1. Added 50 SIVBO at $19.20 in Roth Yesterday (see disclaimer): I bought 50 of SIVBO in a taxable account last Monday at a slightly higher price and I am sufficiently comfortable with this bank to own 100 shares of its Trust Preferred SIVBO. This TP is discussed in my post from Monday. Sold PFX at $17.57/Pared the TIP ETF at $104/Bought 50 SIVBO AND DKK
2. Zions Bancorporation Earnings and Sold 30 ZBPRC in Response (see disclaimer): After reviewing Zion's earnings report, I was not impressed. I knew that I would sell one of the three securities issued by this bank as a precautionary response to the third quarter report. I picked ZBPRC. This small position was bought recently in the regular IRA, and I am forever more cautious in my retirement accounts than in the taxable accounts. While ZBPRB is in the Roth IRA, it is a more senior security and is cumulative whereas ZBPRC is a non-cumulative perpetual equity preferred stock. ZBPRB also has a maturity date. I elected not to sell ZBPRA, bought at $7.8, in the taxable account since my yield at that cost is just too good to give up based on just this last dismal earnings report. That security is a non-cumulative floating rate equity preferred stock. Bought 100 ZBPRA at $7.8 At my cost, the guarantee is worth 12.82% and the float gives me upside protection when rates start to rise. The ZBPRA float is not good at .52% over 3 month Libor but it does kick in when the 3 month Libor exceeds 3.48%. At a 6% Libor during the relevant computation period, the yield jumps to 6.52% based on the $25 par value which would translate to a 20.89% yield at a total cost of $7.8. The sell of ZBPRC was at breakeven.
3. Stryker (SYK)(OWNED): What concerns me about SYK is that its revenues in the 3rd quarter at 1.65 billion were unchanged from the year ago quarter. Sales did increase 1.2% adjusted for currency. Excluding items, SYK earned 69 cents and sees the fiscal year 2009 earnings at $2.9 to $3. I would classify my position as a hold at the current price of around $45, and most probably a sell at close to $50. Sales of artificial hip and knees rose 5.5%, while revenues from medical equipment fell. The stock is rising strongly in early trading this morning.
4. Hedging Bond Positions: Many investors are concerned about the tracking issues with double short ETFs. I did successfully trade two double shorts for treasury bonds, TBT and PST, and did not notice a tracking problem that I would regard as serious during my brief period of ownership. I have seen some references to the class actions lawsuits filed against Proshares, but have not made any attempt to determine the merit of that suit. I would generally not pay much, if any, attention to the allegations made in any lawsuit.
There are other ways to hedge bond positions. There are several Bond ETFs that can be shorted depending on what the investor is trying to accomplish. The Ishares ETF for the 20 year treasury (TLT) was up .54% yesterday to $96.72. The double short ETF for the 20 year treasury, which I have bought and sold at a profit, was down 1.05% to $45.09. TBT: Summary for PROSHARES TRUST My personal preference would be to use less cash, go with TBT as a hedge, and monitor the tracking issue closely.
The other double short ETF from Proshares is for the 7 to 10 treasury, PST, which declined .65% to $52 yesterday. PST There is an ETF, which can be shorted, for the 7 to 10 year treasuries, IEF, and it rose .23% yesterday. IEF: Summary for ISHARES BARCLAYS 7-1 That is almost enough of a tracking error to concern me. So, if the tracking continued to diverge against me, and particularly if it increased, I would sell the PST if I owned it. Other bond ETFs include one for high yield bonds, HYG, and investment grade bonds, LQD. There are a large number of bond ETFs from a number of firms. I do not trade options but some people might prefer using options to hedge a bond portfolio. I have enough complications in managing my portfolio without adding that kind of complexity.
I will keep the double short ETF positions small. Last year, when I used the double short ETFs TWM and SDS successfully, I never had more than 100 shares of each of them at the same time. I doubt that I would go over 200 shares of TBT at any given time. So far I have only experimented with TBT and PST as hedging tools. I do not want to hedge the value of all of my bonds, but just enough to make me comfortable again in having a current overweight position in long dated corporate debt. Still, I am not yet nervous enough to buy any shares of TBT having sold the position earlier in the year at around $45 after buying shares at $36.68. /TBT add Sold TBT
Cyclical Bull in a Long Term Bear Market/ Hedging Bary's Column In This Week's Barron's: Another Helpful Column on Bond Investing
A reader pointed out that the double short ETFs start to lose their tracking correlation after one day. I have noted that problem in previous posts. For example, I did notice that the TBT position lost tracking over the three month period that I held it, gaining about 22.7%. If the track was holding, I would expect the long ETF TLT to be down just 11.35%. But excluding some monthly dividends that would change the conclusion a tad, TLT went down from $120.9 on 12/24 to $102.74 or a 15% decline. So TBT lost some of its value as a hedge over that brief time period, and did not go up twice what TLT went down. It did give me from my perspective more bang for the buck than a straight short of TLT. I doubt that I have held any double short for more than four months. And I will sell once the tracking issue becomes too wide against me which means daily monitoring of the position. I probably needed to sell TBT sooner than I did, the disparity in the track was already too large from the original staring point when I sold it in April. On the other hand, if I had held to June 10th and sold at the closing price of 58.77, I would have increased my percentage profit to 60.22%. TBT: Historical Prices for PROSHARES TRUST TLT closed on June 10th at 88.19, a 27% decline so the track would have caught up and then improved in my favor some. TLT: Historical Prices for ISHARES BARCLAYS 20 - Yahoo! Finance So, as LB is fond of saying sometimes- you place your bet and take your chances, knowing in advance that these double shorts are risky, imperfect and require daily monitoring on tracking issues.
I do not have any positions in the double shorts now. I held one for two days on stocks before selling it a few days ago. One reason that I will go with the double shorts as a hedge is that I do not have a margin account which would enable me to short the ETFs. So I am a little hamstrung by choice. I have never borrowed money to buy stocks, and I have not added funds to a brokerage account since 1984.
5. Frontline Program on Brooksley Born: I believe that nothing has really been learned about the origins of the financial crisis that almost brought down the world's financial system into a heap of rubble. Even now, I hear people who mimic Rush or Ann Coulter and blame poor minorities, the standard line among members of the GOP tribe and their publicists at Fox. In Coulter's worldview, which requires dismissal of about 99.9% of factual information to sustain it, the federal government caused the mess by creating "massive pressure" on banks to lend to poor minorities using non-traditional criteria "such as having a good jump shot or having a missing child named "Caylee""They Gave Your Mortgage to a Less Qualified Minority - HUMAN EVENTS Limbaugh had a similar take: Ideology and Facts: Coexistence Not Allowed
The Clinton Democrats bear a great deal of responsibility for what happened, as they bought into the Reagan philosophy of removing regulations enacted to make it more difficult for Wall Street to blow up the financial system. It was the SEC Rule change in 2004 which allowed investment banks to increase their leverage from 12 to 1 debt to equity that was the seminal event in the soon to develop financial crisis. Idealogues on A Mission: Revisionism Already Well Under Way to Explain the Origins of the Mortgage Crisis That rule change was enacted 5-0 with 3 Clinton Democrats voting in the affirmative. Continuation of Prior Post from Last Night: 2004 SEC Rule Change One of them was quoted as saying: "If anything goes wrong, it is going to be an awfully big mess". US SEC Clears New Net-Capital Rules For Brokerages - 04/28/2004
Another area where the Clinton Democrats contributed to the financial meltdown is their efforts to stop Brooksley Born, who headed the Commodity Futures Trading Commission during the Clinton years, from instituting regulations over financial derivatives. I discussed the efforts of Rubin and the permanently arrogant Larry Summers to stop any regulation over this dark market in a prior post: Wild West Capitalism & Brooksley Born/ All of this section in today's post is leading up to a reference to a Frontline show on PBS last night where Ms. Born goes public with what happened and the program explores how those events in the late 1990s contributed to the financial meltdown. The program can be watched online: FRONTLINE: the warning: introduction | PBS This is a 55 minute program. The generation who experienced the Great Depression learned a lot of valuable lessons and instituted a number of regulations to make it more difficult for Wall Street to blow up the world's financial system in pursuit of individual greed. The same can not be said for the current generation. And why is Rubin viewed as a wise sage by anyone? Citigroup & Robert Rubin ROBERT RUBIN: CITIGROUP JUST AN INNOCENT BYSTANDER And, why isn't there a consensus that Alan Greenspan was the worst or one of the worst Fed Chairman in history?
6. SLM (own Sallie bond OSM only): Sallie Mae reported better than expected earnings after the market close yesterday. The report is complicated but Sallie did report earnings of 26 cents per share of "core earnings" for the third quarter. This was sufficiently positive to give me some comfort on OSM, at least for now. I own 200 shares of OSM.
7. Wells Fargo (own junior bonds only): Wells reported earnings of 56 cents per share, beating the expectations of 37 cents per share. During the dark days of the financial crisis, I was too timid in buying some bank bonds. It would not have killed me to risk buying more shares of JWF, a Wells Trust Preferred, for example. My buy of 50 shares of JWF on March 6th was at $9.15, which will give me a 15% annualized current yield to maturity until maturity in 2034, plus a large percentage gain at maturity provided WFC survives to pay me. Buys of JWF KSA DIS and NYX /Buy of 50 JWF in IRA Of course, I could sell that bond now for over $20 and realize a 100% gain but why would I give up that 15% per year unless I became worried about this banks survivability. Another bond was bought earlier during the crisis: Rounded KTV to 100 Shares But I am not going to pat myself on the back for those kind of buys, and there were a number of them, because they were too timid. That is one serious drawback of being a conservative cautious sort. Since I own Wells Fargo bonds, I will at least review the earnings report to determine the likelihood of Wells paying me interest on the bonds, which is my sole interest at the moment. And, having done that this morning, I am not concerned about Wells paying me, at least for now. Since the bogeyman is always just around the corner, or lurking somewhere in the shadows, LB is always on alert as the standard M.O. here at HQ.