Tuesday, June 8, 2010

Added 70 RHHBY at 34.07-Completing Round Lot/ Swiss Franc-Euro/DFY/BMY/Bernanke's Best Guess on Double Dip/


For a few days last week, I conducted an experiment attempting to ascertain, with some scientific precision, how much gas is wasted by the observed driving habits here in the SUV Capital of the World. I was not attempting to calculate how much gas is devoured by the energy hogs typically driven in this area, fifteen miles per gallon on average would be a good guess, but just the additional consumption generated by normal driving habits. Those habits include speeding, fast acceleration from stops, accelerating into stop lights to arrive as quickly as possible, and increasing speed on downhills rather than coasting to maintain a constant speed within the posted speed limit. The experiment proved that the typical SUV driver loses about 1.3 to 1.5 miles per gallon.


1. DFY (own): DFY is a senior bond issued by Delphi Financial, an insurance company. It is owned in the Roth IRA. I noticed yesterday that Fidelity had divided my shares into two parts. Some of the shares (14 out of 100) were separated out with a notation in parenthesis "when issued money". I assume that means Delphi is performing a partial call, though I have never seen that particular designation in one of my accounts. I have also not seen any press release on the subject.


If this is a partial call, I am pleased to receive some kind of notice. I had a partial call of another bond a few years ago, and sold the entire position after the call was announced without knowing about it. I received a call from the broker a few days later notifying me that I had to buy back the number of shares subject to the call. DFY is a $25 par value bond. Bought DFY at 22.48 Bought 50 DFY at 24.36 I also have a position in Delphi's junior exchange traded bond. Bought 100 DFP at $17.1 I sold 50 of the 150 shares of DFP.

2. EURO Technical Analysis: The Barrons technical analysis highlights the ugliness of the Euro currency chart in his recent column. Using the FXE as a proxy, he points out that the Euro is currently in between two long term support levels, which are 116.75 and 124.6. Given the overwhelming bearish attitude toward the Euro, even after its tremendous decline against the USD, he believes that a short term surprise bounce may be coming, possibly up to the mid-to-high 120s, where the EURO could run into selling pressure.

I am not surprised by the EURO weakness and even initiated a double short position by buying the EUO at $17.17 when the FXE was over 150 and again at 21.73. I have sold those positions. While I am not positive on the EURO, my feel for its current weakness is that the selling is overdone. Europe finalized it plans for the rescue package and is at least discussing measures to punish those nations who stray from the EU's deficit goals, WSJ. The Spanish unions have predictably gone on strike to protect the very modest austerity measures passed by Spain's Parliament with one vote.

What is most inexplicable to me is that the Swiss Franc has fallen against the USD in tandem with the Euro, starting on the same day of November 25, 2009. That must have something to do with guilt by geographic association. (Compare FXF, Swiss Franc ETF Chart with FXE Euro Trust ETF Chart). The Swiss Central Bank bought Euros at a record pace in May in an effort to stem the rise of the Franc against the Euro. MarketWatch
The Swiss economy expanded by 2.2% in the first quarter. Switzerland has a current account surplus of 8% of GDP, a fiscal surplus, and public debt at less than 50% of its GDP.

3. Bernanke on Double Dip Recession: Bernanke believes that his "best guess" is that the U.S. economy has enough momentum to avoid a double dip recession, but that the upturn from the Near Depression will not feel terrific. MarketWatch NYT And he acknowledges that the recovery will be sufficiently slow that job growth will be slow to return.

4. Interview with Fund Manager David Wright: I thought that this interview with David Wright in Barron was interesting. Wright is an older OG than our OG. He is the lead manager for the Sierra Core Retirement Fund. He is like minded to the Old Geezer here at HQ only in his efforts to engage in tactical asset allocation. He does not invest in individual securities but in funds which adds an additional expense layer to his mutual fund. His cash allocation was up to 52.7% as of 5/31/2010. Sierra Core Retirement Fund Holdings My maximum is 30% which I hit in the later part of 2007. He has no stock funds in his portfolio at the current time, believing that the deleveraging process will take some time to wind down.

5. Bristol Myers: Alexander Eule has a favorable column about BMY in today's online edition of Barrons.

S & P raised its BMY rating to buy with a $28 price target.

As mentioned in an earlier post, the main negative is the looming patent expiration of Plavix. Bought 50 BMY at 22.95

6. Average Wage for Census Worker: USATODAY reported that the average pay of census workers is about $18 per hour. Some speculate that this lure may have kept some individuals from accepting lower wage private sector jobs.

7. Added 70 RHHBY at 34.07 USD (see Disclaimer): I received a few days ago a fill of just 30 shares of a 100 share limit order at 35.48 and that turned out okay. I bought the remaining 70 shares this afternoon at $1.4 less per share. RHHBY is the ADR for Roche, the Swiss pharmaceutical company. I did an analysis of the share price in Swiss Francs in my post discussing the 30 share buy. Bought 30 RHHBY at $35.48 If the Swiss Franc rises against the USD five percent I could receive a 5% gain in these shares with the Roche share price on the Swiss Exchange remaining constant. It is important to understand the currency risk when buying both foreign stocks and bonds. The Roche shares have declined on the Swiss exchange since that 30 share purchase, closing at 157.80 CHF, down 1.37% or 2.2 CHF. ROCHE HLDG DR Share Price Chart | ROG.VX It takes four ADR shares to equal one ordinary share. So, four shares at $34.07 would cost without commission 136.28 USD. I converted that amount into Swiss Francs and I arrived at 157.17 CHF: Currency Converter This basically tells me that there is a close relationship between the ordinary share price on the Swiss exchange and the ADR price on the U.S. pink sheet exchange.

The only material news since the 30 share purchase a few days ago was the trial results for Avastin's use in connection with ovarian cancer. Reuters

The Swiss Franc is rallying some against the USD today. One reason for completing the purchase today is my opinion on the favorable exchange rate between the USD and the Swiss Franc. This is a link to the chart of the CHF/USD Currency Conversion since 1999.

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