Monday, December 14, 2009

Bought 100 Enerplus/ Exchange: Sold 50 PNY and Bought 50 ORHPRA

Fortunately, staff was gone for much of the day today working to further HK's capital position, as always. LB wants to know what has it done to offend Headknocker, being reduced to explaining the RB's trades? And worse, the LB is in a dark state of dread, being required to be subservient to that NO WIT, wait a minute, a light at the end of the tunnel is visible. LB has found another penumbra to the Constitution, a long lost scribbling of the Founding Fathers who must have had to much Sherry and Brandy one night and forgot to give it to some clerk for inclusion in our Constitution. Amendment 8.2 reads as follows: "The LBs shall rule the World and the RBs, and any attempt by an RB to control the LB shall be deemed Treason to the Natural Order of the Universe and Cruel and Unusual Punishment for the LB under Amendment 8". Headknocker needs to be so informed, since he is interested in the true meaning of the Constitution and what the Founding Fathers meant to say but didn't.

1. Bought 100 Enerplus Today (ERF: US; Can:ERF-UN.TO ) at 23.95 Canadian on the Toronto Exchange Using Canadian Dollars (see disclaimer): The position in Enerplus is held in Canadian dollars, and the dividends are paid in Canadian dollars and not converted to U.S. dollars. Now, LB is not going to go into detail about RB's rationale for this purchase. Suffice to say, the RB is on a quest to buy Canada, all of it, and the buy today was part of its plan. The OG acting as guardian for the RB cautioned it about buying the number of shares it desired to purchase, and fortunately the OG and RB can actually carry on a conversation, so the RB relented and bought just 100 shares, bringing HK's total position near 250 shares.

This order was played below the market this morning before I left HQ. Part of my cash stash is in Canadian dollars.

As usual with these Canadian energy trusts, I would just repeat that Canadian tax law will change in 2011, and those trusts will start to be taxed as regular corporations. In other words, the norm will become double taxation, where the corporation is taxed on its income and the shareholders pay taxes on dividends paid from income already taxed at the corporate level. This change will likely result in lower dividends, but the amount and timing will be dependent on a number of variables that can not be predicted now anyway. The most important variables would be energy prices, and more success with the drilling bit than currently anticipated by the market. Another factor usually mentioned is that the dividend is taxed at a 15% flat rate by Canada before it arrives in my account. Thus, I will try to hold these foreign dividend paying companies in a taxable account.

Since I am already an Enerplus shareholder, I read the recently given 2010 guidance on production. ERF expects to produce about 37,000 bbls/day of crude oil and natural gas liquids and 294MMcf a day of natural gas, for a total of 86,000 BOE/day. This 2010 guidance would represent about a 2% decline from the 2009 number but ERF expects the production number to start increasing later in the year so that the run rate at the end of 2010 will equal the run rate at end of 2009, " setting the stage for continued growth in 2011" Some of the 2010 production is hedged including 34% of the oil production and about 17% of the projected natural gas production.

ERF pays monthly dividends, and the distribution for December has just gone ex dividend at 18 cents Canadian or about 17 cents U.S. at the current exchange rates. Enerplus If an investor takes the dividend in cash and the broker converts the payment into U.S. dollars, the amount received will fluctuate with the exchange rate. If the U.S. dollar strengthens against the Canadian dollar, you will receive less and vice versa, more if the Canadian dollar increases in value so that it buys more of the U.S. currency.

I mentioned in a previous post that ERF had previously cut its dividend in half as natural gas prices tanked. If the current monthly dividend of 18 cents Canadian was applicable for an entire year, and it is a month to month kind of dividend, the yield at my purchase today would be about 9%. The stock closed at 23.82 Canadian on the Toronto exchange. ERF.UN Stock Quote The close on the NYSE was $22.54: ERF Stock Quote

Morningstar has the best analyst report available to me. It is currently rated average at 3 stars. For me, the success or failure of this kind investment over the next year or two will be dependent on a recovery in natural gas prices. I view that recovery to be primarily dependent on a return to more normalized industrial demand. And colder than normal weather during the winter would have a tendency to cause some spikes, as now. The stock is selling close to its book value. ERF: Key Statistics Both the earnings and the stock price have been depressed due primarily to the low natural gas prices.

This is a link to its last earnings report found at ERF's web site: Q3Report2009-FINAL.pdf

2. Bought 50 of ORHPRA at $25 and Sold 50 PNY at 25.44 (see disclaimer): LB has better things to do than explain the RB's trades. Besides, the LB smells a rat. This exchange of a common stock for an equity preferred stock does not sound like something the RB would do. The LB wondered whether the Old Geezer was cooperating too much with the RB, maybe they planned a merger and to oust the LB and the HK from the HQ, yes, that is what that crafty Old Goat is probably doing now.

The OG said that there is no such conspiracy against the LB. Yes, the OG suggested this trade to the RB to increase the capital position of the Headknocker and to make another charitable donation to our needy Uncle Sam as a Christmas gift from HK.

PNY is a gas utility bought in early November at $22.94 with a dividend slightly over 4%. Bought 100 EMO at $25.28/Bought 50 PNY at $22.94 ORHPRA is a non-cumulative equity preferred issue, with a $25 par value, and a 8.125% coupon: e424b5 It originated from Odyssey Re which has just been acquired by a large company called Fairfax, an insurance company based in Canada: FFH.TO: Summary for FAIRFAX FINL HLDGS Odyssey Re is now listed as one of Fairfax's subsidiaries: Fairfax Financial Holdings Limited Fairfax is the largest property and casualty company in Canada with operations in fifty countries. This is a link to A.M. Best's comment on the acquisition: A.M. Best

According to the quantum site, this equity preferred, like other non-REIT equity preferred stocks, pays qualified dividends. So the RB and OG combine just about doubled HK's qualified dividend and made a $100 plus dollar contribution in HK's name to our destitute Uncle Sam.

RB was wondering why China and India walked out of the climate conference claiming the rich nations needed to do more. I thought they were the rich nations. NYT Before they refer to the U.S. as rich again, maybe they need to subtract our total private and public debt from the asset side of the ledger before making a characterization. It reminds me of that developer who said he was worth 50 million, as he showed an appraisal on all of his properties bought with 60 million of borrowed funds. Yes, there are people who are a little confused, believing debt is an asset.

I previously bought a floating rate equity preferred issue from Odyssey Re, ORHPRB, and it has risen over two bucks since my purchase of 50 shares in October at $20.93. This is the way that I look at it. I own 50 shares of a floating rate equity preferred and 50 shares of a fixed coupon equity preferred from the same issuer. The fixed coupon gives me more yield now, and the floater may do better later on. The floater is one of the unusual ones. There is no guarantee but the float is very high for these kind of securities, paying 3.25% over the 3 month LIBOR rate which is now very low.

All of the trades today were limit orders filled during my absence from HQ. The staff here at HQ is just 24/7 in their efforts to advance the HK's capital base. Watch out Warren, HQ now owns 2 baby Berkshire shares. The fifty to one split of those shares, assuming it takes place, is not meaningful to me. I will buy up to five baby B shares, and I get plenty of action sometimes just from those few shares.

As the last order of business, Headknocker fired the Old Geezer as Guardian for the RB this week and appointed the LB to fill that vital role, laying down the law once again that the HTs were not to make another charitable contributions to Uncle Sam for the remainder of 2009 by selling stocks for short term gains. The HK thundered that the budget deficit will not be balanced on the HK's back, and HK was more than a little peeved at the OG for running up over 10 grand of these short term gains in 2009. And HK did not want to see anymore comments by the RB about buying Canada or Switzerland. Let's just sneak up on them gradually without announcing our true aim, HK whispered.

Most likely, this will be my last post until Wednesday.

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