Thursday, March 15, 2012

SVU/Bought Back 100 FTE at $14.82/Sold 200 WIW at $12.91/Bought 200 IMF at $17.7-ROTH IRA/Sold 100 GNT at $16.25

The Norwegian Krone, one of the favored currencies here at HQ, dived against the USD yesterday as Norway's central bank cut its key lending rate by .25% to 1.5%. MarketWatch The real purpose for lowering the rate is to weaken the currency. The reasons given by the Norges Bank can be found in this link. Key policy rate reduced by 0.25 percentage point to 1.50 per cent - Norges Bank

For currencies viewed as safe havens, a relatively high interest rate compared to the U.S. federal funds rate will attract more capital, making the currency even more attractive to investors seeking safe havens, and placing domestic companies at a competitive disadvantage. (see one day chart of NOK/USD which shows the immediate impact of that announcement at around 1 p.m. G.M.T.)  I view it as part of the ongoing saga of competitive devaluations.

UBS initiated coverage on Supervalu with a sell recommendation. Its report is summarized in this article at the StreetInsider. I own two long term Albertson bonds after selling three. I have mentioned that the main problem with SVU is the amount of its debt, and the UBS analyst is concerned about a potential violation of the fixed charge covenant. The company needs to eliminate its dividend now before it is forced to do so. I recently made that argument after selling the 7.5% senior SVU bond. Item # 2 Sold 1 SuperValu 7.5% Senior Bond Maturing 2014 at 101.75 (3/7/12 Post).

1. Bought 100 FTE at $14.82 Last Tuesday (see Disclaimer): I previously bought and sold shares of France Telecom ADS at higher levels.  Bought 50 FTE at $20.47 (Aug. 2010); Bought 50 FTE at 21.09 (August 2010); Sold: 50 FTE at 21.75 (September 2010);  Sold:  50 FTE @ 23.18 (October 2010); Bought: 50 FTE at 20.83 (December 2010); Sold 50 FTE AT 22.27 (Feb. 2011). 

2010 FTE Two 50 Lots +$136.66
2011 FTE 50 Shares +$56.57 
Fortunately, the LB sold the shares before the shares started to slide. A one year chart looks like one of those water slides at an amusement park. FTE Stock Chart The shares broke below the 200 day SMA at around $22 in June 2011 and have been on a downward trajectory since that time. The shareholders did receive two dividend payments in 2011, totaling $1.6411 per share which would cushion the share price decline.

Morningstar has a five star rating on the stock, with a fair value estimate of $28 and a consider to buy target of less than $19.6.

There are several reasons for the recent weakness. There is an ongoing economic downturn in Europe. FTE is the incumbent telephone carrier in France where it receives about 1/2 of its revenues. Spain accounts for about 8.5%; Poland 8.5%, and the remainder in miscellaneous geographic areas. FTE also recently announced what will amount to a dividend cut by limiting the payout to 40%-45% of free cash flow. Another issue is the recent entry of a new and aggressive competitor, known as Iliad, in France's market. Lastly, revenue growth in France is at best tepid. The wireless business in France grew just .8% year--over year in the last quarter. Overall revenues declined .5%. Lastly, while FTE is priced in USDs, its value will in part be determined by the exchange rate, and the EURO has declined in value against the USD since I last sold this stock on 2/23/11. The value yesterday was around 1.3, and 1.375 on 2/23/11. (see International Trading and Currency Risks)

While the dividend will be reduced this year, it will likely still result in a good dividend yield at the current price. After the share price decline, the trailing P/E is around 7.75; price to book is close to 1 and the forward P/E for 2012 is close to 7.  FTE Key Statistics

In other words, I believe the negatives are more than discounted in the current price.

France Telecom's Website: welcome to
SEC Filed Report Summarizing 2011 Results: France Telecom Form 6-K
Highlights for 2011 and Beyond:  France Telecom Form 6-K

France Telecom ADS shares fell 13 cents in trading yesterday to close at $14.72.

2. Sold 200 WIW at $12.91 in Taxable Account and Bought 200 IMF at $17.7 in Roth IRA Last Tuesday (see Disclaimer):  I have bought and sold both of these similar bond CEFs on numerous occasions, usually for small gains after collecting a few monthly dividends. Both IMF and WIW invest mostly in inflation protected U.S. treasuries, pay monthly dividends, and sell at significant discounts to their net asset values. The discount for WIW has tended to be slightly higher over the past several months even though it has a lower yield. WIW was ex dividend last Tuesday, so I will receive one more dividend payment. IMF goes ex dividend on 3/21/12 for its regular 5 cent per share dividend. Western Asset Inflation Management Fund Inc. (“IMF”) Announces Distributions for the Months of March, April and May 2012 The monthly dividend for WIW is currently $.0335 per share and went ex-dividend on March 13th, the day that I sold my shares. 

Both of these funds will provide more current yield than TIPs bought in the bond market. The five and ten TIPs now have a negative coupon. Bloomberg

I made the switch to IMF due to the higher yield. At at total cost of $17.7 for IMF shares, and a continuation of the current 5 cent monthly dividend, the yield is about 3.39%. At a $12.91 total cost for WIW, the yield is around 3.11%

More importantly, I also wanted to hold either IMF or WIW in the ROTH IRA, rather than a taxable account. Since distributions paid into the ROTH IRA are not taxable, I receive slightly more juice by holding this kind of low yielding security, which does not pay qualified dividends, in a retirement account. 

This is a link to the sponsor's website for IMF: Closed-End Funds Details

As of 12/31/11, 94.58% of the fund was in inflation linked securities and 95.66% of the assets were in "AAA" rated securities. IMF Portfolio Characteristics 

Most of the holdings are in U.S. TIPs. IMF Holding 

This is a link to the last SEC filed shareholder report for the period ending 12/31/2011: 

CEFA Page on IMF
Morningstar Page on IMF

On 3/13/12, IMF closed at $17.67 and had at that time a net asset value per share of $19.64, creating a discount of -10.03.

I bought the 200 shares of WIW sold last Tuesday in a taxable account at $12.63. (Sept. 2011):  

2012 WIW 200 Shares +$40.05
Prior realized gains for this CEFs include the following:

2011 Realized Gains WIW +$212.45
2010 Realized Gains WIW +$266.07
2011 Realized Gains IMF +$146.82 
2010 Realized Gain IMF +$215.77

Western Asset Inflation Management Fund (IMF) closed at $17.72 in trading yesterday, up 5 cents. Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW) declined 8 cents per share to close at $12.83 yesterday.

3. Sold 100 GNT at $16.25 Last Tuesday-Satellite Brokerage Account (see Disclaimer): The object in this account is simply to generate some income and profits as an alternative to bank CDs. The dominant goal is still capital preservation. Prior to the onset of the Fed's Jihad against the Saving Class, all of the funds in this satellite brokerage account were in an affiliated bank and invested solely in bank certificates of deposit and a savings account. The brokerage account was opened when the CDs started to mature and I refused to roll them over. GNT was a recent purchase at $15.75, and I held the shares long enough to receive one monthly dividend.

This CEF also owns a number of gold mining stocks. Gold prices have been sliding recently, and that decline accelerated yesterday. April gold lost $56.6 yesterday, and this analyst claims that this decline caused near term technical damage. Kitco

While pundits will often ascribe reasons for the ebb and flow of gold prices, I have always found its price fluctuations to be enigmatic. Gold's value is based on what frequently irrational humans ascribe to it. After all, there is no earnings for a P/E ratio.

For an extended period of time, starting in 1980 and lasting until 2002, gold was in a bear market with the price going nowhere. In January 1981, the price was near $540 an ounce. By mid-1984, it had fallen to $340. Eight years late, the price was hovering between $275 to $325. And, gold does not pay interest, and physical bullion has storage costs for most investors. For over two decades, gold was a horrible investment, particularly after adjusting for inflation.

Between September 2002 and September 2011, gold moved from around $300 an ounce to over $1900, and that is when I sold some of my gold bullion. Recent Gold and Silver Sales I sold more earlier this year.

I suspect one reason for the decline since September 2011 simply involves profit taking by large holders, particularly hedge funds who were major contributors to the price rise. Another reason involves the recent strength of the USD as shown in this one year chart of the U.S. Dollar Index (DXY) Index. Since gold is viewed as an alternate currency by me and others, a rise in the USD signals less reliance being placed on gold as the reserve currency.

I would not be surprised now to see a significant retracement of the move since 9/2002, but price moves are entirely unpredictable from my viewpoint since they are ultimately based on human emotions and the ability of large investors to move (i.e. manipulate) the metals markets.

On 3/12/2012, this CEF closed at a 2.34% premium to its net asset value per share. That is another reasons to sell it. GAMCO Natural Resources Gold & Income Trust (GNT) declined 34 cents in trading yesterday to close at $15.84.  Notwithstanding that decline, the premium increased to 2.52%. 

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