Evening Notes 6/24/09/Bought GJF & Sold PPA/Money Market Rates/Gov. Sanford/ZBPRA/ BUFFET SAYS ECONOMY IN SHAMBLES

1.  Money Market Rates:  Many investors have sought refuge from market turmoil by purchasing shares of money market funds, a place to stash the cash.  I know the feeling, since I have done that myself.  I check the rates periodically which can be accessed at the Barron's web site.  The Vanguard Prime fund, which is one of the lowest cost ones, currently has a seven day yield of .37% as of 6/22/09.   Barron's   How long do you think it would take to double your money at .37% before taxes and inflation?  How about 138.98 years.  calculator  Maybe, I am just getting too old for all of this nonsense, but I suspect that I will not live to see that money double at the current rate. 

2.  Fed Statement:  The Fed did take out of its statement today a concern about deflation.  The Fed will keep the federal funds rate at the current level for some time, and does not believe inflation will be a problem.  The Fed's said that the pace of economic contraction is slowing and that household spending had showed signs of stabilizing.  

FRB: Press Release--FOMC statement--June 24, 2009

The Fed is still anticipating a slow and gradual recovery.

3.  Governor Sanford:  I would think that the Governor's disappearance for seven days, apparently failing to tell his wife or anyone else where he really intended to go, will be sufficient to prevent him from becoming the GOP nominee, but I may end up being wrong about that.  Bloomberg If he feels that the Governor's position in South Carolina is some kind of pressure cooker, then even the GOP stalwarts might want to think twice before elevating him to the White House. Then, many in the GOP thought that Sarah would have made a better President than G.W. or Abe even after she spouted gibberish in her interviews with Katie.  CBS News  So it is admittedly impossible for me to understand the thought process of the GOP partisans.  I learned pretty quick around here to smile and nod my head when the conversation turned to Sarah being our President.    

The story about going hiking for a week might have worked for the Governor until his car was found at the airport with the camping gear in the backseat.  Oops, need to go to a back up explanation, something closer to the truth.  

Now, the fact that he admitted to having an affair with some Argentine firecracker may be par for the course these days, at least it was not a Senator Craig type of situation of clandestine meetings in an airport bathroom.    WSJ.comBut, wasn't this guy another one of the social conservative, family values stalwarts?  Personally, I view myself as a True Conservative, a firm believer in all kinds of values.  But I am curious why people swallow the spiel of a politician.  As I just said in an earlier post, when talking about Senator Ensigns's tryst, hypocrite and politician are frequently redundant terms. 

4. PPA AND BOUGHT GJF:  I took my loss today on this ETF by selling my 100 shares at $13.9.  I went with Cramer on  his aerospace call by buying this ETF. Fortunately, I did not buy Boeing.  The recent news about BA has adversely impacted many companies in this sector, and  the recent major spike down in Boeing has hurt this ETF.  

I did an old geezer move to replace PPA by buying 50 GJF at $21.4, a Trust Certificate containing the same underlying A T & T senior bond maturing in 2031 as two TCs that I currently own, JZE and JZJ, both bought at much lower prices.  My yield at my cost for GJF is slightly under 7% at the guaranteed 6% rate.  The guarantee can be increased by 1/4% for each downgrade in A T & T's debt, same as JZE and JZJ.  This tracks what can happen with the underlying bond, but the underlying bond has a minimum of 8% rather than the 6% provided by the TC GJF and JZE which I bought back in October for $12.5.  JZJ has a better guarantee at 6.375%, and my cost for 150 shares of that TC is below $18.  I still think that AT & T may call the underlying bond at some point, since it is paying a minimum of 8% on it,  and it has the unfavorable enhancement feature to it of the increase in yield from 8% for downgrades in its debt.  

But, the main reason for buying GJF is to keep me from selling any shares of JZJ or JZE, at least for now, a purely psychological issue for LB, who is 1/2 trader, to  harvest profits.  So if GJF goes up a couple of points, I will just sell it and keep the other two hopefully, thereby relieving the urge to sell one of the other TCs containing this AT & T bond.  Moreover, while I am not 100% confident in the FED's inflation prediction, even for the next year, their lack of concern does ease my concern- some- about inflation, thereby making me more willing to hold onto my fixed coupon long corporate bonds, and even to add to them a little. 

This is the link for the prospectus for GJF: www.sec.gov

When looking at TCs, I have stressed the importance of checking the FINRA data for the underlying bond trades.  The investor needs to keep in mind differences in coupon rates.  GJF will always have a coupon 2% less than the underlying bond. I believe that it is the highest differential in the TC universe (other TCs like XKK have a higher coupon than the underlying bond)  So an adjustment needs to be made to account for that difference when looking at the underlying bond trades which can be found at this link: FINRA - Investor Information - Market Data - Bonds - Bond Detail

Moreover, the underlying bond is trading well in excess of par value.  If the bond is called for early redemption, this would cause a loss for a buyer at the current trading level, but the TC buyer would realize a gain, with a tender at the TC's 25 dollar par value.   Also buying the TC at a discount enhances the yield above a purchase at par value, whereas the purchaser of the underlying bond at 115 for example would lower their yield compared to a par value purchase.  I do not buy bonds trading at above par value as a general rule for that reason and many others.  

5. Buffett Says Economy Still in Shambles:  Buffett does not believe deflation is in the cards, but still maintains the economy is in shambles. Yah Fin Maybe the use of the word "shambles" has a touch of hyperbole and exaggeration.   He also said that the stock market is attractive over a ten year period compared with the alternatives.  I would agree with that comment.  

6.  ZBPRA:  After I bought this floating rate equity preferred issue from Zions at $7.8, the bank announced a Dutch auction for up to 4 million shares at between the prices of $10 and $11.5.  The cut off date for the tender will be June 25th.  A gentleman called me from D.F. King and asked me about tendering my shares, and I told him no.  I viewed this offer from Zions as a cheapskate alternative to the type of offer BAC made to its equity preferred shareholders.  I told John, a reader of my blog, in an email yesterday that I would not be surprised to see ZBPRA fall after the expiration of this tender.   If it falls enough,  I will consider adding shares, sort of a replacement for the BACPRE and BMLPRG that I sold after BAC made a decent offer to its equity preferred shareholders. 

DISCLAIMER

  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 readers of these posts 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.   Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.  Everyone is responsible for their own investment decisions, and no one should ever make any decision unless they are willing to accept full personal responsibility for it.