Wednesday, March 23, 2011

United Refining/C/Sold 100 of the 200 APF at 16.65/BOUGHT 50 CUZPRA at 24.6/Sold 50 BAB and Bought 100 of the Bond CEF GBAB at 18.2

I received an email from my broker that United Refining was calling the 2013 senior bond that I own.  Bought 1 United Refining 10.5% Senior Bond Maturing 11/15/2012 at 96.3 The notice did not have a call date. Another brokerage firm gave the date as 4/8/2011. So, assuming that occurs, I will make a few bucks on the redemption plus several months of interest. To fund the redemption of the 2012 bond, United recently issued a secured 2018 bond in a private placement.

Citigroup announced a 1 for 10 stock split and a 1 cent quarterly dividend on the post split shares. SEC Filed Press Release I do not own this stock and have no plans to buy a single share.  The Masters of Disaster at Citigroup just about destroyed this bank by their reckless and incredibly stupid actions before the Near Depression in 2008 and would have done so without the massive intervention and support of the federal government.  Some of those reckless and idiotic decisions are discussed in tombs written about the causes of the Near Depression.  One of the earliest articles was published in 2008 by the NYT. It would be impossible for any sensible person to read the articles in that series and have any confidence in the titans of finance.

I do own $8,000 (principal amount) of senior notes issued by Citigroup Funding, and guaranteed by Citigroup, that mature in 2014 except for IFO which matures on 12/3/2012.  All of those notes are subject to the credit risk of the issuer and guarantor, and fall under the generic classification of principal protected notes whose interest payments are tied to a performance of an index. (e.g. Bought 100 MKN at 9.85 Bought 100 MTY at 10.49 Bought 100 IFO at $9.35 Bought 100 MOU at $10.12
1. SOLD 100 of the 200 of the Stock CEF APF at 16.65 Last Monday (see Disclaimer): This stock CEF, the Morgan Stanley Asia-Pacific Fund, was bought in two 100 share lots.  The first 100 share lot has just turned into a long term capital gain so I decided to sell it.   Bought 100 CEF APF at 15.08 (3/20/2010 POST).  The fund had a net asset value per share of $18.17 at last Friday's close and was then selling at -10.62%  discount to its net asset value based on a closing price that day of $16.24.   

This is a link to APF's 2010 Annual Report filed with the SEC. As of 12/31/2010, the fund had over 40% of its assets invested in Japan.  This might give the fund allure to those investors who believe that recent events present a buying opportunity in Japanese equities.  Possibly, this may be the case, but I do not buy into that thesis.  Since 1989, the Nikkei index has been in a massive secular bear market. NIKKEI 225 Index Chart -1984 to Present A buy and hold investor would be bleeding red ink.  At most, Japanese equities have presented a trading opportunity from time to time.  I am simply not currently inclined to believe that this market will have any lasting counter-trend move from the recent sell-off.  Many disagree with me on this point and argue for investing in Japan now.  {e.g. Cover Story in this week's Barrons: Buy Japanese Stocks - (subscription publication)}.  Buffett seems to agree with that thesis:   Reuters  Buffett was quoted to say that he would not sell Japanese stocks if he owned them, which is not the same as saying that he planned to buy some. 

For someone willing to buy and hold for up to a decade, the Nikkei may present a buying opportunity between now and a year from now. I still prefer to play Asia with funds that invest in the region excluding Japan. Bought Matthews Asian Growth and Income (MACSX) (9/14/2009 Post).  I have also owned for several years, antedating the Near Depression, the Matthews Pacific Tiger (MAPTX) mutual fund. In November 2010, I exchanged all of my shares in Matthews India into Matthews Asian Growth and Income: Added to MACSX This is a link to the Morningstar pages on  MACSX and MAPTX.  

2. Pared Trade: Sold 50 of the ETF BAB at $25.4 and Bought 100 of the Bond CEF GBAB at $18.20 Last Monday (see Disclaimer):  Both of these funds invest in taxable municipal bonds issued under the Build America Bond program. The BAB shares were sold near break even with the dividend received to date. 

BAB is a non-leveraged ETF that has a lower expense ratio than the leveraged CEF GBAB.  Both pay monthly dividends.  There is close to a 2% yield advantage in favor of GBAB, mostly due to GBAB selling at a discount to its net asset value and its use of leverage.  BAB has a "modified duration" for its bonds at 10.3 years.  Build America Bond Portfolio | BAB   The weighted average duration for the bonds owned by GBAB was 9.81 years as of 1/31/2011.  So while I pick up some interest rate risk with GBAB's leverage, it has somewhat less interest rate risk than BAB due to its shorter duration.   The leverage for GBAB was at 16.44% as of 2/28:  Fund Overview - CEF GBAB 

While GBAB is primarily weighted in BABs at 86.1% of the portfolio, the fund does own some senior bank loans, corporate bonds and ABS securities. The portfolio quality was 83.7% in either Aa or A rated bonds. All of those figures are as of 1/31/2011: GBAB - Guggenheim Build America Bonds Managed Duration Trust

I suspected that the discount to net asset value was expanding for GBAB when I bought the shares on Monday.  The closing share price last Friday was $18.45, and GBAB closed on 3/18/2011 with a net asset value of $19.65.  The trading in BABs on Monday indicated a negligible change in prices but GBAB had fallen 1.4% in value when I placed my order to buy 100 at $18.2.  The net asset value declined two cents on Monday to $19.63 and GBAB closed at $18.29 that day, creating a discount of -6.83, up from the -6.11 discount as of last Friday's close. The discount to Monday's NAV at my purchase price of $18.20 was -7.28%.

With the decline in price, I also picked up a greater yield. Based on the current monthly payout of 11.7 cents, the yield at a total cost of $18.20 is about 7.7%. 

I also own a CEF that invests in BABs that is sponsored by Nuveen.     

GBAB was ex dividend for its monthly distribution earlier this month.  The current monthly distribution rate is $.117 per share. GBAB Distributions

GBAB closed at $18.14 in trading yesterday, down 15 cents and traded as low as $17.92 on much higher than normal volume.  The net asset value as of Tuesday's close (3/22/2011) was $19.65, unchanged from last Friday's close.  Due to the decline in the market price, the discount to net asset value has expanded from -6.11 on Friday to -7.68 as of Tuesday's close.

3. Bought 50 CUZPRA at 24.6 on Monday (see Disclaimer):  CUZPRA is a cumulative equity preferred stock issued by the REIT Cousins Properties (common: CUZ).  This security has a 7.75%  coupon on a $25 par value. Dividends are current.  The dividend can be deferred provided no dividend is paid to the owners of the common stock.  CUZPRA is a typical REIT equity preferred stock.  REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

At the current price, I do not believe there is much upside potential and there is always downside risk with this type of security.  I view fixed coupon equity preferred stocks to have more in common with bonds, without the protections and priority, than equity.   During recessions, investors will likely hyper ventilate about credit risk, both real and imagined, and drive the prices of equity preferred stocks down.  I picked up a number of REIT preferred stocks at bargain basement prices during the Dark Period, including one that pays me now 75% per year based on my cost. 

Buying these securities at or near their par value are in no way bargains. I would hope to sell CUZPRA for a $1 or greater profit on the shares after collecting a few dividends. That security is one very small cog in my most basic strategy, which is the generation of cash flow from income producing securities. That stream of income, being generated by around 400 securities, is used to buy more income generating securities, creating a compounding effect over time.  

Cousins has another preferred stock, CUZPRB.  I view it as functionally equivalent to CUZPRA, so I bought the one with the higher yield on Monday.  I have traded both of them for profits in the past.  My lowest purchase of CUZPRA, the one bought on Monday, was at $12.08 in April 2009. 

This is a link to the prospectus:  Dividends are paid quarterly on 2/15, 5/15. 8/15 and 11/15. 

This is a link to the profile page on Cousins and to its  Key Developments page.

CUZPRA closed at $24.62 in light trading yesterday. 

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