Monday, September 26, 2011

Sold Remaining PJS at 25.15-Roth IRA/Travelport/Pakistan's Aggression Against the U.S./Bought 50 FNLC at $12.79

Admiral Mullen, the outgoing Chairman of the Joint Chiefs of Staff, asserted publicly that Pakistan's spy agency played a direct role in attacking the U.S. embassy in Kabul, and in prior terror attacks against the U.S. and coalition forces. NYT  CBS disclosed some of the evidence supporting Mullen's claims. CBS News

Pakistan denied the truth of the factual statements made by Admiral Mullen. WSJ  If Mullen's assertions are true,  Pakistan has committed acts of war against the U.S. Many believe Pakistan provided a safe haven for Osama Bin Laden and other terrorists, and there is considerable factual support and circumstantial evidence for those opinions.

I would agree with the comments made by Dick Bove and Brian Westbury that Operation Twist will harm the financial system.  By lowering the long term interest rates, bank net interest margins will deteriorate further and many banks will probably respond by making fewer mortgage loans. Bove's comments can be found in Randall Forsyth's column in Barrons.  Westbury's analysis can be found in his interview at Morningstar. For those who able to refinance their mortgages at the current abnormally low rates, their balance sheets will improve but that kind of benefit will be offset by the harm caused by this Fed policy.  Operation twist needs to be abandoned immediately.

The PMI index for both Europe and China fell below 50. Markit reported that the September PMI index for Europe fell to 49.2 in September, the lowest reading since July HSBC reported that its survey of Chinese manufacturing showed a decline to 49.4. MSN Money Any number below 50 indicates contraction.  

The NYT reported that its ad revenue declined will decline about 8% in the third quarter, more than its previous forecast.

FedEx cut its earnings estimate for its fiscal year ending in May 2012 due to slowing worldwide growth.  The new estimate is for an E.P.S. between $6.25 to $6.75, down from the prior forecast of $6.35 to $6.85.  SEC Filed Press Release 

Freddie MAC reported last Thursday that the average 30 year mortgage rate was 4.09%.  The 15 year rate was 3.29%. Primary Mortgage Market Survey (PMMS) - Freddie Mac 

Former Fed Governor Mark Olson said in an interview that the FED has "nearly" exhausted its bullets to revive the economy. YF Daily Ticker 

A TIP, with 9 years and 10 months remaining in the term, was auctioned last Thursday with a coupon yield of .078%:

I bought some Canadian dollars late last week after the USD experienced a robust rally. Canadian Dollar (CAD) Strategy I will not buy CADs unless 1 USD buys at least 1.03 CADs.

Bank of America Merrill Lynch lowered its forecasts of U.S. growth for 2011-2013. The new forecasts call for anemic growth extending into 2013:  1.6% in 2011; 1.8% in 2012; and 1.4% in 2013. That may prove to be overly optimistic. WSJ

Silver declined 26.3% last week. Gold declined 9.6%.

The DJIA declined 6.4% last week, the worst loss since October 2008.

The  ^VIX closed at 41.25 last Friday, rising from the 30.98 close on Friday 9/16/11.

The VIX has been in the Unstable VIX Pattern since the formation of a Trigger Event in August 2007. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern Vix Asset Allocation Model Explained Simply Continuation of Unstable VIX Pattern/Possible Head and Shoulders in the S & P 500 Forming (July 2011).

Goldman Sach's stock fell 11% last week to close at $95.18. GS Stock Quote  Morgan Stanley fell 16.5% last week. Earlier in the year, MS stock traded over $30.   MS Stock Charts

1. Travelport (own bonds):  I received a notice on Thursday that S & P downgraded, again, my two Travelport Limited (Travelport) senior bonds, taking the rating all the way down to the letter "C".  While I do not have access to the report, the downgrade is related to what S & P characterizes as a default by the parent, known as Travelport Holdings Limited (Travelport Holdings). That default involves what S & P believes is a forced recapitalization of the PIK notes that are obligations of the parent. The proposed terms of the restructuring are summarized in this SEC Filing.

The proceeds of those notes were not used in Travelport's business. Instead, the proceeds from the sale of those notes were used to pay a dividend to the shareholders of the parent, one of the many private equity firms that serve no useful purpose in society other than to create this kind of problem, to undermine viable businesses with boatloads of debt, and to contribute to U.S. unemployment by sacking employees to cut costs. If all the owners of the PIK do not accept the recapitalization plan, then Travelport Holdings will file a prepackaged bankruptcy petition. SEC Filing on Consensual Plan for Bankruptcy And who knows what will happen then?

A change in control of Travelport can trigger a call at par value of Travelport's debt. Item # 2 Travelport (9/19/11 Post); see page 37-38 of Travelport's recently filed Form 10-Q discussing these issues). Needless to say, if that happens, it would not be a positive development for the unsecured senior debt holders.  

Headknocker ordered an investigation into which Head Trader bought the Travelport bonds. RB replied that it was the "Nerd Machine" while LB retorted that "it had to to be either the RB or the Old Geezer since the LB has never ever made a mistake. Since it is inconceivable that the LB erred, ipso facto, res ipsa loquitur, it would have been impossible for the LB to be responsible for the purchase of those bonds and that kind of error could only have been made with either the RB or the OG, or some unholy amalgam of the two, acting as the HT".     

2. Sold Remaining Shares of the TC PJS at 25.15-Roth IRA (see Disclaimer): I had success trading this TC during the Dark Period, acquiring some shares at $7.2. The underlying bond was originally issued by First American that later split into two separate firms. The company known now as First American is involved in issuing title insurance policies. The company is known now as CoreLogic. As explained in two prior posts, the split left the First American 2028 senior bond, the underlying security in the TC PJS, with CoreLogic. Item # 4 PJS and Item # 3 TC PJS.  Prior to the split, the bond had a low investment grade rating and is now rated as junk. 

Since I am de-risking in my IRAs I decided to sell the remaining shares of PJS, which were held in an IRA, at near break-even, making a small profit on the shares plus some interest. Added: PJS at 24.72  I no longer have a position in PJS. Bought PJS at 7.2-October 2008 Bought 50 PJS at 17.95 August 2009 Bought 50 PJS at $17.8 in Roth August 2009 Sold ALL PJS at 24.75 & 24.65 April 2010 Bought 50 PJS at 23.73 Sold PJS at 25.45 Bought 50 of the TC PJS at 24.84 Bought 50 PJS @ 24.6 Sold 100 PJS @ 25.2

Merrill Lynch Depositor Inc. PreferredPLUS 7.55% closed at $25.08 last Friday.

I now have snapshots of most of my recent TC trades at the end of Trust Certificates: New Gateway Post.

So far, as part of this de-risking process, I have sold all of my European hybrids owned in the IRAs, and two TCs containing junk rated bonds as their underlying security.

3. Bought 50 FNLC at $12.79 Last Week (Regional Bank Stocks' basket strategy)(see Disclaimer): Before the carnage hit late last week, I had placed a day limit order to buy 50 shares of FNLC at $12.79. On the day that order was filled, the market blew through that limit order on the way down to a new 52 week low for this stock. This brings me up to 100 shares, with the previous 50 bought at $13.6.  Due to the price decline, I changed my reinvestment option from payment in cash to the purchase of additional shares. The quarterly dividend is currently 19.5 cents per share, The First Bancorp Declares Dividend, the same rate as paid for the last 12 quarters. Assuming a continuation of that rate, the dividend yield would be approximately 6.1% at a total cost of $12.79. The stock is trading lower than that price as of Friday's close. First Bancorp Inc., FNLC Stock Quote

I discussed this bank's first quarter report in this post: Item # 3 FNLC  SEC Filed Press Release for 1st Quarter 2011 Earnings

I discussed FNLC's second quarter earnings report in Item # 9 FNLC  SEC Filed Press Release for 2nd Quarter 2011 Earnings

The bank recently repurchased $12.5 million of the government's preferred stock. This SEC filing shows how that repurchase impacted FNLC's capital ratios.

First Bancorp recovered some in trading last Friday, closing at $12.77, up 57 cents.

This strategy has a long term horizon. Fortunately, I took some profits before the bank sector hit the skids again. Item # 3 Realized Gains Regional Banks This give me the option to buy shares at lower prices since I am currently close to $10,000 dollars below the $40,000 minimum exposure to this strategy, as I did a lot of selling earlier this year. (the range is $40,000 to $50,000: Item # 1 Stocks & Politics) I will move temporarily above and below that range. 

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