Thursday, November 5, 2009

Sold MSFT PG IXC/BOUGHT XOM at 71.5/Added 50 SIVBO at $19.15 /ISM Services Index/ Earnings from MWA LINE UNM NWSA

1. Cheap Money, Excess Liquidity & Asset Bubbles/ Federal Reserve Statement: You would think that humans would eventually learn something. Cheap and abundant money will create bubbles in asset prices. The psychology of the herd instinct is also a critical component to the formation of bubbles as Professor Shiller has demonstrated many times. The World Bank is sufficiently concerned about an asset bubble forming in Asia that it issued a warning about asset bubbles in Asian equity prices and real estate prices in China, Honk Kong, and Singapore.East Asia & Pacific I have also read reports of rapidly increasing real estate prices in Australia. One source of abundant and cheap money is the U.S. Federal Reserve. In its press release from yesterday, the Fed continues to say that conditions will warrant the 0 to 1/4% federal funds rate "for an extended period" and that "inflation will remained subdued for some time" FRB: Press Release--FOMC statement--November 4, 2009

2. Linn Energy (LINE)(Owned): I last bought LINE at $15.21, shortly after fooling with my K-1 from this publicly traded partnership and realized that I needed more shares to make it worth my time fooling with filling out the tax form. Added to LINE

LINN Energy reported 3rd quarter results of 38 cents per share, excluding items, which was slightly below the consensus forecast of 41 cents per share. Revenues were higher than expected at 245 million from continuing operations. I am tempted to harvest my large percentage gain in LINE shares but fear the tax accounting issues. Still I may sell the shares just to avoid a continuation of the tax filing headache associated with owning any individual publicly traded oil and gas partnerships. I always do my own taxes, not because I enjoy doing it, though LB just said it wants more complex tax problems to challenge it, but simply due to the fact that it would cost way too much to have a CPA do it for me.

3. Mueller Water (MWA)(owed Lottery Ticket category): Mueller Water Products reported 4th quarter results that were not awful (FY 2009 ended 9/30/09). Since stocks bought in the LT category frequently have serious problems attached to them, some liberalism and toleration for poor results are needed when the LB assesses an earnings report, which are two qualities usually not held in abundant quantities by it. Net sales fell 24.6% to 374.8 million. Importantly, MWA reduced debt by 221 million in the 4th quarter, and debt is one of the two main problems with this LT. The GAAP loss was 9 cents and the adjusted loss was 3 cents.

4. ISM Services Index: The U.S. ISM Services index for October still showed expansion at 50.6, but fell from the 50.9 reading in September. ISM New orders rose to 55.6 from 54.2 but the employment component fell to 41.1 from 44.3 in September. Based on the ISM reports, it is clear that manufacturing is improving faster than the service industry, and far more people are employed in services.

5. Sold 50 MSFT at $28.11 Yesterday (see Disclaimer): I am an Apple guy who does not even like Microsoft. Yesterday, I managed to finally reach a decision and sold the 50 shares of Microsoft bought at $17.79 in January 2009: /ADD 50 MSFT The picture of the young blond headed LB displayed in that January post is now a freshman at Northwestern.

6. Sold 100 PG at 59.45 and 50 IXC at 35.74-Yesterday (see Disclaimer): When the market was up about 120 yesterday afternoon, I decided to harvest some profits. I sold the 100 PG shares at 59.45 recently bought at $52.85. BOUGHT 100 PG AT $52.85 I also sold the 50 shares of the ETF IXC, which contains global energy stocks, at $35.75 which were also recently bought at $31.9. Both of those transactions were profit taking, pure and simple.

7. Bought 50 SIVBO at $19.15 Yesterday (see disclaimer): I noticed this cumulative TP issue from SVB Capital containing a junior bond issue from SVB Financial Group formerly known as Silicon Valley Bank, was trading in an usually tight spread with a $19.15 ask so I added 50 shares in a taxable account bringing my total up to 100 in that account. I placed a market order. One problem with the market order is that the price for thinly traded issues can literally move substantially in a second. Within a few seconds after my market order was filled at $19.15, the bid price moved up to $19.85. SIVBO is a Trust Preferred issue with a 7% coupon. The yield at my cost would be slightly over 9% at my cost. Par value is $25 with a maturity in 2033, as more fully explained in prior posts discussing this security: /Bought 50 SIVBO AND DKK Added 50 SIVBO AT $19.20 IN ROTH I doubt that I will buy more, since I am now holding 150 shares which equals my comfort level.

Buying odd lots in thinly traded issues can lead to some unusual and undesirable results, irrespective of whether a limit or a market order is used. I recently had a limit sell order for 50 shares in a TP from Regions filled with 1 share which then caused me late in the day to sell the other 49 shares at the market, incurring two brokerage commissions. I am ultimately okay with that since the buy of this TP was a rule violation on maturity date, a $100 or so profit with an interest payment was realized, and the TP is now about 2 bucks lower than my market order on the 49 shares. Sometimes a buy market order is not filled at all. If it is not filled within 30 seconds, I will cancel it. Or, the market order is filled above the ask price. One reason for that phenomenon in these thinly traded issues is that the ask price shown on the order page is all or none, but I do not see that limitation. The market order is then filled at a price higher than shown, which happened to me recently with a 50 share order of PJS. (#15: /Bought 50 PJS/) Though, I do not have a problem about 95% of the time with odd lot orders in thinly traded securities, using some judgment based on the spread as to whether to initiate a market or a limit order, with market orders used mostly when the spread between bid and ask narrows to ten cents.

8. Bought 50 Exxon at $71.5 Yesterday (see Disclaimer): This is basically a replacement for the two energy ETFS sold recently, the IXC yesterday and ENY earlier in the week. Exxon is sort of security blanket for me. The dividend yield at my cost is around 2.3%, not great, but I am more interested in the dividend growth prospects given the large financial heft of Exxon.

9. Unum (own junior and senior bonds in TC form only-KCC & PJR): The disability insurance company reported operating EPS of 64 cents for the 3rd quarter, which matched expectations. Total net income for the quarter was 221.1 million. Unum maintained its guidance for 2009 operating income in the range of $2.5 to $2.6. The stock fell in trading yesterday, amid a general selloff in insurance stocks. Since I do not own the common stock, I do not care about that reaction. I have a different focus. As a bondholder, I am interested in financial viability and see no reason for concern in the latest report.

10. News Corporation (own): NWSA reported revenue at 7.2 billion in its 1st quarter of the new fiscal year, down from the 7.5 billion in the comparable quarter from last year. Net income was reported at 571 million or 22 cents per share. This was better than the consensus of 18 cents, and an improvement over the 20 cents earned in the 1st quarter of last year.

11. Extension of Tax Credit for Home Purchases: The senate passed 98 to 0 legislation to extend the 8 thousand dollar tax credit until April 30, 2010. The bill would allow someone who has lived in a home for at least five years to claim up to a $6500 credit by buying a new home. The bill also extends the period for unemployment benefits, again, for at least 14 weeks in all states and up to 20 weeks in states where the unemployment rate is over 8.5%.


  1. Having been recently stung by the thinly-traded issue odd lot problem, I appreciate your thoughts.

    I've been watching PYT in this regard, hoping to round out my odd 22 share lot by buying on a dip, or by selling it at some point for a decent gain, maybe after collecting a couple of interest payments. (It just bothers me to have this insignificant holding cluttering up my portfolio, like lint in a pocket.)

    The troubling thing I noticed today as I looked at the Bid/Ask order book on the BATS Exchange, is that someone has a bid in for 400 shares of PYT at $8.80. PYT closed yesterday at $16.33. So if I place a market order to sell my shares now, will it get filled at $8.80??? I would not be surprised.

    P.S. Doesn't it feel great to be out of MSFT?

  2. CATHIE: I would doubt that an order on PYT would be routed through the BATS exchange. Most likely it would be filled at the bid price which is currently 15.35 but there is certainly no guarantee what will happen with an odd lot order once you enter a market order and the issue is thinly traded. I would personally not leave any odd lot market order open and unfilled for more than 30 seconds tops. The range so far today on PYT is $15.25 to 16.21 and there is a huge bid/ask spread.

    Based on the kind of analysis that I do with these GS floaters, PYT would be a better buy now at 15.35 than GJS which has a $15.6 bid. That is not to say PYT is a buy and GJS a sell, just that PYT is a comparatively better buy at the current bid than another synthetic floater containing a GS bond. If I could sell GJS at $15.6 today and be assured of being able to add PYT at 15.35 with the proceeds, I would do it.

    If I owned 22 shares, I would just try to ignore it. Possibly, on an active day of trading in PYT, with a narrow bid/ask of 10 cents or less, I would round it up if I viewed the price as favorable compared to the other GS floaters. I sold my GSPRA after doing my analysis which showed it was one of the worst at its price compared to the others.

    I seem to be working awfully hard just to bring myself back to where I was in October 2007, which I have done. I am still in a trading mode, which explains the sells yesterday of MSFT and PG, and I will probably remain in that mode until the emergence of what I call a stable Vix pattern. In a long term secular bear market, the only way to stay ahead is to trade, in my opinion, taking advantage of the opportunities as they develop and constantly harvesting gains.