Thursday, December 6, 2012

JCP Online Sales/Amazon/Shortage of IPAD Minis/Hussman and Abelson-Two Peas From the Same Pod/Apple's IPAD/TC HJO Called/More Negativity on Intel/ETW & EXG/Bought Roth IRA: 50 BANCL at $25.20, 50 IDE at $16.15 & 50 RSOPRB at $24.9/ Bought 100 APF at $14.55

Big Picture Synopsis


Stable Vix Pattern (a bullish cyclical pattern)
Short Term: Slightly Bearish
Intermediate and Long Term:  Bullish


Short Term: Neutral
Intermediate Term: Slightly Bearish
Long Term: Extremely Bearish

I am maintaining my slightly bearish short term view on stocks. Europe remains in a recession of an uncertain duration; the fiscal cliff issues have not been resolved; and growth is slowing in other parts of the world. Some of the recent economic data, discussed below, is consistent with my short term bearish views, notwithstanding the S & P 500 index quickly recovering from a technical breakdown discussed in my 11/16/12 Post.

I am now working under the assumption that the Bush tax cuts will end for everyone on 1/1/13. This may even be what Obama wants to happen after giving the GOP the opportunity to extend those cuts for everyone other than the wealthy, or more appropriately, those deemed to be well off by the Democrats. GOP intransigence will allow the Democrats to reinforce the existing perception that the GOP cares only by the rich folk and will throw the middle class under the train when push comes to shove.

I would assume that the GOP politicians realize that they are in a bad place right now. And it may get even worse long term for the GOP when the debt limit needs to be increased again in January. Obama does not seem inclined to hold the debt limit increase hostage to GOP blackmail again. NYT Most GOP representatives would gladly cause a U.S. debt default unless the Democrats agree to drastic reductions in entitlement program spending (Medicare/Medicaid, Social Security) and programs designed primarily  to help the poor. If they actually succeed in causing a debt default, the GOP will likely take a long time to recover from that self-inflicted financial disaster.

{I would note that Boehner's proposal would cause drastic spending cuts in Medicare and Social Security, CNBC, and many GOP politicians believe that the cuts need to be deeper and include safety net programs. Is anyone surprised by that approach? The workable and fair solution would be fairly easy to achieve among reasonable individuals who are not warped by ideological considerations, and would involve both tax increases and spending reductions, with some long term changes in entitlement spending such as a very gradual increase in the eligibility age for Medicare. What needs to be done is not hiding somewhere.}

It is possible that a few GOP members will jump ship and approve an extension of the Bush tax cuts except for the wealthy. This would become more likely after 1/1/13 and could then be justified as voting for a rate cut.

There is a zero possibility in my view of the rich escaping a tax increase. In that assessment, I am referring to tax increases in addition to those already embodied in ObamaCare.

In addition to the fiscal cliff issues, the perfect storm for a dysfunctional political system, I am also concerned about some recent economic data.

Brazil reported third quarter GDP growth of .6%, substantially less than the consensus estimate of 1.2%. On an annualized basis, Brazil's GDP growth was just 2.4%, less than the revised estimate 2.7% estimate for the U.S. Bloomberg

The EU statistical agency, Eurostat, reported the euro area October unemployment rate at 11.7%, up from 10.4% in October 2011. Eurostat .PDFWSJ The 11.7% unemployment rate is the highest since the EU starting to keep records in 1995. Spain hit an unemployment rate of 26.2% and 55.9% for persons under 25. Eurostat also reported that the euro area inflation fell to 2.2% in November from 2.5% in October. Eurostat PDF

Markit reported on Monday that its EU Manufacturing PMI index for November was 46.2, marking the sixteenth consecutive month of contraction.

The ISM manufacturing PMI slipped below 50 for November. The reading was 49.5%. Any number below 50 indicates contraction. The new orders component fell to 50.3 from 54.2. Bloomberg The Federal Reserve's last beige book noted that seven out of twelve districts reported a slowing or an outright contraction in manufacturing.

Markit's November manufacturing PMI index for the U.S. showed a rise to 52.4.

The Labor Department revised third quarter labor productivity to show an increase of 2.9% on an annualized basis.  Productivity and Costs, Third Quarter 2012, Revised

China's manufacturing activity appears to be on the upswing. WSJ; MarketWatch

Australia's unemployment rate fell to 5.2% in November. Australia's third quarter GDP growth was reported up .5% from the second quarter, seasonally adjusted, and 3.1% year-over-year. 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Sep 2012 The RBA cut its key lending rate by .25% to 3%, matching the lowest level set during the Near Depression period. RBA: Media Release-Statement by Glenn Stevens, Governor: Monetary Policy Decision The Australian Dollar has been in a modest uptrend against the USD since 10/8/12, AUD/USD Currency Conversion Chart which has provided a slight tailwind for the Australia and New Zealand Debt ETF, AUNZ: 22.93 +0.02 (+0.09%), which is owned. Stocks, Bonds & Politics: Bought 100 of the Bond ETF AUNZ at $22.29 (September 6, 2012 Post).

CoreLogic reported that its US Home Price index rose for the 8th consecutive month in November, year-over-year. The index increased by 6.3% in November 2012 compared to November 2011, the largest annual jump in more than six years.

The WSJ reported that U.S.crude oil production hit the highest level in almost 15 years last September.

While researching an issue earlier this week, I came across a free site at called "Guru Analysis" which analyses stocks based on the criteria used by several famous investors.


The Perpetual Pessimist-The Broken Clock Gives the Correct Time Twice a Day

If a money manager is pessimistic virtually all of the time, and invests his clients money based on that pessimism, then a period like the recent Near Depression will make them look smart. A journalist like Alan Abelson, who has been bearish for his entire life, will sing their praises. Alan and his fellow pessimist David Rosenberg warned investors to stay away from stocks in the March 9, 2009 Barron's issue. Barrons Anyone following their advice would have left a 100% gain or so on the table.

Abelson is forever regurgitating the musings of other kindred souls who view the glass as neither half full or half empty but perpetually overflowing with radioactive wastes. 

Since Abelson has been employed in the same position for a long time, there must be a market for his version of that broken clock. 

His opinion would have some minimal value only for an investor who has no familiarity whatsoever with the current bear thinking.  

In this week's Barrons, Abelson sings the praises of the perpetual bear John Hussman, who manages money in a mutual fund group bearing his name. Abelson refers to Hussman as having "compiled quite a record over the years". Barrons 

Let's look at that record. Hussman did outperform in 2008 due to his perpetual bearish stance. How did he do in bull markets? The performance data of his Hussman Strategic Total Return fund can be found at MSN Money. 

Year  Return      + or - Morningstar Moderate Target Risk Index
2003 +9.8%    -12.58%
2004 +6.5%    -4.98 %
2005 +6%        -1.04 %
2006 +5.66%  -7.29%
2009 +5.84%  -15.93%
2010  +7.03%  -5.3
2011  +4%       +3.41%
2012  1.91%     -8.18%

Most of Hussman's numbers would look worse against the S & P 500.  

Hussman's negativity is shown in the funds top 25 holdings. The top 8 holdings are very low yielding treasury securities, with close to a 41% weighting. Holdings HSTRX 

Why would I pay a management fee for picking those securities? 

The other top holdings are mostly gold mining companies. This portfolio will look smart only when the market is tanking as was the case in 2008. 

As noted in his most recent market letter, Hussman believes the U.S. is already in a recession. His estimate of "prospective stock market return/risk" over the next 18 months "remains among the most negative that we've observed in a century of market data". November 26, 2012

I went back and read one of his commentaries from September 2003. September 7, 2003 He said basically the same thing at that time, arguing that the market's valuations were "as high as they were at any prior market extreme except for the year 2000 peak". He mentioned in that letter that he had increased his hedge to cover 2/3 of the fund's stock portfolio.

Was he bullish about stocks on March 9, 2009 when the S & P 500 closed at 676.53? 

The S & P index is currently over 1400. The S & P 500 index closed at 18.59 on 9/7/1950. Historical Prices | S&P 500 Maybe the perpetual pessimists are giving investors a bum steer. There are always good reasons to be bearish, particularly when you discount and overlook for whatever reason all of the positives. 


I own two Eaton Vance closed end stock funds, EXG and ETW, that will start paying monthly dividends starting in January 2013. Eaton Vance Equity Option Closed-End Funds Approve Change To Monthly Distributions The previous dividend payments were made on a quarterly basis. I always prefer monthly payments. I have been receiving monthly distributions from another Eaton Vance CEF, EOI, and I am currently reinvesting that dividend to buy more shares. I am also reinvesting the dividend paid by EXG.

The Royce CEFS (RVT, RMT, FUND), all of which are owned, declared their quarterly distributions, with a 12/4/12 (last Tuesday) ex dividend date.

Royce Focus Trust, Inc. (Nasdaq - FUND) Declares Fourth Quarter Common Stock Distribution of $0.17 Per Share

Royce Value Trust, Inc. (NYSE: RVT) Declares Fourth Quarter Common Stock Distribution of $0.24 Per Share

Royce Micro-Cap Trust, Inc. (NYSE-RMT) Declares Fourth Quarter Common Stock Distribution of $0.13 Per Share 


1. HJO Redeemed by the Owner of the Call Warrant: HJO is a Trust Certificate containing a junior Aon bond as its underlying security. The owner of the call warrant exercised its right to take possession of the underlying security by paying the HJO owners the $25 par value plus accrued interest. The trustee issued a press release on this call warrant exercise. SEC Filed Press Release The security was redeemed on 11/30/12:

2012 ROTH IRA HJO Redemption
I owned 50 shares of HJO in the Roth IRA. Item # 3 Bought 50 of the TC HJO at 24.90-Roth IRA (October 2011). 

I now own only one trust certificate that contains this same Aon junior bond. The TC KTN does not have a call warrant attached to it, as noted in prior posts, and is currently selling at a significant premium to its $25 par value. (e.g. HJO and KTN Trust Certificates)  

I still own 50 KTN shares in the Regular IRA and 50 shares in a taxable account. TRUST CERTIFICATE AON BOND KTN ORDER FILLED 100 shares at $13.1 October 2008KTN add at less than $14 November 2008Sold 50 of 150 KTN at $28.17 September 2010 The 50 KTN shares sold in 2010 resulted in a realized gain of $692.52. 

My trading history in trust certificates containing the 2028 Aon junior bond is summarized in the Stocks, Bonds & Politics: Trust Certificates: New Gateway Post, which also has snapshots of trades in this Exchange Traded Bond sector.

2. Intel & Microsoft (own): Intel is not getting much respect these days, based on the herd consensus that the PC is dead and Intel missed the boat on processors for phones and tablets.  On 5/2/12, the stock closed at $29.18 and it has been a decisively downhill slide since that closing high. INTC Interactive Chart The downdraft has been particularly painful since a close at $26.88 on 8/10/12.

The latest downdraft in the WinTel alliance was a report from the research outfit, NPD, that estimated PC sales declined 21% year-over-year during the four week period ending 11/17/12. This would be after the Windows 8 launch. I find that estimate hard to believe. Nonetheless, it caused several analysts to lower their ratings and/or target prices for Intel and/or MSFT. ForbesBarrons.comIntel: Caris Cuts Estimates - ForbesMSFT: Davenport Cuts Windows Estimates; Target to $35 from $40.

Earlier this week, Raymond James cut Intel to sell citing a possible "gross margin nightmare".

Another negative article about the WinTel tablets appeared this week in a Bloomberg article that used the phrase "sputtering" to describe the launch of those tablets.

The negativity has risen way past the level of group think.

The bond ghouls at least have confidence in Intel's creditworthiness. Intel sold earlier this week $6B in senior notes: $3B at 1.35% maturing in 2017; $750M at 4% maturing in 2032; and $750M in 2042 at 4.25%. SEC Filed Term Sheet

A more positive view about Intel's prospects is presented in this Seeking Alpha article.

Intel was late to the mobile computing party but it has developed product for the tablet market. It remains to be seen whether Intel can make significant inroads into this market, unless Apple decides later on to use Intel chips in its tablets.

While tablets are popular now, they are not functional computers for most users. I bought an IPAD recently and found it inadequate in many ways (see discussion Item # 1 below, "Politics and ETC" section) This device would have limited appeal as a replacement for desktops and laptops. The main limitation is there is severely limited storage capacity. My vintage video IPod has 6 times more storage capacity than the recently purchased IPad. I view the IPAD as merely a large IPhone without actually being a telephone. I do not see most PC users abandoning their laptops and desktops. They may wait longer to replace their PCs after shelling out several hundred dollars for a tablet.

Given the overall satisfaction with Windows 7, released in the summer of 2009, there will likely not be a rush to upgrade to a new computer to acquire Windows 8.

Whatever the outcome, I made a mistake in holding my Intel shares when the price went over $26 earlier this year. I own 273+ shares at an average cost of $17.82 per share. The current dividend yield at that total cost number, one reason for keeping the shares, is about 5%, based on the current quarterly dividend of $.225 per share. Intel Corporation - Dividend Summary

Yesterday's Closing Price for Intel: INTC: 19.85 -0.12 (-0.60%)

3. Bought 50 RSOPRB at $24.9-Roth IRA (see Disclaimer): This was another marginal buy in the ROTH IRA.

2012 ROTH IRA Bought 50 RSOPRB at $24.9

Security and Company Description: RSOPRB is a cumulative equity preferred stock issued by the REIT Resource Capital: Resource Capital Corp. 8.25% Cum. Redeem. Pfd. Series B, RSO.PB

A detailed discussion of RSO can be found in this article published by Seeking Alpha.

This REIT is externally managed by Resource America (REXI)

RSO Profile page at Reuters

This REIT focuses primarily on commercial real estate and commercial finance. So it is different in that respect from Mortgage REITs like Annaly, CYS and MFA.  RSO earns income largely from the spread difference between the cost of borrowed funds and the revenues received from purchased assets:

Generation of Income
RSO-2012.9.30-10-Q pat page 49

The coupon is 8.25% on a $25 par value. Prospectus Supplement There is no stated maturity. Resource Capital may not redeem the security until 10/2/2017. There is no obligation to ever redeem this preferred stock, which is a a major negative for all equity preferred stocks.

There is a "change of control" provision that would permit the owners of this preferred stock to convert into common. (page S-4) Any deferred dividends will not bear interest.

There is a typical stopper clause that would prevent Resource Capital from paying a cash common stock dividend while deferring payment of the preferred dividend:

Stopper Clause
This clause gives the owners of the equity preferred stock some protection compared to the common stock owners who could have their dividends cut or even eliminated. If the common stock dividend is eliminated, then the  cumulative preferred dividend could be deferred but would continue to accrue. The accrued preferred dividends would have to be paid in full (without interest on the deferred amount) before the resumption of a common stock dividend.

RSOPRB is a "parity" security with RSOPRA which has a 8.5% coupon on a $25 par value. I elected to buy the functionally equivalent RSOPRB since it was selling at below par value and close to an equivalent yield. On the day of my purchase, Resource Capital Corp. 8.50% Cum Red Pfd Series A (RSO.PA) closed at $25.6. At that price, exclusive of commission, the current yield would be about 8.3%. The current yield of RSOPRB would be about 8.28% at a total cost of $24.9.

Equity preferred stock would be senior only to common stock in the capital structure and junior in priority to all debt.

Trading History: None

Recent Earnings Release: An owner of a equity preferred stock has to be concerned about a firm's ability to pay the dividend. The dividend is the sole reason for owning this security, at least when the security is bought near its par value with little or no realistic appreciation potential. The equity preferred stock does not represent an ownership interest in the business.

For the preferred stock owner, there could be an inchoate and contingent ownership interest when the prospectus contains a "change of control" provision that provides the preferred stock owners an escape hatch to convert their preferred shares into common stock. That escape hatch is particularly important in leveraged buyouts, where the company is loaded up with new debt, all of which would be senior in priority to the preferred stock, to finance the purchase.

The price of equity preferred securities are generally extremely sensitive to both actual and perceived credit and interest rate risks. On the credit risk side, the investor can only make an informed judgment by reading earnings reports and monitoring other important news. So, even when the investor owns only a preferred stock, the earnings releases still have to be reviewed for the limited purpose of making a judgment about the dividend's safety.

For the 2012 third quarter, RSO reported adjusted funds from operations of $.26 per share and GAAP earnings of 20 cents per share. The company paid a 20 cent per common share dividend during the quarter. SEC Filed Press Release Book value was reported at $5.51 as of 9/30/12, up from $5.38 as of 12/31/11. RSO-2012.9.30-10Q

Earnings Call Transcript - Seeking Alpha

Rationale: (1) There is only one reason to buy this security. The reason starts and ends with the dividend yield which is tax free when paid into the ROTH IRA. If I can collect several quarterly dividends and exit the position at any profit, this purchase will be deemed successful.

Money will double in about 8.74 years at 8.25% before inflation and taxes. Estimate Compound Interest  I would be pleased to see my ROTH IRA double in value in 8.74 years. I am no longer making contributions to my IRAs.


(1) REIT Preferred Stock Dividends Are Nowhere Close to Being Safe; and Mortgage REIT Dividends Are More at Risk than Those Paid by Traditional REITs That Have Equity in Real Estate: I recently discussed my opinion that preferred stocks issued by Mortgage REITs are more risky than preferred stocks issued by traditional REITs. Item # 2 Bought 50 CYSPRA at $25.2-ROTH IRA The reasons are simple and readily apparent. The traditional REITs own property and their debt will generally be less than 50% of their book equity in owned real estate. The Mortgage REIT owns paper and will have a leverage ratio as a multiple to its equity.

As of 9/30/12, RSO's Debt to Equity Ratio was 2.865% (NLY's leverage ratio as of 9/30/12 was 8.8 with a debt to equity ratio of 6 to 1). A debt to equity ratio of 6 indicates that debt owners have 6 times more claim on the assets than the equity owners.

RSO Key Statistics

The increased risk is manifested in the typical yields for Mortgage REIT preferred stocks compared to Equity REITs who have equity in real estate.

For both types of REITs, capital is being depleted in common share dividends. A preferred stock owner would prefer capital retention which would create a source of funds to pay the preferred dividend.

Is this security safe? That is easy to answer in a single word-NO!

Occasionally, I receive an inquiry as to whether a security is safe. Stocks, Bonds & Politics: Is this Bond Safe? (June 2011 Post) Sometimes, the question is whether a junk bond, which is selling at less than 50% of its par value and with a 25%+ YTM, is "safe". The mere recitation of those numbers would answer the question.

The issue is not whether the security is safe. Any security that can fluctuate in value is not safe.  Once the risks are identified, recognizing that some risks are unknown and/or unknowable (e.g. the future), the issue is whether the yield is sufficient compensation for the risks. The downside risk of an equity preferred stock is a zero price, while there is little upside above par value other than the receipt of the dividend.

Where I have concerns about the risk, as I do with RSOPRB, I will severely limit my exposure to the security as one way to deal with the risk. Another way would be to simply avoid the security altogether. For some of my junk bond buys, I would have been better off taking the later approach rather than the former which consisted of the purchase of just one $1,000 per value bond, the absolute minimum quantity available for purchase.

Given the length and possible duration of the Fed's Jihad Against the Saving Class, the options for income have dwindled to securities that carry significantly more risks than the OG would normally take.

If HJO had not been called (see item # 1 above), I would much prefer continuing to own it, even with its lower yield, than RSOPRB. The underlying security in the TC HJO is a junior bond that currently has a Baa3 rating by Moody's and BBB- by S & P, their lowest respective investment grade ratings. AON 2027 That bond, which matures on 1/1/2027, is trading at slightly less than a 5.5% YTM (at a 127 price/8.205% coupon) While RSOPRB is not rated, its current yield, near its coupon of 8.25%, suggests a rating by investors deep into junk, based on the pricing of long term BBB- rated securities such as AON's 2027 junior bond.

Future Buys: I will not buy more of RSO's preferred stock. I am at my risk limit for that 8.25% coupon with just 50 shares. I will consider buying up to 200 shares of the common at less than book value.  I am more richly compensated for taking on the additional risk of the common but I choose to avoid any exposure unless the price slips below book value per share.

Yesterday's Closing Price: RSO-PB: 24.83 -0.03 (-0.14%)

4. Bought 50 of the Stock CEF IDE at $16.15-ROTH IRA (see Disclaimer): I currently own 100 shares of this stock CEF in a taxable account. Item # 3 BOUGHT 100 IDE at $17.55 (September 2012).  Almost all of the share price decline since that purchase on 9/7/12 is due to two factors: a significant increase in the discount to net asset value and the payment of a $.405 per share quarterly dividend.

On the day of that prior purchase, the discount to net asset value, based on a closing price of $17.6, was -3.61 and a net asset value per share of $18.26, as noted in the preceding linked post. On the day prior to my purchase, the discount was reported at -8.52% with a net asset value per share at $17.73. If I adjust the $18.26 net asset value per share by the subsequent $.405 per share dividend, I arrive at  $17.855 net asset value, or  25.5 cents above the 12/3/12 net asset value per share.  

2012 Roth IRA 50 IDE at $16.15

Security Description:

Sponsor's Website: ING Infrastructure, Industrials and Materials Fund - Fund Profile - Overview As shown at that site, this fund will use a buy-write strategy to generate income and to hedge.

IDE Page at Morningstar (fund expense ratio shown at 1.21%)

The fund does not use leverage.

Last SEC Filed Shareholder Report: ING Infrastructure, Industrails and Materials Fund (period ending 8/31/12)

The quarterly dividend was recently reduced from $.45 per share to $.405. Distributions The dividend is supported by a return of capital. The only way for the fund to cover this distribution is with capital gains.

At the current dividend rate the yield would be about 10% and much less than that number when the return of capital component is removed from the dividend.

Trading History: I mentioned in the preceding section that I currently own 100 shares in a taxable account. Item # 3 BOUGHT 100 IDE at $17.55 In that post, I included three snapshots of prior trades that netted a total realized gain of $331.91.  Bought 50 of the CEF IDE at 17.4 (8/2010); Added 50 IDE at $16.85 (8/2010); Sold 50 IDE at $18.7 (9/2010); Bought 50 of the Stock CEF IDE at 19.57 (January 2011); Sold 100 of the Stock CEF IDE at $20.3 (March 2011);  BOUGHT 50 of the Stock CEF IDE at $17.18 (November 2011); Sold 50 of the Stock CEF IDE at $18.61 (May 2012).

Rationale:  The primary rationale is to generate tax free income in the ROTH IRA. This stock CEF has some appreciation potential due to a narrowing of the discount coupled with an increase in net asset value per share. The market will have to cooperate however for me to realize a gain on the shares.  I would be pleased simply to capture several dividend payments and to exit the position at any profit on the shares.

Risks: The risks are the normal ones for a buy-write closed end fund that invests in stocks on a worldwide basis and is non-diversified as to industries (i.e. a sector fund). The worldwide approach adds currency risk. The buy-write strategy can be counter-productive, particularly in a rising stock market. The general risks are discussed at the sponsor's website. ING Infrastructure, Industrials and Materials Fund - Fund Profile - Overview Those risks include the "market discount risk" applicable to all CEFs, where the discount to net asset value could expand after an investor's purchase, causing an unrealized loss, even when the net asset value may have increased in the interim. After investing in CEF's since 1982, I have grown accustomed to that risk.

Future Buys: On further weakness in the share price, particularly when caused solely by an expansion of the discount, I may average down by buying another 50 shares at below $15.5.

Closing Price Day of Purchase 12/4/12: IDE: 16.12 -0.10 (-0.62%)

Yesterday's Closing Price: IDE: 16.21 +0.09 (+0.56%)

5. Bought 100 of the STOCK CEF APF at $14.55 (see Disclaimer):

Security Description: The Morgan Stanley Asia-Pacific Fund (APF) is a closed end stock fund.  An Asia-Pacific fund will invest in companies headquartered in Japan, Australia, New Zealand, China, Hong Kong, Korea, India, Indonesia, Malaysia, Philippines, Taiwan, Thailand and Singapore. Minuscule positions may also exist for companies located in Laos and Vietnam,.

The fund does not currently use leverage.

There is some holdings overlap with the Morgan Stanley Emerging Markets Fund  (MSF). I currently own 200 shares of MSF.

Dividends are generally paid once a year. The dividend has not been supported by a return of capital and will generally consist mostly of long term capital gains. (see Morningstar APF page)

APF Page at the CEFA (expense ratio shown at 1.22%)

APF Page at Morningstar (average 3 year discount -11.29%)

12/4/12 -Day Before Purchase
Net Asset Value Per Share: $16.33
Closing Market Price: $14.57
Discount= -10.78%

Net asset value information can be found at the sponsor's website, the CEFA, Morningstar and the WSJ Closed-End Fund data center under "World Equity Funds".

SEC Form  N-Q: Holdings as of 9/30/12

Last SEC Filed Shareholder Repot: Period Ending 6/30/12

Trading History: I have bought and sold small lots of this CEF. The exposure to Japanese companies is a negative in my view, though many investors would recommend them on a valuation basis. (e.g. Buy Japanese Stocks - (March 2011).

My prior trades were in 2010-2011.  Until this last purchase, I have not had a position since July 2011.

Item #  5 Sold 100 of APF at 17.32 (April 2011)-Added 100 of APF at 15.64 (April 2010)
Bought 100 CEF APF at $15.08 (March 2010)- Sold 100 of APF at $16.65 (March 2011)
Added 100 of the CEF APF at $15 (March 2010)- SOLD 100 APF @ 17.47 (July 2011)

Total Realized Gains=$340.16 plus dividends

Rationale: (1) Exposure to the Super Cycle: Once an investor accepts as probable the emergence of the next Super Cycle, which involves the exponential growth of middle class consumers in the developing markets, it is not much of a leap to identify the primary epicenter of that growth-Asia-with supporting roles in a smattering of countries located elsewhere. I have been increasing my exposure to foreign companies likely to benefit over a long period from this new Super Cycle. The purchase of APF is just one of many ways to play this theme.

I discussed another one in my last post: Item # 3 Bought 50 of the Stock ETF EELV at $27.2 (contains discussion of the Super Cycle)

I mentioned above that I own 200 shares of the CEF Morgan Stanley Emerging Markets Fund  (MSF).

I also recently purchased a ETF that selects emerging market stocks based on technical factors: Bought 50 PIE at $17.08

My largest positions, over $10,000, are in two Matthews Asia funds:  Matthews Pacific Tiger Investor (MAPTX) and  Matthews Asian Growth & Inc Investor (MACSX). I have own MAPTX for a long time and sold down the position to 150 shares in 2007 as part of a massive asset reallocation. {see snapshots at Item # 4 Stocks, Bonds & Politics (8/2012)} I started to repurchase shares during the Near Depression. The Matthews fund group focuses entirely on the Asia-Pacific region.

MAPTX and MACSX-Prices as of 12/5/12

I also currently own the CEF China Fund (CHN) and the ETF iShares MSCI Singapore Index Fund (EWS) 

During the 2007 purge of stock funds, I sold down my position in SSgA Emerging Markets (SSEMX) to 100 shares which I still own:

SSEMX-Price as of 12/5/12

DEC 2006 SSEMX 50 Shares +$408.76
2007 SSEMX 35+ Shares +$411.57

I am not likely to buy individual securities in this area, other than a few large cap companies located in Australia, Hong Kong and Brazil.

Lastly I also own the Vanguard MSCI Emerging Markets ETF (VWO) which I can buy commission free in my Vanguard brokerage account.  Stocks, Bonds & Politics: Bought 50 of the ETF VWO at $39.73 Vanguard - MSCI Emerging Markets ETF - Overview I was fortunate in a prior trade on that one: Stocks, Bonds & Politics: Sold: 100 of the Stock ETFs VWO at $50.22 & SCHE at $29.99-  Bought 100 VWO @ 48.93

APF has some income potential originating from long term capital gains. As of 9/30/12, the fund did not have that much in unrealized gains. The total cost of securities was reported at $294M and their value was $306+M. This was an improvement the unrealized gains reported as of 6/30/12, when the net asset value per share was shown at $15.42 (page 16, ‎

There are several Asia-Pacific ETFs. Most of the them will exclude Japan, undoubtedly for marketing purposes given the performance of Japan's stock market since 1989:

iShares MSCI Pacific ex-Japan Index Fund (EPP)
iShares MSCI All Country Asia ex Japan Index Fund (AAXJ)
iShares MSCI Emerging Markets Asia Index Fund (EEMA)
SPDR S&P Emerging Asia Pacific ETF ( GMF)
WisdomTree Asia Pacific ex-Japan Fund (AXJL)
Powershares FTSE RAFI Asia Pacific ex-Japan Portfolio (PAF)

Risks: I would characterize the risks as the normal ones associated with a closed end sector fund that invests in foreign stocks.

Yesterday's Closing Price: APF: 14.51 -0.06 (-0.41%)

6. Bought 50 BANCL at $25.2-Roth IRA (See Disclaimer):

2012 Roth IRA Bought 50 BANCL at $25.2

Company and Security Description:  BANCL is a senior exchange traded bond issued by the bank holding company First PacTrust Bancorp (BANC).

Stocks, Bonds & Politics: Exchange Traded Bonds: New Gateway Post

First Pactrust Bancorp Inc (BANC) Profile Page at Reuters

First Pactrust Bancorp Key Developments Page at Reuters

Exchange Traded Bond Quote:  First PacTrust Bancorp Inc. Sr. Notes (BANCL)

Prospectus for the 2020 Bond

This baby bond will make quarterly interest payments at the rate of 7.5% on a $25 par value. If not redeemed early, the bond will mature on 4/15/2020.

BANC may call the notes on or after 5/15/2015 at par value plus accrued interest. (page S-34).

BANC recently decided to sell more of this bond which caused a small price drop in the notes originally issued in April 2012: Term SheetFirst PacTrust Bancorp, Inc. Reopens Public Offering of Senior Notes Due 2020

BANC did receive $19.3 million in TARP money. (pages 1-2, 2009 Form 10-K) The government's preferred stock was redeemed on 12/10/2010 after the company sold stock at $11 per share. (pages 1-2, 2010 Form 10-K)

Trading History: None-NEW ISSUE

Recent Earnings Release: The last quarterly report has a number of extraordinary items connected with BANC's recent acquisitions which distort net income, return on average assets and other metrics.  SEC Filed Press Release Some of the non-distorted data include the following:

NPL Ratio= 1.33%
NPA Ratio= 1.49%
Page 57  Form 10-Q

Pacific Trust Bank
Total Risk Based Capital Ratio=17.4%
Tier 1 Risk-Based Capital Ratio=16.1%

Beach Business Bank
Total Risk Based Capital Ratio=14.4%
Tier 1 Risk-Based Capital Ratio=14.2%
Page 66 Form 10-Q

Rationale (1) The Sole Reason for Buying This Security is to Generate Tax Free Income in the ROTH IRA: As with many investments made in the Roth IRA, the goal is to generate a flow of tax free income that can then be used to buy more income producing securities, achieving a compounding effect over time. I am less concerned about potential capital appreciation. For this investment to be viewed as successful, a profit of any amount would be acceptable after harvesting several quarterly interest payments.


(1) Bank Failure: Even though BANCL is a senior note, I would not expect much of a recovery in the event the FDIC ever seized the operating banks of any bank holding company.

(2) Normal Interest Rate Risks for a Seven Year Note: When and if interest rates start to rise, the value of this note could decline, possibly by a significant amount with a serious spike in rates. If the owner elects to sell during such a decline for whatever reason, including a need for the cash, then a loss on this security would be likely. Even an investor holding to maturity would suffer an opportunity loss by being unable to invest in a higher yielding bond with a similar credit risk during such a rise in interest rates. Those risks are mitigated by the seven year + four months or so maturity and the likely continuation of an abnormally low interest rate environment for two of those  seven + years.

Future Buys: I may average down below $24.5, provided that price objective is achieved after I review at least one earnings report after the completion of the recently announced acquisition of the Private Bank of California:  First PacTrust Bancorp to Acquire The Private Bank of California  I simply want to see how the bank is doing after completing a string of recent acquisitions: First PacTrust Bancorp Completes Acquisition of Gateway Business BankFirst PacTrust Bancorp and Beach Business Bank Complete Merger

Yesterday's closing price: BANCL: 25.11 -0.14 (-0.55%)

Politics & ETC.

1. Apple's IPAD-The Increasingly Crowded Tablet Space: I bought an IPAD2, the 16GB model, last week. I wanted to buy the lighter weight IPAD Mini but Best Buy was out of stock. I did not see any reason to pay several hundred more for the last generation IPAD with something called retina display.

After playing with the IPAD for a couple of weeks, I did not change my opinion about tablets. For most of my uses, those devices are simply not functional computers. Maybe they will become so in a few years. A glaring  and serious limitation is the storage capacity.

I have only one use for the IPAD that is not already provided by my much smaller video IPOD, bought several years ago, which incidentally has more storage capacity at 75 GB. Why can a IPOD have 75GB while the IPAD has 16,  32  or 64 GB? And you really have to pay for that small amount of additional storage For the 4th generation IPAD, the 16 GB Wi-Fi model costs $499.

For an additional $200, the customer can upgrade to 64GB (less than my vintage 75GB IPOD) New All-In-One desktops with the Intel i5 processor and a 1 TB hard drive can be bought now for less than a $1,000 on sale or less than $1,100 at a regular price.

The IPAD is useful solely to surf the internet without being tied to my desk. I can now read the NYT or the WSJ online while laying down on the couch, my easy chair or anywhere else in the house. The internet connection is through my wireless home network. The download speed on the IPAD is about the same as on my IMAC which has a 2.5 GHz Intel Core i5 processor.

On my IMAC, I have downloaded several audiobooks. When I started to transfer those audio files from my IMAC to the IPAD, I was soon notified that the IPAD had run out of storage capacity. While the model is advertised to have 16GB, almost 3 GB of that amount is already devoted to preloaded software and programs like Safari and Itunes.

My vintage video IPOD holds numerous videos, TV shows, and  audiobooks. I use it primarily when I am walking or driving long distances (more than 1 hour). I can plug the IPOD into an auxiliary jack in my car and listen to an audiobook using a Griffin Technology Auxiliary Audio Cable 10024-AUXCBLC - Best Buy. There is no reason for me to own an IPAD in order to listen to music or to an audiobook. In short, the IPAD is an inferior product to the IPOD for listening to music and audiobooks. The storage, weight and size makes my IPOD a better product for listening to music or audiobooks, compared to the regular IPAD and even the IPAD Mini.

Due to the severe storage limitations of the IPAD, I removed my audiobooks from it and will use my video IPOD to listen to them.

I do slightly prefer the IPAD to my vintage Kindle for book reading. I simply prefer the lighting and visual clarity of the IPAD. I  prefer the Kindle's navigation features and weight over the IPAD. The IPAD2 weighs 1.3 pounds. The Kindle that I own weighs 8.07 ounces. Kindle Keyboard 3G with Wi-Fi, 6" E Ink Display, 3G works globally I would not buy the IPAD if my primary interests were reading books and/or listening to music and audiobooks. Some may like the game apps available for download into this device, but I have zero interest in that feature.

The IPAD is primarily useful to me only for reading articles on the internet at more comfortable places than my desk. I obviously can not lay down on the couch with my large screen IMAC perched on my chest and read a paper online.

Still, I find it necessary to expand the page size when reading an online article using my large screen IPAD2, and even then the page size is barely adequate for me.

The IPAD is preferable to my my video IPod for viewing videos simply due to the IPAD's large screen size and the ability to listen without using headphones. Given the IPod's much smaller size, however, I will continue to use it, rather than the IPAD, when waiting for an a Doctor's appointment for example, but would use the IPAD to watch a stored video when traveling.

The IPAD Mini would probably be the best option among these mobile devices for viewing video, primarily due to its weight and size making it easier to transport. I woman could easily carry it in a handbag for example.

I walked by the Apple Store in a nearby Mall on 12/4/12 and saw a sign that several IPAD models were no longer available. Apple seems to be having some issues in manufacturing enough product.

Apple stock had a bad day yesterday: AAPL: 538.79 -37.05 (-6.43%) The tablet space is becoming crowded. An article in Bloomberg cited a IDC report that Google was gaining market share with its inexpensive tablets. The Nexus 7 starts at $199 (which has 16 GB; $249 for 32GB)  Nexus 7 Tech Specs

2. Amazon's Return Service for a Kindle Fire-BBB Report on Amazon-Stock Valuation in La La Land-Tax Dodge in Luxembourg: Before buying the IPAD, I ordered the lowest cost Kindle Fire model, which may be a better alternative, except the one delivered to me would not recognize my home network after a couple of attempts. When the name of my network appeared after a long wait, I entered the password and then the device said the network was not in reach. I returned the next day the Kindle and the case, delivered to me in one box, in the same box. I did not mail two boxes back. The only box that I sent back to Amazon was the one containing both the Kindle and the Kindle cover.

The only box sent by me was delivered to Amazon's return facility at 10:00 A.M. on 11/30/12.

I was charged $6.98 by Amazon for shipping, which was deducted from the $34.99 cost of the Kindle cover. I did not receive a refund for the defective Kindle.

So I inquired about the refund and was told that the package had not been delivered.

I then decided to send Amazon another email, with the preceding snapshot taken from their website attached to the email.

I then looked at the Better Business Bureau page for Amazon and found that the BBB had found a pattern of complaints dealing with the Kindle. Business Review in Seattle, WA - Alaska, Oregon and Western Washington BBB In the past 12 months, 3,893 customers had filed complaints against Amazon. That is a large number considering most people, who are unhappy with this company, would not take the time to find the Seattle BBB site and then file a complaint, particularly when many view the BBB as lacking impartiality and worthless as a practical matter. BBB does give Amazon a A+ rating.

I was told after my last email to Amazon that I would receive a credit for the Kindle. I doubt that Amazon knows what happened to my Kindle after it arrived at their return location in Kentucky.

All of this discussion brings me to my point.

Amazon's stock is just outrageously priced but there is a saying among short sellers. Do not short based just on valuation. The short seller may be right but still be trampled by the herd mentality who takes the overvalued further into the outermost reaches of La La Land. The trailing P/E for Amazon is about 3000CNBC The herd is still a powerful force even when its pricing decisions are without question irrational, even delusional.

AMZN, which is selling at over $250 per share, may be worth now less than $35, assuming the company can actually hit the 2013 consensus of $1.75 per share which I would question. AMZN Analyst Estimates I do not have a margin account and consequently can not short stocks. I am not inclined to play that game anyway. The price may hit $500 before the herd reverses course and runs roughshod the other way.

The bulls on AMZN may also want to take a look a this Reuters' article that examines a tax dodge hatched by Amazon, using a rental property in Luxembourg, that has drawn the attention of tax authorities in Europe and the U.S.

Sometimes, it just takes time for those participating in the herd movement to realize that the company is not going to earn its way into the valuation being placed on it, not in any reasonable time frame and probably never.

That realization happened for a large number of companies back in 2000,  such as Cisco, that reached a market cap at one time of close to $500B. To justify that 2000 valuation, Cisco, already then a large company, would have had to grow at an absurdly high growth rate over a very long time period before justifying the $77 share price in March 2000. CSCO Interactive Chart It was just an impossibility. Could not happen. Only a few companies have managed to grow earnings at a 20% per year rate for just one decade. Cisco is earning a great deal more in 2012 than it did in 2000 and is having trouble staying over $20 per share now (for the Fiscal Year ending 7/28/2001, CSCO reported a GAAP loss of 14 cents per share and Non-GAAP income of $. 41 per share on total revenues of $22.293B,, think about those numbers for a moment)

3. Tax Burden: A study by the NYT found that most Americans paid less taxes in 2010 than they would have paid thirty years ago.

If the Bush tax cuts were to expire on income over $250,000 ($200,000 for singles), the government could receive about $1 trillion more over the next ten years.

The Tax Policy Center estimates that this number would be reduced to $315B over 10 years when limited to couples earning over $500,000 a year ($400,000 for singles).

An alternative being discussed is to cap the amount of deductions per year to $50,000. This could raise $750B over 10 years, and 90% of that amount would come from those earning over $200,000. (Tax Policy Center: Options to Repeal or Limit Itemized Deductions; Impact on Tax Revenue, 2013-2022CNN). This does not appear feasible unless charitable donations are excluded from the cap and then the amount raised would go way down. If charitable deduction are excluded, which would seem likely under this alternative, then there would need to be some other source of a revenue increase.

One possible source would be a cap on the income subject to the 15% maximum rate applicable to qualified dividends and long term capital gains in order to raise that estimated $750B. It is that favorable tax rate that lowers the tax obligations of the very rich below the tax rates of a middle class household. A possible exclusion from this kind of cap would the the sale of stock in a business that is at least 20% owned by the seller (family business).

4. Voting in Florida: It has become apparent that several states controlled by the GOP want to make voting as difficult as possible. In an article detailing how the actor Christian Slater had to wait five hours in line to cast his vote in Florida, only to have it rejected later, there were several noteworthy comments by GOP legislators in Florida that explain why there are problems. Mike Bennett (R), who was President Pro Tempore in the Florida State Senate, stated that he had no problem making it harder for people to vote, noting that it wanted Floridians to basically suffer like that hypothetical African that Bennett invented in one of his reality creations who walked 200 miles across a desert to vote. Details are presented in the article about how the GOP infringes the Constitutional right to vote. Statements  made by Florida GOP representatives to justify their voter suppression are routinely rated as false (e.g.  PolitiFactPolitiFact Florida; | Sen. Miguel Diaz de la Portilla.

5. JC Penney Online Sales-What is the Problem?: I bought and sold a few JCP bonds and no longer have a position. Even though the bonds have fallen about 10% since I sold them, I am reluctant to buy any back based on the downward spiral in same store sales resulting from Ron Johnson's "turnaround".  The last quarterly report was a disaster. SEC Filed Press Release Maybe his strategy will ultimately produce non-negative results, but there is no way for me or anyone else to know whether his strategy will prove to be successful.

I noticed in the last earnings report that sales through were down 37.3% in the last quarter compared to a year ago.

How is that even possible?

I may have an answer.

I bought a $25 JCP gift card at Kroger. I have been buying a lot of gift cards lately at Kroger, since I am credited four times the face value of the card in fuel points. For every 100 points, I save 10 cents per gallon at the local Shell stations. On my last fill up, I had the price down to less than $1.4 a gallon using my Kroger fuel points. I paid for the fill up with a Shell gift card that I purchased at Kroger for myself.

For the JCP gift card, I wanted to just see whether I could find anything for myself online. I kept finding something and then would click the purchase button only to discover that JCP was out of stock. This happened over and over and over again-at least 10 times. I started to laugh when underwear was on back order.

How hard is it to store men's underwear in a warehouse somewhere? At least Amazon has the stuff in stock.

Any shopper experiencing this kind of problem would likely never go back. It highlights abysmal execution, easily the worst execution that I have ever seen by any retailer online.  If you are a shareholder or bond owner, you may need to pray that everyone responsible for what I found at their website will work their magic somewhere else. This would include any high ranking executive that may have restrained an adequate inventory build.

No comments:

Post a Comment