Thursday, December 10, 2009

Cramer Likes UBSI/Gannett/Links to Fed Tables: Real & Nominal Rates/Dividends & Interest/The Importance of History in the Investing Process

1. Gannett(GCI) (owned): Gannett is one of the buys that all of the Head Traders, including the RB who will normally take full credit on anything going up, disclaim any knowledge and further deny vigorously any involvement in its purchase. It was claimed in an earlier post that it was one of LB's deep value picks. The RB then made some statement about the LB becoming delusional, seeing value when others saw only value traps, or words to that effect. Gannett? LB says that it was misquoted, and the only one suffering delusions was that megalomaniac RB, so maybe RB bought the Gannett shares. Yes, another day of bickering starts before the HK has an opportunity to drink a cup of java.

The full extent of HK's knowledge about the origins of the GCI purchases, with three small lot purchases, comes from this blog, representing the minutes of the HQ's operation, and those minutes show buys of GCI at between $7.75 and $10.68 with the meager dividend being reinvested to buy additional shares. LATE DAY TRADES: GCI, CBL, FR, SLG, NYT, NWSA OLD GAMER HATCHES A PLAN If memory serves, one of the dividends bought shares at around $3. So maybe somebody, whoever was responsible for making those purchases, could have splurged and bought another 50 shares around then the HK observed. No matter, GCI appears to be recovering some after being written off by virtually everyone as some kind of dinosaur, and is currently trading at near $12. GCI: Summary for GANNETT CO INC Considering its circumstances, Gannett gave a fairly upbeat presentation at a recent conference, saying it was comfortable with the high end estimates for the current quarter, which were between $.48 and .62 cents. The current consensus was about 52 cents for the 4th quarter of 2009: GCI: Analyst Estimates The HK has received USA Today ever since GCI launched that publication.

2. United Bankshares (UBSI)(owned): UBSI was a recent add, and I was impressed with how this bank has navigated the current crisis while maintaining a generous dividend. Bought 50 of UBSI And, it is important to me that UBSI did not take TARP funds. During his Mad Money show last night, Cramer had a favorable comment about UBSI too, noting that it was a "good one" and a "very strong bank" . Seeking Alpha

3. Apollo Investment(AINV) (owned): Some of the shares that were bought at $2.35 were later sold, and 100 shares were kept in a taxable account. Buy 50 AINV at $2.35 in IRA Sold AINV I take a dim view of the Business Development Corporations (BDCs), as expressed frequently in this blog, with one of my first negative discussions contained in a post from last November. Yes, I am Chicken Now, and Proud of IT I currently have small positions in two BDCs, the 100 shares of AINV and 200 shares of PSEC. I have sold out of HTGC. The main problem with this type of corporation is that most of its income has to be paid out to shareholders. This makes the BDC similar to a REIT. While this will result in a higher than normal dividend, it also means the BDC is constantly selling shares. And recently, those shares have been sold at prices below book value. Maybe that could be forgiven if the proceeds could be invested in ways that did not lose money, thus requiring another share issuance. The book values of these BDCs has been declining and hopefully an econmic recovery will start to make their managers look smarter than they appear to be now.

Apollo recently announced another share offering. This time Apollo sold 10 million shares at $9.82, plus another 1.5 for over-allotments. Book value was listed at $10.29 as of 9/30/09 (see page 3: FORM 10-Q) The dividend was cut a few months ago, and is currently at 28 cents per quarter. The yield at the current price of around 9.85 is about 11.41%. I will collect the dividends, possibly sell some shares at a profit, and eventually liquidate the position as I did recently with the BDC Hercules Technology (HTGC): /sold htgc/

4. Don Fuss Interview at Morningstar: This interview may not be viewable by non-subscribers: Fuss I share the view of this veteran bond fund manager that we are near the start of an increasing rate cycle. While I do not have any strong opinion about where the 10 year treasury note will be in four or five years, I would not spend any time arguing with his estimate of a 6.25% yield. I think that he at least has the direction right, and it could be worse. The origin of the problem is the burgeoning debt loads at all levels of government, and the growing need for responsible nations to use their abundance of savings to fund their own growth rather than feed the beast in the U.S.A. This will end up being very bad news, if it comes to pass, for those buyers of bond mutual funds at the tail end of a long term secular bull market in U.S. treasury, investment grade corporate and municipal debt. Risks of Bond Funds For BND: Is it Safe is not the Right Question. Instead Ask What are the Risks & Rewards/Assume Lost of Principal Possible /Bond Mutual Funds vs. Index Funds My belief on this matter has led me to emphasize all kinds of floating rate securities in my bond portfolio, generally classified into three categories: equity preferred floaters, synthetic floaters and floaters tied to the CPI. Floaters: Links in One Post Advantages and Disadvantages of Equity Preferred Floating Rate Securities Synthetic Floaters

5. Links to Fed Tables/Discussion on Real and Nominal Treasury Yields: Occasionally I have an inquiry about data on current real and nominal rates on treasury securities. Buried in these post somewhere, I have previously linked these tables. LINKS TO FED INFORMATION ON REAL AND NOMINAL YIELDS/NEW HOME SALES/ 20 YEAR TIP AUCTION Here are the links and I added links to some other data important data series :

Price Adjusted Major Currencies Dollar Index:
Priced Adjusted Broad Dollar Index:
Federal Funds Rate Since 1954
Inflation Indexed 10 Year:
30 Year Constant Maturity since 1977:
10 Year Constant Maturity since 1962:
3 month T Bill Constant Maturity since 1982:

Current Real Yield: U.S. Treasury - Daily Treasury Yield Curve This series does not include maturities less than 5 years.

Given that CPI has been running positive for months now, those who have been buying T bills yielding close to zero are certainly buying securities with negative real rate of returns, and I would say the same about those who bought that two year note recently. When the CPI data for the next two years is released, and the computation is done, do you really think that a .75% coupon on a two year note will produce a positive real rate of return before taxes?

The treasury does sell TIPs with maturities of five years, but nothing less than five years. The real yield is calculated using the coupon yield of the TIP. That is viewed by many as a surrogate for the real yield component. In a nominal yield non-inflation protected treasury, the nominal yield would include that real yield and an inflation expectation. For example a real yield of 1% on a 10 year TIP and a 3% nominal yield on the same security would indicate the market's expectation for an average inflation rate of 2% over the next 10 years according to many pundits. Personally, I believe at any given point in time the market can be way off in pricing both the nominal and/or the real yield for these longer dated maturities. Time will tell whether the market is currently pricing those yields correctly with a 10 or 20 year TIP. I would doubt it. In effect, the current real and nominal yields represent a snapshot of the collective judgment by fallible human beings about the future. Sometimes, it is obvious that this judgment is wrong, even ridiculous. I made that point late last year with the TIP was being priced as if there would be no inflation at all in the U.S. over a ten year period. Looking at that pricing with the benefit of a year's hindsight, do you think that it was rationale? I discuss this topic at greater length in this post: Advantages and Disadvantages of Treasury Inflation Protected Securities:
I discussed buying the ETF TIP in October 2008 when the break-even was at or near zero: TREASURY INFLATION PROTECTED BONDS (TIP) A related topic, which is always important in the design of an asset allocation, is the use of the TIP as a non-correlated asset: Treasury Inflation Protected Securities as a Non-Correlated Asset

I recently sold my ETF TIP position: Sold All Shares TIP ETF/ When I view the pricing to be more favorable than now, I will use those funds to add to my 10 year TIP position in a ROTH, where I buy those securities directly from the treasury at auction (see, e.g. 10 Year TIP Auction)

6. THE HISTORICAL PERSPECTIVE AS AN INVESTOR: As an aside, I have had a few comments about my use of history in my blog, and frequently I draw upon historical parallels in trying to understand the present better and even to assist me in predicting possible scenarios for the future. I am someone who is prone to draw on historical lessons by nature. It most be part of my nature since I have been interested in history since grade school. When I was in college, I naturally gravitated to taking courses in history, and it was one of my three majors. I ended up with around 60 semester hours and half of those were at the graduate level which I was allowed to take, enough for a Masters degree. I was accepted at Harvard but declined and pursued another line of thinking that has probably assisted me more as an investor. Once you are in a historical frame of reference as an investor, you are less likely to lose your head and make stupid mistakes. Traditional and historical methods of evaluating the worth of companies are not thrown into the trash heap based on some form of mass hysteria and delusion about valuing companies using different metrics. This time is different, a frequently asinine belief. Another mind set for those who learn from history is that the valuation of other asset classes, such as homes, are rooted also in time tested criteria, with one of the most important being the price of the home in relation to disposal income. If incomes are not rising, or barely rising, then it is obvious that home prices accelerating at a 20% compounded rate will end up in a collapse.

Human beings do not change as a collective. They are always susceptible to irrational impulses, as well as incorrect and frequently improvident decision making. That process will repeat itself over and over again, manifesting itself for example in parabolic moves in asset prices, or launching a war based on false information, or trying to justify a war like Vietnam even today on national security grounds. Cycles will repeat themselves, and frequently nothing is learned by past mistakes, or worse. What is learned and believed from a historical event has no relationship to what actually happened! The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology Fail to Remember or Refuse to Learn?/
I am sure that I have forgotten most of what I learned in college some 40 years ago. The importance now is that I do not disregard the lessons of history, and I incorporate a historical analysis into my decisions. This does not of course guarantee an accurate result but it does cut down on the amount of errors particularly of the major kind. I did not lose anything in the deflation of the Nasdaq bubble in 2000-2002, since a historical perspective led me away from buying stocks based on the hopelessly absurd criteria then being used. It would also lead me to being cautious when the first major news started to be released about the subprime debacle, which was in February 2007. And it leads me to look for patterns and cycles in data sets, which happened when I looked at a long term VIX chart for the first time in the summer of 2007.

7. Dividends and Interest: One daily routine is to look at the WSJ. dividend page, which is updated daily during the business week, to gather current information about income producing securities. I am interested in dividend declarations and the stocks going ex dividend the next day, as well as declarations by firms that I do not own. I am always interested in looking at a company raising its dividend that I do not currently own for example. The most central part of my investment strategy is to invest in income producing securities, and to use the cash flow generated by those securities to buy more. As a result I have accumulated so many of these securities over time, never in haste or with a desire to accomplish goals quickly. Income is being paid from those type of securities in virtually every week of the year, with concentrations on the 15th of each month and the last day of each quarter, but many others at other intervals.

I mentioned in a previous post a number of the closed end funds from Nuveen that will go ex tomorrow. (Item # 5 Gold Prices & Quantitative Easing/ISM/Sour Predictions from John Hussman/More On Parallels with the 1930s/) The Blackrock CEFs which I own also go ex dividend including the recently added BTZ. Bought BTZ in Roth Other Blackrock funds owned include BCF and PSY. The Aspen Insurance and my First Industrial preferred stocks goes ex -dividend. Bought 100 GJP at $18.97/Bought 100 BCE at $24.75/Bought 50 AHLPRA at $19.75 The recently added cumulative floating rate preferred from HSBC, HSBPRD, goes ex: Added 50 HBAPRD The CEF OLA goes ex for its quarterly distribution. I have discussed this one some, and I own close to 500 shares. It is a CEF that goes 130 long and 30 short: OLA: CLOSED END INVESTMENT COMPANY The web site address: Overview - Old Mutual/Claymore Long-Short Fund - OLA - Claymore Securities, Inc. NYSE Euronext, a position bought at less than 15, goes ex for its quarterly dividend. As I mentioned in a recent post, if and when NYX reduces that dividend, I am selling my shares. /NYX The recently added small bank, STL, goes ex: /Bought 50 STL at 6.58/Added 50 STLPRA at 8.69 MJH, a TC containing a TP from Bank of America, goes ex for its quarterly payment: buy of 50 mjh at $7.51

In the dividend declarations, I noted the following which are currently owned: IDG, PGN, AMAT, & EHL. I saw one that I do not own that I will look at today.

With the CEFs I also want to know if the dividends are going up or down from the prior declaration, which information can be found at the sponsor's web site. This is a link to the current Blackrock release for December: I think that their equity funds are declared a little later.


  1. Two things that make your blog valuable and interesting (to me):

    1. Your fine-grained knowledge and analysis of historical cycles in markets and politics;

    2. Your insightful use of alter-egos and sub-personalities, and the continual, amusing balancing act between them.

    The new blog picture says it all.

    Many thanks for your efforts!

  2. THANKS Cathie: Sometimes the trading team here at HG hits on a good buy every now and again too.

    I do not expect many bold moves from the Old Geezer at the helm of the trading desk today. The OG tried to make a trade a few moments ago, and the LB noted that it was necessary to turn on the Imac first. Then, the OG said let's buy 50 of MI pursuant to the LB/RB Regional Bank strategy, LB said no, and RB said buy a 1,000. OG saw that the spread was 5.86 Ask & 5.87 bid, and entered an order to buy 50 at the limit of 5.84. You know, to save one dollar, and the order was just filled. The OG looked around for the "others" to give him the high five in triumph of his trading acumen but no one has yet to offer congratulations on a job well done, another dollar save is almost as good as two earned, the OG said in closing.

  3. Speaking of good buys, I noticed a few of your regional bank picks had some spikes recently. This particular post mentioned UBSI which is up around 14% since you bought a couple weeks ago. It's probably decreed in a fiat here on the blog by HK or in the "trading rules", but has HT decided to hold for now or take some profit?

  4. LUTHER: All of the bank stock buys since March are pursuant to a strategy modeled on what worked subsequent to the 1990-1991 near death experience for the banks. The intent is to hold them as a basket, not investing too much in any of them, and hold for five years or more. Occasionally, it will be necessary to sell one when it starts to look like road kill which I did with a small bank in California. I was reading a transcript of its earning call, and the CEO was saying that management had just recognized there was a downturn in the condo market in California. LB said that it knew about that downturn for at least a year before it occurred to this bank CEO, and LB was sitting at a desk in the SUV capital of the world, unable to even see California from his window. That was a sign of something amiss, so I sold, and it later turned out that the bank had not exactly been forthright in taking losses, the management was sacked, and the FDIC later seized it. I sold before all of that happened for a $50 loss.

    So, that is my strategy for all of these regional bank buys that I add to this post as I make them:
    /2009/11/regional-bank-stocksdivorcing-demand.html In short, I am looking for several five baggers over the course of five to fifteen years, and I do not know now which ones will give me that kind of return or whether any will. Maybe one of those that I have placed in Category 1 will surprise me. But several banks produced those kind of returns for purchases made in the 1990-1991 period, and held for 10 years or so. The past is sometimes prologue, history does repeat itself, and this time may or may not be different, or maybe this latest bank debacle is different and the recovery will not be the same, not as robust or taking much longer to happen. So no one knows the future but that is how I am going to play it.

    But I understand why others would clip profits on fast moves in this kind of dicey and uncertain market.

    I would hasten to add for the strategy to work, something like a repeat of the 1992 to 2007 period for the banks will need to happen. UBSI, for example, was at over $35 in 2006, twice its current price.

  5. I would add the following to my last comment. So far, EWBC is up almost 300% and WBS is up over 200% since my purchases. And, I still own those two. I am cognizant that there is a duality of risk over long periods of time, a frequent topic of discussion in this blog. In fact, I believe that a longer holding period can increase risk rather than diminish it. I discuss that issue in the following blogs:

    By holding EWBC longer, say for another five years, I increase my risk of something going terribly wrong and then losing my profit. On the other hand, if I held another five years, maybe it will go from 5 to 35 too. And maybe one of the banks held in category 1 will go from 3 to 30. That is why I would look at this strategy at the group level rather than focusing on individual security gains or losses.

    Still I am mindful of the long term risk of the unexpected happening. So, in five years, I may start to take profits in one or more regional bank names. For example, assume EWBC is at $30 in 2015, I may sell even if it could go higher, just to lock in the profit at some point. But the key to this strategy is to let many of the investments run, and culling only when I view a failure is near at hand.

    I would add that I can afford to patient because I am not risking much capital. The total amount invested so far is not material to me. That is an important psychological factor for the Old Geezer, who has a tendency to hit the sell button during one of his panic attacks.