For the week ending 9/25, the Labor Department reported a seasonally adjusted decline of 16,000 initial claims for unemployment. ETA Press Release: Unemployment Insurance Weekly Claims Report The government increased its estimate for 2nd quarter GDP from 1.6% to 1.7%. Gross Domestic Product There was also a positive manufacturing the Chicago ISM which unexpectedly rose to 60.4 in September. The consensus forecast was for a reading of 55.5.
Based on the reaction after hours yesterday, investors do not care for the selection of a canned SAP executive to head HPQ. The pick just reconfirms to me that the HP Board is infested with nitwits struggling to become lamebrains.
TIME magazine has a cover story on the rise of militias in the U.S. One of the growing number of extremists, James Cummings, was building a dirty bomb to kill Obama, and was further along in that endeavor than any known terrorist. He was abusing his wife, who shot him to death, and that incident revealed to authorities just how far Cummings had come with his plans (see page 3).
Carl Paladino, who has been embraced by the GOP in NY, threatened to "take out" a reporter. YouTube To really understand Carl's mind set, it is important to actually view some of his emails on bestiality, porn, and race. WNYmedia.net Some may remember Christopher Cox, Nixon's son-in-law, who is the head of NY's GOP. Cox stated recently that Carl is energizing the GOP and New Yorkers will like Carl once they get to know him better. The Business Review (Albany)
While 25% of republicans believe that Obama may be the AntiChrist (usnews.com), Carl believes the speaker of NY Assembly, an Orthodox Jew, is the AntiChrist. NYT
1. Sold 50 KRH at $24.6 in Roth IRA on Wednesday (see disclaimer): KRH is a trust certificate that contains a TP issued by AFC Capital containing a junior bond from Hanover Insurance as the underlying security. I bought the shares at $18.62 in July 2009. Interest payments are made in August and February so I received 3 semi-annual interest payments and almost $6 per share in profit.
I currently own 150 shares of a functionally equivalent TC, PKM, that contains the same underlying security as KRH. PKM has a 8% coupon compared to 7.75% for KRH. The relevant purchase criteria for functionally equivalent securities is not the coupon rate but the yield at my purchase price.
My first buy of a TC containing the Hanover junior bond was a 150 share purchase made in two lots, one at $17.8 and the other at $17.6. I later sold 50 of the higher cost shares, booking a profit. After PKM become slightly more attractive in yield than KRH, I bought back the 50 shares of PKM in the ROTH IRA, Bought 50 PKM at 24.84, with the intention of selling the KRH at or near the same price as the PKM purchase. I would generally not make this kind of trade, except in a retirement account.
I still own 50 of KRH bought in a taxable account. Bought 50 of the TC KRH at $19 As of now, my limit on TCs containing this junk rated bond from Hanover is $5000. I may occasionally go over that limit in making a trade, or undertaking an exchange of functionally equivalent securities to improve my yield some in the retirement accounts, particularly in the Roth IRA for tax reasons unique to that type of account. Tax Treatment Of Roth IRA Distributions
I calculated the yield differential of KRH at 24.6 and PKM at 24.84 to be almost .4% in favor of PKM.
2. Bought 57 Commonwealth REIT on Thursday (CWH) at 25.2 on Thursday (see Disclaimer): I ended up with an odd lot of 43 shares after this REIT had a 1 for 4 reverse stock split on 7/1/2010. CWH Stock Charts The odd number of shares came from reinvestment of dividends. I previously bought and sold 200 shares of CWH's senior exchange traded note. Sold 100 CWHN at 21.22 in Roth Sold 100 CWHN at $20.57 At their respective current prices, the common shares yield more than that fixed coupon senior note (CWHN). Of course, the common dividend can be cut, but it can be raised too. CWH is paying 50 cents per quarter which results in a yield of 7.94% at a total cost of $25.2.
CWH fell in price some after selling 7.5 million shares at $26.75, 8k, intending to use the proceeds to fund a portion of its redemption of its 8.75% series B preferred stock and to repay amounts outstanding under its credit facility.
As of 6/30/10, CWH owned about 31.8% of the outstanding shares of Government Properties Income Trust, a former subsidiary. (p. 8 10q)
As of June 30, 2010, CWH owned 291 suburban office properties, 44 central business district office properties and 186 industrial & other properties, excluding one property classified as held for sale and included in discontinued operations. Included in those totals is 17.9 million square feet in of industrial and commercial lands in Oahu, Hawaii.
CWH has a 89.1% of its total square footage under lease as of 6/30/10. Rental rates are under pressure due to the recession. Occupancy rates are still trending down. One knock on this REIT is the number of suburban properties owned by it. Generally speaking, there are no barriers to entry in that kind of market.
CWH entered agreements to sell 15 properties to GOV with approximately 1,900,000 square feet for an aggregate sales price of $231m, excluding closing costs.
This REIT was formerly known as HRPT Properties.
S & P has CWH rated 4 stars with a $30 12 month price target.
Price to book is shown at .58 at Y F.
3. Pared Trade-Bought 100 GYB at $18.98 and Sold 100 PYT in the Roth IRA at $19.25 on Thursday (see Disclaimer): This kind of pared trade only makes sense in my retirement accounts. Both GYB and PYT are trust certificates, classified by me as Synthetic Floaters, and both are tied to the same GS TP maturing in 2034. So I view them as subject to my trading rules for functionally equivalent bonds.
There are two significant difference between PYT and GYB. PYT has a 3% guarantee while GYB has a 3.25% guarantee. Secondly, the maximum rate for GYB is 8.25%, or .25% higher than the maximum rate for PYT. For as long as the swap agreement is in effect which is what creates the float, these securities will pay the greater of their respective guarantees or .85% above the 3 month Libor rate. In a perfect pricing environment, GYB should not be priced below PYT, but that was the case yesterday.
GYB Prospectus: www.sec.gov
PYT Prospectus: www.sec.gov
My total cost in the PYT shares was $12.33, which includes two commissions, for 50 shares bought at 11.2 in April 2009 and another 50 in August 2009 at 13.34. The share profit was around 56% plus several interest payments.
I have also previously bought and sold GYB in my regular IRA account: Bought GYB at $10.95 Sold 100 GYB at 18.09 I currently own 100 GYB in that account.
For as long as the guarantees remain the applicable rate, I pick up slightly about .38% in yield by selling 100 PYT at $19.25 and buying 100 GYB at $18.98 (4.28% for GYB at a total cost of 18.98 and 3.9% for PYT at a total cost of 19.25).
As a result of this trade, I no longer have a position in PYT and currently own 200 GYB in the two retirement accounts (100 in each). If there was a significant fall in GYB's price, I have the option of doing a Roth conversion for the shares held in the regular IRA.
4. PARED TRADE: Sold 50 AHLPRA at 24.25 and Bought 50 PJR at 24.88 in Roth IRA (see Disclaimer): This is another trade that would only be made in the retirement account. I recently purchased in the ROTH 100 shares of the non-cumulative equity preferred stock from Aspen Insurance at 22.54. (prospectus: www.sec.gov). This equity preferred stock is currently paying 7.401% on a $25 par value and just went ex dividend. PJR is a trust certificate containing a senior bond from Unum (UNM) that matures in 2028 and that TC also has a 7.4% coupon, higher than the underlying bond which has a 6.75% coupon. FINRA Most of the recent trades on that bond have been near its par value of 100 (if bought in the bond market, 1 bond =$1,000 par value, and an order to buy 1 bond at 100 would cost $1,000). So, in a non-taxable transaction in the Roth IRA, I basically substituted a senior investment grade bond for a non-cumulative equity preferred stock, with both securities yielding about the same at their respective current prices.
There used to be another TC containing the same Unum senior bond, KVN, but it was called by the owner of the call warrant for that TC (not by UNUM!). The owner of the call warrant for KVN called it as its $25 par value plus accrued interest. corts_unum-8k.htm
My first purchase of the TC PJR was the result of another pared trade. I noticed that it was selling at price which produced a greater yield than TCs containing a junior bond in TP form originally issued by Provident, later acquired by UNM. And, the junior bonds matured almost 10 years later than the senior one. This was back in July 2009 when I purchased PJR shares at $16.72 and I still own those shares. I also bought 50 PJR $20.70 in the regular IRA and still own those shares. I now own 200 shares of PJR with the highest cost shares being the ones purchased last Thursday. So, unfortunately, I have been averaging up on PJR since my original purchase.
I have a general discussion of the TC's containing UNUM junior and senior bonds in a post from July 2009: Item # 3 Sunday Meanderings: Peggy Noonan Nails Sarah/Shiller on the Market/Trust Certificates Containing Unum Debt/Junk Bonds/Cheney & Yoo-The Dark Force
I made two more trades on Thursday which I hope to discuss in the next post. Those trades are income producing securities that are temporary placeholders for a small amount of cash raised over the past 10 trading days.