Tuesday, November 10, 2009

Ariad Upgrade by Morgan/Sold BWX at 59.38/Bought 50 EUO at $17.17 as a Hedge/Winstream/Sold VZ at $30.28/Sold BCE at $27.11 CAN/Bought LT WIBC/ASBC

1. Bought 50 EUO at $17.17 on Monday (see disclaimer): My limit on this double short for the EURO is 150 shares. I have no training in art of technical analysis. A few months ago, I bought a couple of thick books on this subject, picked them up and put them on a library shelve. Since that time, I have not touched either of them again. So, what I am about to say is based on what any technical analyst would call a deeply inferior state of knowledge. It just appears to me that the Euro may be forming a double top near 150. To reach that conclusion, I just look at the chart for the Euro currency ETF, FXE: CURRENCYSHARES EURO ETF I would not invest a dollar based on that analysis however. I made an argument in a recent post that I believed the Euro had risen too much against the U.S. dollar: Euro & The Dollar But, humans trade currencies, and it is irrelevant to me that the humans who trade currencies in bulk are so called professionals. They are still subject to the same herd instincts as those who took the Nasdaq average to over 5000 or who fell over one another buying CDO's cubed containing subprime mortgages. I will add to EUO at intervals based on the upward movement of FXE, adding shares to EUO when FXE falls into the 153 to 156 range and more in the event FXE crosses 160.

This is not a bet. I am creating a small currency hedge for securities priced in Euros. I will be buying some stocks on the European exchanges, converting my dollars into Euros, and holding the securities priced in the Euro currency. I will not use my cheap dollars to do this until the dollar rallies substantially in value against the Euro. As of yesterday, my dollar would have bought just .6683 Euros. Currency Converter - Yahoo! Finance On May 7th 2009, I could have bought .7478 Euros with that dollar. On March 3,2006, I could have bought .8308 Euros. On March 4, 2002, KING DOLLAR would have bought 1.1501 Euros. I do not know when I will use my dollars to buy European securities. I would have liked to have done it in March 2002. I am not going to do it now. A possible entry point might be when the dollar will buy more than .75 Euros. But, the currency issue is the least important one. I will have to find something to buy on the European exchange that I believe presents good value and preferably not available for trading in the U.S. in ADR form.

While I may be wrong about what I am about to say, I thought that it would be reasonable to hedge the currency risk now rather than after the dollar experiences a strong rally against the Euro.

This is a link to the Proshares page on EUO: ProShares ETFs - UltraShort Euro - EUO - Overview I will have to monitor the tracking issue everyday now.

2. Winstream (owned): Windstream reported net income of 18 cents per share that included a number of charges that amounted to 6 cents per share. Revenues for the 3rd quarter were 734 million, below the 747 million consensus forecast. The firm lost only 27 thousand land line customers during the quarter, an improvement over prior quarters, and added 26 thousand high speed internet customers and 11 thousand digital TV customers. My last buy was at $6.36 on March 3.2009 Winstream/, and I view my position in WIN to be solely an income vehicle. The current yield at that purchase was close to 16%. At the current $10 handle, the yield falls to around 10%. WIN For all practical purposes, I view the common stock as equivalent to a junk bond without the characteristics of a bond including the bond's priority status and covenants on payments.

3. Ariad Pharmaceuticals (ARIA) (owned): I currently own 100 shares. There is nothing in my background that would allow me to assess the likelihood that a cancer drug in clinical trials will ultimately be approved by the FDA. I suspect that even the experts are guessing about the eventual outcome too. Ariad's main drug candidate is ridaforolimus for the treatment of metastatic sacrcoma. Another compound, in earlier stage clinical trials, is AP24534, for treating chronic myeloid leukemia. J P Morgan upgraded ARIA on Monday to overweight based positive feedback its analyst received about this compound, with early clinical data from a Phase I trial to be submitted next month at a meeting of the American Society of Hematology. The annual meeting is scheduled for early December: The American Society of Hematology Ariad's summary of AP24534 can be found at AP24534 - ARIAD. My previous discussions of Ariad's pipeline include the following:

I am basically in a holding pattern until more data is released about the late stage ridaforolimus trial, possibly in the first quarter of 2010.

4. Associated Banc-Common and TP Decline today (own TP only): The common stock took a big hit today after it was reported that ASBC entered into an "informal agreement" with Comptroller of the Currency to improve its risk management processes and to maintain as of 3/1/2010 a Tier 1 capital ratio of 8% and a total capital to risk-weighted assets ratio of 12%. ASBC exceeds both of those limits now. WSJ.com Possibly, there is some concern that the bank may have to do a stock issuance to shore up capital. Since the capital levels contained in the agreement are above the levels normally considered well capitalized, and Associated barely exceeds those levels now, I would anticipate a capital raise, most likely by the sell of common stock which would be dilutive to existing shareholders. That is just a working hypothesis. It does explain the fall in the common stock price today. It does not explain the fall in the TP price. I view a common stock issuance to be a positive for a TP owner, in that it provides a capital buffer at no cost to the owner of a more senior security.

My limit is 100 of the TP, and I reached that limit yesterday. I would have preferred to buy 100 of ABWPRA near the close today, when a market order could have been filled at $19.65. As is my practice, I may bring my total of ABWPRA temporarily up to 150 shares for the express purpose of lowering my future cost basis by selling the higher cost shares when and if they recover to over $21.5. Personally, I do not understand why the TP declined on the news today.

The news was buried in the banks 10-q filing made with the SEC on Monday. I checked the SEC Edgar site before I made my purchases for the 10-q and it was not then available, so I referenced instead the press release announcing the third quarter results, which did not contain this news. FDIC Preference Rules for Seized Banks/EWBC/Bought 50 of the TP ABWPRA

But the OG would add this word of caution. Why is there an "informal" agreement to maintain capital ratios above what is considered a well capitalized bank? That question makes the OG nervous. Being an old guy, who has been around the block a couple of times, seen it all so to speak, the OG recognizes that what you don't know can hurt you, along with what you think you know that ain't so.

5. Trust Certificates Ex Interest Today: I try to keep track of the ex interest dates for bonds that I own. A number of them went ex interest today for their semi-annual payments. This included the three TCs with the same AT & T senior bond (GJF, JZE, JZJ), the TC with the CNA Senior bond (JZV), and PYI which contains a senior Time Warner bond. The TP FPCPRA also with ex interest for its quarterly payment.

6. Yellin Speech Today: The San Francisco Fed President, Janet Yellen, is concerned about commercial real estate. She also believes that the recovery will be gradual and vulnerable to shocks. If she was going to use a letter to describe the recovery, it would be the letter "L" with "a gradual upward tilt of the base". The Outlook for the Economy and Real Estate1 (11/10/2009) She is more concerned about the economic slack in the economy pushing prices lower. I thought that this sentence in her speech was interesting: "But experience teaches us that budget deficits do not cause inflation in advanced economies with independent central banks that pursue appropriate monetary policies."

7. Article on High Yielding Bank Stocks: Given that most banks have cut their dividends to a penny, or five cents for the exceedingly generous ones, I thought that this article from the TheStreet.com was interesting in its focus on three bank stock which still have good dividends. One of those is the New York Community Bank, which just went ex dividend, and yields around 9%. NYB was recently bought in both the IRA and the taxable accounts. Added 50 NYB at 10.9 Bought 50 NYB at $11.3 /Added 50 NYB at $11

8. SOLD Remaining Shares of the ETF BWX at $59.38 today (see Disclaimer): I have reached the point where I view the U.S. dollar sell off as overdone. The remaining shares of BWX were bought last October at $47.31. BOND ETFS BWX AND TFI Those were the shares bought on the stock exchange. I also sold the remaining shares bought with reinvested dividends. This ETF used to pay monthly dividends, but ceased doing that back in March. The dividend yield was small. For now, I am buying specific currencies as an alternative to this ETF of low yielding international government bonds from developed countries.

9. Sold 100 BCE today on the Canadian Exchange at $27.11 in Canadian Dollars: (see Disclaimer) This transaction was done primarily to raise my holding of Canadian dollars. I sold BCE on the Canadian exchange and settled the trade in Canadian dollars. I also wanted to see how much of a tax headache will result in this kind of transaction before I start doing a lot of them. The LB enjoys complicated tax issues, the more esoteric the better. The Old Geezer and the RB find that attitude incomprehensible. BCE was bought at $24.75 just recently. Bought 100 GJP at $18.97/Bought 100 BCE at $24.75/Bought 50 AHLPRA at $19.75

10. Sold 100 Verizon at $30.28 today (see disclaimer): I must be in the raising cash mode since I have raised over 50 grand with recent sells. This is what happens when the Old Geezer is in charge and starts to worry too much. It is too bad the OG is not taking any prescription drugs. A heavy dose of some anti-anxiety medication may be in order.

I am able to hold onto the Verizon bonds but not the stock. I have bought and sold it for small gains earlier in the year. The Verizon common shares were just bought at $29.37 Bought VZ/Sold EBAY The OG was satisfied with a dividend and a small profit on the shares.

It may be time for a management change here at HQ. In fact, Headknocker just informed the Young Stud to get ready. While the LB is cautious, without a doubt, it is not infected with the kind of caution that permeates the Old Geezer, more of a calculated and deliberate risk taking as distinguished from just hitting the sell button over and over again which is the M.O. of the OG. And the LB promised to even listen occasionally to the Animal Spirit if allowed back at the controls.

11. Bought LT in Wilshire Bank at $6.54 (WIBC) (see Disclaimer): Lottery ticket purchases are limited to $300 excluding commission, with a few caveats. LOTTERY TICKET PURCHASES: LINKS IN ONE POST If I made a profit on the stock previously, I can increase the $300 by the amount of the profit. In the case of Wilshire, this was my first transaction, so I could only buy 45 shares as an LT today. Based in California, Wilshire focuses on Korean-American business owners. All the Koreans that I have met are entrepreneurial and hard working. Savings rates for the Korean-Americans are about twice the average rate for the general population, and historically they have avoided high levels of leverage so common among other Americans. This lowers the default risk some for Wilshire. The main drag is the bank's exposure to commercial real estate loans. Between 2002 to 2006, WIBC posted some of the highest returns on equity for banks during that period, more than 20%. While the price for WIBC common has recovered somewhat since March, when it was hovering around $4, it is still substantially below the levels reached before the Near Depression started in 2008. Wilshire Bancorp, Inc. Share Price Chart Still, I do not have enough confidence in the bank's recovery potential to buy it outside of the LT category, which severely limits my risk and my potential return. This is a link to the last quarterly report: /www.sec.gov/ Wilshire recently acquired the assets of another institution, Mirae Bank, under a loss sharing agreement with the FDIC ( see page 6 : http://www.sec.gov ) For real stock nerds, this is a link to the agreement with the FDIC on Mirae: www.sec.gov

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