Wednesday, November 30, 2011

AMR Bankruptcy/Fitch on U.S. Debt/Bought 1 ArvinMeritor 10.625% Senior Bond Maturing on 3/15/2018 at 96/Bought 100 of CHW at $7.18

Fitch completed its most recent review of U.S. debt.  WSJ  Reuters  CNBC  Fitch changed the outlook to negative from stable and warned that its rating would be downgraded without a credible plan to tackle the nations deficit by 2013. I do not see Congress coming to such an agreement during 2012.

According to Bloomberg, Moody's has placed under review the subordinated debt from European banks for a possible downgrade.

A report at  Bloomberg claims that Hank Paulson gave hedge fund managers non-public material information about the government's plan to wipe out the common and equity preferred shareholders of Fannie Mae and Freddie Mac.

1. Bought 1 ArvinMeritor (now Meritor) 10.625% Senior Bond Maturing 3/15/2018 at 96 Last Monday (Junk Bond Ladder Strategy)(see Disclaimer): Meritor's stock is publicly trade under the symbol MTOR. The current consensus E.P.S. estimate for the F/Y ending September 2012 is $1.41. MTOR Analyst Estimates  For MTOR's 4th fiscal quarter, ending 9/30/11, the company reported net income of 38 million from continuing operations (excluding a loss of 7 million from discontinued operations). Revenues rose to $1.217 billion from 941 million in the year ago quarter.  Adjusted EBITDA was $97 million, up $22 million from the same period a year ago.  Free cash flow was $23 million for the quarter.  As of 9/30/11, the company had $217 million in cash. Long term debt stood at $950 million.

Link to Reuters profile page

Link to Key Developments at Reuters  As noted on that page, MPOR recently lowered its guidance for the current fiscal year.

The company does have asbestos issues, discussed at pages 52-53 of its recently filed 2010 Annual Report: meritor_10k. 

This is a link to the FINRA information on this bond: FINRA The bond is currently rated well into junk territory. S & P gives it a CCC+ whereas Moody's gives it a B3 rating. Fitch is at B-.

This 2018 bond is referenced and discussed in Meritor's last filed SEC Form 10-Q at page 78.

This is a link to the prospectus: SEC Filing

My confirmation states that the current yield at my cost is 10.976% and the YTM is 11.342%.

I am assigning a 7 risk rating: Personal Risk Ratings For Junk Bonds

2. Bought Back 100 of the CEF CHW at $7.18 Last Monday (see disclaimer):  I have bought and sold this CEF twice in 2011. Bought 100 CHW at 7.2 (September 2010)-Sold 100 CHW at $8.41 (January 2011);  Bought: 150 CHW @8.2 -Sold 150 CHW at $9.04 (May 2011). 


2011 CHW 100 Shares +112.7 Taxable Account

2011 CHW 150 Shares +111.1 Roth IRA

Total 2011 Realized Gain= $223.8 plus dividends. 

Calamos Global Dynamic Income Fund is a balanced fund weighted more in equity than in bonds, as shown at page 8 of the last SEC shareholder report.  The fund does use leverage. 


Morningstar currently rates CHW at three stars. The average three year discount according to Morningstar is -12.84, so it is not unusual for this fund to sell at over a 10% discount to its net asset value. 

On 11/27/2011, the closing share price was $7.05, with the net asset value per share at $8.23, creating a discount to net asset value of -14.34% as of that date.  On Monday, the day of my purchase, CHW closed at $7.19, with a net asset value of $8.49, creating a discount of -15.31. Yesterday, the fund closed at a -15.57 discount to its $8.54 per share net asset value. 

The current monthly dividend is 5 cents per share.  Assuming a continuation of that rate, the yield would be around 8.33% at a total cost of $7.18. 

CHW page at the Closed-End Fund Association.  This is not a serious buy.  Possibly, I am being too pessimistic about the near term future of the market, so I bought a 100 shares of this balanced fund that pays a good dividend.

3. AMR Files for Bankruptcy (own 1 bond): The news release by American Airlines states that the company "begins  legal process in United States to improve competitiveness".  SEC Filed Press Release This bankruptcy filing was not a surprise after the pilots union refused to submit a generous offer to their members for a vote.  AMR Bankruptcy?  AMR has the highest labor costs among the major airlines. While AMR has been negotiating with the major unions since 2006, it has not been successful.  BusinessWeek NYT  I would now expect significant jobs cuts during the reorganization.

I will not include my loss in Realized Gains Junk Bond Ladder Strategy until I am able to quantify it.  I have no idea what I will receive in exchange for my one senior bond. One possibility would be the receipt of common stock when and if AMR emerges from bankruptcy. Sometimes, stock warrants are also given in addition to shares of common stock in the reorganized company. Another possibility might be an exchange for another bond with a different maturity, lower principal amount and/or lower coupon. A total wipe out is also possible. I expect a significant percentage loss on this one bond position. The 2016 unsecured senior AMR bond was trading yesterday mostly in the 10 to 20 range. Fitch opined yesterday that the unsecured senior note owners will likely recover next to nothing.  Bloomberg I see no reason to disagree with that assessment.

AMR's common shares made a race toward zero in yesterday's trading. Generally, the existing common shares are cancelled during a bankruptcy and become worthless.  I do not own, and have never owned the common shares. I mentioned in an earlier post that Morningstar anticipated this bankruptcy and had reduced its price target for the common shares to zero.

If AMR dumps its pension plan on the Pension Benefit Guaranty Corporation, which is an option for it, there would be a significant cut in pension benefits.  MarketWatch A statement from the PBGC yesterday claimed that AMR employees could lose $1 billion in benefits with a termination of that plan. Statement from PBGC Director Josh Gotbaum on AMR Corp. Bankruptcy WSJ  The PBGC disclosed a few weeks ago that it had a $26 billion dollar deficit. PBGC Reports Record $26 Billion Deficit for 2011

While the expected loss on my 1 AMR bond position is not material, it did provoke an admonition by Headknocker and a trading rule change from our Great Leader. From this point forward, when the LB assigns an extreme risk rating on a bond (i.e. 8 or higher), the purchase price can not be above 50% of par value. In addition, no Head Trader shall ever again buy any security issued by an airline,  even secured debt.


LB pointed out that the Old Geezer was without question responsible for this one bond purchase.  Bought 1 AMR 9% Senior Bond Maturing 9/1/5/2016 at 99.375 As shown in that post, LB called the OG a nitwit for even considering the purchase of this bond.   

Tuesday, November 29, 2011

SOLD 250 STLPRA at 10.2/AGY Holdings/Exchange Traded Bond and Preferred Stock Table/ Europe in Recession/Rotten Service from AT & T/ Added 30 AA at $8.97/Travails of Bank of America/

The market enjoyed a strong rally yesterday based on inchoate reports that Europe was actually going to do something to solve its problems. Generally, the idea seems to be that the sovereign democratic member nations would cede some of their sovereignty to the EU. The EU would be vested with the authority to enforce its budget rules.  Hopefully, assuming this actually occurs at some point in the future, that change will convince the European Central Bank to be more energetic in buying sovereign debt.

It is interesting to see how humans assume that a multitude of events will occur in the future before anything concrete has actually happened. There is a reason why the phrase "talk is cheap" has longevity as a truism.

It is conceivable that the EU members will all agree to the material changes being discussed now, and that the ECB will then act forcibly to buy sovereign debt.  It is likewise entirely possible that nothing will happen other than a continuation of ineffective actions.

Italy auctioned 12 year notes yesterday at a 7.2% yield, 2.7% higher than the previous auction.

What will happen to the EU budget targets in the event of a recession in Europe, which appears to be happening now? The OECD said yesterday that Europe is already in a mild recession which could become worse with a failure to effectively address their accelerating sovereign debt and banking problems.  CNBC The OECD predicts real GDP contraction in Europe for the current quarter and the first quarter of 2012. (Page 3:  www.oecd.org .pdf)

The U.S. markets were also responding positively to robust retail sales reports. Reuters Bloomberg NYT I would question the longevity of any surge in consumer spending for the reasons discussed in yesterday's post and many prior posts.

Most young people that I know have never even had a land line phone. Being an Old Geezer, I have kept a land line phone service, originally provided by BellSouth and now by AT & T who acquired BellSouth. The service from AT & T is crummy, but I have put up with it until yesterday out of simple inertia.

For the past month, I have not had phone service for about two weeks. This might be tolerable in some beleaguered third world country undergoing a civil war, with each side blowing up the telephone infrastructure periodically.

Over one week ago, my land line started to crackle so bad that no one could be understood on the phone so I called AT & T  for a repair. I was told that AT & T could fix the phone in four days. After five days and no repair, I called back and found out that there was no repair ticket outstanding.  To say that this is just bad service does not do AT & T justice. If I asked for yet another repair ticket, the wait would have been several days even if the company responded to it.

The prior repair, to fix a no dial tone, lasted about two weeks before the phone need the repair for crackling, but it took AT & T several days to repair the no dial tone.  The only way for a consumer to deal with this kind of in your face bad service is simply to cancel the service, which I did yesterday, after being a good customer for 30 years at my current residence.

I would consider continuing with AT & T, provided that company paid me at least a $1,000 a year to put up with them and offered me free phone service for life.

1. Added 30 Alcoa at $8.97 Last Wednesday (see Disclaimer): This purchase was made with cash flow. I will continue to buy stocks with incoming cash flow from my investments irrespective of my views about the big picture issues.  There are several reasons for following this trading rule even when I have a negative forecast for the stock market as now. 

First, my opinion about the macro issues may turn out to be wrong. The natural tendency is to assume a continuation for negative conditions for too long into the future. (see discussion at Stock Rallies and Quantitative Easing: March 2009 Post) By continuing to invest during a market decline, I may be buying at advantageous prices since the decline may turn out to be temporary. A temporary decline in this context means one lasting less than six months. 

Second, even if the market decline continues for more than six months, I may be comfortable with my purchase price for a long term hold, meaning more than five years in this context. If I have a reasonable chance to double my money in five years, at any point during that time period, then I have made a good investment even if the security continues to decline after my purchase.  

Third, by averaging down, I may be presented with trading opportunities at a later time, when the price shoots above my highest cost shares purchased first, an opportunity created by the natural wave volatility during an Unstable Vix Pattern.  I could then use that pop to sell the highest cost shares using FIFO accounting, and then keep the lower cost shares, thereby reducing my cost basis in the remaining shares. This may produce over time some trading profits and a low cost basis in a security, which could prove advantageous when the next long term secular bull market emerges, depending of course on my security selection.  

At one point earlier in the year, I had over a $1000 unrealized profit in my Alcoa shares. Now, I have about a $500 unrealized loss. I was waiting for the shares to cross $20 before selling them, and the price topped out at $18+:  AA Interactive Chart So, that proved to be a trading mistake. 

When I discussed the disappointing third quarter earnings report, I mentioned then that I might buy 50 shares on a slide to $9.  Item # 3  Alcoa Disappoints-Points to Slowdown (10/13/2011 Post). Please note that I bought 30 shares rather than 50.  I only had enough cash flow to buy 30. And, I am anticipating a lower price, so maybe I will buy 50 when and if the price sinks below $8 or $7.5, depending on my mood. 

The price to sales, price to book and PEG ratios are less than 1 at the $9 price. AA Key Statistics The P/B ratio at that price is .64 and the five year estimated PEG is .28. The share price has returned to 1992 levels.  AA Interactive Chart I have bought AA shares as low as at $5.6 in March 2009.

Aluminum prices have been falling: Aluminum Prices, London Metal Exchange (LME)

Alcoa did cut its quarterly dividend to just 3 cents per share from 17 cents during the Near Depression period. Alcoa: Invest: Financial Information: Dividend History I am not anticipating a raise in that dividend anytime soon.  I am reinvesting it to buy additional shares.

Alcoa rose 51 cents or 5.7% in yesterday's rally to close at $9.46.

Barrons published a positive article on Alcoa yesterday.

2. Bank of America (own TPs and equity preferred floaters): Without question, Ken Lewis destroyed shareholder value with his boneheaded acquisition of the diseased Countrywide Financial. The common share price is now near where it was in 1986: BAC Interactive Chart. It would be difficult for someone to intentionally accomplish that result. It is just amazing that shareholders pay these Masters of Disaster large sums of money to vaporize shareholders' capital.

My main concern is that BAC remains sufficiently solvent to continue paying distributions on its non-cumulative equity preferred floaters and its trust preferred issues. I recently sold 100 KRBPRE, a TP originally issued by MBNA that was acquired by BAC. Sold 100 KRBPRE at $25.13-ROTH IRA I still own two equity preferred floaters and three different TPs.

These securities will be extremely sensitive to concerns about BAC's solvency. During the Near Depression period, prices for BAC's $25 par value equity and trust preferred securities fell into the single digits even though every distribution was made by the bank. My best buy of BAC TPs was the TC MJH at $7.51 in March 2009, later sold near its $25 par value. (see snapshots at Trust Certificates: New Gateway Post). The yield at that March 2009 price was close to 25%.

Recently, there was a news story in the WSJ that BAC has been operating under a memorandum of understanding since 2009 with its regulators. The WSJ claimed that the regulators recently met with the Board and wanted to see more progress in the bank's compliance with that informal order. The regulators also refused to allow BAC to raise its one cent quarterly dividend.

While BAC claimed to have adequate capital in its second quarter conference call, it has been selling assets recently, including most of its stake in the China Construction Bank, to raise capital.

Since the story about the informal enforcement action appeared in the WSJ, both the equity preferred floaters and the trust preferred securities that I own have lost value. This should not be surprising to any investor that owns those securities under the circumstances.

3. Sold 250 of 450 of STLPRA at 10.2 Yesterday (see Disclaimer): STLPRA is a TP. I reduced my position by selling at $10.2. Trust Preferred Securities: Links in One Post Prospectus: www.sec.gov Interest payments are made quarterly. The coupon is 8.375% on a 10 dollar par value.  My first purchases of this security were below $9 per share: Bought 50 of the TP STLPRA at $8.99 Added 50 STLPRA at 8.69 Bought 100 STLPRA at 8.87 Of the shares sold yesterday, 100 was owned in a taxable account and the other 150 shares were held in the regular IRA.

I would consider buying those shares back below $9 again.  I still own 200 in the Roth IRA bought at slightly over $10 per share.

Sterling Bancorp Trust I 8.375% Cum. Trust Pfd closed at $10.2 yesterday on 550 shares.

4. Exchange Traded Bond and Preferred Stock Table: This table includes trust certificates, baby bonds, "principle protected" senior bonds, trust preferred and equity preferred securities. All of these securities are traded on the stock exchange. I took these snapshots yesterday morning after selling 250 of STLPRA. I have to take two snapshots to include all of them:




Yesterday, I bought a new junk bond that I will discuss in the next post.  I also bought back a stock CEF.

5. AGY Holdings (own 1 bond:  FINRA): I noticed yesterday, when checking the current price of this bond, that Moody's had downgraded its rating from B3 to Caa3 with a negative outlook on 11/18.  Moody's  I had the same reaction after reviewing AGY's latest disappointing earnings report, and raised my risk rating to 10 from the original 9+.  Item # 4 Earnings: AGY Holdings (11/16/11 Post). I also pointed out some disconcerting language in AGY's earnings release.   I do not have much, if any, confidence in this company at the present time. (see also:  AGY HOLDING 2014 BOND PLUNGE IN PRICE)

I will make another common stock purchase with cash flow this week. Most of the cash flow is received at the end and the beginning of each month. 

Monday, November 28, 2011

More Signs of Accelerating EU Sovereign Debt Trouble/ Another Romney Misrepresentation/Links To Quotes European Government 10 Year Bonds/

This talking dog video has had over 70 million views:  YouTube

This week's cover story in Barrons, written by the True Believer Jim McTague, is possibly the worst article that I have ever read in any financial publication.  McTague apparently believes his analysis is profound, even though he offers nothing but a string of recycled trite cliches worthy of a mediocre Rush Limbaugh want-to-be.  It is consistent with the Foxification of both the WSJ and Barrons, a devaluation of thoughtful and factual analysis while emphasizing the parroting of ideological slogans.

The U.S. sold $29 billion in seven years notes last Thursday at a 1.415% yield. treasurydirect.gov.pdf At that rate money will double before inflation and taxes in about 50 years. Estimate Compound Interest

I have mentioned in several posts that Europe was running out of time, and that a failure to address the sovereign debt and bank funding issues could have a catastrophic outcome for the world's financial system. (e.g. The EU is Running Out of Time (9/28/11 Post).

The NYT reported last week that European banks are increasingly relying on the ECB for short term funding needs. (see also article at CNBC) The natural buyers of those short term debt instruments have been fleeing for months now.  Possibly, the only way out of this downward spiral would be for the ECB to create money and to use those funds to buy sovereign debt and to provide liquidity to the European banking system.  But the ECB shows no inclination to go down that path. CNBC

Another NYT article pointed out that Italy's central bank borrowed €109 billion during the third quarter from the ECB. Prior to then, then Italian Central Bank had a surplus of €6 billion on deposit with the ECB.  

In an ominous development, Germany had a failed 10 year auction. Germany was able to sell €3.644 billion out of a planned €6 billion.  MarketWatch WSJ Reuters CNBC   

I am starting to check the yields on European sovereign debt every day: 
Belgium 10 Yr: BE 10Y Govt Bond  
France 10 Yr: FR 10Y Govt Bond 
Germany 10 Yr: 10YR_GER Bond 
Great Britain 10 Yr: GB 10Y Govt Bond 
Greece 10 Yr: GR 10Y Govt Bond 
Italy 10 Yr: IT 10Y Govt Bond 
Netherlands 10 Yr: NL 10Y Govt Bond 
Spain 10 Yr.: 10YR_ESP Bond

The EU reported that industrial new orders declined 6.4% in September. eurostat.ec.europa.eu.PDF

Fitch downgraded Portugal's sovereign debt to junk status. The new rating is BB+.  Workers in Portugal launched a general strike last Thursday, protesting austerity measures, shutting down public services including airports and trains.  CNBC

Moody's downgraded Hungary's debt one notch to Ba1 last Thursday.

Last Friday, S & P cut Belgium's sovereign debt by one notch to AA+.

This article in the WSJ has the credit ratings of European sovereign debt.

Italy sold €8 billion in three month bills at 6.504% last Friday, a new Euro period high. One month ago, Italy sold 3 month bills to yield 3.535%.

Several European bond auctions are scheduled for this week.  MarketWatch If does auctions go poorly, then stocks may have another rough week.

Markets were rising overnight based on the hope that France and Germany would offer some kind of fix.   Reuters There was also a report that the EU leaders were preparing to sign off on the leveraging of the European Financial Stability Facility. MarketWatch

Although my triple short stock ETFs reached very quickly my upside goal for them, I elected to keep these securities as a hedge, at least until today or early this week. The European debt crisis certainly became more acute last week. Possibly the latest rumors about progress in Europe will stop the market's slide, at least until there is more concrete news of a negative nature. The DJIA fell 4.8% last week. The S & P 500 declined 4.7%. The Russell 2000 skidded 7.4%. RVX, the volatility index for the Russell 2000, closed at 43.16.  A triple short for the Russell 2000 closed up 24.825% last week.

Personal income in the U.S. increased .4% in October. Both real income and disposable personal income increased .3%. News Release: Personal Income and Outlays, October 2011 The personal savings rate was 3.5%. The price index for Personal  Consumption Expenditures (PCE) decreased .1% according to the government. Consumer spending rose a less than expected .1% last month. The forecast was for a .3% rise. 

In my opinion, the average U.S. consumer has too much debt. Zulauf/Faber and Financial Armageddon Redux/Debt Burden of the American Household The savings rate is too low to make much of a dent in the necessary deleveraging of consumer balance sheets. The consumer is not in a position to sustain an economic recovery except by reducing their savings and increasing their borrowing. While borrowing more and saving less would provide temporary jolts to the economy, it would also make a long term recovery unlikely.

This is a chart of the savings rate:


This is a chart of the household debt to disposable income ratio: 

                                      



Graph: 100*Household Sector: Liabilites: Household Credit Market Debt Outstanding (CMDEBT)/Disposable Personal Income (DPI) - FRED - St. Louis Fed

Romney's first campaign advertisement contains a misrepresentation. The ad contains Obama's voice saying "if we keep talking about the economy, we're going to lose".  NYT   Obama actually said the following in context during the 2008 campaign: "Senator McCain's campaign actually said, and I quote, if we keep talking about the economy, we're going to lose"  FactCheck.org

Gingrich says that he can stop the Iranian nuclear program within a year after becoming President. Apparently, while he is short on all of the details, his plan involves bombing an Iranian oil refinery and pipelines carrying gasoline into Iran. If that does not stop Iran, then he will attack the nuclear installations.  WSJ.com Will this make the U.S. more or less safe?  Would it be conceivable that Iran could retaliate by launching terrorists acts against the U.S. homeland, including possible dirty bombs since Iran unquestionably has nuclear material?

Gingrich called the non-partisan Congressional Budget Office "a reactionary socialist institution which does not believe in economic growth, does not believe in innovation and does not believe in data that it has not internally generated". Bloomberg  One of Newt's more novel ideas to reduce government expenditures is to fire school janitors and to have the kids perform that work. The Atlantic  NYT

Frequently, when I hear what passes for intelligent discussion by politicians, the discourse is simply a rehash of tired ideology phrased as incontestable facts. Many pundits routinely pass of trite cliches as profound analysis, or as statements of unchallengeable fact. Politicians from both tribes routinely commit this legerdemain. The listener is supposed to accept an opinion as a fact and many do.

These statements of opinion masquerading as accurate facts are scattered throughout the news media everyday. I picked out a statement from Minnesota's John Kline from a NYT article to illustrate.

By way of background, the GOP is currently threatening to deny the National Labor Relations Board a quorum necessary to render a decision. The two Democrat members want to issue a ruling allowing unionization elections within 21 days after the workers petition for a union. The current period is 35 days. The one remaining GOP member is threatening to boycott the meeting, thereby denying a quorum (3 votes) necessary to rendering a decision. Normally, there would be five members of this Board, but partisan bickering has stopped the appointment of two commissioners to fill vacancies over the past 26 months. NYT  Each party is refusing to approve the other's appointment. That is just another example, among many, of political dysfunction. Historically, there would be a quorum of three from the same party as the President.

And this brings me to what I would characterize as political hyperbole masquerading as factual statements. In response to the rule change shortening the time period for an election by two weeks, a GOP Congressmen, John Kline from Minnesota, made the following statement: "The Obama N.L.R.B. is determined to impose a flawed rule that will cripple American workers' free choice. It is disturbingly clear that the board's only concern is advancing an extreme agenda, regardless of the damage it does to workplaces." Frequently, these opinions are outrageous hyperbole and devoid of any rational factual basis. The true agenda of the speaker is masked by the hyperbole.



I am coasting for the remainder of 2011. I am already at my minimum stock allocation.  I will continue to use cash flow to buy stock CEFs or individual stocks. I will discuss tomorrow one purchase made with cash flow last week.  Since I am not doing much, I may not have a post every business day. 

Wednesday, November 23, 2011

Earnings: HPQ MDT/U.S. GDP/International Swaps and Derivative Association-Greek Government Debt: Another Example of Rot/

Spain sold three month bills yesterday at a 5.22% yield. The yield on those bills, auctioned in October, was 2.35%.

The U.S. sold 5 year treasury notes at the lowest yield on record. With the original interest discount (O.I.D.), the yield on those notes was .937% (coupon .875%).

The government revised its estimate for third quarter real GDP from 2.5% to 2% on an annualized basis. News Release: Gross Domestic Product

I sold my double short stock ETFs during the market decline yesterday. I use those securities only on a short term basis to cushion the initial impact of a market decline. I am now down to two, recently purchased triple short stock ETFs. My primary hedge technique for my stock allocation is to sell stocks, which I have already done. I am at my minimum allocation now.

The market may have a snapback rally soon but maybe not today. The HSBC PMI manufacturing survey for China was reported last night at 48, a 32 month low, which is a number indicating contraction.

The S & P 500 closed at 1188.04 yesterday, a 6.89% decline since the 1275.92 close on November 8th. The decline since October 28th is 7.55%.  With another 3% decline, I am likely to sell the triple shorts.  The proceeds from these sales are simply increasing my oversized cash allocation earning nothing in money market funds.

With rot being so pervasive in the financial services industry, it is relatively easy to find an example on a daily basis.  Over the weekend Greta Morgenson discussed an example in her NYT column. That column relates to the decision by the International Swaps and Derivative Association (ISDA) that the 50% haircut on Greek government debt was voluntary, and therefore the owners of credit default swaps on those bonds would not be able to claim a default.  This is a canard when the banks that own that debt are having their arms twisted to accept that "voluntary" haircut by their respective hosts government. If the owners of credit default swaps could collect on that insurance for what is in fact a default, the recapitalization could easily fail since many would elect to keep their bonds and collect on the insurance.

Greta highlights another issue that shows the odor emanating from the ISDA. The French bank, BNP Parabas, has been hired by the Greek government to "persuade" owners to "voluntary" tender their bonds. This bank will receive a fee for each such tender. A BNP official discussing this matter with bondholders in a "forceful" manner is a member of the ISDA that determines what events trigger a default under a credit default insurance. The shenanigans are non-stop. 

I have no direct financial interest in this matter. I do have an indirect interest as do other investors. Basically, the European governments and ISDA are telling bondholders that they can not protect themselves by buying credit default insurance, even in an obvious default case like Greek government bonds. If a large institutional investor can not hedge themselves with credit default swaps, then they would be less likely to keep those sovereign debt bonds on their balance sheets. This could then trigger a wave of selling, and no buying of sovereign debt issued by the PIIGS, that would end up severely aggravating the problem. The press has been filled with articles about banks and other institutions selling European sovereign debt after the ISDA rendered its decision on Greek government debt.

The bankruptcy trustee in the MF Global proceeding said that he did not have control of $1.2 billion in what should have been in segregated customer accounts.  Bloomberg  NYT In short, a lot of money has gone missing.

Herman Cain said in a recent interview that he is "not supposed to know anything about foreign policy".  He would rely on the generals to tell him what to do. What happens if the generals disagree? CNN

Warren Buffett recently pointed out that the effective tax rate on the rich averages around 17%. An article in Bloomberg focuses on how some Job Creators reduce their tax liabilities even further using complex transactions.

On Monday, Moody's warned that a continued rise in France's borrowing costs, along with weaker growth, could threaten that nation's "AAA" rating. As of 2010, France's debt as a percentage of GDP was at 82%.

Germany's debt as a percentage of GDP was 83% in 2010, according to information found at Reuters. The Bundesbank reduced its forecast for 2012 German GDP to .5% from 1.8% last Monday.

This is a link to the 25 worst passwords for 2011: Minyanville

United Bankshares (own) increased its quarterly dividend to 31 cents per share, the 38th consecutive year of dividend increases. Bought 50 of UBSI at $16.56. UBSI closed at $24.65 yesterday, up $1.03 for the day. UBSI  Quote

1. Hewlett-Packard (own)(Large Cap Valuation Strategy): I am not pleased with HP. The recently fired CEO was viewed here at HQ as an idiot. The frequently idiotic decisions made by the HP Board over the past few years seem to be solely designed to destroy shareholder value.

I had traded the shares profitably until my last re-entry, which is a good example of LB going to the well one too many times.  Headknocker is now a long term investor reinvesting the dividends to buy additional shares. Long term in this context means years, not months. HK mentioned that he did not want to be a long term investor in this stock and wanted to know which lame brain bought it.

In the market decline on Monday, HPQ fell -1.13 to close at $26.86. After the bell, HPQ reported adjusted earnings per share of $1.17 on revenues of 32.1 billion for its 2011 4th fiscal quarter.  SEC Filed Press Release The consensus estimate was for an E.P.S. of $1.13 on revenues of $32.05 billion. For the first quarter of F/Y 2012, the company expects non-GAAP E.P.S. of $.83 to $.86 and GAAP E.P.S. of $.61 to $.64.  For the full 2012 F/Y, HPQ expects non-GAAP E.P.S. of "at least $4.00."  The consensus estimate was for a Non-GAAP E.P.S. of $4.84. The guidance for the 1st quarter is well below the consensus estimate of $1.11.

Consumer hardware printing revenue fell 8% year over year. Revenues for the imaging and printing group fell 10% year over year.

The personal systems group revenue declined 2% year over year. There was a modest 2% increase in revenues from the enterprise, storage and networking segment.

 Hewlett-Packard closed at $26.65 yesterday, down 21 cents.  

2. Medtronic (own)(Large Cap Valuation Strategy): I am on automatic pilot to buy back the MDT position sold earlier this year. SOLD 209 MDT AT 40.68 Given my negative macro views, I have been more than a little hesitant buying back those shares. So far, I have bought back only 30 shares last August at $33.4. I do not have a target price for the next lot, though I would prefer to buy at below $32. I will not start reinvesting the dividend until I own 100 shares and will stop that reinvestment whenever the price consistently goes over $40.

For its second fiscal quarter, MDT reported an adjusted E.P.S. of 84 cents on a 3% rise in revenues to $4.132 billion. SEC Filed Press Release

Medtronic stock responded positively yesterday to this report, rising $1.48 to close at $34.75.

Tuesday, November 22, 2011

Sold 100 NBB at $20.13-ROTH IRA/Barrons Article on Income for Retirees/Added 30 MSFT at 25.02

Normally, on a day like yesterday, I would sell one of my double short stock ETFs being used as a partial hedge for my minimum stock allocation. I considered doing that when the DJIA fell more than 300 points intraday. I recently added two double short stock ETFs and one triple short, notwithstanding the VIX trading well over 20. The VIX rose .77 yesterday to close at 32.77.

A recent modification of the trading rules in an Unstable Vix Pattern allows for the short term use of double short stock ETFs as hedges, as outlined in this post from October:  Mark Hulbert and the Use of the VIX as a Timing Model/Modification # 1 To Vix Asset Model Approved re: Hedging Prior to that modification in the trading rules, the hedging had to be done during the Unstable Vix Pattern only when the VIX fell below 20, though LB violated that rule earlier this year. These ETFs lose their tracking after one day and are inadequate hedging tools for that reason.  Instead of selling one yesterday, I elected to buy during a market rally another triple short stock ETF on an index where I already own shares of a double short ETF.

I hope to sell the double short before the end of this month at a price higher than its close yesterday, and then to keep the triple short possibly into late December in case there is a meltdown. The triple short, while more dangerous, allows me to hedge more with less money.

The Barrons technician believes that the stock market has broken down. The S & P 500 did fall below its 50 day moving average yesterday. S&P 500 Index Chart A similar conclusion is reached by Thomas Kee in his column at Marketwatch. The S & P 500 closed yesterday at 1,192.98.

My current opinion is that the market is in a cyclical bear market within the context of a long term bear market. The VIX pattern is called by me an Unstable VIX Pattern, which has been in force since the August 2007 Trigger Event. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern My downside target in the S & P 500 is 950 for the current shorter term bear cycle. The longer term forecast is for a continuation of the long term bear market for at least two more years, possibly into 2015 in the event of policy mistakes. Mark Hulbert and the Use of the VIX as a Timing Model (October 2011); The Roller Coaster Ride of the Long Term Secular Bear Market (May 2010 Post); More Discussion on Asset Allocation in Unstable Vix Patterns (October 2011 Post); 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? (September 2009 Post); More on 1982 or 1974 (Sept. 2009 Post); The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets (June 2011 Post); The Big Picture Questions (August 2011 Post); Underlying Cause of the Current Long Term Bear Market is Too Much Debt (June 2010); Dating the Start of the Current Long Term Secular Bear Market (May 2010 Post).

Fitch will complete the review of its U.S. sovereign debt rating before December. (Text of Fitch statement in response to Super Committee Failure: Reuters) The most likely result will be a change from a positive to a negative outlook. A less likely result would be a one notch downgrade.

The cover story in this week's Barrons  highlights certain securities that provide yields in excess of  7%. The article is apparently intended for retirees searching for yield. One of the persons interviewed for that column recommended two bond CEFs that I own, BTZ and ACG.  I have bought and sold ACG and currently own 400 shares. Bought 200 ACG at 7.85 August 2011 ADDED 200 OF THE BOND CEF ACG at $7.98 October 2011

Barron's is a subscription publication. I have online subscriptions to both Barrons and the WSJ.

Both BTZ and ACG use leverage which makes them more risky while producing more income now due to the extremely low short term rates on borrowed funds. Both of those funds pay monthly dividends, and are currently selling at greater than 10% discounts to their respective net asset values. I am currently taking those dividends in cash.  Both of those funds are classified as "investment grade" by the CEFA, though BTZ does own a fair amount of junk rated bonds. ACG is heavy into U.S. government bonds. CEFA

The recent purchases of ACG are defensive in nature, based partly on the belief that other investors will still flee to U.S. bonds during periods of market stress. I personally do not view U.S. debt securities to be a safe haven and suspect that will be the market consensus within a few years. (see introduction Stocks, Bonds & Politics 11/18/11 Post).

ACG closed yesterday at $8.06, up 1% or 8 cents for the day, which is a good up move for this security.

I am in the hole on BTZ with 538+ shares. My most recent purchases were discussed in these posts: Bought 100 BTZ at 11.90 September 2011  Added 50 BTZ at 11.24 October 2011

BlackRock Credit Allocation Income Trust IV closed at $11.89 yesterday, up 5 cents for the day.

The author of that Barron's article also mentions some municipal bond CEFs. The funds mentioned are leveraged municipal bond funds. I have recently cut my exposure in that area. Sold 200 of the Bond CEF NPT at $12.92 November 2011 Sold 204+ NPF at $14.02 and 100 NPP at $14.45 October 2011 Sold 100 BAF at $14.3 September 2011 BAF is mentioned in the Barron's article. It is possible to pick up good tax free yields with those investments but there is considerable risk associated with the leverage and the long duration of many of those funds. They plummeted in value late last year after Meredeth Whitney put a scare into municipal bond investors. (see her interview with Steve Kroft in December 2010 at CBS News)

An article in this month's Kiplinger recommends several leveraged municipal bond CEFs. Of the ones mentioned by the author I have recently bought and sold MUE. Sold 200 MUE at $13.54 October 2011

In several posts over the past several months, I have noted news stories about financial institutions refusing to rollover short term loans to European banks. According to a recent NYT article, this trend is continuing. Moreover, many institutions are refusing to participate in government auctions held by Italy and Spain and have been selling PIIGS debt. The new ECB head, Mario Draghi, is reluctant to step into the fray and buy large amounts of sovereign debt.

The EU has told the Greek politicians that they must sign a written commitment to implement the austerity package in order to receive the next installment of aid. Bloomberg The leader of the New Democracy party, Antonis Samaras,  has so far refused to sign a written commitment, saying that his word was good enough.  When that party was in power, the books were routinely cooked in order to deceive the EU about Greece's compliance with EU deficit rules.

Credit Suisse said that Europe needs a momentous deal to save the Euro, otherwise the EU will collapse by January 2012.  Bloomberg

I no longer have a position in European hybrids, issued by financial institutions, since I do not view the risk as worth the yield. However, with more of a price decline in the hybrids issued by either ING or Aegon, I will consider nibbling at them again. Aegon Hybrids: Gateway Post ING HYBRIDS: Links in one Post

Motley Fool has a article describing how Eastman Kodak's management has destroyed shareholder value. I own only two 2013 senior bonds. Some recent posts discussing the likelihood of EK paying par value at maturity include the following: Eastman Kodak Bonds: Update on Third Quarter Earnings Report Eastman Kodak (EK) Bonds-Own 2013 Senior Bond  Moody's and Eastman Kodak  The risk rating on this bond position is currently at 10+, my highest risk rating.  Personal Risk Ratings For Junk Bonds

This is a video of the best diving dog that I have seen. YouTube This rescue dog will dive into a pool, swim eight feet down and retrieve a toy.

I never give my credit card to a waiter. There are frequent reports about credit card information being stolen by waiters and then used to produce duplicate cards. A large identity theft ring was busted over the weekend that allegedly used waiters at Smith & Wollensky and several other restaurants in Manhattan.  WSJ 

1. Sold 100 of the bond CEF NBB at $20.13 Last Friday-ROTH IRA (see Disclaimer): I am raising my cash allocation in the retirement accounts, almost entirely devoted to bond investments, based on my belief that better buying opportunities will be available relatively soon.  Earlier this month, I sold another 100 shares of NBB at $20.07 and no longer have a position in any CEF investing in Build America Bonds.  (see also: Sold 100 BBN at $20.51-ROTH IRA) I made a small profit on this last NBB trade. Bought Back 50 NBB @18.4  in IRA Added 50 NBB at $19.55 in the ROTH IRA This CEF pays monthly dividends.

NBB closed last Friday at a 3.87% discount to net asset value. NAV was then $20.94 per share.

Nuveen Build America Bond Fund closed yesterday at $20.05, down 8 cents.

2. ADDED 30 MSFT at 25.02 Microsoft Yesterday (Large Cap Valuation Strategy and  Common Stock Dividend Growth Strategy) (see Disclaimer): Due to the decline in price and the recent quarterly dividend increase to 20 cents per share, MSFT barely qualifies under the common stock dividend growth strategy. One requirement for that strategy is a dividend yield at the time of purchase in excess of 3%. Microsoft shares have qualified for purchase under the large cap valuation strategy for several years. The current consensus estimate is for an E.P.S. of $2.76 for the F/Y ending in June 2012 and $3.05 for the 2013 F/Y. Total cash per share is around $6.65. The forward 5 year P.E.G. is estimated at .82.  MSFT Key Statistics

I am on automatic pilot for re-purchasing Microsoft shares recently sold at higher prices. SOLD 100 MSFT @ 27.9 July 2011 Sold 50 MSFT at 26.9 September 2011 The first buy target was triggered yesterday with a fall below $25 yesterday. The market moved up some after I entered the order so I received a fill at $25.02, slightly above my target. Instead of buying 50 shares, which was originally the plan, I bought only 30 shares due to my significant concerns about the downside risks for stocks worldwide. The next buy will occur at less than $24.

The NYT reported that Google was acquiring small business customers for its cloud based office product.

This is a link to my post discussing the third quarter's earnings report: MSFT (10/24/11 Post)

This is a link to my discussion of the second quarter earnings report: MSFT

Snapshots of my trades from 2009 can be found at Added 30 MSFT at 24.15. I did not own MSFT shares from 1999 to 2009, when I started to buy some shares based on valuation. I have been moving into and out of MSFT since that time.

Microsoft closed yesterday at $25. 

Monday, November 21, 2011

Rot in the Financial Services Industry-M F Global Just the Latest Example/Earnings: Sears, Unum/General Maritime Bankruptcy/AMR Bankruptcy?/Super Committee Confirming Political Dysfunction

Based on number of articles published over the weekend, it appears that the Super Committee of politicians will be unlikely to agree on 1.2 trillion dollars in budget cuts over 10 years. WSJ  NYT Washington Post CNBC  Reuters  Of course, $1.2 trillion over ten years is a drop in the bucket given the magnitude of the U.S. fiscal crisis.  One reason for S & P's downgrade of U.S. debt was the political dysfunction in Washington, and this latest episode only confirms once again the inability of the two political parties to govern.

The Conference Board reported last Friday that the index of leading economic indicators rose .9% last month.

The WSJ reported late last week that the financially troubled Eastman Kodak was trying to sell its money losing online photo sharing business.

The WSJ has a good article on how the European Central Bank has become the most powerful institution in Europe. Originally, the sole mission of the ECB was price stability. Its most important role now is buying debt of some EU members in an effort to hold down their borrowing costs and to ultimately save the EU from disintegration.

Morningstar has a price target of zero for AMR stock. (see interview imbedded at MSN Money) Many analysts believe AMR will have to declare bankruptcy. AMR has the highest labor costs in the airline industry as a percentage of sales. The pilots are not helping by refusing to sign a new labor deal that would provide generous compensation to them. aanegotiations.com\pdf. The pilot's union thought that AA's latest offer was so unsatisfactory that it refused to submit the proposal to a vote. This negotiation has been ongoing for 61 months.

I own 1 AMR senior bond. Most of AMR's debt is secured debt. (see note 5 at page 10:  FORM 10-Q). I can not see how a bankruptcy would help much unless it involved some kind of forbearance by the secured debt owners (e.g., swapping debt for equity) and a new labor deal.

I have several bonds issued by companies that are experiencing what I would characterize as significant financial difficulties (2 Eastman Kodak; 3 Travelport; 1 AMR, 1 AGY, 1 FRZ, and 1 GMR discussed below). GMR is the first one to declare bankruptcy, and I expect a near total loss on that one. The others mentioned above are very dicey.  Of course, all of the bonds in my junk bond ladder strategy are risky, it is only a matter of degree.

As noted in this article at CNBC, financial repression by the central bankers around the world forces the savings class to take riskier bets to produce income. The responsible are being forced to bail out the irresponsible and reckless, and even the criminals. I do not use the phrase "financial repression" to describe the Federal Reserve's monetary policy, even though it is an adequate description. I prefer to say the "Federal Reserve's Jihad Against the Saving Class".  The end result is that responsible Americans have to pay for the many sins of others including the Masters of Disaster who made fortunes incinerating other people's money and who still believe, notwithstanding abundant evidence to the contrary, that they are smart and deserving of the most outrageous compensation packages in the history of civilization.

The Masters of Disaster at MF Global were allegedly using their customers' money to place risky bets on European sovereign debt. Apparently, it is legal for the Masters of Disaster to use customer money provided they put up enough collateral. MF Global, however, kept using their customers money without putting up that collateral according to a report published at the NYT The bankruptcy trustee noted last Friday that the assets available for segregated commodity accounts was "substantially less" than potential customer claims.  Bloomberg  That money may have been incinerated.  CNBC

Anyone with their eyes open can see the pervasive rot in the financial services industry.

1. Sears (SHLD)(own SSRAP; and 1 bond: FINRA): Sears reported another dismal earnings report. For the Q/E 10/29/11, SHLD reported an adjusted loss of $2.57 per share on $9.57 billion in revenues. SEC Filed Press Release  Same store sales declined .8% decline in the U.S. and 7.8% in Canada. The company is continuing to lose market share. The company claimed to have $632 million in cash ($450 million in U.S. and the remainder in Canada).  Credit availability was $1.8 billion.  I do not see anything positive in this report.

Eddie Lambert has been allowing the Sears stores to run down. A consultant was quoted in a WSJ article as saying that the Sears stores were the most rundown in U.S. retailing.

I noted another problem at the Sears store in Cool Springs. Several months ago, I was in that store buying a new garage door opener. Since the clerk needed to fax the order to the installer, I stood around for about fifteen minutes while the clerk went to the store's fax machine. Upon his return, I asked him what took so long and he replied that the fax machine was so old that it took 15 minutes to fax a single page. The clerk also told me that he was not sure whether the page was even sent. Of course, a new fax machine could have been purchased for a few bucks and Sears customers would not have to be inconvenienced waiting for a vintage 1975 machine to fire up. I discussed that episode in a post from January 2010, which is just an indicia of what is wrong with Eddie Lambert. Item # 4 Sears In fact, I may give Lambert a new fax machine for his store near HQ. I also discussed in that earlier post how Sears responded to one of its rebate offers.

2. Unum (UNM)(own senior bond in TC Form): Unum, the largest disability insurance company in the U.S., reported an operating profit, which excludes investment losses, of 74 cents per share. SEC Filed Press Release The company had $15.9 million in losses for the third quarter, compared to a $.9 million in gains from the year ago quarter.

UNM 9/30/2011 - 10-Q

The long term debt is discussed by the company in its 2010 Annual Report, starting at page 152: Form 10-K

I own PJR, a trust certificate that represents an undivided beneficial interest in a Unum senior bond maturing in 2028. Bought 50 PJR at 16.72 July 2009  ADDED TO PJR at 20.7 October 2009 Bought 50 PJR in ROTH IRA at $23.61 May 2010 Bought 50 PJR in ROTH IRA at 24.88 October 2010 Sold 50 PJR at 25.79 May 2011

Trust Certificates: New Gateway Post

PJR closed last Friday at $25.64. I have no interest in PJR at the current price and may pare my position again in that price area.

I still own the 50 shares purchased at $16.72, and those shares are held in a taxable account.

50 PJR Average Total Cost Per Share= $16.88/Annual yield at that cost=10.96%

If I decide to pare the position, I will sell the higher cost shares owned in the ROTH IRA.

3. General Maritime Files For Bankruptcy (own 1 senior bond): GMR filed for bankruptcy last week. Form 10-K I own one senior unsecured bond maturing in 2017. I anticipate a near total loss on that bond as the best case scenario. Possibly, I will receive some common stock in the reorganized company when and if it emerges from bankruptcy. There is a sentence in the form 8-K that the bankruptcy plan filed by the company "does not contemplate a determinable recovery, if any, by holders of the Senior Notes".  I would assume some large holders of that note will try to squeeze something out which would inure to all owners if successful.  Bloomberg

I received the semi-annual interest payment on 11/15, but it was taken back by my broker on 11/18 after the bankruptcy filing. However, the date of the take away was changed on 11/19 as if it had occurred on 11/15.

This is my first default in my Junk Bond Ladder Strategy. I expect more. I will not include the loss in my realized gain and loss post until I can quantify it. I have not been able to sell this bond using Fidelity for months. Realized Gains Junk Bond Ladder Strategy

This bond had my highest risk rating, 10+, from the start.  Personal Risk Ratings For Junk Bonds

FINRA Links to Bonds in Junk Bond Ladder Strategy 

Friday, November 18, 2011

MOL/Sysco/Gingrich and the Blackhole Freddie Mac/ADX/European Sovereign Debt

Doug Kass tries to make the case of the double short ETF, TBT, in his column at TheStreet.  TBT is the double short ETF for the long U.S. treasury bond (20+ years). He believes that the flight to safety move is nearing an end.

I would just add a couple of points. In my lifetime, possibly within the next five years, investors will dramatically change their opinion about the safety of U.S. government debt. There will be a flight from that debt, similar to what is being seen now in Europe. However, it is impossible to predict now when that transition will occur. It may occur suddenly and without much, if any warning, preceded only by gradually increasing yields at the auctions.

The other point is that investors will continue to flee to U.S. treasuries when they become worried and scared about other asset classes, as now, firmly believing that the bonds issued by our destitute Uncle Sam, aided by a freewheeling money printing machine running at full tilt, are "safe", notwithstanding the budget deficits siphoning off the world's capital at a rapid clip (trillion plus dollars annually), and an abundance of politicians unable and unwilling to do what is necessary to stem the crisis before it blows up in our collective faces which I view as inevitable.  It is only a question of when.

I mentioned in an earlier post this week that many Americans blame the free press for the nation's problems. If only the NYT and other mainstream media outlets would cease to exist, all of our problems would be solved after everyone formed their opinions in lockstep with those uttered by the faux blondes at Fox. It is hard to make that statement without a load of sarcasm.

Perhaps some of the TBs would recognize another possible source of our problems, the fact that so many politicians increase their wealth while representing their constituents, and then acquire really serious money after leaving Congress to become lobbyists. I suspect that the interest of the average citizen becomes lost somewhere in that shuffle. (see information on revolving door at Revolving Door | OpenSecrets). Members of both parties are part of that lucrative revolving door.

New Gingrich was put on a monthly retainer of $25,000 to $30,000 per month by the black hole Freddic Mac soon after leaving Congress in 1999. Altogether, Gingrich was paid between $1.6 to $1.8 million by this incinerator of borrowed government funds. Bloomberg

According to a recent Fox poll, Gingrich is now leading the pack for the GOP nomination. USA Today Apparently, while being outraged about Clinton's marital indiscretions, the GOP has moved on when it comes to Newt's issues in that department. Christian Science Monitor

Both Romney and Perry have both asserted that Obama recently called Americans lazy. Both have to know that their statements on that point are misrepresentations by them. FactCheck.org That article from FactCheck quotes Obama's statement in its entirety which clearly shows that both Perry and Romney are deliberating distorting it. Lying works in American politics because so many voters chose to remain uninformed or misinformed. Perhaps that is another source of our problems, along with the relative ease of spending borrowed money.

Spain's auction of ten year notes yesterday was at the highest yield since 1997. Italy has to refinance 273 billion dollars of bonds between now and April 2012. Randall Forsyth notes that the natural buyers of European sovereign debt have fled, leaving the ECB as the buyer of last resort. Barrons.com The question now is whether Germany will capitulate and allow the ECB to print money to buy that debt.  I am not sure why Germany, given its history, would capitulate on this issue.

Italy 10 Yr: IT 10Y Govt Bond Benchmark
Spain 10 Yr: 10YR_ESP Bond
France 10 Yr: FR 10Y Govt

(see Video at CNBC.com)

France sold yesterday €3.33 billion in notes due in July 2016 at a 2.82% yield, up from 2.31% at the last auction.

Adams Express (owned), a stock closed end fund, was ex dividend for its year end distribution yesterday. The total amount was 50 cents per share. Of that amount, forty two cents was a long term capital gain distribution. I am reinvesting the dividend. After adjusted for the 50 cent dividend, ADX shares fell 21 cents in trading yesterday.


1. Sysco (own common-SYY)(Common Stock Dividend Growth strategy)Sysco increased its quarterly dividend by one cent to 27 cents per share. This represents only a 3.8% increase, well below SYY's historical rate as discussed in Item # 4 Sysco. This is not surprising since SYY's earnings growth rate has slowed too.

Earlier this month, Sysco reported an adjusted E.P.S. of 55 cents per shares for its Q/E 10/1/2011, up 7.8% over the adjusted number in the year ago quarter. The current consensus estimate is for an E.P.S. of  $1.97 for the F/Y ending June 2012 and $2.14 for the 2013 F/Y. If those numbers are hit, the rate of growth year-over-year would be around 8.6%.  

My purchase was at $19.46 in March 2009. At my constant cost basis, my dividend yield goes up with every raise. The yield with the latest raise would be about 5.54% at a total cost of $19.46. If the rate of growth does not increase to over 5% by 2013, I will seriously consider selling those shares. 

In 2009, the annual dividend rate was 96 cents, up from 23 cents in 1999. At a 3.8% annual increase, it would take over 18 years to double. That is way too slow. I understand SYY's problems now, with energy and food inflation, so I will cut it some slack.

2. MOL (own): MOL ended its annual coupon period on 11/17/11 and will pay its minimum 2% coupon on 11/25/11 after suffering a maximum level reversion back in June: Item # 4 MOL. This security is an unsecured senior note issued by Citigroup Funding and guaranteed by Citigroup as provided in the prospectus.

MOL pays annually the greater of 2% on a $10 par value or the percentage increase in the price of gold up to 19% with the following important caveat. If the P.M. London gold fix is above 19% for a single day during an annual period, then the owner of MOL will receive the 2% coupon no matter where gold closes at the end of that annual period.   MOL Prospectus

The P.M. London gold fix yesterday was $1742.5 per ounce. Past Historical London Fix That is the starting value for the current annual period which ends on November 19. 2012. The maximum gold price for MOL's current coupon period is $2,073.57. If the P.M. London fix is greater than that amount on a single day during the current annual period, then MOL will again pay its 2% minimum, assuming Citigroup Funding and Citigroup are still solvent at that time.  

I currently own only 100 shares of this $10 par value note after having sold 100 shares. Bought 200 MOL at 9.95 Sold 100 MOL @ 10.3 November 2010

I prefer the other Citigroup Funding exchange traded unsecured note, MTY, that has a 3% minimum and a 35% maximum. That preference is not due to the higher minimum payment but to the significantly higher maximum allowable gain. The higher amount also gives the security more leeway to run without triggering the maximum level reversion.  I own 200 MTY. (MTY Prospectus: Final Pricing Supplement) I added 100 a few weeks ago: Bought 100 MTY at $10.03 MTY also has a $10 par value and matures in 2014.

I am coasting until the end of 2011. My stock allocation is already at a minimum level, and partially hedged. My cash allocation is very high. While I would prefer to see the market rise from today's level, I am in a position to take advantage of a significant decline.