Thursday, January 14, 2010

Sold All PGN/Bought 100 WASH at $15.26/Sold 100 of 200 PKK/JBK Interest Payment

1. Governor Crist and Florida Utilities: Govenor Crist is in a tight race for the republican nomination for the Senate seat being vacated by Senator Martinez. NYTimes Recently, I read that he had politicized the rate making function of Florida's Public Service Commission by sacking some well regarded and knowledgeable commissioners and replaced them with individuals whose main qualification was opposition to retail rate increases. Seeking Alpha Some of the details are provided in this story form the Two of the new commissioners were looking for jobs a few months ago, and have no prior experience in the arcane rules of utility ratemaking. One was a journalist and the other was a former finance director of the Escambia County sheriff's office whose occupation was a co-owner of a bar before being elevated to a PSC commissioner. This is what I would call the Hugo Chavez approach to regulation. It should come as no surprise in this type of regulatory environment that the new Commission just denied a rate increase to Progress Energy. Tampa Bay Business Journal: I owned shares in Progress Energy (PGN) prior to yesterday, which has operations in Florida. The recent weakness in PGN's share price is probably connected with the politicization of rate making in Florida. Fitch recently put FPL, another Florida Utility, on negative credit watch based on the PSC's response to PGN's request for rate relief. South Florida Business Journal: The Fitch analysis correctly points out that the PSC is no longer supportive of sound utilities with strong credit ratings.

2. HEADKNOCKER is Not a Hugo Chavez Fan/Sold PGN at $38.62 (See Disclaimer): Ultimately, the kind of populism advocated by a Chavez lite brand of populism causes considerable harm. And, politics and good business practices are like oil and water.

Consequently, the HK is not likely to view Hugo as a model for responsible government. HK therefore ordered the sell yesterday of the 80 shares of PGN at a small profit on the shares plus a few dividends. The LB just said that it had no input into that decision, which seems to it to have been made in haste. And Old Geezer added in an inaudible voice that maybe the HK was being a little harsh on Governor Charlie, comparing his new found populism to the Hugo's brand, and besides Charlie had a better tan. The LB added that waiting a mere hour on that order would have save $50 as PGN rose in value later in the day.

The 80 PGN shares were bought in two lot at $38.05 and at $35.77. (Item # 1 Bought 50 Shares of FPCPRA & PGN; Bought ABT and PGN) I do not yet view the situation as serious enough to sell the TP issued by Florida Progress, FPCPRA. Also, PGN has significant utility operations in North Carolina (and some in S.C.), the service territories of the former Carolina Power & Light. I will not be buying another utility operating in Florida anytime soon either.

The TP (FPCPRA) is one of those bonds that I have identified for sale when I become more concerned than now about a rise in inflation and interest rates, and those events will unquestionably impact the value of long term bonds. Item # 5 What Do I Mean by Preservation Of Capital

3. Bought 100 Washington Trust Bancorp at $15.26 (WASH) (Regional Bank Strategy)(See Disclaimer)

Washington Trust is a small regional bank with its headquarters in Westerly, Rhode Island. Being from the SUV Capital I had never heard of Westerly or this bank until a couple of days ago. It is one old bank, founded in 1800, with 17 offices in R.I., Connecticut and Massachusetts.

I am placing the shares in Category 2 of my Regional Bank Stocks' stratagem.

The bank refused to apply for TARP funds (exhibit 99.) which is a plus to the Old Geezer who does not like commercial enterprises who need and/or receive government bailouts.

Instead the bank raised about 46.8 million by selling shares to institutional investors at $20 back in October 2008: exhibit 99.

In the last quarter, the bank was profitable earning 31 cents per diluted share, though this was down from 44 cents in the year ago quarter. form10-q The allowance for loan losses as of 9/30/09 was 1.39% of total loans.

This is some of the bank's key ratios:
Dollars in thousands)
For Capital Adequacy Purposes
To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2009:
Total Capital (to Risk-Weighted Assets):
$242,346 12.31% $157,506 8.00% $196,882 10.00%
$240,761 12.24% $157,367 8.00% $196,709 10.00%
Tier 1 Capital (to Risk-Weighted Assets):
$217,710 11.06% $78,753 4.00% $118,129 6.00%
$216,146 10.99% $78,684 4.00% $118,026 6.00%
Tier 1 Capital (to Average Assets): (1)
$217,710 7.68% $113,461 4.00% $141,826 5.00%
$216,146 7.63% $113,356 4.00% $141,695 5.00%
PAGE 16: form10-q

Price to book is listed at .97 at YF: WASH: Key Statistics for Washington Trust Bancorp, Inc.

The consensus estimate for 2009 is for $1.02 and then a 1.24 for 2010. WASH: Analyst Estimates for Washington Trust Bancorp, Inc.

Before the recession, the stock was moving mostly in a $25 to $30 channel between July 2003 to December 2007, and is currently trading below its 200 day moving average: Washington Trust Bancorp, Inc. Share Price Chart

WASH is my replacement bank for CVB Financial. /Sold 50 CVBF at 9.65

4. SmartMoney Story "The Big Bond Bubble": I received my SmartMoney magazine yesterday, and was immediately drawn to the reference on the cover to a story about bonds. I am very concerned that the long term bull market in bonds may be nearing an end.

5. Sold 100 of the 200 PKK at $22.01 (see Disclaimer): The Old Geezer could not help himself. This TC, with a senior bond from Liberty Media, has rallied too much, and it is rated junk. It just went ex interest for its six month payment and promptly thereafter gained more in price than the value of the interest payment. PKK: Historical Prices for ML DEP 8.50 PFDPLUS - Yahoo! Finance This one was trading in the $8 to $ 9 range in early March 2009. I am comfortable now in holding the remaining 100 shares.

6. JBK Interest Payment (owned): The WSJ dividend page for today has the interest payment of JBK as $.7931 with an ex date of 2/10/2010 and a payable date on 2/16/2010. For those interested in this security, it started out as a synthetic floater, and became a fixed coupon security after Lehman's bankruptcy. The underlying security is a TP from Goldman Sachs maturing in 2034. The float was created by virtue of a swap agreement with Lehman. Once Lehman went bankrupt, the swap agreement terminated and the owners of this TC started to receive the fixed coupon rate of the underlying bond. There was some money withheld by the Trustee for litigation expenses in connection with the Lehman bankruptcy in the February 2009 payment I bought this security after that time, and there was nothing withheld in the August payment which was $.7931. per share (trustee's report for that payment filed with the SEC: ) This will be confusing to those who are not involved with this security, but I explained the issues in several prior posts: Item # 4 JBK ; new information about jbk ; bought 100 jbk at $16.15 ; Bought 50 of the TC JBK ; More on JBK And those posts would have to be read by anyone new to this security to understand what I am talking about here.

An investor knows that the semi annual penny rate of $.7931 reflects the payment of the fixed coupon GS bond that is the underlying security in JBK. The underlying security in JBK has a 6.345% coupon The annual payment by this security per TC would be .06345% x. $25=$1.5825 per year or $.79315 for 6 months. This penny rate tells you that JBK is no longer a floating rate synthetic security. If it was still a floating rate security, which it is not, the penny rate would be calculated using the greater of 3.5% or .75% above 3 month Libor. The guarantee of 3.5% would provide the greater sum, and the penny rate at .035% for a semi-annual period would be $.4375. So the fact that JBK has been paying $.7931 indicates that the security is no longer a synthetic floating rate security.

7. VXD: At around 2 o'clock yesterday afternoon, the DJIA volatility index, VXD, dipped to 15 before closing at 16.14. VXD Index Quote - Cboe Djia Volatility Index Index Quote While I view continuous movement below 20 to be important in my VIX Asset Allocation Model, movement below 15 would be another positive development based on prior historical patterns marking the emergence of a longer term bull market in stocks.