Wednesday, April 4, 2012

STKL/HUN/REDDY ICE/Fidelity and TurboTax Problems-Form 8949/Unnecessary and Time Consuming Problems with TurboTax/WPX SD NPBC/Problems With Schwab Bond Trading

The market reacted negatively to Federal Reserve's minutes from its March meeting.FRB: FOMC Minutes, March 13, 2012 There is little enthusiasm for another round of quantitative easing.  Bonds and gold also fell in response to those minutes. TLT, the ETF for the 20+ year U.S. treasury bonds, declined 1.73%, while GLD fell $3.05 to close at $159.89. GLD, the gold ETF, is trading below its 200 day SMA. SPDR Gold Trust ETF Chart

An article in the WSJ noted that Russell 1000 Low Beta ETF (LBTA) rose 7% during the first quarter, while Russell High Beta ETF (HBTA) jumped 16%. This firm also has an ETF for the Russell 2000 Low Volatility (SLVY) and another called the Russell 2000 Low Beta ETF (SLBT).

One of the research services provided by Fidelity originates from an outfit called Recognia, which engages in technical analysis. If you go to the "News and Events" page for Huntsman (HUN), a link can be found to a technical alert provided by that service. Recognia claims that Huntsman stock formed over 56 days the bullish chart pattern called a "bullish triangle", and that the stock "may" rise to a range of $18.9 to $19.8. HUN rose 12 cents in trading yesterday to close at $15.11.

SunOpta has been showing some positive price momentum of late. The stock rose 2.68% yesterday to close at $5.75 and is trading now above its 200 day SMA. Possibly, some interest is being generated in this organic food company due to the recent successful IPO of Annie's, which rose $4.1 in trading yesterday. I have traded STKL on several occasions and currently own just 50 shares as part of my Lottery Ticket Basket Strategy. I am only slightly profitable in that position, having bought the shares at $5.25  As shown in a snapshots found at the foregoing linked post, I did realize $807.93 in trading STKL in 2008 and another $224.04 from a LT buy in 2009. Buy of 100 Sunopta at $1.65: Highly Speculative Sold 100 LT Sunopta at $4.06

WPX Energy (own) announced that it sold to KKR, L.P., some acreage in the Barnett Shale and Arkoma Basin for $306 million.

S & P revised its rating on SandRidge's (SD) senior unsecured debt to B from B-. TEXT-S&P SandRidge Energy priced yesterday $750 million of 8.125% senior notes maturing in 2022 at par. Those funds are going to be used in the acquisition of Dynamic Offshore Resources, L.L.C.

National Penn (NPBC) increased its quarterly dividend to 7 cents per share from 5 cents and authorized a share buyback of up to 7.5 million shares. I own the common as a LT and still own 50 of its TP NPBCO.

Unfortunately, I prepare my own taxes. It would probably cost me at least $1000+ to pay an accountant to do it, and Headknocker is too cheap to spring for that kind of dough when LB has to work for free.

For several years, I have used TurboTax to download transactions. This has worked fine for the most part with a few problems every year. While I have noted "software" problems in the past, which would occasionally require an "override" or other manual correction, the problems this year will require an additional 10+ hours of extremely tedious labor on my part to correct.

Most of these problems deal with reporting stock and bond transactions on the I.R.S. Form 8949. A different Form 8949 has to be used for transactions reported on Form 1099-B with the cost basis reported to the I.R.S. and those transactions reported on that form without the tax cost basis reported to the I.R.S. And it is further broken down into long term and short term transactions. So, I will have two 8949 Forms. Only the government could dream about creating such a paperwork hassle. I will actually end up with three 8949 Forms, since my coin sales were not reported on a 1099 and that requires me to fill out even another 8949 Form for those sales. This is just SADISTIC, none of this has any impact on my tax liability.

For years, some of my brokerage companies provided cost basis information in the downloads and even adjusted that tax cost basis for returns of capital. That was very helpful.

When I examined my Form 8949s prepared by the TurboTax software, I found that virtually all transactions downloaded from Fidelity were on the 8949 where the cost basis was provided to the I.R.S., which was obviously wrong. Most of my sales in 2011 were securities purchased prior to 2011 and were non-covered.

Undoubtedly, many taxpayers using TurboTax will not catch this mistake. Many others will notice it and refuse to make changes. Our LB is a stickler for details so every line item will have to be changed in a laborious process that will take at a minimum 10 hours.

Of course, neither Fidelity nor TurboTax gives a crap that one of their customers has to waste their time in this fashion. Even customers with lots of money who generate several thousand in commissions are unimportant to brokers. A brokerage company would only start to care about pissing customers off when customers with 1 million dollar plus accounts started to leave in droves due to bad service. You are not important, not really, in case you have not figured that out yet. It is even okay to cause a client with a million in assets at a firm a lot of problems and never even acknowledge it, let alone take responsibility.

At least the online brokers are not causing me to lose money by convincing me to make bad and/or inappropriate investments, the modus operandi of many "financial advisors" at "full service" firms, where customers are called "muppets"  or worse and fleeced whenever possible.

Most of the time consumption correcting the Fidelity download is due to the poor design by Intuit's TurboTax. For each security, including reinvested dividends, I have to navigate six pages before arriving at the page where I need to change an "x" in a box, and then 6 more pages before going back to the list of securities. When clicking through each page, I have to wait while the software is "calculating" even though there is only page out of twelve that has a change. Rather than returning me near the point where I left the main list of securities, TurboTax returns me to the start of that list, and I am then required to scroll down a very, very, very long list to find the next security that needs to be changed. After about five hours of extremely tedious work, I am up to security sale #225, with only a few hundred more to go.

I would give TurboTax an F- on this software design. I am being generous and that is not a sarcastic statement. I will not be using TurboTax next year. Hopefully, another service will not be so burdensome.

I am having to spend so much time now with this issue that I do not have any time to focus on my investments.

I have noted this problem only in connection with the download from Fidelity. Fidelity denies that the problem originates from them:

Fidelity Sort Of Blames TurboTax 
While I suspect strongly that Fidelity is the source of the error, TurboTax is responsible for 90+% of the time spent correcting the error due to its poor software design.

Another problem with TurboTax is that I had to enter an override to enter a deduction for interest paid to the seller of bonds. (discussed in introduction of 2/22/12 Post Stocks, Bonds & Politics)

An incredibly bad issue involves my Tennessee return. While Tennessee does not tax earned income or stock gains, there is a 6% tax on certain interest and dividend payments after a standard deduction of $1,250. A number of those payments are not taxed such as interest payment on U.S. government bonds, "passbook savings" accounts, and Tennessee municipal bond payments. In the past, I have complained to TurboTax that there was no box to check that excluded that income from the state return by placing it in a separate area for non-taxable interest or dividend income. For this year, there was a box. When I checked it to exclude certain income, it was nonetheless included on the return as taxable, requiring me to do another manual override.

I noticed that the value of my taxable account at Fidelity appeared to be way off when I viewed my March statement. I soon determined that no value was assigned by Fidelity to my 500 shares in iShares 1-5 Year Laddered Government Bond Index Fund  (CLF), which caused the value of my account to be off by over $10,000 as of 3/31/2012. The purported reason for assigning no value is that the value is "unavailable". {For reasons unknown, Fidelity uses the U.S. Grey Market symbols for Canadian ETFs in my statement. Those securities seldom trade in the U.S. Grey Market but trade every business day on the Toronto exchange.}

Fidelity Does Not Assign Value to 500 CLF Shares in Brokerage Statement Due to Lack of Price Availability
Of course, the price is readily accessible if Fidelity did not have system problems. I have some quotes for this security, available at Marketwatch, the Toronto ExchangeYahoo Finance and Google Finance So is a quote unavailable, even at Fidelity's website? What can I say?  LB does not have the patience for this kind of non-stop nonsense.

I have several Canadian ETFs that were formally sponsored by Claymore in Canada and are now part of Ishares Canada. The Canadian symbols did not change, but my account is in a some kind of purgatory state for all of those securities, due to system issues which Fidelity  will not acknowledge however:

So, as suggested by that Fidelity representative, I called their international trading desk, explained the problem, and was requested to remain on the line while the representative called someone. After twenty minutes with no reply, and my cell phone minutes being used up in an obvious futile exercise, I hung up the phone and have not heard back either.

I could not tell you today my account value within $10,000 at Fidelity without guessing. I am looking at the account now, and I do not know.  One of the securities had just a number as a symbol on Monday, and today it was changed to the U.S. Grey Market symbol for that security which I could not trade due to a total lack of any volume. I would call that market a "dark" market.  There are no market makers, no transparency, no bid and ask quotes, and no one around to turn on the lights. As I said, and tried to convey to Fidelity by sending a snapshot of the symbols used by the Toronto exchange now, the symbols did not change but that had no discernible effect judging from the preceding snapshot.

Paul Krugman does not mince words when describing his opinion about the GOP's budget plan recently passed in the House. He refers to it as "fraudulent". NYT For example, the plan relies on the closing of unspecified tax loopholes sufficient to raise $700 billion in revenue every year. Really? The republicans have rejected just recently Obama's call to end tax subsidies for "big oil". Oil Subsidies I would be more than a little bit skeptical that the GOP will bite the hand that feeds them.

1. Schwab Bond Trading: Schwab has recently started to allow its retail customers to buy junk bonds online.  To do so, it is necessary to have the CUSIP number. Then, the customer can go to the "Trade" tab,  click bonds and enter the CUSIP number about mid way down the page.

Unfortunately, this broker is not set up to sell bonds online. Schwab customers have to pay the broker assisted price to sell bonds.

Last Monday, I tried to sell 2 Donnelley bonds held at Schwab in a Trust Account where I am the Trustee. I could have done so online at another brokerage firm for 81.55. The Schwab broker told me that he could not enter that price. He would not look at the order book. Instead, after saying, "if I understood how the bond market worked," he had to put the bonds "out to bid."  I told him that the problem was not with the market, but with Schwab's system. I could enter the order at 81.55 at another broker and have a confirmation before I   finish this sentence. About 2 hours later, I received a call back from the Schwab broker, and was told that a bid had been made on those 2 bonds at 78 with commission. I refused to sell the bonds at that price since I could have sold them at 81.55 online with another broker even at that moment in time. I TOOK THIS SNAPSHOT AFTER THE SCHWAB BROKER CALLED ME BACK WITH THE 78 PRICE:

This snapshot shows the dealer willing to accept two bonds at 81.55. This occurred on Monday. Throughout Tuesday, the same dealer was willing to accept those two bonds at 81.55.

There are a number of financial magazines that rate brokerage firms based on their purported research. Those ratings are based on what I would generously call a superficial analysis. Until an investor is actually in the trenches, trading a variety of securities day after day, you will not learn the advantages and disadvantages of each firm. All of the the firms that I use have significant disadvantages that have never been mentioned in one of those articles, even in passing.

2. REDDY ICE (OWN 1 2nd Lien Bond): As expected, Reddy Ice is contemplating a bankruptcy filing. The firm is negotiating with its lenders in an effort to reduce leverage. There will be a statement in the late filed Annual Report that there is "substantial doubt" about continuing as a going concern. I had previously raised my risk rating to 10+, the highest risk of default in my ratings. Reddy ICE (8/11/2011).

I do anticipate a bankruptcy petition. The only questions in my mind are whether that filing can be a prepackaged bankruptcy and the full extent of my loss on the bond. I fully anticipate a 50% or greater loss on this bond. That is one good reason to limit my exposure in these risky bonds, rated in Category 1 of my Personal Risk Ratings For Junk Bonds, to just 1 bond. I would probably be better off not buying any. I have modified this strategy, as previously mentioned, to buy bonds in this category at a greater than 50% discount to par value.

I have also previously mentioned that Reddy Ice was spending its scarce financial resources defending against a civil antitrust suits.  (see discussion of lawsuits starting at page 54 of the last Form 10-Q) In the event of a bankruptcy filing, that suit would be automatically stayed, and it would be foolish for the plaintiffs to continue with the suit. Even if they were successful, which is far from certain, the plaintiff would become an unsecured creditor. There is not enough to go around for the existing secured creditors in my opinion, and it would not make much sense to undergo continued litigation expense with no realistic prospect for monetary relief.

As of 9/30/11, the company had $439+ million of senior secured debt on its balance sheet. The first lien note has a principal amount of $300 million. I own the second lien which has over $139M principal amount outstanding.  (page 15)

S & P lowered its credit rating on the 2nd lien notes to "C" from CCC-; and expect a negligible recovery of 0% to 10% in the event of a payment default. After lowering the ratings, S & P kept a negative outlook. TEXT-S&P That range may be reasonable, though tilting slightly toward pessimistic with the 10% cap. If the second lien holders are able to receive sufficient common stock in a reorganized company with substantially less leverage, and a clean slate on the litigation front, the recovery could rationally be expected to exceed 10%.  I would not be surprised that a bankruptcy liquidation yielding a zero return given the size of the first lien debt.

S & P's recovery expectation for the first lien debt is only 30% to 50% in the event of a default. While I would not even consider buying any Reddy Ice bond now, given the poor operating results since my purchase and the potential for bankruptcy, some investors are buying that first lien bond at over 90. FINRA

The common shares were delisted several weeks ago and were trading at around 10 cents. The market cap at that price was less than $3 million. Reddy Ice Holdings (RDDY) I would anticipate the common shares to become worthless in a bankruptcy. The current common share price is a clear signal that there is really no equity value in the company.

I have been preoccupied with other matters so I do not have any trades to discuss in this post. 


  1. Fidelity has a commonsensical approach to this, our tax system is a hodgepodge of special interest provisions accumulated over centuries in Washington DC, thus you are lucky you are getting any help from us and TurboTax. Thus do not complain to us please.

    This is a sense of things I got from them when complaining about how the system works for short term secondary market bond transactions.

    Specifically, if you buy a bond from them on the secondary market at premium that matures the year it was bought they will report:

    a) properly the interest made (final coupon minus accrued interest paid)

    b) improperly the cost base (100% or at par) ignoring the premium paid.

    The situation is the classic Catch 22, on IRS's form 8949 you cannot theoretically change anything, the only options is (A) short term transactions reported on Form 1099 with basis reported to the IRS (as they did) and Fidelity people emphatically refuse to change the reported basis.

    I changed it anyway manually, but I had to do it only for three positions not hundreds.


    Re their quoting system. Patchy it is, pink sheets are quoted properly but accounted in a much delayed fashion, a week or two later.

    Some "bond" issues are also highly problematic from them. For example they don't quote 018805200 at all. () They claim no market in that security when you call them which is not true see FINRA. (BTW when was last time you saw something A level that pays north of 8%.)They finally found it for me, interesting on the ex dividend date. The security trades flat so that looks extremely fishy to me.

    BTW where are you on ING now, it lost quite a bit since you bought it a few days back!

  2. I believe that my TurboTax problem originates with Fidelity. For me, Fidelity correctly identifies in its paper 1099 the transactions reported to the IRS and which ones are not reported. The problem is not segregating those properly in the download into TurboTax. No other broker has that problem. For bonds, there is no cost basis reported to the IRS until 2013.

    So for your bonds, there would be no tax basis reported to the IRS for either the 2011 or 2012 tax years. In your paper 1099 in the column "cost or other basis. . .", there will be a "n" which means not provided to the IRS or a "P" which means provided. You may want to double-check that form.

    About 90% of my 2011 Fidelity transactions would have an "n" in that column but would be treated by TurboTax as reported to the I.R.S. apparently due to Fidelity's error in failing to segregate them properly. That error causes TurboTax to report "not reported" transactions as reported.

    Neither TurboTax nor Fidelity will ever help on this kind of issue. It is my problem, even though I had no hand in creating it. I have worked my way up to Fidelity transaction #325 and expect to finish on Good Friday with the error correction.

    As to ING I own 30 shares as a Lottery Ticket, and will continue to hold it. A number of European stocks have been hammered over the past few days. France Telecom hit a new 52 week low today. If you see me buy as a LT, it is with trepidation on the risk side.

    I owned AZ.GA when it was traded on the stock exchange under the symbol AZM. Yes, it would trade flat due to its origins as an exchange traded hybrid. That one also pays qualified dividends. It is in effect a junior bond, whose interest can be deferred for up to 40 quarters or 20 quarters before activation of the alternate payment clause. Unlike U.S. trust preferred issues, there is no maturity date. I discuss the Aegon hybrids, a similar security, at length in Aegon Hybrids: Gateway Post. So it involves risks associated with the EC's burden sharing policy for hybrids. You could buy AEG and ING hybrids on the stock exchange. I have sold all of mine.

    Sometimes, the Fidelity system will not give me a quote on a bond when I enter a search for that name. An example would be Quicksilver Resources bonds other than the subordinated one maturing in 2016. However, if I enter a Cusip number quotes will show up.

    Frequently, I will not see an order book on one of my bonds, no bids or ask quotes are shown, but I will note some trades at FINRA. You could probably get them to enter a day limit order for you, but I have not tried to do it. For the Allianz hybrid, it seems that most of the trades are in the 25.75 to 26.25 area, a $26 price would give you the 8% but AZ may call this one at its option in the not too distant future too. That fact alone will explain the yield. If AZ could not call it until say 2028, you would have a less than 6% yield, probably closer to 5%. You have to keep in mind the call right.

    I can not trade my Canadian ETFs in the U.S. Grey Market. Until Fidelity restores the correct Canadian symbols, I am in total limbo.

    There are a number of issues relating to the Accounting for Amortization of Bond Discounts and Premiums. I buy entirely bonds at a discount and Fidelity will add "realized market discount" to my basis which will reduce my gain when the bond is sold at a profit prior to maturity. While I am not an accountant, that realized market discount appears to be income to me, though Fidelity has taken it out of short term realized gains reportable in Schedule D by increasing the tax cost basis. I will nonetheless include it in OID interest even though Fidelity does not report it as such. I have about $80 of that last year.