Tuesday, May 3, 2011

EXC MBVT/Bought 50 GABC at 17.05/Sold 200 IMF at 17.2/What is a True Believer

The Old Geezer was at the local Fidelity office, near HQ, opening a trust account, and there were several large screen TVs turned to CNBC.  The CNBC anchors were discussing the death of Osama, who was killed by U.S. Special Forces in a large compound located near Pakistani army barracks and a military academy. Reuters Osama was living in luxury, in a million dollar compound, surrounded by retired Pakistani military officers as his neighbors. The compound had 18 foot walls, topped by barb wire, and no telephone lines. CBS News  It was then that the OG learned something from another customer who said that Obama had staged the incident to help his election chances and Bin Laden was still alive. The OG did not feel a need to ask for his party affiliation.

But, the LB in its usual cross examination mode, with a pleasant facial expression, inquired whether the U.S. military was cooperating in Obama's gambit? One technique in cross examination is to allow the witness to reveal themselves by talking.  LB learned a lot about this TB's mind in just a few seconds of conversation. A self-directed brokerage account might not be his best option.

For some reason, the OG then remembered conversations from long ago, when Neil Armstrong walked on the moon in 1969, and many claimed that it was all a ruse too, the action was really taking place on a Hollywood stage. Moon  (NYT). For True Believers, facts do not matter and never will. An article in Sunday's NYT discusses the widespread conspiracies still in vogue.

The phrase "True Believers" in this blog is intended to describe a mindset, where beliefs and opinions on virtually any secular subject are held with the same conviction as religious beliefs. Any and all facts inconsistent with that belief are by definition false.  There is further a vigorous effort to avoid contact with any information that might contradict a belief or call it into question, usually by labeling all information from such sources with a tag indicating unreliability to the TB. For media sources, the more frequent labels are "liberal", "elite" and "mainstream".

A TB's opinions will never change since certainty in their truth is absolute, just like a person believes in the Bible or the Koran, as the case may be. The TB operates in a closed-loop, only seeking information which confirms pre-existing beliefs no matter how spurious or ridiculous. The TB is not a party affiliation or an ideology, though a majority of one political tribe are pre-disposed to that mindset and are easily manipulated by those seeking power.  

A person who is truly conservative will learn from history and will adapt to changing circumstances based on newly acquired information. The TB will never learn anything even from contemporary history such as the recent Near Depression and knows virtually nothing of an accurate nature about the history of this country. Anyone unable to distinguish fact from fiction, or to make an intelligent judgment based on the best and most reliable information, is not likely to succeed as an investor over the long term. The TB mindset is potentially a disastrous one for an investor.

Many years ago, 1972 or thereabouts, I took a graduate admissions test which was necessary to complete my application to Harvard, where I was accepted into their graduate school for history, but chose to go to law school instead.  Otherwise, I could be teaching students in some high school about American history which apparently is not being taught anywhere with any effectiveness.  I would suggest that a clown like Glenn Beck, who must have been otherwise occupied in all of his high school classes, be required to take that test, and to score at least in the 90th percentile, before venturing another opinion about some historical event.

Weiss Ratings has assigned a C rating to U.S. government debt. MarketWatch  A "C" is almost a "B" RB noted. Weiss ranks the U.S. 33 out of the 47 nations ranked by it.  Its "C" rating for U.S. debt is equivalent to a BBB+ from S & P, which is about one notch higher than our LB rates U.S. treasuries, currently assigned a BBB by LB.

The government estimates that 1st quarter GDP increased at an annualized rate of 1.8% in the 1st quarter, down from a 3.1% pace in the 4th quarter of 2010. News Release: Gross Domestic Product This is the first estimate and will be revised by the government. Still, this report reflects a deceleration in growth due in part to decreases in consumer and government spending. Real final sales of domestic product increased .8% compared to a 6.7% increase in the 4th quarter of 2010. 

1. Exelon (own: core electric utility strategy): Last week, Exelon announced an agreement to acquire Constellation Energy (CEG) in an all stock transaction. Constellation shareholders will receive .93 EXC shares for each CEG owned by them.  SEC Filed Press Release  The combination is expected by EXC to be break-even for Exelon's adjusted earnings in 2012 and accretive by 5% in 2013.

Exelon also reported adjusted Non-GAAP earnings per share of $1.17 for the 1st quarter, up from $1 in the 2010 March quarter.  The consensus forecast was for $1.05 per share.  EXC affirmed its non-GAAP 2011 earnings forecast of $3.9 to $4.2.  Revenues increased 13% to 5.05 billion, which beat the consensus forecast of 4.66 billion.  I am reinvesting the dividend to buy additional shares.  

2. Bought 50 German American Bancorp (GABC) at $17.05 Last Thursday (Regional Bank Stocks' basket strategy)(see Disclaimer): This small bank is headquartered in Indiana and was on my regional bank monitor list for a possible add.  I decided to buy a small amount based on the bank's 1st quarter earnings report. German American reported earnings of $4.645 million or 37 cents per share, up from 29 cents in the 1st quarter of 2010.  The consensus estimate was for 23 cents. Earnings benefited by 2 cents from a recent acquisition.  German American recently acquired another small bank with 3 branches in Evansville.

As of 3/31/2011, the net interest margin was at 3.83%; the efficiency ratio was at 64.87%; and NPAs to total assets was at 1.27%.

Page 4 of the 2010 Annual Report shows the location of the bank's 37 branches in southern Indiana.  Form 10-K

On the positive side, the bank did not cut its dividend during the Near Depression period.  On the negative side, the bank has not recently raised its annual per share penny rate of 56 cents.  The data at page 18 of the 2010 Annual Report shows that the dividend has remained constant since 2006.  The capital ratios are good and are shown at page 55 as of 12/31/2010. The ratios are clean, in that there is no government money on the balance providing equity capital.  The bank declined to participate in TARP and instead sold 15 million dollars of a TP to its shareholders to increase equity capital.  SEC Form 8-K  The bank may still count that TP as part of Tier 1 equity capital since it is under the 15 billion in assets threshold.  Trust Preferred Securities & Financial Reform

GABC closed yesterday at $17.25.

3. Merchants Bancshares (MBVT)(own: Regional Bank Stocks' basket strategy): Merchants Bancshares reported net income of 3.1 million for the first quarter or 50 cents per share.  The estimate made by just one analyst was for earnings of 49 cents per share.  As of 3/31/2011, NPLs as a percentage of total loans was at .41%; NPAs as a percentage of total assets was at .26%; the tangible capital ratio was at 6.76%; and the net interest margin was 3.45%.   The bank said that its "new business loan pipeline is at its strongest level we have seen for the past three years".  I am not reinvesting the dividend and do not intend to buy more shares at the current price. Bought 50 MBVT at 22.9  The dividend yield at my constant cost number is currently about 4.88%. Merchants Bancshares Inc, MBVT Stock Quote  The quarterly dividend is currently 28 cents per share.

Merchants Bancshares closed yesterday at $26.9.

4. Sold 200 of the Bond CEF IMF at $17.2 Last Thursday (see disclaimer):  I placed an AON GTC order at $17.20 to sell my shares of this bond CEF, recently bought at $16.81. (4/13/2011 Post). I will receive one monthly dividend.  As previously discussed, I am in a hyper trading mode on bond CEFs.  I have bought both IMF and WIW on multiple occasions.  Both own U.S. treasury inflation protected bonds and consequently have what I view as unsatisfactory yields.    Bought 300 CEF IMF at 16.51 (May 2010) Sold 200 IMF at $17.15 (Oct 2010 Post) Bought 200 of the Bond CEF IMF at 16.64  Sold: 300 IMF @ 17.23 Sold 300 WIW at $12.61(2/1/2011 Post)-- Item # 5 Bought Back 300 of the CEF WIW at $12.17 (1/20/2011 Post)/Bought 300 of the CEF WIW at $11.94 (March 3/2010 Post)--- SOLD 200 of 300 WIW at $12.5 (5/13/2010 Post) Bought 200 WIW at 12.29 (6/30/2010)-- Sold 300 WIW at $12.53 (9/2/2010 Post)/ Bought 300 of the Bond CEF WIW at $12.14 (12/10/2010 Post)--Sold 300 WIW at 12.43 (12/23/2010 Post) 

The following are snapshots of my realized gains for both WIW and IMF during 2010-2011: 

WIW 2010 Realized Gains=$266.07

WIW 2011 Realized Gain=$117.43
IMF 2010 Realized Gain=$215.77
IMF 2011 Realized Gains=$146.82
Total= $746.09.  I am obviously not trying to do too much with these two bond CEFs, other than taking some short term profits and clipping a few monthly dividends.   The only positive comment that I can make about their current yields is that they are higher than a current yield of TIPs bought today in the bond market. 

Western Asset Inflation Management Fund (IMF) closed at $17.3 yesterday.  I prefer to buy and sell these two bond CEFs with GTC limit orders AON, above the market price for a sell order and below the market price for buy orders, usually around 20 to 25 cents at the time I place the order. 

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