I thought the video interview with Steve Romick, the manager of FPA Crescent (FPACX), was well worth the time viewing. Romick is both knowledgeable and intelligent.
Jeremy Grantham called bond yields "disgusting". Amen to that comment.
The large American financial institutions dismissed Moody's ratings downgrades, basically arguing that Moody's is not competent to analyze their businesses. That argument will resonate, since investors remember Moody's rating toxic trash as AAA. To many, it appears that the rating agencies have compensated for those frequently idiotic past mistakes by lowering ratings below where facts would otherwise justify now. But, who would expect the large banks to agree with a debt downgrade and who really knows what is lurking in their hugely complex businesses? Did Dimon really understand what was happening in London, for example, before the damage was already done?
The "pro-bailout", newly formed Greek government has asked the EU to undo many of the austerity measures and has basically requested more money to spend. Reuters NYT The Greeks are not serious about trimming their bloated public sector, but are interested in receiving as much money from the Germans as possible before defaulting again on their debt.
The trust certificate HJO is ex interest today for its semi-annual distribution. MS Structured Asset Corp. SATURN Aon Capital Security Backed Series 2005-2 6.875% Deb. Cl A (HJO) I own just 50 in the ROTH IRA. HJO has a call warrant attached to it and has a lower coupon than the underlying AON junior bond. HJO Prospectus
Jeremy Grantham called bond yields "disgusting". Amen to that comment.
The large American financial institutions dismissed Moody's ratings downgrades, basically arguing that Moody's is not competent to analyze their businesses. That argument will resonate, since investors remember Moody's rating toxic trash as AAA. To many, it appears that the rating agencies have compensated for those frequently idiotic past mistakes by lowering ratings below where facts would otherwise justify now. But, who would expect the large banks to agree with a debt downgrade and who really knows what is lurking in their hugely complex businesses? Did Dimon really understand what was happening in London, for example, before the damage was already done?
The "pro-bailout", newly formed Greek government has asked the EU to undo many of the austerity measures and has basically requested more money to spend. Reuters NYT The Greeks are not serious about trimming their bloated public sector, but are interested in receiving as much money from the Germans as possible before defaulting again on their debt.
The trust certificate HJO is ex interest today for its semi-annual distribution. MS Structured Asset Corp. SATURN Aon Capital Security Backed Series 2005-2 6.875% Deb. Cl A (HJO) I own just 50 in the ROTH IRA. HJO has a call warrant attached to it and has a lower coupon than the underlying AON junior bond. HJO Prospectus
I own 100 shares of another TC with the same underlying AON junior bond, KTN, which goes ex interest later this month. Structured Products Corp. 8.205% Credit-Enhanced CorTS (KTN) My average cost on that one is less than $14. KTN is unusual among TCs in that there is no call warrant attached to it. The absence of that warrant allows the price to appreciate to reflect a market price for the underlying bond. The underlying bond 2027 is trading well above its par value.
Both KTN and the underlying bond have a 8.205% coupon. www.sec.gov. TRUST CERTIFICATE AON BOND KTN ORDER FILLED 100 shares at $13.1 October 2008; KTN add at less than $14 November 2008; Sold 50 of 150 KTN at 28.17 September 2010
Exchange Traded Bonds: New Gateway Post
I do not have a position in CLARCOR, a company headquartered in Franklin, TN, a few miles from HQ which is located in the SUV Capital of the World. (both Brentwood and Franklin have AAA credit ratings) Along with many other companies, such as MMM, I will monitor Clarcor's earnings, as one of many indicators of the U.S. economy's health. After the close last Wednesday, CLARCOR reported that its second quarter net income was 65 cents, up just 2% from the year ago quarter, and five cents below the consensus forecast of 70 cents. The company reduced guidance for 2012 to $2.5-$2.65 from $2.55-$2.7. Clarcor fell 4.47% in trading yesterday.
I discussed briefly in the last post the importance of understanding correlations among asset classes. While I have not checked the numbers, there is a post that shows in graph form the correlations among different types of ETFs on a rolling basis. Assetcorrelation The same author has a bond Assetcorrelation graph.
Mornginstar also has a Correlation Matrix for the 14 Asset Classes. For large cap U.S. stocks, an asset class with a low positive correlation would be investment grade bonds and non-U.S. bonds would have even a lower correlation at 005.
Felix Salmon wrote an article published at Reuters about how correlations have changed over time.
I recently bought 1 Telecom Italia Capital bond. For those willing to accept the risk, there are senior bonds issued by European telecommunication companies, which are rated investment grade, that provide greater yields than similarly rated corporates issued by U.S. companies. Hopefully, I will have time to discuss in tomorrow's post last Friday's purchase of a Telefonica Emisiones senior bond maturing in 2019, trading at a YTM of around 7.62%. Senior bonds from that issuer, a wholly owned subsidiary of Telefonica (TEF) who guarantees the note, are rated Baa2 by Moody's.
1. Sold 101.9534 Shares of the CEF JTD at $13.35 Last Wednesday (see Disclaimer): These shares were bought in my Sharebuilder brokerage account, one of my satellite brokerage accounts. That particular account was opened after I refused to roll over CDs purchased through the affiliated bank, ING Direct, one of the earliest banks operating solely online. I had used a savings account at ING Direct to buy certificates of deposit before the onset of the Federal Reserve's Jihad Against the Saving Class. As those CDs came due, I rolled them into a ING Direct savings account. I then opened an online brokerage account at the affiliated brokerage, linked it to the savings account, and started to deploy some of the proceeds into dividend paying securities. The primary goal for those funds is income generation, with capital preservation being a another goal. After collecting a good dividend yield, I am prone to sell the security at virtually any profit, just to protect the capital.
Hopefully, in a few years, I can go back to buying CDs with all of the funds at this financial institution. I do not intend on doing that until I can receive at least 4% on a six month CD. That is not going to happen anytime soon, or even before 2015.
By "satellite brokerage account", I am just referring to a brokerage account, opened after the Fed started its Jihad against the Saving Account, that will likely be used to purchase income securities, which will vary in value, but will revert to their original purpose once short term rates start to rise again to 4% or so. Those purposes include the purchase of three and six month treasury bills directly at auction, the purchase of bank certificates of deposit; and the holding of excess cash in money market funds and savings accounts with an occasional purchase of a Vanguard mutual fund with cash flow (mostly bond funds with short durations).
So far in 2012, I have realized short term capital gains in the Sharebuilder account of $267.23 and $153.65 in long term capital gains. The 2011 total realized gains were $1,136.97 ST and $450.89 LT. The total for 2009 was $967.87.
I purchased 100 JTD shares on 2/28/11, and subsequently reinvested only the first quarterly dividend paid 4/1/11. The remaining dividends were paid in cash. Overall, I will receive 6 quarterly distributions of 26 cents per share including the one to be paid on 7/2/12 that went ex dividend 6/13. JTD Distributions That would be $158.24 in dividends netted against a $15.82 loss on the shares, giving me a total return of $142.42 on a total investment of $1,351 (with one reinvested dividend) or 10.54% in less than 16 months. That is viewed as a victory for this account, compared to the alternative.
This is a long winded to be sure explanation of how one taxable account is being managed as part of my coping strategy with the Fed's Jihad. Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans A large number of my posts detail the daily struggle.
Another recent sell out of that account was 52+ shares of GABC. Sold 52+ GABC at $19.62
Nuveen Tax-Advantaged Dividend Growth Fund closed at $13.31 last Friday.
2. BOUGHT 300 Capstone Turbine (CPST) at $.9852 Last Friday (Lottery Ticket Basket Strategy)(see Disclaimer): I was able to buy 300 CPST shares as a Lottery Ticket since the cost, excluding the brokerage commission, was less than $300. LT buys have to be less than $300 plus any prior net trading profits. Since this was my first purchase of CPST shares, I could not buy more than 300 shares.
I would add the following caveat to this purchase. CPST has never had a profitable year and it may never be profitable. The current consensus forecast does call for a 4 cent per share profit in the F/Y ending in March 2014. CPST Analyst Estimates Maybe that will happen, and I would hope so.
For its F/Y ending 3/2012, Capstone had a net loss per share of 7 cents on revenues of $109.371 million, compared to a loss of 16 cents per share on revenues of $81.89 million in the preceding fiscal year. 10-k at p. 33 Over the past two fiscal years, CPST has reported positive net income in only two out of eight quarters, but neither of the quarters with net income was sufficient to generate a penny in net income per share. (p.46) The company used $21.4 million in cash in its operating activities for the 2012 F/Y. (page 46) As of 3/31/12, the company had $49.952 million in cash (page F-3). However, some of that cash was raised in March with the sell of 22.6 million shares and warrants with an initial exercise price of $1.55 per share, at $1.1 per unit. (page 47). Given the cash burn, it would not be surprising to see more dilutive cash raises.
Capstone develops, manufactures, markets and services micro turbines for the production of electricity. This is a link to the company's brochure that describes its products in greater detail. CPST's micro turbines are available in various sizes from 30kW to 1MW configurations and will run on a variety of fuels including natural gas, biogas, flare gas, diesel, and propane. Capstone Turbine Corporation | Products
For the 2012 fiscal year, the company sold 627 microturbine units (96.1MW), up from 611 units (69.7MW) in the previous fiscal year. (page 41)
I have had CPST on my Lottery Ticket monitor list for over 2 years. I just held off buying shares until the price fell below $1.
For anyone interested in this company, I would recommend reading all of the foregoing press releases and to review the recent SEC filings.
Capstone Lands Another Large U.S. Oil & Gas Producer With Initial 12 Unit Order
LUKOIL Begins Commissioning 4MW Order for 17 Capstone Microturbines
Capstone Turbine Announces Fourth Quarter and Fiscal Year 2012 Operating Results
Capstone Expands Presence in Hospital Market With Order for C1000 From Michigan Hospital
Capstone Turbine Corporation Announces Hybrid Concept Truck Programs With U.S. Heavy Duty Truck Manufacturers Kenworth and Peterbilt
Capstone Turbine Corporation Distributor Horizon Power Systems Secures Order for Three C1000s From Genalta Power Inc. in Canada
Capstone Turbine Announces Equity Offering
SEC Filings:
Prospectus for recent equity offering
SEC Filed Annual Report for the F/Y ending 3/31/12
I would make just a few observations. These turbines are popular with firms that need to conduct operations in remote locations, particularly energy firms producing natural gas at those locations. The energy firms can use unprocessed natural gas at the production site to power the gas turbines. One problem with that market now is that several domestic firms have cut back production in response to low natural prices.
One advantage of the CPST turbines is discussed in the press release, referenced above, that involves purchases by the Russian oil company LUKOIL. The CPST turbine can burn untreated "associated gas" that would normally be flared at the production site. Other turbines require treatment equipment to remove sulfides:
Other potential users would include other types of companies operating in emerging market countries that are energy producers, either in remote areas or in places where the electric supply is not exactly reliable.
Hospitals would be another market, where an energy source may be needed whenever there is a loss of power.
There would be other industrial type uses (e.g. data centers, utilities, supermarkets and manufacturing). I believe that these industrial uses need to become more prominent, particularly given the low cost of natural gas, before CPST can turn profitable.
Capstone Turbine rose 4 cents, or 4.49%, in trading last Friday to close at $1.01 on more than double its average three month of 3 million shares.
I do not have a position in CLARCOR, a company headquartered in Franklin, TN, a few miles from HQ which is located in the SUV Capital of the World. (both Brentwood and Franklin have AAA credit ratings) Along with many other companies, such as MMM, I will monitor Clarcor's earnings, as one of many indicators of the U.S. economy's health. After the close last Wednesday, CLARCOR reported that its second quarter net income was 65 cents, up just 2% from the year ago quarter, and five cents below the consensus forecast of 70 cents. The company reduced guidance for 2012 to $2.5-$2.65 from $2.55-$2.7. Clarcor fell 4.47% in trading yesterday.
I discussed briefly in the last post the importance of understanding correlations among asset classes. While I have not checked the numbers, there is a post that shows in graph form the correlations among different types of ETFs on a rolling basis. Assetcorrelation The same author has a bond Assetcorrelation graph.
Mornginstar also has a Correlation Matrix for the 14 Asset Classes. For large cap U.S. stocks, an asset class with a low positive correlation would be investment grade bonds and non-U.S. bonds would have even a lower correlation at 005.
Felix Salmon wrote an article published at Reuters about how correlations have changed over time.
I recently bought 1 Telecom Italia Capital bond. For those willing to accept the risk, there are senior bonds issued by European telecommunication companies, which are rated investment grade, that provide greater yields than similarly rated corporates issued by U.S. companies. Hopefully, I will have time to discuss in tomorrow's post last Friday's purchase of a Telefonica Emisiones senior bond maturing in 2019, trading at a YTM of around 7.62%. Senior bonds from that issuer, a wholly owned subsidiary of Telefonica (TEF) who guarantees the note, are rated Baa2 by Moody's.
1. Sold 101.9534 Shares of the CEF JTD at $13.35 Last Wednesday (see Disclaimer): These shares were bought in my Sharebuilder brokerage account, one of my satellite brokerage accounts. That particular account was opened after I refused to roll over CDs purchased through the affiliated bank, ING Direct, one of the earliest banks operating solely online. I had used a savings account at ING Direct to buy certificates of deposit before the onset of the Federal Reserve's Jihad Against the Saving Class. As those CDs came due, I rolled them into a ING Direct savings account. I then opened an online brokerage account at the affiliated brokerage, linked it to the savings account, and started to deploy some of the proceeds into dividend paying securities. The primary goal for those funds is income generation, with capital preservation being a another goal. After collecting a good dividend yield, I am prone to sell the security at virtually any profit, just to protect the capital.
Hopefully, in a few years, I can go back to buying CDs with all of the funds at this financial institution. I do not intend on doing that until I can receive at least 4% on a six month CD. That is not going to happen anytime soon, or even before 2015.
By "satellite brokerage account", I am just referring to a brokerage account, opened after the Fed started its Jihad against the Saving Account, that will likely be used to purchase income securities, which will vary in value, but will revert to their original purpose once short term rates start to rise again to 4% or so. Those purposes include the purchase of three and six month treasury bills directly at auction, the purchase of bank certificates of deposit; and the holding of excess cash in money market funds and savings accounts with an occasional purchase of a Vanguard mutual fund with cash flow (mostly bond funds with short durations).
So far in 2012, I have realized short term capital gains in the Sharebuilder account of $267.23 and $153.65 in long term capital gains. The 2011 total realized gains were $1,136.97 ST and $450.89 LT. The total for 2009 was $967.87.
I purchased 100 JTD shares on 2/28/11, and subsequently reinvested only the first quarterly dividend paid 4/1/11. The remaining dividends were paid in cash. Overall, I will receive 6 quarterly distributions of 26 cents per share including the one to be paid on 7/2/12 that went ex dividend 6/13. JTD Distributions That would be $158.24 in dividends netted against a $15.82 loss on the shares, giving me a total return of $142.42 on a total investment of $1,351 (with one reinvested dividend) or 10.54% in less than 16 months. That is viewed as a victory for this account, compared to the alternative.
 |
| 2012 JTD 101+ Shares Loss -15.82 |
Another recent sell out of that account was 52+ shares of GABC. Sold 52+ GABC at $19.62
Nuveen Tax-Advantaged Dividend Growth Fund closed at $13.31 last Friday.
2. BOUGHT 300 Capstone Turbine (CPST) at $.9852 Last Friday (Lottery Ticket Basket Strategy)(see Disclaimer): I was able to buy 300 CPST shares as a Lottery Ticket since the cost, excluding the brokerage commission, was less than $300. LT buys have to be less than $300 plus any prior net trading profits. Since this was my first purchase of CPST shares, I could not buy more than 300 shares.
I would add the following caveat to this purchase. CPST has never had a profitable year and it may never be profitable. The current consensus forecast does call for a 4 cent per share profit in the F/Y ending in March 2014. CPST Analyst Estimates Maybe that will happen, and I would hope so.
For its F/Y ending 3/2012, Capstone had a net loss per share of 7 cents on revenues of $109.371 million, compared to a loss of 16 cents per share on revenues of $81.89 million in the preceding fiscal year. 10-k at p. 33 Over the past two fiscal years, CPST has reported positive net income in only two out of eight quarters, but neither of the quarters with net income was sufficient to generate a penny in net income per share. (p.46) The company used $21.4 million in cash in its operating activities for the 2012 F/Y. (page 46) As of 3/31/12, the company had $49.952 million in cash (page F-3). However, some of that cash was raised in March with the sell of 22.6 million shares and warrants with an initial exercise price of $1.55 per share, at $1.1 per unit. (page 47). Given the cash burn, it would not be surprising to see more dilutive cash raises.
Capstone develops, manufactures, markets and services micro turbines for the production of electricity. This is a link to the company's brochure that describes its products in greater detail. CPST's micro turbines are available in various sizes from 30kW to 1MW configurations and will run on a variety of fuels including natural gas, biogas, flare gas, diesel, and propane. Capstone Turbine Corporation | Products
For the 2012 fiscal year, the company sold 627 microturbine units (96.1MW), up from 611 units (69.7MW) in the previous fiscal year. (page 41)
I have had CPST on my Lottery Ticket monitor list for over 2 years. I just held off buying shares until the price fell below $1.
For anyone interested in this company, I would recommend reading all of the foregoing press releases and to review the recent SEC filings.
Capstone Lands Another Large U.S. Oil & Gas Producer With Initial 12 Unit Order
LUKOIL Begins Commissioning 4MW Order for 17 Capstone Microturbines
Capstone Turbine Announces Fourth Quarter and Fiscal Year 2012 Operating Results
Capstone Expands Presence in Hospital Market With Order for C1000 From Michigan Hospital
Capstone Turbine Corporation Announces Hybrid Concept Truck Programs With U.S. Heavy Duty Truck Manufacturers Kenworth and Peterbilt
Capstone Turbine Corporation Distributor Horizon Power Systems Secures Order for Three C1000s From Genalta Power Inc. in Canada
Capstone Turbine Announces Equity Offering
SEC Filings:
Prospectus for recent equity offering
SEC Filed Annual Report for the F/Y ending 3/31/12
I would make just a few observations. These turbines are popular with firms that need to conduct operations in remote locations, particularly energy firms producing natural gas at those locations. The energy firms can use unprocessed natural gas at the production site to power the gas turbines. One problem with that market now is that several domestic firms have cut back production in response to low natural prices.
One advantage of the CPST turbines is discussed in the press release, referenced above, that involves purchases by the Russian oil company LUKOIL. The CPST turbine can burn untreated "associated gas" that would normally be flared at the production site. Other turbines require treatment equipment to remove sulfides:
Other potential users would include other types of companies operating in emerging market countries that are energy producers, either in remote areas or in places where the electric supply is not exactly reliable.
Hospitals would be another market, where an energy source may be needed whenever there is a loss of power.
There would be other industrial type uses (e.g. data centers, utilities, supermarkets and manufacturing). I believe that these industrial uses need to become more prominent, particularly given the low cost of natural gas, before CPST can turn profitable.
Capstone Turbine rose 4 cents, or 4.49%, in trading last Friday to close at $1.01 on more than double its average three month of 3 million shares.
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