Thursday, July 29, 2010

Sold 50 FE at 38.77/NAL TOBC BNCN/AT & T Bonds/Bought 100 DHS at 35.32/Added 50 ADX at 9.7 and 50 RMT at 7.82 with Cash Flow

S & P placed AT & T's credit rating on credit watch with negative implications. If there is a credit downgrade from the current A rating, S & P noted that it would be one notch. I own two TCs containing the same AT & T senior bond, JZE and JZJ, both bought during the Dark Period. JZE was bought at $12.50. The underlying bond in those two TCs, as well as the TCs, have a guaranteed rate which is being paid now. In the event of a debt downgrade, the rate will increase 1/4% per notch. I explained that provision in several posts from 2008: JZE: MORE DETAIL Trust Certificate JZJ AT & T BOND Some Nibbles Got Filled: JZE, PJS, INZ and FAX This increase is tied to a downgrade of one notch by either Moody's or S & P: I would like to thank again that person who sold me JZE at $12.50.

I am surprised that AT & T has not called the underlying bond, given this feature, and the 8% guaranteed rate of that bond which is much higher than the TC rates of 6% for JZE and 6.375% for JZJ. My two TCs are certainly in danger of being called by the owner of the Call Warrant. The underlying bond is trading at close to a 30% premium to its par value: FINRA - Investor Information (see generally More on the Call Warrant in TCs). The mere existence of the call warrant, as explained in that earlier post, will restrain the price movement of the TCs containing that AT & T bond as the underlying security (JZE, JZJ, GJF). I do not want either AT & T to call the underlying bond or the owner of the call warrant to redeem the TCs at the $25 par value plus accrued interest.

Sprint reported its first net gain in customers in three years, though the company did lose 15 cents a share excluding extraordinary charges. MarketWatch I have no interest in the common shares, and only own senior Sprint Capital bonds in Trust Certificate legal form-GJD and DHM. GJD rose 54 cents or 2.87% to close at $19.34 yesterday, and DHM rose 1.6% to close at $23.47. I am in a trading mode on both securities given their junk status. Bought 50 of the TC DHM at 21.35 Added 50 GJD at 17.95 Bought 50 GJD at 17.49 Bought 50 GJD at 17.8-Roth IRA Sold 50 of the 150 GJD at 18.59 (see generally Trust Certificates Links in One Post and underlying bond information at FINRA) The underlying bond has a coupon of 6.875%. DHM's coupon is 8.125%. GJD's coupon is 6.5%.

I previously mentioned that the Tennessee GOP finally realized one its dream, passing a law over the Democrat Governor's veto, permitting gun owners to carry their weapons into bars. Ron Ramsey, the Speaker of the Tennessee State Senate (now controlled by the GOP) and consequently the Lieutenant Governor, is running for the GOP nomination for Governor. The ultimate winner of that primary will most likely be Tennessee's next Governor.

Ron made national news earlier this week with the following comment: "Now you could even argue whether being a Muslim is actually a religion, or is it a nationality, a way of life or cult, whatever you want to call it? We do protect our religions, but at the same time, this is something that we are going to have to face." USATODAY The response was given to this question by another "conservative": "We've got a threat that's invading our country from the Muslims. What's your stand". Ron even made the papers around the globe with his views about Islam not being a religion. Telegraph A video clip of his views can be found in this TPMDC article.

Ron, like many who call themselves conservative today, has almost nothing in common with true conservatism. Yes, he is all for freedom for religion-his religion.

While Ramsey received an endorsement from the Gun Owners of America, all of the GOP candidates are falling over one another claiming that they are the gun candidate, as if the Supreme Court did not just decide that gun ownership is a constitutional right on par with freedom of speech. Ramsey is also a big believer in States Rights and the Tenth Amendment, and most southerners know the meaning of those code words. Gun Owners Endorse Ramsey And 20 tea party groups have endorsed him since he is almost a perfect fit with their ideology. The Tennessean

1. Conoco (COP)(owned): I have been trading in and out of COP for some time. As previously noted, the LB has a great deal of influence here at HQ, particularly during a long term secular bear market in stocks. The LB has a short term time horizon, a noted linear thinker, who will capture pops in positions without giving much thought to whether the position was purchased at a price consistent with a long term hold. The RB helpfully added to that statement, "a deep thinker in the sense of generating a million variables and crunching them perpetually, a mile wide and an inch deep approach, a worthless NERD", the RB concluded. The last buy was earlier this month, when I purchased 50 shares in one of the satellite taxable accounts at 48.75. LB noted that it successfully bought COP at $38.60 and sold those shares at $46.45. And then LB further showed its prowess as a Stock Stud by recently selling shares at 56.63 bought at $51.22, and selling shares at $54.71 bought at 51.35. RB just said that it wanted to buy a 1000 at $38.6 and then leave it alone. A heated argument then ensued between the LB and RB about what to do with the shares bought at $48.74 in early July. The OG stayed out of it, just wanting some peace and quiet, and thinking about his nap later today and then decided to eat some peppermint rather than becoming involved in the discussion about COP. The OG did note that COP was ex dividend today: ConocoPhillips, COP

ConocoPhillips reported 2nd quarter earnings of 4.2 billion or $2.77 per share. Excluding extraordinary items, COP had an E.P.S. of $1.67. The gains resulted from the sell of COP's investments in Syncrude and CFJ. COP also announced an agreement to sell its entire stake in LUKOIL to LUKOIL. Forty per cent of that stake will be sold for 3.44 billion this year, with the remaining shares sold by the end of 2011.

2. Sold 50 of the 150 of FirstEnergy (FE) on Tuesday at 38.77 (see Disclaimer): The shares that were sold were purchased in a satellite account at $38. I decided to use those funds to purchase a stock ETF. I am keeping the 100 FE owned in a main taxable account where I will reinvest the dividends. Some of the electric utilities that are heavy into coal generation rose on Tuesday after Harry Reid introduced a climate bill without cap and trade. With republicans likely to pick up a large number of seats in the midterm election, it is just impossible to see anything remotely resembling cap and trade passing the Congress for the foreseeable future. The ETF replacement for FE was DHS discussed below.

3. NewAlliance (NAL) -BNC Bancorp (BNCN)-Tower Bancorp (own- Regional Bank Stocks basket strategy): NewAlliance reported net income of 16.3 million or 16 cents per share, a 61% increase from the 10 cents per share earned in the linked quarter. The estimate was for 15 cents. The net interest margin is low at 3.02%. NPLs to total loans was good at 1.39%. As of 6/30/2010, the capital ratios were excellent, with the total risk-based capital ratio at 21.19% and the tangible common equity ratio at 11.11%. The allowance for loan losses as a percent of NPLs was 80.45.

BNC Bancorp reported second quarter earnings impacted by unusual gains, so I will not mention the earnings number. As of 6/30/2010, tangible book value was $9.82 per share and the capital ratios are above well capitalized. Part of the unusual gain was related to the FDIC assisted acquisition of Beach First. NPAs not covered by the loss sharing agreement with the FDIC were 1.93% of total assets. Net interest margin was 3.39%.

Tower Bancorp ( TOBC) announced 2nd quarter non-GAAP earnings, adjusted for merger related expenses, of 27 cents per share, down 1 cent from the prior quarter and 17 cents from the 2nd quarter of 2009. The consensus estimate from 3 analysts was 30 cents. The Board declared the regular 28 cent quarterly dividend. As of 6/30/2010, the net interest margin was 3.73%; NPAs were .83% of total assets; allowance for losses to total NPLs was 106.99%; and the total capital to risk weighted assets ratio was 14.49%. The efficiency ratio was high at 72.04% and needs to come down some. TOBC was a recent add, with only a 40 share buy: Bought 40 TOBC at 21.35 I wanted to review this earnings report before making a decision on whether to add more shares. After reviewing the report, I will wait to make that decision until after the release of the 3rd quarter report.

4. New York Community Bank (NYB) (own Regional Bank Stocks basket strategy): New York Community Bancorp reported operating earnings of 30 cents per share, which excluded a 1 cent "purchase gain" associated with the bank's FDIC assisted acquisition of Desert Hills Bank. Analysts expected 31 cents. The GAAP number was 31 cents, so I would call that a 1 cent miss. The allowance for loan losses to NPLs was 22.08. Tangible book was $6.7 per share. Net interest margin was 3.42%. The capital ratios are okay.

I sold my 100 shares of NYB bought in the regular IRA at close to a 60% gain on the shares. This report is sufficient for me to continue holding the 100 shares held in the taxable account.

5. Bought 100 of the ETF DHS at 35.32 Wednesday (see Disclaimer): This is the last stock ETF that a plan to buy for awhile, and its purchase was really more of a risk dispersal. By risk dispersal in this context, I am referring to taking less risk by selling an individual common stock and buying an ETF. The ETF substantially reduces the risk inherent in individual stock selections but still leaves me with the risk to stocks as an asset class. DHS does have a good dividend of close to 5% at my cost. WisdomTree Equity Income Fund (DHS) The expense ratio is .38. While the fund owns 318 common stocks, the weighting is concentrated in about 20 names. The following is a list of the top 19 holdings as of 7/27/2010:

This ETF is concentrated in a few sectors, primarily electric and phone utilities, REITS, consumer staples, pharmaceutical companies and integrated energy firms. When moving down the list of holdings, the first bank stock is at # 41, M & T, with a .46% weight, and the next one is New York Community (NYB) at #44.

In the top 19 names listed above, I already own positions in AT & T, Verizon, Conoco, Duke, DuPont, Bristol-Myers, Kraft, Exelon, and Kimberly-Clark. PPH, another ETF which is owned, would add to the positions in the large cap pharmaceuticals. I also have individual positions in other names in this ETF including Winstream, FirstEnergy, Heinz, Sysco, Consolidated Edison, Pitney (PBI), NYB and around 19 more with less than a .4% weight. So I generally favor the kind of stocks in this ETF, and this purchase is just a way to easily increased my weighting with one purchase. I would point out that the dividend yield is almost 2% more than the 10 year treasury.

6. Added to CEFs ADX at $9.70 and RMT at $7.8 Wednesday (see Disclaimer): Both of this adds were with cash flow and were 50 share purchases. Both of these CEFs are currently selling at over a 16% discount to their respective net asset values. The net asset values can be found for both CEFs on the same Adams Express was a CEF started before the Great Depression and more information about it can be found at its web site: Adams Express Company The ADAMS EXPRESS COMPANY filed its semi-annual report for the period ending in June 2010 with the SEC.

At yesterday's closing price of $9.68, the discount was -16.12 based on a NAV of $11.54 per share.

The last filed SEC report for the Royce Micro-Cap Trust (RMT) can be found at More information is available at the sponsor's web site: Royce Micro-Cap Trust (RMT) At yesterday's closing price of $7.75, the discount was -16.58% based on a NAV of $9.29. I discuss RMT is several prior posts: Bought RMT at $6.73; Added to CEF RMT at $7.64

Since LB is falling way behind in preparing the minutes of HQ's trading operation, more trades from Wednesday may be discussed in the next post, along with some earnings reports relevant to HK's 400 or so positions.

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