Tuesday, August 4, 2009

Sold 100 IRR at $16.92/Bought 50 PJS/Earnings: DUK, ED, PNW, NADX, MWA, PGN, EMR/Ariad/Foreign Currencies

1. Barron's Technician on the U.S. Dollar: Michael Kahn, who writes the Getting Technical column for Barrons argues that the dollar has broken support, and there is "no meaningful support in sight". I noted in a prior post that I own shares in FXA, the currency ETF for the Australian dollar, and Kahn notes that the Aussie Dollar has made a strong bull move since March 2009. He says the momentum in the Aussie currency is up without "registering overbought conditions". I noticed that this rally in the Australian currency was well underway in May 2009: Item # 6: Potpourri This Evening May 18th/Bought More AT & T The Aussie Dollar started to rally at the same time as the U.S. stock market, as risk appetite returned, and commodity prices started to bottom and move back up. FXA was at $63.3 on 3/9/2009 and closed yesterday at $84.21. This security pays monthly interest tied to what the Australian Dollar earns from a demand rate minus expenses. This is an article from Bloomberg today on the Australian Dollar.

Kahn also talks about the Brazilian Real and Indian Rupee. The Brazilian Real has been the best performing currency against the dollar so far this year. I may add to my currency ETF that contains a basket of these emerging market currencies, particularly since I just pared BWX, the ETF which contains international government bond from developed countries, in an effort to manage and to reduce currency risk. Pared BWX Emerging market currencies will generally be positively correlated with U.S. stocks, as I noted in a prior post.Emerging Market Currencies and Bonds as Non-Correlated Asset Classes Wisdomtree, the sponsor for this emerging market currency ETF, claims that this asset class adds diversity to a U.S. stock portfolio while reducing volatility, at least over a ten year period from 4/1/1999 to 3/31/2009. Since I have invested in emerging market currencies in the past, I am comfortable adding to this ETF but I will keep my overall position relatively small.

There are a number of different categories of investments that may improve in value as the U.S. dollar weakens. Some securities, like international stocks and bonds, will be sensitive to currency fluctuations but will also be impacted by other factors. The asset class most impacted by currency exchange rates would be ownership of foreign currencies themselves. I currently own two currency ETFs, FXA and CEW, that are exposed to particular currencies, a very direct way to play a fall in the U.S. currency. I have at times owned other currency ETFs. Asset Allocation Problems: foreign currencies, stocks and bonds Another asset class significantly effected by movement in exchange rates would be international bonds, though price will be influenced of course by matters that normally impact all bonds such as credit and interest rate risks. The international bond ETFs, BWX and WIP, which I own, will fluctuate just on changes in currency exchange rates. David Swenson's comments on Inflation/ TIP-WIP-Floaters/ how will the dollar react? I also own a closed end bond investing in emerging market bonds, ESD. I also own shares in EBI, a CEF, that is a balanced international fund.

Stock prices can also be influenced to some degree by currency movements. I recently increased my positions in international stocks. For a U.S. investor holding a foreign stock price in its local currency, the currency exchange rate will either increase or decrease the value of that investment based on the U.S. dollars weakness or strength, respectively. International Stocks TheStreet.com International Stocks - InvestorGuide In addition, the dividend stream paid by those foreign firms will increase in value as the dollar weakens. I have mentioned this point on several occasions when discussing the purchase of Canadian companies that pay large dividends. Lastly, I added starting in March several large American multinationals such as Coca Cola that will benefit directly by a fall in the value of the dollar. (Cramer Says Buy Coca Cola ; see item # 2: /U.S. Dollar ; items # 1 & # 5: Evening Comments 5/21/2009/Pared Unilever) This article from Investopedia goes into more detail on that subject.

2. Emerson (owned): EMR reported earnings that came up a penny short of the consensus estimate. Revenues also missed estimates, falling 19% from the year ago quarter excluding currency exchange. Emerson does not expect to see any significant recovery until late 2010. EMR expects full year earnings to be in the range of $2.2 to $2.30 per share. My position in EMR is viewed as a long term hold, with possible adds based on weakness in the share price to $30 or below.

3. Duke Energy (owned): Duke is one of my core electric utility holdings, and I am currently reinvesting the dividend to buy additional shares. Excluding items, Duke reported earnings of 26 cents, one cent better than the consensus estimate. As expected, weak commercial demand is continuing to adversely impact revenues.

4. CIT (senior bonds owned): CIT sweetened the offer for the bonds maturing maturing in August from 82.5 cents on the dollar to 87.5 cents, and lowered the amount that has to be tendered from 90% to 58% before CIT will proceed with the tender.

5. Progress Energy (PGN)(owned and recently pared): PGN is currently viewed as a non-core electric utility holding. PGN reaffirmed its guidance from ongoing operations of $2.95 to $3.15 a share after reporting operating earnings for the 2nd quarter of 64 cents, missing estimates by four or five cents-depending on which service is used to provide the consensus estimate. Earnings were negatively impacted by 3 cents per share due to the share offering in January. Retail growth and usage, primarily in the industrial sector, also had a 3 cent negative impact.

6. Consolidated Edison (owned): Con Edison is a core electric utility holding and I reinvest the dividends to buy additional shares. Excluding items ED earned $.48 per share and 55 cents before items. The company affirmed its forecast for 2009 from ongoing operations of between $3 and $3.2 per share.

7. Pinnacle West (PNW)(owned): Excluding items, PNW missed estimates by 10 cents reporting 2nd quarter earnings of 77 cents on a five per cent year over year decline in revenues. All of these results from my electric utilities are far from inspiring. The only reason to own them now is for the qualified dividends.

8. Consumer Spending & Disposable Income for June: The Commerce Department reported this morning that consumers increased their spending by .4% in June. News Release: Personal Income and Outlays, June 2009 Disposable income decreased by 1.3%.

9. Ariad (ARIA)(owned-Lottery Ticket): As a result of Merck's decision to forego a Phase 3 trial of ridaforolimus in combination with herceptin, which would have triggered a milestone payment to the cash strapped Ariad Pharmaceuticals, ARIAD quickly decided to raise cash by offering another 17 million in shares, thereby diluting existing shareholders.

10. Mueller Water Products (MWA-owned lottery ticket)- For the firm's fiscal third quarter, MWA generated free cash flow of 65.4 million and reduced its debt by 126.5 million. With a decline in demand for its products, with net sales falling 31.3%, the company suffered a 4.6 million dollar loss excluding restructuring charges. I would not expect a profit for this fiscal year, though I would hope that demand improves sufficiently in its fiscal 2010 year, ending in 9/2010, for MWA to earn a small profit. This one will require a lot of patience. Sold out of IR and Bought XLI/ Bought 50 MWA as a Lottery Ticket/Dollar Crumbles with Dollar Index Now Below 80/More Recovery Signs

11. SLM: Yesterday, I added a small position in a bond issued by SLM that matures in January 2018. The reason for buying that bond, ISM, in my traditional IRA is the same reason that I buy any security in that account. If I am concerned about a company, as I am with Sallie Mae, but do not want to ignore a potential large gain, I will buy the security in the regular IRA and then include it in a ROTH IRA conversion in the event the price falls significantly. Since I include the value of the security at the time of conversion as income, I will pay less income tax based on a lower share price. This has been a very successful strategy that I have employed since October of last year. I neglected to mention yesterday that I did read the recent S & P report on SLM. S & P upgraded SLM to 4 stars on 7/22/2009 due to SLM now being able to generate more positive spreads in its student loan portfolio.

12. National Dentex (NADX-owned Lottery Ticket): I have had some success with NADX. I bought 50 shares at $1.27, Buy of 50 NADX at $1.27 and sold those held in an IRA on a quick spurt to $4. I still own 50 shares bought at $4. Buy of 50 National Dentex (NADX) The firm earned 40 cents a share compared to 34 cens a year ago. Revenues cam in at 42.755 million down from 44.58 million a year ago. Even after rising from the ashes of my last buy at $1.27 to its current price of over $7, the price to sales ratio is still around .25 according to YF. NADX: Key Statistics

13. SOLD 100 IRR at $16.92 (see disclaimer): This CEF was selling at a premium to its NAV as of yesterday's close. ING Risk Managed Natural Resources Fund - Overview I sold my shares in an IRA a few days ago, and I am now down to 100 shares in the taxable account after selling 100 at $16.92. Most likely I will substitute an ETF that I previously owned and sold at much higher prices that holds Canadian energy stocks.

14. The Phoenix Companies (own senior bond PFX only): For reasons that are not entirely clear, I still own 100 shares of a senior bond of PNX, discussed in a few previous posts. This insurance company is struggling. It reported an operating loss of 14 cents for the second quarter this morning. State Farm ended its distribution agreement several months ago with Phoenix. I view the position in the long term senior bond issue as high risk: Bought 100 PFK PHOENIX SENIOR BOND: PFX Phoenix Senior Bond: To Wild for LB/

15. Bought 50 PJS at $17.95 (see Disclaimer): I was screwed on this trade which was the first time in a long time that an odd lot market order was filled over the ask price. For several minutes before and after the order, the ask price was $17.79. My odd lot order for 50 shares was filled at $17.95. My order was also filled at 15 cents above the highest price for the day. Even though the amount of money is insignificant, I did rile me a little because I hate being cheated regardless of the amount of money involved. So my reaction to be cheated out of 10 dollars, at least initially, would be the same as being cheated out of 10 thousand.

PJS is a TC with contains a senior bond from First American (FAF). My last buy of this security was on 10/10/08, during a meltdown, when I bought some shares at $7.2. Some Nibbles Got Filled: JZE, PJS, INZ and FAX I currently own 250. First American is a title insurer that is currently benefiting from the refinancing wave, reporting better than expected results for the second quarter. Reuters

This is a link to the prospectus for PJS: http://www.sec.gov

The coupon of the underlying bond and the TC are both 7.55%. The bond matures on 4/1/2028.

I did not attempt to verify Quantum's statement that the underlying bond is currently rated Baa2 by Moody's and BBB by S & P, both investment grade. Third Party Trust Preferred Securities Table - QuantumOnline.com (site is free-registration required). This is a link to the current yield information at the last closing price: MarketWatch At my last price, the current yield is around 10.4% with interest paid semi-annually. The next ex date will be near the end of September.

There is very little trading activity in the underlying bond so I view the current information at the FINRA site on this bond to be useless. Nonetheless, here is the link to it: FINRA - Investor Information - Market Data - Bonds - Bond Detail The last trade is shown as taking place in May 2009. The FINRA site has the Moody's rating as Baa3; Fitch at BBB-; and S & P at BBB-, just barely clinging onto the investment grade classification.

First American is a company that I follow due to my pre-existing position in PJS. I did review the most recent Morningstar report last night, dated 7/30/2009/. Morningstar has FAF rated 4 stars.

I did return earlier than expected from an excursion away from HQ today.

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