Thursday, August 26, 2010

Sold 100 STDPRB at 18.11/Bought 200 of the CEF HTD at 14.13/SOLD DD AT 39.6/SOLD 200 ACG 8.45 Roth IRA 2010& Bought 50 KTX at 25.14 Roth IRA/

Charles Nenner, an analyst from the Netherlands, predicts that the DJIA will hit 5000 in the next 2 to 3 years. He is also predicting more deflation than anyone is currently forecasting, and he sees a Japan type scenario unfolding in the U.S. He also believes that pension problems in Europe are serious. He is telling investors to stay out of the stock market.

There may be a shortfall of as much as 3 trillion dollars in what the states have promised their employees and what has been aside to pay them. NYT

1. Sold 100 of the Remaining 250 shares of STDPRB at 18.11 on Tuesday (see Disclaimer): STDPRB is a non-cumulative floating rate preferred stock with a guarantee. The shares sold on Tuesday were my lowest cost shares, bought first at $15.3 last September. This security just went ex dividend. This floater pays the greater of 4% or .52% over the 3 month LIBOR rate. STDPRB is an issue from Santander Finance and is guaranteed by Santander:

2010 STDPRB 100 Shares +$265.01
I have gone into a trading mode on floating rate equity preferred stocks for several reasons. First, I had some decent profits in a number of them. Second, with the exception of SCEDN, these securities are issued by financial institutions and have been extremely sensitive to perceptions about credit worthiness given their low priority. Advantages and Disadvantages of Equity Preferred Floating Rate Securities It does not help on the safety issue that many of them including STBPRB pay non-cumulative dividends. All of those factors have created volatility in this class of securities. Lastly, it looks like the LIBOR float provision will not be activated anytime soon to provide me with a rate in excess of the guarantee. I am therefore hoping for an opportunity to buy many of the ones sold over the past few months at lower prices within the next year.

In the case of STBPRB, I am near break-even on the remaining 150 shares. If the price plummets for some reason, to less than $16 for example, I will consider buying back the 100 shares sold on Tuesday. Then, when conditions improve, and the price recovers to say $19+, I would evaluate whether or not to sell the higher cost shares currently held and to keep the lower cost shares. In this particular case, the shares sold on Tuesday were my lowest cost shares, bought at $15.3.

2. Bought 200 of the CEF HTD at $14.13 on Tuesday (see Disclaimer): HTD is symbol for the John Hancock Funds - Tax-Advantaged Dividend Income closed end fund (CEF). On the day of purchase, HTD closed at $14.07 and was selling then at a 10.5% discount to its NAV. Dividends are paid monthly and the current rate is $.091: John Hancock Funds - Tax-Advantaged Dividend Income The fund is leveraged. It is different than the other CEFs from JH that I own, in that HTD does own almost entirely traditional preferred stocks, European hybrids and electric, gas, and phone common stocks. The utility stocks have been doing okay in the most recent stock market sell-off. The fund's aim is to own securities that pay qualified dividends. Trust preferred issues, held in large numbers by HPI and HPF, pay interest, as do the bonds owned in those CEFs. So, for my purposes, I placed HTD in a taxable account and HPF in the ROTH IRA, and the tax issue was the primary reason. Of course, no one knows now what will happen with qualified dividends after the end of this year. Besides, I am likely to trade this particular security and do not plan to hold it until 2011.

The last filed shareholder report with the SEC can be accessed at This is a link to the Morningstar page on HTD. As of Tuesday, the net asset value was $15.72 per share, the NAV increased by six cents per share from Monday's close while the share price fell. The discount to NAV consequently expanded some to 10.5%.

Assuming the current monthly dividend is paid for an entire year, the dividend yield would be about 7.73% at a total cost of $14.13.

3. SOLD DUPONT AT $39.6 on Tuesday in the ROTH IRA (SEE DISCLAIMER): The OG, suffering from an anxiety attack on Tuesday, sold the DD shares bought at $16.68 in March 2009. The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology The OG, barely able to form a coherent thought without the aid of a powerpoint presentation prepared by staff here at HQ, had no reason for selling DD, other than his palpable fear of losing the profit. DD was the last individual stock held in the retirement accounts.

4. Sold  200 of the CEF ACG at 8.45 Roth IRA and Bought 50 of the TC KTX at 25.14 in Roth IRA Wednesday (see disclaimer): ACG is a leveraged CEF currently yielding around 5.68%. AllianceBernstein Income Fund, ACG Fund Quote I have been adding recently higher yielding leveraged CEFs.  

2010 Roth IRA 200 ACG +$104.47

Item # 7 Bought 200 ACG at $7.85-Roth IRA (5/6/2010 Post)

In the place of ACG, I bought 50 shares of the TC KTX which yields close to 8%. With this individual security, I face the credit risk of a single issuer and consequently have significantly more credit risk exposure than I had by owning the bond fund. On the flip side, I do not have the potential downside risk of ACG's leverage. While I have interest risk risk in owning KTX, that risk is mitigated by a maturity in 2027. A bond fund like ACG has no maturity date and consequently does not promise to return to me a principal amount at a certain date. I have over a 2% higher yield from KTX compared to ACG. Lastly, another factor favoring KTX is that I do not have to incur yearly expenses when I own an individual bond which is a perpetual drag on the distributions from a bond fund. I would not be buying individual bonds, however, unless I had the funds to achieve widespread diversification. I own close to fifty individual bonds or bond like securities.

I have previously discussed KTX. Added 50 KTX at 25 It is a TC which contains a TP from Xerox Capital, guaranteed by Xerox. The par value is $25, the coupon is 8%; and both the TC and the underlying bond mature on the same day in 2027 (2/1/2027). In effect the underlying security in KTX is a junior bond issued by Xerox with liberal rights to defer the cumulative interest payment, provided no payments are being made on a junior security. Provided the stopper clause is not activated, interest may be deferred up to 5 years which has undesired tax consequences for a U.S. taxpayer, but the deferred payments accrue interest at the coupon rate. (see page S-7: The possibility of a deferral and the resulting tax consequences, along with the classification of the distributions as interest, are all reasons supporting the purchase of this type of security in a retirement account. If I had some concerns now about a deferral in the foreseeable future, I would place the security in the regular IRA, where I could receive some benefit in the event of a significant price decline likely to occur after a deferral by including the security in a Roth conversion.

Xerox is currently paying a common stock dividend, Xerox Corp, XRX, A deferral of interest payments on a junior bond is not permitted for as long as that distribution is made on a junior security. The current consensus estimate for XRX is 92 cents in 2010 and $1.07 in 2011. XRX: Analyst Estimates for Xerox Corporation Common Stock The company reported net income attributable to XRX shareholders of 227 million for the Q/E 6/30/2010 or 16 cents per share. Form 10-Q

This one just went ex interest a few weeks ago. CorTS Trust For Xerox Capital Trust I, KTX The ex dates are in January and July. When I placed by limit order to buy 50 shares on Wednesday, the bid was at $25.04 and the ask was $25.14. My yield at that price will be slightly less than the 8% coupon.

The underlying security in KTX is callable now.

The underlying security also has a 8% coupon and is trading near its par value. FINRA As shown on that page at Finra, the underlying bond is rated Baa3 by Moody's, BBB- by Fitch, and BB by S & P. The ratings from Moody's and Fitch are investment grade.

The prospectus can be found at I do not expect much, if any, price appreciation in KTX and this is a pure income play from my perspective. Holding this kind of security in the ROTH IRA is equivalent to a tax free bond paying 8% in a taxable account. Where would I find now an investment grade municipal bond yielding 8% and maturing in less than 20 years?

I had four additional trades yesterday which will be discussed in Friday's post. I added a bank stock to the regional bank stock basket strategy. I also sold 2 REIT preferred stocks in the retirement accounts and substituted a TC as a replacement for one of the REIT preferred stocks that had gained over 230% in its share price since its purchase in March 2009. I will also discuss an addition on Wednesday to one of my Canadian ETFs in the next post. I am falling behind during the week now in summarizing the trades, and hopefully I will get caught up sometime during the weekend. I am stepping up my trading activity. I am also taking profits on some positions viewed as potentially vulnerable during an economic downturn.

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