Tuesday, April 3, 2012

Regional Bank Basket Table as of 4/2/2012/JQC SYMM/Huntsman/Bought 50 BSBR at $9.36/Added 50 RMT at $9.45/Apria Healthcare

American Capital Agency (AGNC), a mortgage REIT, priced last week a new public offering of 8% cumulative preferred stock with a $25 par value.

The March ISM manufacturing number was 53.4%, up from 52.4 in February.

The closed end fund JQC has changed its distribution policy from quarterly to monthly dividends. The new monthly rate will be $.0667 per share. Nuveen I own over 800 shares.

Huntsman (HUN) rose 7% yesterday to close at $14.99 after the "DealReporter" asserted that the company had hired investment bankers to explore a potential sale. Bloomberg. I bought shares recently in the LT category.  Bought 30 HUN @ 9.91

Symmetricom (owned) announced a new product yesterday which provides the "highest accuracy timing solution to improve profitability of high-speed trading systems". SymmetriCom rose 4.85% in trading yesterday to close at $6.05.

In a 5 to 4 decision yesterday, the five republicans on the Supreme Court voted to allow police to strip search anyone who is arrested, no matter how minor the alleged crime (e.g. a traffic offense) and even when there is no reason to suspect the presence of contraband. NYT (decision: supremecourt.gov .pdf)

I would agree with Paul Krugman's observation that the Supreme Court appears inclined to make a political decision on the constitutionality of Obamacare. NYT Five Justices are republicans and were appointed by GOP Presidents. Several of them have judicial philosophies that are rooted in the reactionary beliefs of the Federalist Society.

If the Court does strike down this law, then I will not have to listen to GOP politicians routinely misled the public about its contents and estimated costs. One frequent statement, which received PolitiFact's award for lie of the year, is that the government will take over health care. I heard Romney over the weekend make that claim and other demonstrably false assertions about this law. The ones who listen to these politicians will accept whatever they are told without much, if any, independent examination or thoughtful analysis, other than listening to Rush or Sean for confirmation. 

I made an observation a couple of years ago that the easiest way for the GOP to role back progressive legislation in the U.S. was to stack the Supreme Court with Justices favoring the reactionary views of the Federalist Society. Those justices will gradually return the Court to something recognizable as the pre-Lochner era of jurisprudence, possibly not entirely but in significant ways. GOP and the Lochner Era (January 2009 Post); Conservative or Delusional Reactionaries? (March 2010 Post)

In short, federal power under the Commerce Clause would be substantially curtailed, thereby resulting in a number of federal laws being declared unconstitutional. The trend is discussed in Jeffrey Toobin's 2007 book "The Nine" and I would anticipate that this trend will accelerate in the years to come. (see also: Toobin's 'The Nine' Reveals Politics of High Court : NPR and "The Federalist Society" by Jerry Landay)

Fundamentally, there is not much difference in giving me a tax break for buying healthcare and forcing me to pay a tax for refusing to buy. Ezra Klein made this point also in a recent article published by Bloomberg. The "fine" or "tax", or whatever you want to call it, would be the greater of $695 or 2.5% of income starting in 2016 under Obamacare. That provision is inextricably linked to the provision that insurers have to provide coverage regardless of a pre-existing condition.

The federal government has been assessing fines, taxes or penalties for doing or not doing something forever. The individual mandate for private insurance was a GOP idea until the herd decided in typical group think fashion that it was a step toward totalitarianism.

The GOP's alternative involves giving tax credits for those who buy health insurance ($2,300 for individuals and $5,700 for couples). This is really cynical. As those politicians are fond of noting, almost 1/2 of Americans do not owe income taxes, (TPC Tax Topics | Who Doesn't Pay Federal Taxes?), so offering them a tax credit is not likely to induce them to purchase insurance that they otherwise can not afford or do not want. It would drain federal revenues, however, and increase the budget deficit, since the credit would primarily be taken by those who have insurance now and would continue to do so even without the credit.  I would simply view the $5,700 credit as functionally equivalent to the federal government giving the couple that amount of money. Consequently, I would view the GOP proposal to be equivalent to federal spending.

The True Believer Jim McTague predicts that the GOP will gain control over both the Senate and House in November's elections. Barrons He predicts that the GOP will pick up one seat in the House, giving them 243 seats. With a majority, they will be able to do whatever they want to do in the House. I believe that the GOP will lose several seats but will maintain a majority in the House. For the Senate, McTague predicts that the GOP will have 53 seats to the current 47 after the election. I would predict closer to a 50/50 split with the independents included with the Democrats.  In any event, there would still be enough Democrats for a filibuster in the Senate provided they all stuck together. {An interesting comment to that article claimed that the downturn in the stock market in 2008 was due to investors believing Obama would win the election. No amount of reliable factual information will interfere with a TB's reality creation, irrespective of the absurdity of that creation}

I would also agree with another contention made by McTague. This election will be decided by independents. Many independents will be opposed to the GOP agenda,  but may vote for GOP candidates anyway out of concern about the budget deficit.

At least the GOP appears ready to tackle spending, though the spending cuts are almost entirely aimed at programs for the poor and the middle class. I certainly understand that the Democrats want to raise taxes on the rich, basically in a wealth transfer, and the GOP wants to feather their campaigns with large contributions by lowering taxes on both the wealthily and large corporations.

A third party will be needed to actually deal with the looming and potentially catastrophic deficit problems in something resembling a rational and fair manner which will likely never happen. The two current political tribes will only continue to worsen the problem until the implosion of financial armageddon.  

1. Bought 50 BSBR at $9.36 Last Friday (see Disclaimer): This purchase is primarily a diversification move, increasing my exposure gradually to non-USD denominated investments and to financial institutions whose primary operations are outside the U.S.

There are six large banking institutions in Brazil. Banco Santander (Brasil) S.A. ADS, (BSBR) is the smallest of those six institutions, but I believe that it has the highest Tier 1 capital ratio at 17.5% among the big six. 2011 Annual Report-SEC Form 20-F The Tier 1 capital ratio can be found at page 272.

As of 12/31/2011, the NPAs to total loans stood at 3.3% of total assets;  the coverage ratio was at 85.5%; and the efficiency ratio was excellent at 35.6%; (pages 6-7). 

Santander Spain controlled 75.6% of BSBR's capital stock as of 3/23/12, page 179.

Morningstar has a four star rating on the stock with a fair value estimate of $15 and a consider to buy target at $9. A recent Morningstar report on the last earnings release can be found at  Seeking Alpha

Profile page at Reuters
Recent Article at Seeking Alpha

Last Friday, the ordinary shares traded on the Brazil's stock exchange closed at 16.78 BRLs, down 1.41%. bmfbovespa.com.br The stock traded in a range between 16.75 and 17.18 BRLs and closed near the low for the day. The ADRs closed at $9.17 on the NYSE, down 2.34%. My $9.36 U.S.D. price would translate into 17.0811 BRLs based on last Friday's closing conversion price provided by the Currency Converter at YF. The $9.17 closing price would be 16.743 BRLs. I bought my shares when the Brazilian shares were trading higher.

The ADR price will be sensitive to both the ordinary share price on the Brazilian exchange and to the relative value of the BRL to the USD.

This is a link to a five year chart of the USD/BRL.

The best time for a U.S. investor to use USDs to buy Brazilian stocks was when the USD was exceptionally strong against the BRL and the Brazilian stock market was tanking. On a currency basis, that period would have been between October 2008 to April 2009. The best day would probably have been 11/17/2008 when 1 U.S.D. would buy 2.46 BRLs. Looking at a chart of the IBOVESPA Index Chart, I see that a close that day at 31,251. Last Friday, the index closed at 64,510.97.

I can buy 13 currencies in my Fidelity brokerage account, but the BRL is not one of them. There are only two practical ways for me to gain exposure to the BRL. One is to buy ADRs of Brazilian companies which will give me that exposure. The other is to buy the the WisdomTree Dreyfus Brazilian Real Fund (BZF). I have owned that fund and no longer have a position. That ETF paid a large distribution at the end of 2011. Distributions

Brazil has a less scary government than Venezuela and Argentina.

Banco Santander (Brasil) S.A. ADS, (BSBR) closed at $9.25 yesterday, up 8 cents in trading.

2. Added 50 RMT at $9.45 Last Friday (see Disclaimer): This brings me up to 592.141 shares of this CEF that invests in micro cap companies. Last Thursday, the day before this purchase, the fund closed at $9.52 and has a net asset value per share of $10.87, thereby creating a discount to NAV of -12.42 at that time.

Last Friday, the net asset value per share was reported at $10.83, creating a discount of -13.11 based on a closing price that day of $9.41. The Russell 2000 index declined .23% last Friday.

SEC Filed Shareholder Report for the Period Ending 12/31/2011: www.sec.gov
Sponsor's website: Royce Micro-Cap Trust (RMT)
CEFA Page for RMT
Morningstar page for the Royce Micro-Cap Trust
Fact Sheet: RMT-CEFS.pdf

The fund does use a modest amount of leverage.

I am reinvesting the dividend to buy more shares.

Links to prior discussions in this blog: Bought RMT at $6.73 (August 2009); Added to CEF RMT at $7.64 (January 2010); Added 50 ADX at 9.7 and 50 RMT at 7.82 with Cash Flow (July 2010)

I will frequently make small adds to income paying CEFs with cash flow received from other investments.

Royce Micro-Cap Trust (RMT) closed yesterday at $9.44, up 14 cents.

3. Apria Healthcare (own 1 senior secured bond: FINRA): Last Friday, Apria filed its 2011 Annual  Report with the SEC. Form 10-K Revenues for 2011 were $2.3 billion, up from $2.08 billion in 2010. Part of that increase was due to an acquisition during the year. The provision for doubtful accounts was 3% in 2011, down from 3.4% in 2010.

A press release announcing Apria's 4th quarter results can be found at the SEC.

The company took a non-cash impairment charge of $600.3 million for 2011. Of that amount $596.7 million related to Apria's home respiratory/home medical units. That charge was due to lower estimated cash flows as a result of lower revenue expectations and higher estimate costs. (page 43). Free cash flow for 2011 was a negative $61.3 million. (page 49). Needless to say, I view the foregoing as a negative.

With the aforementioned impairment charge, the net loss for 2011 was $747.324 million.  (page 61)

Previously, I sold one of my two Apria bonds. Sold 1 Apria 11.25% Senior Secured Bond at $104 (January 2012). That bond was bought in August 2011. Bought 1 Senior Secured 11.25% Apria Healthcare Maturing on 11/1/2014 With the commission cost, that bond was purchased at 99.425.

I currently own 1 Series B bond. Bought 1 Apria 12.375% Senior Secured Maturing on 11/1/2014 at 91.625. After reviewing the Annual Report, I am raising the risk rating for that bond to 8+ from 7 in my Personal Risk Ratings For Junk Bonds.

Apria Series A FINRA
Apria Series B FINRA

4. Regional Bank Basket Table (REGIONAL BANK BASKET STRATEGY): I am not attempting to track shares purchased with dividends in this table. The dividend yield is calculated by YF at the market price shown in the table. Except for Hudson and First Niagara, my dividend yield would be higher at my cost. The unrealized gains for this strategy is close to $3000. The net realized gain is $8,553.56.

Over the life of this strategy, likely to last another five to seven years, I would anticipate that dividends will provide about 40%-50% of the total return. 

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