1. More Republicans Think More Highly of Sarah After Her Resignation: After Sarah abruptly resigned as Governor of Alaska, with 18 months left on her first term, her standing among Republicans improved, with 71% saying now they would vote for her as President. Maybe I think too much, and I am positive that Peggy Noonan thinks too much too after reading her perceptive column about Sarah in the weekend edition of the WSJ. I have to wonder though about the 35% of Republicans who would very likely vote for her as President in 2012 and the other 37% who are somewhat likely to do so, according to the latest Gallup poll.
2. Shiller on the Market: Aaron Task has a six minute interview with Robert Shiller which is worth a view. I never expect Shiller to be cheery, and this interview was not an exception to that expectation. Shiller uses a 10 year cyclically adjusted P/E. On that basis he notes the market at its current levels is fairly valued. This means that investors could normally expect 7% real returns based on historical returns. Well, the first thirty seconds sounded as if the Professor was brimming with enthusiasm for the market's prospects, a 7% real return certainly beats the 10 year TIP real return of less than 2%. I was waiting for the " Big But " from the Professor which came one minute and ten seconds into the interview. He said the economy was still in a precarious state, and the market could "go down a lot." He wants investors to remain diversified.
3. Roughly Equivalent Pricing in TCs Containing Unum Junior Debt and Senior Debt: The Trust Certificates with underlying Unum debt come in two flavors. I am not aware off hand of another example where there are separate Trust Certificates containing both the senior and junior debt of a single issuer. The Trust Certificates containing a junior debt security are KCC, KSA and KVJ. The TCs containing a Unum senior bond are PJR & PKH.
Last week, all of those TCs were being priced close to one another in yield, with one of the TCs containing the senior bond having the highest yield. Is it rational to price a senior bond to yield more than a junior bond from the same issuer? The simple answer is no.
The junior bond permits interest to be deferred for up to five years. No such option is available to Unum for the senior bonds. The senior bonds mature almost 10 years earlier than the junior bonds. I would much prefer owning a senior bond maturing in 2028 than a junior bond from the same issuer maturing in 2038. Lastly, in the event of bankruptcy, the senior bond has priority over all junior securities.
This is not an argument in favor of buying any Unum bond or to purchase a senior bond in TC form. It is merely an argument for purchasing the TC with the senior bond in it compared to the junior bond, once the decision has been made to buy a Unum bond at the current yields.
The prospectuses for these Trust Certificates can be found at QuantumOnline.com.
The Finra information about the underlying junior bond, rated as junk by the ratings agencies can be found at:FINRA - Investor Information - Market Data - Bonds - Bond Detail
The Finra information about the senior underlying bond can be found at FINRA - Investor Information - Market Data - Bonds - Bond Detail
I successfully traded KSA and currently own just 100 shares of KCC. I am not a fan of Unum. It is possible that I may buy 100 shares of a TC containing a Unum senior bonds and then wait for an opportunity to sell KCC, in effect substituting the senior for the junior.
4. Cheney and Bush: Both Bush and Cheney maintained, without any equivocation, that the warrantless wiretapping of Americans saved lives and thwarted terrorist plots. Now, after a review by the inspector generals of five different agencies, those representations have proved to be at best misleading. Bush stated unequivocally in January 2006 that the warrantless wiretapping by his administration saved lives and stopped terrorist attacks. An investigation reveals that Bush's representation was, at best, a gross exaggeration, and probably just an outright lie. And this reliance on John Yoo to justify any Presidential action as legal, because the President does it, is just scary for any true conservative. And, without a doubt, Yoo's tortured logic about presidential powers was accepted by Bush and Cheney. Taken to its logical conclusion, Yoo's position, accepted by Bush, would have allowed the President to line citizens up against a wall, and just fill them full of lead, with no trial or anything resembling a hearing, provided the President exercising his War Powers thought that it was necessary. It is interesting that "conservative" members of the GOP tribe support such an expansionary version of imperial presidential powers as advocated by Yoo. The warrantless wiretapping is just one example of Yoo's legal positions being placed into practice by the GOP. He was also one of the lawyers that furthered the U.S. use of torture, and the arrest and detention of an American citizen without a trial or access to an attorney. Torture and the Imperial Presidency: Why are those Conservative Values?/
5. Junk Bonds: Over the past several months I have experienced a lot of favorable action in junk bonds. I do not buy junk rated bonds in the bond market. Instead, I will buy small amounts of exchange traded junk rated bonds, mostly Trust Certificates containing junk bonds as their underlying securities. Being conservative, I am generally not comfortable buying these securities. The way that I deal with that queasy feeling is simply to adjust the amount down that I will invest to the point where I achieve a worry free state. In other words, I will limit my dollar exposure and then trade those securities fairly aggressively. I can not ignore- entirely- the opportunities that many of them present at times, at a high level of risk without question, in both their current yield and potential for capital gains. The capital gains arise from purchasing those securities at deep discounts to par value, which also juices the current yield above the coupon rate. One thing to keep in mind is that the coupon is applied to the constant par value. If the bond has a $10 par value and a 8% coupon, that coupon would produce a 16% yield to me if I was able to buy that security at $5. (.08% x. $10=$.80 per year for 1 at $10 par value; .80 divided by a $5 cost=16%).
I have achieved so far the largest percentage success with my buys of the junk rated Hertz bond that is the underlying security in DKR. DKR: Summary for MS SATURNS HERTZ 7% - Yahoo! Finance I am simply content to hold what I now own, a mere 50 shares bought at $6.45, and just wait and see. Hertz Bond Information in One Post
I did see today that Bruce Berkowitz recommended in Barrons.com a Hertz bond maturing in 2014. DKR has a 2012 maturity. www.sec.gov
The Finra information on Hertz bonds can be found by following this link to the bond that you may want to research further: Search Results
I have all that I want with 50 shares remaining of DKR bought at $6.45 with two semi annual interest payments received to date and a profit realized by already selling the other 50 shares.
For those new to the niche market in Trust Certificates, sometimes they have a higher coupon than the underlying bond (e.g. DKF or XKK). But in this case with DKR, the coupon for the TC is 7% whereas the underlying bond is higher at 7.625% FINRA - Investor Information - Market Data - Bonds - Bond Detail
So when comparing whether or not to buy the TC or the individual bond, those differences need to be kept in mind, in addition to the respective discounts to par value. Also, it is important to remember that the FINRA yield information includes current yield at the last price and some kind of yield calculation based on being paid par value at maturity. So part of the yield of 14.63% shown at FINRA for the 2012 Hertz bond as of 7/10/2009 is the yield received by buying at 84 ($100 par) and being paid par value in 2012. The current yield based on a 84 purchase price is around 9% (.07625 x $100=$7.625 divided by 84=9.07%) So when you look at the MarketWatch. calculation of yield for DKR, it shows a current yield at the 7% coupon and a $17.5 price to be 10%, so almost a percent better even though the underlying bond has a higher coupon.
To compare apples to apples, this would be equivalent to just the current yield calculation for the underlying bond which I just calculated at 9.07%. In addition there would be a $750 profit at a total cost of $1750 for 100 DKR, assuming Hertz survives to pay par value in June 2012. Then I could amortized on a straight line basis that additional $750 over three years, or $250 per year, then divide $250 by a cost of $1750 and come up with another 14% or so a year on top of the current yield. That is not how FINRA does it and I can not explain with certainty how FINRA arrives at its 14.63% yield for the Hertz 2012 bond, other than to say it has to include both the current yield based at an 84 purchase as well as a yield based on capturing the discount at maturity. The FINRA calculation is more like subtracting 84 from 100, then dividing that number 16 by the remaining time on the bond, say 3 years for simplicity, which gives you just an additional 5.333% per year, and that is how I come close to the FIRNA yield of 14.63% (current 9.07% + 5.333%=14.4% and the difference may be an assumption of earning 9.07% on the interest paid).
Whatever, I will do it my way even if no one else approves of it. I understand straight line amortization. I may never comprehend why capturing $250 per year on a $1750 investment is not 14.28% per year (250 divided 1750=14.28% ) rather than 10% per year ($750 divided by 2500=30% divided by 3 years=10%) Whatever, 10% is better than 5.3333%. I have said to this kind of quandary in the past- "whatever", many times- but however you calculate the return, $750 is a good return in less than 3 years on a $1750 investment, and I know a 10% current yield is good compared to other interest paying investments (assuming of course Hertz pays it) but I have no interest in buying more of DKR notwithstanding all of that. I have also said many times in the blog that I am a Stock Jock, and a newbie to bond investing, though I am doing pretty well with my bonds and bond like investments- so far at least. So maybe a reader could explain this better.
My larger positions are in the junk rated Goodyear senior bond contained in XKK and two senior Liberty Media bonds, PKK and PIS with the larger position in PKK. I have trimmed the Liberty Media position some recently, selling both PKK and PIS in my Roth IRA after including them in a Roth conversion last year when the price was less than $10. /SOLD 1/2 OF PIS POSITION/ Reduction in IRA: TC WITH Liberty Media bond-50 shares of PKK
see generally: Trust Certificate Links in One Post
I have also had some success with other junk rate exchange traded bonds including the buy of MJH at $7 and change, FCY, FCZ and PFX, though I have recently eliminated FCY, the Forest City senior bond, and reduced FCZ and PFX by one-half late last year. Exchange Traded Bonds: In effect, I trade the junk rated senior bonds in a similar fashion to REIT equity preferred issues, another disfavored asset class. I was not able to ignore the yield opportunities of those securities either, especially during the Fall of last year, but I limited my exposure to them to small sums and have traded many of them actively: REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages
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 NOT A RESEARCH SERVICE 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.
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