Thursday, July 23, 2009

Bought 100 GJS/Sold shares of GRTPRG in IRA/Microsoft/More on DRAD/

1. Sold Remaining Shares of GRTPRG-Lottery Ticket (see disclaimer): I sold the remaining shares of the Glimcher Preferred G shares in my IRA, with a cost basis of $2.59, at $11.25 today. It is these kinds of trades that have my retirement accounts up around 20% over their October 2007 values, after adjusting those values for two subsequent contributions. I have not sold any of the GRTPRF or the common shares, and I still have a few shares of GRTPRG left, with all of those positions in a taxable account. I still view these lottery tickets to be high risk, and it is better to be safe than sorry by harvesting some gains. LOTTERY TICKET PURCHASES: LINKS IN ONE POST Now, I need to decide what to do with the 50 CBG bought in the same account at $2.39.

2. Bought 100 GJS at $12.25 (see disclaimer): This Trust Certificate is a synthetic floater tied to a senior bond issued by Goldman Sachs maturing in 2033. I have previously bought and sold it earlier in the year. Par value is $25. There is no guarantee which is why I sold it earlier. I thought that buying 200 of GYB at around $11 was a better buy back in April. Bought GYB Added another 100 GYB in Regular IRA/ I was right about that point, but I should have nonetheless kept the GJS, bought previously at $10.50 in April, Bought 100 GJS, since that was a good price for a long term hold. This TC is explained in detail in the preceding linked post. It pays monthly interest at .9% over the 3 month treasury bill rate. While there is no minimum yield, there is in effect a minimum guarantee of .9% even if the T Bill yield is zero. If GJS was bought at a total cost of $12.5, and T Bills were at zero, the effective minimum would be 1.8%. So, when I look at it that way, it has a guarantee even at a zero T Bill yield. If the 3 month T Bill rose to say 4.1%, then the yield at par value would be 5% or an effective yield of 10% based on a total cost of $12.5. That is the appeal of this security when bought at a large discount to par value. It provides me with a good spread over the T Bill rate for the next 24 years plus another 100% at maturity provided GS survives to pay me. This is a link to the FED data on the 3 month T Bill rate since 1980: It is abnormally low now, and may stay that way for several more months.

The underlying security is a 6.125% GS senior bond. One thing about being tied to a senior bond, as distinguished from the floaters tied to a GS junior bond, is that GS can not defer interest payments. A failure to pay interest under the senior bond is a default. GYB, on the other hand, is tied to a junior bond: Goldman Sachs 6.345% Junior Debenture Maturing on 2/15/2034 I also own currently JBK and PYT, both linked to this same junior bond. Interest on the underlying junior bond may be deferred for up to five years for any reason, with the usual limitation that no cash dividends can be paid on a junior security while a deferral is in effect.

One factor that convinced me to add it back, in addition to what I discussed above, is the pricing of GJS compared to another synthetic floater, which I also sold after about a 5 dollar pop, GJR. That synthetic floater is tied to a Proctor & Gamble bond, also has no minimum rate but floats at .7% above the 3 month T Bill rate, compared to the .9% for GJS. GJR closed at $16.01 and GJS at $12.25. I would not buy either of these securities at $16 now, but I changed my opinion about holding GJS provided my purchase price was less than 1/2 of par value which gives me the permanent juice in the spread over the T Bill rate plus the long term capital gains potential.

This is a link to the prospectus:

This is a link to FINRA information about the underlying bond: FINRA - Investor Information - Market Data - Bonds - Bond Detail

If the swap agreement creating the float provision is terminated, then the owner of GJS would receive that fixed rate, with the annual penny rate calculated by multiplying .06125% by the $25 par value. The swap counterparty is Wachovia. If Wachovia had failed like Lehman, this TC would be a fixed rate coupon bond. Instead, a marriage was arranged by the government, and Wachovia is now part of Wells Fargo. I would not count on receiving the fixed rate coupon anytime in the foreseeable future, and this security has to evaluated now based on the floating rate and its current discount to par value.

3. Microsoft (owned)(bought at $17.79/ADD 50 MSFT) I try to keep a Windows computer around HQ to remind myself why I transitioned to IMACs. The results from Microsoft have been characterized by others as disappointing. I would just say ugly, and there is no reason to describe the results in detail here. Revenues declined 17%. Hopefully, the release of Windows 7 in October will rejuvenate this elephant for a quarter or two. I do not see any reason to sell based on this news however.

4. More on Digirad (owned as Lottery Ticket): DRAD rose 57.38% today after releasing its earnings, and you would think that would have engendered a moment of joy and contentment here at HQ, or at least a moment of peace and quiet between RB and LB. No, just the opposite, and I am not kidding, it just got RB lathered up, saying that LB cost Headknocker 600 grand today by not allowing RB to buy what it wanted to buy of DRAD, limiting RB to just 100 shares rather than 1 million. Readers know how this debate goes. LB says how many shares should we buy, and RB says lets buy a 1000 or 10,000 or a million, whatever figure just pops into its side of the brain, without any regard to available funds, risk/reward, or anything at all recognizable as a thought to LB. LB then conducts a vote, decides how many votes to give to RB to cast, for this is a democracy here at HQ, then counts the votes and RB loses 5 to 4, 7 to 5 or 3 to 1. It is all fair and above board. Notwithstanding the fairness of the process on DRAD, which RB lost in the vote count 123 to 1, LB had to listen to a constant refrain, incessant, over and over again, is $60 better or worse than $600,000. Proof, once again that it is RB who is the star of this operation, and LB is nothing but an old goat, no a decrepit, blind in terms of real vision, ornery old goat.

5. Added 10 p.m -Citigroup Preferred: I have never own any Citigroup equity or trust preferred issues. I just thought that I would add a link to this last post today from Barron's, which argues that no one should be buying Citi equity preferred now. The deadline for buying those equity preferred shares and being able to exchange them for common stock has expired. Citigroup will not be paying dividends on its equity preferred shares and Barron's claims those shares will be delisted from the NYSE. I do not understand why Barrons was touting these preferred shares to begin with for small investors, its bread and butter readers, but to each his own. I do not want to own Citigroup common so it never crossed my mind to buy the preferred just to exchange them for the common, and then clip a few bucks by selling the common hopefully at a profit.

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