Friday, December 11, 2009

Bought 50 PVX at 6.4/ Bought 50 PJA at 19.45/Bought 50 MI at 5.84-Speculative Lottery Ticket

Headknocker decreed yesterday, fiat # 1,879,175.5 , that from henceforth, the Head Trader who is responsible for a trade will be identified in the minutes of HQ's operations. HK understands that the HTs will naturally run for cover, start pointing the figure at each other, or blame some third party who can no longer be identified, or even a ghost, W or the Dark Force, when a trade turns south. HK is a benevolent and understanding Dictator and recognizes that all humans tend to deny responsibility for their own actions, at least when things go wrong.
Yes, it is well known that success has many fathers whereas failure is an orphan.

After all, that pervasive personality trait is protected as a Constitutional Right, embodied in the penumbras emanating in the Bill of Rights promulgated by the Founding Fathers. Yes, somewhere in that document it must say, "If you did something, blame anyone or anything other than yourself, for no Citizen of the U.S., or those here illegally, are responsible for their own actions, and no matter, the government will kiss it and make it all better anyhow". For those unfamiliar with the word penumbra as a Constitutional term, maybe the words emanations, echos or vibes would be a better description.

But in the serious business of advancing the Headknocker's capital, each HT will have to accept responsibility for their mistakes. And the HK added, in its most stern voice that causes all HTs to quiver even the OG, the operation here at HQ "Ain't No Democracy". This Gannett trade is just the latest example of all the HTs scurrying for cover. HK understands that there was no clear indication of who was responsible in the minutes, then the trade turned south, losing over 50% of its value, and that is when the bickering started when the HK made an inquiry. OG said, "I only read the papers, that's my only connection "; and then the LB said it was that fool lame brain RB, for the LB could never make an investment that would go down almost 50% before going up. Then when all disclaimed responsibility for what appeared to be a failed investment, none would dare step forward and accept responsibility for all the HTs know that the GL HK is not yet senile.

HK may not recall exactly what happened a year ago, and might not want to recall even if he could, but he does recall the the more recent name calling, insult hurling, and mindless bickering incidents among the HTs. HK does not expect much from the OG, who is barely able to keep his eyes open during trading hours, or the RB, usually unable to form a coherent thought. The LB is supposed to be different, more solid, attune to fine details , linear, and always rational and analytical to a fault. LB needs to cooperate more with the other Head Traders, particularly our current Head, the Old Geezer, whose brain is turning to mush, and who sometimes forgets to turn on the computer before making an online trade.

The RB then interjected while HK was giving instructions to the troops, saying the HK had to know that it was the LB responsible for that GCI selection, just look at all of the numbers crunched in the minutes of those buys, HK knows that RB has never crunched a number.

HK waited patiently for the RB to finish, knowing that what it said made sense, and then declared that it has found a long lost Amendment in the Bill of Rights, labelled Amendment 1.5, that the ones responsible for the codification of that fine document negligently neglected to include it between #1 and #2. Amendment #1.5 says:

1.5 Congress, and all persons residing in the U.S., shall be free from responsibility.

For future reference, HK will just refer to this Amendment involving discussions about this well known constitutional right. HK sent an email to the publisher of an online edition of the Constitution instructing them to insert 1.5 before # 2 which reads as follow:

" A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed. " The United States Constitution - The U.S. Constitution Online - Justices Roberts and Alito, being conservative strict constructionists, know exactly what that sentence meant, without regard to the theology of the TBs.

1. Bought 50 shares of Marshall & Ilsley Yesterday (MI)(Lottery Ticket-Category 1 Regional Banks)(see Disclaimer): Category 1 is for LOTTERY TICKET purchases pursuant to the Regional Bank Stocks' stratagem, and that category includes those regional banks that LB deems to be unworthy of an investment larger than $300. Generally, this classification would indicate a total lack of confidence in the management, but a recognition that an improving economy may make the bank start to look better (not due to the actions of management but more analogous to that blind squirrel stepping on a acorn)

The trade was described in a comment to a post yesterday. To summarize, after the OG turned on the Imac, he said let's buy some MI under the RB/LB regional bank strategy. LB said forget about that bank, don't buy a share, and the RB chimed in, saying "Buy a 1000". The OG saw the bid/ask was 5.86/5.87 and entered a limit order at $5.84 which was later filled. The OG turned around expecting high fives for its trading acumen, after he saved a dollar, and a dollar saved is almost like $2 earned, and no one returned the high five. The HK commented later that the stock thereafter fell to 5.71.

The LB will just explain the reasons for its no recommendation.

MI was a successful regional bank operating primarily in Wisconsin and adjoining areas. The bank management decided that the midwest was not enticing enough, got the big head, and decided to plunge into the Arizona and Florida real estate market to make fortunes for the shareholders? As we know now, that was not exactly the best idea that bankers had, and maybe Cramer needs to place more of our financial wizards into the same category as their European comrades who were the subjects of such faint praise in a recent program. Back in October, LB noted that about 50% of this bank's charge-offs, cumulatively at 2.8 billion, were in construction and development loans, with a good chunk of that originating in Arizona, as part of the disastrous foray into that bubble real estate market. The bank lost 223.4 million in the 3rd quarter or 68 cents per share. micorp10q_09-2009.htmTo compound the many failures of management, MI recently diluted the heck out of its shareholders by selling a ton of common stock at the currently depressed stock price of 5.75: h 156.4 million shares were sold by MI at $5.75. Marshall & Ilsley Book value is listed at $17.35 at MI: Key Statistics. This is the price prevalent in MI stock during the last period when banks blew themselves up, the infamous 1990-1991 period: M&I Share Price Chart So, what did the highly compensated wizards accomplish in 20 years exactly, what did they build precisely?

I would not expect MI to repay TARP funds anytime soon. Letter Agreement A schedule of that agreement puts the amount received at 1.715 billion. The VL timeliness rank is 5, the lowest.

LB concluded by predicting that MI would be an unlikely candidate for a double in five years. OG replied that MI was trying to get back to its roots, which is always a good thing, and the economy was starting to improve and loan write-offs may have already peaked. OG noted that nonperforming loans declined 10% from the second quarter. S & P has it rated 4 stars, and there is always hope.

The MI purchase, at the maximum limit of $300 for a LT, caused much dissension in the ranks yesterday. LB was saying near the end that the OG must have still been groggy after waking up from his morning nap. Perhaps, the HK should consider applying electric shocks to the OG to help him perform the task at hand.

2. Bought 50 of the TC PJA at $19.45 Yesterday (see Disclaimer): This one had a tight spread for a lightly traded TC. At the time the order was placed, the bid was $19.41 and the ask was at $19.45 so OG entered a market order which was filled at $19.45. LB said "don't buy any" and RB said "buy a 1000" . OG said in response that the underlying bond is an issue from Qwest Capital Funding (formerly known as U.S. West Capital Funding), a wholly owned subsidiary of Qwest Corporation, a large regional phone company with a lot of hard assets. Qwest provides telecommunications services in 14 midwestern and western states, including the metropolitan areas in Denver, Portland and Seattle. Qwest had some positive news a few days ago about its cash flow projection for 2010.Reuters Cramer said recently that he had even started to warm up on Qwest stock. While the bond is rated junk, the yield at HK's cost is over 10% (10.28% at a total cost of $19.45), which looks good in the current zero short rate environment. Besides, the LB has already picked over virtually every exchange traded bond worth buying, leaving scraps for the OG, and there was little left to buy at reasonable prices, especially given the projections being made by the LB, as Chief of All Things Important Requiring Thought, about the probable course of interest rates over the next decade.

The coupon on the TC is 8% with a maturity in 2031. PJA had the best yield yesterday compared to PKH, another TC with the same bond which was yielding around 10.21%. PKH Stock Quote That one has a 7.75% coupon like the underlying security. Another one, KCW, was priced at around $20.4 yesterday to yield, at 9.20%, about one percent less than PKH or PJA: KCW Stock Quote - Corts Tr Us West Communicatn CORTS 7.5% OG almost bought that one, since it was issued by U.S. West Communications, acquired by Qwest in 2000, and would be viewed as some as a better credit. (prospectus link: That set off a howl by the RB, calling the Old Geezer a stick in the mud, way too cautious by a factor of at least a zillion to one, at the minimum, and RB said to go for extra 1% if the OG had to buy this boring security. So after a series of compromises, it was decided to risk less than a 1 thousand on the higher yielding, and possibly less secure, PJA. The HK just said that the OG should never try to compromise with the RB, just listen to it.

(Qwest Corporation is a subsidiary of Qwest Services Corporation, and its consolidated subsidiaries, which is in turn a subsidiary of Qwest International Services Inc, the ultimate parent company of Qwest Corporation. The history of Qwest can be found in Wikipedia. It is my current understanding that Qwest Corporation is the entity formerly known as U S West Communications, / )

This is a link to the TC prospectus: Interest is paid in February and August. Par value is $25. The maturity date is 2/15/2031. The underlying security has a lower coupon than the TC at 7.75%. The purchase yesterday was made at a 22% discount to par value.

This is a link to the prospectus for the underlying security: Qwest guarantees the debt of Qwest Capital Funding.(so this is more indirect than a bond issued by U.S. West)

The links to the Finra data on the trades for the underlying bonds in Trust Certificates is accessible at this Gateway Post: LINKS TO FINRA INFORMATION ON UNDERLYING BONDS IN TRUST CERTIFICATES This is a link to the Finra data on the underlying bond in this TC: FINRA - Investor Information - Market Data - Bonds - Bond Detail The underlying bond is lightly traded. For anyone interested, and are new to using the quantumonline site, there is a general description of the bond which can be assessed by clicking the symbol, PJA, on this page: Third Party Trust Preferred Securities Table - which takes you to this page: PJA Search Results -

The LB added that there are many reasons why it did not buy one of these TCs when it was the Head Trader. Qwest does not own a cellular network, and is instead merely reseller of wireless services from Verizon. It is also a reseller of TV services from Direct TV, which places it behind the competitive curve in that sector too. Qwest is therefore far more dependent than AT & T and Verizon on the land line business. For good measure, the LB emphasized that Qwest has lost lost a third of its residential customers over the past five years. OG replied that Qwest is profitable with net property, plant and equipment of 10.804 billion, about 3 billion higher than long term borrowings of 7.845 billion : LB said that the OG, possibly being in early stages of senility, forgot to add the long term pension expenses and other post-retirement benefits. And for the coup de grĂ¢ce, the LB pointed out that this security was a long term bond, and better results for 2010 is not the relevant consideration. Instead, the land line business over the long term is analogous to the newspaper business, a perpetual state of decline, thus undermining the security of a long term bond maturing in over 20 years. Do you expect the land line business to be improving in the years to come, OG? And, the OG said there is always hope, LB is being too pessimistic, as usual, and LB said it was a realist who saw the world as it is, in a totally logical and rational manner devoid of ideological prisms.

3. Added 50 PVX at 6.4 Yesterday (see Disclaimer): Provident Energy (PVX) is a Canadian energy trust. The last buy was at 5.39 in October 2008: INZ AND PVX I noted in that post from October that PVX was then paying 12 cents in monthly dividend payments. That number has been slashed to 6 cents. PVX Stock Quote (see last dividend declaration for the November payment: Provident) This is due mostly to the fall in natural gas prices. Over the past year or so, PVX has been selling gas and oil assets and increasing its concentration on midstream . Last year, it sold all of its U.S. oil and gas production, and has been conducting smaller sales this year such as the recently completed sale of some heavy oil assets for 85 million. Sale of Lloydminster Heavy Oil Assets It also recently sold some oil and gas production assets in Saskatchewan for 226 million. PVX added one million barrels of NGL (natural gas liquids) storage capacity, bringing its total to 6 million barrels. It also increased its ownership interest in the Sarnia fractionation facilities operated by BP. (page 2 pdf) I view PVX's movement into the Midstream segment as positive long term, as being less cyclical than being dependent on natural gas prices. The midstream businesses are described at Provident's web site. The Morningstar report on PVX is the best one available to me.

The current dividend yield is about 11.25% at a $6.4 total cost. A Canadian dividend tax of 15% is withheld, which is why I hold these shares in a taxable account. A foreign tax credit would not be available if PVX was held in a retirement account. This is a Canadian energy trust that currently does not have to pay federal income taxes to Canada, and this will change in 2011. This will likely result in further dividend cuts by the Canadian trusts, but the degree can not be determined or even estimated by me now. PVX may not be as susceptible to further cuts as some of the others due its growing reliance on midstream businesses. And, other unknown variables would include the level of oil and gas prices, and PVX still has significant energy production. I discuss the changes in the tax law in the following post: Canadian Energy Trusts Add of PWE Last Week

I now have a tad over 150 shares of PVX, not a significant position, and a month ago I changed my distribution option to reinvestment in additional shares. This buy had no dissention except the RB did say "Buy a 1000" and then RB added "it will take a very long time for the HK to buy Canada in 50 share dribbles"

Price to sales is .92; price to book is around 1.24: PVX: Key Statistics

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