1. Bought 100 CEF GDO at 18.6 Yesterday (See Disclaimer): This is a new CEF launched late last year at $20 by Western Asset, part of Legg Mason. /www.sec.gov/ This fund is similar to IGI in that it will terminate on a date certain and distribute the assets to its shareholders. The liquidation date is 12/2/2024. This makes the fund more like an individual bond rather than the typical bond fund which has no maturity date. This can become very relevant in my opinion when and if the bond market enters into a long term secular bear market, similar to the one that started in the late 1940s and ended in the early 1980s.
Unlike an individual bond, most bond funds do not have a maturity date when there is a legal commitment to a sum certain back (i.e. the par value of the bond). If bonds are falling in price over an extended period, which would be the case in a long term secular decline for bonds, the investor in a bond fund may never receive the original principal investment back and could even lose enough to wipe out the value of the interest payments. While GDO does not promise to return the original $20 IPO price, it has a better shot of hitting that bogey with a liquidation date less than 15 years into the future.
This is a link to the sponsor's web page on this CEF: Legg Mason - GDO - Western Asset Global Corporate Defined Opportunity Fund Inc. Like IGI, GDO pays monthly dividends, which is always viewed as a plus, currently at a 13 cent per share rate. This would result on an annualized basis in a 8.39% yield at a total cost of $18.6. The funds announcements for the dividend dates for the months of March, April and May 2010 can be found in this press release: /www.leggmason.com GDO Div.pdf
The fund was selling at a 3.36% discount to its NAV as of the close on 3/10/2010. The current NAV information can be found at the closed end fund page at the WSJ under "World Income". The discount was 3.92% as of 3/11/2010 with a NAV at $19.37. I have never bought one of these CEFs at an IPO price. The proceeds to the fund equaled just $19.06 out of that $20 IPO price: www.sec.gov/
Unlike IGI, this one will invest in foreign bonds including emerging markets. This is a link to the holdings as of 12/31/2009: GDO
This purchase yesterday was a continuation of my response to the Fed's Jihad against savers in the U.S. This is a link to the weekly federal funds rate since 1954: www.federalreserve.gov I am referencing that table just to show the extraordinary nature of the current federal funds rate of 0 to .25%, both in terms of the amount and the time of its duration.
2. Non-Exchange Traded Trust Preferred Stocks: Since the earliest days of this blog, I have discussed exchange traded trust preferred issues, mostly issued by financial institutions. For some TPs, the investor can buy the TP directly, while other TPs are contained as the underlying security in a Trust Certificate. An example of a TP that is part of a TC is MJH whose underlying security is a Bank of America TP maturing in 2027 which I bought during the meltdown at $7.51: www.sec.gov Then there are several TPs issued by Bank of America where the investor can buy the security directly on the stock exchange, and all of those have a $25 par value. Trust Preferred Securities Table - QuantumOnline.com In both of these examples, the security can be purchased easily by the investor on the stock exchange.
I have not discussed TPs that are only available for purchase in the bond market. For those securities, par value is typically $1,000. I can buy those securities but it is difficult. Most of the time, I will enter an order and up pops a red screen saying the broker does not have that bond in its inventory, try another selection. Also, even to place an order, I have to place a bid within a very tight ban of where the bond is trading, otherwise it will not be accepted by the broker. In other words, it is a lot of trouble for me to do it, so I do not really try.
Just to see what would happen, I tried to buy 2 $1,000 TPs issued by First Tennessee Bank (now First Horizon-FHN) that mature in 2027. www.sec.gov/ I needed the Cusip Number which I retrieved from Finra: FINRA - Investor Information - Market Data - Bonds - Bond Detail This particular TP has a coupon of 8.07% and was selling at around a 9% discount to par value. The order was not accepted since the bond was not in inventory.
I thought that this was a helpful discussion of hybrid securities that I found at Western Asset.
3. Synovus (owned-regional bank strategy-category 1): SNV rose 26 cents yesterday, which does not sound like much, but it was close to a 9% gain. I am still not a fan. The bank said yesterday that it expects to return to profitability in 2010. Reuters This is another large regional bank that destroyed twenty years of value creation, with the current price hovering around 1990 levels.Synovus Chart | SNV Synovus diluted its long time shareholders by selling 150 million shares last September at just $4 per share. (see page 48: e10vq). The funds raised by that massive dilution were not used to pay back TARP, as many banks have done. SNV still owes the government $967,870,000, no small sum for a bank struggling to make a profit. These are some of the reasons why I have SNV in category 1 of the Regional Bank Stocks strategy and have only bought an immaterial 50 shares. It was recently made public that SNV is subject to an informal SEC inquiry. Reuters I have noted other problems and issues in other posts. /Synovus Gets Some Attention From Bloomberg/Financial Services Industry-Serially Incompetent & Greedy Bought 50 LT SNV at $3.73 SNV
I would hasten to add that I have already been surprised by the performance of several of the banks placed in Category 1 with SNV. As shown in the REGIONAL BANK STRATEGY Table, two of the largest percentage gains to date have been in WBS and EWBC, both originally purchased as Lottery Tickets and placed in Category 1 of this strategy. This confirms the decision to buy some banks held in disfavor or low esteem by me. SNV certainly falls into that category. Unlike some of the others, however, it has yet to move into the green.
4. Psychology of Some Individual Investors: Floyd Norris had an interesting column about how some individuals deal with being defrauded in his NYT column. He recounts how individuals bought shares in a company called CMKM Diamonds, with assets of $344, who claimed to have valuable mining claims. Trading in the shares of this company reached into the billions per day. As you would expect, the company had nothing other than a publicity machine.
The buyers of that stock, refusing to accept responsibility for their own actions, sued current and former commissioners of the SEC, the Justice Department and the Department of Homeland security for their damages caused by their decision to invest in this fraudulent company, asking for 3.87 trillion dollars in compensatory damages and an unspecified amount of punitive damages. Norris points out that some of the plaintiffs kept buying shares in this company even after the government exposed the fraud. Since Norris had written about this company years ago, several shareholders brought this suit to his attention. NYT When he told one of them that it was unlikely to succeed, another one called him back wanting to know if the government had paid him off to "suppress the news".
I am not a fan of what is called the "American Rule" on the award of attorneys fees. That rule provides that the winner of a lawsuit can not collect its attorneys fees and costs from the losing party except where specific authority to collect attorney's fees is provided by contract or statute. (an alternative would be to allow as a routine matter an award of attorneys fees in a successful action for malicious prosecution filed after the original suit is terminated in favor of the aggrieved party). One way to cut out a lot of frivolous litigation would be modify that rule to allow the recovery of at least 10% of the amount spent by the winning party and possibly more based on a separate determination made by a judge or jury of the losing side's good faith, something far more stricter than what is now called Rule 11.
5. Retail Sales: The Commerce Department reported today that retail sales rose .3% in February, much better than the anticipated decline of .3%: ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES: Latest Release
6. Lehman Brothers: For anyone still under the illusion about the good faith of the Wall Street wizards, this article about the report released by the bankruptcy examiner in the Lehman case may be of some interest. WSJ Disgusting is the only appropriate word for it.
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