Thursday, July 7, 2011

CEF TABLE/BOUGHT 100 of the ADR BGAOY @ 6.95/ Bought 40 EXAR as LT at 6.23/ Unemployment Insurance Fraud/Sold 102 HFBC at 8.01

As noted in a recent NYT article, the NRA is doing God's work by making it as easy as possible for those suffering from serious mental illness to own more automatic weapons than they could possibly carry. 

The AP published a story on widespread fraud involving claims for unemployment compensation. A typical example would be a person continuing to draw benefits after going back to work.

A front page story in the USATODAY focused on the same problem, pointing to a Labor Department estimate that $1 out of every $9 constitutes an overpayment.  This kind of data can be found at Unemployment Insurance Benefit Payment Integrity, Employment & Training Administration (ETA) - U.S. Department of Labor

Michigan recently concluded an audit and found that unemployment insurance fraud cost that state about 260 million per year. Generally, perpetrators of this kind of fraud do not serve jail time and are requested simply to make restitution when and if they are caught. (NY sends out letters requesting repayment: While that may be appropriate for a week or two of benefits, prison sentences need to be imposed where the intent to defraud is clear. The U.S. simply needs to start treating theft of public funds as a serious criminal matter.

Theft of government funds through fraudulent means is rampant in the U.S. primarily due to the lack of adequate enforcement and punishment. One of the major causes of the Near Depression was the widespread granting of credit to borrowers who lied about their income and bought homes that they could not afford. FBI Receives a Generous Grade of F- for Investigating Mortgage Fraud (April 2009 Post); Adding Failures of Law Enforcement to my Top 12 Causes (March 2009 Post)

Yet, there was virtually no criminal punishment for that kind of fraud and many no doubt are still living in their houses after defaulting on the mortgages. If new prisons have to be built to house those convicted of defrauding the government, then so be it. Over the long term, a really serious crackdown on fraud which results in prison time will cost honest citizens less money. For my lifetime, I am still waiting to see state and federal governments become serious about investigating and punishing those who are stealing public funds through fraudulent claims.

An editorial in USATODAY asserted that it would be as futile to negotiate with the GOP on tax issues as it would to bargain with the Taliban on allowing girls to attend schools.  The rigidity of the GOP's mindset on a number of issues is virtually the same as religious zealots.  The editorial pointed out that the overall tax burden as a share of the economy is currently 14.8%, the lowest it has been since Truman was President in 1950.  At least the GOP  occasionally causes the Democrats to become serious about spending cuts.  Based on viewing both parties in power for over four decades, I do not believe either tribe is serious about cutting waste and fraud, though both talk a good game on that subject.

1. Bought 100 of Belgacom  (BGAOY) at 6.95 on Tuesday (see Disclaimer):

I bought 100 shares of BGAOY on the pink sheet exchange. BGAOY is an unsponsored ADR, and equals .2 ordinary shares of Belgacom stock. The ordinary shares are traded on the Grey Market in the U.S. which I would prefer to avoid whenever possible.  BGAOF Belgacom Sa de Droit Public

Prior to buying an ADR, I want to know how the price for the ADR shares compare to the ordinary shares traded on the host stock exchange. Belgacom ordinary shares were trading at around €24.1 when I placed my order.  To compare prices, I will need to make an estimate of the currency exchange from Euro to U.S. Dollars since the pink sheet ADR shares are traded in USDs. On 7/5, I estimated that €24.1 would convert into $34.91.Currency Converter  Since BGAOY is equal to 1/5th of an ordinary share, I have to divide $34.91 by 5, which gave me $6.98.  I placed a limit order on Tuesday morning at $6.95 which was filled early that morning.   If the Euro slides against the USD in a meaningful way, I would consider buying another 100 of BGAOY.  It is always important to keep in mind that a US investor faces currency risks when buying a foreign stock, and it does not matter whether those shares are in ADR form or ordinary shares.

Belgacom is a telephone company providing phone (wireless and land line), internet and television services primarily in Belgium. According to Morningstar, the company has about a 70% share of the fixed line and 40% of the wireless markets in Belgium. As with other phone companies, the land line business is suffering revenue losses due in part to competition by other providers and to the increasing substitution of wireless service for land lines by individuals. During the first quarter of 2011, the company reported net income of €194 million and free cash flow of €239 million.    

My inconsequential interest in the company is due to its current dividend yield, calculated at over 9% by Bloomberg, though that value depends on currency conversion values for an owner of BGAOY. Other services have the yield at a lower rate. If the EURO rises against the USD, a dividend paid in Euros will buy more USDs, and the converse is of course also true.  I did not attempt to verify Bloomberg's dividend yield number.

I did find the following information about the tax withholding rate applicable to a dividend paid in 2010 from Belgacom: .pdf

This is a link to the firm's web site: Belgacom Group

This is a link to the quarterly report for the first quarter of 2011:

This is a link to the 182 page 2010 Annual Report: .pdf

2. Sold 102 Hopfed Bancorp (HFBC) at 8.01 on Tuesday (Regional Bank Stocks' basket strategy)(see disclaimer): It did not require reading between the lines to conclude that I was not pleased with this bank's last earnings report.  Item # 1 HFBC (5/5/2011). The LB ridiculed the management of this small bank in that post.  Since I viewed it as possible that this bank would become the 4th problematic holding in my regional bank basket, I decided to take a small loss before that situation had an opportunity to develop. The two shares came from a stock dividend. Bought 50 HFBC at 9.1 Added 50 HFBC at 9.26

The total loss was $131.23, which reduces my realized gains for this basket strategy to $6,688.41. Item # 3 Realized Gains Regional Banks  The unrealized appreciation has rebounded some, now fluctuating around $2,300 to $2,800. Those amounts do not include dividends which are important in this strategy.

3. BOUGHT 40 EXAR at $6.23 on Wednesday (LOTTERY TICKET strategy)(see Disclaimer): I previously bought and sold EXAR, realizing a $8.92 loss last year.  Bought Exar at $7.15-Lottery Ticket (September 2009 Post);  Bought 60 EXAR at $7.15 (April 2010 Post);  Sold 100 EXAR at $7.3 So, that prior trade saved me from losing about $100.

I do not have much to add to my prior discussions. Soros Capital Management continues to hold a large stake, owning about 14.76% of the outstanding stock, according to its last filed Schedule 13G. A Dimensional Fund has a 8.13% interest as of 12/31/2010.  Renaissance Technoligies reported a 5.37% stake as of 12/31/2010. All of that data may be stale.

Exar still has a lot of cash on its balance sheet. As of 3/27/2011, the company reported 201 million in cash, cash equivalents, and short term marketable securities. Page 61 Form 10-K This equates to $4.51 per share. Book value is around $5.49. EXAR Key Statistics The company is not profitable.  The two analysts providing estimates predict an E.P.S. of 10 cents for the F/Y ending in March 2012 and 33 cents for the F/Y ending March 2013. Possibly, this LT will work out okay in the event those estimates prove to be in the ballpark.

I am not required to understand a firm's products in order to make a Lottery Ticket purchase. And, I certainly do not understand the products sold by this company.  Exar Profile I am placing some faith in the Soros firm as well as the low price to book and significant cash position.

4. Added 50 of the CEF BCF at 14.53 on Wednesday (see disclaimer):  BCF is the symbol for the closed end stock fund known as the  BlackRock Real Asset Equity Trust, currently yielding around 7.5% at the closing price from yesterday.  The quarterly dividend rate is currently 27 cents per share. BCF Distributions As of yesterday, this fund was selling at a negligible discount to its current net asset value.

I am a long term holder of this security. I am not reinvesting the dividend given the small discount to net asset value. This fund owns natural resource stocks.  My last added was in June 2011 before the ex dividend date: Added 30 to BCF at 14.26 That post contains snapshots of my holdings.  {see also added to bcf at $9.69 (July 2009);  Buy 50 BCF at $6.6 (February 2009)}.

This is a link to the sponsor's web site: BCF : Fund Profile

This is a link to the SEC filed shareholder for the period ending in April 2011:  BlackRock Real Asset Equity Trust (BCF)  The BCF holdings can be found starting at page 74. As shown at pages 75-78, the fund does use a buy-write strategy.

5. CEF Table: This is how my CEF table looks with some additional shares purchased with dividends and other changes:

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