Wednesday, April 14, 2010

Bought 100 PPH at 65.42/Added 50 NWBI at 11.88/Sold 50 BDV & Bought 100 of CEF TY/Added 100 of APF at 15.64/Sold 100 IGI at 20.74 and Bought 100 GDO

Since I finished Thursday's post early, I decided to go ahead and post it. If anyone wants to bookmark this site so that you go directly to the newest post, then click the header "Stocks and Politics" at the top and then bookmark the web address, which should simply read, or this link might work as a bookmark: Stocks & Politics.

The preceding table reflects the addition of 50 shares of NWBI today. This is my basket strategy for regional banks which currently has 35 names in it. I am now starting to add some funds to existing positions. WBS is continuing to cause the OG stress and it will soon be joined by EWBC which will soon turn into an unrealized long term capital gain too. The EWBC shares were purchased at $5.7 on 4/16/2009. So, with the OG at the controls at the trading desk, anything might happen in the coming days.

LB would have to admit that, for an old dude, the OG was busy today, creating a lot of motion, kicking up some dust, and some of what the Old Goat did even made a little sense, most be some sort of divine intervention in the OG's two functioning brain cells, the LB mused.

The Volatility Index for the DJIA (^VXD) is now trending below 15, forming a Phase 2 Stable Vix Pattern, the most stable pattern in the Vix Asset Allocation Model. The VIX is moving toward the Phase 2 Stable VIX Pattern. The ^VIX closed yesterday at 15.59, down 3.77% for the day. The VIX has now moved continuously below 20, the demarcation line for the Stable and Unstable Patterns, for 32 consecutive days. Still, this is not sufficient yet for the LB, a stickler for rules and regulations, to declare conclusively that a Stable Vix Pattern has formed.

1. Added 50 NWBI at $11.88 ( Regional Bank Stocks strategy-Category 2) (see Disclaimer): This bank recently underwent a demutualization and is one of the few banks in this basket strategy for regional banks which has yet to rise in value. I noted the other day that RBC Capital Markets had initiated coverage with an outperform. The target set by the analyst for RBC was $14. One knock on the bank is that it is too well capitalized over the short term due to the capital raised in its conversion from a mutual company. The bank sold almost 69 million shares at $10 per share. (see annual report at page 2: e10vk). It will take time to deploy that new capital. In the meantime, the additional shares will dilute the E.P.S. numbers in the upcoming quarters. Still the bank is growing with 171 branches in western New York, Pennsylvania, eastern Ohio, Maryland, and southeastern Florida. I also noted that RBC initiated coverage on Glacier (GBCI) at sector perform and a $17 target. GBCI closed today over that target level. GBCI is part of the regional bank basket too.

2. Added 100 of the CEF APF at 15.64 (Asia Strategy)(See Disclaimer): This addition brings my total in APF to 300 shares. Bought 100 CEF APF at 15.08 Added 100 of the CEF APF at $15 So today's purchase was an average up to increase my overall exposure to Asia.

This CEF, the Morgan Stanley Asia-Pacific fund, was selling at 13.5% discount to its net asset value as of Tuesday's closing price. As of 4/13/2010, the NAV was shown as $17.97 with a closing price that day of $15.54. Daily Prices The net expense ratio is 1.16%: Fund Details

This is the SEC link to its last filed annual report:

3. Sold 50 of the CEF BDV and Bought 100 of the CEF TY at $12.7481 with market order (See Disclaimer):
BDV closed on Tuesday at $9.5, representing a 4.9% discount to its net asset value. WSJ I sold 50 of my 164 shares. In the place of those shares sold, I bought another CEF Tri-Continental which closed at a 15% discount to its NAV on Tuesday. Tri-Continental has had some lackluster results lately but I have a generally favorable impression of its portfolio. Tri-Continental Corporation I would classify the holdings as tilting toward large cap value with holdings like JNJ, GS, CHV, MRK, COP and BAC among its top ten holdings. The largest position was in Apple as of 12/31/2009. This is a PDF link to its 2009 annual report: The expense ratios shown at page 31 of that report vary some from year to year, but are less than 1%.

Since BDV did not gain any ground today, closing at $9.5, the NAV expanded some, closing 4/14/2010 at a 5.47% discount. Tri-Continental did not gain in share price as much as its NAV rose today, so the discount expanded to 15.54%:

4. Retail Sales: The Commerce Department reported today that retail sales rose 1.6% in March, better than the consensus estimate of a 1.2% increase. ADVANCE MONTHLY SALES FOR RETAIL AND FOOD SERVICES: Latest Release

5. Mitch McConnell: After meeting with some hedge fund managers in New York last week, the clueless leader of the Senate republicans, Mitch McConnell from Kentucky, made it clear that the GOP would do whatever it could to stop financial reform in the Senate. NYT The Senate bill would give the Federal Reserve oversight of large banks. If one of those banks was about to fail, the Treasury Secretary and the regulators, working with a panel of three bankruptcy judges, could seize the bank which poses a threat to the financial system, forcing it out of business. Needless to say, this would be bad for those who own that bank's Trust Preferred securities. There would be a 50 billion dollar fund set up that could be used to wind down the business of the firm, financed by fees assessed over time on the big banks. McConnell deliberately mischaracterizes that fund as a bailout, preferring to allow the Masters of Disaster next time to bring down the economy to preserve his ideological purity. There is no doubt whatsoever in my mind that the Republicans would have allowed the nation to fall deep into another Great Depression rather than to approve the 700 billion dollar bailout of the financial system on the verge of collapse in September 2008. I don't think Mitch and his compadres, or any rigid ideologue for that matter, have learned anything from the financial crisis, nor will they learn anything from the next one, nor did any of the lessons from the last Great Depression find a home in their brains. Why? They are too rigid, even real time information is filtered, warped and distorted to fit a pre-existing belief system, particularly regarding the subject matter of financial regulations or any regulations for that matter. Though I would add that Senator Corker of Tennessee is not hopeless, and I may even vote for him next time. I did vote for Lamar Alexander but am reconsidering now my willingness to do so again-not that any republican needs my vote in Tennessee.

6. Bought 100 shares of PPH at $65.42 (See Disclaimer): The OG does not think too much, mostly just reacts, sort of like the knee when the Doctor smacks it with that Tomahawk rubber thing. For some reason late this afternoon, the OG was looking at the 400 or so holdings in the HK's portfolio and wondered what had happened to the large cap pharmaceutical stocks. LB humored the OG and replied that most of those companies were no longer worthy investments, and were mostly burning through large sums of money to find compounds that would ultimately fail in trials. Then, when it looked like one of their major drugs was coming off patent, one would gobble up another to try to fill the hole creating by the failure to develop new drugs in house to replace those losing patent protection. So, HK has not owned for some time Merck and Pfizer, though JNJ has been in and out of the portfolio and LB had a more favorable view of JNJ than MRK, PFE, and LLY. LB added that the OG should not try to think, it would only make his head hurt.

The OG remembers that some of these companies had been good investments in the past, the distant past LB muttered. LB just said do not buy any of them, and was surprised-even shocked-that the OG could remember positions sold more than a day ago. And, the OG noted that several of the large cap pharma stocks pay good dividends. The OG did not want to research each one, work is not his strong suit. Unfortunately, the LB did not feel like working either, maybe the LB was still smarting from HK's criticisms of it, and refused to assist the OG by doing the grunt research except to note for the OG the current Morningstar ratings which is all the OG could process anyway, so the OG said what the heck, I will just buy a basket of them.

This is a precise description of the entire process that led to the purchase of 100 shares of PPH at $65.42 today, which causes the LB to just shiver.

PPH is a HOLDRS. A HOLDRS is an ETF with no management fees because there is no management of the ETF. I do have to pay a small custody fee of 8 cents a share per year. which will be taken out of the dividends paid. Only round lots can be traded. =FAQ The shares of companies in the Holder are fixed, although this can change, and has changed since PPH was originally launched, based on corporate events like a merger.

The main constituents of PPH now are the following:

Abbott Laboratories 14 shares
Bristol Myers 18 shares
JNJ 26 shares
Lilly 10 shares
Merck 30.07 shares
Pfizer 69.82 shares

There are small positions in Allergan, Biovail, Forest Laboratories, Hospira, King Pharmaceuticals, Medco, Mylan, Watson, Zimmer and Valeant Pharmaceuticals. Pharmaceutical

7. Sold 100 of the 200 IGI at 20.74 and Added 100 GDO at 18.57 (see disclaimer): I am keeping the IGI in the regular IRA. The 100 shares sold today were bought at 19.78 in the main account last February. I substituted for them 100 shares of GDO bringing my total shares in that CEF to 470.

The reasoning has to do with the relative discounts to net asset value, the similarity of the funds, and their respective dividend levels.

Both are investment grade term corporate bond funds that will be liquidated in 2024. The main difference is that GDO includes foreign corporate bonds. With the recent spurt in IGI, it started to sell at close to its net asset value, whereas the discount for GDO is currently close to 6%. GDO pays a higher monthly dividend and has over a 2% yield advantage compared to IGI. GDO does have currency risk, which has probably adversely impacted its net asset value during the past few weeks as the Euro fell against the dollar. It is impossible to know now whether the currency risk will end up being a benefit or detriment over the remaining life of the fund. Since I sold out of my foreign bond ETFs, I was looking for an alternative that made sense to me as a replacement, and I prefer owning GDO than the ETFs BWX and WIP which pay negligible dividends.

These two CEFs are from Western Asset, a Legg Mason company, and have been extensively discussed in several prior posts:

This is the link to the sponsor's web page for GDO: Legg Mason - GDO - Western Asset Global Corporate Defined Opportunity Fund Inc.

Both fund announce 3 months of distributions in advance. Some websites do not show the ex date for GDO even though the fund has already declared monthly dividends in the amount of 13 cents for both April and May. The ex date for the April distribution is 4/21/2010: GDO_Div.pdf

GDO closed 4/14 at a 5.89% discount to its NAV: IGI closed at a .19% discount.

And lastly, LB was not surprised that the OG sold 30 shares of SDS at 29.30, one of the hedges put in place by the LB to protect the HK's portfolio from meltdowns. OG is too easily influenced by that no wit RB who invariably uses the word "stinking" as a predicate for both rules and hedges. How on earth does this trading operation do so well with all of the obstacles and hindrances and dead weight that the LB has to carry with nary a word of thanks, nothing but a barrage of criticism from the HK.

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