Monday, October 11, 2010

Jobs/PMK/Sold: SSBI@ 6.77, SBIB @5.6, BOCH at 3.8, 50 AMAT @ 11.82/ Sold 50 AEB @21.69 & Bought 60 DFY @ 25.32 IRA/ Bought 70 MSFT @ 24.55

Based on PolitiFact's analysis of several political ads made by the GOP's candidate for the U.S. Senate in Nevada, Sharron Angle, I can only conclude that being straight with the voters is not one of Sharron's virtues. Personally, maybe I am old fashion, but I thought that telling the truth is one of the real Conservative values. In one commercial, she claims that Harry Reid supported using taxpayer dollars to give convicted child molesters and sex offenders viagra. PolitiFact This ad was called shocking by, another non-partisan fact checking organization. In another commercial, Sharron claims that Reid voted to give special tax breaks to illegal aliens. PolitiFact (see also analysis of that ad) RB just said that it believes that Sharron is an alien. This is a link to a PolitiFact analysis of another misleading Angle commercial.

1. Jobs: The nonfarm payroll employment declined 95,000 in September. Employment Situation Summary The consensus forecast was for a 5,000 loss. The unemployment rate held at 9.6%. September marked the 14th consecutive month that the jobless rate was equal to or greater than 9.5%, the longest time since the government started to maintain records in 1948.

While private sector employment gained 64,000 jobs, that is insufficient to supply new entrants into the labor force jobs, let alone the millions who lost jobs during the Near Depression. The decline in September was due to a loss of 159,000 government jobs, reflecting a drop in census jobs (-77,000) and more declines in state and local governments (-76,000) who are still facing budgetary restraints. The long-term unemployed, those without jobs for over 27 months, remained relatively stable at 6.1 million.

The U-6 number, a broader measure of unemployment, rose to 17.1% in September from 16.7%. This number includes those unemployed plus those marginally attached to the workforce or working part-time involuntarily. Table A-15. Alternative measures of labor underutilization An explanation for the jump in the U-6 number is provided in this article at the WSJ.

Notwithstanding a continuation of unfavorable news on the jobs front, the market rallied on Friday, most likely based on a perception that this bad news will increase the likelihood of more quantitative easing-QE2. Consistent with that premise, the USD continued its slide with the US Dollar Index falling to 77.27, down from a recent high of 88.54 on 6/6/2010. DXY Index Chart Some of the beneficiaries of that decline have been the the currency ETF for the Australian Dollar (FXA), the commodity ETF DJP, the silver ETF SLV and the gold ETF GLD.

2. PMK (OWN): PMK is a senior bond originally issued by PMA Capital that was recently acquired by Old Republic International (ORI). SEC Filed Press Release 10-1-2010 On 10/7, PMA announced that it was going to voluntarily delist this bond from the NYSE to save on administrative costs. It is not known now whether the issue will trade on the pink sheets. A delisting will not impact the obligation to make monthly interest payments or to pay the $10 par value at maturity, but may end up preventing me from selling this bond prior to its maturity in 2018. I intend to hold the 150 shares held in the retirement accounts until maturity.

This news did cause a downdraft in PMK's price on Friday. Investors always want the liquidity option. If this was a long maturity bond, I would sell it due to the potential lack of liquidity after the delisting. I would pare a large position in a short or intermediate term exchange traded bond that was delisted too.

PMK closed at its par value on Friday, down 18 cents, on volume of 175,147 shares. The average 3 month volume per day is just 9997 according to YF.

PMK matures on 6/15/2018 at $10. Interest is paid monthly based on a 8.5% coupon.

When this bond was an obligation of PMA Capital, it was rated junk at Ba3 by Moody's. I noted at Finra that ORI has a bond maturing in 2012 that is rated investment grade at Baa1 by Moody's and BBB by S & P.

3. Sold 50 SSBI at 6.77, 40 SBIB at 5.6 and 50 BOCH at 3.8 on Friday (see Disclaimer): I discussed in a post last week the need to pare the number of stocks in my regional bank basket to a manageable size. Modification Regional Bank Strategy I sold my shares in these small banks in that ongoing effort to shrink the size of this basket.

SSBI is a small micro cap savings bank based in California, and my shares were bought at 6.3. The primary reason for this sell was the need to reduce the size of this basket.

I took a small loss on the shares of BOCH which were bought at 4.46. In addition to reducing the size of the basket, I sold BOCH due to its dividend cut to just 3 cents a quarter. SEC Filed Press Release 9/23 This was a 50% cut from the 6 cents paid in the June quarter: SEC Filed Press Release

SBIB was also bought recently, only 40 shares at $4.63. Given that SBIB is paying only a 1 cent per quarter dividend, and I did not want to buy more shares, I elected to include it in the pare of the Regional Bank Stocks' basket that still has to many names for me to follow effectively.

3. DKY-Another TC Called by the Owner of the Call Warrant: DKY is a trust certificate containing as its underlying security a 7.125% Credit Suisse senior bond maturing in 2032. While I do not own this security I did discuss it back in November 2008 when it was trading at $17: Article in this Week's Forbes on Trust Certificates The owner of the call warrant, not Credit Suisse, has called the trust certificate for redemption at its $25 par value plus accrued interest. Receipt of Notice of Intent to Exercise Warrants in Full The underlying bond is trading at close to a 28% premium to its par value: FINRA The owner of the call warrant for DKY can redeem the TCs, take possession of the underlying bonds, and then sell them for a significant profit. This has to be kept in mind when buying TCs at a premium to their par values, plus accrued interest, when the underlying bonds are selling above their respective par values. Call Warrants and Trust Certificates More on the Call Warrant in TCs Call Warrant Exercised on JZE and JZJ

4. Sold 50 AEB at 21.69 and Bought 60 DFY at 25.32 in regular IRA (see Disclaimer): I am keeping my AEB shares purchased in the $4 to $ 8 range during the Near Depression period. I will occasionally trade AEB shares bought in the regular IRA, which I did on Friday by selling the 50 shares recently bought at 19.74.

I have remaining 100 AEB shares in the Roth at a total cost of $6.06 and 100 shares in a taxable account purchased in two lots for a total cost of $6.9.

I bought 60 shares of the Delphi Financial senior exchange traded bond, DFY, at $25.32. This is an investment grade bond maturing in 2033 at $25. It has a 8% coupon. Since I paid more than par value, my current yield would be slightly below 8% based on my total cost. Bought 75 DFY @ 25.31 This purchase represented the second purchase of DFY last week in a retirement account. I also discuss DFY in several prior posts (e.g. Bought DFY at 22.48 Bought 50 DFY at 24.36).

Last week I decided to sell out of my position in DFP, a junior bond from Delphi, and to concentrate my exposure in the senior bond which was then yielding about the same as the more junior security based on prevailing market prices late last week.

Prospectus: SEC

As previously discussed, Delphi has already conducted two partial calls of DFY, so I would not want to pay more than par value plus accrued interest. The reason for the partial calls may be explained in this document: 8k I am just hoping that there will be no further redemptions over the short term.

5. Sold 50 AMAT at 11.82 and Bought 70 MSFT at 24.55 (see Disclaimer): On reflection, it seemed a little on the girlie man side to own only 30 shares of MSFT. So, to avoid any more catcalls, I rounded my exposure to MSFT to 100 shares by adding 70 at $24.55 on Thursday. "What a Wus," RB muttered.

I have bought MSFT at lower prices and sold them at higher ones. Sold MSFT at $28.11 Added 50 MSFT at 17.79 There is some dividend support to the current price, with the yield at close to 2.6% at a total cost of $24.55. That price is also less than 10 times the current consensus estimate of $2.63 per share in earnings for F/Y 2012, which ends in June 2012. This article at Seeking Alpha discusses MSFT valuation. A more detailed article at Seeking Alpha on MSFT valuations focuses on valuations over the past two decades.

I elected to sell 1/2 of my AMAT position at 11.82, and those shares were bought recently at 10.68. For reasons that are entirely plain to me, AMAT stocks seems to be in a funk, just like MSFT, except AMAT deserves a lower P/E multiple than MSFT whose business is less cyclical.

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