Shareowners of Coca Cola approved the 2 for 1 stock split. The record date for the stock split will be July 27th. Shareholders of record on that day will receive one additional share for each share held, with the additional shares distributed on or about August 10, 2012. I currently own 132.998 shares at an average cost per share of $50.83. I have quit reinvesting the dividends:
For the moment, I am content harvesting the dividend under my Common Stock Dividend Growth Strategy (item # 6). I discussed in detail how KO shares fit within that strategy in Item # 1, Stocks, Bonds & Politics: Barrons Recommendations and My Trades in The Barron's Columnists' Recommendations in 2009 (August 2009). Coca-Cola closed at $77.96 yesterday, down 2 cents in trading.
The latest entry in a never ending saga of financial shenanigans involves a commodity brokerage firm, Peregrine Financial Group, that alleging committed fraud and misappropriated customer funds. The CFTC, which reviewed Peregrine's books earlier this year, now believes that the firm falsely claimed to have $225 million in segregated customer funds when it actually only had $5 million. (Copy of Complaint: cftc.gov.pdf; Reuters) Needless to say, this is further evidence of both the gross incompetence of regulators and the pathologies so prevalent among the Masters of Disaster.
I suspect that there will be a parade of earnings warnings in the weeks to come. Yesterday, Cummins revised its 2012 revenue outlook, stating that it now expects revenues to be in line with 2011 compared to a previous estimate of a 10% increase. Cummins declined $8.53 in trading yesterday to close at $86.91. I have no position.
The City of Scranton, Pa cut the salaries of city employees to minimum wage.
My regional bank basket rose slightly in value (+.17%) yesterday, even though the S & P 500 declined by .81%. An article written by Anthony Mirhaydari, and published at MarketWatch, noted that a regional bank ETF, KRE, has outperformed the ETF XLF by almost 6% during the first six months of 2012. Of the banks mentioned in his column, I own TRST and FNB in my basket. REGIONAL BANK BASKET STRATEGY GATEWAY POST Updated Regional Bank Basket Table As of 6/19/12
I would disagree with his use of XLF in the comparison however. While XLF is weighted in large banks, the second largest holding is Berkshire Hathaway, and there are several significant non-bank holdings including REITs and insurance companies. Composition XLF A better comparison would be to compare the small and mid sized regional banks with a basket that would include only J P Morgan, Bank of America, Citigroup, Wells Fargo, U.S. Bank, and PNC weighted by market capitalization. JP Morgan Chase stock is down slightly for the year. Citigroup closed at $25.88 yesterday and at $28.33 on 1/3/12. Bank of America closed at $5.8 on 1/3/12 and at $7.38 yesterday. Wells Fargo & Company is up over four points. SPDR S&P Regional Banking ETF has not done that much better, rising from $24.41 on 12/31/11 to $27.03 yesterday, unadjusted for dividends. Still, I would agree with him that the better small and mid-sized regional banks do not have the big headaches and problems that have so occupied the large financial institutions over the past several years.
The individual mandate and Romneycare were originally republican ideas with widespread support in the GOP. Ezra Klein wrote an article for the The New Yorker that explains why Republicans turned against this approach in a typical herd like manner.
A website, ETF Database, is a good source about ETFs. The preceding link contains a comprehensive list of junk bond ETFs. And, the following article contains a useful discussion comparing some of those ETFs. ETF Database Without question, the riskiest of those ETFs is an offering from IShares, iShares B - Ca Rated Corporate Bond Fund (QLTC). I do not own that ETF, which has a .55% expense ratio, but have owned and currently own some bonds from the issuers included in this ETF. iShares B - Ca Rated Corporate Bond Fund (QLTC): Holdings As a general rule, the market's perception of the risk of default will increase with the yield for these securities.
Intel (own) agreed to initially purchase 10% of the pre-transaction issued shares of ASML Holdings for approximately $2.1 billion and will commit to buy another 5%. In addition, Intel is committing €829 million to ASML's research and development in order to accelerate the deployment of new technologies for 450-millimeter wafers and extreme ultra-violet lithography "by as much as two years". Intel shares declined 2.33% in trading yesterday to close at $25.56. A positive spin on this investment is made in Barrons.com article. I own 273+ shares with an average cost per share of $17.82 (see snapshot at Item # 2 Intel) The dividend yield at my total cost, based on the current quarterly payment of 21 cents per share, is 4.71%. I am no longer using the dividend to buy more shares, but would likely start doing that again when and if the price consistently trades below $20.
Select Income REIT (own) declared its first regular quarterly dividend of $.40 per share, plus an additional 9 cents to reflect the first 20 days as a public company. This REIT stock has done well since my purchase. Bought 50 SIR at $21.86 Select Income shares closed at $24.39 yesterday. SIR Stock Quote
Government Properties Income (own) also declared its regular quarterly dividend of 42 cents per share. I own 100 shares.
CommonWealth REIT (own) announced its regular quarterly dividend of 50 cents per share. I own 130 shares.
Goldman Sachs and Bank of America are predicting that the Fed will maintain its near zero interest rate policy until the middle of 2015. Bloomberg
1. Management of my ROTH IRA: Over the weekend, I checked the performance number for the ROTH IRA and found that this account had risen 6.63% between 1/1/12 to 6/30/12. I thought that was notable since the account has a lot of cash earning nothing and almost no stocks. And, from my perspective, the return was particularly good given the lack of volatility in that account. Most of the return originated from dividends and interest, as most positions rose some in value, or stayed close to the same, over that six month period. I will do some trading in that account, usually for small profits, but many positions have been held for more than a year.
 |
| KO Unrealized Gain on 132.998 Shares=+$3,655.06 as of Yesterday Morning |
The latest entry in a never ending saga of financial shenanigans involves a commodity brokerage firm, Peregrine Financial Group, that alleging committed fraud and misappropriated customer funds. The CFTC, which reviewed Peregrine's books earlier this year, now believes that the firm falsely claimed to have $225 million in segregated customer funds when it actually only had $5 million. (Copy of Complaint: cftc.gov.pdf; Reuters) Needless to say, this is further evidence of both the gross incompetence of regulators and the pathologies so prevalent among the Masters of Disaster.
I suspect that there will be a parade of earnings warnings in the weeks to come. Yesterday, Cummins revised its 2012 revenue outlook, stating that it now expects revenues to be in line with 2011 compared to a previous estimate of a 10% increase. Cummins declined $8.53 in trading yesterday to close at $86.91. I have no position.
The City of Scranton, Pa cut the salaries of city employees to minimum wage.
My regional bank basket rose slightly in value (+.17%) yesterday, even though the S & P 500 declined by .81%. An article written by Anthony Mirhaydari, and published at MarketWatch, noted that a regional bank ETF, KRE, has outperformed the ETF XLF by almost 6% during the first six months of 2012. Of the banks mentioned in his column, I own TRST and FNB in my basket. REGIONAL BANK BASKET STRATEGY GATEWAY POST Updated Regional Bank Basket Table As of 6/19/12
I would disagree with his use of XLF in the comparison however. While XLF is weighted in large banks, the second largest holding is Berkshire Hathaway, and there are several significant non-bank holdings including REITs and insurance companies. Composition XLF A better comparison would be to compare the small and mid sized regional banks with a basket that would include only J P Morgan, Bank of America, Citigroup, Wells Fargo, U.S. Bank, and PNC weighted by market capitalization. JP Morgan Chase stock is down slightly for the year. Citigroup closed at $25.88 yesterday and at $28.33 on 1/3/12. Bank of America closed at $5.8 on 1/3/12 and at $7.38 yesterday. Wells Fargo & Company is up over four points. SPDR S&P Regional Banking ETF has not done that much better, rising from $24.41 on 12/31/11 to $27.03 yesterday, unadjusted for dividends. Still, I would agree with him that the better small and mid-sized regional banks do not have the big headaches and problems that have so occupied the large financial institutions over the past several years.
The individual mandate and Romneycare were originally republican ideas with widespread support in the GOP. Ezra Klein wrote an article for the The New Yorker that explains why Republicans turned against this approach in a typical herd like manner.
A website, ETF Database, is a good source about ETFs. The preceding link contains a comprehensive list of junk bond ETFs. And, the following article contains a useful discussion comparing some of those ETFs. ETF Database Without question, the riskiest of those ETFs is an offering from IShares, iShares B - Ca Rated Corporate Bond Fund (QLTC). I do not own that ETF, which has a .55% expense ratio, but have owned and currently own some bonds from the issuers included in this ETF. iShares B - Ca Rated Corporate Bond Fund (QLTC): Holdings As a general rule, the market's perception of the risk of default will increase with the yield for these securities.
Intel (own) agreed to initially purchase 10% of the pre-transaction issued shares of ASML Holdings for approximately $2.1 billion and will commit to buy another 5%. In addition, Intel is committing €829 million to ASML's research and development in order to accelerate the deployment of new technologies for 450-millimeter wafers and extreme ultra-violet lithography "by as much as two years". Intel shares declined 2.33% in trading yesterday to close at $25.56. A positive spin on this investment is made in Barrons.com article. I own 273+ shares with an average cost per share of $17.82 (see snapshot at Item # 2 Intel) The dividend yield at my total cost, based on the current quarterly payment of 21 cents per share, is 4.71%. I am no longer using the dividend to buy more shares, but would likely start doing that again when and if the price consistently trades below $20.
Select Income REIT (own) declared its first regular quarterly dividend of $.40 per share, plus an additional 9 cents to reflect the first 20 days as a public company. This REIT stock has done well since my purchase. Bought 50 SIR at $21.86 Select Income shares closed at $24.39 yesterday. SIR Stock Quote
Government Properties Income (own) also declared its regular quarterly dividend of 42 cents per share. I own 100 shares.
CommonWealth REIT (own) announced its regular quarterly dividend of 50 cents per share. I own 130 shares.
Goldman Sachs and Bank of America are predicting that the Fed will maintain its near zero interest rate policy until the middle of 2015. Bloomberg
1. Management of my ROTH IRA: Over the weekend, I checked the performance number for the ROTH IRA and found that this account had risen 6.63% between 1/1/12 to 6/30/12. I thought that was notable since the account has a lot of cash earning nothing and almost no stocks. And, from my perspective, the return was particularly good given the lack of volatility in that account. Most of the return originated from dividends and interest, as most positions rose some in value, or stayed close to the same, over that six month period. I will do some trading in that account, usually for small profits, but many positions have been held for more than a year.
My Roth IRA account consists mainly of individual bonds (both exchange traded bonds and $1,000 par value bonds purchased in the bond market); bond funds; some preferred and trust preferred securities; Business Development Corporations; REITs (including mortgage REITs and one ETF that invests in mortgage REITs); high yielding stock CEFs; and cash in a money market fund. The account is focused on income generation with a tilt toward capital preservation.
Under current law, I do not pay taxes on that income, nor will I have to pay taxes when money is withdrawn from the Roth. I am simply taking advantage of those tax provisions applicable to Roth IRAs.
The account is not being managed for "growth", but it has nonetheless experienced good growth, particularly in 2009-2010 without suffering much during the 2008 market debacle.
The cash stash will unfortunately increase this month even if I do not sell another security. My main problem is that many of my bonds are being called, and the alternatives for reinvestment are not good.
During July, I will lose in the IRA an exchange traded senior bond GFW with a 7.5% coupon (200 shares in retirement accounts); a U.S. West investment grade bond; and a BAC trust preferred security yielding over 8%. I have not decided yet whether I will even attempt to reinvest proceeds until and unless there are better opportunities than now.
There are many ways to reduce risk. I could avoid risk by investing only in a FDIC insured savings account, though some would argue that even that investment is not totally safe given the fiscal condition of the U.S. government and the sheer number of problematic banks. But, even if the principal amount of money was safe, it would provide me with almost no yield now. Without question, those funds would be losing value due to inflation. For retired folks, or those nearing retirement, who need to grow their retirement accounts, this type of investment creates another and potentially more serious risk for them, the distinct possibility of outliving their money.
I have decided to take reasonable and controlled risks in my IRAs. By focusing on income generation, I have a constant stream of cash flowing into the accounts that can be reinvested in whatever looks good as the money accumulates.
An important risk control technique is to diversify by limiting the amount devoted to securities issued by one company and to achieve broader diversification of securities through funds.
If I buy one or two bonds from a single issuer, I am not assuming much risk due to the limit on my exposure and the total value of the account. Limiting my purchase to say 1 Sears Senior Secured bond is itself a risk reduction technique, since I am not buying 2, 3, 4 or 10 such bonds. The amount of the exposure is a key element of risk reduction in addition to the diversification among securities.
Another aspect of risk mitigation is to weight my bond exposure to an average maturity of less than ten years, preferably closer to five years. That approach reduces interest rate risks and the risk of lost opportunity. As interest rates rise, I lose the opportunity to invest the money tied up in longer dated bonds at higher rates, as those bonds lose value due to the rise in rates. Stocks, Bonds & Politics: Managing Interest Rate Risk (June 2010 Post)
My most successful category of exchange traded bonds has been trust certificates, where my realized gains now total over $24,000. The snapshots of trades are at the end of Stocks, Bonds & Politics: Trust Certificates: New Gateway Post. As shown in that post, a large number of those gains were in the ROTH IRA. For the reasons noted in a subsequent Post, this sub-asset class of is largely played out. Exchange Traded Bonds: New Gateway Post I am still using Synthetic Floaters in the ROTH IRA as one means to manage interest rate risk.
2. Bought 1 Compass Bank 5.9% Subordinated Note Maturing on 4/1/2026 at 76.75 Last Monday (see Disclaimer): This junior bond is currently rated Baa3 by Moody's and BBB- by S & P according to my confirmation:
According to the confirmation, the current yield at my cost is 7.607% and the YTM is 8.738%.
Compass recently repurchased a good chunk of this debt. For the 2026 note, the tender offer was $970 per $1,000 par value bond, plus an additional $30 early tender premium, for up to $150 million of the $275 million in principal amount outstanding. BBVA Compass Announces Tender Offer for Subordinated Notes In short, for those owners who tendered their bonds early, the company would pay the $1,000 par value. The offer was oversubscribed. BBVA Compass Announces Tender Offer Results
Compass was acquired by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) in Septmeber 2007 for $9.115 billion, of which $4.612 was paid in cash. Banco Bilbao Vizcaya Argentaria, S.A. - Form 6-K
As of 12/31/11, BBVA Compass had total assets of $52.655 billion. Form 20-F at page 44
Overall, this acquisition has been a drag on BBVA's consolidated earnings. The U.S. operations lost $950M in 2009 (page 102, Form 20-F ); earned 239M in 2010; and lost $722 million in 2011, page 93. For the first three months of 2012, the U.S. operations generated a net attributable profit of €115, up 15.6% from the year ago quarter. (page 4: Form 6-K)
I was not able to find the bond information at FINRA, nor was I able to locate the prospectus. I was only able to determine that this bond was a junior debenture originally issued by Compass Bank, the operating bank, and not by the holding company later acquired by BBVA. Interest is paid semi-annually (4/1 and 10/1). The Cusip is 20449EEE2. When the note was originally issued in 2006, Fitch rated it at BBB+. The terms of this bond are discussed in a 2006 SEC 10-Q filing, made by COMPASS BANCSHARES, INC., at pages 33-34. Since I could not find much information about this bond, I limited my purchase to just one. Among the important questions which I could not answer was whether there was any right to defer interest payments.
S & P did downgrade this bond to BBB- on 4/30/12, which appears to be the second downgrade so far this year. S & P had previously downgraded the bond to BBB+ on 2/13/12. So the ratings are moving in the wrong direction.
I wanted to buy this bond in my ROTH IRA, which is at Vanguard, but that firm did not have access to any of bonds for sale. I suspect that Fidelity was selling them out of its own inventory and was not publishing the ask price to other dealers.
During July, I will lose in the IRA an exchange traded senior bond GFW with a 7.5% coupon (200 shares in retirement accounts); a U.S. West investment grade bond; and a BAC trust preferred security yielding over 8%. I have not decided yet whether I will even attempt to reinvest proceeds until and unless there are better opportunities than now.
There are many ways to reduce risk. I could avoid risk by investing only in a FDIC insured savings account, though some would argue that even that investment is not totally safe given the fiscal condition of the U.S. government and the sheer number of problematic banks. But, even if the principal amount of money was safe, it would provide me with almost no yield now. Without question, those funds would be losing value due to inflation. For retired folks, or those nearing retirement, who need to grow their retirement accounts, this type of investment creates another and potentially more serious risk for them, the distinct possibility of outliving their money.
I have decided to take reasonable and controlled risks in my IRAs. By focusing on income generation, I have a constant stream of cash flowing into the accounts that can be reinvested in whatever looks good as the money accumulates.
An important risk control technique is to diversify by limiting the amount devoted to securities issued by one company and to achieve broader diversification of securities through funds.
If I buy one or two bonds from a single issuer, I am not assuming much risk due to the limit on my exposure and the total value of the account. Limiting my purchase to say 1 Sears Senior Secured bond is itself a risk reduction technique, since I am not buying 2, 3, 4 or 10 such bonds. The amount of the exposure is a key element of risk reduction in addition to the diversification among securities.
Another aspect of risk mitigation is to weight my bond exposure to an average maturity of less than ten years, preferably closer to five years. That approach reduces interest rate risks and the risk of lost opportunity. As interest rates rise, I lose the opportunity to invest the money tied up in longer dated bonds at higher rates, as those bonds lose value due to the rise in rates. Stocks, Bonds & Politics: Managing Interest Rate Risk (June 2010 Post)
My most successful category of exchange traded bonds has been trust certificates, where my realized gains now total over $24,000. The snapshots of trades are at the end of Stocks, Bonds & Politics: Trust Certificates: New Gateway Post. As shown in that post, a large number of those gains were in the ROTH IRA. For the reasons noted in a subsequent Post, this sub-asset class of is largely played out. Exchange Traded Bonds: New Gateway Post I am still using Synthetic Floaters in the ROTH IRA as one means to manage interest rate risk.
2. Bought 1 Compass Bank 5.9% Subordinated Note Maturing on 4/1/2026 at 76.75 Last Monday (see Disclaimer): This junior bond is currently rated Baa3 by Moody's and BBB- by S & P according to my confirmation:
 |
| Compass Bank Bond Confirmation |
Compass recently repurchased a good chunk of this debt. For the 2026 note, the tender offer was $970 per $1,000 par value bond, plus an additional $30 early tender premium, for up to $150 million of the $275 million in principal amount outstanding. BBVA Compass Announces Tender Offer for Subordinated Notes In short, for those owners who tendered their bonds early, the company would pay the $1,000 par value. The offer was oversubscribed. BBVA Compass Announces Tender Offer Results
Compass was acquired by Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) in Septmeber 2007 for $9.115 billion, of which $4.612 was paid in cash. Banco Bilbao Vizcaya Argentaria, S.A. - Form 6-K
As of 12/31/11, BBVA Compass had total assets of $52.655 billion. Form 20-F at page 44
Overall, this acquisition has been a drag on BBVA's consolidated earnings. The U.S. operations lost $950M in 2009 (page 102, Form 20-F ); earned 239M in 2010; and lost $722 million in 2011, page 93. For the first three months of 2012, the U.S. operations generated a net attributable profit of €115, up 15.6% from the year ago quarter. (page 4: Form 6-K)
I was not able to find the bond information at FINRA, nor was I able to locate the prospectus. I was only able to determine that this bond was a junior debenture originally issued by Compass Bank, the operating bank, and not by the holding company later acquired by BBVA. Interest is paid semi-annually (4/1 and 10/1). The Cusip is 20449EEE2. When the note was originally issued in 2006, Fitch rated it at BBB+. The terms of this bond are discussed in a 2006 SEC 10-Q filing, made by COMPASS BANCSHARES, INC., at pages 33-34. Since I could not find much information about this bond, I limited my purchase to just one. Among the important questions which I could not answer was whether there was any right to defer interest payments.
S & P did downgrade this bond to BBB- on 4/30/12, which appears to be the second downgrade so far this year. S & P had previously downgraded the bond to BBB+ on 2/13/12. So the ratings are moving in the wrong direction.
I wanted to buy this bond in my ROTH IRA, which is at Vanguard, but that firm did not have access to any of bonds for sale. I suspect that Fidelity was selling them out of its own inventory and was not publishing the ask price to other dealers.
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