Thursday, December 22, 2011

Sold 200 of the Bond CEF IMF at $17.78/Bought 1 Telecom Italia Capital 5.25% Senior Bond Maturing 11.15.2013 at 96.429

European banks drew €489 billion on the European Central Banks new, first ever three year loans. Reuters Is that a positive development in the ongoing financial crisis?

There are two ways to look at it, and both are correct in my opinion. It is positive that the ECB is taking action to prevent solvency events due solely to a lack of liquidity. It would not be wise to allow sound financial institutions to fail due solely to a temporary lack of liquidity. In this context, I would draw a distinction between solvency events due to temporary liquidity problems and solvency due to poor investment and lending decisions and/or recessionary conditions.

However, it is extremely negative that the ECB believes that such a program is necessary. In my judgment, the negative outweighs the positive. These kind of central bank programs are just exceedingly extraordinary. I do not find any comfort that the ECB and the Federal Reserve believe that it is necessary to pull rabbits out of their hats. I would also place these events in a time perspective. Next September will be the 4th anniversary of Lehman's collapse.

I bought a new Apple desktop computer for less than $1200 that contains a 2.5 GHz Intel Core i5 processor. I am amazed by the speed of this computer compared to my older IMAC purchased for several hundred dollars more.

The computer came with a wireless mouse and keyboard. While I have no idea whether it is the new Lion operating system or the mouse, or more likely a combination of both, I can flip back and forth between web pages by simply moving my finger to the left and right, a really helpful feature for me.

I have noticed a major problem, however, with that feature. When writing this blog, I have lost content that has not been saved when I accidentally move my finger sideways which causes a page flip. Instead of flipping the page, a pop up message appears, asking me whether I want to leave the page since content has not been saved yet. It does not matter how that question is answered. I can click the tab that says stay on the blogger page or the tab confirming the exit from that page. Either way, I lose the content that has not been saved yet by blogger's automatic saving feature. The positives of this feature outweigh the negative.

Earlier this week, I mentioned that the federal government was running over a trillion dollars in the red every year now. A trillion dollars would be more than the entire national debt from inception to around 1980.  While reading a book about President Garfield, I noted a couple of interesting tidbits about spending during his administration. While Congress did   fund the Secret Service after Lincoln's assassination, funding was slashing in half from around $75,000 per year before Garfield became President, and there was no money to provide the President with bodyguards. Garfield was assassinated with no Secret Service protection. Garfield's wife had to enlist the aid of the news media to shame the Congress into spending 30 thousand to repair holes in the White House rugs. 

1. Bought 1 Telecom Italia 5.25% Capital Senior Bond Maturing 11/15/2013 at 96.429 on Tuesday (see Disclaimer): This bond is rated investment grade. The current ratings are Baa2 by Moody's and BBB by S & P. Telecom Italia's common stock is traded in the U.S. under the symbol TI. I had read recently a blog in that Gimme Credit had upgraded its credit score for TI based on improving cash flow. I do not currently have a concern about being repaid at maturity.  

Telecom Italia profile page at Reuters
Key Developments page at Reuters
Telecom Italia website
FINRA information on this bond
Link to Press Release Announcing 2011 Third Quarter Results: Telecom Italia - 6k
Link to 2010 Annual Report filed with the SEC: Telecom Italia Form 20-F

This note was originally issued in a private placement and later exchanged for one registered with the SEC. Amendment No. 1 to Form F-4

My confirmation states that the current yield at my cost is 5.399% and the yield to maturity is 6.829%.  Given the short maturity, the investment grade, and the likely continuation of the Fed's Jihad against the Saving Class into 2013, I thought that those yields were barely acceptable. 

2. SOLD  200 of the Bond CEF IMF at $17.78 Last Tuesday (see Disclaimer):  IMF is a low yielding bond CEF that invests mostly in U.S. inflation protected bonds. I have been buying and selling this CEF, along with the similar fund WIW, on multiple occasions, usually for small profits after collecting one or more monthly dividend payments. I bought these last shares last October at $17.45.  Prior trades include the following:  Bought 300 CEF IMF at 16.5 May 2010Sold: 300 IMF @ 17.23 October 2010Bought 200 of the Bond CEF IMF at 16.64 February 2011 Sold at Few Days laterSold 200 IMF at $17.15 February 2011.  I trade WIW more frequently. I currently own 200 WIW shares. Item # 1 Bought:  200 WIW at $12.63 (9/29/11 Post)(contains snapshots of prior trading gains for both WIW and IMF). 

I may be prejudiced against U.S. government bonds at their current yields. Personally, while I may end up being wrong, I view the current pricing to be asinine. Five year treasury notes are yielding around .86%. The inflation protected 5 year has a negative coupon of close to 1%.

The current yields of U.S. investment grade and treasury bonds do not reflect a rosy economic outlook for 2012.  What does a negative coupon suggest about the world?

The ten year inflation protected U.S. treasury also has a negative yield. IMF does have a better current yield at the indicated monthly rate of 5 cents per share. IMF Distributions  

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