Thursday, September 27, 2012

Stable Vix Pattern as of 9/26/12/Sold 50 ISM at $23.4/Gray Television/Added 50 CSCO at $18.7

The composite 20 twenty city Case-Shiller index for home prices rose 1.6% in July. This was on top of a 2.3% increase in June. All 20 metropolitan areas experienced positive monthly changes for the third month in a row. Some of the July over June increases: Atlanta +2.6%; Chicago 2.7%; Detroit 3.3%; Minneapolis 3.7%; and Phoenix 2.2%.

Santander (SAN) raised more than $4 billion by selling approximately 25% of Grupo Financiero  Santander Mexico (BSMX). I own 130 shares of Santander Finance's floating rate equity preferred stock which pays the greater of 4% or .52% above the 3 month LIBOR rate on a $25 par value.  Advantages and Disadvantages of Equity Preferred Floating Rate Securities

I received earlier this week the shares purchased with dividends paid by the stock CEFs RVT and RMT:

The Administration sent a strongly worded letter to several hospital associations, which will forward the letter to their members, saying that there will be vigorous prosecutions for improper billing. NYTLetter From Obama Administration on Hospital Billing The letter notes that prosecutions were 75% higher in 2011 compared to 2008.

While recent movements suggest further downside in stocks, based on renewed concerns about Europe and China's growth, the VIX has nonetheless formed a Stable Vix Pattern, marking 3 months of continuous movement below 20. There was one day (7/24/12) during that period when the VIX closed slightly above 20. I did not restart the count based on that one day move. (see introduction, Stocks, Bonds & Politics: VIX) I did not include that day in the 3 month count however.

The Vix Asset Allocation Model is based on historical evidence starting in 1990 for the VIX. The Model would have flashed a sell signal in 1987 before the October crash by using VXO data. CBOE OEX Implied Volatility Index ChartParallels to VXO 1987-1988

The reason for the three month period is to avoid a false signal. Historically, the Unstable Vix Pattern would have brief periods of movement below 20 before whipsawing back into the high 20s and low 30s. That whipsaw pattern would either reassert itself within a three month period or be extinguished by a continuous movement below 20 lasting for several years, one or the other. The stock market has experienced a sustained upward move during the prior two Stable Vix Patterns. This time may be different.

Yesterday's Closing Prices:  VIX: 16.81 +1.38 (+8.94%)S & P 500: 1,433.32 -8.27 (-0.57%)

1. Sold 50 of 100 ISM at $23.4 Last Monday (see Disclaimer): I took the following snapshot shortly before selling 50 of my 100 ISM shares:

100 ISM Unrealized Gain +$318.6 Before Selling 50
Using FIFO accounting, I sold the shares bought over a year ago at $20.62 (August 2011). In addition to the monthly interest payments, I realized a gain of $121.57 on those 50 shares after commission:

2012 ISM 50 Shares +$121.57
I also reduced my average cost to $19.66 for the remaining 50 shares. Bought 50 ISM at 19.5 (October 2011)

ISM is a senior exchange traded bond issued by SLM. It matures on 1/18/2018 at $25. Prospectus This security pays a monthly interest rate tied to CPI. The penny rate has been declining due to a decrease in the CPI numbers used in the interest rate computation. The next payment will be $.0761 per share according to the Fidelity website, with a 10/10/12 ex interest date.  ISM paid over 10 cents per share a few months ago. 

I am able to compute the December 2012 payment based on the recent CPI release. The calculation uses the non-seasonally adjusted CPI numbers which are available at the St Louis Fed:

August 2012: 230.379
August 2011: 226.545
Difference= 3.834 (increase over 1 year)
Divide 3.834 by August 2011 Number of 226.545= .01692%
Add Spread of .0205 to .01692=.03742%
Multiply .03742% x. 25=$.9355 (annualized)
Multiply $.9355 x. 30/365 (30 day payment period)=$.0769 per share

Yesterday's Close:   ISM: 23.33 -0.33 (-1.39%)

2. Gray Television (own one senior 10.5% secured 2015 bondJunk Bond Ladder Strategy) Gray Television  is offering to purchase up to $ M of its senior secured 2015 notes at $1,078.75 per $1,000 par value bond, which includes an early tender premium of $5 ($1,083.75 with accrued interest). SEC Filing

The company priced 300M of senior notes maturing in 2020 and intends to use the net proceeds to finance the tender for the 2015 notes. (sized increased: SEC Filing; offer: EX-99.2)

If I was allowed, I would tender this bond. However, the offer requires that at least two bonds be tendered:

I purchased this bond at 95 last November: Bought 1 Gray Television 10.5% Second Lien Bond Maturing 6/29/2015 at 95 Given the large senior secured credit facility, the 2015 senior secured note is in effect a second lien bond. When I bought the bond, it was rated at CCC by S & P. It is now rated slightly higher at CCC+ by S & P. The Moody's rating is unchanged at Caa2.  In short, this second lien bond is extremely risky. FINRA shows $365M outstanding of the 2015 bond. 

3. Averaged Down by Buying 50 CSCO at $18.7 Last Tuesday (see Disclaimer): After trading small lots of Cisco successfully, I have not had an opportunity to sell 100 shares, purchased in two 50 share lots, at a profit. Bought Back 50 CSCO at $19.95 (February 2012); Bought  50 CSCO @ 19.55.

At least those are better entry prices than the $77 price tag from 2000. CSCO Interactive Chart Anyone buying in 2000, who still owns the stock, will likely never recover.

I discussed the last quarterly report at Item # 1 CSCO (8/20/12 Post)

Cisco recently increased its quarterly dividend by 75% to 14 cents per share. At that rate, the dividend yield would be about 3% at a total cost of $18.7. I am reinvesting the dividend.

The current F/Y consensus E.P.S. estimate is for $1.95 (2013 F/Y ending July 2013) and $2.09 for the 2014 F/Y. The forward P/E would be less than 9 on the F/Y 2014 estimate and a $18.7 share price.

Total Cash as of 7/28/12: $46.06B
Total Cash Per share: $9.21
Total Debt: 16.33 B

Cisco is currently rated at 4 stars by Morningstar with a consider to buy target of $16.8 or less and a FV estimate of $24.

I took a snapshot of my typical small lot trading activity before becoming stuck with my current position:

2010 Cisco Two 50 Share Lots= +$247.64
Yesterday, the shares traded below the 200 simple moving average line, but managed to close slightly above the 200 SMA line: CSCO Interactive Chart

Yesterday's Close: CSCO: 18.58 -0.09 (-0.46%) 

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