANY MOVING PARTS IN 4TH QUARTER  AEGON FLOATER (AEB)/ One of many floaters  Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE MERPRL/ Gross interview Forbes
So, I view the movement in these securities to be more of a reflection on the human psyche than a rational assessment of their value based on the current information available to the public.

 Since my purchases of these equity preferred issues were at levels acceptable to me, I am now concerned almost entirely about a seizure or bankruptcy of Aegon or ING.  A deferral of a cumulative dividend is barely acceptable provided the company survives.  Eventually, the cumulative preferred dividends have to be paid if the company ever wants to pay a common dividend again. As my concerns have mounted, I did start to place new purchases of these securities in my retirement accounts since there is a tax liability associated with a cumulative preferred dividend that is deferred, as stated in all of the prospectuses that I have read involving them.  

JZV is probably my most disfavored  senior investment grade bond that I am likely to buy.  Due to its disfavor, I will trade it at the drop of a hat.   JZV is a TC which has as its underlying security a a senior bond issued by CNA Financial.  I rounded up to 100 shares by buying 50 with a market order filled at $ 9.93.  The last quarter's earnings report was not good. Two Categories of People/NSSC, NYX, CNA/15 Grand Credit for Home Buyers
I have described this security in many other posts.  It matures in 2023.  Fitch rates it as BBB with a negative outlook. Fitch Corporate
The pricing of the underlying bond at the FINRA site suggests a modest underpricing of the TC.  FINRA - Investor Information - Market Data - Bonds - Bond Detail 
My last sale was 100 at $16.25 which was purchased at 12.78.  This one has been bought and sold many timesSOLD JZV WITH GTC LIMIT ORDER AT 16.25
My last purchase was 50 shares at 12.5 so my purchase today was an average down. 
 This is a link to the prospectus:
I will not buy another share of this security until I dispose of some of what I now own (100 shares is the max). CNA is majority owned by Loews (L). CNA: Major Holders for C N A FINANCIAL CP - Yahoo! Finance Every time that I venture into this security I try to convince myself that the Tisch family will prop CNA up if necessary.  My current yield at my last price is close to 18%.  Average cost is around $11.20 for 100 shares.  The amortized annual spread to maturity in 2023, 14.6 years, on 100 shares bought at $11.2 is about $94.5 per year (Calculated as follows: par value of $2500 minus cost of $1120 for 100 shares= $1380  divided by 14.6 years to maturity) or about 8.44% per year on top of the 18% (Calculation: $94.5 divided by $1120=8.4375%  )  This would result in a close to 26.5% annualized yield if held to maturity and CNA makes all interest payments and pays par value at maturity in 2023.  I am willing to take a risk at this rate of annualized returns. This is one of the advantage of buying a bond at a discount to par value with a set maturity date.  It is at least possible to earn money in two ways.   The perpetual preferred securities, which is typical for equity preferred issues, have no maturity.  

I thought that I would play with some colors in the post, just for today.  


  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.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. 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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