Case Shiller/Canadian Trusts Converting to Regular Corporations/Sold 50 HTGC at 10.74/AT & T & the IPhone/

1. Case Shiller Index: This index of home prices in major U.S. metropolitan areas rose .3% in January from December, and has now risen almost 4% since hitting bottom in May 2009. /www.standardandpoors.com .pdf

Compared to a year ago, the ten city index is unchanged and the 20 city index is down .7% compared to January 2009. The Chart of these indexes, available at the above referenced web site, does show a pronounced recovery in housing prices following the plunge which started in 2006.

2. AT & T (owned stock and bonds): I noticed that AT & T stock was falling in after hours trading on Monday. There were unconfirmed reports that Apple was working on an IPhone that would be compatible with the CDMA networks operated by both Verizon and Sprint. This would not be surprising. I was expecting AT & T to lose exclusivity on the IPhone sometime this year. MarketWatch The story is based on some original reporting by the WSJ who discussed it with sources allegedly familiar with Apple's plans. WSJ

3. Sold 50 HTGC at 10.74 (See Disclaimer): This odd lot was routed through Knight Trading and filled properly at the market for round lot trades. I mentioned in a post from yesterday Rule 124 (C) and how some of my odd lot trades were not being filled at or anywhere near the market price for round lot trades. In my trading history, which will encompass anywhere from 500 to 1000 trades a year, many of which are odd lot market orders where there is active round lot trading and a narrow spread, this practice of matching odd lot orders, rather than filling an odd lot order at the market price for round lots, has been confined to Fidelity via Knight Trading. Fidelity Brokerage and Odd Lot Orders-Maybe Fidelity Needs to Read NYSE Rule No 124 (c) The RB just said that the LB needs to quit being so judgmental and harsh, not everybody is at the same level of geekdome.

My main reason for selling HTGC is that I will not tolerate a dividend reduction for a security owned in a retirement account. While I certainly understand why it was necessary for Hercules to reduce its dividend payout, I have decided that no company that cuts its dividend will be allowed to stay in the conservatively managed retirement accounts. A few will be allowed in the taxable accounts based on considerations fitting within one of my ongoing strategies. I have several purchases of banks made pursuant to the Regional Bank Stocks strategy that have cut their dividends for example. Those would be taboo in a retirement account.

4. Canadian Energy Trusts Converting to Regular Corporations: I described in a previous post the almost comical reporting by Fidelity of the tax impact to a U.S. taxpayer resulting from a Canadian energy trust converting to a regular corporation before the 2011 tax changes take effect. I owned one in 2009 that completed the conversion in July 2009, a company now called Advantage Oil and Gas. Warnings on Canadian Trusts Converting to Corporations I did recently read the tax information about this conversion at Advantages web site: www.advantageog.com/pdf For nerds who want to deal with this problem in the future, this is the applicable language provided by Advantage Oil:

"The receipt of Common Shares pursuant to the Arrangement by a United States Holder will be a "taxable event" for United States federal income tax purposes, and a United States Holder will recognize gain or loss equal to the difference between (i) the fair market value of the Common Shares received and (ii) such holder's adjusted tax basis in its Trust Units surrendered therefor. Any gain or loss recognized by a United States Holder upon the receipt of Common Shares pursuant to the Arrangement will generally be capital gain or loss, and will be long-term capital gain or loss if such United States Holder's holding period in its Trust Units exceeds one year as of the date of the completion of the Arrangement." (page 18)

I hate these kind of issues and there is nothing so special about Provident (PVX) or Enerplus (ERF) that will cause me to keep those shares when and if those companies undergo a similar conversion into a regular corporation. And I have no idea whether or not Advantage is correctly interpreting the U.S. tax code. So, as I understand the quoted language highlighted above, when I received the shares of Advantage Oil and Gas in July 2009 on a 1 for 1 basis in July for the trust units, this was treated as a sale for tax purposes with the "proceeds" realized calculated by determining the fair market value of the regular corporations share on the date of their receipt by me, which was $479.

Since ERF and PVX will likely face headwinds on maintaining their dividends when the tax change takes effect, that is another factor justifying their replacement in my portfolio with other energy companies, including Canadian companies, that are already regular corporations. My approach will simply be to monitor the news daily on both PVX and ERF to determine when and if they plan to convert to regular corporations, and then I will sell my positions in both of them. I might sell PVX before that time, however.

5. Student Loan Bill Signed into Law (own OSM): Shortly before the House adopted the Senate's bill on welfare for health insurance, the student loan bill which was having trouble passing the Senate got mixed up in the health insurance welfare legislation. While I do not pretend to understand this legislative legerdemain, Obama and the House of Representatives believed that ending subsidies to private companies to originate student loans would save the federal government money and those savings could be used to offset some of the cost of providing insurance welfare along with the usual redistributions of wealth. Some of this is explained in this recent article published in the WSJ and the NYT, with my own characterizations of the health bill added for color. Maybe I am being harsh in calling the health bill welfare insurance financed in part by a redistribution of wealth from those who have the funds to pay for their own. That is just the way that I look at it. Ask me if I don't mind paying for other people's health insurance?

For owners of Sallie Mae bonds, it does not matter how the sausage was made by Congress. SLM will not be able to compete with the federal government's originations of student loans. It remains to be seen whether the federal government will provide all the funding necessary for students, or what service role SLM and other private companies will play in the origination process. At a minimum, this change, which has concerned me for almost a year, will keep me from buying any SLM bonds now. I am on the fence concerning what I will do with the 150 shares of OSM currently owned, and the smallness of the position does not require me to do anything now other than dither and kick the can a few weeks down the road. The OSM bond matures in 2017, less than seven years from now, and is selling at a significant discount to its $25 par value. If the trades were now occurring at $22, this would be a no brainer. At less than $18, I am going to dither for now.

6. LINK TO BARRON'S COLUMNIST BLOG ON ODD LOTS: Thomas Carey, author of the Electronic Investor for Barron's discusses the exchanges dislike of odd lot orders in one of his blogs: Investor Brain He confirms my understanding of Rule 124 (C). But there has to be a special rule for Old Geezers residing in the SUV Capital of the World written in invisible ink in that rule somewhere. To entertain himself today, the OG entered a order to buy 50 shares of STDPRB at TD Ameritrade when the bid was 18.56 and the ask was 18.58. Now, did Ameritrade go looking for that 50 share odd lot to match that 50 share market order, maybe there was one hanging around at $10,309 trying to take advantage of the addled and rattled aged brain of the OG. No, it was filled immediately in the way it is supposed to be filled, at $18.58 (see Disclaimer). I wonder if I enter a GTC order at Fidelity to sell 50 of STDPRB at say $1000, will it get filled when and if it is the best odd lot match for some schmucks 50 share market order. Even the LB is too kind to do that to even the most incomprehensible True Believer.

7. Sold 3 of the 4 Remaining Fidelity Mutual Funds: Mutual fund managers are paid extremely well for mediocrity, or for desiring to achieve mediocrity occasionally as a brief hiatus from worse than average performance. I am moving totally away from mutual funds and will gradually substitute stock ETFs to achieve broader diversification for a portfolio that is already absurdly over diversified. As far as I am concerned, those Fidelity funds that I sold were at best mediocre. Going nowhere for a decade is not how I define success.

I made some other trades in accounts other than Fidelity which I hopefully will remember to discuss tomorrow, though nothing is for certain when the mind is turning to mush.