The savers in the U.S. who behaved responsibility during the real estate bubble may be glad to hear that the Masters of Disaster will receive a record 144 billion in salary and benefits this year. WSJ.com Why is this good news for us saps. Well, LB's reasoning can be convoluted and needlessly complex at times. With the Masters of Disaster back to earning billions for being the biggest doofuses in the known universe in all of its dimensions, LB reasons that possibly we are near the beginning of the end of the Fed's Jihad against responsible Americans who played no role in causing the Near Depression but nonetheless had to pay a steep price for the reckless, greedy, frequently fraudulent and incredibly stupid behavior of those who did play a role.
I was reading Michael Lewis' latest book, The Big Short: Inside the Doomsday Machine, and have enjoyed reading his discussion of the oddball characters who saw the disaster coming and profited from it. When discussing one of them, Steve Eisman, Lewis mentions Household Finance who basically sold a bunch of loans to less fortunate Americans claiming that the interest rate was 7% when it was actually "something like 12.5% according to Lewis. Eventually, this was exposed, Household paid a large fine of 484 million, and the chief executive retired with a 100 million dollar pay package. The Big Short: Inside the Doomsday ... - Google Books
Based on the Fed minutes released yesterday, it appears that the war against savers is likely to continue for many more months. Several members of the FED were reported to have said that the U.S. economy might need more help "soon". FRB: FOMC Minutes, September 21, 2010
"Many participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate or if inflation continued to come in below levels consistent with the FOMC's dual mandate, it would be appropriate to provide additional monetary policy accommodation. However, others thought that additional accommodation would be warranted only if the outlook worsened and the odds of deflation increased materially. Meeting participants discussed several possible approaches to providing additional accommodation but focused primarily on further purchases of longer-term Treasury securities and on possible steps to affect inflation expectations. . . . Several members noted that unless the pace of economic recovery strengthened or underlying inflation moved back toward a level consistent with the Committee's mandate, they would consider it appropriate to take action soon."
This kind of statement provides more fertilizer for the trades tied to a lower dollar. I suspect that MOL will have a reversion back to its guarantee, but it may still be touch and go. Bought 200 MOL at 9.95
1. Bought 200 of the Bond CEF BHK at $13.76 on Monday (see disclaimer): I have been moving in and out of bond CEFs for several weeks now. I am just trying to clip one or more dividends and to make a few bucks on the shares. I find the current interest rate on bonds to be unattractive, and I am concerned about interest rate risk in bond funds.
Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans & the Potential Major Correction in Bonds Down the Road
Rising Rates and Your Investments (SIFMA SITE)
Bond and Bond Funds (SIFMA SITE)
On the flip side, I know that I will be unable to identify when the long term secular bull market in bonds, which I date as starting in 1982, will come to an end, most likely in my opinion to be replaced with a long term bear market in bonds, where interest rates rise almost relentlessly from the current low levels.
The CEF BHK is a multi-sector bond fund. The credit breakdown of the fund's holdings can be found at the BlackRock web site for its CEFs. As of 6/30/2010, 16.1% was in AAA, 11.1 % in AA, 17.3% in A, and 11.8% in BBB. This equals 56.3%. The fund also has sizable junk bond positions, with 6.1% in CCC rated securities, which is generally something that I avoid buying when purchasing individual bonds.
The fund is leveraged which is helping its shareholders at the present time due to the low borrowing costs and the bull market in bonds. If one or both of those conditions no longer exist, and turns materially negative, then leverage could easily turn into a negative. After all, when you buy a security with borrowed funds even at rock bottom rates, and the security declines in value, the leverage is not exactly helping matters. It can become particularly negative when the short term borrowing costs are spiking while the securities bought with those funds are falling materially in value, sometimes called the double whammy by the RB here at HQ. So, I will tread both cautiously and lightly with a trading mentality on all leveraged bond funds.
BHK does pay monthly dividends and is ex dividend for its monthly distribution today. The current penny rate is just $.067 per month. Distributions At a total cost of $13.75, and assuming no change in that rate, the dividend yield would be about 5.85%. I view this purchase to be a temporary placeholder for cash currently earning nothing.
This is a link to the last filed shareholder report: www.sec.gov The BHK material starts at page 13.
As of the time of my purchase, BHK was selling at a small discount to its net asset value: WSJ.com It closed on Monday at $13.79 with a NAV of $14.27, which results in a -3.36% discount to net asset value at that time.
2. Bought 100 of the bond CEF HPF in Roth IRA at $19.89 on Monday (see Disclaimer): This bond CEF was recently bought and sold in the Roth after a brief holding period: Sold HPF at 20.35 in Roth Bought 100 HPF at 19.09 in Roth IRA I discuss this particular bond CEF adequately in the preceding linked posts. Dividends are paid monthly and this CEF is selling at a small discount to its net asset value, which can be found at a number of web sites: WSJ.com CEFA Morningstar John Hancock Funds - Preferred Income Fund II Again, I am in a trading mode for all bond CEFs.
3. Sold 100 of the ETF XLP at 28.15 on Monday (see disclaimer): This is an ETF for the consumer staple contained in the S & P 500 that I bought last month at 27.25. I intend to reinvest the proceeds in an individual security in this sector, which appears to be correcting in price. I am starting to become concerned about the input prices for packaged food companies. Corn Chart Wheat Chart
4. Sold 50 of the Lottery Ticket ACTI at 3.21 on Tuesday (LOTTERY TICKET strategy)(see Disclaimer): RB interjected itself into LB's writing of the minutes of HQ's operation, saying that it "voted to buy a million shares of ACTI, and the Nerd cast its votes for just 50 shares." RB is starting to wonder whether there is a democracy here at HQ. ActivIdentity agreed to be acquired by Assa Abloy, the parent company of HID Global, for $3.25 in cash.
LB then noted that a 50+% gain after commissions was realized on the ACTI shares bought at 1.93, whereupon the RB hastened to add that HK will not be impressed by a 50% gain on 50 shares bought at 1.93, maybe the LB will splurge next time and allow the RB to buy a couple of hundred. And, RB concluded that this was the second time LB interfered with RB's money making idea machine on this one stock, noting that LB allowed only a prior purchase of 50 ACTI at 2.20 and then sold those shares at 3.19.
5. Bought 200 of iShares S&P/TSX Capped REIT Index Fund @ 13.78 CAD on Tuesday (see Disclaimer): Ishares has a number of ETFs that trade on the Toronto exchange. I have been attempting to buy individual Canadian REIT companies traded in Canada. Fidelity's system will recognize the symbol but then will not allow an order to be placed on the grounds that the symbol is not recognized by it. So, I just opted to buy 200 shares of an ETF for Canadian REIT stocks.
For anyone interested, this pdf has the names, expense ratios, and symbols for these funds. There are several Canadian bond ETFs in that list. The symbols will vary depending on the service used. At Fidelity, the symbol is XRE:CA for the Canadian REIT ETF.
It is possible to find individual REITs in Canada yielding 8 to 12%, but this ETF is weighted by size and contains some of the lower yielding ones. The ETF only has 13 holdings, and is heavily weighted in the top five names.
The two REITs that I attempted to buy are not even among the holdings. And, the expense ratio is high for such a "dumb" index at .55%. This ETF is current paying what appears to be a monthly distribution that varies from month to month: Distribution History This is a pdf from Ishares showing the remaining ex dividend dates for 2010, with the next one scheduled for 10/26. If I had to guess, I suspect that the dividend yield will be around 6% to 7%. I will take the distributions in CADs.
This purchase is just part of my overall investment theme for Canada, which focuses first on taking a long term position on the currency versus the USD and then attempts to find ways to earn an income return payable in Canadian dollars on that currency position. The largest position in this plan is currently 400 shares of of the Claymore 1-5 Yr Laddered Government Bond ETF - CLF: BOUGHT 200 CLF:TO AT 20.20 CAD Bought 100 of ETF CLF:TO at 20.10 CAD Added 100 CLF:TO-Sold 100 CPD:TO (see generally: International Trading and Currency Risks). Of the other Ishares Canadian bond ETFs, I will likely buy 100 of the iSHARES DEX UNIVERSE BOND INDEX at some point, since it gives me a longer duration than the Claymore ETFs that I currently own for both Canadian corporate and government bonds. iShares DEX Universe Bond Index Fund: Overview
This is a link to a five year chart at YF: iSHARES SP TSX CAPPED REIT INDE Stock Chart | XRE.TO
6. Intel (owned): Intel reported an E.P.S. of 52 cents for its 3rd quarter on 11.1 billion in revenue. Gross margin was 66%. The consensus forecast was for 50 cents. Intel said that it was seeing healthy corporate demand for computers. Intel ended the quarter with almost 15 billion in cash, up from 12.2 billion at the end of the 2nd quarter. Including marketable securities, total cash rose to 20.3 billion.
I have bought Intel shares between $14.46 and $19.08. Bought INTC at 14.46 Bought Intel at 15.25 Bought Intel at $15.87 Added to Intel at $19.08. The last purchase was in late August at 18.35.
7. Bought 100 OPXT at $1.6 on Tuesday (LOTTERY TICKET strategy) (see Disclaimer): It was necessary to buy again shares in Opnext to simply shut the RB up on Tuesday, who was still making incessant noises about the LB's refusal to buy 1 million shares of ACTI, opting for a 50 share purchase of a $2 stock. It is not like the RB understands Opnext, but the Lame Brain managed to make money in prior trades, which gives it a both a big head and an overdose of blind confidence in its stock picking prowess. LB refuses to even look at this stock, except to note that it has a large percentage of its current market value in cash. YF lists the cash per share at 1.18, price to sales at .47, and price to book at .61. OPXT Key Statistics | Opnext Of course, it hardly matters to the Nit Wit that Opnext is losing money. RB then said something that it is really cool that Opnext is now mass producing the40G DQPSK Optical Module, whereupon the LB responded, "maybe the RB needs to explain that product to the folks", and RB then replied that it was working too hard and needed a break. RB was to heard to say how can HK acquire Canada, all of it, by buying 50 shares of a $2 stock?
Previous buys and sales of OPXT are discussed in these posts: Bought 50 OPXT @ 1.91 Sold LT OPXT at $3.1 Bought 100 OPXT at 1.89 Sold 100 OPXT at $2.47 So, at least this last purchase was at the lowest price yet, due in no small part to the weakness in operating results since those earlier transactions.
SEC filed presentation at a Morgan Keegan conference is available at the SEC's web site.
8. Verizon (own-BOUGHT VZ at $26.74): Verizon common stock took a hit yesterday after being downgraded by a Sanford Bernstein analsyst who slapped a $25 price target on the stock. The reasoning is explained in this Forbes article, and involves the standard worry about VZ's cash flow. This issue periodically comes up, and I have discussed it in prior posts. (e.g. Item # 2 Cramer On VOD)
The remaining 6 trades made on Tuesday will be discussed in the next post.