Tuesday, November 15, 2011

BOUGHT 50 of the Stock CEF IDE at $17.18/Obamacare/Cisco, Ashland, Momentive Specialty Chemicals

I am coasting for the remainder of 2011. I have already booked a large amount of short and long term capital gains this year.  LB is doing its part to help our destitute Uncle Sam in his hour of need.  To further hedge my remaining stock positions, I bought a triple short stock ETF yesterday. If that hedge and others go down in value later this year, I will simply sell them for a loss which will be smothered by my realized gains. Of the ones currently held, I am at break-even, with one up and another down slightly, and one unchanged, which is fine so far given their limited purpose. I have realized gains already on my hedges this year of close to a $1000. The stock hedges are permitted under the current trading rules of an Unstable Vix Pattern, notwithstanding the VIX trading well over 20. Mark Hulbert and the Use of the VIX as a Timing Model/Modification # 1 To Vix Asset Model Approved re: Hedging The VIX rose 1.09 yesterday to close at 31.13.

It would be far more beneficial for me to have a market melt-up than a meltdown before the end of this year, so I would hope to lose on these hedges. If the market tanks, I will at least cushion the blow a tad. I may add to the triple short purchased yesterday on a spurt in the S & P 500 above 1260. The S&P 500 fell 12.07 yesterday to close at 1,251.78.  While I have no technical training whatsoever, I believe the market will start to run into resistance in the 1250 to 1300 area.

Italy auctioned €3 billion in five year notes yesterday to yield 6.29%, the highest yield since 1997. The last auction of this maturity was in October, when the yield was 5.3%. One year ago, the yield was 3.13%. Mario Monti, an economist, was appointed Italy's new prime minister.

Spain's ten year note rose to over a 6% yield yesterday. ES 10Y Govt Bond Benchmark, 10YR_ESP Bond Quote - (ICAPSD) The 30 year bond rose to 6.72%, the highest yield since Bloomberg started to keep records in 1998.

This video of Herman Cain answering questions about Libya is instructive. His supporters will not watch it. In it Herman makes Rick Perry look like an international statesmen: YouTube

The TBs would not watch Sarah's interview with Katie either. I have yet to find a Palin supporter who admits watching those Couric interviews. (e.g. Sarah Palin Discusses Russia With Katie Couric - YouTubeTina Fey Quotes Sarah Palin Word For Word - YouTube)

If allowed to keep only one of the ten Bill of Rights, TBs would of course choose the second amendment. As they would say, we can do without the other rights as long as we have a bevy of automatic weapons.

The TBs have made it easier for felons and those with serious mental health problems to acquire guns, as documented in this NYT article.

One of the most important issues to the Tennessee GOP was to pass legislation permitting guns to be carried into bars.

The current push is for Congress to allow anyone with a gun permit in one state to carry a concealed weapon throughout the country.  In many states, securing a permit to carry a concealed weapon is far easier than acquiring a driver's license. Bloomberg

The Supreme Court is going to decide the constitutionality of Obamacare. The key issue involves the power of the federal government to fine citizens for not buying something. The issue will be framed as to whether the government can compel through monetary fines the purchase of health insurance.  I suspect that this issue will be a close one.

If the individual mandate is found unconstitutional, it will require the reversal of the Supreme Court's 1942 decision Wickard v. Filburn. Many of the Bush appointees would like to place limits on federal power, and the outcome could have a far reaching impact on other congressional legislation by restricting the power of Congress to pass laws based on an expansive application of the Commerce Clause permitted by Wickard and its progeny. (see discussion in  Forbes by a self-styled conservative)

It is possible that the Supremes will dodge the issue on the merits altogether by holding that the 1867 Tax Anti-injunction Act prohibits a challenge to a tax law until the tax is paid. (26 United States Code U.S.C. §7421) It is my understanding that the tax would not be due until 2015. The U.S. Court of Appeals for the Fourth Circuit dismissed a challenge to the individual mandate on this basis: Liberty University v. Geitner.pdf I personally found this decision persuasive but the pressure to decide the case on the merits may cause the Supreme Court to sidestep the application of this 1867 statute.

A good discussion of the legal issues can be found at HFMA.org.

1. Cisco (owned): Cisco reported adjusted E.P.S. of 43 cents on $11.26 billion in revenues for its first fiscal quarter. SEC Filed Press Release The consensus estimate was for an adjusted E.P.S. number of 40 cents. For the current quarter, Cisco estimates an adjusted E.P.S. number of 42 to 44 cents on a 7%-8% increase in revenues compared to the year ago quarter. Cisco is benefiting from cloud services, where its data switching segment has about a 80% market share. During the first fiscal quarter, the company generated $2.3 billion in cash flow and $2.1 billion in free cash flow. Cisco ended the quarter with $44.4 billion in cash after buying back $1.5 billion in stock at an average cost of $15.37 per share. Cisco returned 90% of its free cash flow to investors in the form of share buybacks and dividends ($322 million). After subtracting debt, the net cash at the end of the quarter was $28 billion or $5 per share. Headcount fell to 63,465 from 71,825.  

This earnings report is discussed in articles at  Bloomberg and MarketWatch.

2. Ashland (own 1 bond: FINRA ): Excluding items, Ashland reported an adjusted E.P.S. of $1.01 on revenues of $1.846 billion for its fiscal 4th quarter. SEC Filed Press Release The estimate was for 93 cents per share. In August 2011, Ashland completed the acquisition of International Specialty Products for $3.2 billion in cash. Cash flow from continuing operations was $154 million. Free cash flow was reported at $35 million.

3. Borden Chemical (now part of Momentive Specialty Chemicals)(own 1 bond: FINRA): Momentive reported net income of $39 million on $1.3 billion in revenues for the 2011 third quarter.  The company reported net income of $116 million on $1.2 billion in revenue for the 2010 third quarter.  SEC Filed Press Release Q3 2011 This company is debt heavy with $3.428 billion in long term debt and $171 million in cash as of 9/30/11. The firm is controlled by funds affiliated with the private equity firm Apollo Management. Ownership by a private equity firm will generally tell the potential bond investor that the company would be loaded with debt.  

4. Bought 50 of the Stock CEF IDE at $17.18 Last Thursday (See Disclaimer): ING Infrastructure Industrial & Material Fund is a stock CEF that uses a buy-write strategy. 

This is a link to the last SEC filed shareholder report for the period ending 8/31/11:   ING Infrastructure, Industrials and Materials Fund Semi-Annual Report

As of 11/09/11, the day before my purchase, the fund had a net asset value per share $18.10 and closed that day at $17.24, creating a discount to net asset value of -4.75%.  Daily prices and net asset values can be found at the sponsor's website:   ING Funds - Daily Prices

This is a link to the sponsor's webpage for this fund: ING Infrastructure, Industrials and Materials Fund - Fund Profile - Overview

Dividends are paid quarterly. Currently, the quarterly dividend is $.45 per share. Distributions Assuming a continuation of that rate, the yield at a total cost of $17.18 is around 10.48%. The only way to support this dividend rate would be to harvest capital gains from trading shares. (see data at Morningstar).

I have bought and sold this CEF:  Sold 100 of the Stock CEF IDE at 20.3 (March 2011); Bought 50 of the Stock CEF IDE at 19.57 (1/6/11);  Sold 50 IDE at 18.7 (September 2010); Added 50 IDE at $16.85 (August 2010); Bought 50 of the CEF IDE at 17.4 (August 2010).

I have realized gains from the shares of $276.33:

2011 IDE +227.25
2010 IDE 50 Shares +49.08

ING Infrastructure Industrial & Material Fund closed at $16.93 yesterday. 

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