Thursday, January 19, 2012

Sold 100 WIN at $12.01/Sold 50 KRBPRD at $24.7/Sold 100 GYB at $17.07/Sold IDG at $20.42/Added 50 of the Synthetic Floater GJN at $19.1-Roth IRA/ Sold 300+of the Bond CEF MMT at $6.83/

Recently, I have been selling some collectibles acquired many years ago. I would like to emphasize the importance of keeping good records to establish a cost basis. For junk silver coins taken out of circulation in the 1960s, my cost basis is simply the face value of the coin.  On other collectibles sold late last year and early this year, I need to establish my cost basis for income tax purposes, which I am able to do with my original check and purchase receipt.

I have started to prepare my 2011 tax return and have already entered the appropriate information for collectibles sold last year. I use the premier edition of TurboTax. That program informed me that collectibles, held for more than 1 year, do not receive the benefit of the 15% cap on long term capital gains, but are instead subject to a maximum 28% cap.

I entered the appropriate information about the collectible sales and the TurboTax program filled out the information on a Form 8949.  The total cost of those purchases was $1,146 and the proceeds came to $4,850. The only item which needed proof of the purchase cost was a 1988 4 piece gold proof eagle set purchased for $1,095 and sold for $3,515. Recent Gold and Silver Sales

Most of the items sold so far this year will require documents establishing the purchase cost. Those include some BU Carson City Dollars, a one ounce gold eagle proof coin, and a 4 coin Constitution commemorative set (2 gold, 2 silver).  Most of the purchases were made a long time ago, and kept in safety deposit boxes at a local bank. Notwithstanding the age of the purchases, I still have the documents relating to my cost.

1. Added 50 of the Synthetic Floater GJN at $19.10 Last Thursday (see Disclaimer): This purchase brings me up to 150 shares of this Synthetic Floater in the Trust Certificate form of ownership.  So far, I have realized gains in this security of $698.98, mostly originating from an opportunistic purchase of 50 shares during the Near Depression period: 

2010 Roth IRA GJN 50 Shares +$460.53
GJN is a Synthetic Floater in the Trust Certificate form of ownership.  The underlying security owned by the trust is a Trust Preferred stock, issued by J P Morgan Capital XVII.  In effect, GJN represents an undivided beneficial interest in a junior bond issued by J P Morgan whose interest may legally be deferred for up to five years provided no activation of the stopper clause (e.g. no payment on a junior security).

The TP has a fixed coupon of 5.85% and matures on 8/1/2035. The trustee will collect that interest paid by J P Morgan Capital and then swap it with the swap counterparty (Wachovia, now part of Wells Fargo) for the amount due the owners of  GJN. This will continue to happen unless the swap agreement is terminated (e.g. by WFC's bankruptcy). If that agreement is terminated for any reason, then the owners of GJN will receive the fixed coupon of the underlying TP (i.e. 5.85%)

For as long as the swap agreement remains in force, the owners of GJN will receive the greater of 3% or 1% over the three month treasury bill rate on a $25 par value, with a maximum interest rate of 8%.  Interest is paid monthly.

Given the FED's Jihad Against the Saving Class, the 3 month treasury bill rate is hugging near zero, and is likely to remain abnormally low into 2013. The minimum coupon of 3% is therefore the applicable rate now.

At a total cost of $19.10, and the minimum coupon, the effective current yield would be about 3.927%. The maximum yield, hit when the 3 month treasury bill hits 7% during the applicable computation period, would be around 10.47%. The YTM would be higher due to the discount to par value, which assumes that JPM survives to pay par value at maturity.

The owner of GJN, not the swap counterparty, is exposed to the credit risk of JPM. I am more comfortable with the credit risk of JPM compared to GS or BAC.

Synthetic Fixed-Income Securities Inc. Fltg. Rate STRATS Ser. 2005-2 for JPMorgan Chase Capital XVII closed at $19.42 yesterday. As previously explained, I will buy the synthetic floaters only in retirement accounts due to the complex tax issues associated with the swap agreement.

2. Sold 300+ of MMT at $6.8336 Last Thursday-Satellite Taxable Account (see Disclaimer): MMT went ex dividend for its monthly distribution on Tuesday. I own another 700 shares dividend between the ROTH IRA and the main taxable account. I realized a gain on the 300 shares sold plus several monthly dividends:

MFS Multimarket Income Trust closed at $6.78 yesterday, and went ex dividend for its monthly distribution on 1/17/12.

3. Sold 100 WIN at $12.01 Last Friday-Satellite Taxable Account Last Friday (see Disclaimer):  These shares were recently purchased in the same satellite account, geared mostly toward capital preservation, at $11.31 (12/19/2011 Post). I will receive one quarterly dividend. 

Windstream closed at $12.35 yesterday.

4. Sold 50 IDG at $20.42 Last Friday (See Disclaimer): These shares were recently purchased at $18.55 (12/5/11 Post): I will also receive one quarterly dividend. IDG is a hybrid security, having some characteristics normally associated with bonds and equity capital. I have been buying and selling ING and Aegon hybrids since the onset of the Near Depression, and view them as both volatile and risky, due to the current European situation, their low priority in the capital structure, the EC's new burden sharing policy and the possibility of a dividend deferral. 

5. Sold 50 KRBPRD at $24.7 Last Friday-ROTH IRA (see Disclaimer): These shares were recently purchased  at $23.6 (12/15/11 Post). I will receive one quarterly interest payment. KRBPRD is a trust preferred security that is now an obligation of Bank of America. 

MBNA Capital D 8.125% TruPs closed at $24.86 yesterday.

6. Sold 100 GYB at $17.07 Last Friday-ROTH IRA (see Disclaimer): These shares were recently purchased in two fifty share lots. Bought 50 GYB at 16.95 in Roth IRA August 2011  Added 50 of the Synthetic Floater GYB at $15.56-ROTH IRA December 2011 GYB is a synthetic floater in trust certificate legal form. The underlying security is a Goldman Sachs trust preferred security maturing in 2034. 

2012 Roth IRA GYB 100 Shares +$61.22

Previous small dollar trades of GYB were more lucrative:

2010 Regular IRA +$774. 42
Snapshots of trades involving trust certificates can be found in the Trust Certificates: New Gateway Post.

Synthetic Floaters

Corporate Asset Backed Corp. CABCO Series 2004-101 Trust Goldman Sachs Capital I Float. Rate Call Ctfs closed at $17.3 yesterday.

Goldman Sachs common shares rose $6.63 after the company reported better than expected earnings.  (see discussions at the NYT  CNBC Video;  SEC Filed Press Release

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