Friday, July 16, 2010

Sold KEY at 8.12/Sold 100 RHHBY at $36.2/NVS/More Evidence of a Slowdown/Sold 50 of 150 DKK/Bought 50 Oneida Financial at $7.7

In a interview at Tech Ticker, Charles Nenner provides a doom and gloom forecast for U.S. stocks lasting until 2020. He argues that the U.S. is in a similar long term cycle as the Japanese stock market after 1989. To return to the DJIA's trendline, Nenner maintains that the Dow will need to fall to 7000 and recommends that long term investors refrain from buying until that target is hit. He expects the averages to fall below that trendline point, and his downside target for the DJIA is 5000.

Aaron Task conducted the interview with Nenner, who is from the Netherlands (Charles Nenner Research Center). Nenner's near term track record has been good, as summarized in this Seeking Alpha article.

Nenner scared the Old Geezer some yesterday whose rattled, addled, anxiety filled, oatmeal mush of a brain is susceptible to such dire forecasts, as the OG started to have visions about sleeping under a bridge and dining at the Nashville Rescue Mission after listening to Nenner. If he is right, then the buy and hold investor will lose money for the next decade after inflation, and there will be a lot of unhappy people in the U.S. in 2020. LB notes in conclusion that this kind of interview needs to have one of those warnings attached to it prior to its commencement, something like "Warning, not to be Viewed by Old Geezers Unaccompanied by their Therapists".

It goes without saying that the LB is not in need of a therapist while acting as the HT. All LB needs is a little peace and quiet, so that it can ponder undisturbed by the Lame Brain RB the million or so variables, contingencies and alternate scenarios, all of which most be crunched on a daily basis to advance Headknocker's capital position. And, LB would welcome Nenner's forecast becoming a reality, since it would give the Stock Stud another 10 years to work on its trading rule book, now roughly the size of the Internal Revenue Code and becoming even more obtuse by the day.

RB said that a warning needs to be posted for the sake of mankind, LB's rule book is nothing more than a plaque of rules, exceptions to rules, exceptions to exceptions, in some kind of self-propagating biblical plaque of stinking rules, much worse than anything set out in EXODUS. 10 Plagues of Egypt Set the RB Free!

1. SOLD KeyCorp at (KEY)(Regional Bank Stocks )(see Disclaimer): I sold KEY yesterday based on a number of factors. The straw that broke the camel's back was the soon to be enacted financial "reform" legislation. The Senate stopped the GOP filibuster yesterday, ensuring that the bill will become law. MarketWatch NYT (3 republican senators joined the Democrats to end the GOP filibuster Senate Vote 206)

Some of the provisions are summarized in this NYT blog.

This legislation will require banks with more than 15 billion in capital to exclude trust preferred securities as Tier 1 capital with a five year phase in period. (see earlier post-Trust Preferred Securities & Financial Reform).

KEY has more than 15 billion in assets as of 12/31/2009 (p.5 10q) and a boatload of trust preferred securities. The KEY TPs include the following:


The principal amount of the outstanding TPs was 1.927 billion as of 3/31/2010. (page 28 e10vq). This is a decent size hole about to be created in Tier 1 equity capital. Of course, KEY might offer a good deal to the owners of those TPs to convert into common stock. But, that is not a good option for existing shareholders and neither is selling a boatload of new common stock at existing depressed prices.

Another factor is that KEY has about 2.434 billion of government money still on its balance sheet that still has to be paid back. That item is listed under preferred stock on the balance sheet at page 5, e10vq. (the agreement with the U.S. is at EX-10.1)

And, KEY is still losing money with a net loss of 11 cents per share for the Q/E 3/2010. And the consensus estimate is for a loss in 2010. KEY: Analyst Estimates for KeyCorp

Given all of the above, I believe that significant further dilution of the existing shareholders is likely and the turnaround for KEY will be far too long and problematic. I would not anticipate a dividend raise from the current 1 cent per quarter for a long time.

Fifty shares of KEY were bought at $5.88. This transaction is meaningful only in the process and information utilized to make the decision.

I would emphasize that TPs are not really high quality "equity" capital anyway. It is important to remember that the term "trust preferred" actually misleads many investors into believing the security is a traditional preferred stock which is part of a firm's equity capital and will remain so. TPs are in essence junior bonds that pay interest and it is at least slightly absurd for an investor in bank stocks to view a bond as part of equity.

Prior to the passage of the financial reform legislation, the banks could form a Delaware Trust, have that Trust controlled by the bank to sell Trust Preferred securities, and then the Trust would use the proceeds to buy a BOND issued by the bank. And that transaction ended up adding to EQUITY and the bank could deduct the interest paid on the BOND. {Regular Preferred and Trust Preferred (Trust-preferred- Wikipedia, see for more details .pdf and The Harvard Law School Forum)}

TPs from banks with less than 15 billion in assets will be grandfathered and allowed to be treated as equity. I believe subject to further check that the 15 billion in assets criteria is as of 12/31/2009 and the TPs would have to be issued before 5/9/2010 to qualify as Tier 1 equity capital for banks with less than 15 billion in assets. Trust Preferred Securities That later point is more detail than I need to have.

2. Verizon and Apple (Own VZ Common and Senior Bond in TC Form- PJL): Maybe I am wrong, but I do not believe that taking shots at the IPhone is way to court Steve Jobs. An article in the NYT quotes a recent ad for Verizon's Droid phone, using the increasingly popular Google Android operating system. The ad claims that the Droid phone “allows you to hold the phone any way you like and use it just about anywhere to make crystal-clear calls.” Verizon may not want the Apple customers who are data hogs and place a strain on AT & T's system. The point of the NYT article is that Verizon may not need the IPhone to be competitive in the smart phone market.

3. More Evidence of a Soft Patch: The Philadelphia Federal Reserve manufacturing survey for its region confirms a slowdown in manufacturing activity. The survey's broadest measure of activity fell from 8 in June to 5.1 in July. Any reading over zero indicates expansion. The July number is the second consecutive monthly decline. More importantly, the new order component fell into negative territory for the first time in 12 months. .pdf

The Fed released the industrial production number for June which edged up .1%. If utility output is excluded, manufacturing move down .4% after three consecutive gains at or near 1 per cent. Industrial Production and Capacity Utilization

I do not view this kind of information as ominous but it does create uncertainty about whether the current slowdown is merely a pause that refreshes or a harbinger of a double dip.

The Masters of Disaster will take a mildly negative trend, assume an acceleration of the trend until the economy falls into the abyss, and then sell stocks based on that imaginary scenario being converted into their version of current reality. The MDs are a finite sub-group of those who lack balance and routinely engage in reality creation and unfortunately make decisions based on their creations.

4. Jobless Claims: Prior to yesterday, the Masters of Disaster (MD), a.k.a. money managers, would have obsessed about a 5000 increase in jobless claims as proof that everyone would lose their jobs, or at a minimum no one who is currently unemployed will ever find one and might as well jump off a bridge. The Labor Department reported a 29,000 drop in unemployment claims for the week ending 7/10: ETA Press Release: Unemployment Insurance Weekly Claims Report This was better than expected. MarketWatch

5. Sold 50 of 150 DKK at $24.87 (see Disclaimer): DKK is a trust certificate containing as its underlying security a trust preferred security issued by AON Capital A. The TP contains as its underlying security a junior bond issued by AON maturing in 2027. I am willing to cut through the legal mumbo jumbo and just call DKK a junior AON bond. The owner of a TC has an undivided beneficial interest in the asset of the trust which is in this case a trust preferred stock. The TP is a representation of a beneficial interest in the security of that trust which is a junior bond.

I have traded trust certificates containing this same TP from Aon Capital on multiple occasions since the summer of 2008. With the realized profits from that trading activity coupled with the interest payments, I believe that I am playing with the house's money or close to it.

Unless I develop a serious and rational concern about Aon's credit, I intend to keep only those trust certificates bought at prices that generate in excess of 10% in current yields. I have several that qualify.

I own 150 shares of KTN bought during the Near Depression period at $14 or less which will generate TRUST CERTIFICATE AON BOND KTN ORDER FILLED at $13.10 (15.65% yield) KTN add at less than $14 KTN has the highest coupon at 8.205% of the four TCs containing the Aon Capital TP which I have actively traded over the past two years. The only important criteria for me in evaluating choice among functionally equivalent securities is the yield at my cost rather than the coupon yield at par value. Functional Equivalence in Bond Trading

I also own 100 KVW bought at $16.08 in September 2008 before starting this blog. Item # 5 Sold 100 of the 200 KVW at 24.75 KVW has a 8% coupon and a $25 par value. At a total cost of $16.08, the current yield, paid year in and year out until 2027, will be 12.43%, assuming of course AON remains current on the payments.

DKK has been bought and sold many times. All of the shares currently owned, or recently bought and sold with one exception, have current yields in excess of 10%. Added 50 of the TC DKK at 23.24 Bought 50 DKK at 24.78 Bought 50 DKK AT 24.5 The exception was a buy in the Roth at a price to yield of 11.75% which was subsequently sold. I should have kept those DKK shares. Bought 50 DKK in Roth

So when I want to pare my position in this Aon junior bond, I will sell some of DKK which is what I did yesterday. The security just went ex interest for its semi-annual payment and I was able to sell the shares at a small profit. The shares sold were in a taxable account. I am keeping the 100 shares of DKK in the Roth IRA. Fidelity is now telling me my average cost per share and those remaining DKK shares have an average cost of $24.22 with the commission costs. The yield at that cost number is 8.26%.

One point to keep in mind about TPs is their liberal provision permitting deferrals of interest payments, usually up to five years provided no payments on made on a more junior security. I prefer to own TPs in a retirement account for two principal reasons: (1) the distributions are taxed as interest and (2) a deferral of a cumulative payment has tax consequences for a U.S. taxpayer even though no payments are actually being received during the deferral period.

I am currently fully invested in the retirement accounts, primarily in bonds, and am waiting for the cash to build up before buying another security. So, if I wanted to buy a TP now, it would have to be in a taxable account. Some of the TPs or trust certificates containing a TP currently held in retirement accounts include DKK, BACPRW, ZBPRB, STLPRA, SIVBO, FPCPRA, KRBPRE, SUSPRA, and GJN.

6. Sold 100 Roche (RHHBY) at $36.20 (see Disclaimer): LB, the main author of this minutes of HQ's storied trading operation, will simply note that this sell is what happens when the Old Goat is placed at the helm of the trading desk. He listens to some guy from the Netherlands ,that nobody knows about, make a dire forecast, doom and gloom as far as the eye can see or mind imagine, and the OG starts hitting the sell button. Dire predictions help to sell newsletters or so I am told. There is no other reason for selling the Roche shares yesterday. A small profit was realized on the 70 shares purchased at and a breakeven on the other 30. Added 70 RHHBY at 34.07-Completing Round Lot I would point out that the gain was due to a rise in the Swiss Franc against the dollar (see FXF Chart). LB will give itself Kudos for calling the rally in the Swiss Franc almost to the day.

The currency issue with ADRs is a bit complicated so HK allows the LB to make judgments involving this type of problem. On the day that I purchased RHHBY at 34.07 the Swiss Roche shares closed at 157.8 CHF (4 ADR shares=1 ordinary). Yesterday, the Swiss shares closed at 150.8 CHF. ROG.VX: Summary for ROCHE So for the owner of those ordinary shares, there was a decline of 4.43% since my purchase of the Roche ADR. Due to the rise in the Swiss France against the USD, RHHBY rose 6.25%. The difference is currency exchange which was in my favor during the short period that I owned these shares. (historical prices for ROG.VX for june 8th). The Swiss Franc appreciation accounted for the 10.68% difference. FXF: Historical Prices (compare 7/15 & 6/7-8)

7. Novartis (NVS)(owned): I thought that the second quarter earnings report from NVS was a good one. Net income increased 19% to 2.4 billion. Revenues increased by 11%. On a constant currency basis, sales increased 15% year over year. Free cash flow before dividends rose 24%. Core earnings per share increased 14% to $1.20. (see discussion at The report is available at .pdf. I will keep my recently purchased shares. Bought 100 NVS at 49.08

8. Bought 50 Oneida Financial (ONFCD)(Regional Bank Stocks basket strategy)(see Disclaimer): The RB wanted to buy 100,000 shares after seeing that women were in charge of all of Oneida's branches. LB said that was a clear case of discrimination against men and wanted no part of it. The Old Geezer (OG) liked the women in charge angle but did not see how this small bank would grow earnings. After much haggling among staff here at HQ, and after some harsh & hyper critical words were exchanged, RB and the OG compromised and agreed to buy 50 shares. LB wants to record in the minutes of HQ's operation that it voted against acquiring any shares but was overruled by the Lame Brain and its natural ally, the prematurely senile Old Goat.

Oneida is a savings bank operating in NY with 12 banking offices in Madison, Oneida and Onondaga counties. Welcome to Oneida Savings. (not a single man pictured on that page, RB just said that has to be a buy!). I had to look on a Google Map to find the locations-rural NY east of Syracuse.

Oneida recently completed a conversion from a mutual holding company structure to a stock company owned by public shareholders. SEC Filed Press Release Mutual to Stock Conversion The last phase of this conversion involved selling 3.9375 million shares at $8. exv99w1

Prior to completing that sale of stock, Oneida reported earnings of 8 cents per share down from 14 cents in the 2009 linked quarter. e10vq As of 3/31, nonperforming loans to total loans was .11%. (see page 34). The allowance for loan losses as a percentage of nonperforming loans was 1041%. That number is easily the best coverage that I have seen. The capital ratios were good as of 3/31/2010 (see page 32), and I would assume significant improvement in them given the equity infusion.

The bank recently changed its dividend from semi-annual to quarterly payments. The quarterly penny rate is currently $.1313 Dividend and Split History. There are no analyst estimates but that payout ratio may be higher than the net income per share for this year. If the dividend is not cut, the yield would be around 6.8% about at a total cost of $7.7.

The symbol is ONFCD for a few more days and then it will become ONFC again when the shareholders receive their new share certificates.

9. Miscellaneous: KTX, the TC with a Xerox Capital TP, goes ex interest for its semi-annual interest payment on 7/28. Added 50 KTX at 25 (current page

BAB, the Powershares ETF containing Build America Bonds, was ex dividend for its 12.31 cent monthly payment yesterday. Bought 100 BAB at 25.98 The Nuveen CEF for BABs (NBB) went ex dividend for its monthly distribution of 11.7 cents on 7/13. Bough 50 NBB at 19.67

The Powershares "Preferred" ETF (PGX) went ex dividend yesterday for its 7.8 cent monthly payment. Preferred Stock ETFs: Bought 200 PGX at 13.53/

Merchants Bancshares (MBVT), a small bank based in Vermont, declared its regular quarterly dividend of 28 cents payable to shareholders of record on 7/29. Bought 50 MBVT at 22.9

Google fell in after hours trading after missing expectations. Press Release I do not own any shares but have traded in and out of GOOG. I am waiting for the stock to become more of a value proposition before repurchasing a position. It could be a long process for the growth crowd to dump the shares.

The NYT is reporting that Goldman Sachs has agreed to a settlement with the SEC and will fork over 550 million which is being viewed positively so far by the market. I own only GS junior and senior bonds in TC form-JBK, PJI, GYB, GSPRA and PYT.

The current as of this morning dividend page at the shows that both DFY and DFP will go ex interest for their quarterly interest payments on 7/28. DFY is a senior exchange traded bond and DFP is a junior bond, both issued by Delphi Financial.

IGD, a CEF that pays monthly dividends, declared its regular distribution of 10 cents with a 8/02 ex date. I am not reinvesting dividends on this one since it has been selling until recently above its NAV, nor would I buy additional shares for the same reason. The closing price yesterday was at a small discount to NAV. ING Global Equity Dividend and Premium Opportunity Fund - Overview

While visiting the ING site for its CEFs, I noticed a new one and I will place it on my CEF monitor list: ING Infrastructure, Industrials and Materials Fund - Overview

The senior bond from Commonwealth, a REIT (formerly known as HRP Properties), declared its regular quarterly interest payment with a 7/29 ex date. Bought 100 HRPN at 19.32 Added 100 HRPN AT 19.15 As a result of the name change the bond also changed its symbol and name. The new symbol is CWHN: Summary for CommonWealth REIT 7.50% Senior. Par value is $20.

EOI, a CEF that pays monthly dividends, declared its regular distribution of 11.64 cents. I am not reinvesting the dividend on this one either for the same reason as IGD. Eaton Vance's Enhanced Equity Income Fund (EOI)

1 comment:

  1. Good luck on ONFC. Oneida and Onondaga are both names of Indian tribes. As the saying goes, "When the white man discovered this country Indians were running it. No taxes, no debt, and the women did all the work." Maybe they were onto something.

    (Do not let the LB read this.)