Thursday, July 8, 2010

Added 50 DFP at 19.75/BCB Bancorp/

According to CNBC, Goldman Sachs sent a report to its high net worth clients recommending that they stay fully invested in stocks.

This article in Forutne magazine by Alan Sloan points out that the rally in treasury bonds will not last forever.

1. Rush Limbaugh and White Guilt/The Pistol Packing Grandma for U.S. Senate: It is clear to me that Rush is a racist and I do not know how anyone could seriously maintain otherwise. His most recent remark about Obama attributed his success to "white guilt". In fact, white guilt is also responsible for the success of Oprah and any other black person in America according to the Rush. Video According to GOP's Great White Hope, Obama would be a tour guide in Honolulu if he was a white man. Media Matters He also asserted that Elena Kagan would spend her career on the Supreme Court destroying "what we believe" if she is not stopped. One of the new leading lights of Rush's pseudo-conservative movement, is Sharron Angle, the GOP candidate for Senate in Nevada, who is reported to have said that "if this Congress keeps going the way it is, people are really looking forward toward those Second Amendment remedies". NYT (see interview with Sharon

I will admit to being impressed with the Chicken Lady, who was Sharron's opponent in the primary.Sue Lowden Stands by Chicken Health Plan But, I am starting to warm to the 357 Magnum packing Grandma, just saying "pistol packing Grandma" almost gave the Old Geezer a much needed rise with a boost of testosterone. And as I mentioned in a prior post, Sharron has many grand new ideas, like giving prisoners massages in some type of Scientology ritual which is the RB's favorite idea offered by any member of the GOP tribe. NYT

2. St Joe (own): Morningstar is staying with its bullish stance on St. Joe even the market has turned decidedly skittish (see my recent discussion at Item # 2 St Joe).

3. DOUG KASS: In an interview at Tech Ticker, Kass opines that the market has hit bottom for the year.

4. Added 50 DFP at 19.75 (see Disclaimer): This brings me up to 150 shares of DFP, a junior bond issued by Delphi Financial (DFG), a company that provides a variety of insurance coverages to its clients. Delphi Financial Group, Inc. Some of my senior note shares (DFY) are about to be redeemed at par value. Delphi Financial Announces Partial Redemption of 8.00% Senior Notes I am basically replacing those redeemed shares with 50 shares of the junior bond.

My prior purchases of DFP were at $17.1 per share. Bought 100 DFP at $17.1 Bought 50 DFP at 17.1 & Sold 50 DFY in Roth I thereafter sold 50 of DFP to purchase 50 of the senior bond DFY.

The purchase yesterday was made in the regular IRA. If the security falls more than $2 from my purchase price, I will include it in my next Roth Conversion.

The par value of DFP is $25. The current coupon is 7.376% which will last until May 15, 2017. The bond then turns into a floater, with interest paid at a 3.19% spread over 3 month Libor. Based on the fixed rate coupon, my yield at a total cost of $19.75 would be around 9.34%, paid quarterly with the next payment due in August.

There is just no way to know what the 3 month Libor rate will be in 2017. This security may look better or worse than now when it converts to a floating rate. To be better, the 3 month Libor rate during the relevant computation period would have to exceed 4.186%. The Libor 3 month rate is hovering now at less than .5%. When the central banks including the Federal Reserve return to a normal policy and the major developed economies enter a new growth cycle, I would anticipate a rise in short rates, including the 3 month LIBOR. Historically, a 4% or higher 3 month Libor would not be unusual: LIBOR Rates History (Historical)

While the change from a fixed rate to a float may be disadvantageous when it happens, the float provision does provide some protection against a higher than expected inflationary conditions resulting in high short term rates. For example, if the 3 month Libor rate rose to 8%, the coupon on DFP would be 11.19% (8% +3.19% spread), but the yield to a buyer at a total cost of $19.75 would be 14.16%.

This is a link to the prospectus: e424b2

Interest may be deferred up to ten years provided no distributions are made on a junior security. Delphi is currently paying dividends on common stock. After five years of deferral, an alternative payment mechanism becomes applicable. For those unfamiliar with this provision, I would suggest reading the prospectus at pages S-20 to S-23. I am not worried about a deferral until and unless the firm's earnings deteriorate substantially and/or the company eliminates its dividends on junior securities. The only securities that would be junior to DFP would be common and equity preferred stock, both characterized as equity rather than debt. DFP is a debt issue and would be subordinated to DFY, the senior bond, and any other senior or secured debt.

Any interest deferred will accrue interest at the coupon rate.

Moody's recently reaffirmed the senior debt as investment grade, at the lowest level of Baa3, and changed its outlook on Delphi to stable from negative. Moody's The junior bond is rated by Moody's at Ba1 and at BBB- by S & P according to QuantumOnline. I did not attempt to verify that information and it seems about right to me.

Once I buy a bond, I will read the firm's earnings reports for the purpose of determining its ability to remain current on its interest payments. Every investor needs to do the same and arrive at their own judgment. Needless to say, I do not want to own a junior bond in a taxable account that has deferred its interest payment. There are tax consequences to a U.S. taxpayer. And, if a firm is in bad enough shape to defer an interest payment on its junior bonds, the value of the junior bonds will be severely impacted to the downside.

Since I am satisfied with my holdings in both retirement accounts, and have depleted my investable funds, I will need to wait a few weeks for the cash flow to generate sufficient funds to buy one or more income producing securities.

5. BCB Bancorp (BCBP)(owned): BCB Bancorp completed its all stock acquisition of Pamrapo Bancorp. I did not mention that I bought 19 more shares a couple of weeks ago at $7.8. I had a limit order to buy 50 at $7.8 and ended up with a 19 share fill, bringing my total to 69 shares. This small NJ bank is part of the Regional Bank Stocks basket strategy which currently has 38 banks in it.

Since most of these banks will be reporting quarterly earnings over the next 3 weeks, I will probably wait to digest most of those reports before adding any new names or increasing the positions in existing ones.

6. DKQ (own): DKQ, a trust certificate containing a May Department Store senior bond, now part of Macy's, is ex interest today for its semi-annual interest payment. Bought 50 of the TC DKQ at $15.95 TRUST CERTIFICATE MACY'S BOND DKQ

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