Wednesday, December 29, 2010

Bought 100 SSRAP at $17.25 (TC-Underlying Bond from Sears Acceptance)/Case Shiller-Worrisome/Bought 500 FAX @ 6.71/Sold: 100 XLU @ 31.39, 50 EBTC @ 13, 100 BAB @ 24.78/Bought 1 SuperValu Bond @ 97.8 Maturing 2014

The Case Shiller index for home prices in twenty metropolitan areas declined 1% in October compared to September, representing the fourth consecutive monthly decline.   The decline of 1% was after a seasonal adjustment. Before the seasonal adjustment, the decline was 1.3%.  Every metropolitan area experienced a decline in October.  The largest percentage declines were in Atlanta (-2.9), Detroi (-2.5%), and Chicago (-2%).   The 20 metropolitan area index is about where it was in 2003.    These numbers suggest that a double dip decline in housing prices is a realistic possibility.  Rosenberg may end up being right in his prediction of a housing double-dip.

The long treasury bond ETF, TLT, had another bad day, falling 2.29% to close at $91.61.   Selling accelerated after the five year note auction received the lowest bid-to-cover ratio since June. The yield was 2.149%. Recent Note, Bond, and TIPS Auction Results  The treasury sold 42 billion in five year notes at that rate. Is anyone interested in feeding the beast at 2.149% for five years?  The Fed bought 6.78 billion in treasuries yesterday maturing between July 2013 and November 2014 as part of QE 2. Federal Reserve Bank of New York - Permanent Open Market Operations

1. Bought 500 of the Bond CEF FAX at $6.71 and Sold 100 XLU at 31.39 on Monday (See Disclaimer):  This pared trade was done primarily to increase my cash flow. FAX is a leveraged bond CEF that invests primarily in Australian  government and corporate bonds, though the fund also owns bonds issued by countries and corporations from other countries in the Asia-Pacific region, including South Korea, Singapore, India, Indonesia, Hong Kong, Malaysia, and China.    Asia-Pacific Income Fund, Inc.  As of the market close on 12/27, this bond CEF was selling at a 7.44% discount to its net asset value per share of $7.26.  It went ex dividend for its monthly distribution of $.0301 per share yesterday. 

FAX has a higher current yield than XLU and pays monthly dividends.  At a total cost of $6.71,  FAX yields about 6.25%. I just bought XLU at 30.83  and will receive one quarterly dividend. I also bought FAX to achieve more diversity in my international bond portfolio.  Morningstar rates this fund 3 stars.

This is a link to FAX's last filed Form N-Q that lists its holdings. 

This is a link to the last SEC filed shareholder report for the semi-annual period ending in April 2010: Aberdeen Asia Pacific Income Fund, Inc.  I focused on the overall credit quality of the fund's holdings shown at page 6 of that report.  As of 4/30/2010, 67.9% of the assets were rated "A" or better, with 31.8% at AAA.   (21.1% in junk categories and 11% in the lower tier of investment grade)  

I would add a caveat about this fund.  During the Dark Period, I was able to buy shares of this fund at $3.38 per share.  I calculated then that the fund was selling at close to a 42% discount to its net asset value. Some Nibbles Got Filled: JZE, PJS, INZ and FAX ( Post Dated: 10/10/2008) That fact shows that this leveraged bond CEF was vulnerable to price depreciation due to individual investor panic.

FAX closed yesterday at $6.67, down 2 cents.  The discount to net asset value expanded to 8%.

Part of my rationale for this purchase has to do with my opinions about the potential outperformance of bonds from the Asia-Pacific region.  Some of my opinions on that subject were voiced by Bill Gross in one of his newsletters titled Ring of Fire and by Mohamed El-Erian in a Barrons interview.  Item # 3 El-Erian Interview Barron's &  Bill Gross:The New Normal (see also: Near the End of A Long Term Bull Market in Bonds Staring in the Early 1980s? (July 2010)

2. Sold 50 of 150 EBTC at $13 (Regional Bank Stocks' basket strategy) (see Disclaimer): I placed a limit order to sell 50 of my 150 shares of EBTC at $13 before the market opened yesterday, and the price just blew through it.  EBTC closed at  $13.45 yesterday.   I sold my highest cost shares yesterday, using FIFO accounting, which were bought at 11.75.  I mentioned that this was my plan when I added 50 shares at  $11.27 (Item # 3 Post Dated 12/17/2010). This is what I said then:

"Since I am trading some in the regional bank basket to book profits and to lower my average cost where possible under FIFO accounting, I may at some point sell 50 shares of EBTC purchased at 11.75, the first shares purchased, and keep the shares bought at $10.33 and at $11.27.  While that may sound picayune to most everyone, it is one way that I manage risk in my stock portfolio.   Other risk control measures include of course security selection, the decision on the amount to invest in each security, and the vast dispersal and variety of holdings and asset classes."

I am also keeping the shares purchased at $10.33.

3. Sold 100 of 150 of of the ETF BAB at 24.78 and Added 1 SuperValu Bond at 97.8 maturing in 2014 (see Disclaimer):  I decided to take a small loss on my recently purchase shares in BAB.  This bond ETF owns Build America bonds which have not been faring well lately due to the significant correction in long treasury bonds which is continuing and the increasing concerns about municipal bonds. I bought those 100 shares in July at 25.98.  I substituted an individual bond purchase that will provide more yield and a far shorter maturity than the average duration of the bonds owned by the BAB ETF.

Interest rate risk for the SuperValu bond, which matures in 2014, is practically non-existent.  There is a risk, associated with interest rate risk, that I call the risk of lost opportunity. If interest rates continue to rise, this bond may fall in price some, all other variables impacting price remaining the same.  Consequently, if that happens, I lose the opportunity to buy the bond at a lower price, creating more of a current yield and YTM, with the funds deployed yesterday.  I view that risk to be minor and immaterial for such a short term bond.

The most important risk is the credit risk associated with the junk rated SuperValu bond.  And, I just increased the risk some to me by extending my exposure from 2 to 3 SuperValue bonds, with one being a long bond originally issued by Albertson's that had a tempting yield for the OG.   Item # 3   Bought: 1 SuperVaLu Bond at 98.73 (5/1/2016 maturity); Item # 6   Bought 1 Albertsons Bond (now part of SVU) at 77 (8/1/2029 maturity).

The bond purchased yesterday has a 7.5% coupon.  It is rated B2 by Moody's and B+ by S & P according to the information at FINRA.   The bond matures on 11/15/2014.  Interest payments are made semi-annually in May and November.  It is a senior bond according to the prospectus:  Final Prospectus

My confirmation states that the current yield at my cost is 7.668% and my yield to maturity is 8.169%.

I read a report in  Barrons yesterday that grocery stores will be a principal beneficiary of the Durbin amendment, which will have the effect of lowering interchange fees for debit cards.

I would feel better about these  SVU bonds if the company eliminated its too generous common stock dividend and sold more of the stores acquired in its Albertson's acquisition.  There was a report at Reuters a few days ago that SVU had not found any takers for the Shaw grocery chain, more than 175 stores in New England, that it acquired in 2006 as part of its buyout of Albertson's.

Hopefully the earnings estimates for SVU are not pie in the sky wishes. The consensus estimate for FY 2011, ending next February, is for an E.P.S. of $1.48 according to YF. 

4. Bought 100 SSRAP at $17.25 (see Disclaimer): For the past year, I have periodically placed a limit order to buy 100 shares of the trust certificate SSRAP which contains a senior bond from Sears Roebuck Acceptance Corporation as its underlying security.   I had reached the point many months ago where I had no expectation of a fill when I placed an order and was shocked to see an execution yesterday at $17.25.  

This security was  delisted from the NYSE in 2005 and now trades on the "Grey Market", where there is no transparency. Suspension of the obligation to file reports was made under Rule 12(h)-3: Rule 12h-3 -- Suspension of Duty to File Reports under Section 15(d)  Bid and ask prices are not displayed in the grey market, and there are no market makers.  The trades are shown at the pink sheet exchange under the  SSRAP symbol.  Volume was heavy yesterday for this security at 4,970.  Some days, it does not trade at all.  Needless to say, market orders can never be used for a Grey Market listed security

This TC has a 7.25% coupon on a $25 par value.  The bond and the TC mature on 6/1/2032.  At a total cost of $17.25, my current yield is around 10.5%.  Interest payments are made semi-annually on 6/1 and 12/1. 

This is a link to the prospectus for SSRAP: 

The underlying bond is rated junk at Ba3 by Moody's and BB- by S & P.  

This is a link to the FINRA information on the underlying bond.  

Although SSRAP was delisted, the trustee still collects interest on the bonds owned by the trust and distributes those funds to the owners of the TC SSRAP.  I actually checked that information at the trustee's web site, since nothing is being filed at the SEC anymore as a result of the delisting.    I found that data at, and just entered the Cusip Number 80411A201.  This is a snapshot of the recent distributions: 

The yield to maturity at a total cost of $17.25 is 11.15% according to the Morningstar Bond Calculator.  

The prospectus for the underlying security can be found at, originally a debt issue of the Sears Roebuck Acceptance Corporation (SRAC), then a wholly owned subsidiary of Sears. There are some requirements in the prospectus that SRAC maintain a ratio of earnings to fixed charges of at least 1.1 in every fiscal quarter. If it falls below that amount, Sears is obligated to make up the difference (See page. 8 of prospectus) . Sears Roebuck is now part of Sears Holdings, Form 10-Q, along with Kmart Holding Corporation.

Given the difficulty in purchasing or selling this security, it is not surprising that it provides a much better yield than the underlying bond, which I could have bought yesterday.   Based on a trade of 82 in the bond market, the current yield of the underlying bond, which has a lower coupon than the TC, is around 8.53%. FINRA The YTM would be higher of course. 

Sears common stock trades under the symbol of SHLD.  Sears is expected to earn 91 cents in its F/Y ending in January 2011.  

SSRAP closed at $16.73 yesterday, down 52 cents, trading in a range of $16.73 to $17.5.

Trust Certificates: Links in One Post  


  1. Hi, I bought 1500 ssrap this week at $17.50. This morning I placed an order for another 1500 at $16.75 and it was not filled even though it traded at low as $15.97. That is the nature of this security. I am happy to have found your interesting blog.

  2. The problem that you had on order execution with SSRAP is probably related to the grey market and its lack of transparency. Bid and ask prices are not displayed. When you place an order for SSRAP, the order is sent to a small security firm that will match it with any other order received by it. You may have the best bid at say $16.75 for shares but then an order is filled at $16. Bad luck for that seller.

    This can happen in the grey market even if you do not have an All or None restriction. That kind of situation has happened on more than one occasion to me for grey market listed securities. I theorize that the lack of transparency (no display of orders) causes bad executions for both buyers and sellers. Ultimately, the execution depends on how your order is routed. If that fill at $15.97 had been routed to the firm that had your order, it would have been filled in part if you did not have an AON restriction. But, it was probably routed to another firm whose best bid was $15.97. I have had a no fill about 10 times or more in the grey market when I had the best bid and no restriction on the order.

    I was satisfied with $17.25, but I started to place limit orders when this security was trading near $15 and I had at least two occasions when I had the best bid and an order was filled at a lower price.

  3. I bought some shares of SSRAP back on May 3, the trade settled two days later. I hold the shares in Options House, but I have yet to receive the distribution payment. I checked the site and it said the payment went out on June 1. Has anyone else had a problem collecting the distribution payment? Any help would be greatly appreciated.

  4. I posted a snapshot of the distribution that I received in a post dated June 1, 2011, Item # 6. I did notify Fidelity that the classification was incorrect as a dividend. It is clearly an interest payment.

    TD Ameritrade posted the semi-annual distribution from SSRAP on June 2, 2011, correctly characterizing the payment as interest.

    The underlying bond pays interest on June 1st, to the owners of record "as of the close of business on the date fifteen days before the interest payment date". (page S-5). So that would be around May 11. I can not conceive of how SSRAP could go ex interest before the Grantor Trust has the right to receive the interest payments from Sears Roebuck Acceptance.

    Since this security trades in the Dark Market, you will not be able to find any ex interest date information at any of the financial sites like Yahoo Finance. It sounds to me however that you would have owned SSRAP in time, given your purchase date to receive the June 1 interest payment.

    I did check for you at That is a free site, registration required. The person that runs that site is knowledgeable about exchange traded securities and states that interest is payable to SSRAP holders of record as of 5/15 and 11/15. If he is right, purchasing the security on 5/3 should entitle you to the June 1 payment.

  5. Thanks for all the info, I use Quantumonline too, that's how I found SSRAP. My Options House account finally posted the interest payment(June 8), no explanation why it posted so late. Do you think this security is safe to hold long term, I only say this because it seems SHLD is struggling to maintain profitability.
    Thanks again for all the help.

  6. I would not use the word "safe" to describe anything that I buy. For bond purchases, I will attempt to monitor the credit profile of the company for as long as I own the bond. This requires me to at least look at the quarterly reports and any important news event. The sole purpose is to render a judgment on the likelihood of being paid interest on my loan and the full principal amount at maturity. There are way too many unknowns about the future to render a judgment about the credit worthiness of Sears Roebuck Acceptance in five years, let alone 20. That judgment has to made on a quarter to quarter basis.

    I would not rely exclusively on the credit ratings to make a sound judgment, based on their many failures in the past.

    I would say that the Sears Roebuck bond has a better credit profile than many of the other junk bonds that I own. But most of those other junk bonds in my portfolio have a much shorter maturity.

    As the duration goes further into the future, the more potential there is for adverse events occurring, something that statisticians refer to as Bayesian analysis. I talk about that kind of analysis in several blog, a sample is from 2009:

    "Bayesian "analysis is often used to assess the uncertainty of future outcomes, based on a formula for updating probabilities of given events in the light of new evidence" The result of using this analysis is that the volatility of the market is 1 1/2 times greater at 30 years than at 1 year. . . From my point of view, the longer the period an asset is held creates more risk that an unanticipated event may occur that will decimate the value of the asset. This does relate to what Taleb is saying about the black swan events. I may do okay in the stock market for 15 years and then something happens in year 16 that takes away 50% of my gains, something that I could not anticipate and model, no mater how many MIT pets that I employed or the sophistication of my models."

    I can say that you can go out to 2040 maturity Pepsico bond, a nice investment grade issue, where I would have more comfort holding for several years than the SSRAP. But, I would pay a premium for that bond and would be receiving a yield slightly over 5%. So with the increased risk of SSRAP, I am going to be compensated in current yield about twice as much, but I constantly have to decide whether the risk is worth it. And, given the long duration, it is not only the credit risk but the interest risk associated with any bond. If that Pepsico bond moves up to a 8% yield due to a rise in rates, SSRAP is not going to be selling for $19.