Tuesday, June 7, 2011

LB is In a Slow Mo Trading Mode While Preserving Recently Raised Cash Stash/Sold 1 Solo Cup Senior Sub Bond Maturing in 2014 at 92.5

The Google Search Box no longer works, and has been returning no results for almost a week now.   Blogger is owned by Google and apparently Google is having difficulty fixing the problem which raises a few interesting issues about Google, the search company. The search box at the top still works but I prefer the Google search widget, assuming Google ever manages to fix it.

The P.M. London gold fix was at 1549 on 6/6/2011. Current Statistics | LBMA  I would hope that no one acts surprised if MTY suffers what I call a "maximum level violation" in its current coupon period. Stocks & Politics: MTY

The market is still forecasting that the current pause in the U.S. economy is of a temporary nature.  An example of that type of forecast is provided by Robert Johnson, who now acknowledges the existence of the soft patch while maintaining an upbeat economic forecast for later in the year. Morningstar  He has lowered the range of his 2011 GDP forecast to 2.5% to 3%, and sees 4% GDP growth in the third quarter as a possibility.  I would just respond that 1% or -.5% are also "possibilities."  A similar type forecast is made by Raymond James' Chief Investment Jeff Saut in his interview at YF, who believes the correction will be limited to 7% to 10%, with the U.S. in a "self-sustaining" recovery growing north of 3%.  While some may agree with his supporting arguments, I found them to be lame.

Jim Jubak argues in his 6/6/11 MSN Money column that it is time to lighten up on stocks.

Whatever, the market at its current level is only consistent with a temporary slowdown, with growth picking up later in 2011 and into 2012 and no recession for at least several years.   What can you say? Place your bets and take your chances on which scenario appears most likely to you. 

Some sectors of the stock market are not so confident in the temporary pause scenario.  The financial sector has been taking a drumming over the past few weeks in response to the double dip in housing prices, meaning more trouble in their mortgage portfolios, and the slowing in employment and GDP growth.  The later factors would adversely impact the banks in a number of ways, provided those trends continue, including slower commercial loan growth and more defaults on consumer and commercial loans. Some blame the downdraft on other factors, primarily the Durbin Amendment and other recent financial regulations  NYT, which will adversely impact results.  Those who oppose financial regulations will hype those reasons for a downdraft when other more important factors provide the real justification. 
In my regional bank basket, the unrealized profit was fluctuating in the $2,500 to $3,500 a few weeks ago, and is now moving between $1,000 to $2,000.  Fortunately I did take some profits in that basket earlier this year and last year.  Item # 3 Realized Gains Regional Banks (currently at $6,614.35 in capital gains, excluding dividends)

I drew a year to date chart for two financial sector ETFs at YF, XLF and KRE.  My regional bank basket would have more in common with KRE: SPDR KBW Regional Banking ETF.  Since April 6th, KRE has slid from $27.36 to $24.48 as of yesterday's close (6/6/2011) or about 11.4%. KRE Historical Prices XLF, a low cost ETF that contains financial stocks in the S & P 500 which includes insurance companies (Composition), has fallen less, moving from $16.69 on 4/6 to $14.93 as of 6/6, or about 10.55%. The decline in both of this ETFs started on the same day.  Some of the large financial institutions have fared worse than the averages, including Goldman Sachs (close to -17.29%) and  Bank of America (close to 21%) for reasons unique to them.  BAC skidded 4% yesterday to close at $10.84.  Did Ken Lewis add value?  Was he a good steward of shareholder money? 

The fall in prices has increased the number of regional banks with dividend yields over 5%.  Given the significant uncertainty that I now have about the duration of the economic slowdown and its severity, I am not likely to add more than a $1000 to existing positions in that basket, even with the dividend yields looking more attractive by the day. The adds will be in the 30 share range which highlights the extreme caution in addition to the amount being allocated to potential adds. 

When in slow mo trading, the LB will generally add to existing positions in very small increments.  Enough money has been taken off the table over the past several weeks, plus a number of hedges are already in place, so that I am comfortable with those type of adds. Another factor adding to the comfort level is that over 10 thousand has been booked in short term gains so far in 2011. That allows me to initiate double short ETF hedges, since I am willing to take a short term loss on them to offset gains already realized this year. {Headknocker reminded the Nerd Machine that he was not enthusiastic about making another large charitable contribution to our destitute Uncle Sam in 2011 and had instructed LB to cut down on the amount of short terms gains.}  The adds will be financed primarily with cash flow from dividends and interest flowing into accounts, probably for several months going forward, or until I have more clarity about the full extent of the ongoing slowdown.   

If I was certain of my future outlook, I would not be adding to any stock position.  That certainty is never going to be present. Instead, I have to deal with varying degrees of comfort or lack thereof.

The current trading trajectory, likely to be in force until I receive more clarity about economy, will result in shorter posts, welcomed news by most, though not all, readers.   

1. Sold 1 Solo Cup Senior Subordinated Bond at 92.5 on Monday (Junk Bond Ladder Strategy)(see Disclaimer): I sold one of my higher risk junk bonds yesterday.  I sold 1 Solo Cup Senior Subordinated bond maturing in 2014 at 92.50.  I would remind everyone to focus on the word "subordinated" rather than "senior" when those two words are used in tandem.   In my personal risk ratings, with a 10+ being the highest risk, I gave this bond a 9+. Item # 2 Personal Risk Ratings For Junk Bonds  I am attempting to manage the risks inherent in this strategy by realizing some gains in the bonds which I view as riskier than others, and those bonds are in the Category 1 classification.   I have also taken some profits in junks bonds classified in Category 3, since I received decent percentage gains in three Dean Foods and 2 Albertsons' bond fairly quickly.  This allows me to build up some realized gains before suffering losses viewed as inevitable in this particular strategy.   More on Rationale for Junk Bond Ladder Strategy;  Item 5 Realized Gains Junk Bond Ladder Strategy

This Solo Cup bond was purchased at 85.5 in March 2011: Bought 1 Solo Cup Senior Sub Bond at 85.5

I discussed this private firm's recent earnings report in Item # 1,   Earnings: Momentive Specialty Chemicals, Solo Cup, Cenveo Appleton Papers

I did one of my 30 share nibbles near the close on Monday and will discuss it briefly in the next post.

RB added that "some believe that the LB is an erudite, deep thinking, know-it all, asshole, but RB knows better, LB is just a scaredy cat,  girlie man, Mama's boy".  

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