Friday, January 27, 2012

Bought 100 of the ETF HGI at $17.18/FMER NYB/Sold LT TEX at $19.11/Sold 100 AWF at $14.65

The announcement by the Federal Reserve that it will likely continue its exceptionally low interest rate policy for another three years will cause some asset allocation shifts here at HQ.   This is nothing more or less than a forced confiscation by the government of capital amassed by the Saving Class. Bill Gross calls the Fed's policy financial repression. Businessweek

An investor who keeps money in a savings account, treasury bills, or bank certificates of deposits, traditional safe havens for income investors, will lose money after inflation and taxes, most likely for a six year period starting in 2008 and lasting until 2015. Certainly, whatever income is being generated by those safe haven investments is insufficient to make a meaningful contribution toward paying just the increase in everyday expenses.

I have discussed my continuing adjustments to the Fed's Jihad against the Saving Class in numerous posts. (e.g. Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans). The purchase mentioned below (Item # 5) is one coping mechanism, a dividend ETF.

1. FirstMerit (FMER)(own: REGIONAL BANK BASKET STRATEGY): FMER reported 4th quarter net income of $30.5 million or 28 cents per share, up from 25 cents in the year ago quarter. SEC Filed Press Release The consensus estimate was for 26 cents. 

As of 12/31/2011, the efficiency ratio was 69.46% (needs to come down); the net interest margin was 3.85%; NPAs as a percentage of loans + ORE (other real estate) stood at 1.06%;  the allowance for non-covered loan losses to NPLs was 166.64%; and tangible equity to tangible assets was 7.86%.

2. Sold 30 of the LT TEX at $19.11 Last Tuesday (Lottery Ticket Basket Strategy)(see Disclaimer): This LT was purchased less than a month ago at $12.68-LT, creating close to a 50% quickie gain. This is the second quick profit on a small lot of TEX shares. Bought 30 TEX at $13.59 9/20/11 Post-Sold 30 TEX at $18 10/31/11 Post (See snapshot). Needless to say, our new Head Trader, the OG, likes playing with these LTs.

2012 Terex 30 Shares +$176.98
I may go back to the well again on TEX, but it might take a recession to take the stock back to $13.

Last Tuesday, Terex shares closed at $19.3.  Terex closed at $20.33 yesterday.

While some readers might scoff at that $176.98, I would ask you to perform a calculation on how much money would an investor have to put in a money market mutual fund to generate that much money in one year?

3. New York Community Bancorp (NYB:own REGIONAL BANK BASKET STRATEGY): NYB reported 4th quarter net income of $117.7 million or 27 cents per share.  SEC Filed Press Release The consensus estimate was for 27 cents.

As of 12/31/2011, the efficiency ratio was 39.15% (improving 235 basis points); the net interest margin was 3.45% (up 12 basis points); non-covered NPLs to total loans stood at 1.11%; and the tangible equity to assets ratio was 7.78%

New York Community Bancorp closed yesterday at $12.72. At that price, Marketwatch calculates the dividend yield at 7.86%.

4. SOLD 100 of the Bond CEF AWF at $14.65 Last Wednesday (see Disclaimer):  I made a few bucks on the shares bought at $14.42. (February 2011).

I received $142.20 in dividends giving me a total return of nearly 10%. The shares were held for about 11 months. In addition to the regular monthly dividend, I received a special income distribution of $.322 per share. AllianceBernstein Global High Income Fund

As previously noted, I am content to sell bond CEFs for any profit on the shares.

I sold this CEF because the fund is now selling a premium to its net asset value. CEFA Page on AWF When I bought the shares, the fund was selling at a 6.6% discount to its net asset value.

AllianceBernstein Global High Income Fund closed at $14.97 yesterday.

5. Bought 100 of the ETF HGI at $17.18 Last Wednesday (see Disclaimer): The holdings of this fund currently consists of about 147 securities, mostly international common stocks that pay above average dividends.  HGI Holdings

The fund paid out $.905 per share in dividends in 2011. Dividends are paid quarterly and will fluctuate based on the dividends received by the fund's holdings. At a 90 cent annual rate, the dividend yield would be approximately 5.23% at a total cost of $17.18. The fund does not use leverage. 

The expense ratio is high for an ETF at .65%. 

I noted in the blog a previous sell of 100 shares, back in February 2010 at $16.93, so I did not miss much by selling those shares almost two years ago.  After reading that post, I see that I bought 50 shares of GFW at $22.63 as a substitute for HGI, and that worked out just fine. 

I have modest goals for this kind of investment. I will be satisfied with a 10% total return, which can be achieved in a year's time with slightly less than a 5% gain in the shares. 

Guggenheim International Multi-Asset Income ETF closed at $17.28 yesterday. 

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