Tuesday, January 25, 2011

Comments on Barrons Roundtable Part II/KTX/Intel/PKM Called

Although I have not yet seen a press release, two brokerage companies have informed me that the TC PKM has been called for redemption at $25 plus accrued interest. The call date in one of those notices has the call date as 2/15/2011. ("PREFERREDPLUS ALLMERICA FINL CORP 8%, cusip 740434832 . . . is scheduled to be redeemed on 2011-02-15.")   I will realize a large percentage capital gain on 100 shares, having bought the shares at an average cost of below $18 per share:

 The remaining 50 shares were bought more recently in the ROTH IRA at 24.84.  I have had one realized gain on PKM before this call.  Pared PKM I previously realized gains on the call of KRH, another TC with the same Hanover Insurance junior bond as its underlying security.  KRH-Exercise of Call Warrant Bought 50 of the TC KRH at $19  ADDED 50 KRH @ 24.3  Before the KRH call I had realized a $283.02 gain on a 50 share transaction in an IRA: Bought 50 KRH in IRA at $18.62 Sold 50 KRH at 24.6  Along with several interest payments, the Hanover junior bond TCs, classified as junk by the rating agencies, have been worthwhile investments for me.

PKM closed at $25.87 yesterday, up 56 cents.  The last ex date for the semi-annual interest payment was on 8/11/2010. So a 2/15 redemption date looks to me to be the entire 6 months of interest of $1 per share.  I will simply hold for the payout on all 150 shares.  PKM is also the first Merrill Lynch originated TC to be fully called by the warrant owner.

If I find a press release on the call, I will add a link to it here:

I have bought two other ML originated TCs at below par value, where it would be profitable for the warrant owner to exercise its option.

The Goldman Sachs equity preferred floaters were ex dividend yesterday for their quarterly dividend payments.  I currently own 50 shares of GSPRA and GSPRD.

Intel (owned) raised its quarterly dividend to 18.12 cents or 15% and increased the authorization for share buybacks by 10 billion dollars.   Since initiating stock buybacks in 1990, Intel has purchased 3.4 billion shares at a total cost of approximately 70 billion.  I calculated that would be around $20.59 per share.

While Fidelity still prohibits its customers from buying HBAPRF, as noted in an earlier post, I confirmed yesterday that its customers are smart enough to still purchase HBAPRG and HBAPRD, two other equity preferred floaters from the same issuer.  This suggests  that my earlier observation about the true reason for the expanding no buy list at Fidelity may be close to the truth, the persons making these decisions are not over endowed with an abundance of IQ points.   Perhaps, that person is one of the 30 year old wunderkind, rejected for employment as a Master of Disaster, forever disappointed about being denied millions of dollars per year to be one of the most overpaid doofuses of all time.

I have noticed that KTX, a TC which contains a Xerox Capital trust preferred, has taken off recently and was trading over $27 yesterday.  Chart Xerox Capital Trust| KTX   I would not buy it at that level, and it is about to go ex interest for its semi-annual interest payment.  That is another reason not to buy it now.  I was thinking about selling my 100 shares into this strength. Bought 50 KTX at 25.14 Roth IRA    Added 50 KTX at 25  My purchases were made near par value, and I did not expect much, if any, appreciation in the share price when I made those purchases.  I bought the shares for the 8% coupon:  www.sec.gov Before making a decision, I checked the trades for the underlying bond at FINRA, and the last trade was near par value for the underlying bond which also has an 8% coupon.  The trading volume was extremely light however.  I then reviewed the prospectus for KTX again, and I could not find a call warrant attached to this TC.   Since I did not buy this TC at any discount to its par value, I view the absence of a call warrant to be a positive.  I decided that I would whether have the 8% interest payment for the next 16+ years than the small profit on the shares.

Our new Head Trader, the Old Geezer, worked for about ten minutes yesterday before declaring that it was time for a rest break, and then took off for the remainder of the trading day.  The OG only made one trade yesterday as a consequence.  Even with the IV drip of chill pills, laced with Xanax and Pepto Bismol, the OG was heard to exclaim with a voice quivering in anxiety, "why not sell everything before the market corrects".   RB just said go "all in".  The LB does not understand why Headknocker installed such a slacker as the HT here at HQ, besides the OG's idea of investment research is to write symbols on a piece of paper, throw them up in the air, then say some gibberish like "let the Lord decide", and buy whichever one lands on the generous extension of his mid-section.  Sometimes, it is worse than that, the LB noted with alarm, the OG actually listens to the RB, as he did yesterday when buying a security.

The OG, who is now responsible for the minutes, decided that the following was enough for today's post. It is clear that the OG is working too hard; and he is consequently way too tired to discuss the one security purchased yesterday.  Maybe, with some B-12 shots, and an assortment of other energy boosters, the OG will be able to muster the stamina to discuss that purchase in the next post. It has sometimes been said that the OG is a mellower version of Headknocker, and a mellower version of HK is not to be confused with being mellow.

1. Comments on the  Barrons.com Roundtable Part II:  Most of the panelists in the Barron's Roundtable are predictable in their opinions, always searching for bits and pieces of information that support their rigid worldview, which is frequently reeking in pessimism.  If doom is not already upon us, it is almost here, just wait, and some beast will devour you and your best laid plans.  Possibly,  it would be worthwhile for Barron's subscribers to read what the crew had to say in early 2009, just before the market took off a 91.2% run as of the close last Friday:   Barron's 2009 Roundtable, Part One  Barron's 2009 Roundtable, Part Two

I have previously noted that Alan Abelson was warning investor's to get out of stocks in the March 9, 2009 issue of Barron's.   Barrons's & David Rosenberg  If Abelson had just a smidgen of balance in him, which of course he does not and never will, his column from early March 2009 would have been an excellent time for him to express optimism about the market, since the government had already saved the financial system by that time and was already engaged in extraordinary fiscal and monetary stimulus.   But when you are perpetually dour, seeing the glass as perpetually empty or full of raw sewage contaminated with nuclear waste,  there will always be some negative information to support whatever dire prediction that Alan is just predisposed to make anyway.  

I will just touch on some of the bullet points made by the panelists:

A. Zulauf recommends buying volatility.  He states that we "will see" something like the spike in the VIX to 48 from around 17, which happened during the market correction between April and July of last year.  ^VIX Historical Prices  Possibly, there will be another surge in volatility caused by some adverse and unexpected development later this year.  I would just say that it is impossible to have Zulauf's certainty.

The VIX may be entering into what I would call a Stable VIX Pattern, defined to mean continuous movement below 20 for an extended period of time measured in years, not months, weeks or days.    Vix Asset Allocation Model Explained Simply  The VIX has been in an Unstable Pattern since August 2007. For as long as that pattern lasts, it would make sense to go long volatility when the VIX falls below 20 and then meanders for a few weeks below that important demarcation line between bullish and bearish stock cycles.  During the Unstable VIX Pattern cycle, the market will be easily spooked, and the VIX will not stay below 20 for long before it pops again.  This whipsaw movement in the VIX, mostly between 20 and 30, with temporary movement below 20 and above 30, is the defining characteristic of the Phase 1 cycle of the Unstable Vix Pattern.  A corollary to going long the VIX would be to pare stock positions and/or to buy hedges.  

The VIX has been continuously moving below 20 since 12/2/2010.  If that pattern continues until early March 2011, then the market has confirmed the formation of a Stable VIX Pattern, based on historical evidence, and that pattern  normally lasts for several years based on past history.  The last STABLE VIX PATTERN lasted about 3 years or so as shown in the charts found at Vix Charts from 2004 2005 2006 Stable VIX Patterns Phase 1 and Phase 2  The continuous movement below 20 in the VIX  in those years correlated with a substantial rise in the market's averages, as did the Stable VIX Pattern in effect from 1991 to 1997: VIX and S & P Compared 1990 to 1997  (see also: VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern)

While this is just a guess, I suspect that the odds are greater than 50/50 that the market is moving into a Stable Vix Pattern.  So shorting volatility will not likely be a productive strategy.    I lack Zulauf's arrogance and readily confess to an inability to predict the future.   

Zulauf recommended buying a Canadian security that owns uranium,  URANIUM PARTICIPATION CORP. The website for Uranium Participation Corporation does not provide current net asset value information.  The last NAV information was for 12/31/2010.  www.uraniumparticipation.com/ jan17-11.pdf   I was sufficiently interested in his arguments to place that stock on my monitor list for Canadian securities.  I have a long term position in Canadian dollars.

I routinely buy income generating securities on the Toronto exchange with that stash, mostly Canadian Bond ETFs, Canadian REITs and energy companies.  Bought 100 CBO:TO at 20.4 Added 200 CBO:CA @ 20.58 CAD Added 100 CLF:TO  BOUGHT 200 CLF:TO AT 20.20 CAD Bought  100 of ETF CLF:TO at 20.10 CAD  Bought 100 HSE:TO at 26.25 CAD  Bought: 200 XRE:CA @ 13.78 CAD Bought 100 TGA-UN:TO at 10.3 CAD Bought:  100 TGA-UN.TO @ 10.58 CAD Bought: 200 SRQ-UN.TO @7.53 CAD Bought 200 AX-UN.TO @ 13.41 CAD Bought: 100 CAR-UN.TO @ 17.35  Bought 100 CUF-UN.TO @ 21.68 CAD  Bought: 100 KMP:CA @ 10.17 CAD & 100 ZCM:CA @ 15.3 CAD

B. Fred Hickey recommended buying short term Canadian government bonds.   His reasoning is that Canada has a better deficit outlook than the U.S.  Their government is running "significantly" less debt than the U.S., and the country is rich in natural resources. He also mentioned that Canada has just lowered the corporate tax rate to 16.5% with plans to cut it to 15% by 2012.   I have no interest in buying Canadian government bonds directly.  Instead I own 400 shares of the Claymore 1-5 Yr Laddered Government Bond ETF, referenced above, which uses a ladder strategy for short term Canadian federal and provincial government bonds,  and has a .15% expense ratio.

He also recommends Microsoft on valuation grounds primarily.  If I become really bored, and want to see if an elephant can tap dance,  and MSFT falls to around $25, I might buy some shares.   Sold MSFT at $28.11  ADD 50 MSFT at $17.79

C. Bill Gross had the most interesting predictions about the future.  The most stunning was his prediction that short term rates will stay around .25% for "at least two years and maybe three".   Wow!  Just plow the savers into the ground and say a prayer over their financial grave.   While my crystal ball is admittedly cloudy, I would predict that he will be proven wrong with that forecast.  By this time next year, the three month T bill will be at 1% according to our LB who has crunched all of the variables and alternated scenarios.

If Gross is right about the future, then leveraged bond funds would make sense, and he recommends one from Pimco, PTY.  Those funds will be able to borrow money at very low short term rates, and continue to make money on the spread between their cost of funds and the interest paid by the bonds bought with those borrowed funds.  Since his forecast also includes low inflation and continued high unemployment, investment grade corporate bonds would likely hold or increase their value during such a scenario.   This scenario will also "rob" savers of a real return on their investments for an extended period of time.   That is one reason that Gross recommends investing in in countries that offer a positive rate of return, such as Canada and Brazil, and where there is growth potential and a  better "credit solvency" than in the U.S.


  1. You have a remarkable way of buying near the bottom on your trades, like you picked-off GYB.(It did dip to 18.46ish recently, but usually one trade) I followed you on WIW (400) @ 12.17, keep up the great work. I fired my Stud-Brain after yesterday.
    Also, did you find a "save" on FINRA advanced bond search?

  2. PUK-A near $24 fyi.

  3. I do not use Finra's advanced bond search. Instead, I just use Fidelity or Vanguard searches. I will generally see what is available twice a day. I have to be aware of the minimum bid quantity.

    All investment grade bonds available for purchase in the bond market are unappealing, and the junk bond yield have been compressed for so many issues that their risk does not justify a position. I have thought about adding just 1 more Edison Mission bond, but will wait until that company releases its quarterly report. While risky, those bonds at least pay me something, close to 11%, for assuming the risk. I own just one of those now.

    I have thought about buying one or two investment grade bonds that yield slightly over 6% with a 2020 maturity, Vulcan Materials is an example, but I am just not that desperate yet.

  4. How about Blyth? (FINRA)
    BTH.GB / CUSIP: 09643PAB4
    Last: $99.900 Yield: 5.535%

    looks like solid co.

    says callable, but looks like at maturity.

  5. found it/Fidelity, not available.
    not a bad yield for good financial position co. traded (2) today.99.90

    Call Schedule

    BLYTH INC SR NT 5.500% 11/01/2013 MAKE WHOLE
    Call Defeased NO
    Continuously Callable YES
    Callable After --

  6. I have seen that Blyth bond pop up on my screens and have zero interest in it. I will have to find something to replace some of the bonds being called. For me, it is always a balance between risk and reward, and I first want to fully understand the risk first.

    It is my understanding that WHX will be worth zero when the trust terminates. If anyone has a different view, please leave a comment. And, while the current estimate is for a 2017 termination, it could occur earlier than currently expected.

    Just to break even before taxes, the buyer would have to receive an amount equal to their cost per share in distributions before termination. And, if you pay say $16, that would mean receiving distributions of $16 in a non-taxable account before you have earned a dime.

    There is an article posted today at seeking alpha under the symbol WHX, written by "ZMAN" which mentions the negative report from http://citronresearch.com/ and the fact that two brokerages downgraded the stock. I read the report from CITRON but did not see the broker downgrades.

    I view WHX to be too risky for an IRA, unless there is a substantial decline in price that changes what I view as the current balance in favor of risk.

  7. agree. Looked into them, sales are down, they make really discretionary junk that most don't need, like Pier One stuff, and inventories high, yield should be more like 7-8%.