Thursday, January 6, 2011

Realized Gains Regional Banks/Bought 50 GSPRD at 21.58/Bought Stock ETF PHO at 18.97/Sold 50 of 100 MWR and Bought 50 of the Stock CEF IDE at 19.57

After applying electric shock therapy to the Old Geezer's ten functioning brain cells, the OG remembered to put on his pants before leaving HQ yesterday morning. While that is viewed as substantial progress, it is unlikely that the OG will be returning to HQ as Head Trader anytime soon.

The ADP December employment report for the private sector showed an increase of 297,000 jobs from November to December.  The ADP report noted that strength in hiring was evident in every major industry and every size of business.  ADP further noted that the December increase in employment was consistent with what is "usually associated" with a declining unemployment rate. The consensus estimate for December was for a gain of 100,000.

Goldman Sachs raised General Mills (GIS) to buy yesterday. Exelon (EXC) was raised to market perform from underperform at Wells Fargo, while First Energy (FE) was started at market perform by Wells Fargo.  Webster Financial was raised to buy from hold at Jefferies. Alcoa was cut to hold from buy at Citigroup. Boyd Gaming, a recently added Lottery Ticket spurted yesterday after Barclays raised this casino company to overweight. I bought 1 senior Boyd bond at the same time as the common stock: Bought 1 Boyd Gaming Senior Bond and 30 BYD as an LT at $9.78 All of the foregoing stocks are owned by me.  Both EXC and FE are part of my core electric utility holdings.  

The first order of business for the House Republicans was to weaken the anti-deficit rules to allow tax cuts even though such cuts would increase the budget deficit.  Bloomberg Their belief is that Bush tax cuts ushered in an era of prosperity for the U.S., ignoring what actually happened over the past eight years.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 - washingtonpost.comThere just was no meaningful job creation during the Bush Presidency, with most of the job creation in industries that were beneficiaries of the housing bubble and were soon lost in 2008-2009. There was no inflation adjusted income growth for the average family.

 The stock market went up and down and ended up falling during those eight years:

S & P 500 During the Bush Presidency

Any sensible person would recognize that the tax cuts, which inured mainly to the wealthy who finance GOP candidates, added to the government's budget deficits. Tax Cuts: Myths and Realities — Center on Budget and Policy Priorities And there was no meaningful reduction in the growth of spending and new costly programs were added such as the medicare drug benefit, all during the first 6 years when the GOP controlled both houses and the Presidency. It is impossible to take republican politicians seriously as budget hawks unless one is willing to disregard facts and history and to accept their blather as gospel which is easy and natural for all of the True Believers whose Messiah is Rush Limbaugh.

I watched an interview of Ben Stein on CNN who opined that the GOP's budget proposals were just more political posturing for the GOP faithful rather than part of a serious effort to meaningfully reduce the nation's trillion dollar plus budget deficit. Of course, even if the GOP was successful in cutting 100 billion annually, that is just a drop in the bucket, and I would agree with Stein that very few politicians have the fortitude to reduce spending anywhere near that amount. It was also interesting to hear a republican say, as a matter of fact, that Bush inherited a good situation and turned into a disaster, and then he added that Obama inherited a bad situation and made it worse.

1. Bought 100 of the ETF PHO at $18.97 on Tuesday (see Disclaimer): I last bought this ETF in March 2009 at $13.6. I mentioned in that post that I do not like the expense ratio of this ETF, which is high at .6%, but I prefer it to the other ETFs that contain companies that provide and treat water. I prefer it to the others since PHO has a higher concentration in the industrial companies that provide technology related to safe water consumption and consequently a lower concentration in the water utilities. PHO's weight is 88.24% in favor of the industrial, materials, and technology companies and just 11.75% in the water utilities. PowerShares Exchange-Traded Funds | PHO - Water Resources Portfolio Holdings  An alternative is CGW, the Guggenheim S&P Global Water Index ETF.   But CGW has a 43.97% weighting in utilities  (holdings) and a similarly high expense ratio at .65%.

Powershares has a Global Water Portfolio (PIO) which I would prefer only to CGW.  PIO has a 34.4% weighting in utilities. The only advantage in the global water ETFs is their inclusion of foreign companies, some of whom are important in this sector such as Geberit AG. (GEBN.VX) My reason for owning this ETF is to acquire a sampling of the industrial companies in this space. I find the water utilities to be uninspiring at their current prices.

Another alternative for this sector is the First Trust ISE Water Index Fund (FIW), which has a .6% expense ratio, and a 21.85% weighting in utilities. 

2. Bought 50 of GSPRD at 21.58 on Tuesday (see Disclaimer): GSPRD is one of the three equity preferred stocks issued by Goldman Sachs that pay non-cumulative dividends at the greater of a guarantee or a percentage above the three month LIBOR rate. The other two are GSPRA and GSPRC. All three of the GS floaters pay qualified dividends computed on a $25 par value. None of them have maturity dates and all of them are senior only to common stock. There are minor differences in the guarantees and/or percentage float above the 3 month LIBOR. It is not uncommon for those minor differences to be blown out of proportion in the market's price. 

I have previously discussed in several posts GSPRA, which pays the greater of 3.75% or .75% above 3 month LIBOR.  The most recent discussion was in connection with a 50 share purchase a few days ago: Bought 50 GSPRA at 21 

GSPRC pays the greater of 4% or .75% above three month LIBOR. I did not buy that one. 

I bought GSPRD which pays the greater of 4% or .67% above three month LIBOR. 

The basic terms of these three securities can be found at the Goldman Sachs' website.  

The only difference in terms between GSPRC and GSPRD is that the "C" shares pay .08% more in the event the Libor part of the rate computation is greater than the guarantee, which is not now the case of course. 

But what is that .08% worth. Say the 3 month LIBOR is 5% during the relevant computation period. GSPRC's coupon would then be 5.75% whereas GSPRD would be a tad behind at 5.67%. Annualized, that difference for an investor owning 100 shares would amount to just $2 annually. GSPRD closed yesterday at $21.59 and  GSPRC finished at $22.48. So the 100 shares of GSPRD would cost me $89 less. It would take almost 45 years to recoup that difference with the $2 difference in dividends under the 5% 3 month LIBOR assumption. And, since both pay a 4% guarantee, which is currently greater than the Libor computation, GSPRD provides me with a greater yield at the guarantee than GSPRC due to its lower cost.  

I have several posts discussing how I compare the GS equity preferred floaters and the synthetic floaters that contain GS bonds. GOLDMAN SACHS FLOATERS (Oct 2009); Goldman Sachs Synthetic Floaters and Floating Rate Non-Cumulative Preferred (April 2009) I am not able to buy the GS synthetic floaters in my Fidelity retirement accounts, which is the only appropriate place for them in my opinion, due to unreasonable prohibitions recently adopted by that firm. I am in the process of transferring those accounts from Fidelity to another firm more interested in my business. Unfortunately, the new brokerage company has not yet received those assets from Fidelity. So I am not able as a practical matter to buy one of the synthetic floaters now. 

This is a link to the historical 3 month LIBOR information going back to 1989: LIBOR Rates I view this historical information as important in trying to assess the possible average LIBOR rates over long periods of time, rather than just focusing on the here and now abnormally low rates. 

My main post discussing the equity preferred floaters is Advantages and Disadvantages of Equity Preferred Floating Rate Securities.

GSPRD Prospectus: 424B2

I am returning to the floaters as I become more pessimistic by the day about bonds. TLT, the ETF for the 20+ year U.S. treasury bonds fell $2.06 or 2.2% yesterday.  I would just note that a 2.2% decline is more than a half year of interest for that security.   That is what can happen, and will continue to happen, if the worm has finally turned against the bond bulls.

3. Realized Gains Regional Bank Stocks' Basket Strategy: This is where I am going to track the realized gains in the regional bank basket.

2010 Realized Gains: +3,133.37   Item # 3  2010 Realized Gains Regional Bank Stock
2011 Realized Gains:
50 WASH:  $ 347.03 ST   Sold 50 of 100 WASH @ 22.44
50 FBNC:  $193.1   Sold 50 FBNC at 16.27
100 TOBC: $128.6  Sold 100 TOBC at 23.12
100 AF $222.39   Sold 101 AF at 14.89
50 GBCI $59.1  Sold 50 GBCI at 14.58
50 FNFG  $32.56 Sold 50 of 250 of FNFG at 14.67
50 WSBC $315.6 ST  Sold 50 WSBC @ 20.01
50 ORIT $25.6 ST Sold 50 ORIT @ 12.49
50 STL $176.10 LT  Sold STL at 10.5
50 NWBI $31.6 Sold 50 NWBI @ 12.5
100 CIZN $184.61 ST SOLD 100 CIZN @ 20.56
50 WBS LT $879.52  Sold 50 WBS at 22.49
50 PFS ST $144.08  SOLD 50 PFS at 14.88
100 EBTC ST 491.11  Sold 100 EBTC at $15.95
50 FFIC LT $96.6 (kept 50 shares after earnings report)  Sold 50 FFIC @ 14.51
50 NRIM LT $153.38  Sold 50 NRIM at 20.05
100 First Community ST $35.1 Sold 100 FCBC at 14.44
156.5828 Northwest Bancshares $170.19  Sold 156+ NWBI at $12.52
102 HopFed -131.23 Sold 102 HFBC at 8.01
50 Great Southern ST +20.06 Sold 50 of 100 GSBC at 19.27
50 Merchants Bancshares LT +160.10 SOLD 50 MBVT at 26.5
107+ Southside Bancshares  Sold 107+ SBSI at 20.5
50 Great Southern ST +95.58 Sold Remaining 50 GSBC at $19.5
50 Union Bankshares ST $59.08 Sold 50 UNB at 19.5 
100 Citizens & Northern LT +517.61 Sold 100 CZNC at 16.53
50 Oneida LT +62.57  Sold 50+ ONFC at $9.35
50 Oceanfirst Financial LT $81.1 Sold OCFC at $12.45
100 Brookline -62.92 ST  Sold 101+ BRKL at $8.23
50 First Bancorp LT $16.58 Sold 50 FNLC at $14.25
50 Flushing Financial $104.1  Sold 50 FFIC at $13.53
50 Glacier ST $103.08  Sold 50 GBCI at $12.53
Sold 53+ Porter Bancorp at $624.48 Loss
51+ Community Bank Systems +65.58
Cumulative Total: $7,642.05

No Longer Tracking Gains/Losses Here See Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST

I am not tracking realized gains and losses in the foregoing list originating from reinvested dividends, but I am tracking shares acquired from stock dividends and splits. REGIONAL BANK BASKET STRATEGY GATEWAY POST

4. Pared Trade: Sold 50 of 100 MWR at 22.91 and Bought 50 of the stock CEF IDE at $19.57 on Wednesday (see Disclaimer): The potential for a major correction in bonds has been noted many times in this blog. By correction, I am not referring to a temporary decline in bond prices followed by a resumption in the long term secular bull market in bonds. I am referring to the onset of a relentless long term secular bear market for bonds lasting for years. One way that I will deal with that possibility is just to own more individual bonds in a ladder strategy, weighting those with intermediate terms, and to gradually diminish bond funds with no liquidation dates. I spent about five hours yesterday working on a ladder for investment grade bonds. I had to go out at least ten years or so to find yields in excess of 6%. I selected about 30 bonds that I may buy, and will start to monitor. However, I am not likely to begin purchasing them with any gusto until the yields rise to over 7% which will require a significant decline in their current prices.

In this pared trade made yesterday, I reduced a position in a long Morgan Stanley junior bond, maturing in 2033, and used part of the proceeds to add to my existing position in the stock CEF IDE. That stock CEF just went ex dividend for its quarterly dividend. My prior purchase was 100 shares in two fifty share lots. Bought 50 of the CEF IDE at 17.4 Added 50 IDE at $16.85 I thereafter sold the highest cost fifty shares at 18.7. And, all the RB could say, typical NERD MACHINE trading, whereupon the LB launched into a 6 hour dissertation, with a powerpoint presentation, of why it was prudent to sell those 50 shares at $18.7 in September 2010 and to buy them back at $19.51 on Wednesday.

I am keeping the Morgan Stanley TP MWR bought in the regular IRA.  I sold the 50 MWR recently bought in the taxable account at 22. (Dec 28 2010 Post).

IDE is a closed end stock fund that invests in the infrastructure, industrials and materials sectors.   ING Infrastructure, Industrials and Materials Fund - Overview On 1/4/2011, it closed with a net asset value of $21.66.  The market close that day was $19.51 which created a discount to net asset value of -9.93%.  The fund is currently paying a 45 cent per share quarterly dividend. Distributions  At that rate, the dividend yield would be about 9.2% at a total cost of $19.57.  I am taking the distribution in cash.

Since this is a new fund, the current distribution rate is not be supported by earnings. The primary support for such a high yield would have to be realized capital gains, both short and long term. Since the fund is new, there could not yet be any long term capital gains. But the fund is doing better now and may be able to realize sufficient gains over the course of 2011 to support the dividend payout and thereby avoid a return of capital issue for distributions later in the year.  For the period ending in August 2010, there was a significant return of capital classification as shown at page 8 of the following referenced semi-annual report. This information on a penny bais can be found at Morningstar. However, until this fund starts to earn the dividend, I will keep my position at or under 100 shares.   If it fails to earn the dividend within a year or two, I will eliminate it unless the dividend is reduced to reflect actual earnings per share.

This is a link to the SEC filed shareholder report for the semi-annual period ending 8/31/2010. ING Infrastructure, Industrials and Materials Fund  I generally like the portfolio and there is little duplication in my individual stock holdings.

This is a link to the CEFA page on this fund. 

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