Monday, July 23, 2012

EK/Greece/Rebate Received on 2011 Health Insurance Premiums due to Obamacare/Sold 50 FCBC at 15.54/Sold 105+FTE/MS/SVU Debt Downgrade/Intel RNST TXI

I published a post over the weekend, a rare Saturday morning special, to highlight the importance of re-examining synthetic floater positions in light of the recent GJN redemption, just the latest example of Wall Street assholes behaving badly. Sold 50 JBK at $22.75/Reassessment of Current Synthetic Floater Positions

Needless to day, the daily readers of this blog, about 25 dedicated souls (occasionally losing one or two on a comment about republicans), already know that I do not hold Wall Street's pathological greed mongers in high regard. Using the phrase "pathological greed mongers" may have unintentionally given away my true opinion of them.

When paying them a complement, or as much of a complement as I can muster, I will simply call them Masters of Disaster, so they are acknowledged to be masters of something, whose main preoccupation in life is to transfer as much wealth to themselves regardless of the consequences to the rest of the world. Sometimes, they are able to accomplish their objective with clever obfuscations that no one understands, until it is too late, but more frequently their actions reflect a lack of common sense and good judgment probably enhanced by their insatiable greed and personality pathologies.

I do not think that the public or the press have given the Wall Street Masters of Disaster as much credit as they deserve for engineering the Near Depression and the ongoing debt crisis, likely to have negative repercussions for several more years. We have a long way to go before exiting this dark tunnel.

Without their tireless efforts at self enrichment, and their "inventions" of satanic instruments like CDO's squared (Recipe for Disaster), the housing bubble would not have been possible. You have to admire their cunning in being able to line their own pockets with billions and then emerging unscathed and considerably richer after causing so much misery to others.

And, it is totally untrue that the OG has ever recommended rounding them up, tattooing some cartoons about the prophet on most of their body, and then dropping them buck naked into the tribal region of Pakistan, letting the Lord make the appropriate decision about their fate. Possibly, the RB made such a suggestion once, though who can take seriously anyone who ruminates about its plans to acquire Canada and renaming it Northern Tennessee.

At least there will be some criminal prosecutions connected with the LIBOR price fixing scandal. Reuters I guess that conduct crossed some kind of line for the authorities, too analogous to simple bank robbery to ignore.

The market jitters last Friday had a usual source. Spain's ten bond yield rose to well over 7% as the Valencia province was reported in need of a rescue from Spain. Bloomberg

Based on a story appearing in a German magazine, several news organizations were reporting last night that the IMF will not be providing additional financing to Greece.  Bloomberg  Reuters MarketWatch If this happens, Greece may be headed soon toward another default on its debt, unless the EU countries want to plough more dough into this lost cause. Greece's bloated public sector was financed for decades, not with taxes or wealth generated by the Greeks themselves, but by borrowing funds from foreigners, using the government as a funnel for the delivery of foreign capital to the citizens.

The EUR/USD conversion rate is moving closer to 1.2, marking a five year low in the Euros value against the dollar. At this level, I will start examining potential purchases of European stocks using my USDs. To the extent the shares are lower in the host market, I receive even more potential value for my money. The currency exchange is going to have the same impact whether I buy the ADRs or the ordinary shares, except I would include a currency conversion charge to convert by USDs into Euros to buy in the host market and would also pay a higher brokerage commission. While I have a stash of Canadian dollars already available, I do not own any Euros. Consequently, I would want to limit my search to European companies that trade on U.S. stock exchanges. International Trading and Currency Risks; Item # 6  Swiss Franc & Roche ADR; Item # 2  Bought 50 of the ADR NABZY at $24.55Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas. Without dwelling on the obvious, Europe presents both risks and long term opportunities.

The general idea in investing is to buy low and sell high, no doubt easier said than done. It is important to keep in mind that currency exchange is one reason for a security to decline in price, thereby making it more attractive. For a U.S. investor, the best time to look overseas is when the USD has risen significantly in value against a foreign currency such as the EURO. The risk is that the USD will continue to rise in value.

On the EUR/USD conversion rate, I ask myself this question. Is Europe or the U.S. moving toward more fiscally responsible spending and taxation policies? Has the U.S. even made a baby step to bringing its out of control budget deficits into a range of fiscal sanity?  I thought that Stephanie Pomboy had some interesting comments about the USD and America's fiscal and monetary policies. Barron's Interview

However, with negative news flow from Europe continuing virtually on a daily basis, I am just looking at some options now.

My cash stash in the main taxable account, earning nothing in a money market fund,  is larger now than at anytime in my life.

I received a 3.4% rebate on my 2011 health insurance premiums paid to BlueCross due to Obamacare. As part of the Affordable Care Act, the insurance company had to pay out at least 80% of the premiums received by it for health care services. If the amount is less than that number, the percentage difference has to be refunded.

S & P cuts its rating on SuperValue bonds, which would include those originally issued by Albertsons, to B- from B, TEXT-S&P. I recently increased my risk ratings for SVU bonds: SuperValu's Earnings and Debt Problems-Raising Risk Ratings for SVU Bonds

Morgan Stanley reported second quarter earnings of $564 million or 29 cents per share, but those results included positive revenues of $350M related to changes in MS's debt-related credit spreads and other credit factors (Debt Valuation Adjustment). Tangible book value per share was reported at $31.02. As of 6/30/12, the Tier 1 capital ratio was approximately 13.5%. Due to the firm's credit downgrades, it had to post $2.9 billion in additional collateral. This report is discussed in a  Bloomberg article.

I do not own the common shares, but I do own 250 shares of the equity preferred floating rate preferred stock MSPRA.

CommonWealth REIT is ex dividend tomorrow for its quarterly distribution. I own 130 shares. Goldman Sachs' floating rate equity preferred stocks are also ex dividend tomorrow. I own 50 shares of both GSPRA and GSPRD. (Note: I corrected the dividend date in the original post from 7/23 to the correct one which is tomorrow, 7/24)

Eastman Kodak lost its patent case against Apple and RIMM at the ITC.  WSJ NYT This will call into question whether EK can even secure enough funds from its upcoming patent sale to emerge from bankruptcy. The ITC held that a key EK patent was invalid. The RB was responsible for buying two 2013 senior unsecured EK bonds. Most likely, I will take a tax loss on one of them before the end of this year. I may keep the other just to see what, if anything, I get out of the current bankruptcy proceeding. The prospects for any recovery by the unsecured bond owners is dimming.

1. Sold 50 FCBC at $15.54 Last Tuesday (Regional Bank Basket Strategy)(see Disclaimer): I have sold some minor positions in this basket into pops. I harvested a profit in  my 50 share position in First Community Bancshares because the move was almost 25% in a relatively short period of time (12.5 to 15.54= .2432%)

2012 FCBC 50 Shares +$136.08
Bought 50 FCBC at $12.5 (February 2012). I have snapshots of my trades at the end of the Regional Bank Basket Gateway Post linked above.

First Community Bancshares fell 20 cents in trading last Friday to close at $14.87.

2. Sold 105+ out of 205 FTE at $13.4 Last Tuesday (see Disclaimer): I recently discovered that a broker could reduce France's dividend withholding tax from 30% to 15% by applying for "relief at source". Vanguard and Fidelity secured that relief for their customers. It cost $.004 per share or 40 cents for 100 shares to do so. The brokers then collected that minuscule fee from their customers. So, I paid Fidelity 40 cents to secure a 50% reduction in my tax rate. I am more than happy to do so. 

Other brokers will not make that filling. Schwab, for example, told me to go do it myself, if I wanted the lower rate, and it would cost more than the tax for me to do so. See Snapshot  Item # 3 Schwab Response on FTE Withholding Tax

I would have cost Schwab $.004 per share which they could have recouped from their customers.

Ameritrade and Sharebuilder also withheld 30%. I would not fool with making an inquiry to Ameritrade.

I did request information about Sharebuilder's policy on such matters and received the following reply:  
Shareholder Response 
Shareholder does not make  relief at source filings, and advised me that I had the option of claiming a credit for the extra tax.

Staff had to tie LB down from giving the Sharebuilder representative a thirty minute lecture about the difficulties in claiming more than $300 in foreign taxes as a tax credit ($600 for married filing jointly), and Headknocker is over that threshold number.  TaxAlmanac  - Foreign Tax CreditForm 1116 Instructions for 2011Publication 514 (2011), Foreign Tax Credit for Individuals;  Seeking Alpha article; Lesson 26 - The Foreign Tax Credit.  

LB already spends laborious hours already filling out Uncle Sam's tax forms every year, and would much prefer keeping the foreign tax payments below the threshold to avoid filling out Form 1116. It is not easy. To accomplish that objective, brokers need to perform a simple service of securing tax relief at the source, where available, which will have the desirable result of lowering the amount needed to be claimed as a foreign tax credit. I would add that the additional tax withheld was not used to buy shares which could make a difference to those who buy in 1000 or more share lots. 

Therefore, since Sharebuilder will not apply for "relief at the source", I sold my position in FTE held at that firm. I will only buy those securities only at Vanguard and Fidelity from this point forward. That would include all companies based in France. 

Since the testamentary trust has an accountant already, who may even like filling out IRS forms, I will keep the FTE shares at Schwab.

I am also keeping my 100 FTE shares owned in a taxable account at Fidelity where only 15% was withheld.  

This sell has nothing to do with FTE, but solely resulted from the broker's refusal to file a document on behalf of its customers to secure tax relief at the source. I sort of understand why Sharebuilder is not set up to do it, but there is no excuse whatsoever for Schwab and Ameritrade.

I bought the shares at $13.17 (April 2012). I was credited with a $100 dividend, of which only $68.01 was used to purchase 5.1445 shares at $13.22, a higher reinvestment price than the one secured by Vanguard. Theoretically, I have a $30 tax credit too. So, I was able to exit the position at Sharebuilder by making a profit on the original and reinvested shares (thus capturing back slightly more in cash than the dividend amount used to purchase those 5+ shares)

I have a target price for possible re-purchase at $12.5 or below. However, the repurchase can only be taxable accounts at Fidelity or Vanguard, both of whom secured the 15% withholding rate.

France Telecom ADS fell 51 cents in trading last Friday to close at $13.11.

3. Intel (own common): Intel reported second quarter GAAP net income of 54 cents per share on revenues of $13.5 billion. The non-GAAP number was 57 cents. The current quarter's forecast was lower than many analysts were expecting. During this last quarter, Intel generated approximately $4.7 billion in cash from operations, paid dividends of $1.1 billion and bought back $1.1 billion in stock.

The shares reacted positively to the earnings release, rising 3.27% on 7/18 to close at $26.21. Since the stock has drifted down since closing at $28.97, adjusted for a dividend, on 5/2/12, INTC Historical Prices. Perhaps some investors were willing to buy some shares after the earnings report and the price decline. My average total cost per share is $17.82 for 273+ shares, see snapshot at Item # 2 Intel. I am no longer reinvesting the dividend. Intel has increased its quarterly dividend from 2 cents per share in 2003 to the current rate of 21 cents. Intel Corporation - Dividend Summary; Item # 6 Common Stock Dividend Growth Strategy

This report is discussed at Bloomberg.

Intel fell 55 cents in trading last Friday to close at $25.51.

4. Renasant (own 155+ Shares: Regional Bank Basket Strategy)Renasant reported net income for the second quarter of $6.345 million or 25 cents per share, one cent better than the consensus, and up from 23 cents in the year ago quarter.

On the day of the earnings release (7/18), the shares rose 26 cents or 1.61% to close at $16.41.

As of 6/30/12, net interest margin was 3.98% (up from 3.76% in the 2011 2nd Q);the return on average assets was just .62% during the quarter (much prefer over 1%); the efficiency ratio was 71.76% (prefer less than 60%); NPLs to total loans was good at 1.25%; the coverage ratio was 149.25%; and the capital ratios were good:

I have traded RNST shares some and currently own 150 shares bought in open market transaction plus reinvested dividends. I have ceased reinvesting dividends.

I sold the 50 share lot bought at $14.91, which was then my highest cost lot using FIFO accounting. I kept the lower cost shares at $13.70 (September 2010). That is a fairly typical trading pattern for this basket strategy. I decided to buy back the shares sold at a higher price for the reasons discussed in Item # 3, Added 50 RNST at $15.85 (March 2011). This was in retrospect a slight mistake since the shares have been trading below that number most of the time thereafter. I thereafter bought another 50 shares at $13.85 on 9/1/11 (total cost of $14.049 with commission). I can not find a blog reference to that add:

I have kept the shares for its dividend, the overall quality of the bank, and its growth through FDIC acquisitions.

After the earnings report, Raymond James upgraded its recommendation to Strong Buy from outperform.

Renasant rose 25 cents in trading last Friday to close at $16.82. The SPDR S&P Regional Banking ETF (KRE) declined by 38 cents to close at $27.

5. Texas Industries (own 1 senior 2020 Bond-Junk Bond Ladder Basket Strategy): TXI reported net income for the Q/E May 2012 of $60.2 million, but "$60.1 million was from asset sales and a joint venture agreement".  The company did break a 10 quarter streak of losses by reporting pre-tax net income of $2.4 after adjusting for the gains.

The company sold some assets during the quarter:

TXI Sells Missouri City Aggregate Terminal 

TXI Sells Package Products Operations

Since I only own 1 bond, I am not going to discuss this report any future. As previously noted, the company eliminated its common stock dividend in October 2011.

The debt is discussed starting at page 51 of the Annual Report for the F/Y ending 5/31/12. Form 10-K At that time, there was $650 million in principal amount outstanding of the 2020 senior note, with total long term debt at $656.949 million.  No amount was drawn at that time on the senior secured credit facility.

Bought 1 Senior Texas Industries 9.25% Bond Maturing 8/15/2020 at 97.5 (July 2011)

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