Thursday, March 11, 2010

Bought 300 of the CEF WIW at $11.94/SUSQ TPs/TAXI/Aegon UBS Upgrade/1976 or 1982

1. TAXI (own): The author of this article published at Seeking Alpha shares my negative takeaway about Medallion's last earnings report. He also points out some factors that could lead to further dividend reductions. I share his criticism of management's disastrous foray into special purpose acquisition corporations. Item # 1 Sold 50 of the 150 TAXI

2. AEGON (own common as a LT/own hybrids): While I do not have access to the report, I noticed that UBS upgraded Aegon to buy from neutral on 3/2: AEG: Analyst Opinion for AEGON N.V. Common Stock There has been several large acquisitions recently in the life insurance industry. MetLife agreed to acquire American Life Insurance Company from AIG for 15.1 billion. Sec Filed Press Release 3/8/2010 Britain's Prudential announced earlier in the month that it would buy AIG's Asia operations for 35.5 billion.

3. Susquehanna (own common as LT): For those interested in Trust Preferred securities, Susquehanna just issued a new one with a 11% coupon with a $1,000 par value. Susquehanna Capital II This one has a 2040 maturity date. The prospectus can be found at Prospectus Supplement- Trust Preferred. For an investor paying par value for that 11% TP, the yield would be significantly better than the vintage TP, SUSPRA, that is currently selling at slightly over its $25 par value with a 9.375% coupon: Final Prospectus Supplement These TPs are rated junk, and I do not currently own any of them.

The government's 5% preferred stock looks good compared to the 11% that SUSQ had to pay on this TP issue. The preferred stock stays at that 5% rate for the first five years, and then the rate increases to 9%. Form 8-K Might as well keep the TARP money for those first five years.

4. Bought 300 Shares of the CEF WIW at $11.94 (See Disclaimer): This purchase is just another reactive response to the Jihad by the Federal Reserve against savers and responsible Americans. And, it is a natural result of what happens when Headknocker turns the controls over the trading desk to the Old Geezer. This CEF invests primarily in inflation protected U.S. treasury bonds, pays a small monthly dividend and yields close to 4% at my cost. What can I say, except that 4% is better than 0%. As of 1/31/2010, 81.24% of its portfolio was in TIPs, 6.84% in "high yield" corporate, 4.23% in non-U.S. TIPs, and the remainder in investment grade bonds (3.18%), mortgage securities (2.01%) and miscellaneous.

From my point of view, this CEF has some minor appeal due to its current discount to net asset value of close to 8%. This is a link to the firm's fact sheet that contains basic information about this CEF: -wiw.pdf This is a link to the last SEC filed shareholder report: I view WIW as potentially a short term holding measured in months not years. WIW is ex dividend today.

In the section on closed end funds, WIW can be found under the category of "Investment Grade Bond Funds". As of 3/9/2010, the NAV was $12.98 and the discount to NAV was 8.01%. The discount expanded to 8.32% as of 3/10.

5. Ex-Dividend Data: An investor can pick up ex dividend dates from a number of sources. One source is the Dividend Calendar. I have not mentioned the one available at the pink sheet exchange which would include those securities listed only on that exchange. Symbol-Name Changes, Splits Mostly, I just track these developments at the WSJ Dividend page at that paper's Market Data Center, which is updated daily.

6. Bank of America Confiscates a Parrot: Personally, I would like to be on the jury hearing the case of Angela Iannelli against Bank of America. A contractor was sent to her house by BAC who allegedly stopped her utility service, poured antifreeze into her toilets and sinks, cut her water lines, and "stole" her parrot. She was not in default on her mortgage. When calling to complain about her rough treatment, BAC representatives allegedly told her that they were "tired" of hearing from her. If she wanted her parrot back, she could go to the contractor who lived 80 miles away and fetch the bird herself. I can almost hear that conversation. WSJ It is an interesting reflection on the WSJ's editorial judgment that this story, while interesting, is the lead story in the paper today.

7. Running Out of Options/Hey Uncle Ben-If I Cry Uncle, Will You Stop Your Jihad Against Savers?: I am running out of stocks that I want to buy. I see virtually no opportunities in exchange traded bonds. When this happens, I naturally gravitate back to buying Lottery Tickets (just to stay out of trouble) and to parking some cash earning nothing now in a few CEFs.

Uncle Ben is wearing me down with his Jihad against responsible Americans who played no role in causing the Near Depression. Next time when the Masters of Disaster (and self-proclaimed financial wizards) blow up the financial system in pursuit of their greed without regard to the consequences of their recklessness, making billions in the process for themselves, it might be less painful just to send us saps, who had nothing to do with any of it except for paying in countless ways the cost of cleaning up the wizards' mess, one bill to clean up the ruins, so that the Masters of Disaster can start earning their billions again as quickly as possible, rather than prolonging our whipping for two or three years. Never before in the history of mankind have so few been paid so much to cause so much damage and for being the biggest doofuses in the known universe and beyond including all conceivable dimensions postulated by string theory.

The Vanguard Prime Money fund has a 7 day yield of .01%. Barron's Taxable Money Market Funds - V On $100,000 that rate on an annualized basis would generate $10 in annual income. I just held my noise yesterday buying those 300 shares of WIW which would generate $144 in annual income at the current 4 cents per month distribution rate.

8. Comparing the Current Bull Move to the One Starting in October 1974: This is a continuation of some earlier posts where I compare the bull move starting in March 2009 with the short term cyclical bull move starting in October 1974, which occurred in a long term secular bear market: More on 1982 or 1974 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? Buy and Hold or Dynamic Asset Allocation/Trading: Long Term Secular Bull and Bear Markets

I thought that it would be helpful to break out some numbers:

May 9, 2009 to January 19, 2010: S & P 500 rises from 676.53 to 1150.23=70%
October 3, 1974 (^GSPC) to May 10, 1976: S & P 500 rises from 62.28 t0 103.1=65.5%

The moves are similar, though the market has risen more quickly and slightly farther on a percentage basis in the current cycle.

Here are some numbers about what happened each year after the S & P 500 hit 103.1 on May 10, 1976:
5/11/1981= 129.71
5/10/1982: 118.38

8/12/1982 (end of long term secular bear market)= 102.42 ^GSPC: Historical Prices for S&P 500 INDEX,RTH

If history repeats itself at least in part, then the current move is at its final stage, and a prolonged period of choppiness at close to the January 2010 top is in store. I postulated in those earlier posts that this choppy period would not last another six years, as was the case after the short cycle bull ran out of steam in 1976, but another two or three. Of course, I may be wrong and I am willing to swing both ways. The other way is the more hopeful alternative future scenario, that is, the move off the March 2009 low is similar to the start of the long term secular bull market that started in 1982 and lasted until 1997.

I thought that I would quote some data from one of those previous posts that shows the relevance of this kind of discussion:

"As I mentioned in several prior posts, the problem with buy and hold is that there have been lengthy periods since 1951 when my average, annualized, inflation adjusted return would have been negative. I will break the periods into what I would characterize as long term bear and bull markets from 1/1/1949 with dividends reinvested:

1/1/1949 to 12/31/1965: 14.4% annualized after inflation
1/1/1966 to 12/31/1981= -1.04% annualized
1/1/1982 to 12/31/1997 (part of those years I would not include): 14% annualized after inflation
1/1/1998 to 12/31/2008: -1.44% annualized

Maybe investors need to focus on the foregoing more. During the long term bear cycles, the returns would be worse for an investor who, for example, was buying stocks in October 2007 at the tail end of a cyclical bull move within the context of a long term secular bear market.

As a reminder, I define a long term secular bear market as consisting of several cyclical bull and bear cycles of relatively short duration, at least one catastrophic phase (losses exceeding 50%), with the end result after fifteen or so years to be a negative inflation adjusted return and/or the nominal average close to the starting point of the period. I would just add around five years to the average duration of a secular bear market for an event like the Great Depression:

1/1/29 to 12/31/1948 + 1.33% S & P after inflation and with reinvestment of dividends.
Jan 1929 DJIA 317.51
Dec 1948 DJIA 177.30

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