Thursday, July 12, 2012

Bought 100 AMLP at $16.19/Sold 1 ArvinMeritor 10.625% Senior Bond Maturing in 2018 at 105.5/Sold 70 EXIDE at $3.71-LT Category/Alcoa

The market skidded after the Fed released the minutes of its June meeting. I did not see anything in those minutes that was not already known. FRB: Press Release--Minutes of the Federal Open Market Committee, June 19-20, 2012 --July 11, 2012

The weight of the evidence points to a synchronized global slowdown. Stocks, Bonds & Politics: GDP Growth Slowing Worldwide

The San Bernardino, CA. City Council voted to file a petition for bankruptcy under Chapter 9 of the Bankruptcy Code after discovering there was not enough money to meet the payroll. Bloomberg

The electronics retailer, HHGregg, fell $4.19 or 36.31% after giving an earnings warning. Best Buy stock reacted by falling 8.37% to close at $19.37. I have no positions in these retailers.

Financials bucked the market downtrend yesterday. Select Sector SPDR-Financial (XLF) rose .84%. The Vanguard Financials ETF (VFH) rose .59%. SPDR S&P Regional Banking ETF (KRE) rose .59%.

The GOP House members have now voted to repeal Obamacare over thirty times. CNN  The Congressional Research service estimates that it has cost taxpayers almost $50 million for the House of Representatives, controlled by the GOP, to cast those repetitive votes which have a zero chance to pass in the Senate, let alone overcome a Presidential veto. (2:30 into the video embedded at CBS News for the Congressional Research Service estimate of the cost)

The American people are of course aware that every republican politician wants to repeal the 2010 Affordable Care Act, rip it out by its roots as noted by John Boehner, and then replace it with their secret plan to be revealed after the election. There is downside to that position. The majority of Americans may end up supporting the law in the years to come,  particularly when the health insurance exchanges are up and running in 2014 and the number of uninsured dwindle to those who prefer to pay the "tax" rather than to buy insurance.

The unanimous GOP opposition to Obamacare, which has to be known to every adult U.S. citizen and most illegals, could easily become an albatross around the Republicans' neck for decades to come. Is anyone over the age of 21 ever likely to forget? Although most republicans opposed Medicare when it originally become law in 1965, arguing that this now popular program was "socialized" medicine and a government takeover of healthcare, a significant number of Republicans voted for it, including 60 GOP House members and 17 GOP senators. Those GOP members would have no place in the modern Republican Party.

A new book about William Rusher explores the formation of the modern Republican Party. If Not Us, Who?: William Rusher, National Review, and the Conservative Movement Rusher was the longtime publisher of the National Review. Rusher was one of the early advocates of the Southern Strategy, a plan originally hatched by Kevin Phillips to pull southern white voters away from the Democratic Party by exploiting their fears of African-Americans. Stocks, Bonds & Politics: What is the Appropriate Political Label He was a fan of George Wallace and Joe McCarthy. He wanted to cultivate the members of the John Birch Society.

The Republican National Committee Chairman, Reinee Priebus, told Fox "News" last Sunday that Obama has to be defeated before he puts an "end to our way of life in America". RNC chairman According to Mr. Priebus, Obama is destroying our way of life" and the Republicans have to win in order to preserve our "liberty and freedom". Mr. Priebus lives in his own reality creation bubble, undisturbed by judgment, analysis and facts,where an occasional hyperbole masquerades as a thought.

Ultimately, the Republicans will need people who are not crazy and delusional for them to hold power in the coming years. There are only so many angry, uninformed, easily manipulated, middle aged white people, and that demographic is not likely to be a dominant force in the decades to come.

The GOP's hold on the American Talibans, a large and vocal segment of that party, is as secure as the Democrat's lock over "give me the rich people's money" crowd.

The crazies, the ones who view, for example, the Meat Inspection Act of 1906 as an unjustified intrusions on our freedom to eat contaminated meat, are not likely to vote for Obama or any Democrat either. The Reactionary Philosophy of Glen Beck Frank Rich once referred to that grouping of GOP faithful as the "Axis of the Obsessed and Deranged". NYT

I wonder whatever happened to Michele Bachmann's "Light Bulb Freedom of Choice Act". It is somewhat embarrassing to be in a congressional district with Michele's Soul Sister.

As expected, Rick Perry has decided that Texas will not set up health insurance exchanges or extend Medicaid benefits to the working poor. NYT. (25% of the state's population lacks health insurance, the highest percentage in the nation, The Uninsured in Texas)

Hercules Technology Growth Capital Inc. 7% Sr. Notes due 2019 (HTGZ) is ex interest today for its quarterly interest payment. I own 200 shares. Hercules recently sold more of this bond. Hercules Prices an Additional $38.75 Million of 7.00% Senior Unsecured Notes Due 2019SEC Filed Press Release Par value is $25. Bought 100 HTGZ at $24.6-ROTH IRABought 100 HTGZ at $24.63

Wells Fargo Advantage Multi-Sector Income Fund (ERC) is ex dividend today for its $.10 monthly dividend per share. I currently own 550 shares, with 200 of those held in the ROTH IRA. My most recent transaction was to buy 50 shares in early June  at $14.75-ROTH IRA.

Prospect Capital, a serial issuer of common stock, priced 21 million shares of stock at $11.15 and granted the underwriters an option to purchase 3.15 million more shares. I recently sold out of PSEC common shares in my retirement accounts and substituted 50 shares of its recently issued exchange traded senior bond. Bought 50 PRY at $23.58 I still own PSEC common shares in a taxable account. Prospect Capital's common stock declined 8.07% in trading yesterday based on this stock dilution.

1. Sold 1 ArvinMeritor 10.625% Senior Bond Maturing 3/15/18 at 105.5 Last Monday (Junk Bond Ladder Strategy)(see Disclaimer): I have been both reducing my total exposure to junk bonds and selectively taking some profits. The 2018 Meritor bond was bought at 96. Bought 1 ArvinMeritor 10.625% Senior Bond Maturing on 3/15/2018 at 96 (November 2011).

There are several reasons for selling some junk bonds. The goal of this basket strategy is to break-even on the bonds. To achieve that objective, I will need to offset the losses from defaults with realized gains. Those gains will take two forms, selling some bonds before their maturity after price pops and holding others bought at a discount to par value until maturity.

Another reason for reducing junk bond exposure some is that this bond asset class will be generally be positively correlated with economic upturns and downturns. Since March 2009, junk bonds have been positively correlated with the stock market rally and were also positively correlated with the severe stock market decline during the Near Depression period. In other words, I am concerned that the next move of this bond class may be down.

I still own one 2015 bond and currently have over a $100 unrealized gain on that one. Bought 1 ArvinMeritor 8.125% Senior Bond Maturing 9/15/2015 at 93.5. I am more inclined to keep the 2015 bond, given its maturity in a little over 3 years. I also own 100 shares of the common, MTOR. Robert Baird downgraded the common shares earlier this week to neutral and reduced it price target to $13 from $6. The warning from Cummins has had a negative impact on Meritor.

2. Bought 100 of the ETF AMLP at $16.1869 Last Monday (see Disclaimer): AMLP is the symbol for the Alerian MLP ETF. This fund will own master limited partnerships units traded on the stock exchange and focuses on energy infrastructure companies such as pipelines. Alerian MLP ETF (AMLP) - Holdings

Sponsor's Website: Alerian MLP ETF

Dividends are paid quarterly at a variable rate. The historical dividend rate has been slightly above or below $.25 per share. Alerian MLP ETF (AMLP) - Distributions If I assume a $1 annual distribution per share, the dividend yield would be about 6.18% at a total cost of $16.19.

This article at the WSJ discusses the advantages and disadvantages of the MLP ETFs and ETNS.

Another helpful overview of the MLP ETFs can be found at ETF Trends.

I have bought and sold the ETN MLPI, which also owns MLPs:

2010 MLPI 100 Shares Realized Gain +$387.27 
Bought 100 MLPI at 25.9 (July 2010)--Sold 100 MLPI @ 29.93 (November 2010) As noted in the post discussing the MLPI purchase, that security is an exchange traded note (ETN) which exposes me to the credit risk of the issuer in addition to the risks associated with the securities owned by the fund.

Most of the exchange traded MLP funds are in the ETN form of ownership. The Alerian MLP ETF is the only ETF to my knowledge. The WSJ article referenced above points out one major disadvantage of the ETF MLP, which involves holding reserves for the taxes on the MLP distributions.

On the day of my purchase, AMLP rose 3 cents to close at $16.16. The 52 week range is between $13.1 and $17.19.

Alerian MLP ETF rose 8 cents or .5% yesterday. That is what I want to see on a market down day.

3. Sold 70 Exide (XIDE) at $3.71 (Lottery Ticket Basket Strategy)(see Disclaimer): As recently mentioned, I needed to reduce my LT holdings some to comply with a trading rule for this strategy. For no particular reason, I decided to sell 70 shares of Exide that were bought at $2.75:

2012 XIDE 70 Shares +$51.29
XIDE common shares have been volatile. Shortly after my purchase, the price zoomed to over $4 before sliding to $2.29 on 6/1/12, XIDE Historical Prices.

I would consider buying the shares back below $2.75 provided the decline from the current price is unrelated to a significant adverse news development.

I still own 2 senior secured bonds. Bought 2 Exide 8.625% Senior Secured Bonds Maturing 2/1/2018 at 81.375 (December 2011 Post) I am near break-even on those bonds excluding interest. FINRA

Exide Technologies closed at $3.46 yesterday.

I am now in compliance with the LT rule that requires my realized gains to exceed my total dollar exposure to this strategy. In short, I can only play with the house's money.

Realized Gains LT Strategy as of 7/11/12: $10,751.49
Total Dollar Exposure to LT Stocks as of 7/11/12: $10,676.49 (47 stocks)
Lottery Ticket Basket Strategy

4. Alcoa (own common): Alcoa reported adjusted earnings per share of 6 cents per share for the 2012 second quarter, down from 32 cents in the 2011 second quarter. Revenues declined 9.4% to $5.96 billion, as aluminum prices declined 18% compared to a year ago. The company had a GAAP loss of $2 million.

Prior to the earnings release, two analysts cut their earnings forecast for the second quarter. MarketWatch Barrons The GS cut Alcoa's estimates through 2014 due to lower aluminum prices.  

Another recent development is Alcoa' agreement to sell its 351MW Tapoco Hydroelectric Station to Brookfield Renewable Energy Partners for $600 million. This transaction includes four hydroelectric generating stations and associated dams, 86 miles of transmission line and about 14,500 acres of land. Those plants were originally developed by Alcoa to provide power to its Alcoa, TN smelter.  

Profile of Brookfield Renewable Energy Partners
U.S. Grey Market-A Dark U.S. Exchange: BRPFF Brookfield Renewable Energy Partners LP 

I own 100 shares of Brookfield Asset Management (BAM) that manages Brookfield Renewable Energy Partners. BAM owned 100% of the general partnership interest and 73% of the limited partnership units as of 12/31/12,  2011 BAM Annual Report at page 3. Some of those partnership units were sold in a public offering last February.

100 Shares BAM-Toronto Listed Shares
Alcoa was downgraded yesterday by BMO Capital Markets to underperform from market perform and lowered its price target to $8 from $10.  A more upbeat article can be found at Forbes.


  1. Here's a list of some recent "duds" of yours (no criticism implied obviously) and where they are now re your original purchase price. Any of those you consider a buy at this point?

    GGAL -35%
    NOK -34%
    MTOR -31%
    SD -20%
    LSI -20%

    See this table

  2. I would view all of those stocks that you reference to be long term holds. All of them, except for MTOR, were bought under my Lottery Ticket strategy. For most of these stocks bought as LTs, I am already too near my $300 limit to buy more, except for NOK which I would buy now only if I did not already own 50 shares. Part of the risk reduction technique associated with this speculative strategy is that limit on my exposure, plus a willingness and an ability to hold for the remainder of my life, if need be.

    I would buy LSI if I did not already own 40 shares bought at $7.28. I checked the price a few minutes ago and it was at $5.89. I will not average down since I view it as a speculative stock, hence the LT designation, and can not risk more capital.

    SD is interesting to me as a long term hold and $6.25 is admittedly a better buy than my 40 share purchase at $7.68. I may buy one of their bonds, but I am waiting for a better price.

    Over the next year, I might take SD out of my LT strategy provided I am satisfied with earnings and I would also want to see debt reduction and higher energy prices. If I do that, I would buy no more than 60 more shares to round the lot up to an even 100.

    MTOR: I discussed it in today's post. I took a profit on one of its bonds. I am stuck with my 100 shares until institutional investors become more comfortable with truck sales and the economy. I will make a decision on whether to buy another 50 after reading the earnings report.

    GGAL would be a good buy if it was not operating in Argentina. I bought 40 shares. The valuation is tempting at the current lower price but the government is the wild card. The government's takeover of Repsol's interest in YPF, see my discussion in April 18, 2012 post.

    Some LTs will work and others will not. Overall, the record is a good one, as shown by the snapshots in the Gateway Post, notwithstanding some who want to change this strategy, with all of its limitations, into something it is, without question, not intended to be.

  3. I looked at the remainder of the stocks on your table, after the market closed today. I do not use spreadsheets, though I recognize their benefit. If I was going to do one to track my investments, I would not show just the price paid and the current price. I would be interested only in the total return number which would require the addition of any dividend or interest payment made by the security. For a number of stocks in your table, such as ACG, AVK, etc,, the primary purpose for owning them is for their dividends. AVK recently went ex on 7/11 after my purchase, and ACG has gone ex twice, since my purchase, with the last ex date on 7/3/12. MBVT has also gone ex dividend for a quarterly distribution. GSPRD has not had an ex dividend since my last purchase but will go ex in a few days. Without adjusting the price paid down by the amount of the dividends paid since the original purchase, I would regard your spreadsheet as presenting an inaccurate picture since every investor has to be focused on total return and probably more focused on that return after taxes than me.

  4. For income generating issues the need to include distributions in the final accounting goes w/o saying.

    Google online spreadsheets are invaluable imho, I use them as automated price monitoring systems, far easier to maintain than Fidelity or any other (that I have tried) alert system.

  5. I agree. It should be based on the total earnings after paying your tax.

    I've watched a video yesterday, "A Taxing Game" by Ed Butowsky. It helped me understand why stocks are getting lower.

  6. If your goal is to buy at a lower price than me, then the price paid, as shown in your table, would have to be lowered by the amount of the dividend paid. I would hope that all of the securities mentioned by me are thoroughly researched by viewing original source material before anyone makes a decision to buy or sell exercising their own judgment and taking into account their unique financial situation. For me, LT buys are in meaningless amounts.

    For example, you have my FTE buy at a 5% loss based on the 13.17 price paid and a market price at $12.56. Since I purchased those shares, FTE paid a $1 per share dividend. The adjusted price would then would have to be revised to 12.17, assuming the goal is to buy at a lower price. Rather than a 5% loss, the table should reflect instead a 3% gain.

    Another example is ACG which is shown at a 8% gain at a 8.19 purchase price and a 8.44 market price. With two 4 cent dividends paid since the purchase at 8.19, the adjusted price would need to be 8.11, in order to purchase the shares at a lower price in a price trigger.

    BDN also paid a dividend (.15), so the revised price would be 11.09 rather than 11.24 (+9% rather than +8%)

    MS-A is shown at a 7% loss based on a 18.9 purchase price, but the security has gone ex dividend for two quarterly dividends since that March purchase with the last ex date on 6/27. That would require a 50 cent per share adjustment, bringing the price paid down to $18.4.

    SBSI, ONB, SDIV, NBD, MBVT have also gone ex dividend since the referenced purchases in your table.

    I am of course expressing no measurable degree of confidence when buying 50 shares of a $3 stock, viewing such LT buys as similar to playing a hand of blackjack for a similar amount

  7. Janice: That is a nice picture. I viewed the video link in your comment. I doubt that concerns about the expiration of the maximum 15% tax rate for dividends and long term capital gains are causing market volatility with some downside bias now. The current market environment is being driven by expected lower earnings resulting from a worldwide economic slowdown and continued concerns about Europe's sovereign debt and banking problems.

    I have been investing since I was 16, about a year earlier than when this profile picture of me was taken in 1969. The last long term bull market in stocks started in August 1982. I date the end of that secular bull market in October 1997. Others date the end in 2000. Either way, tax rates on dividends and long term capital gains were higher than now during that entire period. The tax on ordinary dividends was at the highest individual marginal rate from 1982 to 2000. That would be the same result if and when the qualified dividend rate of 15% ends. The long term capital gains rate is one of those rates that move all over the place. The rate was at 20% between 1982-1985; and then it was raised to 33% in 1986 and then reduced to 28% in 1990 and remained at that level until 2000 when it was reduced again to 20% before belong lowered to 15% in 2003 as a result of the Bush tax cuts. I will link some data in my next post.

    While tax rates are one factor, they will not be a major factor in bull and bear secular stock markets unless they become clearly excessive or possibly non-existent.

    Dividend stocks could become more attractive if there was no double taxation for example. Companies that pay those dividends would have more income under those circumstances to pay dividends, which would cause an acceleration of dividend growth. Or, dividends could become more attractive to individual investors if they were taxed at zero percent, with the corporate tax on income used to pay those dividends left the same. However, since investors would never be convinced that the government would follow either policy for very long, investors would not price in the full impact of such a policy on the stock's value, using some version of a discounted cash flow model of future income.

    I noticed that your comment was posted at 3:02 A.M. I hope that you were not working on your stocks at that time.