Wednesday, January 11, 2012

Exchange Traded Bond and Equity Preferred Stock Table as of 1/10/12/Hulbert Article On VIX/Recent Lottery Ticket Transactions: Bought 30 HUN @ 9.91 and 30 FCE/A at 11.58 & Sold 40 VCBI at 7.64

The FED made an estimated $76.9 billion during 2011, and delivered its ill gotten gains to the U.S. treasury. It is a racket. The FED basically creates money, uses that money to buy bonds, and then drives down interest rates making those bonds more valuable. Rather than delivering those profits to the U.S. government, more worthy beneficiaries would be the victims of the Fed's Jihad Against the Saving Class, primarily for the benefit of those who enriched themselves during the housing bubble years and facilitated the Near Depression.

Mark Hulbert has penned another article on the use of the VIX as a timing model for stock allocation decisions. MarketWatch As previously discussed, I would not view the movement of the VIX below 20 during an Unstable VIX Pattern period to be a buy signal, unless there was continuous movement below 20 for three months, which historically would signal a prolonged period of low volatility and the onset of a durable bull market.  Mark Hulbert and the Use of the VIX as a Timing Model

CommonWealth REIT (own) popped yesterday after announcing its regular 50 cent per share quarterly dividend. I suspect that many investors were anticipating a reduction.

1. Recent Lottery Ticket Purchases: Bought 30 HUN at $9.91 and 30 FCE/A at $11.58 (Lottery Ticket Strategy)(see Disclaimer): Huntsman (HUN) is one of the largest American chemical companies. 

The current consensus estimate is for an E.P.S. of $1.68 in 2011 and $1.91 for 2012. HUN Analyst Estimates The 5 year forward P.E.G. is currently estimated at .78. Price to book is 1.29 and price to sales is at .21, through the third quarter of 2011. HUN Key Statistics 

SEC Press Release Announcing Third Quarter 2011 Results
Last Filed SEC Form 10-Q
SEC Filed 2010 Annual Report
Huntsman Corp Profile Page at Reuters
Huntsman Corp Key Developments page at Reuters
Morningstar page on Huntsman
Recent Discussion of Huntsman in a Seeking Alpha article.

Huntsman has been paying a ten cent quarterly dividend. At that rate, the yield at a total cost of $9.91 is around 4%.  The company is highly leveraged.

Huntsman rose 36 cents in trading yesterday to close at $10.2.

The common of Forest City Enterprises Inc. Cl A (FCE.A) was purchased as a Lottery Ticket back in 2009 with a favorable outcome:

2009 FCE/A 50 Shares Realized Gain= +$327.48

I have also owned briefly an exchange traded bond, FCY, issued by Forest City:

2009 FCY Realized Gain +$213.98

FCY: Forest City Enterprises Senior Bond (FCY (December 2008 Post);  FCY: Odd lot limit order filled at $9.95 December 2008;  FCY: Forest City Senior Bond & Discussion of Process Use to Make a Purchase Decision April 2009 Post. I have no interest in that bond now, given the credit risk, price, and long maturity.  I did purchase again 50 FCY shares at $18.75 (December 2009)I sold those shares at $20.5 (February 2010), and I have not purchased FCY back.

When I was buying and selling these securities primarily in 2009, I was often critical of Forest's management. I believed that the company had the pedal to the metal well into 2008. A highly leveraged real estate company needs to anticipate major downturns in order to survive and prosper during the good times. As a result, the company had too much leverage going into the Near Depression period, and had to raise money by selling stock at $6.6, when the shares had traded over $61 in 2007: Forest City Enterprises Stock Chart | FCE-A 

FCE-A is not organized as a REIT, and consequently is under no legal requirement to pay dividends to maintain a REIT's tax status. Theoretically, this should allow the company to retain capital and to use that capital to prudently grows its asset base and enhance shareholder value. That result occurred prior to the Near Depression as the FCE stock price moved from around $2 after the 1990-1992 recession to the $61 level reached in 2007.  Due to management's shortsightedness, however, the stock thereafter plunged, hitting a low of $3.71 on April 1, 2009. FCE-A Historical Prices  That was a round trip back to March 1993 prices.

One thing is for certain about commercial real estate prices. The elevator does not go up in perpetuity and has a tendency to abruptly fall to the ground floor. While this fact of life is well known, you would not know it by examining the conduct of highly leveraged real estate operators.

Forest City has a lot of debt.  As of 10/31/11, the company had mortgage debt of $5.493 billion and another $1.038 billion of senior unsecured debt.  The senior notes are summarized at page 15 of the last filed 10-Q.

And, to be fair, it also owns a lot of real estate. The real estate assets are carried at $8.113 billion as of 10/31/11: 10-Q

Forest City Enterprises Profile Page at Reuters
Forest City Enterprises Key Developments Page at Reuters
Link to Company Webpage: Forest City
Link to Last SEC Filed Annual Report: Annual Report for F/Y Ending Jan 2011

I have one tidbit about this trade. Fidelity would not allow me to enter a market order when the bid/ask spread was a penny, claiming that this security was illiquid and Fidelity no longer allows market orders for illiquid securities.  Okay, that is fine with me, so I entered a limit order at the ask price, which was one cent above the bid price. The volume was over a million shares. I would just reiterate that the persons responsible for the propagation and expansion of trading restrictions and prohibitions at Fidelity do not have a clue.

Forest City Enterprises Inc. Cl A (FCE.A) declined 9 cents to close at $11.38 yesterday. Volume was over 1 million shares.

As with other LT purchases, the stock of Forest City was deservedly crushed by the market, but it does have upside potential.

2. Sold 40 VCBI at $7.64 (Lottery Ticket Basket Strategy)(see Disclaimer): Virginia Commerce Bancorp has not yet paid back the government's TARP money. And that is the primary reason for taking my profit on this LT purchase. Bought 40 VCBI as LT at 5.56 I do recall that VCBI attempted to sell some stock to fund the repurchase of the government's preferred stock, but withdrew the offering after the price sank in response. SEC Filed Press Release This occurred in 2010.  The amount of stock was $75 million, Prospectus. The bank received $71 million in TARP fund,, and the dividend rate goes up to 9% after five years (late 2013).   

Virginia Commerce Bancorp closed at $7.8 yesterday.

3. Exchange Traded Bond and Equity Preferred Stock Table as of 1/10/12: This table includes trust certificates, trust preferred, equity preferred, synthetic floaters, European hybrids, baby bonds, and "principal protected" notes. The common characteristic of these securities is that all of them are traded on the stock exchange and have par values no greater than $25.  I have been reducing my exposure to this asset category.  I group equity preferred stocks with bonds since their bond characteristics dominate over their equity features. Trust preferred stocks are in effect junior bonds and are senior in priority to traditional equity preferred stocks.

Part 1

Part 2
Exchange Traded Bonds
Trust Certificates: New Gateway Post
Trust Preferred Securities: Links in One Post
ING HYBRIDS: Links in one Post
Aegon Hybrids: Gateway Post
Advantages and Disadvantages of Equity Preferred Floating Rate Securities
Synthetic Floaters
Item # 2  Principal Protected Notes 

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