Monday, October 18, 2010

Sold: 200 CDZ.TO @ 20.13, 50 GJS @ 16.20, 100 GYB @ 19.9, 100 GDV @ 14.35, 50 FTE @ 23.18, 100 BRKS @ 7.15/Bought 100 HPF @ 19.68, 40 VLY 12.61/CZNC

It is my understanding that the London P.M. Fix for the spot gold price is the applicable price for both MOL and MTY (Past Historical London Fix Daily Fix: Live Market Quotes). This is the pertinent language in the MOL prospectus:

"The Starting Price for each Coupon Period will equal the price of a troy ounce of gold on the first Business Day of such Coupon Period, stated in U.S. dollars, as set by the five members of the London Gold Market Fixing Ltd. during the afternoon session of the twice-daily price of gold fix which starts at 3:00 p.m. London, England time (the “London PM Fix”), as reported on Reuters page “GOFO” or Bloomberg Screen “GOLDLNPM ,” or any successor page. The Starting Price for the first Coupon Period equals $1169.50.
The Ending Price for each Coupon Period will equal the London PM Fix of a troy ounce of gold on the last Business Day of such Coupon Period, as reported on Reuters page “GOFO” or Bloomberg Screen “GOLDLNPM ,” or any successor page.
The Closing Price for each Business Day will equal the London PM Fix of a troy ounce of gold on such Business Day, as reported on Reuters page “GOFO” or Bloomberg Screen “GOLDLNPM ,” or any successor page."

Page PS-12 MOL Prospectus MTY is the same: Page PS-12 Final Pricing Supplement

Bought 200 MOL at 9.95 The maximum level for MOL in its first annual period, which closes on 11/18/2010, is $1391.705. Any close above that level prior to the closing price on 11/18 triggers a reversion to 2%. The London P.M. fix on 10/15 was $1367.5. I have not seen- yet- a close above 1391.7. On Friday, MOL closed at $10.09, with enormous volume for it (10,200 shares), and traded in a $9.8 to $10.13 range. This indicates that the market believes that a reversion to 2% is close to 100% certain, in my opinion. The A.M. fix this morning (10/18) was lower than Friday's close at $1359.75. Live Market Quotes

1. Sold 200 CDZ.TO at 20.13 CAD on Thursday (see Disclaimer): CDZ is a Claymore Canadian stock ETF that trades on the Toronto exchange. Claymore S&P/TSX Canadian Dividend ETF - CDZ I bought the 200 shares in two 100 round lots. Bought 100 ETF CDZ:TO at 19.24 CAD Bought: 100 CDZ.TO @ 18.64 CAD I received a few monthly dividends. I am just attempting to earn some kind of return of my long term Canadian Dollar position. I am therefore more than pleased with the profit on the 200 CDZ shares given that limited purpose. This transaction also replenishes my stash of Canadian dollars for another potential investment.

2. Sold Remaining shares of FTE at $23.18 on Thursday (see Disclaimer): I sold the remaining 50 shares of France Telecom at $23.18 that were bought shortly before an ex dividend date at $20.47. It seemed to me that most of the appreciation in FTE was due to rise in the Euro against the USD. While it is just an opinion, I do not think that a rise to or over €1.4 to $1 USD is justified, and I view the dollar as oversold against the Euro and the Yen. That is not to say, however, that both the Yen and the Euro are done rising in value against our lowly currency.

3. Sold 100 of the 300 GDV at 14.35 and Added 100 HPF at 19.68 on Thursday (see Disclaimer): These transactions occurred in what I call one my satellite brokerage accounts, where I am attempting to earn some kind of return on savings that was not normally invested in securities prior to the Fed's Jihad against savers, now in its third year. I established two of these satellite accounts where the cash is normally invested in a money market fund, a savings account, certificates of deposit, a few low cost bond funds, and one equity income income stock fund.

GDV is a stock CEF and the shares sold last Thursday were bought at 13.33 early in August 2010. While this stock CEF pays monthly dividends, always appreciated here at HQ, the bond CEF HPF also pays monthly dividends and has a higher yield. I have previously bought and sold HPF.Sold HPF at 20.35 in Roth Bought 100 HPF at 19.09 in Roth IRA The most recent purchase was at 19.89. I noticed on 10/14 that the price was sliding some and I suspected the discount to net asset value was expanding beyond the -3.3% reported as of 10/13. The net asset value can be found at the sponsor's web site, John Hancock Funds - Closed-End Funds - Daily Prices. It is also available at the, CEFA, and Morningstar.

The current dividend rate is $.124 per month. Historical Distributions Assuming that rate continues, this would result in a 7.56% yield at a total cost of $19.68. The last ex date was 10/7: John Hancock Closed-End Funds Declare Monthly Distributions

The most recent shareholder report filed with the SEC is the Annual Report for the year ending in on 7/31/2010.

I mentioned in an earlier post that this fund's name, which contains the word Preferred, creates an erroneous impression among many investors, who associate that term with traditional or equity preferred stocks. The readers of this blog, who peruse the holdings in HPF, will see many of the exchange traded bonds mentioned by me. Most of the holdings are properly classified as senior bonds, trust preferred (in effect junior bonds), and European hybrids (combining equity and bond characteristics, while being in reality a junior bond with no maturity).

The discount did expand on Thursday by over one per cent. The closing market price on 10/14/10 was $19.61 with a NAV at 20.54 creating a discount to NAV of -4.53. Part of the selling may be related to concerns about the home foreclosure mess and fears about how that may impact large financial institutions. Many of these bond funds own several TPs issued by large banks. While I only own a few bank TPs directly, I have a large monitor list and have noticed declines in many of the ones from large banking banking institutions, particularly Bank of America, that accelerated into Friday. Some of the selling is in response to a hedge fund report on possible "put backs" to BAC, that an analysts calls dubious, Barrons, and it reeks of dubious motives. The net asset values of bond CEFs also declined on Friday due to a decline in longer term bond prices. TLT, the ETF for the 20 year treasury, declined $1.24 or 1.22% on Friday.

According to the last filed shareholder report, HPF had a 51% exposure to financials (page 7: Some of the financials are insurance companies and REITs. Some of the bank exposure is to large foreign institutions like Barclays, Deutsche Bank, ING and Santander. But there is significant holdings in large U.S. bank TPs containing junior bonds from U. S. Bank, Bank of America, Citigroup, Wells Fargo and J.P. Morgan (see page 9, remember that Fleet and Merrill TPs are now part of BAC).

4. GE (OWN): GE reported earnings from continuing operations of 29 cents, beating expectations by 2 cents, while revenues fell 5.1% and missed the consensus estimate. The estimate was for 37.5 billion in revenues and GE reported 35.9 billion. Revenues fell 14% in GE's energy infrastructure business (-1.4 billion decline). The order backlog was 172 billion, close to where it was at the end of 2008. Profit from GE Capital rose to 871 million in the quarter, up from 141 million in the 3rd quarter of 2009. GE Capital has reduced its balance sheet to 75 billion from 83.7 billion in the linked quarter from 2009. This statement in the press release may have troubled some investors: “Also in the quarter, GE Capital increased reserves by $1.1 billion related to our disposition of our former Japan consumer finance business, recorded in discontinued operations,” Immelt said. “Based on what we know today, we believe this update fully addresses our claims risk.”

It appears that more institutions are throwing in the towel on GE, as some kind of loser stock unlikely to ever get its mojo back. There was certainly a lot of selling pressure after this latest report, as over 204 million shares exchanged hands in regular trading and the stock closed down 86 cents or 5.01%. Anyone investing in GE now is going to have to have, or acquire somehow, a great deal of patience and to take a very long view. I am currently hovering close to 500 shares, mostly bought in the $10 to $16 range, and I am reinvesting the dividends.

5. WBS (OWN): Webster Financial (WBS) reported net income after preferred dividends of 17.8 million or 22 cents per share. The consensus estimate was for an E.P.S. of 17 cents. "The tangible common equity and Tier 1 common equity to risk weighted assets ratios increased to 5.91 percent and 8.19 percent, respectively, compared to 5.79 percent and 8.12 percent at June 30, 2010." Net interest margin increased to 3.36% from 3.27% at the end of the second quarter.

I bought my shares of Webster in March 2009 at $4.58. Webster initially popped on the new, rising to $18.60 early on Friday before being caught in the downdraft for banks and closed down 31 cents at $17.67.

6. Sold 100 BRKS at 7.15 (see disclaimer): This latest foray into Brooks Automation proved barely profitable, only due to buying 60 shares at 5.8 after buying 40 at at 7.72. I am going to add to my Intel position in the event it slides a tad further.

7. Added 40 VLY at 12.61 (Regional Bank Stocks' basket strategy) (see disclaimer): This add brings me to a round lot of 200 shares in Valley National. I am in a small hole on my prior purchases, and still like the bank notwithstanding that unrealized loss. Bought 50 VLY at $15.06 Added 50 VLY at 16.6 (5% stock dividend on first 100 shares) Bought 55 VLY at 13.24 While I would not view any bank dividend as secure, VLY still has one of the better ones at its current price. The bank is currently paying 18 cents a quarter. If that continues, and that is always a question these days, the yield at a total cost of $12.61 would be about 5.71%.

8. Sold Remaining Synthetic Floaters Tied to GS bonds (see Disclaimer): After numerous buys and sells, I decided to completely exit the synthetic floaters tied to GS bonds that I have been trading since Spring of 2009. I sold on Friday 50 shares of GJS at $16.2 and 100 shares of GYB at $19.90. Both positions were recently established and the profit realized on these trades was immaterial. Bought: 50 GJS at 14.6 Pared Trades in Roth: Sold 100 PYT at 19.25 & Bought 100 GYB at 18.98 Since mid 2009, I have been buying and selling synthetic floaters only in the retirement accounts due to tax issues connected with the swap agreements which create the float.

The primary purpose for selling these securities now is their low interest rate. I intend to substitute bonds with a higher current yield, and I may come back to one of the fixed coupon TCs with a GS TP or the 2033 senior bond, provided I can buy one at a more favorable price.

Another reason is that one or more BAC TPs may continue to decline in response to the latest hyperventilation about banks. A couple of those TPs have fallen in price to yield around 8%, which is starting to become attractive and the sells of the lower yielding synthetic floaters frees up funds to buy one of these securities after a further decline. Apparently, investors are now imagining the worst possible case for the foreclosure mess and then forming a belief that such an outcome is a virtual certainty. If the BAC common continues to fall 80 or cents or so a day, then it will be around zero before the end of this month.

My share profit realized in 2009-2010 from trading GJS, PYT and GYB is $2411.49, plus interest payments.

9. CZNC (own)( Regional Bank Stocks' basket strategy): Citizens & Northern reported net income of 4.135 million for the 3rd quarter or 34 cents per share. Earnings were reduced by 5 cents due to accelerated accretion related to the bank's repayment of TARP funds. The estimate was for 34 cents, and I do not know whether that estimate included or excluded that 5 cent charge. The earnings were released in the morning and the stock traded up on heavier than normal volume.

As of 9/30/2010, tangible common equity to tangible assets was 9.94%; the tier 1 risk based capital ratio was 15.67%; the total risk based capital ratio was 16.9%; and the NPAs to total assets was .82%.

On Friday, CZNC rose 53 cents in trading on Friday to close at $13.67. Bought 50 CZNC at 11.77 Added 50 CZNC at 10.46 (five year chart: Citizens & Northern Corp Stock Chart | CZNC )

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