Monday, May 2, 2011

Bought 1 Edison Mission 7% Senior Bond Maturing 5/15/2017 at 80.361 in IRA/Pared ED at $51.50/ Bought 100 of the Stock CEF EOI @ 12.17/TRMK FBSS/Sold 50 FFIC @ 14.51/Bought 50 LARK @ 16.6/Added 50 MSFT at $25.55

The U.S. Postal Service is at least consistent. Over the past year, I have sent three packages with a delivery confirmation.  And, in each case, the package showed no movement at all from the Brentwood Post Office to its ultimate destination. Delivery confirmation must be a profitable service for the USPS, as far as I can determine based on my personal experience. After all, it has to be profitable to charge for a service and then do nothing.  

While I am on this subject, I would like to add that I receive on average over 200 pieces of mail a year addressed to other unfortunate USPS patrons, usually in batches of five or more pieces. The OG is not a postal employee, though might as well be an unpaid one. The OG is after all Old School, and feels a responsibility to deliver the mail to its proper recipient. Possibly it would be easier for the USPS to just leave the mail in a basket at the subdivision's entrance and each resident could go fetch their own.  The OG is not saying that the mail delivery service in the U.S. is similar to a Third World Country or a banana republic, only that it is moving in that direction.  I have tried to make it easier on the USPS in delivering my important bills. I just cut them out of the loop altogether by authorizing direct debits from my checking account.

Anthony Mirhaydari, in an article published at  MSN Money, gives his reasons why he believes that it's time for investors to "run and hide".

A book written by Jerome Corsi , which is scheduled for publication shortly, surged recently to No. 1 on Amazon's best seller list after prominently being mentioned as worthwhile in the Drudge Report.   The book is titled "Where's the Birth Certificate? The Case That Barrack Obama Is Not Eligible to be President". ‘Birthers’ - NYT  (45% of republicans believe Obama was not born in the USA and a super majority are inclined to believe it  Perhaps, Donald Trump hired Mr. Corsi as one of his investigators.  Donald Trump-Investigators (see Steven Colbert's most recent take on Trump:  The Colbert Report - 4/27/11)

A book in a similar vein and appealing to the same TB audience, which was on top of the Amazon's best seller list for a long time, was written by Andrew McCarthy and titled "How Obama Embraces Islam's Sharia Agenda".  The TB mind is very interesting to the LB who has devoted over 40 years to the study of its numerous malfunctions.

The most current study involves whether a single SUV driver will take their foot off the gas when approaching a red light on Franklin Road in the SUV Capital of the World, when it is obvious that the vehicle will have to come to a complete stop or will they continue to accelerate into the red light notwithstanding their complaints about the price of gas, now over $4 for premium and their use of a gas guzzling vehicle.  The traffic light in question is clearly visible to both north and south bound traffic for several hundred yards.  Traffic Camera at Franklin Rd & Murray Lane The OG will of course coast into a red light and will occasionally tap his brakes to slow down more, just to aggravate the SUV drivers who still have the peddle to the metal.

I wonder how Politfact, one of the non-partisan fact check organizations came up with the "mostly true" type of category to describe a factual statement made by a politician. Possibly, in terms of statements made by a politician, mostly true is about as it good as it gets.  This was the rating given Joe Biden's statement that more jobs had been created in the last year than the entire 8 year term of Bush Jr. PolitiFact  The same rating was given to Obama's statement that Paul Ryan voted "for two wars that were unpaid for, voted for the Bush tax cuts that were unpaid for, voted for the prescription drug bill" that was not paid for.   PolitiFact   And I noticed that Kucinich was given a "true" rating for the statement that the Bush tax cuts helped create a substantial part of the deficit.   PolitiFact

I received today the redemption proceeds and accrued interest from the senior exchange traded bond TDA that was called for redemption by its issuer.  That bond was held in three of my accounts.

1. TRMK FBSS FFBC NPBC (own: Regional Bank Stocks basket strategy): 

Trustmark reported first quarter net income of 24 million or 37 cents per diluted share, up just 1 cent from the March 2010 quarter. The Board also declared the regular quarterly dividend of 23 cents per share. As of 3/31/2011, the total capital ratio was at 16.25% (10% well capitalized); the allowance for loan losses as a percentage of NPLs was a comforting 215.4%; the efficiency ratio was at 63.34%; the net interest margin was relatively good at 4.3%; and the tangible common equity to tangible assets was at 9.27%.  Until I see better earnings growth, I do not intend to buy more shares.  Overall, this bank appears to be well run.    Bought 50 TRMK at 19.57

Trustmark closed at $23.24 last Friday. 

First Financial Bancorp (FFBC) reported 1st quarter net income of 29 cents per share, 1 cent better than the consensus estimate, and up from 24 cents in the 1st quarter of 2010.  FFBC is larger than many of the regional banks in the basket, with 6.3 billion in assets, 4.1 billion dollars in loans, and 102 banking locations in Ohio, Indiana and Kentucky.  I just briefly reviewed the quarterly report and only own 50 shares with no current intention of adding to that small position. 

Fauquier Bankshares (FBSS) reported net income for the first quarter of $921,000 or 25 cents per share, up from 22 cents in the year ago quarter.  As of 3/31/2010, the net interest margin was 4.12%; the efficiency ratio was too high in my opinion at 73.73% (possibly some officers need a pay cut); the total risk based capital ratio is okay at 12.87%; tangible equity to tangible assets is at 7.59%; allowance for loan losses as a percentage of NPLs is very comforting at 390.15%; allowance of loan losses as a percentage of NPLs and other real estate owned and repossessed was at 138.46%; NPAs to total assets was at .89%; and NPLs to total loans was at an excellent .37%.  I will hold FBSS in light of several favorable metrics noted above and based on my opinion that is takeover bait.  Fauquier Bankshares closed at $13.1 last Friday. 

I would just noted a favorable article in, summarizing a research report from the Boenning firm, about my recent LT purchase National Penn (NPBC).  My only material exposure is to 150 shares of this banks TP NPBCO. Bought 50 of the TP NPBCO at $24.93 Bought 100 NPBCO at 24.91

2. Sold 50 of FFIC at $14.51  Last Wednesday (Regional Bank Stocks' basket strategy)(see Disclaimer) Flushing Financial reported core diluted earnings per share of 29 cents and 26 cents on a GAAP basis. The consensus estimate was for 30 cents. The GAAP number was unchanged from the 1st quarter of 2010. Those numbers caused me to consider selling my entire position of 100 shares bought in two fifty share lots: Bought 50 FFIC at 12.18 Added 50 FFIC at 11.05  Instead, I elected to sell the highest cost shares bought first for a long term capital gain and to keep the shares bought at $11.05.

Flushing Financial closed at $14.72 on Friday. 

2. Sold 25 ED with a GTC Limit Order at $51.50 on Wednesday With a GTC Limit Order (core electric utility strategy)(See Disclaimer):  This transaction produced a long term capital gain, originating from a 2007 purchase, and lowered my average cost per share for my remaining shares.  I will manage core positions in this manner over long periods of time.  This transaction lowered my average cost per share to $43.49 for those shares held for more than a year.  

Consolidated Edison closed at $52.19 last Friday.

3. Bought 100 of the Stock CEF EOI in the Roth IRA at 12.17 Last Wednesday (see Disclaimer): I last discussed this buy-write stock CEF  last September when I added 100 shares  at $12.78 in an effort to dig myself out of a small hole. I succeeded in making that hole just a little deeper with that purchase.  I own 214.411 shares in a taxable account. I quit taking the monthly distributions in cash a long time ago and have recently resumed reinvesting the dividend to buy additional shares in that account after the discount to net asset value expanded to over 10%.  I will not reinvest the dividends for the 100 shares bought in the ROTH and hope to sell those shares for a small profit after collecting several monthly dividend payments.  

EOI is a buy-write closed end fund that was trading at over a ten percent discount to its net asset value when I made this last purchase. Enhanced Equity Income Fund  The current monthly distribution rate is $.0919 per share. Assuming that rate is continued, which is in no way assured, the yield would be around 9%.  The fund lowered its distribution by 15% in January 2010 to the current level. In recent years, this fund has supported that dividend with a destructive return of capital. (see  Morningstar data) I suspect that the fund will improve its performance when and if the buy-write strategy starts to work better, with less upward movement in stock prices on a monthly basis. That kind of issue is discussed in this article at Seeking Alpha and I have nothing to add.  I do not personally buy and sell options.   

The last SEC Filed Form N-Q which contains a list of the fund's holdings is for the period ending 12/31/2010. 

The last SEC filed shareholder report is for the six month period ending 9/30/2010. Eaton Vance Enhanced Equity Income Fund The expense ratio is shown as 1.12% at page 11 of that report.  

EOI closed last Friday at $12.29. As of that date, the net asset value per share was $13.77 and the discount to net asset was then -10.76. CEFA

4. BOUGHT 1 Edison Mission 7% Senior Bond Maturing on 5/15/2017 at 80.361 in IRA Last Wednesday (Junk Bond Ladder Strategy ) (see Disclaimer):  When I invest in a bond, I will conduct the same kind of research that I would normally do for a stock purchase, except my focus for a potential bond purchase is to make a judgment on credit worthiness and the likelihood of being paid back.  I have never called a firm's investors relations department to ask a question.  Possibly, I would make a call if a material question was raised by the SEC filings.   

Back in 2008, a reader that I did not know kept asking me questions about what was in a prospectus for a European hybrid.  I politely answered a few questions, easily answerable by anyone with below average intelligence willing to spend the time looking at the prospectus,  and then directed him to the prospectus again when he kept asking me more questions.  As I expected, he refused to read the prospectus, was upset that I refused to continue answering his questions about material in the prospectus, and finally called investors relations to ask them what was in the prospectus, rather than read anything for himself.  Laziness is not a road to successful investing.   

My research always starts with reading SEC filings, concentrating on recent earnings reports and other news events.  I will also read whatever analyst reports are available and a Moody's report for a bond issue (available to Schwab and Ameritrade clients). I will also rummage around the firm's web site looking for anything that may be relevant.

For a bond, I also have to review the prospectus to answer certain basic questions, including the priority of the bond in the capital structure, default events and covenants, the maturity date and call provisions. I also view it as important to ascertain the amount and maturity schedules of all debt, particularly the maturity schedules occurring prior to my bond and the amounts.  I need to examine all of that material in order to make a judgment, which will always be based on incomplete information, about the likelihood of being repaid. Some of that incomplete information will of course be about the future.  Since no one can predict the future, I can only look to the present and past data to make a prediction about possible future scenarios.   

As stated in prior posts, where I bought two Edison Mission bonds, I am concerned about this firm's lack of consistent earnings, the amount of its debt and the maturity schedules for that debt, and the firm's reliance on coal fired generation which attracts a number of environmental lawsuits. Edison recently filed a  Form 8-K giving notice that a federal judge dismissed several claims in one such suit. 

The debt is discussed at pages 113-118 of Edison's 2010 Annual Report.  

This is a link to the FINRA Information  on this bond.  It is currently rated B3 by Moody's and B- by S & P. 

This security is not appropriate for me in an IRA.  I made an exception since I recently had Wells Fargo redeem my 50 shares of KTV held in that regular IRA account.  I lost today an investment grade bond TDA in the same account as well as in the Roth IRA.  KTV had a 8.2% coupon, and TDA has a 7.6% coupon, and both were investment grade exchange traded bonds.  Sa La Vie.  What can one expect three years into a Federal Reserve Jihad against savers and responsible Americans. 

In the event Edison Mission defaults,  one advantage is that I will pay less federal income taxes when I withdraw whatever is left from this 1 bond purchase.  In the meantime, I will receive tax deferred interest at a high current yield and close to a $200 gain on the bond provided Edison redeems it at par value.

My confirmation states that the current yield at my cost for this last purchase is 8.624% and my YTM is higher at 11.4% due to the large discount to par value.

This brings me up to 3 Edison Mission bonds, one more than my comfort level, with the other purchases discussed in the following posts: 

This bond did fall some in price late last week.

Added 6/7/12: I have turned negative on EME bonds for the reasons discussed in Item # 1  Risk Rating Raised on Edison Mission Bond to 10- from 9- and Item # 4 Sold 2 Edison Mission 7.75% Senior Bonds Maturing in 2016 at 73.25

5. Bought 50 LARK at $16.6 Last Wednesday (Regional Bank Stocks' basket strategy )(see Disclaimer):  Landmark is a small savings bank headquartered  in Manhattan, Kansas, with 21 branches in 16 Kansas communities.  A list of its branches can be found at Landmark National Bank.  The average volume was torrid when I bought my shares last Wednesday, hitting 1706 shares compared to an average volume of around 400 per day.  

I really do not expect much from this purchase.  The bank appears to be well run and the stock has close to a 4.58% dividend yield at a total cost of $16.6.  Landmark Bancorp Inc, (LARK).  So I would not need much appreciation in the stock to achieve a 10% annualized return.   

A five year chart shows the high at $23.3 reached in June 2007:  Landmark Bancorp Inc. Stock Chart The stock is barely above its 200 day moving average and is running in a narrow channel since bottoming in March 2009, mostly between $14 and $18.  The 52 week high was at $18.99. 

There are no analyst estimates which is not surprising. The total market cap is around 44 million at the current price. There was some recent insider purchases at $16.25 per share: LARK Insider Transactions 

The bank reported 1st quarter earnings of $978,000 or 37 cents per share.  There is no government preferred stock on the balance sheet. As of 3/31/2011, the net interest margin was at 3.8%; book value per share was $20.68; the allowance for loan losses as a percentage of NPLs was a comforting 209.16%; and NPLs to total loans was good at just .71%.  I did not see the capital ratios in this report so I went to the 2010 Annual Report which is not unusual for these small banks.  Usually, they put that information in the Form 10-Q rather than the Press Release. 

I noticed when reading the Annual Report that the bank owns its headquarters and 18 branch offices. (page 32 2010 Form 10k  As of 12/31/2010, the total capital ratio was at 17% and the tier 1 capital ratio was at 15.8% for the operating bank. (see page 47).  The bank did not reduce the dividend during the Near Depression period, viewed as a plus here at HQ, and instead raised the dividend (see page 34). The dividend payout ratio did surge in 2010.

There were no trades in LARK last Thursday and Friday.  LARK Historical Prices 

This bank was on my regional bank monitor list which has over 100 names.

I am likely to be way behind on describing my trades for at least the next two weeks.

5. Added 50 MSFT at 25.55 (Large Cap Valuation Strategy)(see Disclaimer): These shares were added in a subsidiary brokerage account on April 29th.  The reasons are set forth in ITEM # 2 RB BOUGHT 100 MSFT at 27.08.  This purchase was an average down. 

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