Tuesday, May 15, 2012

STD VIX SEM/Earnings: EXC, ARCC, KWK /Added 50 KFN at $8.81-Regular IRA/Sold 200 of the CEF IMF at $17.98-Roth IRA

This is starting to look like one of those sell in May and go away times.

The  VIX shot over 20 yesterday, rising 9.3% to close at 21.74. The VIX is still in the Unstable Vix Pattern first formed in August 2007. Vix Asset Allocation Model Explained SimplyVIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX PatternMark Hulbert and the Use of the VIX as a Timing Model  Since 2/9/12, the VIX has crossed above 20 on 2/10; 2/15; 3/06; 4/10; 4/11; 5/09 and 5/14. VIX Historical Prices Between 7/26/11 and 1/18/12, the VIX was trading consistently above 20 before moving below 20 on 1/19/12. I refer to this whipsaw movement in the VIX, mostly between 20 to 30 with temporary spurts above 30 and below 20, as the defining characteristic of a Phase 1 Unstable Vix Pattern.

Last week, IBM sold $600 million in 1.875% notes maturing in 2019 and $900 million in .75% notes maturing in 2015. www.sec.gov 

A recent study found that one out of ten Wall Street employees are clinical psychopaths. I suspect that the number is much higher.

Ally Financial did place its mortgage unit, ResCap, into bankruptcy yesterday. Ally Financial Announces Key Strategic Actions This appears to me to be the only viable option and may pave the way for an IPO of Ally shares. I own only two GMAC senior unsecured bonds.

Select Medical has cancelled its tender offer for the 2015 subordinated senior bond. Apparently, SEM was not satisfied with the yields being quoted on its proposed refinancing.

I would agree with Professor Thaler that it is important to recognize and to ignore  slippery- slope arguments. Those kind of arguments have been used to justify a wide variety of actions and positions that would not stand up to rational analysis, including the opposition to woman's suffrage as noted by Professor Thaler and to the Vietnam War. True Believers are normally eager to accept slippery slope arguments without a whimper of critical analysis.

In response to Spain's recent decree 18/2012, Santander will set aside another EUR 2.7 billion for actual and potential real estate losses. Santander Press Release

1. Added 50 KFN at $8.81 Last Monday-ROTH IRA (see Disclaimer):

Snapshot of Trade:

2010 Regular IRA Bought 50 of KFN at $8.81
Prior Purchase:

2010 Regular IRA Bought 100 KFN at $9
KFN went ex for its 18 cent per share quarterly distribution on 5/4/12. KFN Stock Quote On Wednesday May 2, the share price closed at $9.22, so the shares had declined by 25 cents more than the value of the 18 cent dividend by Monday 5/7/12. KFN Historical Prices My prior purchase was 100 shares at $9. Those shares paid a regular dividend of $.18 on 3/1/12, a special dividend of 8 cents on 3/29/12, and will pay another $.18 on 5/22/12, or a total of 44 cents per share. Distribution History I have a slight positive total return notwithstanding a small unrealized loss in the shares. I may sell 50 when and if the price goes over $9.4 which will lower my average cost some given the 50 shares purchase at $8.81 last week.

Assuming a continuation of the 18 cent rate, which will likely vary, as shown in this firm's distribution history, the yield would be around 8.17%.

There are tax rules applicable to holding limited partnership units in a IRA. Since I only own 150 shares of KFN, I am not concerned about my IRA being liable for taxes on my proportionate share of KFN's taxable income, which is based on the assumption that the information found at the National Association of Publicly Traded Partnerships is correct. I am not going to think more about it unless and until I receive IRS form 990-T  from my brokerage firm. Instructions for Form 990-T (2011) However, I would not want to get anywhere close to that $1,000 limit so as to trigger the sending of that form and a tax liability for the IRA, no matter how small.

I do not own any other publicly traded partnership in a retirement account.

In addition to my earlier comments about this company, I would add that KFN reported last month its results for the first quarter. SEC Filed Press Release The company reported net income of $88 million or $.48 per diluted share. Book value per share increased to $9.81 per share from $9.41 as of 12/31/11.

KKR Financial Holdings declined 38 cents in trading yesterday to close at $8.39.

2. Sold 200 of the Bond CEF IMF AT $17.98 Last Monday-Roth IRA (see Disclaimer): I bought these shares at $17.7. (3/15/12 Post). I still own 300 of WIW, bought at $12.75, in the ROTH. (4/9/12 Post). I regard WIW and IMF as functionally equivalent. Both funds are heavily concentrated in U.S. TIPs. Both yield slightly more than 3% and pay monthly dividends. While that is not much of a yield, it is still far better than the current yield of TIPs bought at auction or the open market now. The 5 and 10 year TIPs have negative yields.  Bloomberg

I have repeatedly traded both funds throughout 2010, 2011 and this year, usually for small realized gains on the shares after harvesting one or more monthly dividend payments. During that period, the realized gains from trading WIW total $518.57 (see snapshots at Item # 1 WIW). The realized gains from IMF trades total $404.5, which includes the small gain from the recent transaction.

2010 IMF Realized Gains +$ 215.77
2011 IMF Realized Gains +$146.82
2012 IMF Realized Gain +$41.91

Last Monday, 5/7/12, when I sold the IMF shares, that fund closed at -9.18% discount to its net asset value per share of $19.82. WIW closed at a -11.39 discount to its $14.57 net asset value per share that day.

Western Asset Inflation Management Fund rose 4 cents, or .22% in trading yesterday to close at $17.94. iShares Barclays TIPS Bond Fund (TIP) rose .44% or 52 cents to close at $119.9.

3. Ares Capital (ARCC-own 150 shares): For the first quarter, Ares Capital, a Business Development Corporation, reported GAAP net income of $105.5 million or 49 cents per share. Net investment income for the quarter was $77 million or 36 cents cents per share; while core E.P.S. was 36 cents per share. As of 3/31/12, net asset value per share was $15.47, up from $15.34 as of 12/31/11. The Board declared a 37 cent per share quarterly dividend for the second quarter.

Ares Capital declined 11 cents to close at $15.44 yesterday.

4. Quicksilver Resources (own two 2019 senior unsecured bonds as part of the Junk Bond Ladder Strategy and 50 shares of the common as part of the Lottery Ticket Basket Strategy): Quicksilver Resources Reports reported a first quarter loss of $60 million on 35 cents per share that included a number of extraordinary items. Excluding those items, both positive and negative, the company reported a loss of 15 million or 9 cents per share. The consensus estimate was for a 4 cent loss.

The company states that it has reduced spending on dry gas development and is focusing its spending within cash flows. It intends to reduce debt through joint ventures and a new master limited partnership. The joint venture discussions are "on track" and the company anticipates launching the MLP this summer.

As a result of lowering its natural gas price assumptions through 2014, S & P lowered the senior unsecured KWK debt rating to B- from B. TEXT-S&P

5. Exelon (own 50 shares): EXC reported adjusted net income of $603 million or $.85 per share, beating the consensus estimate of 81 cents per share, on a 2.5% decline in revenues to $4.833 billion (adjusted non-GAAP). The company achieved a 93.6% capacity factor in its nuclear generation. During the first quarter, it concluded its acquisition of Constellation Energy. There were 43 million more shares outstanding and 18 days of earnings from the Constellation acquisition. SEC Filed Press release and earnings release attachments

Exelon was adversely impacted by the mild winter and continued weak pricing in its generation segment. Bloomberg Chicago, which is served by EXC's subsidiary, had the warmest March on record. Average realized margins fell to $32.57 per megawatt hour from $44.3 in 2011 first quarter.

Exelon declined 8 cents yesterday to close at $38.82.

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