Friday, June 3, 2011

Sold MPEL at 11.46/Added 50 GSBC at 17.27/Justice for the Masters of Disaster-Only in Your Dreams/Added 100 of REM at 15.12/Sold 100 STLPRA at 10.47/Bought 100 of the CEF CSQ at 9.66/Continued to Add to Double Short ETFs

Bob Olstein argues in an interview found at  Morningstar that Microsoft shares (own) are undervalued somewhere between 25% to 30% by the market.   

Intel (own) anticipates having 35 tablet computers with its new chips available by the end of 2011.  Intel also announced plans to introduce chips for a thinner laptop by the end of the year, called a ultrabook, that will retail for less than $1,000.  This device will reportedly boot up in seconds and have days of battery life on standby.

A possible second bailout of the irresponsible Greeks, just in the past year, is apparently viewed positively by investors worldwide.

It can not be disputed that the Masters of Disaster were richly rewarded for bringing the world's financial system to its knees, and for causing financial devastation to millions.

Another side of that truism is explored in a NYT article yesterday, involving the case of an analyst formerly employed by Bank of America, who was fired for telling the truth about a company called Biovail.  The analyst in question wrote a negative report on Biovail who then sued the analyst and Bank of America.  BAC then fired the analyst, claiming that the lawsuit had nothing to do with the firing. If you are so inclined to believe that assertion, then you may want to step back and make a thorough reevaluation of how you arrive at judgments in your stock selection process. As it turned out, the analyst was correct about the company as explained thoroughly by the author of that NYT article.

I discussed in an earlier post what happened to Dick Bove after he wrote a report on a bank, BBX, whose stock is now trading at around 75 cents. That bank has also deferred paying interest on its publicly traded TP BBXT (to defer payment on a TP, the bank would first have to eliminate the common dividend, eliminate any non-cumulative equity preferred dividend, and defer payment on the government's cumulative preferred stock). See:  Dick Bove-BankAtlantic

Unfortunately, lawsuits are frequently used by some as weapons to intimidate and/or to silence criticism, or worse, to coerce a settlement from a defendant, based on highly suspect claims, who does not have insurance to cover the costs of a legal defense.

In short, if you tell the truth while in the employ of a large financial institution, it is possible, or likely under some circumstances, that bad consequences will be visited upon you. But, if you lie, mislead and/or defraud your customers, as demonstrated by legions of examples over the past decade or so, then you are amply rewarded and will likely never be punished by the authorities. That is an over simplification to be sure, but the gist of the assertion is true when applied to the tiresome and long history of the worse than worthless WS Masters of Multiple Disasters. If you have to ask for examples, I would simply reply "where have you been for the past decade or so, starting with the run up to the stock market implosion in 2000-2001".

Possibly, a federal prosecutor will emerge that will actually take criminal charges to a grand jury and then let the process evolve until reaching a final conclusion. One has yet to emerge, possibly there is one in NYC, but that remains to be seen.

During the run up to the Near Depression, anyone who questioned the wisdom of bundling trashy mortgages into  collateralized debt obligations, and then convincing the rating agencies to put a AAA rating on the garbage, would be fired. As I mentioned in blogs from 2008, anyone who puts their hand in the way of a carnivore (the Master of Disaster) and red meat (compensation) will be devoured even if they are right or justifiably cautious.  Several examples were provided in the a series of articles published in 2008 by the NYT under the general heading "The Reckoning".   Another revealing aspect of that series is the obvious stupidity and recklessness of so many persons running our largest financial institutions.

I added another double short stock ETF yesterday. The best hedge in my view for stocks is to sell stocks.  I have already sold just about everything that I want to sell. So, I am now partially hedging a small part of what is left with a variety of double shorts stock ETFs on several indexes and on one sector. I may add two more sector double short ETFs given my long individual stock exposure to those sectors.

Several members of the GOP, including Paul Ryan (The New Republic), have downplayed the importance of a U.S. default on its debt due to a failure to raise the debt ceiling.  Moody's warned the U.S. that a default caused by that failure could lead to a loss of the coveted AAA debt rating.  NYT 

1. Sold 40 MPEL at $11.46 on Wednesday (LOTTERY TICKET strategy) (see Disclaimer):  The shares closed at $11.81 on Wednesday.  I was satisfied with the percentage gain, having recently bought shares at $7.36 last January.

2. ADDED 50 GSBC at $17.27 on Wednesday (Regional Bank Stocks' basket strategy)(see Disclaimer):  Bank stocks went into free fall last Wednesday on concerns about a faltering economy and more evidence of a double dip in housing prices. Since I had reduced my holdings in the regional bank basket by about 10 thousand, and only recently started to add back to that basket after taking profits, I felt that I had enough room to round GSBC to a round lot of 100 shares by buying 50 more at $17.27. The share price slid about 6.5% on Wednesday to close at $17.26, down $1.20 for the day on no news. I had just bought shares  at $18.55. (May 31. 2011 Post).

I also changed my reinvestment option from cash to the purchase of shares with the dividend.

I also changed the distribution option from cash to reinvestment on the recently purchased FMER which also hit an air pocket on Wednesday. At a total cost of $17.27, the dividend yield is around 4.17%.

Given the growing evidence of an economic slowdown and a double dip in housing prices, I may add to a few more names in this basket, but will not invest more than $1000 more until I see more sunshine.

3. SOLD 100 OF 410 STLPRA AT GTC AON LIMIT ORDER at 10.47 on Thursday (See Disclaimer): I sold the 100 shares of this TP held in a taxable account. I am keeping for now the 110 shares held in a regular IRA and 200 shares bought in the ROTH IRA. It makes slightly more sense for me to own this kind of security in a retirement account.  The distributions are taxed at my highest marginal tax rate.

In effect, unless the law is changed which is always a possibility, the distribution paid by STLPRA  is in effect tax free in the Roth IRA, since I do not pay a tax in the year it is received or when I withdraw it, which in my case will unlikely to ever occur. Consequently, I view the 200 shares of STLPRA with its 8.375% coupon on a $10 par value to be equivalent to a tax free bond when held in the ROTH IRA.

Of course, for a regular IRA, I will be taxed on the value of distributions taken out of the account.  So in effect, I will be paying a tax at my highest marginal rate on that interest paid by the 100 shares in the Regular IRA when I take those funds out of that IRA. (see pages 33-35 on required minimum withdrawals necessary to avoid a 50% excise tax in IRS Publication 590, I will probably convert what is left of my traditional IRA into a ROTH before I reach 70.  I manage to convert already the bulk of the regular IRA during the Near Depression period when valuations were low.  

Prior to this 100 share sale, I had booked a profit on a quick roundtrip on 100 shares in the same taxable account in 2010:

Mostly, I have been content collecting the quarterly interest payments.

STLPRA is a typical bank TP, and I have discussed it more than one time in prior posts: Bought 50 of the TP STLPRA at $8.99 Added 50 STLPRA at 8.69 Bought 100 STLPRA at 8.87 Sold 100 of the TP STLPRA at 10.25 Bought 200 STLPRA @ 10.14 in Roth IRA (2/14/2011 Post).


Trust Preferred Securities: Links in One Post

4. Added 100 of the Balanced CEF CSQ at $9.658 on Thursday (see Disclaimer):  RB was complaining incessantly about the LB's caution, blurting out about ten thousand times yesterday, maybe it was closer to a million, that the LB was a bigger "WIMP than the OG even after the OG was hooked up to his IV of chill pills". It seemed to cut down on the carping some when LB added 100 shares to the existing position in the CEF CSQ. I have started to reinvest the monthly dividends.

Some of my prior discussions can be found in the following posts: Bought:  100 CSQ @ 8.94 (11/29/2010 Post); Bought 100 of the CEF CSQ in Roth at 8.49 (August 2010); Item # 3 Stocks & Politics (4/19/2011 Post).

This is a link to the sponsor's web page: Calamos Investments - Strategic Total Return Fund

This is a link to the last SEC filed shareholder report for the period ending in October 2010: nvcsr

This is a link to the last filed Form N-Q, which contains the fund's holdings, as of 1/31/2011: nvq

The daily net asset value per share can be found at the sponsor's web site, at the, and at the Closed-End Fund Association.

CSQ closed yesterday at $9.65, with a net asset value per share of $11.02, creating a discount as of yesterday's close of -12.43%.

This fund does use leverage.

5. Added 100 of the ETF REM at $15.12 on Thursday (see Disclaimer):  Since I have run up the cash total in the taxable accounts, I decided to pare that cash allocation, earning next to nothing in a money market fund, by adding 100 shares of the ETF REM, bought earlier in the week at $15.3. I have nothing to add to that prior discussion, except that the dividend yield of course goes up as the price goes down. 

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