Saturday, August 21, 2010

SOLD CHN at $30 and Bought 50 FTE at $20.47/Sold PKK at 24.1/Bought 50 DHM at 22.84/Bought 50 TRMK at 19.57/Sold BDF AT 18.22/Bought 55 VLY at 13.24

The preceding chart comes from Fidelity and summarizes my performance in 3 accounts at that firm year to date. Readers of this blog know that I own a large variety of securities. My stocks have played a large role in causing the roller coaster motion depicted in this graph. The bonds are in large part responsible for the 9% gain year to date, along with some successful stock trading. In those accounts I have about 6% in money market funds, earning nothing, mostly in the taxable account. This gives me some leeway to buy securities that have fallen in price and to take advantage of the volatility, buying on the dips and selling on the rips.

1. Intel (owned): The market was not pleased with Intel's proposed $48 per share acquisition of McAfee, knocking 3.6 billion off Intel's price last Thursday. Intel does not expect much of a contribution from McAfee until the middle of the decade. There are a couple of positives. McAfee's business is less cyclical and its margins are high. Apparently, Intel sees some potential advantages down the road in incorporating security into chips for smartphones, PCs and other web enabled devices. A more meaningful benefit to Intel's shareholders would have been to use the funds allocated to the McAfee purchase to increase stock buybacks. Possibly, a few years down the road and assuming a successful integration of security into chip design, some advantage may appear that will help Intel to differentiate it chips.

2. Sold 50 CHN at $30 and Bought 50 FTE at $20.47 on Friday (see Disclaimer): Sensing the direction of the wind, LB sold 50 shares of CHN at $30 based solely on the belief that those shares could be bought at a lower price in a few days or weeks. Those shares were bought at 28.53 and hopefully they can be bought back at less than $28. In its place, I averaged down on France Telecom (FTE) by buying another 50 shares at $20.47. FTE pays a good dividend, but exposes me to the currency risk of the EURO. Bought 50 FTE at 21.09 This gives me 100 shares of FTE. France Telecom goes ex dividend on the 25th. While my ultimate dividend yield will be determined by the conversion rate form Euros to the USD, the yield based on the current payout and exchange rate would be over 8% before France's withholding tax.

3. Bought 50 Trustmark at 19.57 (TRMK)(Regional Bank Stocks' basket strategy)(see Disclaimer): Trustmark is based in Mississippi and has a market capitalization of around 1.25 billion at the $19.57 price. As of 6/30/2010, Trustmark National Bank had a total capital ratio of 15.05%, and its other capital ratios were in excess of the guidelines for well capitalized banks. (page 52- form10-q.htm) At the end of the June quarter, the tangible common equity to tangible assets ratio was 9.32% (p.31); NPLs to total loans was 2.55% (p. 31); and the net interest margin was 4.47%. The bank earned 41 cents in the June quarter compared to 23 cents in the 2nd quarter of 2009. TRMK is currently paying a 23 cent per share quarterly dividend. This translates into a 4.7% yield at a total cost of $19.57. The allowance for loan losses as a percentage of non-performing loans stood at 148.9%. ex991.htm

There was no preferred stock on the balance sheet as of 6/30/2010. The bank did participate in TARP and paid the government back in December 2009 after selling 6,216,216 shares at $18.5 (page 51).

RB wanted to point out that it is not allowed to violate one of LB's stinking rules and further notes that the investment in Valley National exceeds the $2000 maximum set out in the Nerd's rules governing the regional bank stock basket strategy.

5. Added 50 DHM at 22.84 (see Disclaimer): I am in a trading mode on the TCs that contain the same senior Sprint (S) Capital bond as their underlying security. There are four TCs that contain this bond:

When I placed the order on Friday, DHM had a current yield of around 8.89%; JZK was at 7.89%; GJD was at 8.14%; and PYG was at 8.25%. The YTM for the various securities would have different numbers given the differences in the discounts to par value.

The underlying bond in all of these TCs matures in 2028, and has a coupon of 6.875%. It was trading at around 84 on Friday, FINRA At a $84 price, its current yield would be 8.18%. So DHM gave me a current yield advantage over the underlying bond and the other TCs. This is not a reason to buy DHM, but a reason to buy it compared to the alternatives.

DHM has a $25 par value and a 8.125% coupon. Prospectus Supplement

I have discussed this TC in a prior post when I bought 50 shares in the ROTH IRA at 21.35. I still own those shares and have received one semi-annual interest payment on them. Interest is paid in May and November.

6. Sold 100 PKK at $24.10 (see Disclaimer): I took a long term capital gain on the TC PKK, which contains a senior Liberty Media bond, rated junk. The TC went ex interest in July. This security could have been bought at less than $10 during the Dark Period.

7. Sold 100 BDF at $18.22 in the ROTH (see Disclaimer): I sold my remaining shares of this non-leveraged bond CEF that were bought at 17.1. I received one quarterly dividend payment. As previously mentioned, given my views about inflation, I have adopted a hyper trading strategy for bond funds purchased over the past few months.

8. Added 55 VLY at 13.24 (Regional Bank Stocks basket strategy)(See Disclaimer): This was an average down and brings my total to 160 shares. VLY pays a good dividend and has been paying a 5% stock dividend. If that continues, I will receive 8 shares the next time VLY pays that 5% stock dividend. The current quarterly dividend rate is 18 cents which translates into a 5.44% yield at a total cost of $13.24. Valley National Bancorp, VLY Stock Quote I discussed the last earnings report at Item # 2 VLY. The last filed quarterly report can be accessed at Form 10-Q. This bank has expanded from its NJ base into NY with two FDIC assisted transactions described at pages 9 to 11 of that 10-Q.

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