Wednesday, August 3, 2011

Bought 50 MHNA at 24.9/Added 50 CSQ at 9.2/DUK/Swiss Franc

The Senate passed the budget limit increase by a vote of 74 to 26. Senate Vote 123 Nineteen GOP senators voted against it because the cuts were not draconian enough, including the newly elected Senator Kelly Ayotte from New Hampshire, one of the Tea Party favorites who also voted to advance the Ryan budget. Senate Vote 77.

The S & P 500 fell below its 200 day moving average yesterday, closing at 1254.05, down 32.89. S&P 500 INDEX,RTH Index Chart

An article at MarketWatch discusses the safe haven status of the Swiss Franc.  There are several ways that I play the Swiss Franc. I have owned for example the currency ETF for the Swiss Franc which is the most direct way to gain exposure. That security rose $3 yesterday. CurrencyShares Swiss Franc Trust, FXF I do not currently have a position, and would not consider buying it at its current level, having moved up from a low of $85.54 on 6/4/2010 to $129.33 yesterday, up $3 for the day.

Another way to gain exposure to the SF is to buy securities that are valued in Swiss Francs. I mentioned yesterday adding to my existing position in the Swiss Helvetia fund.  Added 50 SWZ at 13.75 I also own a mutual fund, the Permanent Portfolio (PRPFX), that maintains a relatively constant position in Swiss government bonds.  Item # 2 B Unusual Allocation Funds Based on the last filed SEC Form N-Q, that fund had a 9.81% weighting in Swiss government bonds priced in Swiss Francs of course.  As previously discussed, that fund has a large allocation in gold and silver bullion too. PRPFX did decline .34% yesterday, showing low positive correlation with the stock market, as the S & P 500 fell 2.56%. The other unusual allocation fund mentioned in the preceding linked post, PAUDX, actually rose one cent or .09% yesterday.

The Swiss Central bank took action today in an effort to stem the rise of the SF.  NYT

The technical analyst at Barrons believes several industrial stocks, including General Electric (owned), are showning weak technicals. The Spider for the S & P 500 industrials, XLI, has broken below the neckline of a head and shoulders formation. GE fell 4.23% to close at $17.21 yesterday. GE Interactive Chart

Let's have a show of hands. Who wants to lend our destitute Uncle Sam money for five years at a minus .89% coupon?   That was the current yield, -.89%, for the  5 year TIP yesterday according to Bloomberg.  Maybe the purchasers of that five year TIP will break even after the inflation accretion.  I am not yet to the point of paying our destitute Uncle for the privilege of holding my money, promising based on its Full Faith and Credit, subject to political machinations, to return it more or less intact in five years.  

Consumer spending fell in June and their savings rate rose to 5.4% of their disposable income. News Release: Personal Income and Outlays, June 2011 Just prior to the onset of the Near Depression, the savings rate fell to below zero.

In a recent UBS analysis, it was estimated that 450,000 individuals working for federal and local governments will lose their jobs in fiscal 2012. Reuters With the GOP in control over the House and having veto power under the Senate's Cloture rule, there is no possibility of more government fiscal stimulus, as consumers and corporations husband their cash.

I have positioned my portfolio for a downdraft in stocks.  Based on my personal psyche profile, I believe that the best hedge for my stock allocation is to sell stocks until the OG becomes comfortable under the circumstances.  I will also use at times double short ETFs to hedge a tad only. I had  several of those double short ETFs in place, maybe around 7 grand altogether before I started to sell them this week. I sold three of them near the close yesterday and may sell one or two more in the event the S & P 500 holds 1250 today. Otherwise, I will keep them for awhile longer.  Mostly, they have a beneficial psychological effect on the OG, sort of like hooking him up to an IV for the liberal dispensation of chill pills. I sold one double short ETF yesterday that was up almost 7% near the close.

Due to my reduction in stocks, some profit taking in bonds, a number of bond redemptions, and some double short ETF sales, I am sitting on more cash now than in March 2009, and I was waiting to deploy a lot then which I started to do in early March. So, I have a lot of firepower including more cash in the ROTH IRA than I have ever had. I am starting to deploy cash flow into stock purchases, which is usually my first step after a reduction, and I have my eye on a number of common stocks for nibbles. I will generally start with odd lot purchases of blue chip type companies previously sold at higher prices.

In an Unstable VIX Pattern within the context of a long term bear market, I will seldom take an entire position all at once. And, I will attempt to use volatility to my advantage.  Continuation of Unstable VIX Pattern/Possible Head and Shoulders in the S & P 500 Forming (July 28, 2011 Post); The Roller Coaster Ride of the Long Term Secular Bear Market (May 2010 Post);  The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets (June 2011);  Underlying Cause of the Current Long Term Bear Market is Too Much Debt (June 2010); 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? (September 2009); More on 1982 or 1974 (September 2009); Buy and Hold or Dynamic Asset Allocation/Trading: Long Term Secular Bull and Bear Markets (February 2010); Trading and Asset Allocation in Stable and Unstable VIX Pattern (November 2008)

1. BOUGHT 50 MHNA at 24.9 on Monday (see Disclaimer):  MHNA is a new senior bond issued by Maiden Holdings North America LTD (MHLD). Maiden Holdings Announces Closing of $107.5 Million Offering of 8.25% Senior Notes Due June 15, 2041  The bond has a 8.25% coupon on a $25 par value. Interest is payable quarterly. According to (free site, registration required), the bond is rated BBB- by S & P. My current yield and yield to maturity would be close to the coupon amount of 8.25%. 

Maiden is a reinsurance company based in Bermuda. I will never take a significant position in a reinsurance company. Given the FED's tiresome Jihad against the Saver Class, I am willing to risk minimal funds for the yield provided by this senior bond.

This is a link to the Prospectus.

This is a link to Maiden Holdings Reuters Profile Page and to the  Reuters' Key Developments Page. 

The current consensus earnings estimate is for $1.02 per share in 2011 and $1.3 in 2012. MHLD Analyst Estimates

MHNA closed at $25 yesterday, up 10 cents. 
2. Added 50 of the CEF CSQ at 9.2 on Monday-Cash Flow Purchase (see Disclaimer):

The shares closed on Monday at $9.26, with a net asset value then of $10.59 per share, creating a discount to net asset value of -12.56%. 

I am currently reinvesting the dividend to buy additional shares. 

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

As previously discussed, this is a leveraged balanced fund with a 54.5% weighting in common stocks as of 6/30/11. The remainder consists mostly of corporate bonds at 19.3%, convertible bonds at 12.9% and convertible preferred stock at 6.3%. CSQ Composition The bonds are mostly in the BBB and junk BB rating categories. 

The current monthly dividend is $.0525 per share. At that rate, the yield at a total cost of $9.2 would be about 6.85%. The next ex dividend date is 8/8/11.

Morningstar rates the fund 3 stars. 

This is a link to the last SEC Filed Shareholder Report

This is a link to discussions of my last two purchases: Bought 100 CSQ @ 8.94 (November 2010);  Added 70 CSQ at 9.63 (April 2011)

This is the kind of purchase made with cash flow from dividends and interest.

CSQ closed yesterday at $9.09, down 1.84% or 17 cents.

3. Duke Energy (own):  Duke Energy reported net income of 435 million or 33 cents per share on revenues of $3.534 billion, up from $3.287 billion in the year ago quarter. The consensus estimate was for 30 cents.  As of 6/30, book value per share was $17.05.

After paring my position in DUK which reduced my average cost per share to $15.14, I am content to hold my remaining shares.   Pared 50 DUK at 18.42

DUK closed at $18.55 yesterday, down 15 cents. 

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