Wednesday, November 4, 2009

Bought 50 of the TC DKQ at $15.95/Sold ETF ENY at $15.75/Added 50 NYB at $10.57/Added 50 PMK at $8.21/AUY or Gold Bullion?/Auto sales/Intel Downgrade/

1. Intel: Morgan Stanley joined the analyst parade in downgrading Intel to equal weight from buy and lowering its price target to $22 from $25. MS analyst Mark Lipacis asserts that the semi cycle is in its final innings and fundamentals are peaking in his view. I just like to make a note of the name and the firm of the analyst so that I can refer back to this forecast in about 6 months or so and discuss its accuracy or lack thereof. Mr. Lipacis has caused many investors to sell their Intel stock yesterday based on his call of the peak in the semi cycle. I heard Cramer say that Lipacis was a smart guy, but that he disagrees with his call. I would say that anyone trying to predict chip sales after the first quarter of 2010 is guessing. WE ARE ALL GUESSING! Anyone attempting to predict the future is guessing. It may just be the safe call now to predict the end of the semi cycle. I can guess too. I spend all day gathering information to improve my guesses. Need to summon the inner power to predict the future first before venturing one about the 2010 demand for chips though. Now I am ready to predict. I will guess that Lipacis is wrong since he is making what amounts to an erroneous macro economic type call on the strength of the worldwide recovery. He is probably also underestimating the upgrade cycle powered by the new Windows operating system, and the duration of the upcoming replacement cycle particularly among businesses who are still using 4+ year old computers initially bought with Windows XP.

2. Glimcher (own common and preferred as Lottery Tickets): Reuters reported on Monday that Blackstone agreed to acquire an interest in two GRT malls for 195 million in cash and assumed debt. One of the malls is in Portland, Oregon. Blackstone will assume 75 million in debt and pay 39 million in cash. The other mall is in Tampa. Blackstone will assume 54 million in debt and pay 27 million in cash for an interest in that one. This is a link to a listing of GRT's properties: Glimcher || Listing of Properties I have not seen any confirmation from Glimcher yet. Search Results

3. Hanover Insurance (own junior bond only): I own two functionally equivalent TCs that have the same junior bond (in TP form): Bought 150 TC PKM Bought 50 KRH in IRA The Hanover Insurance Group reported third quarter net income of 49.7 million or 97 cents per share. Book value increased 10 percent from the Q/E 6/09.

4. Added 50 NYB at 10.57 Yesterday in Regular IRA (see disclaimer): This one has drifted down since I started to build a position, and I am content to add up to another 200 in the event it continues to fall in price. NYB is ex dividend today, and the yield is currently over 9%. I will probably space any additional purchases at intervals of 25 to 50 cents down in price.

5. Added 50 PMK at $8.21 Yesterday (see disclaimer): This is a junk rated senior bond from PMA Capital that pays interest monthly. I discussed this one when I purchased 100 at $8.35 in the taxable account. Bought 100 PMK/ This last purchase was placed in an IRA to generate income. The coupon is 8.5% so that translates into a 10+% yield at my cost. I try to be cautious with the junk rated securities, since they do generally entail an enhanced credit risk profile. The initial way that I manage risk with them is simply to limit my monetary exposure to small amounts, viewing that as preferable to ignoring the junk rated bonds altogether. Some of my largest percentage gains among my individual bond holdings have been in the junk rated bonds including Hertz, Ford Motor Credit, and Phoenix Insurance. I would view the Hanover junior bond to be the highest quality junk credit that I currently own. I would not expect PMK to have much upside on the price for the next year or so, maybe some upward movement to around $8.75 is possible. The bond matures in 2018 with a $10 par value so that is a built in gain of 15% in less than 9 years assuming as usual PMA survives to pay off the bond.

6. Factory Orders: New orders for manufactured products increased .9% in September after increasing .8% in August. This was the fifth increase over the last six months. Excluding the volatile transportation orders, new orders increased

7. Sold 50 ENY at $15.75 and Bought 50 of the TC DKQ at $15.95 (See Disclaimer): ENY is an ETF from Claymore that focuses on Canadian energy stocks, and I already own several of the individual names. I bought the shares at $13.36 in August: Bought 50 ETF ENY at $13.6

I repurchased a trust certificate containing a senior bond from May Department store, now part of Macy's (M). I sold 100 shares of DKQ for a profit at $15 in May. Bought RJI, Sold DKQ, Bought Google I am slightly more comfortable now with Macy's than I was in May. I am not a 100 shares comfortable however. I originally discussed this bond in a post from last October: TRUST CERTIFICATE MACY'S BOND DKQ The coupon of the underlying bond is 6.9% and the TC DKQ has a lower coupon at 6.25%, so that needs to be taken into account when comparing the TC with the trades of the underlying bond at the FINRA site: FINRA - Investor Information - Market Data - Bonds - Bond Detail The underlying bond is infrequently traded. The bond matures in 1/15/2032.

There are two main reasons that I am coming back to some of these bonds previously sold. I have grown increasingly weary of earning nothing in my money market accounts, so Uncle Ben is forcing me to take on more risk. And, I have decided to increase my cash flow into the taxable account in order to purchase more lottery tickets particularly if the market continues to fall. LOTTERY TICKET PURCHASES: LINKS IN ONE POST I will conduct another evaluation of how I am doing in this asset category, probably in January, and my last summary is contained in this post from September: Evaluation of Lottery Tickets so far in 2009 So, I am planning to use the cash flow from dividends and interest during the remainder of 2009 to buy more LTs, bringing the total number to perhaps 40 positions and a total exposure of close to 10 grand. I need to keep the RB entertained so Headknocker had decided to ignore the LB's desire to cut back on the number of LT's holdings. The LB regards this entire exercise to be a waste of precious and limited resources, not referring to capital, but to the time spent ferreting these LTs out, researching them, and then monitoring them after purchase given the immaterial amount of capital devoted to them as a group.

This is a link to the prospectus: This bond is currently rated junk by Moody's at Ba2 according to the FINRA site but is still rated investment grade by FITCH at BBB-, just barely investment grade. Macy's has way too much debt in my opinion. ( Page 3 of the Quarterly Report). However, I am compensated somewhat for the risk with the current yield of close to 10% (9.8% according to Marketwatch at the closing price of $15.95 K Saturns May Dept Stores Co UT A 6.25% 32), plus about a 36% on the shares if Macy's pays off the bond at maturity in 2032.

8. PMA Capital (own senior bond PMK only-SEE # 5 above): After the bell yesterday, PMA Capital reported operating income of 21 cents per share for the 3rd quarter. Importantly, in an apparent effort to secure the approval of the Pennsylvania insurance commission for the sale of PMA Capital "Run-Off" operations, PMA Capital agreed to provide more capital to the operation, consisting of an additional 13 million at closing (3 million in cash and two 5 million notes maturing in 2010 and 2011 respectively) and to provide additional capital support extending to 2052 in an amount not to exceed 46 million dollars depending on the loss experience of the run-off operations. PMA did not think that any of this additional capital would be necessary prior to 2018 which is the year that PMK matures so that is relevant to me. This problem relates to an operation called PMA Capital Insurance Company and is more fully discussed in a prior post: Bought 100 PMK I noted in that post that A.M. Best considered the issue important enough to place the ratings under review for a possible downgrade and that was back in June: Best

9. CB & L (own common only-Lottery Ticket): CBL & Associates Properties reported 3rd quarter results, with F.F.O at 50 cents for the quarter and mall occupancy at 90.3% as of 9/30/09. CB & L maintained its FFO guidance for 2009 at $2.28 to $2.39. This L.T. is a hold for me. Though, in retrospect, I wish that I had kept the cumulative preferred and sold the common on the pop.

10. Gold (own): Gold hit a record high yesterday, with the December contract closing at $1084.9 up $30.9, after India's central bank announced that it had bought 200 metric tons from the International Monetary Fund. Bloomberg I have not bought gold bullion since it crossed the $300 mark, though I am becoming tempted to do a pare.

11. October Auto Sales: Having dismissed the 3rd quarter GDP report as being goosed by cash for clunkers and the tax credit for new home buyers, Alan Abelson may need to ignore the recent positive auto sales numbers for General Motors and Ford. GM had a 7.6% rise in the four brands that it is keeping and Ford had a 3.3% increase. The Ford increase occurred in spite of lower incentives per vehicle, compared to a year ago and to September. Total auto sales rose about 12% from September.

12. Yamana Gold (owned): I sold my LT in AUY but kept the 100 shares in my taxable account. One reason that I do not care for gold companies is that they really do not earn much money even in the best of times. And, the current time is one of the best of times for gold prices. Since the costs associated with mining gold is so high, plus other costs associated with operating the business, I have never really grasped why the gold companies have been afforded such a high multiple to earnings when they have a very long history of lackluster earnings. Some say that they are being valued based on the gold in the ground. I would respond, what is the net present value of the remaining life of the mines of the gold after subtracting all costs. I would just prefer owning GLD myself or the actual bullion held in a lock box at the bank. I do own Yamana and was not impressed, as usual with an earnings report from a gold miner. During one of the best periods since the early 1980s for gold prices, Yamana Gold reported earnings of 8 cents per share (11 cent if you add back 3 cents for a tax issue) after selling 314,707 gold equivalent ounces. I would also prefer to own a commodity ETF or even an ETN, which tracks the metals, such as RJZ (an ETN) which I own, as opposed to any gold miner: Bought MSPRA RJZ & ADX/ COMMODITIES AS AN ASSET CLASS ELEMENTS ETN Products

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