Thursday, September 30, 2010

Sold 50 IDE at 18.7/Sold 100 NABZY at 25.2/Added to JOE at 24.57/WAG/Case Shiller for July-Consumer Confidence-Richmond Fed Manufacturing Survey

This is a link to the results from recent auctions of treasury securities: Recent Note, Bond, and TIPS Auction Results The five year treasury note was auctioned this week with a 1.25% yield. The 7 year was auctioned yesterday at 1.875% (1.89% with OID). The last auction of the 2 year treasury was at .37% (.441% with OID). It is obvious that participants in these auctions do not share my opinion on the more probable than not inflation rate over the intermediate and long term.

The Republican candidate for Governor of New York, a Tea Party favorite, has a long history of sending racist and sexist emails, which provide insight into his frame of mind and true nature. In one email, which shows an airplane landing near some black men, the caption reads "Holy Sh*t. run ni**ers, run!". Another depicts the President and his wife as a pimp and a prostitute, while another has a video clip of African tribesmen dancing with the caption "Obama Inauguration Rehearsal". He does have some new ideas that are even more ingenious than the prisoner massages advanced by Carl's kindred spirit from Nevada, Sharron Angle. Carl wants to place welfare recipients in state prisons, sort of like a dormitory for poor people. CBS News Some of Carl's emails can be read and viewed at

1. Sold 50 of 100 IDE at $18.7 Last Week (see Disclaimer): I bought IDE in two fifty share lots. Using FIFO accounting, I sold the higher cost lot purchased first at 17.4 and kept the shares bought at $16.85

2010 IDE 50 Shares +$49.08

Again, this is a typical trading pattern for a market characterized as being in an Unstable Vix Pattern within the context of a long term secular bear market. At some point, this kind of trading will be replaced with a buy and hold strategy consistent with either a Stable Vix Pattern within the context of a long term secular bull market in stocks (time frame about 15 years) or a Stable Vix Pattern within a long term bear market (time frame 1 to 3 years generally).

2. Walgreens (Owned): Walgreens (WAG) reported earnings per share of 54 cents, excluding 5 cents in restructuring and acquisition costs, for its 4th quarter of F/Y 2010. The consensus estimate was for an E.P.S. of 44 cents. The company completed its 2 billion dollar stock repurchase program announced in 10/09. The cash flow for the quarter totaled $925 million. Revenue rose 7% and same store sales increased by 1.5%. I re-entered a position in WAG last June by buying a starter position of 50 shares at 30.15. WAG rose 11.4% on Tuesday in response to this report. I do not have a price range yet that would trigger a possible sell. I would not be inclined to buy more at the current price and would most likely be a seller in the $35 to $37 range, possibly a tad lower.

3. Case Shiller: Home prices increased by .6% in July compared to June in the 20 city Case Shiller index (.8% for the 10 city index). Year over year, prices increased 3.2% in the 20 city index and 4.1% in the 10 city index. The largest year-over-over year increase was in San Francisco at +11.2% followed by LA at +7.5%. The largest decrease was Las Vegas at -4.9% followed by Charlotte at -3.5% and Tampa at -3.2%. This report can be accessed at sp-case-shiller-home-price-indices.

4. Consumer Confidence and Richmond Fed Manufacturing Survey: Both of these reports were disappointing. The Conference Board reported a decline in consumer confidence to 48.5 in September, compared to the consensus estimate of 51.5. The Richmond Fed Manufacturing Index fell into negative territory for September with a -2 reading. In this Fed surveys, zero is the demarcation line between growth and contraction. Fifth District Survey of Manufacturing Activity - Federal Reserve Bank of Richmond

5. Added to JOE at $24.57 on Tuesday (see disclaimer): My last purchase of shares in the St. Joe Company was at $15.59 during the Dark Period. This stock requires a lot of patience since it is almost entirely an asset play on Florida real estate. My last discussion of JOE was in connection with Cramer's "sell, sell, sell" recommendation made in late June 2010. St Joe This is what I said then about the sell recommendation which I viewed as silly at the time:

"Cramer put St Joe on his sell block last week with a "sell, sell, sell" recommendation even though the stock has lost almost 38% of its value from the recent high of $37.13 on 4/29. Dan Fitzpatrick, the technician at TheStreet agrees with Cramer. If I was inclined to take their recommendation on St Joe, I would go ahead and take my long term capital gain on the shares bought at $15.69. Instead, I am considering adding to my position with the caveat that any purchase now will have to be held for years. I will track just how prescient the sell recommendations from Cramer and Fitzpatrick turn out to be. The sell recommendation was made on Thursday, June 24 with the share price at $22.47" St Joe

St Joe owns around 405,000 acres of land in Florida within 15 miles of the Gulf Coast and 75,000 of those acres are located near Panama City. A new international airport recently opened there built on land donated by ST. Joe. The price of St Joe stock started to decline soon after it become apparent that the Deepwater Horizon fiasco would result in a large oil spill which could potentially impact land values along Florida's Panhandle. While there may be some short term impact, I do not believe that it would be reasonable to predict a significant long term impact, and ST Joe is a long term story. The recession and the implosion in home values may end up having far more important significant impact on Florida Panhandle real estate than the oil spill. However, fear of another spill in the Gulf, or from new drilling off the coast of Cuba, may restrain price increases in the upcoming years.

I do not anticipate any near term favorable earnings reports from this company. The current consensus forecast is for a loss of 28 cents in 2010 and a loss of 7 cents in 2011. The five year high was hit in December 2005 at over $70 per share. Before the rig explosion, the stock hit a yearly high at over $36: St. Joe Company (The) Common St Stock Chart

The shares closed yesterday at $24.15.

6. Sold 100 NABZY at $25.2 (see Disclaimer): I bought shares in National Australia Bank Ltd. (Victoria, Australia) in two fifty share lots. Bought 50 NABZY at 24.7 ADDED 50 NABZY AT 19.51 I received one dividend payment. A large chunk of the gain realized on the shares bought at 19.51 was due to the rise in the Australian dollar against the USD. I noted in the post discussing the buy at 19.51 that FXA , the currency ETF for the Australian dollar, was trading at $83 then. It closed yesterday at $97.14. Chart

Wednesday, September 29, 2010

Bought 100 MTY at 10.49/Bought 50 IRM at 21.76/Sold 90 HBAN at 5.83 & Added 50 NWBI at 11.10/Bought 50 ALJ at 5.24

The first part of this post will be a discussion of the remaining trades from last week. Since I am busy on other matters, it will take some time to catch up summarizing my trades. I do not have the time now to discuss macro economic issues, but my opinion on such issues always influences my investment decisions.

I also trimmed last week my positions in Emerson Electric (EMR) by selling shares at $53.31 and Glimcher Realty (GRT) at $6.36. In both cases the shares sold were my highest cost shares using FIFO accounting. My remaining 100 shares of GRT, bought as a Lottery Ticket, were purchased in two fifty share lots, the first at $1.61 in 2/09 and then at 2.79 last December. One of the best LT buys ever made, and the shares are still owned, is a cumulative preferred stock issue from Glimcher, GRTPRF, bought at $2.9 with a 8.75% coupon on a $25 par value. GRTPRF: A WALK ON THE WILD SIDE The REIT has not missed paying its regular preferred dividend since that purchase in November 2008, even though it was given up for dead by the "smart" money. It went ex dividend for its quarterly distribution yesterday. GRTPRF closed yesterday at $24.90 on the day of its ex dividend, and is yielding 75% annually at a total cost of $2.9-just incredible. (.0875 x. $25=$2.1875 per share ÷ $2.9 cost=75.43% annually). RB just said that the Nerd did not buy enough shares. RB wanted to buy a million at $2.9. And the common has also been a star performer in the LT category. The remaining Emerson shares have a total cost basis close to $34 per share.

1. Bought 100 MTY at $10.49 Last Week (See Disclaimer): I already own 200 shares of a similar security, MOL, at 9.95. When I purchased MOL, I mentioned that I would consider selling 1/2 of that position when and if I received a decent annual distribution. The first annual coupon period for MOL ends on 11/18/2010, whereas MTY is already in its second annual coupon period which ends 7/27/2011. So, one benefit for owning both MOL and MTY is the different time periods for measuring the percentage increase in the spot gold price.

Both MOL and MTY are principal protected senior notes , maturing in 2014 at $10, that pay the greater of a guarantee or a percentage increase in gold's spot price. Both notes are obligations of Citigroup Funding and are guaranteed by Citigroup. Of course, a purchaser of these notes will receive the $10 par value only if Citigroup is able to pay it, and that is what is meant by "principal protection" in this context. If Citigroup is in bankruptcy, then the owners of these notes would be unsecured creditors and would receive substantially less than par value. Apparently, some investors in Lehman principal protected notes did not understand this very basic fact that would be apparent to anyone reading the first few sentences of a prospectus. See Item # 2 Principal Protected Notes There is no excuse for laziness when investing your own money. The prospectus has to be read, and the investor must take the time to identify and to assess all the risks and benefits of any potential purchase.

MTY has much better terms than MOL. When I buy these notes, I generally want to buy them at a discount to their par values or at most a small premium. If I held MOL to maturity, and Citigroup survived to pay me the $10 par value, I would not lose any money on the 200 shares bought at $9.95. The worst outcome would be to receive only the 2% guarantee in each annual period when Citigroup survives to pay par value.

By purchasing 100 shares of MTY at $10.49, I will lose the $49 premium plus the commission cost at maturity. On the other hand, I stand to benefit more between now and then compared to MOL.

MTY has a 3% guarantee, compared to the 2% guarantee of MOL. That is not the most important difference however. This is where it becomes complicated and each investor just has to spend time becoming familiar with how these securities work.

MTY pays annually the greater of 3% or up to 35% based on the percentage increase in the price of gold, provided there is not a single daily close above that 35% maximum increase. If there is one day during the applicable annual period where the gold price increases by more than 35% over its "Starting Value", then there is a reversion back to the guarantee of 3%.

The operable language in the prospectus on the forgoing important point is as follows, and I have highlighted in red the reversion language:
The coupon amount payable on each coupon payment date will depend upon the closing price of gold on each business day during the related coupon period, will be based on the percentage change in the closing price of gold during such coupon period and will not be less than $0.30 (3% of $10 principal amount per note) per note nor be greater than $3.50 (35% of $10 principal amount per note) per note. Thus, for each $10 principal amount note held, you will receive on each coupon payment date either:

an amount equal to the product of (a) $10 and (b) the percentage change in the closing price of gold from the first business day of the related coupon period through the last business day of the coupon period (which we refer to as the gold percentage change), if (i) the closing price of gold on every business day during the coupon period is less than or equal to 135% of the closing price of gold on the first business day of the coupon period (which we refer to as the starting price) and (ii) the gold percentage change is greater than 3%; or

an amount equal to $0.30 (3% of $10 principal amount per note), in all other cases.

As previously discussed, MTY ended its first annual period without triggering a reversion and made a $2.23 distribution per share based on the percentage increase in the gold price. I believe that the starting price for the second annual period is $1168 per ounce, but I am not 100% positive. I just pulled that price from the Kitco site as the closing price on 7/27/2010. Since MTY has a 35% reversion limit, this would put the maximum level for gold during the current period at $1576.8. The second coupon period ends on July 27, 2011. Simply put, I do not want to see a single close above that maximum level between the starting date on 7/27/10 and 7/27/2011.

The main advantage of MTY over MOL is the difference in allowable increases in the gold price. MOL has a 19% limit whereas MTY has the much better 35%. The 35% limit provides both more leeway in appreciation during the applicable annual period without triggering the reversion back to the guarantee and a greater potential annual distribution compared to the 19% maximum of MOL.

Although MOL only has a few weeks left in its first annual period (11/18), it is moving closer to its reversion number. It may be touch and go whether gold exceeds the maximum level for the reversion trigger. When I checked yesterday evening, gold was trading at $1309 per ounce. The maximum level for MOL is 1391.7. If there was no reversion trigger caused by a maximum level violation during the 1st annual period, and gold closed at $1309 on the end date, then the percentage gain would be almost 11.93% or $119.30 distribution on a 100 shares of this $10 par value note.

2. Bought 50 IRM at $21.76 on Monday (see Disclaimer): Iron Mountain has only recently fallen into my buy range as a result of price decline from around $28 in April. The five year peak was hit in December 2007 at over $37 per share.

Generally, I will establish what I consider a rational range for a potential purchase. I am always more concerned about over paying for a security. The current consensus earnings estimate for IRM is for $1.13 per share in 2010 and $1.32 in 2011. If those future estimates hit the nail on the head, this would represent a 16.8% increase in earnings from 2010 to 2011. At a total cost of $21.76, this would give me a P/E 16.48 based on the 2011 earnings estimate. This would give me a PEG ratio of around 1. The top end of my valuation range for this security would be a forward P.E.G. of 1.2 (divide P/E ratio by Earnings Growth rate).

If I am making a purchase outside the $300 maximum exposure for a Lottery Ticket, I try to remain disciplined about valuation metrics at the time of purchase, except I will make some allowances during periods where earnings are abnormally low or high due to economic conditions. As a consequence of this discipline, I was unable to buy most stocks in 1999-2000 and the large cap tech stocks have only recently fallen into acceptable valuation metrics, which include an evaluation of the following ratios: Price/Earnings, P.E.G., Price to Sales, Price to Book, & Price/Net Cash.

Iron Mountain is the leading document storage company in the U.S.

Berkshire has been acquiring shares and owned 8 million shares as of 6/30/2010, up from 7 million at the start of 2010. Form 13-F for Q/E 6/30.

3. Sold 90 HBAN at $5.83 on Monday and Added 50 NWBI at $11.1 on Monday ( Regional Bank Stocks' basket strategy)(see disclaimer): The regional bank strategy has a 5 to 10 year time horizon. While I hope that Huntington Bank (HBAN) will successfully turn its operations around, pay back the government TARP funds, and increase its dividend to some level deemed acceptable, I have started to question whether all of those events will occur in an acceptable time period, compared to other banks that are currently owned in my regional bank basket.

HBAN was barely profitable in the June quarter, earning just 3 cents, and has stated that it intends to repay TARP funds when it is "prudent" to do so. (page 5 Form 10-Q) There is 1.4 billion outstanding. FORM 8-K For the first five years, the government receives a 5% dividend on its cumulative preferred stock and then the rate increases to 9% . Huntington also has about 570 million dollars of trust preferred securities that will have to be phased out as tier one capital under the recently enacted financial reform legislation.

So, I decided to take my profit and reinvest the proceeds in another bank that does not have HBAN's issues. The percentage gain on the HBAN shares was a factor in the decision to sell. I bought 50 shares at $4.27 and 40 shares at $3.7. I do not intend to follow HBAN in an effort to cut down on my workload relating just to following the banks that have already been purchased as part of the regional bank basket strategy, currently over fifty names. I would add that HBAN could work out better long term than the security purchased as its replacement.

I used the proceeds from HBAN to buy another 50 shares of NWBI, bringing my total to 150 purchased shares. NWBI is one of the few bank stocks where I have elected to reinvest the dividends. This last purchase was an average down from buys at 11.88 and at 11.47.

Northwest Bancshares does not have any government preferred stock on its balance sheet (p.1 10 q) and has plenty of capital as a result of its demutualization. If I had a knock on the bank, it would be that it has too much capital due the capital raise made in connection with the demutualization. Page 33 of the last filed 10Q shows a total capital ratio of 21.02% and a tier 1 capital to risk weighted assets ratio of 19.79% (well capitalized is 6%).

NWBI earned 15 cents per share in the Q/E 6/09, up from 7 cents in the year ago period. The bank is paying a quarterly dividend of 10 cents per share, which equates to an annualized rate of 3.6% at a total cost of $11.10 per share. As of 6/30, NPLs to total loans was at 2.35%; NPAs to total assets was 1.87%; the tangible book value was at $10.24; the number of banking offices stood at 171; the net interest margin was 3.47%; and the tangible common equity to assets ratio was at 14.25%.

I am tracking the realized gains/losses in the regional bank basket in Item # 3 2010 Realized Gains Regional Bank Stock.

4. Bought 50 ALJ at $5.24 on Monday (LOTTERY TICKET strategy)(see disclaimer): It has been almost two years since I bought and sold shares in Alon USA Energy. My last purchase was 50 shares at less than $7. Refiners: ALJ and VLO (October 2008). I sold those shares in December 2008 at $9.37. Shortly before those trades, I bought ALJ in the summer of 2008, caught about a 50% pop, and sold those shares at over $12. The purchase on Monday was at the lowest price ever paid by me.

ALON USA is a publicly traded subsidiary of the Israeli company, Alon Israel Oil Company, who owns about 80% of ALJ. ALJ Major Holders The company operates in several business segments. Alon owns Southwest Convenience Stores that is the largest licensee of 7-Elevens in the U.S. with over 300 stores in the southwest. More importantly, and the primary cause of the stock's weakness, is the refining operations. A map of Alon's refineries, pipelines, and terminals can be found at ALON USA - Refining. The short term prognosis for earnings is not good, with the analysts forecasting a $2.15 loss in 2010 and a 15 loss in 2011. ALJ The recent earnings reports and this somewhat dismal future forecast has resulted in the shares sliding to their current level. In July 2007, the stock was traded above $46: Chart | ALJ

Price to sales is around .08 and price to book is .83 according to YF.

Given the debt level and the poor earnings, I classified this purchase as a Lottery Ticket which limits my total exposure to $300, plus prior net profits and distributions. Due to successful trading of ALJ in 2008, my trading system would allow me to go over $300 by several hundred dollars, but I elected to keep the exposure below $300 for now. I do not want to totally ignore ALJ, since it does have some long term potential in my opinion, but the risk is high too. The recent decline in the share price has just diminished the risk some.

S & P has a report on ALJ, rating the stock 3 stars with a $7.50 12 month price target. As previously noted in those 2008 posts on ALJ, the company acquired the Krotz refinery in Louisiana from Valero in 2008. That refinery has a 83,100 b/d rating. And, in June 2010, ALJ acquired a 70,000 b/d refinery in Bakersfield for just 40 million. 

Tuesday, September 28, 2010

Sold: 50 NPBCO at 25.2, 50 RNST at 14.91, 50 FBNC at 13.25, 50 SNY at 33.85, 100 MSF at 15.3, 50 PJL - 26.5/Bought: 50 BMLPRH at 16.2, 50 TDA at 25.5

This post will be primarily devoted to the remaining trades made last week. Most were GTC orders placed before 9/17. I did have sufficient time to look briefly at a monitor list and enter some day orders. I am still working on other matters but have some time to write posts without a lot of my normal verbiage which will be the case for the remainder of this week. I was able to devote several hours last Friday to sell some stocks that reduced my cost basis using FIFO accounting in my remaining shares. Although I did not exactly plan on raising capital last week, it turned out that most of the GTC sell orders were filled which resulted in close to a 20 thousand net reduction in stock exposure.

The GOP candidate for the U.S. Senate seat in Delaware told Fox in 2007 that "American scientific companies are crossbreeding humans and animals and coming up with mice with fully functioning human brains." YouTube And Christine, who believes a woman's place is in the home, once said that condoms were anti-human. I will not mention about her dabbling in Witchcraft. I am trying to determine whether she is a bigger fruitcake than the GOP's candidate for the Senate in Nevada. (see also YouTube - Christine O'Donnell's 90's MTV Anti-Masturbation Campaign Christine is one of Sarah's favorites.

1. New BAB ETF: Pimco launched a Build America Bond ETF last week, BABZ, which has a .45% expense ratio after a waiver of .10 in effect through 10/31/2011. PIMCO Build America Bond Strategy Fund

Back in July, I bought 100 shares of BAB at 25.98 that is a Build America Bond ETF from Powershares. The expense ratio is .35% for BAB: PowerShares Exchange-Traded Funds | Build America Bond Portfolio | BAB In late June, I also made a small purchase of 50 shares in a closed end fund (CEF) that invests in these bonds:Bought 50 NBB at 19.67. This CEF is currently selling at a small premium to its net asset value, NBB - Nuveen Build America Bond Fund, which makes it unappealing to me compared to the lower cost ETFs that are available in this bond category. I still own both BAB and NBB.

2. Sold 50 NPBCO at $25.2 and Bought 50 TDA at $25.5 Last Week (see Disclaimer): I am just more comfortable holding a senior bond from Telephone & Data Systems (TDS) than a junior bond in TP form from National Penn Bancshares. The TP, NPBCO, was bought at at 23.09. At a $25.2 total cost, the yield is about 7.79%. TDA has a 7.6% coupon on a $25 par value, and has a 7.45% yield at a total cost of $25.5. Generally, one of the main differences between a junior and senior bond is that a firm has the option of deferring interest on a junior bond, frequently for five years or sometimes longer, provided no distributions are made on a more junior security such as common or equity preferred stock. As discussed, this kind of stopper provision may be activated by the purchase by the issuer of the junior bond of common or preferred stock under certain circumstances. The senior bond covenants do not generally permit any deferral of interest payments, and have a higher priority than the junior bond in the event of bankruptcy. Lastly, in a bank failure, I would not expect the owner of a bank TP to receive anything, but the owner of a senior bond issued by a telephone company would likely receive some sum north of zero.

I previously purchased 100 shares of TDA at 25.22. This is a link to its prospectus: SEC Filing for TDA CORPORATION This bond matures in 2041. This is the link to the Reuters description of TDS and to its key developments page. This is the kind of bond that will be sold as soon as I become more concerned about interest rate risk. TDA does make quarterly interest payments and is ex interest today: Telephone and Data Systems Inc, TDA

I also own 150 shares of a senior bond (UZV) from United States Cellular (USM), a TDS subsidiary that is publicly traded. Bought 100 UZV at $24.42 Added to UZV at 25.16

3. Bought 50 BMLPRH at $16.2 Last Week (see Disclaimer): For some time, I have been in a trading mode on floating rate equity preferred stocks with a guaranteed coupon issued originally by Merrill Lynch (now part of BAC) or Bank of America. The goal is to arrive at that point where I am playing with the house's money on this grouping of securities. For those unfamiliar with these non-cumulative securities, I have previously summarized the Advantages and Disadvantages of Equity Preferred Floating Rate Securities. That post also contains a list of the exchange traded BAC floaters.

BMLPRH has a $25 par and distributions are non-cumulative. Dividends are paid based on the greater of 3% or .65% over the 3 month Libor rate. Final Prospectus Supplement Given the Fed's Jihad against savers and other responsible Americans, the 3% guarantee is the current applicable rate, and I would expect the guarantee to be greater than the LIBOR computation for many months to come. Before the Near Depression, the 3 month LIBOR +.65% would have been the applicable rate most of the time. LIBOR Rates History (Historical) The float will kick in when the 3 month Libor exceeds 2.35% during the applicable computation period.

I also own currently 50 shares of another floater, BMLPHJ, purchased at 17.74, having previously sold 50 shares. That security pays the greater of 4% or .75% over 3 month Libor. Final Prospectus Supplement BMLPRJ has mostly been trading around $19.5 over the past few days.

I have also bought and sold BACPRE and BMLPRG. Bought BMLprg at $8.8 Sold BMLPRG at 12.45 Sold BACPRE AT $15

While these securities currently pay qualified dividends to the best of my knowledge, it is still uncertain whether the favorable tax status of qualified dividends will remain after the end of 2010. This tax issue will have an impact on their desirability.

In the past I have made computations trying to compare the BAC floaters when making a decision to purchase one of them: BMLPRH vs. BMLPRJ

I ran a quick computation before buying BMLPRH back last week, and did not have time to perform an extensive calculation. I compared BMLPRH with BMLPRJ. I assumed a $1000 purchase of both securities at the ask price of both securities at the time the order was about to be placed. And this is a summary of my calculations:

BMLPRJ: 51 shares
BMLPRH: 62 shares
BMLPRJ 4% guarantee produces annually $52.14 in dividends.
BMLPRH 3% guarantee produces annually $47.54 in dividends
ASSUME A 5% LIBOR: 51 BMLPRJ=$73.31 annually; 62 BMLPRH= $87.58 annually

4. Sold 50 SNY at $33.85 Last Friday (see Disclaimer): Basically, I do care for Sanofi's ongoing effort to acquire Genzyme. I did note that S & P has a $33 price target. The shares were sold near break-even after adjusting for one dividend payment. Bought 50 SNY at 34.21 This was not a GTC order. I noticed a pop in SNY shares on Friday due in large part to a rise in the Euro against the USD.

5. Sold 100 of 200 of the CEF MSF at $15.3 Last Friday (see disclaimer): This is another typical trade. I first bought 100 shares of MSF at 14.4. Thereafter, I bought 100 shares at a lower price: Added 100 MSF at 13.57 I will keep the shares bought at the lower price using FIFO accounting. The net asset value (NAV) closed at $15.43 on the day of my purchase and the discount was at -8.3%. As of last Thursday's close, the NAV was at $16.05 and the discount was at -6.48% based on a closing market value of $15.01. Daily Prices If I believed that the current rally this September was the start of a long term secular bull market, I would not have sold any shares in MSF. The trading pattern currently in effect is one developed for an Unstable Vix Pattern in a long term secular bear market.

6. Sold 50 of the 150 PJL at $26.5 Last Friday (see Disclaimer): While it is just an opinion, I believe that it is likely that the TC will be redeemed by the owner of the call warrant, which has already happened for the TC XFL containing the same bond, and this could happen at anytime. Item # 6 Call Warrants and Trust Certificates

The underlying bond is selling at close to a 30% premium to its par value. FINRA The owner of the call warrant can redeem PJL at the $25 par value,plus accrued interest, at anytime it so desires now. This would place a maximum value of the TC at around $25.92. (six month's interest plus the $25 par value). The call warrant provision in the PJL prospectus can be found at page S-4: The 50 PJL shares were sold out of the Roth IRA, and those shares were bought at $24.52 in April 2009: Bought PJL So I received 3 semi-annual interest payments and made a small profit on the shares.

I am more inclined to keep the 100 shares in my taxable account, and just wait to see what happens. See also, Trust Certificates PJL and XFL: Verizon Bond (Oct 2008); Functional Equivalence in Bond Trading.

7. Sold 50 FBNC at 13.25 Last Friday (Regional Bank Stocks' basket strategy)(see Disclaimer): FBNC popped $1.20 on Friday or 9.95%. Possibly, the gain was in part due to Sandler O'Neill initiating coverage with a buy rating and a $15 price target.

I am just reducing my overall dollar exposure to the regional bank strategy while reducing my cost basis for my remaining shares in some securities. I sold the higher cost 50 shares bought first at 12.58 and will keep the 50 shares purchased shortly thereafter at $12.01. Then if the shares fall below $11.5, I will consider buying back the 50 shares sold on Friday. This process involves using the volatility in share prices, both up and down, to book profits, to collect distributions and hopefully to lower my cost basis for shares to be held long term using FIFO accounting. Again, this is one of my most important trading strategies for an Unstable Vix Pattern within the context of a long term bear market.

8. Sold 50 RNST at $14.91 Last Friday (Regional Bank Stocks' basket strategy) (see Disclaimer): The reasons for this transaction are identical to Item # 7 above involving FBNC. I sold the higher cost shares bought first at 14.14 and will keep for now the shares purchased at 13.70. If RNST falls below $13.2, I will consider buying back the 50 shares sold on Friday.

Since I am busy on other matters, I will discuss the remaining trades from Friday in Wednesday's post. I am in a trading mode consistent with my characterization of the stock market as being in an Unstable Vix Pattern within the broad context of a long term secular bear market. In my system, I start the long term bear pattern in October 1997, unlike others who start it in 2000. Current Status of The Vix Asset Allocation Model Signal The Roller Coaster Ride of the Long Term Secular Bear Market Dating the Start of the Current Long Term Secular Bear Market During a long term bear market, buy and hold investing is replaced by a considerable amount of trading, buying the dips and selling the rips, with some long term positions taken during particularly nasty periods which would include always the catastrophic phase of that long term cycle (declines greater than 50%).

The VIX rose 3.82% yesterday to close at 22.54. To end the Unstable VIX Pattern, my current VIX model requires three months of steady movement below 20 while allowing some brief and minor movement over 20 without restarting the count. The market has been in an Unstable Vix Pattern after the Trigger Event in August 2007 that mandated a reduction in stock exposure. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern The prior Trigger Event occurred in October 1997, which marked the commencement of an Unstable Vix Pattern which lasted until 2003. This is a comment that made in an earlier post:

"Prior to 1997, the VIX had been moving continuously below 20 since forming a Stable Vix Pattern in 1991. During that Stable Vix Pattern period, the S & P 500 was in a steady climb: VIX and S & P Compared 1990 to 1997 Events in the later part of October 1997 decisively broke that Stable Vix Pattern when the S & P 500 came close to 1000. The S & P 500 now, almost 13 years later, is at 1135 and it would not be surprising to anyone to see it at 1000 again. Hopefully, this link will display the historical data for the S & P 500 in the last six months of 1997: ^GSPC: Historical Prices for S&P 500 INDEX

The VIX formed an Unstable Vix Pattern in 1997. It stayed in that pattern until 2003. The rise in the market in 1999 occurred with the VIX in an Unstable VIX Pattern, marked mostly by reading in the 20s, which I call a non-confirmation event.Vix Asset Allocation Model The VIX was not confirming the validity of the market move and was instead signaling investors to sell the parabolic increase. The Vix would briefly return to some movement below 20 during this 1997 to 2003 period, and this would actually be a sell signal in the overall context of an Unstable Vix Pattern. The first movement below 20 after the formation of the Unstable Vix Pattern was in February and March 1998 when the VIX returned briefly to readings below 20. ^VIX: Historical Prices for VOLATILITY S&P 500

The defining characteristics of the long term secular bear market are a lot of up and down motion, at least one catastrophic phase of losses exceeding 50%, and a long period where the investor has not made any progress by being invested in the market. After adjusting for inflation, the annualized return would be negative during such period even after reinvesting the dividends. All of those conditions are met starting in October 1997. The S & P 500 has had a lot of whipsaw up and down movement since then but has not made in progress in advancing the capital position of buy and hold investors. Unless the investor could time the market moves since October 1997, both up and down, the investor would have been better off buying 10 year treasury notes in early 1998 and selling out of stocks entirely. The ride since 1997 has been a roller coaster going nowhere, as distinguished from a steady, mostly a 45 degree angle slope, of a long term bull market: See S & P Charts from 1950 to 1966; and 1982 to 1997)" Dating the Start of the Current Long Term Secular Bear Market

I still have not finished discussing the trades from last week.