Monday, July 25, 2011

Sold 103+ of the Stock ETF OEF at $59.98/NYB/EK Exploring Sale of 1,110 Patents/FNFG

This article at Wall St. has a list of the states where individuals pay the most and the least amount of taxes. Tennessee is the 4th lowest. The Lowest Five While some say that this is due to Tennessee being a Red State, it was a Blue State until recently. The GOP has only recently gained control over both houses of the state legislature and the governorship. There is no state income tax on earned income, nor any statewide property taxes. The city and county property taxes on my home are around $2300 in total. If I was living in one of the highest tax states, I would just leave whenever that could be done.  It is not going to get any better when the politicians start looking for ways to fund the unfunded liabilities.  Unfunded Pension & Disability at State & Local Governments

An HSBC survey of purchasing managers in China showed contraction for the first time in 28 months. The Euro Zone composite PMI for June was reported by Markit at 50.8 in July, down from June's reading of 53.3.  The Markit data can be downloaded at Media centre - Markit Economics. Over the past several weeks, evidence of an economic slowdown has been consistent, a serious concern before the latest emergence of dysfunction among U.S. politicians.

A recent  Washington Post-ABC News Poll (item # 6) found that 80% of Americans were dissatisfied or angry with Washington, and 63% would like to vote for someone other than their current congressional representative.    

Washington Post reporter interviewed voters in Eric Cantor's district in Virginia that provides some enlightenment on who is ultimately responsible for the current generation of GOP politicians. After over 100 lives were lost in the Joplin, Missouri tornado, Cantor said that disaster relief had to be conditioned on spending cuts.  The State Column

The Bipartisan Policy Center published a report confirming that the U.S. government will indeed run out of money on August 2nd. .pdf Starting on 8/3 and continuing for the remainder of August, the government would run a 134+ billion dollar deficit, and will be unable to borrow. If the government elected to pay Medicare, Interest on the Debt, Social Security, Unemployment Benefits, and only Defense Vendors, then the government would not be able to pay out anymore funds. A list of programs deprived of any funding under that scenario is provided at page 15 of the report.  Other scenarios are also explored in this analysis.

Ezra Klein wrote a column late last week titled "Everything you need to know about the debt ceiling in one post."  Of course, for True Believers (TBs), anything remotely resembling a fact in proper context is anathema to them, a form of liberal propaganda by the liberal, mainstream elite media.

Perhaps, the TBs in the House of Representatives, who have been receiving private lectures by the ratings agencies over the past week, may learn something about the potential consequences of using the full faith and credit of the U.S. government as leverage to achieve their political aims. The lecture begins with "what is the debt limit, and why it is important". Some of those repercussions are discussed by Rick Newman in his column at

Jason Zweig refers to a U.S. government debt default and/or downgrade to be a Neon Swan,, a blindingly obvious catastrophic event. Jason must not get around much, or maybe his circle of acquaintances do not include any True Believers. But, I will accept the characterization of "neon swan" for those who are not brain dead zealots incapable of exercising good judgment.  

For the reasons set out in a letter sent to Obama and congressional leaders, five American Nobel Laureates in Economics opposed the GOP's balance budget amendment.  Press Release

A conservative economist at the American Enterprise Institute pointed out the obvious, the amendment proposed by the GOP would turn recessions into depressions. Norman Ornstein quoted in CNN Money Story For anyone with their eyes open, this is what the GOP tried to do in the summer of 2008. Forty six republican senators are in favor of that result:  Senate Vote 116

The GOP senators were asked what programs would be slashed to meet that deficit target and declined to answer the question. Bloomberg When the Constitutional Amendment passes, then they will inform the American people how they intend to comply.  Based on their approval of the Ryan budget, there is no doubt who will pay the price of their 6 trillion in budget cuts. Their plan would require substantial cuts in a variety of social programs:  Economic Policy Institute  Center on Budget and Policy Priorities

A well known legal scholar, Eric Posner, argued in a NYT opinion piece that the President does have the power to raise the debt limit without congressional approval. He referred to the approach of the Tea Party republicans who apparently believe that only a "purifying Götterdämmerung" would cleanse the nation. It is hard to reason with anyone that is totally out of balance, and on a personal mission from God.

David Frum, a thoughtful republican and former speechwriter for President Reagan, placed the GOP's position on using the debt limit to appease the Tea Party crowd in perspective in Stumbling Toward Disaster | FrumForum.

Protecting the top 1% from any tax increase is the most important mission for GOP politicians.

This is a link to a balanced, factual article from that provides useful information about the spending and revenue sides of the equation. In that article, it is mentioned that federal revenues are expected to drop to 14.8% of GDP this year, the lowest rate since 1950.

The events leading up to Boehner walking out of the debt limit talks with Obama are summarized in this Washington Post article.

Boehner called into the Rush Limbaugh on 7/21 to assure the GOP puppet master that no deal had been struck on the budget.

I have a significant position in the Canadian currency and Canadian government and investment grade bonds, a position that is larger than many of the other strategies discussed in this blog. Canadian Dollar (CAD) Strategy There are many reasons for that strategy. Part of it is based on dysfunction in the U.S., where there are millions of ideologues, from both political tribes, who are incapable of exercising good judgment.  One Canadian Dollar will now buy more than 1 U.S. Dollar:  Summary for CAD/USD  Needless to say, the value of my CAD stash has done well. Snapshots of some of my 2011 trading profits can be found in these posts:  Sold 200 Artis REIT at 13.88 CAD  Sold 100 Killam @ 10.99 CAD/Sold 100 Transglobe @ 11.19 CAD Pared Trade: Sold 100 CUF_UN:CA @ 22.66 CAD & Bought 100 CDZ:CA at 21.26 CAD (snapshots of 6 trades from 2010-2011)  Sold 100 of the Canadian Bond ETF XRB:CA at 23.08 CAD

I have about 6 thousand in uninvested CADs. The two largest bond positions are low cost ETFs bought on the Toronto Exchange:

400 CLF:CA Canadian Government 1-5 Year

300 CBO:CA Canadian Corporate Bond 1-5 Year

CBO - Claymore 1-5 Yr Laddered Corporate Bond ETF
CLF - Claymore 1-5 Yr Laddered Government Bond ETF

All dividends are paid to me in Canadian Dollars after the 15% withholding tax. Some of my discussions can be found in the following Posts: Added 200 CBO:CA @ 20.58 CAD Bought 100 CBO:TO at 20.4 BOUGHT 200 CLF:TO AT 20.20 CAD Added 100 CLF:TO-Sold 100 CPD:TO  Bought 100 of ETF CLF:TO at 20.10 CAD As shown in the forgoing snapshots, I am near break-even on the shares in USDs and ahead in CADs. I will not be buying anymore CADs at the current exchange rate.

1. Eastman Kodak (EK)(Own Two 2013 Senior Bonds): According to the WSJReuters and a SEC filed EK Press Release, Kodak is exploring the sale of 1,100 patents involving digital images. Some analysts believe that this portfolio could be sold for up to 2 billion. If that occurs, and it may take up to a year to conclude, I would be comfortable in receiving par value for my two 2013 bonds. FINRA INFORMATION 2013 BOND

Without a substantial settlement from Apple or RIMM, or an infusion in cash from such the sale of patents, it is dicey whether or not EK will be able to pay off the 2013 bond. I am still inclined to believe that EK will survive until the 2013 bond maturity date, even without any major capital infusion.  The market has been telling me over the past two weeks or so that other investors lack that measured degree of confidence.  

Kodak is skating on the edge and needs to raise enough cash until its operations can turn profitable.  The company has reported a full year profit only once since 2004 and has been bleeding cash. The most recent setback was a decision by the ITC in EK's patent litigation against Apple and RIMM that was viewed unfavorably by the market.   ITEM # 2 ITC Decision on EK Patent Litigation Royalties from patent settlements have been EK's profitable business.     

Kodak has secured debt. (See note 4 SEC Form 10-Q for the Q/E 3/11) It is certainly possible that the holders of that debt would want part of the proceeds, originating from the sale of those patents, to be used to pay down that debt.  

2. Sold 103+ of the Stock ETF OEF at 59.98 Last Thursday (see Disclaimer):  One way to manage my stock allocation, moving it up and down, is to buy stock ETFs. I have previously sold a number of stock ETFs based on a combination of profit taking and an increasing concern about the economic recovery. I will start selling some stock CEFs and ETFs, possibly every other trading other, based on the ongoing developments in Washington.  I had over a thousand dollar gain on the OEF shares, mostly a long term capital gain on the 100 shares bought at $49.11. (6/11/2010 Post). This snapshot was taken last Thursday:

103.764 Shares OEF Average Cost Per Share= $49.33 Mostly Long Term
I had elected to dispose of this position before the market opened last Thursday based on my overall cautious nature and inability to comprehend the thinking of zealots. The shares did pop soon after the market opened allowing me to sell the shares at near $60. I continued paring the stock allocation on Friday and added to a double short stock ETF.

Even with a debt deal, I would not be inclined to add significantly to my stock allocation until I see more favorable indications about the U.S. economy. A reduction in government spending and job reductions at all levels of government will further reduce aggregate demand and lower GDP.  

iShares S&P 100 Index Fund closed at $60.38 last Friday.

3. First Niagara (own: Regional Bank Stocks' basket strategy): FNFG is now my largest position in this strategy at 300+ shares. 

First Niagara reported a Non-GAAP operating net income of $71.2 million or 25 cents for the 2nd quarter. That number was one cent better than the consensus forecast. The GAAP number was 5 cents due to charges related to the recent acquisition of New Alliance.  The Texas Ratio is extremely low at 10.12%. As of 6/30/11, the allowance for loan losses to NPLs was a comforting 129.7%; NPLs to total loans was a very good .51%; NPAs to total assets was an even better .31%; the total risk-based capital ratio was at 12.65%; the tangible equity to tangible assets ratio was at 7.44%; the number of branches stood at 346;  and the net interest margin was at 3.72%.  Excluding loans made by New Alliance, FNFG grew loans by $248.4 million in the second quarter, a 9.4% increase.

4. New York Community (NYB: own Regional Bank Stocks' basket strategy): This bank missed the consensus estimate by 1 cent, reporting net income of $119.5 million or 27 cents per share. SEC Filed Press Release The bank is barely earning enough to cover its 25 cent per share dividend.   I have sold the 100 shares bought in an IRA and still own only 100 shares held in a taxable account:
100 NYB Shares Acquired 2009 at Average Total Cost of $11.31

I am not likely to add to this position given the lackluster earnings report. The dividend yield at my constant cost basis, which is around 8.8%, is one reason to keep the remaining shares.

On one fifty share lot purchased in the regular IRA, I realized already a gain of $331.03:
NYB and some Other Realized Gains 2010 Regular IRA
The other fifty shares must have been sold in 2009.

As of 6/3/0/11, the GAAP efficiency ratio was 40.99%; NPLs (non-covered) to total loans was at 1.76%; the allowance for non-covered losses to non-performed (non-covered) loans was only 26.73%; and the net interest margin was at 3.54%.

New York Community Bancorp fell 57 cents on Friday to close at $14.43. 


  1. Hello,
    What is your view on Brazilian Bonds?
    For instance, the new issue of BRAZIL BONDS by Lloyds Bank:
    Lloyds TSB (Lloyds Banking Group)
    Rated Aa3 / A+
    Coupon 10.05%
    Due 07/28/2015
    Priced at 100

    Brazil has been doing very well in terms of market performance as well as currency strengthening. Lloyds has been in business for over 300 years. Bernanke hints that there may be QE3 if this is so and the US Government prints more debt to sell to the Fed., This will only put more negative pressure on the US Dollar.


  2. JE: I am comfortable with Canadian government bonds since I am a long term holder of Canadian dollars. Over the near term, the currency risks can wipe out any interest payments received from foreign bonds. I obviate that risk due to my long term perspective on the CAD-USD exchange rate.

    For other foreign bonds, I have less comfort. I do have a position in CEW, which gives me some exposure to the Brazilian currency. I have also owned in the past the ETF BZF for the Brazilian Real which has had a good run.

    I personally would not buy an individual Brazilian government bond. I would prefer to take smaller positions in ETFs that invest in emerging market sovereign debt denominated in local currency, weighted in Brazilian debt. I discussed buying just 50 shares of ELD at $53.6 in a post dated June 15, 2011, and it is ex dividend today for its monthly distribution. The weighting for Brazil in that fund is 11.23%. I also own 100 EMLC that has a weighting in Brazilian bonds.

    If I was inclined to up my exposure to Brazil, I do not know of a fund similar to CLF:CA that I use for Canada or the CEF FAX for Australia. There is an ETF for Latin America government debt that I do not own, BONO, which was recently launched. Brazil currently has a 28% weight in that fund according to the sponsor Van Eck Global.

    I may add that fund, but for now I am content to just sell stocks and stock funds until I have more clarity. You may want to keep an eye on the Dollar Index (symbol DXY) at Marketwatch. The USD may either be bottoming or preparing for a another downturn. That index only includes major currencies and is heavy in the Euro.