Monday, August 9, 2010

Sold 100 NVS at 50.22/Bought 50 SBIBN at 23/Bought 50 BMLPRJ at 18.50/ED BAM WLFC/JOBS/Sold: ADM at 30.18 & BMY at 26.15/

1. JOBS: The Labor Department's employment report for July provides further evidence that the recovery in jobs will at best be a slow one. Private sector employment did increase by 71,000. The consensus estimate was for 90,000. Due to the loss of 143,000, temporary census jobs the total nonfarm payroll employment fell 131,000 last month. Employment Situation Summary Mild positives include an increase in the average work week by .1 to 34.2 and an increase of 36,000 jobs in manufacturing. The U-6 number, which includes the unemployed, underemployed and marginally attached to the workforce, remained at 16.5, seasonally adjusted, but rose to 16.8 on a non-seasonally adjusted basis. Table A-15. Alternative measures of labor underutilization The unemployment rate held steady at 9.5%. State and local governments continue to shed workers due to budget constraints. For July, 48,000 government jobs were lost at the state and local levels. I would expect that trend to continue. {The Senate overcame a GOP filibuster in a 61-39 last week to provide emergency funding to prevent the layoffs of teachers. StarTribune.com} Temporary jobs declined by 5,600 in July after 9 months of gains. Around 6.6 million of the unemployed have been without jobs for more than 27 weeks.

Most of the jobs created during the Age of Leverage, and subsequently lost during the Near Depression, will not be coming back. This would include those created, directly or indirectly, by the housing bubble.

Bonds rallied on the disappointing jobs report. The 2 year note fell below .5% and the 10 year treasury note closed with a yield of 2.82%, down from 2.9% on Thursday. This chart from the St. Louis shows the 10 year treasury yield since 1960.

The USD hit it lowest point against the Japanese Yen in 2010 at 85.03 YEN and the EURO hit a 3 month high against the dollar. The dollar index has fallen back below its 200 day moving average, indicating dollar weakness against a basket of six currencies. DXY Index Charts - (NASDAQ) US Dollar Index Future - Spot Price Index Charts

2. Brookfield Asset Management (BAM)(own Toronto listed shares): Brookfield Asset Management reported cash flow from operations of 53 cents per share, up from 49 cents in the year ago quarter. Net asset value was reported at $29.69 USD per share. Net income per share was 12 cents compared to a loss of 60 cents in the year ago quarter.

3. Consolidated Edison (ED) (own-core electric utility holding): Con Edison reported earnings of 51 cents, excluding items, from its ongoing operations and raised its full year's guidance to $3.25 to $3.45 from $3.1 to $3.30. Prior to this report, the consensus estimate was for $3.28 in 2010 and $3.46 in 2011.

4. Sold 100 Novartis (NVS) at $50.22 Friday (see Disclaimer): Shortly before being relieved as Head Trader, the OG sold NVS at $50.22 last Friday. The shares were recently bought at 49.08. LB would ask whether anyone knows why the Old Goat sold NVS? Did it have something to do with the OG delving deep into the fundamentals and coming away with a different opinion on NVS based on a considered, fact based analyst? Well, no, of course not, the OG just got the shakes again and was looking for anything to sell in the portfolio to raise cash. When looking at the portfolio, his aged eyes just happened to focus on the 5 grand of HK's capital in NVS, and then he hit the sell button. What a wimp! What can you say about the OG? Ivan Pavlov could have use the OG in his experiments rather than those dogs. Classical conditioning Needless to say, LB is not one of Pavlov's dogs. The RB sprung to the OG's defense, saying the OG was more like a puppy that may soon need potty training rather than a grown dog.

5. Sold 50 BMY at 26.15 and Sold 50 ADM at 30.18 in a satellite taxable account on Friday (see Disclaimer): Before being fired on Friday, the OG also sold the BMY and ADM shares held in a satellite taxable account. Those sales have nothing to do with the firms or their prospects. Unlike the sell of NVS shares, however, the OG had some justification for selling shares in this satellite account due to the very limited role of stock investments in both satellite accounts.

BMY was bought at 22.95 in early June, and a dividend payment was just received. The savings account attached to this satellite account is paying about 1%. It would take about 13 years before taxes and inflation to earn $150 on $1150 at 1%, so you can see the OG's line of reasoning. Of course ultimately the success of this strategy will be dependent on the performance of all selections but so far the strategy is working out well.

ADM was bought at 28.05 (plus 1 dividend payment).

6. Willis Lease (own equity preferred stock only- WLFCP): I loosely monitor the profitability of Willis Lease (WLFC) due to my 100 share position in its cumulative equity preferred stock purchased at 10.1. That stock has a $10 par value, no maturity date, and a 9% coupon. Dividends are paid monthly. I am barely satisfied with the 2nd quarter earnings report from Willis Lease Finance. The company did record net income of 1.9 million for the quarter but that was down from 3.1 million in the 1st quarter of 2010 and 5 million in the second quarter of 2010. The common shares are starting to look interesting on a valuation basis.

7. Bought 50 BMLPRJ at $18.50 (see Disclaimer): This security is a non-cumulative, floating rate equity preferred stock. This type of security is discussed in more detail in Advantages and Disadvantages of Equity Preferred Floating Rate Securities. BMLPRJ was originally issued by Merrill Lynch and is now a Bank of America obligation. It pays a quarterly dividend based on the greater of 4% or .75% above the 3 month LIBOR rate. The guarantee is the applicable rate now and for the foreseeable future. It would take a rise in the 3 month LIBOR rate to more than 3.25% during the relevant computation period to trigger this float provision. Although I will most likely be a short term owner of this security, I would expect the float provision to be triggered more than 50% of the time over a 20 year period, based on the past 20 years. It may well be at least a year or more before this short rate rises to that level, however, under the present circumstances.

This is a link to the prospectus: Final Prospectus Supplement

I believe that the dividends paid by this security will be classified as qualified dividends for U.S. taxpayers subject to a maximum 15% tax rate. I do not know for how much longer such a classification will be relevant. The qualified dividend provision will expire at the end of this year. 2011 Dividend Tax Still In Limbo Dividend Tax Rate in 2011?

At a total cost of $18.5, the 4% guarantee translates into a 5.4% yield. Par value is $25.

I did not perform a detailed analysis comparing the BAC floaters which I have done in the past before buying one of these securities. BMLPRH vs. BMLPRJ BMLPRJ goes ex dividend on 8/11. Bank of America Corp, BMLPRJ

My last trade in the BAC floaters was BMLPRH. /Bought 50 BMLPRH at $13.25 Sold 100 BMLPRH AT 17.42 I have also bought and sold BACPRE and BMLPRG. Bought BMLprg at $8.8 Sold BMLPRG at 12.45 Sold BACPRE AT $15

BAC has redeemed the government's preferred stock. That stock was at the same level of priority as BMLPRJ. BAC could eliminate the dividend for BMLPRJ provided it first eliminates the common dividend. As long as BAC pays a common dividend in any amount, 1 cent per quarter is enough, it has to pay the equity preferred stock dividends in full. If that common stock is eliminated, then the equity preferred shareholders lose their security blanket and are in an enhanced danger of losing their dividend. This security is well into a junk rating.

The QuantumOnline.com shows all of the BAC equity preferred stocks, including those originally issued by Merrill, at B3 from Moody's and B from S & P.

So, I will tread carefully. I would add that BAC would be sending the wrong signal to its depositors by eliminating the 1 cent per share common dividend to preserve capital.

8. Bought 50 of the TP SBIBN at $23 (see Disclaimer): Even the LB, who is known worldwide as having nerves of steel, is a tad uncomfortable with this TP. The 50 share buy at $23 brings the total to 100 shares. Bought 50 TP SBIBN at 23.2 I mentioned in a prior post that the recent earnings report from Sterling Bancshares (SBIB) gave me more confidence in its TP: Item # 8 Bought 40 SBIB This TP has a $25 par value, a maturity in 2032, and a 8.3% coupon, with interest payments made quarterly. www.sec.gov The yield at a total cost of $23 is around 9.02%. Sterling Bancshares Capital Trust III, SBIBN Interest payments are made in March, June, September and December (page S-4). SBIB is paying a 1 cent quarterly dividend on the common shares which is relevant to the stopper provision (S-36 to S-38). Provided the stopper provision is not activated, deferral of the interest payments can occur for up to five years and any deferred payment accrues interest at the coupon rate.

I do not believe that SBIBN is rated by one of the agencies. I would have to classify in the junk category. The bank suffered during the Near Depression period, and turned barely profitable only in the most recent quarter, and that was only a 1 cent per share profit. Reuters On the positive side for an owner of SBIBN, the bank has been able to sell common stock, first in 2009 to pay back the government and again in March 2010. The owner of the TP does not care about dilution to the common shareholders, but does like improvements in a bank's capital cushion that comes from selling common stock. I did recently buy 40 shares of the common.

Given the risk on this one, I may trim 50 shares on any kind of pop.

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