Friday, November 11, 2011

Earnings: Ares Capital (ARCC), Appelton Papers/FNFG-HSBC Branches/Added 100 of the Stock CEF BCF at $11.95/Sold 100 KRBPRE at $25.13-ROTH IRA/Bought 1 MBNA Capital Series A 8.278% TP at 94.5 Maturing 12/1/2026

The EU estimates that France's debt as a percentage of its GDP will rise to almost 92% in 2013. Non-residents own 62.5% of France's debt and 44.4% of Italian government debt. (see statistical table 9 at page 72 of The I.M.F. estimates that gross government debt in Germany will be 82.6% of GDP by the end of 2011. NYT

A doomsday scenario for Italian government debt is discussed in this Forbes article.

Investors were encouraged yesterday by Italy's auction of 1 year bills, raising €5 billion, at an interest rate of 6.09%. I don't get it. The last auction for one year notes, back in October, was at a 3.57% yield. The yield from yesterday was the highest rate paid by Italy on a one year bill since 1997, when the lira was still the national currency.  A five year note auctioned is scheduled for Monday.

First Niagara (owned) and the Justice Department have agreed that FNFG will divest 26 HSBC branches in the Erie, Niagara and Orleans counties in order to receive antitrust clearance on its proposed acquisition of HSBC branches.  First Niagara and Department of Justice Agree on HSBC Branch Divestitures  The market has not looked favorably on the potential dilution likely to result from this transaction. First Niagara Downgrade; Item # 2  FNFG

The WSJ published an article describing how quickly matters went downhill after the U.S. military turned over a base to Afgan soldiers.

Detroit's major, the former NBA star Dave Bing, projected a cash shortfall of close to $150 million by March 31, 2012.

Jefferson County Alabama filed a petition for bankruptcy. This will be the largest bankruptcy of a municipality in U.S. history. Jefferson County includes Birmingham, the largest city in Alabama.

Goldman Sachs reduced estimates some for Microsoft slightly due to component shortages from companies impacted by the flooding in Thailand.

During Wednesday's GOP debate, which is very hard to watch given the level of ignorance among some participants, Rick Perry, who struggled to make a "C" at Texas A & M (Rick Perry's Texas A&M Transcript), was asked to name the three federal agencies that he wanted to eliminate. His response was as follows: "The third agency of government I would do away with. Education. Commerce. And let's see. I can't. The third one I can't. Sorry. Oops". (see video imbedded at Daily Ticker)

Mitt Romney wants a Constitutional Amendment stating that life begins at conception.  (The New Yorker; at around 5:25 into the interview at YouTube) It is not clear whether that Amendment would prohibit the sale of birth control devices. The  legal predicate for the Supreme Court's decisions on abortion was the decision in Griswold v. Connecticut that overturned a Connecticut law that prohibited the use of contraceptives. I know that is hard to believe that Connecticut had such a law at one time. (copy of decision: Griswold v. Connecticut) Romney does have fluid beliefs on these wedge issues.

Herman Cain has started to attack the women who have come forward to accuse him of sexual harassment. Cain claims at his website that Ms. Bialek has had a "long and troubled history", apparently because she filed for bankruptcy, worked for several employers over the last 19 years, and was involved in several lawsuits according to Herman.  Cain denies ever meeting her, yet a Chicago reporter claims that she saw them talking just a few weeks ago. The Chicago Sun-Times has a picture of Cain and Bialek  together at that Tea-Party event.

Cain's lawyer, L. Lin Wood, said that any woman coming forward with similar accusations better "think twice".   NYT Rush Limbaugh, the titular head of the GOP, has leaped to Cain's defense calling the women whiners.

The charges made against Cain have led to a surge in campaign contributions to him.  USA Today

A few years ago, a black congressman from Memphis, Harold Ford, was in a tight race against Bob Corker for the U.S. Senate, and Ford actually had a slim lead in the polls. The GOP then ran an ad with a white party girl, dressed in a way suggesting that the word "no" was not in her vocabulary, who wanted Harold to call her to continue their partying started at the Playboy mansion. NYT (Harold call me!-YouTube; the actress did not know anything about Ford: Interview Johanna Goldsmith - YouTube) After running that ad over and over throughout Tennessee, Corker burst into the lead and narrowly defeated Ford. I personally prefer Corker over Ford, but I found that ad to be despicable on so many levels including the truthfulness of the allegations being made against Ford. Lying, misrepresentation, exaggerations, and distortions are the norms in American political discourse, since the acquisition and maintenance of power is far and away more important to politicians than being truthful, honest and accurate.

1. Sold 100 KRBPRE at $25.13 Last Monday-ROTH IRA (see Disclaimer): This security went ex interesst on 11/09. I sold it at near break-even ($.51 cent profit after commissions), plus several quarterly interest payments. Bought 50 KRBPRE at 24.62 in Roth IRA (June 2010); Added 50 of the TP KRBPRE at 25.19. I basically substituted, in part, the security described below.

After going ex interest for its quarterly interest payment on 11/9/11 MBNA Capital E 8.10% TOPrS Series E, (KRB.PE) closed at $24.62 yesterday. I will consider buying this security back on a dip below $23.50. 

2. Bought 1 MBNA Capital 8.278% Series "A" Maturing 12/1/2026 at 94.5 Last Monday (Junk Bond Ladder Strategy ) (see Disclaimer): This TP traded in the bond market, originally issued by MBNA which was later acquired by Bank of America, gives me a higher yield and a shorter maturity than the exchange traded KRBPRE. I sold KRBPRE at a small premium to its $25 par value. The KRBPRE coupon is slightly less at 8.1%, and matures more than 6 years later in February 2033. The 2026 MBNA Capital TP was bought at more than a 5% discount to its $1000 par value and has a slightly higher coupon than the exchange traded TP. However, I give up the liquidity of the exchange traded security by going with the higher yielding 2026 MBNA Capital TP. The exchange traded KRBPRE pays quarterly whereas the 2026 pays semi-annually. The liquidity issue is the primary reason that I bought only one MBNA Capital 2026 TP rather than two. Both securities currently have the same junk ratings: Ba1 by Moody's and BB+ by S & P. This would be the same junk rating for TPs originally issued by Bank of America. 

This is a link to the MBNA Capital Series "A" Prospectus: This security is a typical trust preferred. The trust sells the TP to the public and then uses the proceeds to buy a junior bond from MBNA.  Interest payments can be deferred, provided there is no activation of the stopper clause, for up to five years, and any deferred amount will accrue interest at the coupon rate.  

FINRA Information on 2026 TP: FINRA 

MBNA was acquired by Bank of America in January 2006. MBNA Closing The 1996 Indenture for the underlying junior bond in the 2026 TP does require the acquiring company to assume MBNA's obligations. (page 14). I believe that this is the document whereby BAC expressly assumed MBNA's obligations under that Indenture: Third Supplemental Indenture dated as of December 21, 2005 In that document there is a reference to an agreement between MBNA and the Bank of New York as Trustee dated 12/18/1996 and that document can be found in this   SEC filing as an attachment. It is difficult to trace these historical documents for a company like BAC with a ton of SEC filings.

My confirmation states that the current yield at my cost is 8.686% and the YTM 8.847%.  The confirmation further states that the next callable is on 12/5/11 at 102.483. The early redemption premiums can be found at page S-15 of the prospectus.

3. Ares Capital (ARCC)(own): Ares is a business development company.  Ares Capital reported "core" E.P.S. of 43 cents per share and GAAP E.P.S. of 20 cents. The core number excludes professional fees and other costs related to the acquisition of Allied. Net asset value per share was reported at $15.13. The Board declared a 36 cent per share quarterly dividend. The core number beat the consensus estimate by 6 cents.

Ares closed at $15.19 yesterday, up 17 cents for the day.

4. Appleton Papers (own 1 bond: FINRA)(Junk Bond Ladder Strategy): Appleton, an employee owned company, reported net income of $18.026 million on $217.104 million in sales. The company ended the period with $11.691 million in cash and long term debt of $510.644 million, down from $540.131 million on 1/1/11.

5. Added 100 of the stock CEF BCF at $11.95 Last Tuesday (see Disclaimer): BCF is a closed end stock fund that invests primarily in natural resource stocks, broadly defined, to include companies involved in metals and mining, oil and natural gas, energy equipment and services, machinery (e.g. CAT), and chemicals.  

The fund does use a buy-write option strategy.

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

The last filed Form N-Q, listing the fund's holdings as of 7/31/11, can be found at BlackRock Real Asset Equity Trust (BCF).

The fund has been paying a quarterly dividend of $.2718, BCF Distributions, which have been supported by a return of capital. Assuming a continuation of that rate, which is in no way assured, the yield at a total cost of $11.95 would be around 9.1%.  Given that distribution rate, the only viable ways for the fund to avoid a return of capital are to increase its capital gains from selling stocks or cut the dividend.

On 11/7/11, the fund closed at $11.92 and had a net asset value per share of $12.78, creating a discount to net asset value at that time of -6.7.

There are a few ETFs in this sector that will have a significant overlap in holdings with BCF, which I have owned in the past but do not currently have a positions:

iShares S&P North American Natural Resources Sector Index Fund (IGE): Overview - iShares
iShares S&P Global Materials Sector Index Fund (MXI): Overview - iShares

This brings me up to 536+ shares. I am no longer reinvesting the dividend.  

BCF closed at $11.63 yesterday.

Closed-End Fund Association page on BCF. 


  1. "I know that is hard to believe that Connecticut had such a law at one time. (copy of decision: Griswold v. Connecticut)"

    I don't know whether the fact that Connecticut once had a low is startling or not, but Court's statement there that

    "In other words, the First Amendment has a penumbra where privacy is protected from governmental intrusion." (Italics added)

    is terrible case-law in a good cause. Maybe the Constitution should have mentioned a basic right to privacy, and maybe it is implied in some other source - even a source more basic than the Constitution - but the invention of 'penumbral law' for such a purpose is shocking, and perhaps dangerous.

    Even if there are flies in your house, and they annoy you, you should think twice before setting off an atomic bomb to get rid of them.

  2. I do not believe the Court has used "penumbras" and "emanations" since Griswald. I basically made the same point as you in a post from 1/3/2009:

    "A more difficult subject would be the right of privacy that the Supreme Court discovered in the constitution starting with the Griswold decision. Griswold v. Connecticut - Wikipedia, the free encyclopedia On the one hand, a conservative would support constitutional limitations on the government's intrusion into the citizen's private lives. The Griswold case arose from a Connecticut statute that prohibited the sale of contraceptives. On the other hand, the right was invented out of the imagination of one of the most liberal Justices in the history of the Supreme Court, William O. Douglas, who talked about the right of privacy being found in the "penumbras" and "emanations" from other constitutional protections. Justice Harlan, one of the best known conservative justices, agreed that there was a right of privacy right protected by the due process clause of the 14th Amendment. This right was not controversial outside of legal circles until it was applied in Roe v. Wade. Then, those who call themselves social conservatives advocated the repeal of a constitutional protection for privacy rights because of their opposition to abortion. So, this issue is complicated on applying a label.

    Preventing governmental intrusion into the privacy of its citizens is a conservative principle. Reproductive rights are part of privacy rights. Taking away a privacy right, and allowing the government to intrude into private decisions, is not a conservative approach. The issue of when life begins is neither a conservative or liberal issue. For some it is a matter of faith, a belief in when life begins. Others who may not find the answer in a religious doctrine, might say life begins soon after conception or not until after birth. I do not view those matters as being either conservative or liberal. The conservative and liberal issues are viewed by me as limited to the following: (1) is the right to privacy a conservative value and the answer is yes (2) is reproductive rights a right to privacy issue and the answer is yes and (3) was the right created by justices, and I would answer in the affirmative on that one, and that can not be supported by conservatives, who are at their core, like the Founding Fathers, always suspicious of state power including that exercised by the judiciary usurping the democratic process to further their own personal beliefs about what the constitution should say but does not, for when you start down that road it is potentially dangerous and basically gives 5 Justices the power to amend the Constitution at will."
    Post: What is the Appropriate Political Label