Friday, December 16, 2011

Masters of Disaster and Risk Control/EK, AWF, INTC/Performance Numbers/IPB Ex Interest

Goldman Sachs estimates that the European crisis could cut up to 1% from U.S. GDP in 2012.  Daily Ticker GS expects a significant recession in Europe: Goldman Sachs | Global Economic Outlook - Outlook 2012 Video Part 1

Fidelity provided my performance data yesterday through November 30, 2011. I last referenced the data through 10/31/2011. Main Taxable and Regular IRA Accounts Performance Numbers Calculated by Broker For the three years ending 11/30/11, the main taxable account was up 87.24% and the regular IRA zoomed from 100% to over 170%, based on investments made during the darkest hours since 1974, though a major assist was undoubtedly contributed by dropping November 2008 from the 3 year number:

Top Column Regular IRA Performance to 11/30/11/2nd Column S & P 500 
RB was heard to day "no guts, no glory, finer words never spoken and beyond the comprehension of Mama's Boy, Lame Brain".

The TC IPB was ex interest for its semi-annual distribution yesterday. Merrill Lynch Depositor Inc. 6.0518% Index Plus Trust Series 2003-1, IPB This is an unusual TC. The underlying securities consist of 14 different corporate bonds and treasury strips maturing in 2030. I own 150 in the ROTH IRA:

150 IPB ROTH IRA Unrealized Gain +785.8

Bought 100 of the TC IPB at $16.99 August 2009 Sold 50 IPB at 20.28 February 2010 Bought 50 of the TC IPB at 21.3 August 2010 Bought: 50 of the TC IPB at 23.11 in IRA October 2010 Calculations On How to Recreate Trust Certificate IPB

I have no interest in IPB at its current price, and have considered selling it.  I decided to keep it for its income generation, at least for now. Trust Certificates: New Gateway Post

Motley Fool has a retrospective on the factors that crushed Eastman Kodak in 2011. While I do not own the common, never have, I am suffering enough as the owner of two senior bonds maturing in 2013.   Eastman Kodak Bonds: Update on Third Quarter Earnings Report A less negative article about EK appeared earlier this week in the USA Today business section. The 2013 bond is now selling at close to 40 on fairly heavy volume indicating a near total lack of confidence in EK's survivability to pay off this bond in November 2013.

MKM Partners remains bullish on Intel (own) even after the recent warning. A summary of its report can be found at Barrons.

The bond CEF AllianceBernstein Global High Income Fund (AWF) declared its regular monthly dividend of 10 cents per share plus a special income dividend of $.322 per share.  I own just 100 shares. There are a number of holdings in this fund that make me antsy. The ex dividend date is 12/22.

Masters of Disaster can not be allowed to police themselves. While some would call this observation an opinion, it is instead a fact, and one that can not seriously be disputed by anyone.  The MF Global debacle is just the latest example supporting the foregoing statement as a fact.  One common trait among the Masters of Disaster is an unquenchable thirst to undermine risk control.  As you would expect, the manager of risk control at MF Global was fired by the Master of Disaster Jon Corzine after questioning the risks being taken by that firm which ultimately caused its demise and the apparent "loss" of a billion or so of its customers' funds. CNBC The risk manager hired thereafter had his authority emasculated by Corzine.

If you want to be a risk manager for the Masters of Disaster, then it best to just say "yes" and read romance novels while at work. The worst possible career move would be to place your hand in between a Master of Disaster and red meat.

Undermining risk control was done frequently in the period leading up to the recent Near Depression. The NYT published a number of articles in 2008 detailing how risk management was undermined by the Masters of Disaster at several financial institutions (e.g. The Reckoning - Citigroup The Reckoning - Merrill Lynch)

The seminal event leading to the recent Near Depression was the 2004 SEC Rule change that basically allowed the Masters of Disaster to police themselves. Stocks, Bonds & Politics: 2004 SEC Rule Change 12/22/2008 Post The MDs were allowed to increase financial leverage since they understood risk so well. Rather than having debt to equity capped at 12 to 1, the Masters of Disaster could increase their leverage to just about any level, and major financial firms soon had 30 or even 40+ to 1 debt to equity, which of course increased the compensation for the Masters of Disaster while endangering their firms and the world financial system.  But, endangering the world's financial system is a small price to pay for enriching a few self-proclaimed financial "wizards".

And, how long did it take for the Masters of Disaster to bring down the world's financial system after the 2004 SEC Rule change?  What was their critical and essential roles in creating the housing bubble and subsequent collapse?

1. Cash Flow Receipts Main Taxable Account on 12/51/2011:  The following three snapshots capture most of my cash flow paid into my main taxable account yesterday. I will reinvest this cash flow to purchase income generating securities, creating a compounding effect over time. Some payments are not shown since I did not want to make a 4th snapshot to show a few additional items. One payment left out in the foregoing was a 5% stock dividend and regular quarterly dividend paid by Landmark (LARK):

12/15/11 Cash Flow Main Taxable Account Part 1 
12/15/11 Cash Flow One Account Part 2
12/15/11 Cash Flow One Account Part 3
 The general idea is to create a constant flow.

Some brokers do not even show dividends and interest on the date of payment. I found that kind of service irritating.  Charles Schwab and Vanguard, for example, do not show a distribution until the day after payment.  If the dividend is reinvested, Schwab does not show the number until two days later.  Since I have so many securities, it is not unusual for me to sell what I believe to be all shares and then have shares pop into the account thereafter which were purchased with a dividend. Admittedly, this is likely to happen to those who are very active traders and can not keep track of the dividend payment dates of all owned securities.

Since Schwab has been a discount broker for three decades, there is no excuse whatsoever for their delay in posting dividend and interest receipts. TD Ameritrade will at least show the amount on the day of receipt, though it fails to identify who paid the distribution on the date of payment.

Fidelity is at least on the ball in this regard. However, Fidelity is expanding its list of securities of securities that no individual is allowed to buy, and that is extremely disconcerting  One security recently placed on the no buy list is the exchange traded bond AEB, where I have realized good percentage gains.  (see snapshots at the end of Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities).

I can not buy HBAPRF at Fidelity but I can buy the functionally equivalent HBAPRG. I can not buy any exchange traded "principal protected notes" or synthetic floaters.  Fidelity Prohibits New Purchases of Exchange Traded Principal Protected Notes I can not buy, just as another absurd example, the exchange traded bond DFP.  Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP  I have noted new trading restrictions crop up on some other exchange traded preferred stocks.  In those cases, I will use another broker.

I will discuss some of my trades from late this week in my next post.   

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