Big Picture Synopsis
Stocks
Stable Vix Pattern (a bullish cyclical pattern)
Short Term: Slightly Bearish
Intermediate and Long Term: Bullish
Bonds:
Short Term: Neutral
Intermediate Term: Slightly Bearish
Long Term: Extremely Bearish
So now we have QE4, yet another MBS and treasury buying binge. Maybe this one will work some magic. In addition to the purchase of $40B in mortgage backed securities per month, authorized last September, the Federal Reserve committed itself to buying $45 billion in treasuries and to pay with those purchases with new money. This may solve our budget problems. The Fed can print money to buy all of the government's debt and then incinerate that paper in a giant bonfire and pep rally attended by the grateful multitudes relieved to have that burden lifted off their shoulders. The Fed also stated that it will continue its Jihad Against the Saving Class until unemployment fell below 6.5%.
The Fed's balance sheet will soon exceed $3 trillion dollars. FRB: Recent balance sheet trends - Credit and Liquidity Programs and the Balance Sheet
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A positive discussion on New York Community Bank can be found at the Motley Fool website. I recently added 50 shares to my position. Item # 1 Bought 50 NYCB at $12.94-Regular IRA (currently own 200 shares) I will always discuss some of the negative items about my long positions too. Sometimes, I can be long a stock and a reader might infer from my discussion that I have a short position. How many times have I slammed FNFG, for example, that is mentioned in that article? I do not short stocks.
I am not in a position to calculate the daily Shiller P/E ratio. This sites claims to have the number, Shiller PE Ratio, and I will visit it once a week to see the number.
Singapore stocks offer an attractive dividend yield in today's low yield world. I own iShares MSCI Singapore (Free) Index Fund (EWS) The stock was ex dividend for a $.34627 per share semi-annual distribution last Tuesday. Distributions The total distribution for 2012 was $.54233. Assuming an average total cost of $12.96, that works out to be roughly a 4.18% yield. Bought 100 EWS at $12.96
Annaly Capital Management announced a $.45 per share quarterly dividend. The prior quarterly dividend was $50 per share. The dividends have been trending down since hitting a high of $75 per share in the 2009 4th quarter. Annaly Capital Management, Inc. : Dividends I own just 100 shares in the ROTH and will be reinvesting that dividend for so long as the shares trade below net asset value per share. YF has the book value per share at $16.6 as of 9/30/12. NLY Key Statistics
ARMOUR Residential REIT declared a 8 cent per share monthly dividend for the next three months. I own both the common and a cumulative preferred stock..
GE went ex dividend for its $.19 per share dividend on Thursday (own 514+)
General American Investors declared a year-end special dividend of $.6 per share, of which $.53 is a long term capital gain distribution. This is in addition to the earlier distribution of $1.4 which went ex dividend on 11/14/12. I own 100 shares and will be reinvesting those dividends. General American Investors Company Declares Year-End Dividends and Distributions on Common and Preferred Stock This brings me up to $2 per share. This CEF only makes annual distributions. General American Investors: Two-Year Dividend & Distribution Summary The fund follows a buy and hold approach and is known for a low turnover ratio, averaging 22.3% over the past five years. General American Investors: Portfolio Strategy
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Treasury Direct
The treasury sold two year notes last Monday at a .245% yield. treasurydirect.gov.pdf
When interest rates were high, I had an account at treasury direct that allowed me to buy treasuries at auction. I let that account expire when the treasury shifted from a paper system to internet accounts. I mentioned in a October 2008 post that I would not be renewing any of my treasury securities at maturity. I did lock in some longer term CD rates with the proceeds from one of the online only banks. When yields rise back to a normal level, I would most likely open a new account which can be done online. It is easy to buy securities at auction by just entering a non-competitive bid and you will receive the "high yield" price that everyone else receives, but you would of course not be influencing the price which will be determined by the competitive bids by large institutions and governments.
TreasuryDirect
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Bloomberg reported earlier this week that a division chief for the California Highway Patrol recently "retired" at age 53, receiving an annual pension of $174,888 from California plus a check for $280,259 in accrued leave and vacation time.
The NRA is just heartbroken about what happened in Newton.
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So now we have QE4, yet another MBS and treasury buying binge. Maybe this one will work some magic. In addition to the purchase of $40B in mortgage backed securities per month, authorized last September, the Federal Reserve committed itself to buying $45 billion in treasuries and to pay with those purchases with new money. This may solve our budget problems. The Fed can print money to buy all of the government's debt and then incinerate that paper in a giant bonfire and pep rally attended by the grateful multitudes relieved to have that burden lifted off their shoulders. The Fed also stated that it will continue its Jihad Against the Saving Class until unemployment fell below 6.5%.
The Fed's balance sheet will soon exceed $3 trillion dollars. FRB: Recent balance sheet trends - Credit and Liquidity Programs and the Balance Sheet
**********
A positive discussion on New York Community Bank can be found at the Motley Fool website. I recently added 50 shares to my position. Item # 1 Bought 50 NYCB at $12.94-Regular IRA (currently own 200 shares) I will always discuss some of the negative items about my long positions too. Sometimes, I can be long a stock and a reader might infer from my discussion that I have a short position. How many times have I slammed FNFG, for example, that is mentioned in that article? I do not short stocks.
I am not in a position to calculate the daily Shiller P/E ratio. This sites claims to have the number, Shiller PE Ratio, and I will visit it once a week to see the number.
Singapore stocks offer an attractive dividend yield in today's low yield world. I own iShares MSCI Singapore (Free) Index Fund (EWS) The stock was ex dividend for a $.34627 per share semi-annual distribution last Tuesday. Distributions The total distribution for 2012 was $.54233. Assuming an average total cost of $12.96, that works out to be roughly a 4.18% yield. Bought 100 EWS at $12.96
Annaly Capital Management announced a $.45 per share quarterly dividend. The prior quarterly dividend was $50 per share. The dividends have been trending down since hitting a high of $75 per share in the 2009 4th quarter. Annaly Capital Management, Inc. : Dividends I own just 100 shares in the ROTH and will be reinvesting that dividend for so long as the shares trade below net asset value per share. YF has the book value per share at $16.6 as of 9/30/12. NLY Key Statistics
ARMOUR Residential REIT declared a 8 cent per share monthly dividend for the next three months. I own both the common and a cumulative preferred stock..
GE went ex dividend for its $.19 per share dividend on Thursday (own 514+)
General American Investors declared a year-end special dividend of $.6 per share, of which $.53 is a long term capital gain distribution. This is in addition to the earlier distribution of $1.4 which went ex dividend on 11/14/12. I own 100 shares and will be reinvesting those dividends. General American Investors Company Declares Year-End Dividends and Distributions on Common and Preferred Stock This brings me up to $2 per share. This CEF only makes annual distributions. General American Investors: Two-Year Dividend & Distribution Summary The fund follows a buy and hold approach and is known for a low turnover ratio, averaging 22.3% over the past five years. General American Investors: Portfolio Strategy
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Treasury Direct
The treasury sold two year notes last Monday at a .245% yield. treasurydirect.gov.pdf
When interest rates were high, I had an account at treasury direct that allowed me to buy treasuries at auction. I let that account expire when the treasury shifted from a paper system to internet accounts. I mentioned in a October 2008 post that I would not be renewing any of my treasury securities at maturity. I did lock in some longer term CD rates with the proceeds from one of the online only banks. When yields rise back to a normal level, I would most likely open a new account which can be done online. It is easy to buy securities at auction by just entering a non-competitive bid and you will receive the "high yield" price that everyone else receives, but you would of course not be influencing the price which will be determined by the competitive bids by large institutions and governments.
TreasuryDirect
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Bloomberg reported earlier this week that a division chief for the California Highway Patrol recently "retired" at age 53, receiving an annual pension of $174,888 from California plus a check for $280,259 in accrued leave and vacation time.
The NRA is just heartbroken about what happened in Newton.
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1. Added 100 of the Buy-Write Stock CEF EXG at $8.78-Regular IRA (see Disclaimer): This purchase was a average down on the share price. I am slightly ahead when adding back the dividend.
Company Description: The Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) is a buy-write closed end fund that invests in stocks worldwide.
Morningstar Page-rated 4 stars. The average 3 year discount is 8.9%. Dividend is heavilysupported by a return of capital.
Sponsor's Webpage: Tax-Managed Global Diversified Equity Income Fund | Eaton Vance. The fund needs to do substantially better in the next five than in the past five, as shown by the performance numbers. While I am not impressed at all with the five year performance, I will give some allowances to a period that included the Near Depression, and I am generally comfortable with the current security selections.
Dividend History: Tax-Managed Global Diversified Equity Income Fund The quarterly dividend history shows a series of reductions, starting at $.3825 per share and ending at $.244 per share with the last distribution. The Fund is changing its distribution option to monthly payments in 2013. That is one reason that I decided to increase my stake. Eaton Vance Equity Option Closed-End Funds Approve Change To Monthly Distributions
SEC Form N-Q for the Period Ending 10/31/12 (List of Holdings): Eaton Vance Tax-Managed Global Diversified Equity Income Fund. This report shows that value of the fund's holdings at $1.35+B and the cost at $1.017B
Data: Day of Purchase 12/12/12:
Net Asset Value Per Share: $10.26
Closing Market Price: $8.78
Discount: -14.42%
12/18/12
Net Asset Value per share= $10.36
Closing Market Price= $8.89
Discount=-14.19
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| Top Ten Holdings as of 10/31/12 |
12/18/12
Net Asset Value per share= $10.36
Closing Market Price= $8.89
Discount=-14.19
Trading History:
Added 100 EXG at $8.91 (August 2012)
Bought 100 of the CEF EXG at 10.61 in Regular IRA
I am reinvesting the dividends. I own now 325.781 shares in the regular IRA (and another 100 somewhere) My average total cost per share is currently $9.28 for the regular IRA shares. The 25.781 shares were bought with $218.43 in dividends, giving me a slight total positive return. Those reinvested dividends have an average total cost of $8.464, so this option is contributing so far to the total return since I have a profit on those shares.
Rationale:
1. Another Total Return Potential of 10%: The tax accounting issue connected with a return of capital issue is not relevant in an IRA. I therefore look at this CEF as potential total return vehicle. I would be pleased with a 10% annualized total return in an IRA.
For this one, I can achieve a 10% total return and lose some money on the shares. The dividend yield is about 11.11% based on the last quarterly payment and at a total cost of $8.78.
I can achieve that 10% annualized return through several ways: (1) a continued rise in the stock markets with the discount remaining about the same; (2) a rising stock market and a narrowing discount (the best option) or (3) a sufficient narrowing of the discount and/or increase in net asset value sufficient to earn a 10% annualized return even with a small loss on the shares.
Risks: There are a number of normal risks attached to CEFs that use a buy-write strategy and invest in stocks worldwide. The buy-write strategy may not add to returns and even subtract from them. There are the normal risks associated with stocks. There is a risk relating to the market increasing the discount to net asset value causing an unrealized loss even the net asset value per share is stable or rising. There is a currency risk connected to owning foreign securities. Anyone unfamiliar with these risks needs to review the prospectus.
I am reinvesting the dividends. I own now 325.781 shares in the regular IRA (and another 100 somewhere) My average total cost per share is currently $9.28 for the regular IRA shares. The 25.781 shares were bought with $218.43 in dividends, giving me a slight total positive return. Those reinvested dividends have an average total cost of $8.464, so this option is contributing so far to the total return since I have a profit on those shares.
Rationale:
1. Another Total Return Potential of 10%: The tax accounting issue connected with a return of capital issue is not relevant in an IRA. I therefore look at this CEF as potential total return vehicle. I would be pleased with a 10% annualized total return in an IRA.
For this one, I can achieve a 10% total return and lose some money on the shares. The dividend yield is about 11.11% based on the last quarterly payment and at a total cost of $8.78.
I can achieve that 10% annualized return through several ways: (1) a continued rise in the stock markets with the discount remaining about the same; (2) a rising stock market and a narrowing discount (the best option) or (3) a sufficient narrowing of the discount and/or increase in net asset value sufficient to earn a 10% annualized return even with a small loss on the shares.
Risks: There are a number of normal risks attached to CEFs that use a buy-write strategy and invest in stocks worldwide. The buy-write strategy may not add to returns and even subtract from them. There are the normal risks associated with stocks. There is a risk relating to the market increasing the discount to net asset value causing an unrealized loss even the net asset value per share is stable or rising. There is a currency risk connected to owning foreign securities. Anyone unfamiliar with these risks needs to review the prospectus.
2. Bought 100 LF at $7.86 ($500 to $1,000 Flyers Basket Strategy)(See Disclaimer): Placing this purchase in the Flyers strategy is judgment call that it currently has less risk than the typical Lottery Ticket selection.
Company Description: LeapFrog Enterprises develops and markets technology based learning platforms primarily designed as content and learning toys primarily for infants and for children through age 9.
LeapFrog Enterprises Profile Page at Reuters
LeapFrog Enterprises Key Developments
I am generally familiar with the products.
Link to LF's website: LeapFrog
Their best product for the current season is a tablet for kids called the LeapPad2, which has no internet connection ability but has cameras, video recorders 4GB memory and a library available consisting of games, eBooks for kids, music and more. LeapPad2 Learning Tablet My purchase was based mostly on this product. The tablet costs $99 and then the parents have to start shelling out money for lots more programs. A bundle of programs for learning to read is currently on sale for $169.96, etc. and so on. Good for LF, bad for parents. Remember the old saw, it is not about selling razors but razor blades.
Prior Trades: Possibly a trade many years ago in a non-Fidelity taxable account, but to difficult to locate.
Recent Earnings Release: See Discussion below in the Rationale section.
Rationale:
(1) Establishing a Possible Price Target of $10 Within 12 Months: Needless to say, a 25% increase in the stock price within 12 months would be highly satisfactory in today's low yield world. With Leapfrog, none of that return can be achieved with a dividend since LF does not pay one.
I say possible price rise. You can not put odds on something like this goal. It is at most a reasonable possibility, in a situation where I see more potential upside at the $7.86 than downside risk.
Probably the most influential article that convinced me to buy just a 100 shares was written by Jack Hough and published in Barrons.com. The LeapPad was launched in August. According to Hough, some retailers are struggling to keep up with demand with both Amazon and WMT online stores out of stock when Barron's published Hough's article on 12/13/12. After the launch of this product, the 2012 third quarter sales rose 28%, compared to the 2011 3rd quarter, and LF raised its guidance for both 2012 sales and earnings. Hough further noted that Credit Suisse had named LF as one of the top 17 stocks to own for the "Long Run" in its annual Stock Section List.
LeapFrog's Competition Heats Up
LeapFrog Enterprises Profile Page at Reuters
LeapFrog Enterprises Key Developments
I am generally familiar with the products.
Link to LF's website: LeapFrog
Their best product for the current season is a tablet for kids called the LeapPad2, which has no internet connection ability but has cameras, video recorders 4GB memory and a library available consisting of games, eBooks for kids, music and more. LeapPad2 Learning Tablet My purchase was based mostly on this product. The tablet costs $99 and then the parents have to start shelling out money for lots more programs. A bundle of programs for learning to read is currently on sale for $169.96, etc. and so on. Good for LF, bad for parents. Remember the old saw, it is not about selling razors but razor blades.
Prior Trades: Possibly a trade many years ago in a non-Fidelity taxable account, but to difficult to locate.
Recent Earnings Release: See Discussion below in the Rationale section.
Rationale:
(1) Establishing a Possible Price Target of $10 Within 12 Months: Needless to say, a 25% increase in the stock price within 12 months would be highly satisfactory in today's low yield world. With Leapfrog, none of that return can be achieved with a dividend since LF does not pay one.
I say possible price rise. You can not put odds on something like this goal. It is at most a reasonable possibility, in a situation where I see more potential upside at the $7.86 than downside risk.
Probably the most influential article that convinced me to buy just a 100 shares was written by Jack Hough and published in Barrons.com. The LeapPad was launched in August. According to Hough, some retailers are struggling to keep up with demand with both Amazon and WMT online stores out of stock when Barron's published Hough's article on 12/13/12. After the launch of this product, the 2012 third quarter sales rose 28%, compared to the 2011 3rd quarter, and LF raised its guidance for both 2012 sales and earnings. Hough further noted that Credit Suisse had named LF as one of the top 17 stocks to own for the "Long Run" in its annual Stock Section List.
LeapFrog's Competition Heats Up
Risks: (1) A Pattern of Erratic Earnings: When I reviewed the five chart, I see a lot of up and down movement with the current price being about where it was five years ago. Leapfrog Enterprises Inc Common Stock Chart | LF Interactive Chart This kind of movement can be ideal for traders, since some of that movement up and down has been fast and significant. The chart looks like one for the S & P 500 during a long term bear market, where there are numerous peaks and valleys, a lot of noise but no progress for a long term holder. This kind of chart tells me right away that the earnings numbers are likely to be all over the place.
One of the up moves started from a $2.85 share price on 8/8/12 and petered out at $11.42 on 8/30/12. Catching a move like that one is a trader's dream. That was probably too much-too fast, bringing out the profit takers in droves and consequently driving the price back below $8 by mid-December. So, what can you say, not for the faint of heart.
My reading of the chart proved to be correct after looking at the net income (loss) and E.P.S numbers:
It would be fair to say that LF has not shown any long term ability to increase earnings in anything resembling a consistent fashion. It is not General Mills or Coca Cola, so any earnings estimate needs to be taken with a good dose of caution and skepticism. I do not fear anyone taking issue with that statement.
One of the up moves started from a $2.85 share price on 8/8/12 and petered out at $11.42 on 8/30/12. Catching a move like that one is a trader's dream. That was probably too much-too fast, bringing out the profit takers in droves and consequently driving the price back below $8 by mid-December. So, what can you say, not for the faint of heart.
My reading of the chart proved to be correct after looking at the net income (loss) and E.P.S numbers:
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| 5 year LF Net Income |
3. Bought 50 AMJ at $37.89-Roth IRA (see disclaimer): I have an unusually high level of cash reserves in my ROTH IRA, earning nothing of course in a Vanguard Money Market Account, whose current yield is .03%, Taxable Money Market Funds - V (Alphabetically) In case anyone has difficulty seeing that number, there is a period before the zero.
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| 2012 ROTH IRA Bought 50 AMJ at $37.89 |
Company Description: JPMorgan Alerian MLP ETN is, as indicated by its name, an exchange traded note (ETN). I generally shy away from ETN's since that form of ownership exposes me to the issuer's credit risk, in addition to the numerous risks associated with the securities owned by this fund. ETN's are unsecured senior notes. I am reasonably comfortable with the JPM credit risk so I bought 50 shares.
I would simply explain the credit risk as follows. If JPM went bankrupt, I am screwed. The Lehman unsecured senior note owners did not exactly recoup their investment in those notes.
This ETN will track several types of MLPs involved in various aspects of the energy business, including pipelines, production and storage, gathering and processing.
From the sponsor's webpage, I took the following snapshot of the top ten holdings in the Alerian MLP index:
JPMorgan Alerian MLP Index ETN Underlying Index
This page also shows the historic performance of this index. The three year annualized return is 18.05% which actually worries me some as a new owner.
I would simply explain the credit risk as follows. If JPM went bankrupt, I am screwed. The Lehman unsecured senior note owners did not exactly recoup their investment in those notes.
This ETN will track several types of MLPs involved in various aspects of the energy business, including pipelines, production and storage, gathering and processing.
From the sponsor's webpage, I took the following snapshot of the top ten holdings in the Alerian MLP index:
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| Top Ten Holdings |
This page also shows the historic performance of this index. The three year annualized return is 18.05% which actually worries me some as a new owner.
Sponsor's Webpage: JPMorgan Alerian MLP Index ETN | J.P. Morgan Exchange Traded Notes
Morningstar Page on AMJ (rated 5 stars). I believe that page is available to non-subscribers. As a subscriber, I have access to the analyst report which provides basic details about the legal structure and the fund.
Closing Price on Day of Purchase (12/14/12): AMJ: $37.87 -0.06 (-0.16%)
Closing Price on Day of Purchase (12/14/12): AMJ: $37.87 -0.06 (-0.16%)
With both MLP ETN and ETFs, I can avoid the K-1 hassle.
I discuss the tax disadvantages of MLP ETFs in several earlier posts that led me to discard most of them. Basically, the MLP ETF had to organize as a regular C corporation which requires it to accrue tax liabilities that will cause it to underperform the index.
While the ETN avoids that particular issue, it has its own baggage with the credit risk issue. So, I sometimes refer to this predicament as picking your poison.
Since I prepare my own tax returns, I am going to avoid the poison connected with owning MLPs directly, which involves imputing K-1 data into my tax return. I have been there and done that.
Investors need to be careful about owning MLPs directly in an IRA for the reasons discussed in this publication from the National Association of Publicly Traded Partnerships and in this informative Seeking Alpha article. If the IRA receives more than $1,000 per year in UBTI (unrelated taxable business income), the amount above that limit will be subject to tax. If you go over that limit, it is my understanding that you will receive a Form 990 from the brokerage. Seeking Alpha; Instructions for Form 990-T (2011)
Those who are familiar with the tax issues claim that there is no UBTI issue when the investor owns a MLP ETF or MLP ETN in an IRA. (e.g. Barrons.com; Seeking Alpha; MLPs and Retirement Accounts; Seeking Alpha) I would not research that issue myself using original source documents. It would give me a headache.
I am certainly no tax expert. (see Stocks, Bonds & Politics: OG's Qualifications and Lack of Qualifications) My knowledge is limited to what I read in articles written by others.
I did discuss the UBTI issue when I bought 150 shares of KFN earlier this year in an IRA. Added 50 KFN at $8.81-Regular IRA I no longer own it.
Rationale: (1) Income with Some Capital Gains Potential: Given the dividend yield, currently near 5%, I can achieve a 10% total return by 5% capital appreciation and possibly less with distribution increases.
Risks: (1) Income May be Devoured by a Loss on the Shares: Since this ETN has already had a decent run, a correction in price is a possibility and it would not take much of a correction to wipe out a 5% dividend. Hopefully, any such correction would be temporary with upside momentum resuming after a correction runs its course.
(2) JPM Default Risk Discussed Above
(3) Normal Risks associated with the securities tracked by the index that are discussed thoroughly in the prospectus. There may be added risks coming from Congress in future years due to changes in the tax code as the government attempts to raise more money.
4. Bought 50 KWN at $24.85-Roth IRA (see Disclaimer): I am just trying to earn some kind return on my cash with this one.
Security and Company Description: Kennedy-Wilson Holdings (KW), through its subsidiaries, operates as a "real estate investment services company" in the U.S., Japan, the UK and Ireland.
I bought an exchange traded baby bond recently issued by KW: Kennedy-Wilson Holdings Inc. 7.75% Senior Notes due 2042, KWN
Company website: Home - Kennedy Wilson
Kennedy Wilson Holdings Profile Page at Reuters
Kennedy Wilson Holdings Key Developments Page at Reuters
KW has a 8.875% senior note maturing in 2019 which trades in the bond market at a premium to its par value: FINRA
According to FINRA, linked above, the senior unsecured notes are rated at B2 by Moody's and BB- by S & P.
I was not that familiar with this company but knew that several of the Royce mutual and closed end funds had significant stakes in KW: KW Major Holders Of the Royce funds mentioned in that link, I own shares in the CEF Royce Micro-Cap Trust (RMT) which shows KW as its largest holding at 2% as of 11/30/12.
Recent Earnings Release: KW reported a GAAP loss of $6.2M for the 2012 third quarter, compared to a $6.2 million loss for 2011. Adjusted EBITDA for the quarter rose 94% to $17.5. As of 9/30/12, the company and its partners owned 14.6 million rentable square feet of real estate, including 13,950 apartments and 24 commercial properties. KW and its partners also owned as of that time $2B in loans secured by real estate.
As of 9/30/12, the balance sheet shows $126.804M in cash and liabilities that included $249.425M in senior debt; $30.748M in Mortgage loans; and $40 in a junior subordinated debenture. The 2019 senior note had a principal balance of $200M. The junior debentures mature in 2037.
Q3 2012 Earning Release
KW-09.30.12-10Q (debt discussed at pp. 14-15; 46-47.
Trading History: None, new issue
Rationale: (1) It Is Entirely About the TAX FREE Income Generation in the ROTH IRA: Of course, this is not a tax free bond. It becomes a tax free bond when purchased in the ROTH IRA. If I can collect several interest payments and sell at over par value, I will be satisfied.
Risks: (1) The interest rate risk would be in my view the dominant risk. As rates rise for long term maturities, the value of this bond will start to go down. It would not be difficult to imagine the pain when and if interest rates rose to 10% for new bonds with a similar credit profile. If I still hold the bond when rates are at 10%, I also incur the risk of lost opportunity, the ability to receive a higher return with the capital devoted the KWN bond.
The second main risk is credit risk. This is how I look at this risk factor. I am okay with the credit risk now. However, let's say just for illustration that I had to hold this bond for 30 years. A lot can happen in 30 years. As the future time span increases, so does the credit risk.
5. Bought 50 GJS at $13.77 (see Disclaimer): GJS has as its underlying security a 6.125% senior bond issued by Goldman Sachs maturing in 2033. GJS has a $25 par value and matures in 2033 too. So, with those two facts in hand, an investor does not need to be particularly insightful to conclude that GJS has some issues of the serious variety. Please note that I purchased just 50 shares, and would receive $11.23 per TC more in 2033, assuming GS or its successor survives to pay the trustee who will then pay me $25 per TC. Assuming redemption, I have a nice long term profit built into the purchase.
The issue is lightly traded and limit orders need to be used. There is usually a wide bid/ask spread.
I also brought this security to the attention of individual investors at Silicon Investor: Income Investing Message Board - Msg: 28614980
Security Description: Everyone already knows about GS, so I will limit this discussion to this odd and esoteric security.
For anyone subject to migraines and unfamiliar with this topic, I disclaim in advance any responsibility for giving you a headache by giving this warning ahead of time: this will make your head hurt.
The name Synthetic Fixed-Income Securities Inc. Floating Rate STRATS Series 2006-2 for Goldman Sachs Group Secs (GJS) does not suggest that this is going to be like reading a children's book about Jack and Jill. The LB is not intimated by such matters and would would certainly prefer reading the prospectus for this security than a romance novel.
While it is just my opinion, I would not buy one of these securities in a non-retirement account due to the tax issues relating to the swap agreement.
GJS is a SYNTHETIC FLOATER in the Trust Certificate form of ownership. This security will make monthly interest payments at a .9% spread over the 3 month treasury bill up to a maximum coupon of 7.5% on a $25 par value.
The GJS TC represents a beneficial interest in a 6.125% senior bond issued by Goldman Sachs that matures on 2/15/2033 that is owned by a grantor trust administered by an independent bank trustee.
Prospectus for GJS: www.sec.gov
Prospectus for Underlying Senior Bond: www.sec.gov
FINRA Information Underlying Bond: FINRA
Just take it one step at a time here.
The trustee will collect the coupon payments on the 2033 senior bond from Goldman Sachs and swap it with a brokerage company for the payment due the owners of GJS.
There is no way for GS to avoid the make whole payment for an optional redemption so the GJN situation is not applicable.
Prior Trading History:
Bought 100 GJS at 12.25 (July 2009)-SOLD GJS at 13.06 (August 2009)
Bought 100 GJS AT $13 (October 2009)-Sold 100 GJS at 15.6 in the Roth IRA (November 2009)
Bought: 50 GJS at 14.6 (August 2010)-Sold: 50 GJS @ 16.20 (October 2010)
Bought 50 GJS at 16.9 in Roth IRA July 2011; Added 50 of the Synthetic Floater GJS at 13.25-Roth IRA (December 2011)-Sold 100 GJS at $14.9 and Bought Back 100 of GYB at 17.2-Roth IRA (March 2012)
Snapshots of Prior Trades at the End of Stocks, Bonds & Politics: Trust Certificates: New Gateway Post
Rationale: This security provides some inflation protection due to the LIBOR float and significant appreciation potential given its current discount when and if three month treasury bills return to normal levels consistent with a sustainable economic expansion.
Risks: These securities are just hard to understand. There is no reasonable prospect for a decent interest payment for several years. However, when there is one on the horizon, this security is not going to be at its current level. It was selling at over $21 in 2007. GJS Stock Chart Of course, there is a risk of a GS default but there is not really much, if any, interest rate risk due to the .9% float over the three month treasury bill. Eventually, the Federal Reserve will end its financial repression and the artificially low short term rate monetary policy. The federal funds rate will determine the three month treasury bill rate.
While I am just guessing, a rise from the current level to 5% would take GJS over $20.
3-Month Treasury Constant Maturity Rate (DGS3MO) - FRED - St. Louis Fed
Politics and Etc:
Risks: (1) Income May be Devoured by a Loss on the Shares: Since this ETN has already had a decent run, a correction in price is a possibility and it would not take much of a correction to wipe out a 5% dividend. Hopefully, any such correction would be temporary with upside momentum resuming after a correction runs its course.
(2) JPM Default Risk Discussed Above
(3) Normal Risks associated with the securities tracked by the index that are discussed thoroughly in the prospectus. There may be added risks coming from Congress in future years due to changes in the tax code as the government attempts to raise more money.
4. Bought 50 KWN at $24.85-Roth IRA (see Disclaimer): I am just trying to earn some kind return on my cash with this one.
Security and Company Description: Kennedy-Wilson Holdings (KW), through its subsidiaries, operates as a "real estate investment services company" in the U.S., Japan, the UK and Ireland.
I bought an exchange traded baby bond recently issued by KW: Kennedy-Wilson Holdings Inc. 7.75% Senior Notes due 2042, KWN
Company website: Home - Kennedy Wilson
Kennedy Wilson Holdings Profile Page at Reuters
Kennedy Wilson Holdings Key Developments Page at Reuters
KW has a 8.875% senior note maturing in 2019 which trades in the bond market at a premium to its par value: FINRA
According to FINRA, linked above, the senior unsecured notes are rated at B2 by Moody's and BB- by S & P.
I was not that familiar with this company but knew that several of the Royce mutual and closed end funds had significant stakes in KW: KW Major Holders Of the Royce funds mentioned in that link, I own shares in the CEF Royce Micro-Cap Trust (RMT) which shows KW as its largest holding at 2% as of 11/30/12.
Recent Earnings Release: KW reported a GAAP loss of $6.2M for the 2012 third quarter, compared to a $6.2 million loss for 2011. Adjusted EBITDA for the quarter rose 94% to $17.5. As of 9/30/12, the company and its partners owned 14.6 million rentable square feet of real estate, including 13,950 apartments and 24 commercial properties. KW and its partners also owned as of that time $2B in loans secured by real estate.
As of 9/30/12, the balance sheet shows $126.804M in cash and liabilities that included $249.425M in senior debt; $30.748M in Mortgage loans; and $40 in a junior subordinated debenture. The 2019 senior note had a principal balance of $200M. The junior debentures mature in 2037.
Q3 2012 Earning Release
KW-09.30.12-10Q (debt discussed at pp. 14-15; 46-47.
Trading History: None, new issue
Rationale: (1) It Is Entirely About the TAX FREE Income Generation in the ROTH IRA: Of course, this is not a tax free bond. It becomes a tax free bond when purchased in the ROTH IRA. If I can collect several interest payments and sell at over par value, I will be satisfied.
Risks: (1) The interest rate risk would be in my view the dominant risk. As rates rise for long term maturities, the value of this bond will start to go down. It would not be difficult to imagine the pain when and if interest rates rose to 10% for new bonds with a similar credit profile. If I still hold the bond when rates are at 10%, I also incur the risk of lost opportunity, the ability to receive a higher return with the capital devoted the KWN bond.
The second main risk is credit risk. This is how I look at this risk factor. I am okay with the credit risk now. However, let's say just for illustration that I had to hold this bond for 30 years. A lot can happen in 30 years. As the future time span increases, so does the credit risk.
5. Bought 50 GJS at $13.77 (see Disclaimer): GJS has as its underlying security a 6.125% senior bond issued by Goldman Sachs maturing in 2033. GJS has a $25 par value and matures in 2033 too. So, with those two facts in hand, an investor does not need to be particularly insightful to conclude that GJS has some issues of the serious variety. Please note that I purchased just 50 shares, and would receive $11.23 per TC more in 2033, assuming GS or its successor survives to pay the trustee who will then pay me $25 per TC. Assuming redemption, I have a nice long term profit built into the purchase.
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| 2012 ROTH IRA Bought 50 at $13.77 |
The issue is lightly traded and limit orders need to be used. There is usually a wide bid/ask spread.
I also brought this security to the attention of individual investors at Silicon Investor: Income Investing Message Board - Msg: 28614980
Security Description: Everyone already knows about GS, so I will limit this discussion to this odd and esoteric security.
For anyone subject to migraines and unfamiliar with this topic, I disclaim in advance any responsibility for giving you a headache by giving this warning ahead of time: this will make your head hurt.
The name Synthetic Fixed-Income Securities Inc. Floating Rate STRATS Series 2006-2 for Goldman Sachs Group Secs (GJS) does not suggest that this is going to be like reading a children's book about Jack and Jill. The LB is not intimated by such matters and would would certainly prefer reading the prospectus for this security than a romance novel.
While it is just my opinion, I would not buy one of these securities in a non-retirement account due to the tax issues relating to the swap agreement.
GJS is a SYNTHETIC FLOATER in the Trust Certificate form of ownership. This security will make monthly interest payments at a .9% spread over the 3 month treasury bill up to a maximum coupon of 7.5% on a $25 par value.
The GJS TC represents a beneficial interest in a 6.125% senior bond issued by Goldman Sachs that matures on 2/15/2033 that is owned by a grantor trust administered by an independent bank trustee.
Prospectus for GJS: www.sec.gov
Prospectus for Underlying Senior Bond: www.sec.gov
FINRA Information Underlying Bond: FINRA
Just take it one step at a time here.
The trustee will collect the coupon payments on the 2033 senior bond from Goldman Sachs and swap it with a brokerage company for the payment due the owners of GJS.
There is no way for GS to avoid the make whole payment for an optional redemption so the GJN situation is not applicable.
Prior Trading History:
Bought 100 GJS at 12.25 (July 2009)-SOLD GJS at 13.06 (August 2009)
Bought 100 GJS AT $13 (October 2009)-Sold 100 GJS at 15.6 in the Roth IRA (November 2009)
Bought: 50 GJS at 14.6 (August 2010)-Sold: 50 GJS @ 16.20 (October 2010)
Bought 50 GJS at 16.9 in Roth IRA July 2011; Added 50 of the Synthetic Floater GJS at 13.25-Roth IRA (December 2011)-Sold 100 GJS at $14.9 and Bought Back 100 of GYB at 17.2-Roth IRA (March 2012)
Snapshots of Prior Trades at the End of Stocks, Bonds & Politics: Trust Certificates: New Gateway Post
Rationale: This security provides some inflation protection due to the LIBOR float and significant appreciation potential given its current discount when and if three month treasury bills return to normal levels consistent with a sustainable economic expansion.
Risks: These securities are just hard to understand. There is no reasonable prospect for a decent interest payment for several years. However, when there is one on the horizon, this security is not going to be at its current level. It was selling at over $21 in 2007. GJS Stock Chart Of course, there is a risk of a GS default but there is not really much, if any, interest rate risk due to the .9% float over the three month treasury bill. Eventually, the Federal Reserve will end its financial repression and the artificially low short term rate monetary policy. The federal funds rate will determine the three month treasury bill rate.
While I am just guessing, a rise from the current level to 5% would take GJS over $20.
3-Month Treasury Constant Maturity Rate (DGS3MO) - FRED - St. Louis Fed
Politics and Etc:
1. Government Share of the Medicare Burden: For the usual reasons, many people believe that they actually pay for their Medicare benefits through the lifetime payroll withholding and the premiums. The Kaiser Foundation, which is a very good authority on this type of issue, lays out the split between the taxpayers and the government at page 2, kff.org.pdf.
2. SEC Rule 604: Many investors do not know, or do not know why, "All or Non" orders are not displayed to other market participants. There is a rule that allows brokers dealers to keep those order invisible, which is also the case with odd lot orders. Code of Federal Regulations
An investor can confirm whether a broker is displaying that order by simply trying one out when the bid/ask spread is more than a penny. Fidelity and TD Ameritrade allow me enter a AON order on 100 shares or more. Vanguard requires at least one more share in the order over 100. As I recall Schwab requires 200. It varies.
But, to see for yourself on your next buy order, enter a AON order slightly above the best displayed bid, complete the request and then check whether the order is displayed or not.
2. SEC Rule 604: Many investors do not know, or do not know why, "All or Non" orders are not displayed to other market participants. There is a rule that allows brokers dealers to keep those order invisible, which is also the case with odd lot orders. Code of Federal Regulations
An investor can confirm whether a broker is displaying that order by simply trying one out when the bid/ask spread is more than a penny. Fidelity and TD Ameritrade allow me enter a AON order on 100 shares or more. Vanguard requires at least one more share in the order over 100. As I recall Schwab requires 200. It varies.
But, to see for yourself on your next buy order, enter a AON order slightly above the best displayed bid, complete the request and then check whether the order is displayed or not.
