Wednesday, December 1, 2010

BOUGHT 50 MJT at 25.6/Bought: 1 SuperVaLu Bond at 98.73; 1 Dean Foods Bond at 93.8

The unemployment rate in the 16 nation Euro bloc rose to a seasonally adjusted 10.1% in October 2010, the highest level since June 1998.  The unemployment rate in Spain was the highest at 20.7%.     eurostat. PDF  Eurostat estimates that 23.151 million individuals are unemployed in the EU 27, and 15.947 million of those are in EU 17.   The unemployment rate among people less than 25 years old was 20.1% in EU 17.  The fear of serial sovereign bailouts in Europe, along with concerns about an economic slowdown in China, are creating anxiety and concerns about the longevity of the current anemic economic recovery in developed nations.     Byron Wien believes that the EU has enough resources to solve the widening sovereign debt crisis.  Sheila Bair pointed out the obvious in an opinion column in the Washington Post that urgent action by Congress is necessary to avoid a U.S. sovereign debt crisis.  And neither party has shown any willingness to address the emerging fiscal crisis in the U.S.  

Citizens Holding Company (CIZN) increased its quarterly dividend to 22 cents, up from 21 cents. This bank was recently added to my regional bank basket strategy.  Bought 50 CIZN @ 18.7

I added my third sector double short yesterday during a market rally in that sector.  That purchase was in part a result of reviewing the Case-Shiller report released yesterday, which showed a 2% decline in the National Home Price Index in the third quarter.   That report can be accessed at  www.standardandpoors.  The 20 city index declined .7% in September from the August reading.

The Senate passed yesterday, in a 75 to 25 vote, legislation that would strengthen food safety laws in the U.S.  MarketWatch  This is a list of the senators who voted against this legislation: 

Barrasso (R-WY)
Bennett (R-UT)
Bunning (R-KY)
Chambliss (R-GA)
Coburn (R-OK)
Cochran (R-MS)
Corker (R-TN)
Cornyn (R-TX)
Crapo (R-ID)
DeMint (R-SC)
Ensign (R-NV)
Graham (R-SC)
Hatch (R-UT)
Hutchison (R-TX)
Inhofe (R-OK)
Isakson (R-GA)
Kyl (R-AZ)
McCain (R-AZ)
McConnell (R-KY)
Risch (R-ID)
Roberts (R-KS)
Sessions (R-AL)
Shelby (R-AL)
Thune (R-SD)
Wicker (R-MS)

Two GOP senators did not vote, Bond (R-MO) and Brownback (R-Kan).  One of the TBs complaints against Teddy Roosevelt was his support of food safety laws,  Pure Food and Drug Act (1906).  The general idea was to keep meat packers from mixing rats with the ground beef.

I did not find it encouraging that Obama appointed Geithner to represent the administration in negotiations with the GOP on what to do with the soon to expire Bush tax cuts.  In case anyone has not noticed, the GOP is not now, and has not been in a mood to negotiate on this issue.  Their idea of a negotiation is for the Democrats to agree to make all of the Bush tax cuts permanent, and then some kind of economic miracle will occur that managed to bypass the U.S. during the first eight or so years of those tax cuts.  Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ Bush Lead During Weakest Economy in Decades Economy Made Few Gains In Bush Years - CBS News Aughts were a lost decade for U.S. economy, workers -

1. Decline in the Bond CEF GDO (own):  Yesterday, GDO traded as low as $18.15 before closing down 4 cents at $18.53.  This bond CEF was trading at over $19 earlier in November: GDO Historical Prices  

GDO, a bond CEF which I own, has some exposure to European  corporate bonds, including a significant exposure in bonds issued by European financial institutions.  (see or    - GDO - HOLDINGs Western Asset Global Corporate Defined Opportunity Fund Inc.)  During the last period when investors started to hyper-ventilate about Europe's problems, GDO declined to below $17 per share. GDO Historical Prices  The decline was partly caused by a confluence of lower prices for the bonds due to credit concerns and a decline in the Euro against the USD.  Another reason then, as I recall, was the exposure to debt issued by U.S. financial institutions whose prices have at times been volatile, and extremely so during the Dark Period.   I mentioned in a post from late October that I had pared GDO, noting the following:

"Since this CEF holds foreign bonds, its asset value will fluctuate some based solely on currency fluctuations. Over the past few weeks, the USD has fallen in value against the Euro, and that decline has benefited U.S. shareholders of GDO. The opposite happened when the Euro plunged in value, falling below €1.2 per $1 during the recent European sovereign debt crisis, and the price of GDO fell below $17 in May: GDO Historical So with the rally in the foreign currencies, this presented an opportunity to trim GDO, and then hopefully pick up those shares again at a lower price."  Item # 1  Sold 75 GDO at 19.24  

 I intend to hold shares in GDO until the fund liquidates in 2024, but I will attempt to trade some in an effort to lower my overall cost.  I am using the monthly distributions to buy more shares in the taxable account, but I am taking cash distributions for the shares owned in the two retirement accounts. 

2. Bought 50 MJT at 25.6 (see Disclaimer):  MJT is an exchange traded bond that I have bought and sold at lower prices.   Sold 100 MJT at $24.43 (August 2009) Bought 100 MJT at $22.57

MJT is a trust certificate.  The trust certificate represents an undivided beneficial interest in the assets owned by the trust administered by an independent trustee.  For MJT, the underlying bond is a Trust Preferred (TP) security issued by DPL Capital Trust II.  The underlying security in that TP is a junior bond issued by DPL, an electric utility company, that matures in 2031.   Peeling back the multiple legal layers, I view MJT as a junior bond issued by DPL (common stock symbol DPL).

This junior bond is typical in that interest payments may be deferred for up to five years provided no payments are made on a more junior security.  DPL does pay a common stock dividend.  The common share dividend would have to be eliminated in order for DPL to defer paying interest on the junior bond.   Deferred distributions will accrue interest at the coupon rate.  

Par value is $25 and the TC has a 7.875% coupon paid in semi-annual installments.  The last ex interest date was in August.

The underlying bond is trading at a premium to its par value:  FINRA  That bond is rated investment grade at BBB by S & P and Baa2 by Moody's according to that FINRA page.  There is a call warrant attached to the TC MJT which is unusual.  After the owner exercises the option, the trust sells the bonds and then delivers the proceeds in excess of the sum required to redeem the TCs at their par value plus accrued interest.  Morgan Stanley was the originator of this particular trust and most likely still owns the call warrant.

The same TP is also the underlying security in MJV, which I own, and MJY.  I therefore view MJV, MJY, and MJT as functionally equivalent. Bought 100 MJV at $24.8  From my perspective, the only reason for preferring one to the rest is the difference in yield at my cost of purchase at the time an order is to be placed.


This is a link to the DPL web site, DAYTON POWER & LIGHT, and to the Reuters profile page. The current consensus E.P.S. estimate is  $2.43 per share in 2010. 

Trust Preferred Securities: Links in One Post

3. Bought 1 SuperValu Senior Bond at 98.73 (see Disclaimer):  This bond matures on 5/1/2016 and has a 8% coupon. The current rating is junk  (B+ by S & P and Ba3 by Moody's).   SuperValu is a grocery store chain whose common stock trades under the symbol SVU.  The current consensus estimate is for a $1.48 E.P.S. for the F/Y ending in 2/2011 on 38.87 billion in revenues. SVU Analyst Estimates | SuperValu Inc.  This is a link to the Finra information on this bond: FINRA  This is a link to the prospectus:  e424b5  On my trade confirmation, it states that the yield to maturity is 8.106% and the bond is subject to a make whole provision.  The Cusip is 868536AT0.

4. Bought 1 Dean Foods Senior Bond at $93.8 (see Disclaimer):  Like the SuperValu bond discussed above, this  bond issued by Dean Foods is rated junk, so I am limiting my exposure to it to a nominal amount.   The common stock symbol for Dean Foods is DF.  Although I am familiar with the company, I have never owned the common.  As shown by a five year  Stock Chart, DF's stock hit a high near $48 per share in 2007 and it has been downhill since then.  The last big fall was due to an earnings miss for the last quarter, when the company reported an E.P.S. of 13 cents per share, much lower than the consensus estimate of 21 cents. Form 10-Q The company blamed higher commodity costs for the shortfall.  I did look at the firm's debt and maturity schedule which can be found in note 5.  I would view the debt load as discomforting even with over 100 million in cash on the balance sheet as of 9/30/2010.  Long term debt is shown at 3.918 billion.  This is a link to the  Reuters profile page on DF and to the Morningstar page.

This DF bond matures on 6/1/2016 and is rated B2 by Moody's and B by S & P according to FINRA.  The coupon is 7%.  This is a link to the bond's prospectus:  e424b2  On my trade confirmation, it states that the yield to maturity is 8.432%, and the bond is subject to a make whole provision.

I will be buying these types of bonds in small quantities (i.e. 1 bond) as I continue to look for ways to adjust to the Fed's Jihad against savers.  Given the intermediate maturities of the ones that I am buying, and  the small amounts being invested, it would not make any sense to try and trade any of them.  Instead, I will simply hope that the issuers survive a few more years and then pay both the stated interest on the bonds and the principal amount at maturity.  In order to increase my odds of realizing that objective, I am eliminating more than 90% based on what I already know about the company.   At the moment, I am concentrating on junk bonds selling at discounts to par value maturing between 2013 to 2020.   I bought 1 of another junk bond on Tuesday that I will discuss in the next post.   I also added a Canadian REIT yesterday which will also be discussed briefly in my next post.  I hope that I am now done buying Canadian REITs. 

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