Thursday, June 28, 2012

Bought 50 JBK at $21.75-ROTH IRA/KWK/Sold 100 SBSI at $21.53

I am starting to wonder whether telling the truth is a conservative value. The media and most Americans call the GOP a conservative party, which is the source of my confusion. If the GOP is the party for true conservatives, then their politicians would be truth tellers, or so it would seem.

The National Republican Committee has released a 90 second video that claims that the federal health care law taxes "heart attacks, sick puppies and even new babies". found the video divorced from reality and misleading, which is standard operating procedure for the "conservative" NRCC.

Did Ronald Reagan raised taxes during his Presidency? PolitiFact

MFA Financial (own) announced a quarterly dividend of $.23. MFA is a mortgage REIT. The prior quarterly dividend was 24 cents. MFA rose 9 cents in trading yesterday to close at $7.86.

Several securities that I own were ex distribution yesterday including KTN, KRBPRD, MKZ, MSPRA, WIN, NLY, PFK, and SHOPRA. The TC KTN has a penny rate of $1.0256 per share, paid semi-annually. Adjusted for the distribution, KTN shares rose 74 cents to close at $29.19 yesterday. I would not buy KTN anywhere near its current level. (KTN par value= $25) My average cost is below $14. PFK is a CPI floater issued by Prudential, maturing in April 2018, that makes monthly interest payments. Floaters: Links in One Post My average cost is below $20 on PFK, and I would not buy it at its current price (par value $25). MKZ was discussed earlier this week. Item # 1 MKZ Ends Annual Period-Paying 3% Minimum Coupon MKZ will soon pay $.30 per share. KRBPRD is scheduled for redemption on 7/25/12, Item # 3 Bank Of America Calls for Redemption All of its TPs That I Own.

1. Bought 50 JBK at $21.75 last Monday-Roth IRA (see Disclaimer): JBK started out as a synthetic floater and became a fixed coupon Trust Certificate (TC) after Lehman filed for bankruptcy. Its convoluted history has probably caused many to stay away. As a consequence, this security will yield about one percent more than other trust certificates that contain the same underlying security.

A trust certificate represents an undivided beneficial interest in a security owned by a trust. Exchange Traded Bonds: New Gateway Post A TC is classified as an exchange traded bond: Exchange Traded Bonds: New Gateway Post.

When I first bought JBK, it was being priced even more inefficiently than now, as if it was still a Synthetic Floater paying the greater of 3.5% or .75% over the 3month LIBOR rate. Prospectus

Some readers of this post have taken the time to understand the exchange traded synthetic floaters. The underlying security in JBK is a 6.345% fixed coupon trust preferred issued by Goldman Sachs Capital I maturing in 2034. That security pays semi-annually on 2/15 and 8/15. JBK was paying 3.5%, a rate higher than .75% over the 3 month LIBOR, until Lehman declared bankruptcy.

Lehman was the swap counterparty for JBK. Once Lehman declared bankruptcy, the Trustee for JBK took the position that the bankruptcy filing terminated the swap agreement. I viewed that to be the correct position. As a result, the trustee would no longer swap with the Lehman estate in bankruptcy the interest payments made by Goldman Sachs to the Trust in exchange for a payment by Lehman of the amount owed under the swap agreement, which had been 3.5%.

In short, the owners of JBK had just received a coupon raise due Lehman's bankruptcy from 3.5% to 6.345%, but it took awhile for the "efficient" market to figure it out. The payment schedule changed from quarterly, the schedule under the swap agreement, to semi-annually, which was the period of payment under the TP. Clear?

After recognizing what had happened, I proceeded to buy 100 JBK at $16.15 (June 2009). I later added another 50 in the Roth IRA. Item # 2  Bought 50 of the TC JBK at $16  My last add was 50 shares in the Roth IRA. Bought 50 JBK @ 19.63 in Roth IRA I have sold all of those shares. 

I have previously noted that the trustee was to going to make a semi-annual interest payment of $.793125, the exact penny amount due for a payment at 6.345% on a $25 par value. I also referenced SEC filings whereby Lehman acknowledged that the swap agreement had been terminated. New Information about JBK More on  JBK.

Bankruptcy Filing as Swap Termination Event
By October 2010, I decided to move on to other opportunities and sold 100 JBK at 21.59.
2010 JBK 100 Shares Realized Gain +$528.02
This is a link to the SEC filings for this security: JBK SEC

The last trustee's distribution report is available at Trustee's Distribution Statement.

I am coming back to this security due to a lack of alternatives.

There are several other trust certificates that contain the same security, which do not have the foregoing legal baggage, but each of them are priced closer to their respective $25 par values and have a lower current yield than JBK. Goldman Sachs 6.345% Junior Debenture Maturing on 2/15/2034; see, e.g., Corporate Asset Backed Corp. CABCO Series 2004-1 Trust Goldman Sachs Capital I Cl A-1 Call 6.00% Pass-Through Rate, GYAMerrill Lynch Depositor Inc. PPLUS Cl A 6% TRUCs Series GSC-3 for Goldman Sachs Capital I, PYC;  MS Structured Asset Corp. SATURNS Golman Sachs Capital I Cap. Sec Bkd Series 2004-4 6% Deferrable Cl A Call Un, HJJ; and  Merrill Lynch DEPOSITOR Inc. PPLUS Cl A 6.25% TRUCs GSI-1 issued by Goldman Sachs Capital I, PYK.

I could also buy this bond directly in the bond market. It is a liquid bond and 1 bond lots are frequently available for purchase. FINRA The YTM for that bond at a price of 96.5 would be about 6.65%.

Using the Morningstar Bond Calculator, I came up with a 7.82% YTM for JBK bought at a total cost of $21.75.

JBK closed at $22.08 in trading yesterday. The next semi-annual ex interest date will be in early August.

2. Sold 100 SBSI at $21.53 Last Monday (Regional Bank Basket Strategy)(see Disclaimer): This transaction was primarily profit taking and secondarily a capital raise for hoped for stock purchases at lower levels. I bought these shares last May. Item # 1 Bought 100 SBSI at $20.4

2012 SBSI 100 Shares +$97.05
I also received one quarterly dividend, paid on 6/7/12.

Southside Bancshares rose 40 cents in yesterday's trading to close at $21.75.

During an Unstable Vix Pattern in a long term secular bear market, I will sell securities for no other purpose than to raise cash that will hopefully be invested when the VIX moves to the high 20s and the market declines.

At the present time, I will not use my cash allocation to buy common stocks, other than REITs and BDCs. I need more comfort about the near term future to commit more cash to common stocks. I am bullish on stocks long term compared to other major asset classes

Consequently, as a result of this trading limitation imposed by Headknocker, common stocks can be bought only with cash flow received from dividends or interest distributions, or from the proceeds of common stock sales. That restraint will frequently be implemented during The Roller Coaster Ride of the Long Term Secular Bear Market (5/16/10 Post); Underlying Cause of the Current Long Term Bear Market is Too Much Debt (June 2010); Precipitating Cause of Long Term Bear Markets (June 2011 Post); The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets (June 2011). This restraint was reinitiated in April 2012 and was mentioned in the first paragraph of the 5/18/12 Post.

It is possible that the world will muddle through the current crises which are self-inflicted and arise from the innate human desire to receive something for nothing, to live beyond their means, to focus on today's needs rather than the future, and to act generally in an irresponsible manner when it comes to finances. Recognizing that possibility, I still own a lot of stocks.  

3. Quicksilver Resources (own two 2019 senior bonds and the common stock as a Lottery Ticket): S & P cut its rating on KWK's senior unsecured debt to CCC+ from B-, with a negative outlook. The reasons given by S & P are not surprising, given KWK's reliance on natural gas and its heavy debt load. TEXT-S&P

I did notice that the stock was the leading gainer on the NYSE yesterday, rising 16.32% in value to close at $5.06. The volume was heavier than normal at over 6.7 million shares. I did not see any news other than the S & P debt downgrade. 

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