Friday, November 5, 2010

Paired Trade: Bought 100 ETF VFH at 30.85 & Sold 94 BTO @ 15.37/Sold 50 HMA @ 8.25/TRK M UL NWSA HSE:CA WIN/Sold 100 MOL @ 10.3/Bought 100 BDF @ 18.46

The regional bank basket, shown above, had a good pop yesterday, up 3.05%.

The ^^VIX had its second consecutive close below 20 yesterday, falling 5.32% to close at 18.52. The ^VXD fell to 16.16 yesterday. For those who are not sticklers for details like our LB, the VXD has been moving below 20 since 9/10 with minor deviations on 9/23, 9/29, 9/30, 10/4. Since 10/4, there have been no closes above 20.

1. News Corp (NWSA)(own): News Corporation reported net income of 775 million or 30 cents per share for its fiscal first quarter ending on 9/30. Earnings included a tax benefit of 90 million. Excluding that benefit, earnings were 27 cents a share. The consensus estimate was for an EPS of 24 cents. Revenues were 7.43 billion slightly ahead of the consensus forecast of 7.41 billion made by 11 analysts. Operating income for the television unit rose to 105 million from 38 million in the year ago quarter. Cable network programming operating profit rose to 659 million from 513, whereas the film unit suffered a 111 million dollar decline to 280 million.

2. Speedway Motorsports (TRK) (own): Speedway Motorsports slid 4.09% on Wednesday after reporting net income for the 3rd quarter of 7 million or 16 cents per share, missing the consensus estimate by 3 cents. TRK is still feeling the impact of the recession and the current high unemployment and underemployment rates. When I recently purchased 50 shares, I did not anticipate an upturn in the motorsport's business anytime soon, and viewed TRK as a long term contrarian play. Bought 50 TRK @ 15.77 (10/15/2010).

3. HUSKY (HSE:TO-OWN): Husky Energy announced third quarter earnings of 30 cents per share, three cents below the consensus estimate. Management stated that earnings were impacted negatively by the Enbridge Line 6A/6B shutdowns (estimated at 36 million), lower trading margins in its Midstream operations, and the maintenance turnaround at the Lloydminster Upgrader. The dividend rate is currently 30 cents per quarter, and Husky announced that it intended to increase capital spending in 2010 to 4 billion from the previously announced 3.1 billion. Total production during the quarter before royalties was 288,700 boe/day, up from 276,200 in the 3rd quarter of 2009.

Although Husky also declared its regular dividend of 30 cents per share, payable to shareholders of record on 11/29, this company has a history of adjusting its dividend up and down based on earnings, as discussed in a prior post. Item # 2 Bought 100 HSE:TO at 26.25 CAD With an increase in capital spending, I would anticipate a dividend cut in 2011 if earnings stay at or near 30 cents a quarter.

I am basically at break-even so far in my trading of Husky shares. I made a small profit in a previous roundtrip after collecting one quarterly dividend. Buy 100 Husky at 28.99 Canadian Stocks & Politics: Sold HSE:TO at 30.48 CAD/Bought 100 ETF CDZ:TO at 19.24 CAD and 100 of ETF CLF:TO at 20.10 CAD

HSE closed up 49 Canadian cents to close at 26.04 CAD on the Toronto exchange.

4. Winstream (WIN)(own): I have not sold any of my WIN shares, and the last purchase was at $6.36 on 3/3/09 Winstream. I currently own 200 shares, primarily for the dividend, but the shares bought in early March 2009 have just about doubled in value. The dividend is 25 cents per quarter which is covered by cash flow from operations.

Windstream raised its outlook for 2010 free cash flow to a range between 814 million to 859 million, which would be a dividend payout ratio of 54 to 57% based on that cash flow. WIN reported revenues of 966 million for the third quarter and operating income of 270 million.

Windstream closed at $13.26 yesterday, up 31 cents.

5. Unilever (UL)(own): The position in UL was acquired in March 2009. Added to UL at 18 I sold my shares bought at $18.22, a few days earlier, at $23.38 in May 2009, locking in a profit with the goal of playing with the house's money.

Unilever reported a 19% increase in profit based on a 13% increase in revenue. At a constant exchange rate, sales rose 3.2%. Diluted earnings per share was €.43, up from €.36 in the 3rd quarter of 2009.

UL rose 6.41% yesterday to close at $31.23.

6. Macy's (own TC DKQ): My position in Macy's is limited to owning a trust certificate that contains as its underlying security a senior bond originally issued by May Department stores, now part of Macy's. I have traded this security several times: Sold DKQ Bought 50 of the TC DKQ at $15.95 BOUGHT 50 DKQ AT 19.03 Sold 50 of 100 DKQ at 21 (FINRA information on the underlying bond; Prospectus:

Macy’s raised its profit outlook for its current fiscal year by a nickel to a range between $1.5 to $1.55, excluding expenses associated with debt repurchases at above par value in the open market. The company also stated that it bought back 500 million in principal amount of its debt during the 3rd quarter with excess cash, bringing the total repurchases in 2010 1.2 billion.

7. Pared Trade: Sold All of the CEF BTO and Bought 100 of the ETF VFH @ 30.85 (see Disclaimer): The ETF VFH is from Vanguard, and was bought in the Vanguard Brokerage Account since no commission is paid (and it counts toward lower commissions for other tradesVanguard - Vanguard Brokerage Services - Commission and fee schedules). VFH is a very broad financial stock ETF that includes consumer finance and insurance companies, banks, and REITs. The expense ratio is .25% and the fund currently owns 491 stocks. This ETF gives me broader exposure than XLF which is limited to just financial stocks in the S & P 500. XLF For example, all of the banks owned in my regional bank basket are part of VFH, though in relatively small amounts, while two of them are present in XLF. Holdings XLF The expense ratio for XLF is slightly lower at .21%. Both of these ETFs were crushed during the Near Depression period. I noticed when looking at the holding for XLF that Berkshire had been added as a component, and I also found it among the holdings in VFH under "Insurance".

BTO is a closed end fund that has a high expense ratio of 1.4%, as noted in the summary sheet from Morningstar. That is one reason why I never owned much of it. Toward the tail of the bull market in financial stocks (2006-2007), I recall listening to a broker who was recommending that his clients buy BTO due to its track record. While I do not use brokers, I remember observing that the fund was just a beneficiary of a long secular bull market in bank stocks that had started in 1991-1992. I recalled asking him, knowing the answer as lawyers are prone to do, what was BTO's expense ratio", and of course he had no clue.

Vanguard Financials ETF closed at $31.52, up $1, yesterday. BTO closed at $15.7, up 56 cents.

8. Sold 50 HMA at $8.25 (see Disclaimer): I had a GTC limit order to sell HMA at $8.25 which was filled on Thursday. I viewed hospitals as being a beneficiary of the Democrat's "health reform" legislation, at least starting in 2014, when individuals would be required to buy health insurance or pay a fine. NYT If this actually happened, it would cut down on the bad debt expense, a major problem now for hospitals. After the recent election, I would not be surprised to see the GOP in control after the 2012 election, and their desire to repeal the Democrat's welfare program for health insurance is to the say the least intense. I may come back to this trade after I have a better feel on whether the GOP will be successful. Bought 50 HMA at 7.55 RB just said that the LB is a super cautious NERD, who will never have that vision thing, adding "it is time for the real man to take over the trading desk".

9. OG Wakes UP From Afternoon Nap and Sells 100 of 200 MOL at 10.3 and Bought by Accident 100 Shares of BDF at 18.46 (see Disclaimer): The OG has difficulty remembering things, and his aged brain is frequently full of mush. The LB, in need of a rest, took a two minute break yesterday afternoon from a hectic day of advancing HK's capital position, bringing HK closer to that tender for Canada, all of it, and the OG woke up long enough to check the London P.M fix for gold and immediately sold 100 of the 200 shares of MOL without a moment's consideration. I would not be surprised to see a reversion back to 2% triggered by the P.M. fix on Friday. Bought 200 MOL at 9.95 (use of London PM fix to determine closing price: MOL).

After performing that task, the OG, being somewhat addled and flummoxed, decided to buy a 100 shares of something or another at the limit of $19.41. The OG does not remember what, old age issues no doubt. Anyway, when he checked the order page, he noticed that 100 shares of BDF had been bought at $18.46, which was the ask price for that CEF at the moment of order entry. The limit order for $19.41 was turned into a market order filled at $18.46. RB says that we need to do more of that here at HQ and maybe take pot luck on a 1000 shares of something or another.

Whatever, BDF is a bond CEF called the Rivus Bond fund that pays quarterly distributions with a yield at a total cost of $18.46 at around 6.23%. Rivus Bond Fund The fund does not use leverage, and it recently acquired another closed end bond fund called Hartford Income, formerly traded under the symbol HSF. It is classified as an investment grade bond fund, and closed yesterday at a -8.94 discount to its net asset value of $20.25 per share. CEFA - Closed-End Fund Association I have previously bought and sold both BDF and HSF: Bought 300 HSF at 5.76 Added 100 BDF in the Roth at 17.1 Bought 100 BDF at 17.2 Sold 100 BDF at 17.90 Sold BDF AT 18.22

I am in a hyper trading mode with bond funds without a term date and will not likely hold onto any of them for long due to interest rate risk. Since I have miscalculated the longevity of the FED's Jihad against savers, I have been buying some new bond CEFs, and adding to some balanced CEFs that are more weighted in bonds than stocks which I previously sold. One of those purchases was made yesterday.

I will discuss most of the remaining trades from Thursday, maybe around 10, in the next post.

After reviewing the list of sales from Thursday, Headknocker let it be known that any Head Trader who sells another security for a short term gain in 2010 will be boiled in oil. HK is considering whether or not to turn over the trading operation to RB.

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