Friday, September 17, 2010

Wingnuts/KTN/RB Buys 40 TRC at $21.83 & 50 GY at $4.65 as a LT/Sold 50 of 150 KTN at 28.17/Added to UZV at 25.12

The article by Michael Lewis about the pervasive corruption in Greece needs to be required reading for every voter in the European Union. Vanity Fair The only effective and just remedy is to cut this cancer out of the EU and let the Greeks suffer the inevitable consequences of their own rampant immorality.

Moody's and S & P have rated an upcoming 10 million in a GO bond issuance from the SUV Capital of the World, where HQ is located, AAA. Brentwood, TN Brentwood's fiscal 2009 fiscal year represented its fifth year of budget surpluses. My city property taxes have not been raised in a very long time, probably in over 20 years or so. (see: /bplive/2008) Maybe there is a lesson to be learned by the public servants in other localities.

The wingnuts are starting to receive cover stories in major periodicals. Personally, increasing their exposure to that part of the American population who are not yet crazy may have beneficial long term results. The cover of Forbes magazine, received yesterday, references an article by Dinesh D'Sousa, that reportedly exposes the true nature of Obama's ideology. As Maureen Dowd wrote in her NYT column yesterday, D'Sousa offers a genetic theory of ideology to explain the President's real agenda. I thought that the Sousa article was humorous, but nowhere near as entertaining as Steve Forbes' column in the same edition. Steve argues that the Beanpole can learn a thing or two from Lenin. Forbes, who is an extremely rigid ideologue with a closed mind, says that Obama can learn from Lenin about the need to be flexible when necessary. That was just hilarious coming from Forbes. In case the reader missed his point, Steve helpfully puts Obama and Lenin in the same picture:

1. Trust Certificate KTN (own): During the Dark Period, I was trading four trust certificates that contain the same AON Capital TP as their underlying security based solely on the yield at their respective prices. Until Wednesday, I did not fully comprehend that KTN has an oddity which makes it more attractive to some larger investors than KVW, DKK, or KVF. I have limited my recently trading activity in this TC grouping to DKK.

DKK and KVW have a 8% coupon and both have call warrants attached to the TCs. This means that the owner of the call warrant has the option of redeeming those TCs, paying the $25 par value plus accrued interest, and then taking possession of the Aon Capital TP. If that security which has a 8.205% coupon was selling at over par value, the owner of the call warrant could make a profit by redeeming the TCs and then selling the bond. DKK prospectus under description of "swap agreement; KVW Prospectus at pages S-4-5 424B5)

The underlying bond is currently selling above par value. FINRA The call warrant provision effectively places a lid on the TCs appreciation above par value. More on the Call Warrant in TCs Call Warrants and Trust Certificates Due to the presence of a call warrant, I do not expect either KVW or DKK to appreciate much above their par values plus accrued interest. Both are now trading near the $25.5 to $25.8 range, with close to 3 months remaining before they go ex interest again for their semi-annual payments. So, even if the underlying bond continues to move up in price, I would anticipate that the price of KVW and DKK will stall due to the existence of the call warrant. Of course, if interest rates go up or something adverse happens to the credit of AON, both TCs can go down. My remaining shares of KVW were bought at $16.98 per share on September 30, 2008, shortly before starting this blog. (see item # 5 in recent May post on ex interest date: Heinz) Some of the earliest posts, which started in October 2008, involved discussions of securities like KTN, JZE, PJL, METPRA and AEB at what anyone would now consider to be extremely ridiculous prices.

On Tuesday, I noticed heavy volume in KTN and a spike in its price to over $28. Like the other TCs containing the same 2028 Aon Capital Trust Preferred, KTN has a $25 par value. I did not realize until then that KTN had been experiencing heavy volume for it since 9/3: KTN Historical Prices The rise in KTN price decreased its yield compared to KVW and DKK, even though KTN has a slightly higher coupon. I was tempted to pare KTN in an IRA where my cost basis is below $14 and use the proceeds to buy KVW or DKK at a later time. (total cost of those 100 shares purchased on 11/24/2008 is $14.06: KTN add TRUST CERTIFICATE AON BOND KTN ORDER FILLED at $13.1. I first wanted to make an effort to determine why there was institutional interest in KTN.

I quickly learned the probable source of interest in KTN by examining its prospectus. Unlike the other TCs containing the 2027 TP, KTN has no call warrant attached. And, the underlying bond can be called by Aon only in limited circumstances, described at p. S-4 of the prospectus. Still, it would be cheaper to buy the bond directly in the bond market based on its current price. The underlying bond is not that actively traded, however, and had some trades over 109 as recently as 9/8. Since the underlying bond and the TC KTN have the same coupon, KTN would be trading at $27.25 at a 9% premium but only at $25.75 with a 3% premium to par value which is about the premium for the underlying bond at yesterday's closing price.

The current yield for the 100 shares bought in the regular IRA is about 14.12%, annually until both the TC and the underlying bond mature on 1/1/2027.

I am not interested in buying any of these securities at current prices. My only issue now is whether or not to pare KTN by 50 shares at over $28.

2. RB Buys 40 Tejon Ranch (TRC) at $21.83 on Wednesday (see Disclaimer): Tejon is a real estate asset play. Marty Whitman's Third Avenue Value fund owned 17.34% of the outstanding shares based on the last available information according to Y F . The last filed SEC Form N-Q shows Third Avenue owning 3,420,106 shares as of 7/31/2010: I have not discussed Tejon much in this blog and there are only a few brief references: Forbes Article on Land Rich Companies:FCE/A JOE and TRC I previously bought and sold a small TRC position at higher levels than prevailing now. TRC is currently trading near its 52 week low and well off of its 5 year high near $56 reached in 2006: Tejon Ranch Company Common Stoc Stock Chart The five year chart shows a five year low over $19 in early March 2009.

The company recently did a rights offering at $23 in June: Press Release TRC reported a 6 cent loss for the Q/E 6/2010: Form 10-Q

My small attraction to TRC is summarized in this sentence from page 19 of its last filed 10-Q: "Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of the city of Los Angeles and, at its most northerly border, is 15 miles east of Bakersfield."

TRC closed at $21.64 on Thursday.

There is a malicious rumor circulating that LB has lost control of the trading desk to the No Wit RB who is responsible for many of the recent purchases including TRC and GY discussed below. The simple truth is that LB is distracted now pursuing other ventures for HK unrelated to stocks. As one would expect, when the LB is busy performing a variety of tasks, the infamous and nefarious RB can sometimes take advantage of LB's preoccupation and run amok for a brief period. LB expects to squash the RB by early next week, and has set a plan in motion that may include the skewering of the RB. Maybe that is the answer to the noise problem.

3. RB Buys 50 of GenCorp (GY) at $4.65 (LOTTERY TICKET strategy)(see Disclaimer): I have previously bought and sold GY as a LT. The prior purchase was at $3.7, and I sold those shares on a pop at $6.4 last May. Again, the prime attraction is the potential revenue source from GY's ownership of 12,200 acres of land near Sacramento. realestate

This is a statement relating to firm's real estate made in the last filed 10-Q: "Real Estate — includes activities related to the entitlement, sale, and leasing of the Company’s excess real estate assets. The Company owns approximately 12,200 acres of land adjacent to U.S. Highway 50 between Rancho Cordova and Folsom, California east of Sacramento (“Sacramento Land”). The Company is currently in the process of seeking zoning changes and other governmental approvals on a portion of the Sacramento Land to optimize its value. The Company has filed applications with, and submitted information to, governmental and regulatory authorities for approvals necessary to re-zone approximately 6,000 acres of the Sacramento Land. The Company also owns approximately 580 acres in Chino Hills, California. The Company is currently seeking removal of environmental restrictions on the Chino Hills property to optimize the value of such land." Page 7 e10vq

Gencorp's main businesses are aerospace and defense. The company describes this business in the following manner: "Aerospace and Defense — includes the operations of Aerojet which develops and manufactures propulsion systems for defense and space applications, armament systems for precision tactical weapon systems and munitions applications. Aerojet is one of the largest providers of such propulsion systems in the United States (“U.S.”). Primary customers served include major prime contractors to the U.S. government, the Department of Defense (“DoD”), and the National Aeronautics and Space Administration." A more detailed description can be found at the Reuters profile page.

Gencorp did manage to earn 18 cents in the June quarter on sales of 234 million. Price to sales is around .32: GY Key Statistics Apparently, the one analyst that follows the company and provides earnings estimates has GY earning just 25 cents in the F/Y ending in November 2011. Reuters This is a link to the GenCorp web site which has more information about the company.

A review of the last filed 10-Q does show a significant amount of costs and remediation expenses connected with environmental issues. That issue, along with the poor near term earning's visibility, causes the placement of GY in the Lottery Ticket category which limits my exposure to less than $300 with certain exceptions.

4. Sold 50 of the 150 KTN at $28.17 on Wednesday (see Disclaimer): After writing about KTN, I decided to pare my shares late in the day on Wednesday. The shares sold were bought in the regular IRA so there is no current tax consequences connected by selling those shares bought around $14. (see item # 1 above). Ultimately, the decision was based on the TC price compared to where the underlying bond was trading. In addition, I am now playing with the house's money on TCs containing this junior bond from AON. The primary reason that my retirement accounts recovered so quickly to their October 2007 level, adjusted for subsequent yearly contributions, is the purchases of TCs and REIT preferred stocks during the Near Depression period. The buy of KTN is just one example. I now have realized gains in the regular IRA in 2010 at over 30% of its current value.

5. Bought 50 UZV at 25.12 on Wednesday (see Disclaimer): Basically, I do not have any good ideas about bond purchases after the two year Jihad by the Fed against responsible Americans, coercing the transfer of their wealth to those who were irresponsible and/or reckless. UZV is certainly not a bargain at 16 cents over its $25 par value unless I am proven wrong about the longevity of abnormally low long term rates. The purchase of 50 shares brings my total to 150 shares and this last purchase was in a satellite account where I am attempting to beat money market rates near zero.

UZV is an exchange traded senior bond issued by United States Cellular Corp (USM) and is currently rated investment grade-barely. The coupon is 7.5% on that $25 par value with a maturity in 2035. Interest payments are made quarterly. This security just went ex interest. I previously bought 100 shares of UZV at $24.42

This is a link to the prospectus: This purchase was made in a satellite taxable account. 

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