Friday, February 24, 2012

BYD MDT PSEC/BOUGHT 100 ZFSVY at $24.72/Added 100 of the Canadian Bond ETF CLF:CA at 20.19 CADs/

Boyd Gaming had another uninspiring earnings report that tilted toward the negative. I own the common as a LT and 1 senior bond. Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 For the 4th quarter,  Boyd reported an adjusted loss of 3 cents per share, two cents worse than expected, on a better than expected 9.9% increase in revenues to $606.7 million. The stock has done well since hitting $4.48 on 10/3/11, BYD Interactive Chart, but has slid since that report. 

The Committee for a Responsible Budget has analyzed the proposals made by Romney, Gingrich and Santorum to solve the U.S. budget crisis. Primary Numbers: The GOP Candidates and the National Debt | Committee for a Responsible Federal Budget That non-partisan organization found that all three would increase the budget deficit.

Prospect Capital (owned), a BDC, sold 12 million shares at $10.95, with an option for an additional 1.8 million. Prospect Capital Corporation Prices Public Offering of Common Stock The stock fell in response, which is a normal reaction. A constant stream of stock sales by BDCs is one of their undesirable characteristics.

1. Medtronic (own): This last MDT earnings report is symptomatic of its problems and MDT's lackluster stock performance over the past several years. SEC Filed Press Release For MDT's 2012 F/Y third quarter, revenues rose just 1.7% compared to the year earlier quarter. GAAP net income was $935 million or 89 cents per share, up from $924 million or 86 cents in the year ago quarter.

Adjusted E.P.S. was 84 cents, in line with expectations.

My position in MDT is immaterial and will likely remain so until the company shows more growth, or the price falls below $32. I sold out of my position last May, (sold 209 shares MDT @ $40.68), and I have bought back only 30 of those shares at $33.4 so far.

Medtronic shares have fallen in price everyday since the earnings release and declined 34 cents in trading yesterday to close at $37.87.

2. Bought 100 ZFSVY at $24.72 Last Tuesday (see Disclaimer): Zurich Financial is a large multi-line insurance company based in Switzerland. Last Tuesday, when I purchased the ADR, Zurich Financial Services AG closed at 225.8 Swiss Francs (CHF) in its host market. That would roughly translate to $248.06 in U.S. dollars (USD) using a Currency Converter, at that time. I did not buy those shares but an ADR traded on the pink sheet exchange in the U.S.

Each ADR share is equal to 1/10 of an ordinary Swiss share. ZFSVY- That would give me a USD price for that ADR of around $24.8 based on the closing price in Zurich last Tuesday, SIX Swiss Exchange - Zurich Financial Services AG 

I face the same currency risk with the ADR purchased with USDs as I would by buying the ordinary shares in Geneva with Swiss Francs purchased with USDs.  If the ordinary shares closed at 225.8 and the Swiss Franc rose in value against the USD, the value of the ADR would rise to reflect the greater value of the Swiss Franc, and vice versa. International Trading and Currency Risks

Back in the summer of 2011, the Swiss Franc was rising smartly against the Euro and the USD, which provoked a massive response from the Swiss Central Bank to drive down the value of the Swiss Franc.

On 8/9/11, 1 USD would buy only .72 Swiss Francs, down from 1.16 CHFs in June 2010 (& 1.8 CHF in 2001).  USD/CHF Currency Conversion As a result of the intervention, the USD will buy around .90 Swiss Francs now. Over the long term, it is apparent that the USD is losing its value against the Swiss Franc. I want some assets whose value is price in CHFs rather than USDs.

If I took the conversion value for 8/9/11 of 1 USD=.72 CHFs, and priced Zurich at 225.8 CHFs, then the value of a share in USDs would be about $312.98, and the ADR would be priced at around $31.3 rather than $24.72. The converse would also apply.

So the price of the ADR will change, both up and down, solely on currency exchange in addition to changes in the value for the ordinary shares traded in Zurich's main market. For developed countries, I will accept that currency risk for shares priced in CADs, AUDs, NOKs, and CHFs. I at least comprehend the risk.  

There is a currency ETF for the Swiss Franc, FXF, which I no longer own. On 8/9/11, that ETF closed at $136.78 and is now trading considerably below that number due to the intervention by the Swiss Central Bank. Swiss Franc ETF Chart A central bank can sell currency that it creates in an effort to drive down its value. It remains to be seen whether that intervention will continue or even be capable of restraining further the strength of the CHF. The CurrencyShares Swiss Franc Trust (FXF) rose $1.09 yesterday to close at $109.51.

Zurich pays an annual dividend which will go ex dividend in a few weeks. The dividend will be 17 CHF for each ordinary share. That works out to around $18.85 USDs or $1.885 per ADR which converts into .1 ordinary shares. At that rate, the yield at a total cost of $24.72 is around 7.5%. I did that CHF/USD conversion at last night's prices which was 1 CHF=1.1088 USD. The actual value will depend on the conversion rate at the time of the dividend payment.

If the Swiss Franc gains in value against the USD from now until then, then the dividend will be worth more to me, and vice versa.  (as an example at 1.38 CHF/1USD, near the value on 8/9/11, the value of that dividend in USDs would be around $2.36 per share rather than $1.88)

Financial results for the last quarter were adversely impacted by catastrophic losses, including the earthquakes in Japan and New Zealand. Zurich performs well in 2011 and proposes dividend of CHF 17

This is a link to a recent article published at Seeking Alpha that discusses Zurich.

Another article at Seeking Alpha lists the withholding tax rates for various countries and claims Switzerland has a 35% rate. I do not recall whether that is correct. I do claim tax credits for taxes paid to foreign jurisdictions (see recent discussion at Item # 4 Husky Energy) That article also claims that Canada will no longer collect a 15% withholding tax for dividends paid into a retirement account as a result of a 2009 law change. I am going to test that thesis by buying a Canadian security in my ROTH IRA.  

I did notice this statement in the Zurich Financial press release, announcing earnings and the dividend that claimed the dividend was exempt:

I do read these press releases. 

Zurich Financial Services AG ADS (ZFSVY) closed at $24.64 yesterday. The pink sheet exchange quote, available at, will provide the depth of the order book for this stock.

3. Added 100 of the Canadian Bond ETF CLF:CA at 20.19 CADs-Toronto Exchange (Canadian Dollar (CAD) Strategy)(see Disclaimer): This brings my position in this Canadian government bond ETF to 500 shares:

500 Shares CLF:CA
The Claymore 1-5 Year Laddered Government Bond ETF is a low cost ETF that owns bonds issued by Canada and its provinces, staggered in maturity from 1 to 5 years. As the bonds with a five year maturity mature, the proceeds are rolled into bonds with a 1 year maturity. The expense ratio is .15% and dividends are paid monthly.   

Sponsor's website: CLF - Claymore 1-5 Yr Laddered Government Bond ETF

The Canadian Dollar Strategy is a long term strategy and is in part based on a diversification thesis. I do not want all of my assets valued in USDs. The goal is to increase my Canadian Dollar position over time. I will buy only income securities on the Toronto exchange and will receive distributions in Canadian dollars. I also hope to realize some gains from selling those securities.

In addition to the Canadian Dollar, I also look for assets priced in the Norwegian Krone, Swiss Franc, and the Australian Dollar. For emerging market currencies, I own both stock and bond ETFs and CEFs. The Canadian Dollar position is my largest foreign currency position, and the one most frequently discussed in this blog. International Trading and Currency Risks

CLF fund holdings as of 2/17/2012:

The share price does not move around much {52 week low at 19.86-52 week at 20.54, CLF Fund Chart - (TOR)}  A two cent change is almost an event. That may change in the event of a relatively quick upward move in rates.  

Claymore 1-5 Year Laddered Government Bond ETF closed at 20.20 CADs yesterday on the Toronto exchange.

This security is ex dividend today for its monthly distribution.

I have been adding to my Canadian energy positions and will discuss those trades next week. 

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