Thursday, October 1, 2009

Sold Walgreens at $38.55/Bought 100 AMPPRA at $24.75/Sold Hedge for Stocks/Jobs Report & GS Estimate/Alcoa Upgrade

1. Jobs: A few days ago, the Nashville Tennessean ran a story about how the state government was using stimulus money to fund buy outs of state employees. I doubt that FDR would view that as a job stimulus program. One reason for the spike down toward the close today was that Goldman increased its estimate for job losses for September to a net loss of 250,000 from 200000. Los Angeles Times If that proves to be a good estimate, then I am not sure that I could call what we are now experiencing a tepid anemic recovery.

2. Consolidated Edison (ED) (owned): ED is one of my core electric utility holdings, which simply means that I occasionally buy shares, reinvest the dividends, and have yet to sell a share. Jefferies raised ED today to buy from hold.

3. Alcoa (owned): The last buy of Alcoa was at $5.6 during the dark days based on the simple belief that the world still needed aluminum. Buys of DKF, AA and a Lottery Ticket in 50 shares of RF That was a 1987 price for Alcoa. My intent is simply to hold for years or until the price returns to the $25 to $35 neighborhood, and then sell. So, it really does not matter to me what anyone says about Alcoa. I will simply note that Deutsche Bank upgraded Alcoa to buy from hold today.

4. U.K. Manufacturing Activity: The ISM manufacturing equivalent for the U.K., the CIPS/Markit U.K., fell to 49.5 in September, below the forecast of 50.3, and the second consecutive monthly decline for this index.

5. Money Market Funds: Every month now, after gazing at the dividend paid by my money market funds, I can at least understand why some investors are lending the U.S. government money for 10 years at 3.3%, though I personally view that option as impossible for me to take. The yields on the Fidelity tax exempt money funds are hovering a tad above zero, and a tad is a generous description for a yield of .01%. Barron's Online If you had a million bucks at that rate for a year, the interest paid, $100, could at least pay for a happy meal at McDonald's for the entire family provided the family was not too large or maybe the family could splurge with an evening out at Cracker Barrel. I am going to see if I can find something that will give me more interest for less than $2500. These low rates are probably starting to do more harm than good.

6. Bought 100 AMPPRA Today at $24.75 (see Disclaimer): If this buy goes awry, I am not going to blame the LB, who merely entered the order, but Uncle Ben. I did not want to buy this security, it is far too close to par value for me and the dangers associated with long term bonds have been repeatedly discussed by me, without a doubt I will be more than just an Old Geezer when this bond matures. And, I will blame the Fed for whatever bad consequences are visited upon me by this purchase. After all I am being forced so to speak, just a smidgen of hyperbole in that statement, by the Fed to take risks that I would prefer not to take. AMPPRA is a recent issue from Ameriprise (AMP) Financial. It is a senior note maturing in 2039 with a 7.75% coupon. Interest is paid quarterly. That 100 share investment will pay twice as much interest as a million dollars in a tax free money market account earning .01% over an entire year, assuming that the .01% remains constant which hopefully will not be the case. The last ex date was 8/27: AMP.PRA Stock Quote

This is a link to the prospectus:

This is a link to the FINRA information on Ameriprise bonds: Search Results This one is currently rated A by S & P according to FINRA.

It is just my view that the FED is now creating another huge bubble, most pronounced in treasury bond prices, but seen now throughout the investment grade and international government bond markets.

7. 30 Year Mortgage Rates: With the recent decline in long term rates, the average 30 year home mortgage fell to 4.94% for the week ending on 10/1, near its all time low of 4.78% set in April of this year. It has never been a better time for first time home buyers, prices are way down, mortgage rates are at historic lows and the government is giving them a tax credit.

8. Sold my Stock Hedge (see disclaimer): Near the close today, I sold my stock hedge. This hedge was put on 9/16 as a short term position. See Item # 6 Tidbits: Bought 50 WPCS as Lottery Ticket/Sold 100 VIMC at $3.53/Bought 50 of the Floaters USBPRH & BMLPRH/ Sold 100 GJK at $24.6/Sold a Mutual Fund in IRA I was using TWM as a double short for the Russell 2000. The Russell 2000 index, ^RUT: Historical Prices for RUSSELL 2000 INDEX , closed today at 584.9 down from 617.38 on 9/16. At some point soon, I am going to use those funds to hedge my corporate bond portfolio some. Last year, I followed a system tied to the VIX that dictated when to buy and to sell the hedges then being used which included TWM and SDS along with several others. Now, I am back to the seat of the pants method, though I am still using the VIX to guide my hunches. The move intraday to the mid 22 level on 9/16/, then a quick move up toward the close, caused me to sell one mutual fund that day and to buy TWM (see #10 below).

9. Sold Walgreens (see Disclaimer): I declared victory on my 50 shares of Walgreens by selling this odd lot at $38.55 today. I will go with WMT as my only retailer.

10. VIX: The VIX rose 10.39% today to 28.37. On September 16 and 17th, the VIX traded to 22.78 and 22.79 intraday respectively, before turning up again at the close. Similarly, the VIX hit 22.82 and 22.48 intraday on the September 10th and 11th respectively, before moving back up. The movement from the low 20s, or even below 20, to 30 and above is a characteristic of what I refer to as the Phase 1 of the Unstable Vix Pattern, where movement below 20 can occur for a few days or weeks before the VIX spikes back up toward 30 or above, and then back down again. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern That movement is historically inconsistent with the formation of an investable bull market pattern lasting three or more years, referred to as the Stable VIX Pattern, that presaged the bull moves from 1992 to 1997 and 2002 to 2007. The Stable VIX Pattern is marked by continuous movement below 20 in the VIX. Ultimately, the VIX pattern may resolve itself into a Stable Vix Pattern, but has not spent one day below 20 since August 2008. Vix Asset Allocation Model Explained Simply With as Few Words as Possible

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