Wednesday, October 7, 2009

Bought 50 Shares of FPCPRA & PGN/Sold Some AUY-Bought 30 ZBPRC/Pared BWX for the Third Time/Sold 1 of 2 CIT bonds

1. Bought 50 FPCPRA at $25 and 50 PGN at $38.05 Yesterday (see Disclaimer): I was listening to a mix of Frank Sinatra and Michael Buble songs on the Itunes music player yesterday afternoon, which is the only possible explanation for these two buys. When people listen to songs like "I Have Got You Under My Skin", "The Way you Look Tonight" or "As Time Goes By", most humans would be thinking about Amour. LB on the other hand starts to think about buying electric utility stocks and bonds. LB thinks more people need to listen to Sinatra when making investing decisions. Did you know that brain scans of people on cocaine and those thinking about money were the same? So, something needs to change the chemical synapses in the brain, start the rewiring process so to speak by listening to Buble sing "Call Me Irresponsible". RB just said that was just about the most ridiculous statement ever made by the LB. Everyone needs to play Springsteen's "Born To Run" on repeat, and play it all day long.

Actually, the buys yesterday are just another repercussion from looking at how much the Headknocker is earning in money market funds.

FPCPRA is a typical Trust Preferred issued by Florida Progress with a $25 par value, a coupon of 7.1%, and a maturity in 2039. It was bought in the Roth IRA. Florida Progress is now part of Progress Energy that includes the old Carolina Power & Light.

This is a link to the prospectus: This is an investment grade junior bond. I have more confidence in a Progress Energy junior bond than any bank TP. For one thing, I do not have to worry about the FDIC priority rules in the event of a bank seizure, and the likelihood that that a bank TP would be rendered worthless whenever that might happen, if ever. Unlike the banks, Progress Energy has not reduced its common stock dividend, and it would be reasonable to expect a continuation of a common stock dividend. That is an important consideration for the owner of a junior bond. So, I am willing to take a little less on an electric utility TP than a bank TP. The yield on even the BAC TPs are down in low 8% range, and the J P Morgan and U.S. Bank TPs are running generally below 7%. See, e.g. JPM.PRS Stock Quote - JPMorgan Chase Cap XIX 6.625%CAPSEC USB.PRJ Stock Quote - Usb Cap Xi 6.6% TR PFD I am more comfortable with the Florida Progress TP at about the same yield, though I would have much preferred buying it when it traded down to its 52 week low of $13. Now, that was a nutty price.

I also added to my position in the common stock of Progress Energy (PGN) in the taxable account by buying 50 shares at $38.05. The stock goes ex dividend today, and normally I do not buy a taxable event. But the stock was falling yesterday by close to the amount of the dividend so I went ahead and bought back the shares recently sold at a higher price near $40. Pared PGN The dividend yield at the closing price yesterday is about 6.5%. PGN Stock Quote - Progress Energy The current P/E is about 13 and close to 12 under next year's consensus forecast of $3.20 per share. S & P has it rated 4 stars with a $42 price target. The buy yesterday at $38.05 was a small average up from my last buy at $35.77 in April: Bought ABT and PGN The earlier sell of the higher cost shares though had the effect of reducing my cost basis using FIFO accounting.

Price to sales for PGN is 1.11 and price to book is 1.15 according to YF. PGN: Key Statistics for PROGRESS ENERGY The payout ratio at the end of 2008 was high at 83%, indicating to me that any future dividend increases will be small ones. That is a negative factor for me. The service area for this electric utility is in portions of the states of North and South Carolina and Florida.

2. Sold 30 BWX Yesterday/ And Discussion on Currencies (see Disclaimer): Yesterday, I continued to pare my position in the international government bond ETF, BWX by selling 30 shares of BWX at $58.92. This is my third sell and I have now trimmed my position by around 130 shares. The dollar was being pummeled yesterday. It just looked to me that it was already overdone, at least short term. With BWX, I face two risks, the currency risk which has been helping my position recently as the U.S. currency sinks into the abyss. The second risk is that these international government bonds from developed countries have some of the same issues as U.S. treasuries, with the primary problem being high prices and low yields. I decided to emphasize my currency positions more, which I do not discuss much, where I face just one risk, the rise of the U.S. dollar against whatever currency that I happen to own. I still own shares of BWX bought at below $50. I have discussed my positions in this blog in FXA, BZF and CEW.

2009 BWX 155+ SHARES +$729.84
I thought that this article was a worthwhile read on the dollars recent problems and how Asian governments may be responding to impede the rise of their currencies against the dollar which hurts that competitive export position. This article mention that Norwegian central bank may be next to raise its benchmark rate. I am not aware of a currency ETF for the Norway's krone, though there is one for Sweden which I do not own. I am currently considering the Powershares ETF called the DB 10 Currency Harvest Fund, DBV, as an alternative to BWX: DB G10 Currency Harvest Fund - DBV This fund will go long 3 futures contracts for high yielding currencies and short 3 low yielding currencies. The problem with that strategy is that the fund ends up shorting the Japanese currency which has been strong and that rise has helped BWX which owns a large percentage of Japanese government bonds. As of 10/5, the fund was short the U.S. Dollar, Swiss Franc and the Japanese Yen, and only one of those shorts would be working now. The three longs were the Australian dollar, New Zealand dollar and the Norwegian Krone. If I end up buying that one today, it will be a speculative buy of course, but I view BWX as speculative too. The reason for buying it is that the Japanese Yen and Swiss Franc have already had good runs, and may be due for a rest or a pull back. The fund pays annual dividends, but I noticed that the prior two dividends were returns of capital.

Powershares also has a funds for those who are positive and negative respectively on the U.S. dollar: - DB US Dollar Bullish Fund - UUP

I have owned one of those in the past.

3. Sold 30 of the 130 of Yamana Gold (AUY) & Bought 30 ZBPRC in Regular IRA-Yesterday (See Disclaimer): I own 100 of Yamana in a taxable account and I bought just 30 in my regular IRA when I was low on cash in that account. This recent gold spurt seems to be a knee jerk reaction to the dollar's troubles. So I lightened up on Yamana by selling only the shares in a retirement account bought at $8.98, somewhere around $11.4 yesterday. Bought Yamana Gold as a Lottery Ticket With some of the cash recently generated by the income securities in that account and the proceeds of the AUY transaction, I was able to buy 30 of the Zions Series C equity preferred, ZBPRC, a deservedly junk rated issue with a 9.5% coupon. The rating by Moody's shown on the pertinent Quantum page is Caa3: This is a link to the prospectus: Prospectus Supplement This is a somewhat dangerous security. It is non-cumulative. It has no maturity date. Par value is $25. Dividends are paid quarterly. The dividend yield at my purchase price today of just shy of $20 is over 11.5%. ZB.PRC Stock Quote I mentioned earlier that I might buy 50 shares of this security. Instead, I opted for just 30 shares since I already have 100 shares of another equity preferred ZBPRA, bought at $7.8, and 50 shares of the TP ZBPRA recently bought in the Roth to yield 10% at my cost. So that is enough adventure for me.

I put the buy of 30 ZBPRC in the regular IRA so that it could be included in the next Roth conversion in case the shares tank on me. That is my way of recovering losses in a retirement account, an indirect way to be sure, but none the less effective. By converting only securities that fell a lot in value in several partial Roth conversions since October 2008, I reduce the amount of taxes paid because the tax is paid on the value at the security at the time of transfer (i.e. the value of the security at the time of the conversion is included as income, and the broker sends a form to the IRS with the total values of the distributions made from the regular IRA to the Roth). Math Roth Conversions Roth Conversions BusinessWeek I then waited for the security to recover inside the Roth before selling it, which was just magical, with almost all of them, other than the mutual funds, doubling in value or more after the conversion.

On the bright side, besides the good dividend yield, I suspect that Zions will want to redeem ZBPRC given its high coupon, when and if this bank recovers from its loan problems. This preferred issue was floated in 2008 and can be redeemed only after 9/15/2013. The other positive is that the government's preferred shares in Zions stands at the same level of priority as ZBPRC and ZBPRA. Item # 7: Bought 50 ZBPRB in Roth at $19.9 That provides some comfort to me, since the government would have to have their dividend deferred by this bank if Zions wanted to eliminate the equity preferred dividends on the public shares. This is not to say that Zions would not defer paying the government, just that it would take some balls to do that.

4. Conoco or Exxon (not owned): I do own two ETFs, IXC & IGE, with significant exposure to large integrated oil companies. Bought 50 IXC AT $31.9 BOUGHT 100 IGE AT 27.85 I did however recently sell my shares in COP. Pared Stock Positions Including the Sell of COP Since I have been buying unusually large companies lately, like WMT and PG, I was interested in Tiernan Ray's discussion in Barrons comparing Exxon and ConocoPhillips. Ray notes that the reasons underlying COP's recent upgrade at Deutsche Bank apply more forcibly to Exxon that has the superior balance sheet. Prior to reading this article, I was tilting toward a 100 shares buy of Exxon, but I have not been able to pull the trigger. If I bought it, I would most likely pare one of the closed end natural resource funds that I own.

5. Sold 1 CIT Bond Maturing in March 2010 (see Disclaimer): I have a very low opinion of CIT and kick myself for even buying 2 of its bonds back in 2007. This story from Bloomberg reinforced my low opinion of the firm: CIT Debt Sold to Widows Prior to that article, the low opinion was due to what I viewed as poor management. Needless to say, if the company manages to stay out of bankruptcy, I will nonetheless never buy the stock or its bonds. I am done with CIT. I did not want to think too long about a strategy of how to deal with the firm's tender for its bonds given my insignificant position and the fact that a tender of two bonds would be more trouble than it is worth, at least for me. A brief summary of this tender can be found in Item # 6 of CIT Exchange Offer. I knew that Fidelity would not allow a limit order to even be entered to sell the March 2010 CIT bond, and I knew that I would get screwed with a market order which is all that this broker would accept as a practical matter online. More on Fidelity Investments & Online Bond Trading But, to rid myself of the problem, I entered a market order and it was filled at 61.61, about 2.4 points lower than a large number of previous and recent transactions.

Fortunately, I am no longer interested in buying significant amounts of corporate bonds given their rise in prices, and have no urgent need to find a brokerage firm who is friendly toward the individual placing online bond orders. I am content to continue scraping the bottom of the barrel in exchange traded bonds:
As the last rung in my approach, I am not going to do anything with the 1 bond maturing in December 2009 and will simply hold onto it, hoping that CIT survives to pay me par value at maturity on 12/15/09.

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