Friday, December 23, 2011

Medicare Fraud/Regional Bank Basket Table/3rd Quarter GDP Revised Down/Bought 1 Commercial Metals 6.5% Senior Bond Maturing 7/15/2017 at 94.75/Sold 51+ CBU at $26.82/ Sold 50 ACET at $7.02

The headlines yesterday claimed that the market advanced on positive economic reports. One of those reports was a downward revision in third quarter U.S. GDP growth. The government's latest revision for the 3rd quarter claims 1.8% real GDP growth, down from the 2% estimate made last month. Two months ago, the estimate was at 2.5%.  Gross Domestic Product Consumer spending for services was revised down to 1.9% from 2.9%.

In another report, the thirty year, average mortgage rate hit an all time low of 3.91%. Primary Mortgage Market Survey (PMMS) - Freddie Mac  The 15 year was at 3.21%. Overall, I view that as a negative signal about the economy. For those who are able to refinance at those rates, it is of course positive.

I do not have a mortgage, being a confirmed member of the Saving Class, but that 15 year rate is sure tempting to the OG. RB just said, "get the loan and lets go to Vegas, play some blackjack for a $1,000 a hand, and have some fun."  LB added that the "market was providing an abundance of fund, providing many opportunities for the LB to work on its trading rules for the Unstable Vix Pattern"

A positive piece of news was the decline in initial claims for unemployment to the lowest level since April 2008.

Tokio Marine is acquiring Delphi Financial (DFG) for $2.66 in cash. Delphi has one exchange trade bond, DFP, which popped closer to its $25 par value on the news. DFP closed at $24.45 yesterday.  S & P affirmed the ratings of Tokio's core subsidiaries.  Reuters  SEC Form 8-K 

Reuters published an article earlier this week about criminals forming shell companies to fraudulently bill medicare for services and equipment. I mentioned a similar series of stories in a February 2010 Post: Rampant Medicare Fraud Rather than attempting to chase the scumbags after they bill billions to Medicare, a more viable alternative would be verify the legitimacy of every provider before they could bill anything to Medicare. For new companies, the verification could be quite extensive for new companies, including a physical examination of the firm's premises by an inspector which would often catch the criminals before their scheme even starts. By some estimates, the U.S. loses 60 billion a year to Medicare fraud and the criminals show no signs yet of being fearful of a possible conviction or serious jail time in the unlikely event that they are caught and convicted.

The TC HJO, which contains an Aon Capital TP as its underlying security, is ex interest today for its semi-annual interest payment.

The WisdomTree Emergency Market Currency ETF (CEW) went ex dividend for its annual distribution on 12/21/11. The 2011 distribution came to $1.0572 per share. I own 100 shares for diversification purposes. 

John Hussman argues in his last commentary that the U.S. is "on the cusp of observable economic deterioration". Hussman Funds  Given his generally pessimistic stance, it is not  surprising that his Hussman Strategic Growth fund declined only 9.02% in 2008 and rose a horrific 4.63% in 2009. The Hussman Strategic Total Return return rose 6.34% in 2008, which was extraordinary, but then managed only a 5.84% return in 2009. All of those numbers originate from MSN Money. I do not not own either fund.

1. SOLD 50 ACET at $7.02 Last Tuesday (LOTTERY TICKET Basket Strategy)(see Disclaimer):  I was satisfied with the percentage return in this LT so I sold it.

Item # 3 Bought 50 ACET at 5.07 as Lottery Ticket (September 2011 Post)

This post contains snapshots of realized gains and losses for this strategy: Lottery Ticket Strategy: New Gateway Post 

This is my second round trip for ACET. 

2, Trustmark (own: REGIONAL BANK BASKET STRATEGY):  BB & T initiated coverage of TRMK with a buy and a $25 price target.  Bought 50 TRMK at 19.57 (August 2010)

3. Bought 1 Commercial Metals 6.5% Senior Bond Maturing 7/15/2017 at 94.75 Last Wednesday (Junk Bond Ladder Strategy)(see Disclaimer): 

Commercial Metals is a publicly traded company. The current consensus estimate for the F/Y ending August 2012 is $1.05 and $1.76 for F/Y 2013. CMC Analyst Estimates 

Commercial Metals profile page at Reuters
Commercial Metals key developments page at Reuters. 

CMC's business is described in great detail, starting at page 3 of its recently filed  Annual Report. As of August 31, 2011, CMC had $222+ million in cash and $1.198+ billion in long term debt. The debt is described in note 9 starting at page 57.

This bond is currently rated Ba1 by Moody's and BB+ by S & P.  FINRA While those ratings are still in junk territory, they are much higher than most of the bonds purchased pursuant to this exceedingly risky strategy. 

Interest is payable semi-annually in January and July. Prospectus 

I am assigning an initial 4 rating in my Personal Risk Ratings For Junk Bonds.

My confirmation states that the current yield at my cost is 6.802% and the YTM is 7.493%. 

4. Sold 51+ CBU at $26.82 (REGIONAL BANK BASKET STRATEGY) (see Disclaimer):
Somehow, I ended up with 50 shares of CBU in two separate satellite taxable accounts. Added 50 CBU @ 25.19 Bought 50 CBU @ 23.18 I decided to sell the highest cost shares bought at $25.19, keeping the shares bought at a slightly lower price in another account. I will look for an opportunity to add to the remaining shares when and if I can average down.

Regional bank stocks had a good rally yesterday. Community Bank System closed at $27.59 in trading yesterday.

After taking a $600+ tax loss on Porter (PBIB), my realized gain for this strategy was reduced to $7,642.05: Item # 3 Realized Gains Regional Banks

This is a snapshot of my current positions in this basket, which does not include shares purchased with reinvested dividend but does include stock dividends:

Regional Bank Basket Table as of 12/22/11

I certainly may be wrong about my big picture forecasts. I currently believe that the stock market is near a cyclical top and is more likely to decline 10% than to rise 10%.  If that forecast proves to be correct, then I will have plenty of opportunities to buy securities at lower prices. If I am wrong, then my portfolio will still go up in value, but not as much as the market averages, unless there is a significant move up in non-equity asset classes such as junk bonds, preferred stocks, exchange traded bonds, Canadian bond ETFs, etc.

I have been arguing in this post for about two years now that the S & P 500 would face stiff resistance between 1250 to 1300. As an example, I mentioned in a post from June 2010 that I anticipated range bound movement mostly between 950 to 1250 for at least two more years. Stocks, Bonds & Politics and Item 2  Problems Brewing for Stocks (4/1/2010). This is consistent with my thesis that the rally off the March 2009 lows was a cyclical bull market within the context of a long term secular bear market.

The longevity of this bear market has been caused by too much debt among individuals and governments in most developed countries. More on 1982 or 1974 (September 19, 2009 Post) 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? (September 18.2009 Post) The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets (6/27/11 Post) The Roller Coaster Ride of the Long Term Secular Bear Market (5/16/10 Post)

A new reason supporting that range can be found in Jeffrey Grantham's December 2011 commentary: 3Q11.pdf (see Exhibit 1) I am nowhere near as pessimistic as Grantham, but I am certainly cautious now. 

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