Friday, March 18, 2011

GMR WASH/Bought 1 Tenneco Packaging Bond Maturing in 2027/Sold 100 TFI at 22.07/Sold 50 BMLPRG at 17.39

Columbia University Professor Jeffrey Sachs believes that the super wealthy control both political parties in the U.S.  Tech Ticker  Since 1976, 58% of the real income has gone to the top 1%, while the median take home pay adjusted for inflation has remained virtually unchanged since 1973.  I would guess that Sachs is not a card carrying member of the GOP Tribe. 

New home construction fell 22.5% in February. I have been somewhat surprised by the strength of new housing starts given the vast supply of foreclosed homes.

CPI rose .5% in February on a seasonally adjusted basis, driven higher by large increases in gasoline, fresh vegetable and meat prices. Excluding food and energy, the CPI rose .2%.   PRK, OSM and ISM, all exchange traded CPI floaters, use a non-seasonally adjusted CPI number. The number used in those computations for February 2011 is 221.309: /CPIAUCNS This is a CPI chart for All Urban Consumers, non-seasonally adjusted, for the period 1913 to date:

Consumer Price Index for All Urban Consumers: All Items (CPIAUCNS) - FRED - St. Louis Fed

General Maritime (GMR) has disclosed that it is in financial difficulty. SEC Filed Press Release I own only 1 senior bond maturing in 2017 that took a significant hit based on this disclosure.  Bought 1 General Maritime Senior Bond Maturing in 2017  I am down about $100 so far on that purchase.  I expect problems in my Junk Bond Ladder Strategy given the high risk of those credits. Item # 5 Stocks & Politics (1/18/2011 Post) There is no free lunch for such high yields in the current abnormally low interest rate environment. GMR shares closed at $1.81,down 69 cents or 27.6% in trading yesterday.  I do not view that as an over reaction.  ( see discussion at  TheStreet)

I also hope to realize some trading profits to offset potential losses.  So far, I have realized gains in two junk bonds, issued by Synovus and Regions, bought pursuant to the Junk Bond Ladder Strategy, and I have realized substantial gains from exchange traded junk bonds.  This would include junk bonds in the TC form of ownership, Trust Preferreds and baby bonds. Exchange Traded Bonds Trust Preferred Securities: Links in One Post  TRUST Certificates: Links in One Post

Washington Trust (owned-Regional Bank Stocks' basket strategy) increased its quarterly dividend by 1 cent to 22 cents per share. Bought 100 WASH at $15.26 Sold 50 of 100 WASH @ 22.44 At a $15.26 total cost, the dividend yield at the new rate would be about 5.77%.

While the 10 year treasury price declined in price some yesterday, the yield has fallen from 3.739 on 2/8/2011 to 3.258% yesterday. Java Chart -

1. Bought 1 Tenneco Packaging Bond Maturing in 2027 at 92.25 on Wednesday (Junk Bond Ladder Strategy) (see Disclaimer):  I previously discussed Tenneco Packaging in connection with the purchase of another bond, one maturing in 2025.  Bought 1 Tenneco Packaging Senior Bond at 92.8 Maturing in 2025  This company was later named Pactiv. Reynolds Group Holdings, a privately owned company, acquired Pactiv in 2010.   This company is involved in the manufacture of consumer packaging products.  In the U.S. Reynolds best known brand names would be the GLAD line of products and Reynolds Wrap.  

The 2027 bond has a 8.375% coupon and matures on 4/15/2027.  It is rated well into junk territory, with Moody's rating this bond at Caa1 and S & P at B-.  In short, it is very risky.   

This is a link to the prospectus: This bond was originally issued by Tenneco and had a 7 7/8% coupon.  When the packaging operation was spun out in 1999, that bond was exchanged for the Tenneco Packaging bond with the 8.375% coupon and the same maturity date. This is the link to the  FINRA - Investor Information for the 2027 bond.

My confirmation states that the YTM at my cost is 9.21% with the current yield at 9%. 

2. Sold 50 BMLPRG at 17.39 (inflation-deflation strategy) (see Disclaimer): BMLPRG is an equity preferred stock, originally issued by Merrill Lynch, that pays qualified dividends at the higher of 3% or .75% over 3 month LIBOR. I bought those 50 shares at $16.04 last January and have received one quarterly dividend. As noted in previous posts, I am in a trading mode for these non-cumulative floating rate preferred stocks. Floaters: Links in One Post  

I intend to deploy the proceeds in a higher yielding BAC Trust Preferred that has a significant current yield advantage.  The TP's interest payments can not be eliminated short of bankruptcy, only deferred for as long as no payments are made on a junior security like common and equity preferred stock.   The dividends paid to the owners of BAC equity preferred stocks are non-cumulative and can be eliminated provided BAC first eliminated a common stock dividend.  Advantages and Disadvantages of Equity Preferred Floating Rate Securities  I am not currently concerned about those possibilities. The pricing of those junior securities during the Near Depression needs to be kept in the back of investor's minds.  I did buy BMLPRG as low as $8.8.  (5/30/2009 Post)  And that was far from the low point. BMLPRG traded below $3 per share in February 2009. (see five year chart at Bank of America Corp. PRFD 'G': Google Finance)

In the event BAC is ever seized by the FDIC, I would anticipate a wipe out for all securities below senior debt, though it is conceivable that the owners of the TP might receive some sum north of zero depending the capitalization of the holding company and the amount of senior and secured debt on the holdings company balance sheet.  I expressed this opinion in a blog from January 2009 and see no reason to change it. Regular Preferred and Trust Preferred

3. SOLD 100 of the ETF TFI at $22.07 on Wednesday (see Disclaimer):  TFI is a municipal bond ETF that yields about 3.5%.  The only reason for selling it was to reinvest the proceeds into a higher yielding income security.  TFI was sold near break even with the monthly dividends received to date.  Bought: 100 TFI @ 22.33 (11/16/2010)

During periods of stock market declines, one of my knee jerk reactions is to increase my cash flow which will give me more buying power down the road. Based on self awareness, I realize how difficult it is to invest during periods of market stress.  For me, I have no problem investing my cash flow during such periods, which has worked out in the past, with the most recent example being my willingness to continue buying throughout the Dark Period (September 2008 to March 2009), as chronicled in this blog which started in October 2008.     

My concerns have recently led me to jettison some lower yielding income securities, particularly those that pay non-cumulative dividends and have relatively low current yields. I will also jettison some lower yielding stock ETFs when I start to become concerned about a market correction, thereby raising funds for future reinvestment in the same or similar ETFs. Sold 100 of the stock ETF VV at $60.69 (3/1/2011);  Sold 100 VEU at 49.19 (3/3/2011);  Sold 100 of the ETF VFH at 34.88 (2/17/2011).  I may also add some double short stock ETFs, and I currently own three of them. I exchanged yesterday a double short on a U.S. stock index for one on a foreign stock index.

I am not bullish, which is evident by the tone of my posts over the past several weeks.      

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