Wednesday, May 4, 2011

Sold 100 GRT at $9.5/Sold 100 WLFCP at $11.35/Sold 50 ARCC at $17.7/Added 50 MSFT at 25.55/Bought 30 UMPQ as LT at 11.53/Bought 1 Senior 7.69% HCA Bond Maturing 6/15/2025 at 92.26

This is a link to a 2003 article in the Washington Monthly that discusses some "whoppers" told by recent Presidents and asks readers to identify which one told the biggest lies.  It is difficult to decide, but I will have to go with George Jr. given the consequences of his whoppers which were told by him and his V-P, the Dark Force, to justify the Iraq invasion. And he did lie.

What else would you call telling the American people that the aluminum tubes captured in route to IRAQ were centrifuges for the enrichment of uranium, when the Bush Administration had been told by the nation's foremost experts that those tubes were not usable for that purpose. The contrary opinion came from a CIA guy whose first name was Joe who wasn't even an expert. Instead, as suspected by the experts consulted before the war started and whose opinions were known by the Bush Administration, they were artillery shell casings. (see e.g. Bob Woodward's State of Denial at; a detailed articles in the Washington Post Depiction; and a film)

This is just one example among many of what can only be characterized as deliberately false or misleading statements by the Dark Force and Bush Jr.  When Clinton denied having sex with that woman, I did not believe him and just assumed he was lying most of the time when asked about his affairs. I view that form of lying to be what some men do as easy as breathing. While that statement was false about Monica, as well as some others made by him in the Paula Jones deposition, Clinton's false statements did not result in the deaths of tens of thousands, the maiming of even more human beings, and the expenditure of almost 1 trillion dollars of borrowed money.

Yet, the TBs are upset more with Clinton, and many still believe in what they were told by Bush refusing to look at the vast array of information that was known before the GOP led the country into this war using borrowed funds to pay for it. And interest on those funds will have to be paid in generations to come, as the debt will have to be financed and refinanced, over and over, for the remaining life of the republic. What can you say? Clinton was suspended by the state bar in Arkansas for five years (CNN), and was impeached by the republicans who then had a majority in the House, (Impeachment of Bill Clinton), while nothing happened to George Jr.

Almost all GOP Senators voted to remove Clinton based on the perjured testimony about his sex life with someone other than Hillary. Five GOP senators voted against both impeachment charges (the two ladies from Maine-Collins and Snowe, Specter who later became a Democrat, the liberal Lincoln Chafee from R.I. since defeated in a GOP primary, and the Vermont GOP Senator Jim Jeffords who also later left the GOP to become an Independent before retiring in 2006: Congressional Record) Bizarre is one word that describes the GOP line of thinking.

And, to prove non-partisanship on these matters, I would be equally critical of LBJ's decision to escalate American involvement in the Vietnam War after his thrashing of Goldwater in the 1964 election. Gulf of Tonkin Resolution

If Bush and the Dark Force were inclined to tell the truth, this is what they would have said about the tubes. There is a guy name Joe in the CIA who is not an expert on gas centrifuges, but he is the guy at the CIA who knows about export controls. Joe believes these tubes can be used in gas centrifuges for the enrichment of uranium. Our nation's leading experts in gas centrifuges at Oak Ridges disagree with Joe and believe those aluminum tubes have another use, while other experts believe that the tubes were what they purported to be, 81 MM rocket shells, a conventional weapon. Then after explaining all of that to the American people, W and the Dark Force could say that they were going with Joe's opinion.

Apparently, besides being unable to distinguish fact from fiction and living in their own world of reality creation, the TBs are also unable to ascertain the difference between lying and telling the truth, at least when it comes to statements made by a politician who professes to be of the same faith (conservative or liberal) as them.

1. Sold 100 Glimcher Realty (GRT) at $9.5 Last Friday (see Disclaimer)Glimcher reported that its mall occupancy increased to 94.1% as of 3/31/2011.  The company expects diluted FFO per share to be in the range of 64 to 68 cents for 2011. After reviewing this report I decided to sell my 100 shares, bought as LOTTERY TICKETS in two fifty shares lots. Bought 50  GRT at $1.61 (2/6/2009 Post) Bought 50 GRT at 2.79 (12/16/2009 Post) I will keep the preferred shares bought at $2.9 which have a 75% annualized yield at my original cost number. The yield is higher now since my original cost number has been reduced some by adjustments for return of capital.  GRT never missed a preferred dividend payment.

The percentage realized gain on the common shares was huge, close to 425% based on the adjusted cost number (780% on the first 50 share lot), excluding quarterly dividend payments:


2. SOLD 100 WLFCP at $11.35 on Friday (see Disclaimer): I sold my remaining shares of the cumulative equity preferred stock that were bought $10.33 last November. This was done with an AON GTC Limit order. I can place the All or None restriction on 100 share orders at some brokers, whereas others require at least 200 shares for an AON.

In March I sold 100 of WLFCP shares at $11.42 that were bought  at $10.1 (1/22/2010 Post). WLFCP is an equity preferred fixed coupon stock with a $10 par value and a 9% coupon, issued by Willis Lease. Dividends are paid monthly.

With this kind of investment, I am content to sell the shares for any profit after collecting several dividends. My total profit on the 200 shares was $   excluding the monthly dividends.

3. Bought 1 Senior 7.69% Columbia/HCA Healthcare Bond Maturing on 6/15/2025 at 96.26 on Friday (Junk Bond Ladder Strategy)(See Disclaimer): My first stock purchase, made with money mowing yards, was HCA, soon after its original IPO when it owned one hospital in Nashville near Centennial Park. I was 16 at the time. Since that time, the hospital chain has grown and has been taken private a couple of times.  Recently, it became a publicly traded company in March of this year and is now called HCA Holdings (HCA). The company offered over 126 million shares at $30 with an underwriting option of another 18.93 million shares. Prospectus Part of that offering, close to 38 million shares, came from shareholders of the private company.

 Due in part to the involvement of leveraged buyout firms, this company is highly leveraged as one would expect under those circumstances. In the case of HCA, the debt level is extreme. As of 12/31/2010, the total long term debt stood at a whopping 27.633 billion dollars, and a considerable portion of that huge amount is senior secured debt. (see pages F-26 et seq 2010  Annual Report). The bond that I purchased is senior unsecured debt.  In the event of a default and a bankruptcy, I would not expect to receive much for my 1 bond.

As of 12/31/2010, HCA operated 164 hospitals and 106 freestanding surgery centers (see page 3).  The number of licensed beds stood at 38,827. In 2010, HCA booked over 30 billion in revenues and reported net income of 1.207 billion dollars (p. 52).

Given the substantial leverage, the senior unsecured bonds are of course rated well into junk territory.

According to Finra, the 2025 bond is rated Caa1 by Moody's and B- by S & P. FINRA The bond was originally issued in 1995.

The current consensus estimate for HCA is for an E.P.S. of $2.64 in 2011 and $2.91 in 2012: HCA Analyst Estimates 

My confirmation confirms the ratings shown by FINRA, noted above. It also states that the current yield at my cost is 7.923% and the YTM is 8.041%. 

4. Added 50 Microsoft at 25.55 on Friday in Satellite Taxable Account Last Friday (Large Cap Valuation Strategy) (see Disclaimer): I own 150 MSFT shares recently bought in the main taxable account and intend to keep those shares long term and to reinvest the dividends. The 50 shares last Thursday were bought in a separate taxable account and will be traded, hopefully for a $100+ profit. I thought that the downdraft in MSFT shares last Friday, based on a slowdown in Windows sales, was unwarranted and typical myopic trading for vastly overpaid money managers who rarely outperform dumb indexes.   

Microsoft reported operating income of 5.71 billion dollars for its third quarter, ending on 3/31/2011, on a 13% increase in revenue to 16.43 billion compared to the 1st quarter of 2010.  The Business Division (Office) grew revenue 21%, as Office 2010 became the fastest growing version of Office in Microsoft's history. The Server and Tools division grew 11% year-over-year. The Entertainment and Devices division increased revenues by 60%, bringing in operating income of 225 million. Revenue for the Windows division declined by 4% which is what caused the decline in the stock last Friday. Revenue for this division was still 4.45 billion but that did not prevent headlines like  "consumers shun Windows in favor of Apple's tablets" (e.g. Bloomberg).

MSFT has sold a record breaking 350 million licenses for Windows 7 since its launch. During the 3rd quarter, there was a decline of 8% in Windows sales to consumers, while corporate demand remained robust with a 9% increase. The quarter's decline in Windows sales to consumers was expected by many and was in line with industry forecasts.  Apparently, the Masters of Disaster believe that the tablet is going to replace the laptop. The company earned 61 cents per diluted share, beating the consensus estimate of 56 cents. However, five cents of that beat was due to a tax benefit. Total revenue also beat the consensus estimate by over 300 million.  

The  Form 10-Q shows over 50 billion dollars of cash, cash equivalents and short term investments on the balance sheet. (Page 4) In recent years, MSFT has issued some low cost long term debt, almost 12 billion dollars, as detailed at page 20 of the 10-Q.  

5. SOLD 50 OF 150 ARCC AT $17.70 Last Friday (SEE DISCLAIMER): In my main taxable account, I sold 1/2 of my 100 share position at $17.7 on Friday. These were my highest cost shares bought at $16.89 last December. I later averaged down in that account by buying 50 shares at $16.17. I also bought 50 shares in the ROTH IRA that I still own.  Bought 50 of the BDC ARCC at 16.17 and at $16.3 Both of those 50 share lots were bought on the same day as the stock hit an air pocket. ARCC is a BDC, a disfavored security here at HQ, as discussed in the foregoing linked posts.

Ares released its earnings report before the market opened on Tuesday. That report reveals one of the many reasons why BDC's are a disfavored by me, notwithstanding their high yields.  I may discuss the earnings report later in the week, but a discussion can now be found in an article at Reuters.

6. Bought 30 Umpqua Holdings (UMPQ) at 11.53 last Friday (LOTTERY TICKET' strategy)(see Disclaimer):  Possibly, this bank needs to change its name.  Yes, I know that the purchase exceeded the $300 limit for LTs and there was no prior history of trades involving this security that could increase that limit by the amount of any prior profits and dividend distributions. Instead, as with all LT purchases, this originated from the RB who successfully lobbied the Old Geezer for a special dispensation for this purchase. LB noted, as the creator of all rules here at HQ, that the OG had no actual authority to change a rule. The RB, who unwillingly had to listen to all of that law crap for decades, disagreed, arguing that the OG had "apparent" authority as acting HT, besides the OG sort of looked like the Headknocker who had the real power here at HQ.  LB did not think the RB was paying any attention in that agency and partnership course about 4 decades ago.

As with all LT purchases, the general idea is to buy and then forget about it. Sometimes, some current event about an LT creeps into my consciousness and I may harvest a gain or a loss.  I am playing with the house's money on this strategy after an extremely successful run in 2008 and 2009. The GRT gain, noted above, was one of many such gains from LT purchases made during the Near Depression period. Lately, few purchases are building up a head of steam, though MPEL has started to move.

So, I will discuss Umpqua one time and then no more.

Umpqua reported 1st quarter earnings of 13.4 million or 12 cents per share. While that is not exactly shooting the lights out, it was an improvement over the 4 cents per share earned in the 1st quarter of 2010. Prior to 2009 Umpqua operated in the Pacific Northwest and California. It has grown after 2008 by several FDIC assisted acquisitions described at page 3 of its 2010 Form 10-K.

As of 3/31/2011, the net interest margin was at 4.23%; non-covered (i.e. by FDIC loss sharing agreements) NPAs were 1.53% of total assets; the efficiency ratio was at 63.47% for the bank; tangible book value per share was at $8.47; and there were 184 branch offices between San Francisco and Seattle, along the Northern California and Oregon coast, Central Oregon and Northern Nevada.

The bank participated in TARP and has repaid the government. The bank also bought back the warrants issued to the treasury (p.154).

The bank also has about 230 million in TPs providing it with Tier 1 equity capital. (note 18, page 146) The bank is below the 15 billion in assets threshold. Most of these TPs are floaters tied to a spread over LIBOR and all mature in the 2030s.

The capital levels as of 12/31/2010 are good. On a consolidated basis, the total capital ratio is 17.62% and 10% is deemed well capitalized, see page 158.

7.  LOTTERY TICKET STRATEGY: Since the RB is the driving force in this strategy, there is of course no coherence to it. I did take some time recently to bring a measure of order to this strategy.  I did determine that my realized gains over the past two years were sufficient to cover the cost of all outstanding positions, so I am playing with the house's money. Most of the gains were concentrated in a few issues, however, such as the GRT shares discussed above, and a large gain in CB & L Properties.  I took snapshot of most of the larger gainers:

ISF (ING HYBRID-Regular IRA) +$486.48 on $238 Invesment 

CBG + $469.49 on a $182.5 investment
WBS +$879.52 on $237 investment
LXPRD +879.52 on $237 Investment
EWBC +$651.03 on $293 Investment

SLGPRC +377.63 on $364.7 (Allowed Increase over $300 Limit for Prior Gains and Distributions)
FRPRK $+239.34 on $263 Investment
Forest City Common +$327.48 on $326 Investment (Allowed increase over $300 limit due to profit on senior bond FCY also shown in snapshot) 

A second reason for the success of this overall immaterial strategy, so far, has been the large number of gains in the $50 to $200 range. While that does not sound like much, the amount being invested to generate those returns is small too. Some examples include the following:

National Dentex, Later Acquired, +$189.54 on $208 Investment (2nd successful double)
Opnext, 2nd Successful Roundtrip, +$138.28 on $168.75 investment

Gencorp +$119.09 on $192.95 Investment (repurchased later and currently owned as LT)
SCMP +$109.05 on $274.97 investment

VIMC + $140.25 on $205 Investment

TheStreet +$98.46 on $195.46 Investment

Napco +$77.99 on $110 Investment (repurchased later and currently owned as LT)
DRAD +$77.99 on $110 Investment
The investment number includes commission and the net profit numbers are after commissions.

A larger category of LTs would be clips for $30 to $60. Fortunately, so far, my losses have been small. Given the limited amount spent to purchase stocks under this strategy, the loss could never be large.

I doubt that I will realize large gains from newly acquired positions quickly, as I did for many of the LTs purchased during the Dark Period. That was just fortunate timing, plus a few inspired picks. Instead, I may not know for several years whether many of the newer ones will work out. Over the past several weeks, I have been buying back some regional bank stocks as LTs that I had previously sold for small profits along with some new names. I do not intend to pay much, if any, attention to them for the next five years. Those banks include FHN, HBAN, KEY, VCBI, PCBK and Umpqua discussed above. I am likely to add several more to that list.  Even the OG has yet to worry for one second about the money devoted to this strategy. how to find stocks masquerading as lottery tickets (July 2009 Post).  

I had four trades in the ROTH IRA from last Friday that will be discussed in the next post. I am running way behind in summarizing my trades, and that is likely to continue for a few more weeks.

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