Thursday, January 13, 2011

Sold 100 REPRA at 24.11 and Added 50 JZV at 24.23/Bought as Lottery Tickets: 50 VIMC at 3.84 and 40 MPEL at 7.36

Barrons has a positive article on the common stock of R.R. Donnelley & Sons (RRD).  I own only 50 shares of  PYS, a trust certificate containing a senior RRD bond maturing in 2029.

The Illinois House and Senate passed an income tax increase in an effort to shore up the state's finances.  The individual tax rate would jump to 5% from 3% and the corporate rate would increase to 7% from 4.8%.

The  WSJ dividend page for today shows several TCs declared their regular interest payment.  KTX will go ex interest for its semi-annual distribution on 1/27 (underlying bond a Xerox TP).  The TC PIS will go ex interest for its semi-annual interest payment also on 1/27 (Liberty Media senior bond).  The Commonwealth REIT senior note, CWHN, goes ex interest for is quarterly payment on 1/28.  While I no longer own JBK, I noticed that its declared distribution of $.7931 is consistent with it continuing to pay the semi-annual fixed coupon payment of the underlying Goldman Sachs trust preferred.  I currently own KTX, PIS and CWHN.

1. Sold 100 REPRA at 24.11 and Bought 50 JZV at 24.23 in the Roth IRA on Tuesday (See Disclaimer):  Although I have bought and sold the trust certificate JZV several times, I have for reasons unknown been buying shares in a taxable account rather than the more appropriate retirement account. I still own 50 shares of JZV bought in a taxable account at a total cost of $10.09, producing an annualized yield at that total cost number of  17.34%.  Buy of 50 JZV at 9.93 

The underlying security in this TC is a senior bond from CNA Financial (common: CNA) that matures on 11/15/2023.  The TC has a 7% coupon. The underlying bond has a higher coupon of 7.25% and is currently selling above its par value.  FINRA There is a call warrant attached to this TC. 

This bond is rated investment grade according to FINRA.  (Baa3 by Moody's and BBB- by S & P).   The consensus earnings estimate for CNA is for $1.66 per share in 2010 and $2.63 in 2011. 

I have bought and sold this security, as noted in several posts.  I first discussed it soon after starting this blog in October 2008 after purchasing shares at $12.78 that were later sold on a pop:  TRUST CERTIFICATE CNA BOND JZV (Post dated 10/13/2008). SOLD JZV WITH GTC LIMIT ORDER AT 16.25 Bought back 1/2 of JZV Position at 12.50   SOLD 1/2 JZV 

JZV Prospectus:

I intend to sell 50 of my highest cost shares, held in a satellite taxable account, that were purchased recently at 22.6, hopefully near $25, thereby bringing me back to 100 shares with 50 held in an IRA.   I am playing with the house's money on this one given my profitable trading history, the receipt of several semi-annual interest payments, and the low cost basis of 50 shares. 

The JZV has a higher yield and a shorter maturity than REPRA.  I received one interest payment for the REPRA shares as well as a small short term capital gain. Added 50 REPRB at 22.03 Bought:  50 REPRB @ 23.80  I am becoming increasingly concerned about these long term bonds selling near their par values and yielding less than 7%.   REPRA is a TP, in effect a junior bond from Everest Re (common: RE) with a $25 par value, a 6.2% coupon and a 2034 maturity date. Final Prospectus Supplement.  JZV contains a senior bond, important in that no deferrals are allowed whereas the TP can legally be deferred for up to 5 years assuming no activation of the stopper provision.  JZV has a 7% coupon on a $25 par value, with a 2023 maturity,  significantly less  interest rate risk  associated with longer dated 2034 maturity of the  EverestRe TP.   Thus, with JZV, I pick up slightly more yield, have more protection due to its seniority, and less long term interest rate risk.    Still, I am not sure that I would have purchased JZV without first having achieved some prior success with it, in both realized and unrealized gains plus several interest payments.  And, as I just mentioned, I hope to sell the highest cost 50 shares held in a satellite taxable account in 2011, somewhere near the $25 par value.   

I have previously bought and sold the Everest Re TP:  Bought 50 REPRB AT 20.78  Bought 50 REPRB at 20.19 Sold 50 REPRB at 21.9 Sold REPRB at 24.36  Hopefully, I will not buy it back until it falls below $20.  For that to happen, the most likely cause would be a significant rise in long term rates rather than some issue related to RE's credit risk profile.  

2. Bought 50  Vimicro International Corporation  (VIMC) at 3.84 (LOTTERY TICKET strategy)(see Disclaimer):  Maybe strategy is too strong of a word for the stocks selected for purchase, invariably by the RB, in the LT category.  The RB has no strategy, rarely does it register a coherent thought.   To achieve a modest reduction in what LB calls its noise problem, the LB has found over the years that RB can be mollified by allowing it to invest an inconsequential amount of money, which acts something like a pacifier, and provides a less noisy environment for the LB to crunch the infinite number of variables and alternate scenarios.  Somehow, the NIT WIT has been making money with its selections, but that will undoubtedly change.    And, there is no requirement that the RB actually understand whatever is being bought, since it does not "sweat the details" on anything, and never will.

LB is not going to spend much time on the 50 shares of VIMC bought by Lame Brain on Wednesday, or the other LT's bought that day.   This is the RB's second foray into this Chinese chip stock:  Lottery Ticket Purchase of 100 VIMC  at $1.97 (May 2009)   Sold 100 VIMC at $3.53 (Sept 2009).  The company makes chips for webcams.

Morningstar has a five star rating on it.  As summarized in this article at TheStreet, the Morningstar analyst has a $7 fair value estimate.

Vimicro does file reports with the SEC.  This is a link to its press release announcing earnings for the Q/E 9/2010: Form 6-K.  The company has a lot of cash on the balance sheet, totaling 94.65 million or $2.56 per share.  Price to book is around 1.17: VIMC   The 2 analysts providing earnings estimates predict a 7 cent per share profit in 2011, up from a 26 cent loss in 2010.

LB would hasten to add that most of RB's speculative picks among Chinese small caps are still waiting to turn a profit for Headknocker and HK's patience is wearing thin on them.

3.  Bought 40  Melco Crown Entertainment (MPEL) as an LT at $7.36 on Wednesday (LOTTERY TICKET strategy)(see Disclaimer):  There is no reasoning behind this selection made by RB.  Back in March 2009, RB was throwing darts at regional bank stocks (see e.g. Items # 6 & 7 Buy of 50 WBS: Lottery Ticket), and it took the LB to bring order out of the chaos by developing a systematic approach with lots of rules, now known as the Regional Bank Stocks' basket strategy.  Now, the Lame Brain is buying casino stocks, with the last LT buy being  Boyd Gaming at $9.78.   Don't ask why, since that word is not in the RB's vocabulary.   So, it is left to the LB to come up with some kind of explanation and this will be short.  RB replied "that it thought LB was shorthand for Lame Brain, go all in, LB thinks to much, let's dance and have some fun, time for amour, screw all of this work crap".

Melco is a pure play on gambling in Macau. It owns and operated the "City of Dreams", Tapia Square Casino,   and Altira Macau.  Of those, the most significant is the City of Dreams, which opened in June 2009, and has 500 table games, 1320 slot machines, and three hotels with 2200 guest rooms.  Altira caters to high rollers, opened in 2007, and has 250 table games and 200 hotel rooms.    (web site: Melco Crown Entertainment)  The company also operates 8 "mocha clubs" with a total of 1500 gaming machines  (see pages 26-27 for a description of MPEL's properties and operations: Form 20-F)

This is a link to Form 20-F which is the last annual report filed with the SEC.

Each ADS share traded in the U.S. equals 3 ordinary shares. 


  1. many muni funds(BFK, etc) breaking below previous lows(double bottom breakdowns) today fyi.[t.t_eq_s]![t.e_eq_y]![as0,20,tv_gt_40000]![tc1_ge_ac1]![tc0_lt_ac0]

  2. I attribute the latest leg down to Meridith Whitney's appearance yesterday on CNBC. She is standing by her extremely bearish forecast for municipal bond defaults. She is without question scarring a large number of individual investors.

    There are certainly a bunch of negatives about municipal bonds now which I have discussed in several blogs. Even without the credit risk issues, these bonds would be moving lower due to the decline in U.S. treasuries. The long term treasury has been on a continuous decline in price and rise in yield since October.

    If an investor is bearish on long term rates, and concerned about the onset of a long term secular bear market in bonds, as I am, then the credit issues now associated with municipal bonds would just be an additional reason to be wary. However, many of the bonds linked to water/sewer or electricity may be the victim now of throwing the baby out with the bath water syndrome.

    My municipal bond exposure is miniscule and unimportant to me. Possibly, if the carnage continues, I may venture into buying a select number of individual municipal bond issues, maturing in the 5 to 10 year range.