Thursday, November 11, 2010

Bought: 50 of SCHF @ 28.07, 100 of SCHE at 28.9/Sold 100 MSF at 17.02/DFY To Be Redeemed/Bought 100 WLFCP @ 10.33

This article at MarketWatch gives seven reasons to buy bank stocks now.

Cisco's forecast for the current quarter was startling. Cisco's shares fell over 12% in after hours trading last night after the company forecasted revenue growth of 3 to 5% in the current quarter, compared to the consensus estimate of 13%. This translates into a 1 billion dollar revenue miss. Reuters I sold my shares in Cisco on Monday at 24.42 having bought those shares at 20.39 after Cisco's last share price meltdown, which occurred after the street expressed disappointment with the last quarterly report released in August. I had sold my shares just before the August earnings release at close to the same price as this week's sale after purchasing those shares at $22.45. I regard the warning about the current quarter to be sufficiently worrisome that I would probably not buy back the shares sold on Monday above $20.

The S & P 500 ended yesterday at 1218.71, up from a close at 1049.33 on 8/31/2010. That is a 16.14% gain in a little over 2 months based primarily on the market's belief in quantitative easing as the magic elixir. It would not be surprising that yesterday's close will be the high for the remainder of the year. I do have a 'principal protected note" that will pay $10.955 per share if the S & P 500 closes above 1105.65 on 11/29/2010. Bought 200 SFH at 10.18 I suspect that will happen even though I anticipate a sell-off between now and then. I have another that will pay $10.925 per share if the S & P 500 closes above 1114.05 on 12/28/2010. Bought 100 SJV at 9.67 While that may even be likely based on what I know now, I would not give it more than a 60 to 70% chance. Both notes have a $10 par value.

The 30 year treasury was auctioned yesterday with a 4.32% yield. The coupon is 4.25% with the O.I.D. making up the remainder of the yield. .pdf This auction was widely regarded as weak.

Southside Bancshares (SSBI)(own) declared its regular 17 cent per share dividend and a special dividend of 17 cents.

AEGON reported underlying profits of € 473 million, better than the consensus forecast of €448 millions. Excess capital above S & P's "AA" capital adequacy requirement increased to € 3.3 billion. I own AEH, AEV and AEB, Aegon Hybrids, and the common shares, AEG, as a LOTTERY TICKET.

1. Bought 50 of the ETF SCHF at $28.07 on Tuesday (see Disclaimer): The Schwab ETFs trade without commision at Charles Schwab and are relatively low cost. SCHF is their international stock ETF for developed markets (i.e. FTSE Developed ex U.S.) and has a .13% expense ratio.

The last shareholder report for Schwab's ETFs can be found at the SEC's web site. That report is divided into U.S. and international ETFs with the international ETF section found in the second part after 103 pages. As of 8/31/2010, the international ETF had 824 holdings with the largest weightings in Japan at 18.1%; the U.K. at 16.6%, France at 8.5% and Canada at 8.2%. (page 5). The holdings of this ETF start at page 12 of the International section of this report.

2. PARED Trade: Bought 100 of the ETF SCHE at 28.90 and Sold 100 of the CEF MSF at 17.02 on Tuesday (see Disclaimer): MSF has performed admirably. I bought 200 shares in two lots. The shares sold on Tuesday were bought at $13.57 in July 2010. So that was a good percentage gain in a few months. I previously sold the other 100 shares at 15.3 In this pared trade, I actually increased my dollar exposure to emerging market stocks by buying 100 shares of SCHE at $28.90. SCHE is an ETF from Schwab for emerging market stocks and has a .25% expense ratio. While MSF may outperform this index fund, it has a built in disadvantage with the expense ratio differential, which is almost 1.3% annually in favor of the index fund. The "net" expense ratio for MSF is about 1.55%, Fund Details - United States : Individual Investor - Morgan Stanley Investment Management

MSF's discount to its net asset value has also narrowed since my last purchase. This is relevant consideration in my CEF strategy. When I last bought MSF at $13.57, its discount to net asset value was then -8.3%. It closed on Tuesday at a - 4.33% discount to its net asset value. I overlaid the charts for MSF and SCHE and noted that MSF had outperformed SCHE by about 5% since SCHE started to trade on 1/14/2010 SCHE Fund Charts Most of that over performance is due to the narrowing of the discount. Another consideration is that a discount below 6% is unusual for MSF since 2006 as shown in the bar graph that can be accessed on this CEF at Morningstar. So all of the foregoing factors (including the profit realized on MSF) are considerations in moving from a CEF for emerging market stocks to a ETF in the same category.

This is a link to the Morningstar page on SCHE.

3. Sold 100 of the CEF NFJ on Tuesday at $16.2 (see Disclaimer): This CEF, which yields less than 3.7% at $16.2, was sold in the ongoing effort to generate more income in my CEF portfolio. NFJ Dividend Interest & Premium Strategy Fund, NFJ This CEF was bought at 15.15 last February, so it has not been a stellar performer. I did receive three quarterly dividend payments in addition to the small profit on the shares.

4. Delphi Financial to Redeem DFY in Full: Delphi announced its intention to redeem DFY in its entirety on 12/23/2010 at the $25 par value plus accrued interest. Delphi Financial Announces Full Redemption of 8% Senior Notes I was hoping that the company would leave this note alone for at least a few more months. The recent purchases which occurred after the last partial call will result in a small capital loss and will be near break-even after the interest payment. Bought 75 DFY @ 25.31 Added 50 DFY @ 25.06 Bought 60 DFY @ 25.32 IRA Overall, the senior bond was a worthwhile investment in the current low interest rate environment. Bought DFY at 22.48 Bought 50 DFP at $17.10 & Sold 50 DFY in Roth @ 24.45 Bought 50 DFY at 24.36 It is just really hard now to find income investments that generate a decent yield for the risk.

5. ADDED 100 WLFCP at 10.33 on Wednesday (see Disclaimer): If I am able to exit my position in WLFCP, now at 200 shares, without losing any money on the shares, I will be more than pleased. This investment is viewed as a pure income play with no or extremely limited capital appreciation potential. It is part of an ongoing effort to cope with the Federal Reserve's Jihad Against Savers.

I bought the first 100 shares in January 2010 at 10.1. This security is a cumulative equity preferred stock issued by Willis Lease Finance Corporation. It has a coupon of 9% and a $10 par value. Dividends are paid monthly.

Willis is a heavily indebted company engaged in the leasing of aircraft engines. It does not currently pay a common stock dividend.

Willis just reported its 3rd quarter earnings. The company was profitable, earning 25 cents per share. 10q The common stock trades under the symbol WLFC. The current consensus estimate is for an E.P.S of 81 cents in 2011. WLFC Analyst Estimates Price to book and price to sales are both less than 1.

Anyone buying this note needs to review the last filed 10-q in my opinion, particularly section 5 dealing with long term debt starting at page 10.

The price of WLFCP may be adversely impacted by a failure to extend the qualified dividend tax rate. A dividend yield of close to 9% that is subject to a maximum 15% tax rate is going to look better to wealthy investors than one yielding the same and taxed at the highest marginal tax rate.

WLFCP is not rated by Moody's and S & P. I would rate it as well within junk territory, given the high debt level, the cyclicality of the airline business which will hopefully continue to improve, and the low priority of WLFCP.

WLFCP closed yesterday at $10.30 (or 10.28 depending on the service checked) after trading down as low as $10.19. This security goes ex dividend early each month with the last ex date on 11/3: WLFCP Stock Quote

The remaining trades from Wednesday will be discussed in the next post.

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