Monday, January 23, 2012

RNST SLM/Sold 50 of the TC JBI at $26.47/Sold 50 PHO at $17.96

The VIX has been in an Unstable Vix Pattern since the first Trigger Event in August 2007, as defined in my Vix Asset Allocation Model. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern In Phase 1 of that Unstable Vix Pattern, the VIX will have a whipsaw movement mostly between 20 to 30, with spurts over 30 and below 20.

Recently, the VIX experienced a typical whipsaw pattern as it moved quickly from below 20 to over 30, and spiking to a high of 48 on August 8, 2011. This movement would normally be associated with a market decline:

Vix Upward Spike Starting July 26, 2011 VIX Index Chart
Vix Double TOP October 3, 2011 at 45.45
Thereafter, A Move Down In the VIX Until 1/19/2012 with the VIX Now Less than 20

S & P 500 7/26/11 = 1,331.94 Historical Prices
S & P 500 10/3/2011= 1,099.23
S & P 500 1/20/2012= 1,315.38

Generally, until the VIX Stable Pattern forms, the trading philosophy would be to buy hedges for stock positions when the VIX starts to move below 20 and to lighten up on the stock allocation. The spurt into the 30s would require at least some paring of the hedges and selective repurchasing of stock positions. That pattern would be repeated over and over again until the Stable VIX Pattern forms.  Mark Hulbert and the Use of the VIX as a Timing Model More Discussion on Asset Allocation in Unstable Vix Patterns VIX and Trading Rules in An Unstable Vix Pattern Within the Context of a Long Term Secular Bear Market

Historically, the Stable Vix Pattern reveals itself by a continuous movement in the VIX below 20 for 3 months, allowing for some minor and temporary blips above 20 without restarting the count. The count now stands at two days.

1. SOLD 50 of the Trust Certificate JBI at $26.47 Last Tuesday-ROTH IRA (see Disclaimer):  This TC has a 7.875% coupon paid on a $25 par value. Both the TC and the underlying senior bond, originally issued by Duke Capital (now Spectra Capital), mature on  2/15/2032.

There are at least three reasons for selling this security. The first is psychological. The OG prefers to avoid messing up a winning streak on a security. JBI was one of the first trust certificates discussed in this blog, and it was then trading at around $17. TRUST CERTIFICATES JBI (October 2008 Post);  SOLD 100 JBI AT PAR VALUE January 2009 All of my recent purchases have been made near par value including the shares sold last Tuesday in the ROTH IRA. Bought 100 of the TC JBI at $25.1 October 2009Sold 100 JBI at 26.5 January 2011Bought 50 of the TC JBI at 25.31 March 2010Bought 50 JBI at 24.81-ROTH IRA MAY 2010 (shares sold at $26.47); Sold 50 of 100 JBI at $26.25. Normally I try to resist this emotional issue, which is sometimes successful, but there were some other reasons supporting this sale. 

The second reason involves concerns about interest rate risk associated with all long term bonds. One possible outcome of the extraordinary and unprecedented actions by the Federal Reserve is hyper inflation. 

The last reason is that there can not rationally be much upside to JBI above $26, given the call warrant attached to the TC which allows its owner to redeem JBI at par value plus accrued interest. While there is no rational upside, there is certainly the usual downside credit and interest rate risks.  So when buying trust certificates with long maturities  near par value, particularly those with call warrant features, I will likely hold them only for a relatively brief period and will accept small profits on their sale. More on the Call Warrant in TCs Call Warrants and Trust Certificates

2012 ROTH IRA 50 Shares JBI +$68.02
Snapshots of TC trades can be found in the Trust Certificates: New Gateway Post.

2. Renasant (RNST)(own 150+ shares: REGIONAL BANK BASKET STRATEGY): Renasant reported net income for the 4th quarter of $5.79 million or $.23 per share, up from 19 cents in the 2010 4th quarter. SEC Filed Press Release This beat the consensus estimate by 2 cents. 

As of 12/31/2011, the net interest margin was 3.84%; the efficiency ratio was at 69.5%; the tangible capital ratio was 7.38%; the total risk based capital ratio was at 14.58%; the tangible book value per share was $11.8; NPLs to total loans not subject to loss share with the FDIC stood at 1.56%; and the allowance for loan losses to NPLs was 127%.

3. Sold 50 of PHO at $17.96 Last Wednesday (see Disclaimer):  PHO is an ETF recently bought at $16.5.

4. SLM (own exchange traded CPI floating rate senior bonds OSM and ISM): For the 4th quarter, SLM reported GAAP net income of $511 million or 99 cents per share. Core earnings were reported at $268 million or 52 cents per share, down from $401 million in the 2010 4th quarter. Core earnings declined due to lower gains realized from loan sales and debt repurchases. The consensus estimate was for 49 cents. Loan originations rose 19%. SEC Filed Press Release

On the day of the earnings release, the common shares rose 65 cents to close at $14.29. SLM Corp Stock Price OSM matures in 2017 and ISM in 2018, so I am concerned primarily about being paid par value at maturity.

Floaters: Links in One Post

1 comment:

  1. Read this?