1. Sold 100 PFX at $17.57 (see disclaimer): PFX is a senior bond issued by Phoenix Insurance Company that has caused me some heartburn since I discussed buying it at the $6 and change level. I mentioned in a post from September that this junk rated bond was at best a hold, and could be sold any day. Phoenix Downgrade The ratings agencies have downgraded the insurance company to junk and the firm has lost its two main distribution channels for its products, with both State Farm and National Life ceasing to sell Phoenix insurance products. This bond was Too Wild for LB. So, rather than pop a Maalox whenever I looked at it, I sold my remaining shares yesterday at $17.57. I will dabble in junk rated issues, though I will never risk much money in them. The gains that I have experienced with a number of these junk issues demonstrates why I will not ignore them entirely. I will always be less likely to hold one to maturity, with the one possible exception being DKR bought at $6.45 that will mature in June 2012 at its $25 par value. Hertz Bond Information in One Post
2. Pared the TIP ETF by Selling 50 shares at $104 (see disclaimer): I will trade this particular bond ETF. Advantages and Disadvantages of Treasury Inflation Protected Securities: Using FIFO accounting, the sell of 50 shares today reduced my average cost for the remaining TIP shares. The next purchase made in the ETF TIP after the first fifty share purchase was at $93.34 in October 2008, when the breakeven was near zero, a no brainer type of purchase. TREASURY INFLATION PROTECTED BONDS (TIP) Why no brainer? Zero inflation over the next 10 years or so is not a rational prediction. Those shares bought in October are my lowest cost shares. Additional shares were bought in small lots at around 100 on two separate occasions in June and August of this year. Bought 50 IXC AT $31.9/ Bought 30 TIP at $99.25 6 11 2009 Bought 30 TIP Consequently, I will either keep the shares or sell the remaining shares all at once.
I also intend to transition from the TIP ETF into purchases of individual 10 year TIPs bought at auction.(item # 5 Inflation/BMLPRH vs. BMLPRJ) The last factor motivating the pare today is that this ETF will generally stop paying its monthly interest payments after the early October payment until early spring of the next year. Last year, no payments were made after the October 2008 distribution until April 2009. iShares Barclays TIPS Bond Fund (TIP): Distribution History
3. Bought 50 SIVBO at $19.49 (see Disclaimer): SIVBO is a typical bank Trust Preferred. The issuer is SVB Capital II, a Delaware trust wholly owned by SVB Financial, formerly known as Silicon Valley Bancshares (SIVB). The common stock of this bank was trading at close to $44 when I placed my order today to buy its TP.
By typical bank Trust Preferred, I am referring to a bank forming a Delaware Trust, owning the common stock of that trust so that the Trust is controlled by the bank. Wilmington Trust (WL) is the Trustee. The Trust then sells "preferred stock" in the Trust to the public and the proceeds from that transaction are used to purchase a junior bond from the bank, SVB. The preferred shares have an "undivided beneficial" interest in the assets of the trust. The bank guarantees payment of its controlled Trust. Provided no payment is made on a junior security, payments to the holders of the TP may be deferred for up to 5 years. Payments are cumulative and interest is earned on any deferred payment at the coupon rate. These are standard provisions. These type of provisions are contained at pages 31 thru 33: www.sec.gov
SIVBO has a 7% coupon and a $25 par value, with a maturity on October 15, 2033. At a total cost of $19.50, the current annualized yield would be about 8.97%, paid quarterly, plus an additional $5.5 per share at maturity or early redemption.
I did review the last quarterly report and the annual report before buying the TP:
Quarterly: Form 10-Q
Annual: Annual Report on Form 10-K
I also reviewed the Morningstar report. The common stock is too expensive for me, but I did manage to achieve enough comfort level with the bank to buy just 50 shares of this junior bond. There was a large 25 cent spread today in the bid/ask, for most of the day in light trading.
4. Robert Shiller Interview on Yahoo's Tech Ticker: I always watch and/or read interviews with Professor Shiller, since I view his thoughts on the market to be the most valuable to me of any economist. He is astounded by the market's rise. The current P/E, using his 10 year average earnings method, is around 20 times which is overvalued but not massively so. I can almost feel the animal spirits coming back into both the housing and stock markets. The LB is going to have to bring out the whip and leash for the RB.
5. Daimler (own synthetic floater only-GJL): Daimler common stock rallied over 6% today after the firm reported that its third quarter cash flow will exceed expectations. When I bought the synthetic floater (GJL) tied to a Daimler North American senior bond, guaranteed by Daimler AG, it seemed like one of those no brainers at the time. The underlying bond matures in November 2013, and the buys were made at close to a 20% discount to par value: bought another 100 of GJL bought 100 GJL
6.Brazil's Real (own): This is a link to a Bloomberg article discussing the value of the Brazilian Real.
7. Asian Markets as the World's Engine for Growth: Bernanke made a couple of obvious points today in a speech. First, he noted that Asia is leading the world recovery. Second he correctly noted that cheap money from abroad provided the fuel for the American housing bubble. In fact, the large current account deficits is often a harbinger of a crisis in the making, as large sums of money flow into a country capable of causing a rise in asset prices to unsustainable levels.
8. Bought 50 DKK at 23.98 (see disclaimer): DKK, like many of the Trust Certificates which contain the same junior bond Trust Preferred issue from AON, has been previously bought and sold. /Sold Dkk Ex Interest Today Bought 50 DKK in Roth I would have been better off just keeping those shares sold back in June at $21.77, but the LB had to sell them. I had enjoyed a pop from $17 to over $21 in about 2 months, and the shares went ex-interest on the day of the sell. The LB, who is constantly in a trading mode by force of habit, which has at least kept Headknocker solvent all of these years, just harvested that quick gain on the shares, plus the semi-annual interest payment, believing that no further explanation is required or even needed.
After paring the TIP with a 50 share sell, I was looking for some yield, and that led me back to DKK and the previously discussed purchase of the SVB TP. I have bought and sold the AON TCs on so many occasions that I feel comfortable adding a small amount even after their huge rally in prices. It was not that long ago that I bought 150 of KTN around $14, which has a higher coupon than DKK. I also own 200 KTW with the last buy of 100 shares were at around $16 on 9/30/08 shortly before starting this blog. The KVW TC has the same coupon as DKK at 8%. So, while I was reaching for some yield today, I did not want to buy too much at the current price, first due to the hugh rally that these securities have enjoyed and also due to strict limit of owning no more than $10,000 for all securities (bond, preferred stock and common stock grouped together) from a single issuer. I am close to that limit just on the AON TCs KVW, KTN and now DKK again.
This is a link to the DKK prospectus: www.sec.gov
The Trust Certificates DKK, KVW, KVF AND KTN all contain the same Trust Preferred issue, a 8.205% Aon Capital A Trust Preferred maturing in 2027. That bond can also be bought in the bond market: FINRA - Investor Information - Market Data - Bonds - Bond Detail I call these four TCs functionally equivalent. The only relevant consideration for me is the yield at the time that I place an order. DKK had the better yield than KVW today so I bought it again. The yield at a total cost of $24 is about 8.3% DKK Stock Quote - Saturns Apm Cap Tr A Ser UNITS A 8%2027 , slightly more than the others. I would not expect much if any price appreciation. This purchase is solely a yield and income play.
See other posts on these Aon TCs including:
In fact, it is time to pay a complement to the LB, since it is much derided here at HQ. Headknocker will give the LB one kudos for successfully navigating the bear market and bringing back Headknocker's capital base past the October 2007 levels now by about 5%. Let's hear no more than a solitary cheer for the LB, otherwise it will get a big head. And just to put the LB in its place, Headknocker reamed it for selling Apple in an IRA about 180 points lower than the current after hours trading.