Tuesday, April 21, 2009

Added another 100 GYB in Regular IRA/ SOLD LQD again/

The profile picture that I am using today was taken in 1969, when I was 17, and I use it to show the essence of what I call a Left Brain dominant individual.  The serious, brook no foolishness look, was not an act or a pose for the camera.  Left Brain and Right Brain decision making are favorite topics in this blog.  I will listen to the brain chatter which emanates from the right side:

The rally started today after Geithner said most U.S. banks are well capitalized and had surplus capital. Bloomberg.com

I did add 100 shares of the floater GYB today to a retirement account at $11 as part of my plan to transfer all of them to the tax deferred accounts. Later this year, I will sell GJS in the taxable account. But, at a price, GJS becomes more attractive than any other synthetic floater linked to a Goldman Sachs' bond. GJS fell intra-day yesterday to $7.95 or about $17 under par value with a 2033 maturity. It has no minimum rate but floats .9% over the 3 month treasury bill rate. In effect, with the 3 month T bill at .13%, the current coupon yield is very close to the minimum payable at just 1.03% based on par value. At an $8 cost, the effective yield would be 3.2% which is about the same as the minimum yield provided for in GYB. (.0103% x $25 par value=$.2575 divided $8=3.2%).  GJS will exceed the minimum yield of GYB by a buyer's total cost falling another 10 cents in price to $7.9 at the current miniscule T bill rate ($.2575 annual interest for 1 divided by $7.9= 3.259%)  

I only came across GYB within the past few days and did not know about it until after I bought 100 of GJS.  I now own 200 GYB.  If I had known, I would not have bought GJS because all four of the synthetic floaters tied to junior bonds issues by Goldman Sachs maturing in 2033 or 2034 are functionally equivalent, and GYB was the better buy a few days ago. Now with GJS falling in value, it is a closer issue which one to buy if I wanted to buy only one now. The three main factors for me to consider are: (1) current yield based on my cost of purchase  prevailing at the time a decision is made to enter an order; (2) potential profit at maturity or early redemption (GJS has more potential profit at maturity in 2033 than GYB in 2034 due to its wider discount to par value); and (3) an estimate of the variation in yield and an average yield resulting from the float provision taking into the account the maximum rate. 

For now at least, and possibly in the future, a float tied to 3 month LIBOR would be better than one tied to the 3 month treasury bill, with both at the same percentage, so .8% above one of those rates will likely produce a different result than .8% over the other which is an obvious point. So in a contest of float provisions only, I would regard the float in GYB and PYT at .85% above 3 month LIBOR to be better long term than GJS's .9% above the 3 month Treasury Bill, but that may change and may fluctuate back and forth some over long periods of time. As the price of these four floaters (JBK, GYB, PYT, GJS) tied to long term Goldman Sachs bonds change, their relative attractiveness vis-a-vis each other will likewise change.  If JBK fell to $9, it would be a better buy than GYB at $12 for example.  I discuss trading functionally equivalent securities in more detail in these posts:

Again, a significant disparity in yield calculations among functionally equivalent securities is not a reason to buy any of them but only a reason to prefer one over the other once a decision has been made to buy based on other factors.

The economist Roubini calls the 6 week rise in the market a sucker's rally.CNBC.com

Cheney, the voice of the GOP on matters relating to U.S. torture of prisoners of war, wants Obama to release CIA memos that allegedly show that waterboarding and slamming prisoner's head into the wall were a big success. csmonitor.com In a prior interview late last year,  when the interviewer pointed out to Cheney that  Japanese were prosecuted after WWII  for waterboarding U.S.  soldiers, and that U.S. law specifically designated such practices as war crimes, Cheney replied "So" as in "So What",  laws are for losers and wimps anyway. Midwest Voices You could almost hear him thinking that the Geneva Convention is just some liberal law that could be ignored by the Dark Force whenever he felt like it. I would like to see a commission appointed to delve into the interrogation techniques approved by Bush and Cheney which could also examine the claims of what information was gained from such practices and whether any real plots were disrupted by torture as Cheney has asserted on many occasions. NYTimes.com   

I would agree with those who argue that no President should ever make a decision on whether or not to prosecute someone for a crime. No True Conservative would want a President sticking his nose into those kind of decisions.  It is not the President's constitutional role in criminal cases, and it is the kind of power which could easily be abused in the hands of someone like a Dick Cheney or Richard Nixon who both had strong totalitarian streaks in their respective core personalities. The President's role in the criminal justice system is limited solely to granting pardons. If Obama does not want to see those who perpetrated torture based on the misguided legal memos written by Bush's legal apparatchiks, then he would just need to pardon them now, rather than saying he does not want to see them prosecuted.  Without a pardon, the Justice Department needs to make the decision free of any political influence whether to file charges.  

This may be the only blog in the world which talks about synthetic floaters in Trust Certificate form, and then transitions to issues like waterboarding and the role of a President in criminal matters. 

For the second time this year I sold LQD, the ETF for investment grade bonds, at $96.15. I bought those shares in early March 2009 at $90.67. Buys of CPB LQD SYY XKK/Regressive Taxation-Cap & Trade/ 

I am going to use those proceeds to add to my TIP position, but I elected to postpone that add for now, hoping for more of a fall in price. Inflation or Deflation: Bond Alternatives

My last buy of TIP was at around 93 when the inflation protection component of that security was being priced closed to free.  


  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.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   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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