Wednesday, December 30, 2009

Bought 100 MCQPF at $5.84/Case Shiller Oct/Bought 100 OPXT at 1.89/Bought 100 MKZ at 9.91 in the Roth IRA/Bought Canadian $/Roger Gibson's Book

1. Case Shiller Index (.standard): The Case Shiller index of home prices in 20 metropolitan areas was unchanged in October compared to September. The consensus estimate was for a .2% increase. The September number, however, was revised up to a .4% gain from the previously released .03%.

The 20 city index is down 32.6% between its peak in the second quarter of 2006 to the current reading in October 2009. Only 7 of the 20 cities showed rising prices in October compared to September 2009. Los Vegas continues its dismal performance, with 38 months of decline with a -55.4% peak -to-trough. Vegas prices are around where there were in January 2000, after gaining 135% from January 2000 to their peak in August 2006. San Francisco had the largest percentage gain in October 2009 at 1.2%. San Diego gained .4%. Los Angeles improved by .3%. Just based on the readings in this index, the large California metropolitan areas are showing the most consistent upward movement in prices after reaching their trough levels earlier in the year.

Karl Case, the co-developer of this index, expressed some cautionary words in a story in today's NYT.

2. Bought 100 Macquarie Power & Infrastructure Income Fund (MCQPF) at $5.84 Yesterday (RB's Combo Lottery Ticket) & Bought $3,100 Canadian Dollars with U.S. Dollars (see Disclaimer)

This is a Canadian company that trades in Toronto under the symbol MPT-UN.TO and on the pink sheet exchange in the U.S. I am running out of Canadian dollars and the price was close to equivalent on the pink sheet exchange, where my brokerage commission is about 1/2 has much. I did receive a bad price for a market order, filled at about three cents above the highest ask price according to the quotes at the pink sheet exchange. This one is being classified as a Lottery Ticket under the special dispensation granted by the Great Leader to RB yesterday, allowing for the combination of 2 LT maximum limits of $300 into one purchase. RB now has 1 LT left to purchase before Thursday, having bought 4 yesterday.

HK did buy another 3,100 or so Canadian dollars yesterday to help the RB on its quest to buy Canada, all of it, though HK suspects that the Canadians are not worried-not yet at least. HK reminded the RB of the importance to set realistic goals, so possibly the RB might consider dropping its quest to acquire both Canada and Switzerland, at least at the same time. The Old Geezer, having returned from the Old Folks home claiming to be rehabilitated and ready to assume his role as the Head Trader, opined that this desire to acquire cold places with snow sends shivers down his spine. After all, the OG views a snow storm as anything over a 1/4" and firmly believes that a new ice age must have started whenever temperatures stay below freezing for two consecutive days.

Macquarie Power & Infrastruture (MPT) has investments primarily in power generation facilities, including wind, gas, hydro (water) and biomas, representing approximately 350 MW (megawatts) of installed capacity. The location of these facilities are shown on this map: Macquarie Power & Infrastructure Income Fund - MPT's Portolio MPT owns four hydroelectric plants with a combined size of just 36 MW, and two of the 4 are just 3 MW each. Generally, I would say 1 MW could provide power to anywhere from 500 to 1,000 homes. So, those are small units hydro units, but at least it is clean energy. The largest unit is a gas fired plant with a 156 MW. The wind farm appears to be large for these kind of operations at 99 MW. The biomass plant is small at 28 MW. MPT has an investment in another plant rated at 31 MW. With a recent convertible offering, MPT has no refinancing needs for 2010: macquarie.comDecember2009.pdf The power generated by those facilities is sold under long term power contracts. Those agreements have a weighted average remaining term of about 10 years: Page 2 /factsheet.pdf More about MPT can be gleamed by reading the 2008 annual report: 2008.pdf

MPT recently announced its intent to convert into a dividend paying Canadian corporation prior to 1/1/2011. The fund announced also a reduced monthly dividend of .055 or .66 annually. That new and lowered rate will still generate a 10%+ yield. The new payout is estimated to cover about 70 to 75% of the distributable cash: macquarie attachments Revenue for the third quarter rose slightly to 32.7 million from 32.4 million in the year ago quarter, and distributable cash was .166 per unit.

MPT shares also trade on the Pink Sheet exchange in the U.S.: Macquarie Power & Infrastructure Income Fund - MCQPF The yield shown on that page will be lower starting next year due to the recent distribution cut. MPT was ex dividend for its monthly distribution yesterday.

There are also a few other small Canadian companies that have similar operations to MPT. One is Boralex Power Income Fund, (BPT-UN.TO). A larger Canadian firm in the independent power sector is Atlantic Power (ATP.TO) (pink sheets: ATLIF). Atlantic was discussed in this recent article from Seeking Alpha. Atlantic trades on the Grey Market in the U.S. where there is negligible transparency. I will sometimes enter limit orders in that market, but I am always uncomfortable doing it. No bid or ask prices are shown and only the last trade is given on a delayed basis.

3. Viterra (owned): The CEO of this Canadian company reaffirmed that its newly acquired Australian operations will show better earnings in 2010 due to the larger than average crop:Viterra - Investors - Newsroom Reuters

4. Bought 100 OPNEXT (OPXT) at $1.89 Yesterday- Speculative Lottery Ticket (see disclaimer): This is the 3rd out of five LT purchases granted to the RB as its reward for being successful with the vision thing in 2009. LB just said that even a Lame Brain can be right just like that broken clock giving the correct time twice a day. A LT is by definition a speculation, and a speculative LT is speculation on top of a speculation. LB does not know exactly the meaning of a speculative speculation, but the phrase does generally describe the essence of RB's approach to investing, with possibly one more "speculative" added, as in RB prefers speculative, speculative speculations, which is just incomprehensible to the LB's way of thinking and it just wants the minutes of HQ's trading operation to reflect that Opnext was the No Wit's pick.

It is difficult to say anything positive by Opnext. One positive is that HK realized a nice percentage gain earlier in the year when the OG guided by the RB bought 50 shares at $1.91 in July and sold those shares for $3.1 in September: Sold LT Opnex RB was so impressed by that move, it doubled down and bought a 100 shares at $1.89, just wild and crazy is the only way to describe it. This company was discussed in July by the LB: Bought 50 OPXT as Lottery Ticket, and I do not want to repeat any of that discussion. Needless to say, LB relunctantly researched it, against its will and under protest. RB has never researched anything ever before making a decision. Don't sweat the details is its motto and it is just embarrassing beyond words to the LB that both the Old Geezer and its Lame Brain ally RB call Opnext's products thingamajigs.

But LB has to be responsible, no matter how much of HK's capital is thrown at these LTs. This is how LB described its burden in that last post when the RB bought this disaster: "The RB wants to have some fun, rational is not exactly an appropriate description for it, and LB feels a need to spend some time researching these lottery ticket finds of RB before allowing the use of immaterial amounts of Headknockers cash which is treated by LB as a scarce resource, no matter the amount available to invest at any given point in time."

Why use the term disaster to describe Opnext? Well look at the long term chart that starts in February 2007 at close to a $18 price: Opnext, Inc. Share Price Chart | OPXT Fortunately, we missed the first $16 of OPXT's move.

At least Opnext still has cash on the balance sheet, ending the last quarter with 155 million in cash with no long term debt. There is a 18.424 million long term capital lease obligation: Form 10-Q The market cap of the company is currently around 168 million at the $1.89 price, based on 88.789 million shares outstanding as of 9/30/09. So, that is sort of positive in that the company is selling at a price close to its cash. But, that is before one considers that Opnext is losing money. OPXT suffered a 17.913 million loss during the 3rd quarter of 2009 on revenues of 80.975 million. This is a link to the conference call for that quarter: Seeking Alpha

Another positive is the low price to sales at .53 and price to book at .58 according to YF: OPXT: Key Statistics for Opnext One of the few firms with a positive rating on Opnext, Jeffries, downgraded it from buy to neutral after the disappointing 3rd quarter report and a lower guidance for the 4th quarter. So, the RB, being the RB, likes all of the negativity and low expectations, sometimes that can be fertile ground for a pop if the firm has some positive news, which would be earnings of 1 cent for this company. The current estimates forecast losses in FY 2011: OPXT: Analyst Estimates for Opnext But, as the RB says there is always hope. Seeking Alpha

Opnext completed the acquisition of StrataLight on January 9, 2009, for 30 million in cash and 26.545 million shares of Opnext stock. exv99w1 Opnext closed on 1/9/2009 at $2.35: OPXT: Historical Prices for Opnext This acquisition added 40 Gbps subsystems: Opnext: OTS 4000

But LB does not want to sound overly negative. The product line appears to be interesting. For example, OPXT makes optical modules and components that transmit and receive data transmissions via light.

S & P still has it rated 3 stars, with a current target price of $2.5. The S & P 500 sees demand stabilizing but expects deployment of the 40G to lag any telecom spending rebound. Morningstar has it rated 3 stars also, but is overall more pessimistic, tagging $1.5 as fair value.

5. Bought 100 MKZ at $9.91 in the Roth IRA Yesterday (see Disclaimer): A reader brought this one to my attention shortly before the close. It is a senior note from Citigroup, which of course causes some trepidation. It matures on 7/11/2014 at $10. So, I do not expect a gain on the shares if held to maturity. There is a guarantee of 3% interest. There could be more depending on the amount of increase in the Dow Jones -AIG Commodity Index (This index was later rebranded, a name change, to the Dow Jones-UBS Commodity Index.)

A general summary of the terms of this security can be found at the quantum site, just enter the ticker symbol. I would hope that all investors avoid crutches, such as only reading that summary, and at least review the prospectus before even considering a purchase. The coupon is payable annually with the first one due on 6/30/2010. The interest payable for that first year period will be based on the percentage increase in that commodity index on the annual closing date, with the starting value for that first period being 123.338. There is a maximum interest payment per annual period of 31% of the $10 par value. For index data, I would go to the WSJ Market Data center for commodities, and here is a link to the current price information on this index: MDC - Java Chart - It closed yesterday at 139.64. The 42 week high is 141.19.

Now, that sounds good until I considered a couple of potential downsides, other the the name of the notes issuer, after reading the prospectus:Pricing Supplement The percentage up to 31% is paid provided "the closing value of the underlying index on every index business day during the coupon period is less than or equal to 131% of the closing value of the underlying index on the first index business day of the coupon period (which we refer to as the starting value)" Okay, that would be a bummer to have one day about the maximum level since the interest payment would then revert to the guarantee. The starting value for the next annual period is the closing value on the previous period. So even if you had say a 30% increase in the first year in the index, with no days over the maximum, you would be starting the next year with a high number which would lessen the odds of a repeat performance. The worse case scenario on this particular issue is one day over that 31% and a high percentage close, say 30% over the starting value. You would get 3%, reverting back to the guarantee, and you would be starting the next period with a high number.

I did a quick calculation of 131% of the initial period's starting value of 123.338 and came up with 161.56. So the index is up from the starting value with yesterday's close at 139.64 but it is not yet so close to 161.56 as to cause me to be concerned about a closing day over 161.56 before 6/23/2010 (the closing date) (payment date is 6/30/2010). But you never know, and it would be a bummer to have one. I calculated the percentage increase as of yesterday's close from the starting value as 13.22% so far.

There is a futures contract traded for this index. The March 2010 contract closed at 140.1: Dow Jones-UBS Commodity Index

There are a large number of these types of securities, grouped together at the quantum site under "Special Investment Products" You have to remember what you are buying, and I am sure that the investors who did not do their homework may have had a rude awakening when Lehman went bankrupt. Another product that is in fact a senior notes is the ETN, and I own a few of those cognizant of the risks.

I do not trade much in the special investment products area for a couple of reasons. Generally, there is low trading volume and large bid/ask spreads. Yesterday, there was some shares available to purchase with a relatively narrow spread. I doubt that I would buy one of these products at a premium to par value. Another issue is that I believe many of them are either mispriced to the upside or priced at a level where I am unwilling to take the risk.

I would add that I would view MKZ as a barely successful investment with just one payday of over 20%, even with four paydays of just 3%, provided of course Citigroup pays off the note in 2014. The note matures in a tad over 4 1/2 years, and 32% in interest payments over that period would be worth almost 7% annualized. Now, if I had one year at 30%, one at 15%, and three at 3%, the yield would increase to around 12% annualized.


6. Roger Gibson's Book: While at the Old Folks home, OG has been making progress on its reading assignments. Admittedly, the OG is a little slow. But, we are pleased to report that OG has now read the first 11 pages of Roger Gibson's book "Asset Allocation: Balancing Financial Risk". OG would note first that it is apparent that Gibson is a believer in the efficient market thesis, viewed as hokum and snake oil here at HQ. Sure, the market is efficient over a long period of time, eventually the S & P 500 or the Wilshire 5000 will more or less reflect the earnings, growth and success of American companies. Most of the time the market is patently and obviously inefficient for particular securities and sectors, pricing them as either too high or too low based on the irrational actions of humans as a collective including the so called professionals hired by mutual funds to manage money.

OG, being a part time philosopher and theologian, was more interested in this quote from the Talmud that Gibson provided at page 1, before the OG started to get weary from all of that reading: "Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve" Gibson then interprets that ancient advice on asset allocation as calling for 1/3 in common stock ("in business"), 1/3 in bonds ("in reserve"), and 1/3 in REITs ("in land"). Okay, maybe he is a little liberal with the interpretation of "in reserve". I would agree with this author that reserves mean safe cash: The Talmud Asset Allocation Model Portfolio, and I would add the equity in one's home to the land part. Overall I would not quibble too much with Gibson's 21st Century application of the asset allocation advice given by that unknown author many centuries ago. Gibson then points out that this type of allocation would have resulted in a 5% gain during the bear market between 3/24/2000 to 10/9/2002 with further refinement by him. In doing that calculation, Gibson narrowed the stock allocation to large U.S. companies, which lost 47% during that period and HIGH QUALITY, INTERMEDIATE TERM U.S. bonds which gained 34%. REITS gained 34%. Asset allocation worked during that bear market, but this static approached would not have faired so well in the 10/2007 to March 2009 period, when both REITS and stocks were crushed.

RB bought his fourth LT near the close of trading yesterday, which will be discussed in Thursday's post. I am running behind in discussing what I am doing. OG is studying today some quotes from the Talmud, thinking that there may be something more to learn about asset allocation from those ancient texts: The Talmud quotes


  1. Here's an asset allocation thought for the OG:

    "Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal:
    But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal:
    For where your treasure is, there will your heart be also."
    Matthew 6:19

    Best wishes for a Happy New Year!

  2. Cathie: Maybe the Talmud is more helpful on asset allocation issues than Matthew 6:19, which is possibly a passage that needs to be read more by the proponents of the "prosperity gospel"
    /2009/08/investments-for-unexpected-inflation.html I referenced Matthew 6 in the following way in that post: "While I was reading the NYT article about the "Prosperity Gospel", run by Kenneth and Gloria Copeland, I could not help but think of a famous saying from W.C. Fields. I tried practicing, as I read this story, my spiel of the prosperity gospel, "give me money and Jesus will bless you". I wondered to myself how that kind of sales pitch would actually produce the desired results. Then, I wondered why Jesus would want me to become rich, maybe I need to read the Sermon on the Mount Again, particularly Matthew 6 Matt 6; Discourse on ostentation - Wikipedia.

    While the OG has some leanings in the direction of your quote from Matthew, those sentiments are viewed as a form of sacrilege by our Great Leader, Headknocker. HK does not have much of a desire to give his money away and to start sleeping under the bridges over the Cumberland River in downtown Nashville. It is cold out there today.

  3. But:

    "Consider the lilies..."

    Just kidding. I agree with HK. It's cold out there.

    Trust the Lord, but tie your camel.