Big Picture Synopsis
Stocks:
Stable Vix Pattern
Short Term: Neutral
Intermediate and Long Term: Bullish
Bonds:
Short Term: Neutral
Intermediate Term: Slightly Bearish
Long Term: Extremely Bearish
I thought that these charts, developed by JPM and reproduced at Business Insider, were helpful.
An article published today at Bloomberg highlights some of the tax proposals swirling around Washington, that could have an impact on MLPs. The author of that article is obviously in favor of eliminating some of the MLP tax advantages.
I thought that these charts, developed by JPM and reproduced at Business Insider, were helpful.
An article published today at Bloomberg highlights some of the tax proposals swirling around Washington, that could have an impact on MLPs. The author of that article is obviously in favor of eliminating some of the MLP tax advantages.
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Homes and Home Prices
Over the past several weeks, I have been highlighting a number of positives about the U.S. economy. For example, in response to a SeekingAlpha author who maintained that Americans were going broke, I pointed out that the debt service to disposable income ratio had returned to early 1980 levels. One reason for that decline is that homeowners have refinanced their mortgages at the current abnormally low rates including almost 2 million homeowners who owed more than their property was worth under the HARP program.
What is frequently overlooked by the perpetual pessimists, who have now been joined by the Obama haters, is that a large percentage of the American population own their homes free and clear. I previously pointed out a study published by the Census Bureau which estimated that 32% of households owned their homes free and clear. U.S. Census Bureau Releases Detailed Information on Nation's Housing Those folks are not broke. Almost half of them are over 65. I have been a free and clear homeowner since 1996, and I am still several years away from 65.
An article published at CNBC last week has a map by county showing the concentrations of those mortgage free households which is interesting. Homeowners With No Mortgage Offer Clues to Recovery Of the top 30 housing markets, the highest concentration of free and clear homeowners were in NYC, Miami, Cleveland, Tampa and Pittsburgh. The information in that article comes from Zillow.
Another interesting chart, developed by J P Morgan and reproduced at Business Insider, shows that the monthly mortgage payment has fallen significantly below the monthly rental payment.
CoreLogic reported that its nationwide Home Price Index rose 6.3% in October 2012 and is expected to rise another 6% in 2013. The report is summarized at Business Insider. I view CoreLogic's MarketPulse report to be a must read, given the extreme importance of housing prices to a continued U.S. recovery. That report is available for download at CoreLogic's website after registration: CoreLogic | The MarketPulse One chart contained in that report is particularly noteworthy. It shows the extremely important price to income ratio, which has returned to levels last seen in 1996-1998, well before the bubble rise in prices.
The CoreLogic November report, released on 1/15/13, showed a Y-O-Y 7.4% increase in home prices nationwide. That report can be downloaded at CoreLogic's website: Home Price Index (HPI) by CoreLogic
An article published in Bloomberg today highlighted the large number of under water homeowners who were pushed into positive equity positions last year due to the rise in home prices.
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Service Sector
Another positive is the U.S. services sector. The U.S. is after all primarily a service economy. Robert Johnson, Morningstar's Director of Economic Analysis, noted that this critical part of the U.S. economy was "on fire". Morningstar His comment is supported by the December ISM Report:
Business Activity Index at 60.3%
New Orders Index at 59.3%
Employment Index at 56.3%
Those are historically good numbers. ISM Non-manufacturing: Business Activity Index - St. Louis Fed
Far more Americans are employed in services than in manufacturing. Table B-1. Employees on nonfarm payrolls by industry sector and selected industry detail That table shows 18.389 million persons employed in manufacturing, while 93.707M are working in services.
While the ISM manufacturing index is still above 50, showing expansion, one SA pessimist cited the recent decline in that index, and failed to even mention the excellent service sector numbers, when penning a bearish article about the economy. Seeking Alpha This was the same young man who I referenced in my last post who argued that Americans were going broke. I decided to waste my time by responding to his latest myopic piece.
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Japan is embarking on a 10.3 trillion Yen fiscal stimulus: Bloomberg This equates to about $116B. Japan is in its third recession in five years. Businessweek
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U.S. Budget Deficit
The U.S. budget deficit for the first three months in fiscal 2013 was $292B, down from 321.735B in the comparable period for F/Y 2012. fms.treas.gov.pdf With some spending cuts enacted last year and the recent tax hikes,
Robert Johnson estimates that the current year U.S. budget deficit could decline to around $780B, down from its recent pick of $1.4 trillion. Morningstar Due to lower federal government spending in the 2012 4th quarter, Johnson is now looking for 4th quarter GDP growth of 1% to 1.5%, calling his prior forecast of 2% as looking like "a long stretch", and 2% to 2.5% GDP growth in 2013.
This is a video of interview of Johnson's seven potential surprises for 2013: 7 Economic Surprises for 2013
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Joe Weisenthal wrote an excellent summary published at Business Insider that summarizes Bernanke's justifications for the quantitative easing programs, and his rebuttal of the critics who believe that it will produce inflation.
Perma bear Gary Shilling is predicting a 42% decline in the S & P to 500 to 800. Perma bear Paul Farrell, a columnist for Marketwatch, describes Shilling as "one of the world's top economists". MarketWatch
In another column where Farrell is predicting a recession in 2013, he refers to Shilling as "straight-shooting, unbiased, research-oriented contrarians". MarketWatch I can not recall a single instance when Shilling has not been predicting disaster just around the corner. Shilling is predicting a global recession in 2013 which is not news. Daily Ticker
He claims that exports are "in terrible shape".
Exports did recently slow somewhat toward the end of the year, primarily due to the slowdown in China, but China has recently released much greater than expected export and import data. MarketWatch
U.S. Exports:
U.S. exports have recovered nicely over the past couple of years as shown in the chart found at TradingEconomics (set time frame to capture data from 1/1/2009)
Every statement made by a perma bear needs to be compared with the actual data. Is the foregoing chart derived from Census data consistent with Shilling's statement that U.S. exports are "in terrible shape"?
This is a link to the latest Census Bureau release on U.S. exports, covering the month of November: census.gov .pdf
I would certainly agree with the perma bear Paul Farrell that Congress is dysfunctional and possibly the greatest threat to the U.S. economy. The current cover of Bloomberg's BusinessWeek shows our politicians as crybabies and whiners, sort of like many of the citizens that they purport to represent. I said "many" to be polite at the expense of being accurate.
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I do have respect for Jeremy Grantham who is rarely optimistic. In his last newsletter, Grantham states without equivocation that the average U.S. GDP growth of 3% over the past century is "gone forever" and will be replaced by more anemic growth of 1.4% (adjusted to a really anemic .9%). gmo.com.pdf Jeremy apparently believes that he is omnipotent when forecasting events over the next 100 years. Even our LB, when soaked in one of its megalomania spasms, will admit to falling short of such divine powers.
U.S. Population growth on a percentage basis has not been robust for a long time. Between 1/1/60 and 1/1/70, the population grew only 13.6% (data taken from research.stlouisfed.org) That growth rate did slow to around 9.9% in the last decade. Our RB has the answer to this problem. Young people need to have more babies to support the Old Geezers and to contribute to GDP growth.
A large part of his forecast is based on the decline in the working age population. He has a chart to prove it. RB just wanted to know whether the few million illegals working in this country just from Mexico are included in that data.
Mark Mobius thinks that 2013 will be a "fantastic year" for emerging markets.
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Goldman Sachs slapped a sell rating on General Mills (own) last Friday, as the GS analyst expects the company to fall short of consensus earnings on lower sales growth. Goldman Sachs has a $40 12 month price target. In the last quarterly report (2nd fiscal quarter), GIS reported a 6% increase in sales and an adjusted E.P.S. of 86 cents vs. 76 cents in the prior year's quarter (GAAP 82 cents vs. 67 cents).
SEC Filed Press Release The company raised guidance for fiscal 2013 to E.P.S. $2.65 to $2.67 (notice the narrow range).
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Many of the retirees have suffered over the past several due to the Federal Reserve's Jihad Against the Saving Class which has reduced their income from savings. This has in turn reduced their spending and contributed to slower GDP growth. The Real Cost of The Federal Reserve's Jihad against the Saver Class A summary of a study co-authored by William Ford, which attempts to measure that negative impact, is summarized at Forbes and at The Big Picture.
1. Bought 50 of the Stock CEF IIF at $18.53 and 100 EWM at $15.23 (Emerging Market Super Cycle Strategy)(see Disclaimer): The emerging market super cycle strategy is discussed throughout this blog. Eventually, I will write a Gateway Post on the subject. For now, my most recent discussion can be found at Item # 3 Bought 50 of the Stock ETF EELV at $27.2
I will also note a general discussion about the vital importance of emerging markets made by Jim O'Neill, Chairman of Goldman Sachs Asset Management Goldman Sachs - Insights on the Growth Markets
I ordered his book a few days ago and have only read the introduction and about 40 pages so far. The Growth Map: Economic Opportunity in the BRICs and Beyond: Jim O'Neill There are some interesting factoids in that introduction. Aggregate GDP from the four BRIC nations almost quadrupled in the decade starting in 2001. Their increase in GDP was of such magnitude that the increase alone would create another Japan and Germany. A third of global GDP growth during that period came from those 4 BRIC nations, which excludes other fast growing emerging markets such as Malaysia and Indonesia.
Perma bears never discuss what is happening in emerging markets. It is simply best for them to ignore all relevant evidence that is inconsistent with their thesis.
I left several comments to a recent SA article that claimed Stagflation was in America's future, pointing out that the author was ignoring a vast array of data including the worldwide impact of the emerging market growth Super Cycle. Stagflation: Seeking Alpha The author was in my opinion merely presenting the political views of a person who is unhappy with Obama and consequently predicts pestilence, famine and disease. Never mind that the S & P 500 has risen from the depths of hell during his Presidency.
The Rush Limbaugh crowd is everywhere these days. While it is just my observation, many of Rush's followers need a substantial IQ boost in order to become idiots.
When I make investment decisions, I am not a liberal, conservative, optimist, pessimist, republican, democrat or independent. I am simply a fact gatherer who makes judgments after acquiring relevant information, rather than forming the opinion first and then cherry picking whatever seems to support that belief.
Even when I make a deliberate and conscientious effort to gather factual information without using any ideological filter or pre-existing bias, I am see subject to a wide variety of error creeps. I simply cut down on those errors by following the investment process. Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS
Snapshot of IIF purchase:
I ordered his book a few days ago and have only read the introduction and about 40 pages so far. The Growth Map: Economic Opportunity in the BRICs and Beyond: Jim O'Neill There are some interesting factoids in that introduction. Aggregate GDP from the four BRIC nations almost quadrupled in the decade starting in 2001. Their increase in GDP was of such magnitude that the increase alone would create another Japan and Germany. A third of global GDP growth during that period came from those 4 BRIC nations, which excludes other fast growing emerging markets such as Malaysia and Indonesia.
Perma bears never discuss what is happening in emerging markets. It is simply best for them to ignore all relevant evidence that is inconsistent with their thesis.
I left several comments to a recent SA article that claimed Stagflation was in America's future, pointing out that the author was ignoring a vast array of data including the worldwide impact of the emerging market growth Super Cycle. Stagflation: Seeking Alpha The author was in my opinion merely presenting the political views of a person who is unhappy with Obama and consequently predicts pestilence, famine and disease. Never mind that the S & P 500 has risen from the depths of hell during his Presidency.
The Rush Limbaugh crowd is everywhere these days. While it is just my observation, many of Rush's followers need a substantial IQ boost in order to become idiots.
When I make investment decisions, I am not a liberal, conservative, optimist, pessimist, republican, democrat or independent. I am simply a fact gatherer who makes judgments after acquiring relevant information, rather than forming the opinion first and then cherry picking whatever seems to support that belief.
Even when I make a deliberate and conscientious effort to gather factual information without using any ideological filter or pre-existing bias, I am see subject to a wide variety of error creeps. I simply cut down on those errors by following the investment process. Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS
Snapshot of IIF purchase:
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| 2013 Bought 50 IIF at $18.53 |
Snapshot of EWM purchase:
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| 2013 Bought 100 EWM at $15.23 |
Security Descriptions: The Morgan Stanley India Investment Fund (IIF) is a closed end fund that invests in India.
The iShares MSCI Malaysia (Free) Index Fund (EWM) is an ETF.
IIF Page at the CEFA
IIF Page at Morningstar (average 3 year discount -8.25%; dividends are almost entirely capital gains distributions)
Net Asset Value as of 1/4/13: $20.93
Market Price: $ 18.72
Discount: -10.56
Net Asset Value as of 1/10/13: $20.97
Market Price: $18.67
Discount: -10.97
Sponsor's Page for EWM: iShares MSCI Malaysia Index Fund (EWM): Overview - iShares (42 holdings; expense ratio .52%; dividends page semi-annually: Distributions)
Market Price: $ 18.72
Discount: -10.56
Net Asset Value as of 1/10/13: $20.97
Market Price: $18.67
Discount: -10.97
Sponsor's Page for EWM: iShares MSCI Malaysia Index Fund (EWM): Overview - iShares (42 holdings; expense ratio .52%; dividends page semi-annually: Distributions)
Prior Trades: None
Rationale: (1) Again, I am adding positions gradually to play a long term super cycle.
India Index Charts:
Five Year Chart of the BSE SENSEX Index
Maximum Chart for the BSE SENSEX Index going back to 1997
Malaysia Index:
FTSE Bursa Malaysia KLCI Index Chart (five year)
FTSE Bursa Malaysia KLCI Index Chart (since 1994)
While the past may not be prologue, this is a snapshot of EWM's historic returns:
A recent report from the World Bank found that Malaysia was among the world's most business friendly countries: Malaysia Continues to Improve in Ease of Doing Business
World Bank Data on Malaysia: Malaysia | Data
Economy of Malaysia - Wikipedia
Annual Malaysia's GDP growth for 2012 is expected to exceed 5%.
Recently, India slashed its GDP forecast for the F/Y ending in March 2013 to 5.7% to 5.9% from the prior forecast of 7.6% given in the government's budget last March. WSJ.com
India Index Charts:
Five Year Chart of the BSE SENSEX Index
Maximum Chart for the BSE SENSEX Index going back to 1997
Malaysia Index:
FTSE Bursa Malaysia KLCI Index Chart (five year)
FTSE Bursa Malaysia KLCI Index Chart (since 1994)
While the past may not be prologue, this is a snapshot of EWM's historic returns:
A recent report from the World Bank found that Malaysia was among the world's most business friendly countries: Malaysia Continues to Improve in Ease of Doing Business
World Bank Data on Malaysia: Malaysia | Data
Economy of Malaysia - Wikipedia
Annual Malaysia's GDP growth for 2012 is expected to exceed 5%.
Recently, India slashed its GDP forecast for the F/Y ending in March 2013 to 5.7% to 5.9% from the prior forecast of 7.6% given in the government's budget last March. WSJ.com
Risks: The risks are typical for a closed end or ETF country stock fund. The risks are spelled out in the prospectuses.
There are some political negatives involving India's government. An example involves India's efforts to levy a $3.75B tax on Vodafone for its 2007 acquisition of a controlling interest in an Indian telecommunications company. This was a flagrant and transparent attempt to extract cash from a foreign owned company due to the government's need for the cash. The Supreme Court of India that the company did not have to pay the tax, and then India tried to change its tax law retroactively to cover that transaction. WSJ.com These kind of developments are a major negative.
In O'Neill's book, he discusses his development, along with others at GS, of a growth environment score (GES). The general idea is to rank a country's potential for GDP and productivity growth based on a number of obvious data points at both the macro and micro levels. Those variables include education, use of mobile telephones and the internet, rule of law, corruption, inflation, government stability and so on. All of those factors can either contribute to or hinder growth. He mentions at page 39 that China had the highest GES score in 2010 of the four BRIC nations with India a "distant fourth". The GES score for China was 5.4. South Korea had one of the highest at 7.6, exceeding all G-7 nations except for Canada.
There are some political negatives involving India's government. An example involves India's efforts to levy a $3.75B tax on Vodafone for its 2007 acquisition of a controlling interest in an Indian telecommunications company. This was a flagrant and transparent attempt to extract cash from a foreign owned company due to the government's need for the cash. The Supreme Court of India that the company did not have to pay the tax, and then India tried to change its tax law retroactively to cover that transaction. WSJ.com These kind of developments are a major negative.
In O'Neill's book, he discusses his development, along with others at GS, of a growth environment score (GES). The general idea is to rank a country's potential for GDP and productivity growth based on a number of obvious data points at both the macro and micro levels. Those variables include education, use of mobile telephones and the internet, rule of law, corruption, inflation, government stability and so on. All of those factors can either contribute to or hinder growth. He mentions at page 39 that China had the highest GES score in 2010 of the four BRIC nations with India a "distant fourth". The GES score for China was 5.4. South Korea had one of the highest at 7.6, exceeding all G-7 nations except for Canada.
Future Buys: Given my concerns about India's government, I am not likely to add to my IIF position until I see a more responsible and far less hostile government to business interests. I am not likely to add more to EWM but have other ETFs under consideration that would increase my exposure in SE Asia.
2. Sold 100 AUNZ at $22.89 (see Disclaimer): I am not going to discuss this trade except to say that I am somewhat concerned about a potential correction in the Australian Dollar (AUD) that could easily wipe out the meagre interest payments made by this fund, currently less than 3%. I bought these shares last September and received several monthly dividends: Bought 100 of the Bond ETF AUNZ at $22.29
AUD/USD= 1.0584 (Date of Sale)
Five Year Chart: AUD/USD Currency Conversion Chart
I bought this ETF during a dip in the AUD to around 1.02.
Eventually, I hope to become a long term holder of Australian dollars and to use those dollars to buy income generating securities on the Australian Securities Exchange-ASX. I will need to be opportunistic in converting my USDs into AUDs. At a minimum. I would want to buy 1.05 AUD for each USD. The reverse is true now, in that one AUD buys over 1.05 USDs. If and when I can buy AUDs at a more favorable rate, I will pursue an Australian Dollar strategy similar to my Canadian Dollar (CAD) Strategy.
3. Paired Trades Roth IRA: Bought 50 RRD at $8.75 and 100 of the Stock CEF JLA at $12.3062-Sold 100 of the Unleveraged Bond CEF CSI at $20.09 (see Disclaimer):
Security Descriptions:
Cutwater Select Income Fund (CSI) is an unleveraged closed end bond fund that is weighted in BBB rated bonds.
CSI's Sponsor's Website: Asset Management | Bond Funds | Cutwater Select Income Fund
Nuveen Equity Premium Advantage Fund (JLA) is a buy-write closed end stock fund that seeks to replicate the price movements of a 50%/50% combination of the S & P 500 and the Nasdaq 100.
As one would expect, this fund would have a significant weighting in Apple (10.76% as of 11/30/12). Apple's stock does appear to be in free fall since closing at around $702 last April: AAPL Interactive Chart Yesterday, an analyst at Nomura lowered the price target to $530 from $660, WSJ. Other analysts are keeping the faith however, MarketWatch, notwithstanding media reports that Apple slashed its demand for IPhone 5 parts. Bloomberg I would add the following observation, Tim Cook is not Steve Jobs, not even close in my opinion.
It just seems to me that Apple is operating in an increasingly competitive space with expensive products, relative to the competition, and consequently has unsustainably high margins. Still, I view Apple's stock to be undervalued currently, though I am not yet a buyer, simply because I see no catalyst yet to stop the herd movement out of the stock and the stock looks like a falling knife to me.
A recent article in Morningstar noted a number of mutual funds with much greater stakes in Apple.
I previously discussed my mostly negative views of R.R. Donnelley & Sons Co. (RRD) in connection with a 100 share purchase: Item # 2 Bought 100 RRD at $9.94 (11/9/12 Post).
I have nothing to add to that post, other than RRD recently declared its regular 26 cent per share quarterly dividend. RR Donnelley Board of Directors Declares Quarterly Dividend I am after clipping that dividend and to sell the shares for any profit.
CSI Data on 1/10/13
Net Asset Value: $21.39
Market Price: 20.2
Discount: -5.56
Yield at $20.2 Per Share=5.2%
JLA Data on 1/10/13
Net Asset Value: $13.49
Market Price: $12.38
Discount: -8.23%
Discount at $12.32 Purchase Price: 8.67%
Yield at total cost of $12.3=9.23%
RRD Yield at total cost of $8.75=11.89%
JLA page at the CEFA
JLA page at Morningstar (3 year average discount 7.71%; rated 3 stars; unleveraged; dividend supported significantly by return of capital; adjusted 2011 expense ratio of .94%)
Sponsor's Webpage: JLA - Nuveen Equity Premium Advantage Fund
Dividends: Distributions are made quarterly. The last five dividends have been $.284 per share but the dividend rate has been reduced several times in recent years. JLA Dividends
SEC Form N-Q (quarterly holdings as of 9/30/12)
Last SEC filed shareholder report (period ending 6/30/12)
Prior Trades:
CSI:
I bought the 100 shares of CSI last August that were sold last week. Bought 100 of the Bond CEF CSI at $19.54-ROTH IRA I collected $53 in dividends and made $40.96 on the shares:
I have traded CSI and its predecessor in name, the"1838 Bond Indenture Trading Fund", for small profits in the past. It is hard for me to get excited about the dividend yield. As shown in this 2010 trade, I do not keep the shares for very long and will generally just try to clip a dividend or two:
JLA:
I currently own 200 shares of this stock CEF in a taxable account. I am near break-even on the shares after adjustments to the cost basis for returns of capital.
Added 100 to the Stock CEF JLA @ $12.67 (April 2011)
Bought 100 of JLA at $12.84 (January 2011)
I have had one round trip on trip flip for a small gain.
RRD:
I have managed so far to avoid losing money on RRD common shares. I have accomplished that feat by flipping the shares for small gains and by refusing to buy any until the price had been smashed to smithereens. I do have an unrealized loss on the 100 shares bought at $9.94 last November.
I am basically trying to clip the dividend and make a few bucks on the shares. It has not been wise to be a long term holder of this stock over the past few years. RRD Interactive Chart After hitting a high over $47 in June 2007, very close to the 1998 all time high, the stock has been a widow maker.
Sold 100 RRD at $12.24 (May 2, 2012)- Bought 100 RRD at $11.6 (April 2012)
Sold 50 RRD at $11.92-Roth IRA (July 2012)-Bought 50 RRD at $10-ROTH IRA (May 23, 2012/note the fast slide from the earlier May sale)
For the most part, I have been content buying and selling RRD senior unsecured bonds. I also traded a trust certificate several times containing a RRD 2029 senior bond as its underlying security. Bought 50 PYS at 20.01 March 2010; Add 50 PYS at 19.59 June 2010; Sold 50 PYS at 20.76 July 2010; Sold 50 PYS @ 24 November 2010; Sold 50 of the TC PYS at 23.2 April 2011; Stocks, Bonds & Politics: Trust Certificates: New Gateway Post.
A positive article on RRD appeared in the Barrons.com Weekday Trader column published last February. At that time, the stock was trading at $12.59, a 41% decline from its then 52 week high of $21.34. So, in retrospect, RRD was not a good buy then even though it has maintained its dividend. My last purchase at $8.75 was 30.5% below that February 2012 price. Basically, the author argued that RRD could maintain its generous dividend and stock buybacks. It is my view that the company needs to cease all buybacks and any future significant acquisitions.
Rationale: (1) Swap Increases Tax Free Income Generation in Roth: That is it. CSI is a low yielding bond CEF. I pick up much more dividend yield with JLA and RRD, and I still have some of the CSI proceeds left to invest. JLA does give me a broad exposure to two major stock indexes. All income paid into the ROTH IRA is tax free. I will be pleased to harvest the higher yielding dividends paid by RRD and JLA and to liquidate those positions at any profit. Money doubles in 7.2 years at 10%. Estimate Compound Interest
Risks: (1) RRD Appears to be a Falling Knife. Actually, it is a falling knife. While I have been critical of this company, there is always a price where my interest may be perked to some limited degree. I am certainly far from enthusiastic about RRD's prospects.
A good tax free return in the ROTH is achievable simply by capturing the dividend without losing anything on the shares. As I moved down in price with my purchases, I am reducing my risk from that perspective, i.e., better to buy 50 at $8.75 than $12.59.
(2) JLA has the typical risks of a stock CEF that uses a buy-write strategy. As I have noted many times in the past, it is possible to suffer an unrealized loss in a CEF simply due to the expansion of the discount with the net asset value per share remaining relatively constant. I attempt to mitigate that risk by buying stock CEFs at greater than a 10% discount to net asset value and at a greater discount than the three year average for that CEF. I did not buy JLA at greater than a 10% discount (purchased at -8.87%), but it was bought at a greater discount than its current 7.71% average three year discount.
4. Added 50 of the Stock CEF IRR at $10.7 (see Disclaimer):
2. Sold 100 AUNZ at $22.89 (see Disclaimer): I am not going to discuss this trade except to say that I am somewhat concerned about a potential correction in the Australian Dollar (AUD) that could easily wipe out the meagre interest payments made by this fund, currently less than 3%. I bought these shares last September and received several monthly dividends: Bought 100 of the Bond ETF AUNZ at $22.29
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| Sold 100 AUNZ at $22.89 +$44.04 |
Five Year Chart: AUD/USD Currency Conversion Chart
I bought this ETF during a dip in the AUD to around 1.02.
Eventually, I hope to become a long term holder of Australian dollars and to use those dollars to buy income generating securities on the Australian Securities Exchange-ASX. I will need to be opportunistic in converting my USDs into AUDs. At a minimum. I would want to buy 1.05 AUD for each USD. The reverse is true now, in that one AUD buys over 1.05 USDs. If and when I can buy AUDs at a more favorable rate, I will pursue an Australian Dollar strategy similar to my Canadian Dollar (CAD) Strategy.
3. Paired Trades Roth IRA: Bought 50 RRD at $8.75 and 100 of the Stock CEF JLA at $12.3062-Sold 100 of the Unleveraged Bond CEF CSI at $20.09 (see Disclaimer):
Security Descriptions:
Cutwater Select Income Fund (CSI) is an unleveraged closed end bond fund that is weighted in BBB rated bonds.
CSI's Sponsor's Website: Asset Management | Bond Funds | Cutwater Select Income Fund
Nuveen Equity Premium Advantage Fund (JLA) is a buy-write closed end stock fund that seeks to replicate the price movements of a 50%/50% combination of the S & P 500 and the Nasdaq 100.
As one would expect, this fund would have a significant weighting in Apple (10.76% as of 11/30/12). Apple's stock does appear to be in free fall since closing at around $702 last April: AAPL Interactive Chart Yesterday, an analyst at Nomura lowered the price target to $530 from $660, WSJ. Other analysts are keeping the faith however, MarketWatch, notwithstanding media reports that Apple slashed its demand for IPhone 5 parts. Bloomberg I would add the following observation, Tim Cook is not Steve Jobs, not even close in my opinion.
It just seems to me that Apple is operating in an increasingly competitive space with expensive products, relative to the competition, and consequently has unsustainably high margins. Still, I view Apple's stock to be undervalued currently, though I am not yet a buyer, simply because I see no catalyst yet to stop the herd movement out of the stock and the stock looks like a falling knife to me.
A recent article in Morningstar noted a number of mutual funds with much greater stakes in Apple.
I previously discussed my mostly negative views of R.R. Donnelley & Sons Co. (RRD) in connection with a 100 share purchase: Item # 2 Bought 100 RRD at $9.94 (11/9/12 Post).
I have nothing to add to that post, other than RRD recently declared its regular 26 cent per share quarterly dividend. RR Donnelley Board of Directors Declares Quarterly Dividend I am after clipping that dividend and to sell the shares for any profit.
CSI Data on 1/10/13
Net Asset Value: $21.39
Market Price: 20.2
Discount: -5.56
Yield at $20.2 Per Share=5.2%
JLA Data on 1/10/13
Net Asset Value: $13.49
Market Price: $12.38
Discount: -8.23%
Discount at $12.32 Purchase Price: 8.67%
Yield at total cost of $12.3=9.23%
RRD Yield at total cost of $8.75=11.89%
JLA page at the CEFA
JLA page at Morningstar (3 year average discount 7.71%; rated 3 stars; unleveraged; dividend supported significantly by return of capital; adjusted 2011 expense ratio of .94%)
Sponsor's Webpage: JLA - Nuveen Equity Premium Advantage Fund
Dividends: Distributions are made quarterly. The last five dividends have been $.284 per share but the dividend rate has been reduced several times in recent years. JLA Dividends
SEC Form N-Q (quarterly holdings as of 9/30/12)
Last SEC filed shareholder report (period ending 6/30/12)
Prior Trades:
CSI:
I bought the 100 shares of CSI last August that were sold last week. Bought 100 of the Bond CEF CSI at $19.54-ROTH IRA I collected $53 in dividends and made $40.96 on the shares:
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| CSI Purchase and Dividend History |
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| 2010 CSI 100 Shares + $54.07 |
I currently own 200 shares of this stock CEF in a taxable account. I am near break-even on the shares after adjustments to the cost basis for returns of capital.
Added 100 to the Stock CEF JLA @ $12.67 (April 2011)
Bought 100 of JLA at $12.84 (January 2011)
I have had one round trip on trip flip for a small gain.
RRD:
I have managed so far to avoid losing money on RRD common shares. I have accomplished that feat by flipping the shares for small gains and by refusing to buy any until the price had been smashed to smithereens. I do have an unrealized loss on the 100 shares bought at $9.94 last November.
I am basically trying to clip the dividend and make a few bucks on the shares. It has not been wise to be a long term holder of this stock over the past few years. RRD Interactive Chart After hitting a high over $47 in June 2007, very close to the 1998 all time high, the stock has been a widow maker.
Sold 100 RRD at $12.24 (May 2, 2012)- Bought 100 RRD at $11.6 (April 2012)
Sold 50 RRD at $11.92-Roth IRA (July 2012)-Bought 50 RRD at $10-ROTH IRA (May 23, 2012/note the fast slide from the earlier May sale)
For the most part, I have been content buying and selling RRD senior unsecured bonds. I also traded a trust certificate several times containing a RRD 2029 senior bond as its underlying security. Bought 50 PYS at 20.01 March 2010; Add 50 PYS at 19.59 June 2010; Sold 50 PYS at 20.76 July 2010; Sold 50 PYS @ 24 November 2010; Sold 50 of the TC PYS at 23.2 April 2011; Stocks, Bonds & Politics: Trust Certificates: New Gateway Post.
A positive article on RRD appeared in the Barrons.com Weekday Trader column published last February. At that time, the stock was trading at $12.59, a 41% decline from its then 52 week high of $21.34. So, in retrospect, RRD was not a good buy then even though it has maintained its dividend. My last purchase at $8.75 was 30.5% below that February 2012 price. Basically, the author argued that RRD could maintain its generous dividend and stock buybacks. It is my view that the company needs to cease all buybacks and any future significant acquisitions.
Rationale: (1) Swap Increases Tax Free Income Generation in Roth: That is it. CSI is a low yielding bond CEF. I pick up much more dividend yield with JLA and RRD, and I still have some of the CSI proceeds left to invest. JLA does give me a broad exposure to two major stock indexes. All income paid into the ROTH IRA is tax free. I will be pleased to harvest the higher yielding dividends paid by RRD and JLA and to liquidate those positions at any profit. Money doubles in 7.2 years at 10%. Estimate Compound Interest
Risks: (1) RRD Appears to be a Falling Knife. Actually, it is a falling knife. While I have been critical of this company, there is always a price where my interest may be perked to some limited degree. I am certainly far from enthusiastic about RRD's prospects.
A good tax free return in the ROTH is achievable simply by capturing the dividend without losing anything on the shares. As I moved down in price with my purchases, I am reducing my risk from that perspective, i.e., better to buy 50 at $8.75 than $12.59.
(2) JLA has the typical risks of a stock CEF that uses a buy-write strategy. As I have noted many times in the past, it is possible to suffer an unrealized loss in a CEF simply due to the expansion of the discount with the net asset value per share remaining relatively constant. I attempt to mitigate that risk by buying stock CEFs at greater than a 10% discount to net asset value and at a greater discount than the three year average for that CEF. I did not buy JLA at greater than a 10% discount (purchased at -8.87%), but it was bought at a greater discount than its current 7.71% average three year discount.
4. Added 50 of the Stock CEF IRR at $10.7 (see Disclaimer):
Security Description: The ING Risk Managed Natural Resources Fund (IRR) is a buy-write stock closed end fund that invests in natural resource stocks.
Top Ten Holdings and Industry Weightings as of 12/31/12:
Sponsor's webpage: ING Risk Managed Natural Resources Fund
Sponsor's Fact Sheet: ingfunds.com.pdf
Dividend: Last quarterly dividend was .28 per share, going ex dividend on 10/1/12, which was reduced from 33 cents per share paid in the prior quarter: Distributions
IRR page at Morningstar (rated 3 stars; Average 3 year discount -.27%; no leverage; dividend supported by a return of capital)
IRR Page at the CEFA
1/9/13 Day Before Purchase
Net Asset Value Per Share: $11.56
Market Price: $10.65
Discount: -7.87
1/10/13 Day of Purchase
Net Asset Value Per Share: $11.62
Market Price: $10.7
Discount: -7.92%
Prior Trades: For awhile, I did okay with this CEF, but the recent purchases are under water. I may be close to break-even on a total return basis given the high dividend yield.
IRR BUY at $12.50 December 2008-Sold 100 IRR at $17.4 October 2009
Sold 109+ IRR at $16.65-Retirement Account
Sold 109+ IRR at $16.65-Retirement Account
Bought Back 100 IRR at $12.17 (December 2011)
Bought 100 of the Stock CEF IRR at $12.41-ROTH IRA (March 2012)
Added 50 IRR at $10.98 (August 2012)
While the stocks of major oil producers have held relatively steady, other natural resource sectors have been hit hard since my recent IRR purchases, including natural gas producers, coal and basic metal companies.
See, e.g., the following two year charts:
Market Vectors Coal ETF Chart
First Trust ISE-Revere Natural ETF Chart
Cliffs Natural Resources Inc Co Stock Chart
Freeport-McMoRan Copper & Gold, Stock Chart
VALE S.A. American Depositary Stock Chart
BHP Billiton Limited Common Sto Stock Chart
Rio Tinto Plc Common Stock Stock Chart
Chevron Corporation Common Stoc Stock Chart
Exxon Mobil Corporation Common Stock Chart
BHP and Rit Tinto were downgraded by Macquarie to neutral last week. Macquarie was concerned that the spurt in iron ore prices had only a "limited longevity". BHP Billiton was also downgraded by BAC to underperform last Thursday.
For reasons stated in the comment section to several recent SA articles, I believe that thermal coal companies are already in a long term secular bear market. (Seeking Alpha and Seeking Alpha)
Rationale: (1) Income with Appreciation Potential Long Term: The current dividend yield is about 10.47% at a total cost of $10.7 per share.
Bought 100 of the Stock CEF IRR at $12.41-ROTH IRA (March 2012)
Added 50 IRR at $10.98 (August 2012)
While the stocks of major oil producers have held relatively steady, other natural resource sectors have been hit hard since my recent IRR purchases, including natural gas producers, coal and basic metal companies.
See, e.g., the following two year charts:
Market Vectors Coal ETF Chart
First Trust ISE-Revere Natural ETF Chart
Cliffs Natural Resources Inc Co Stock Chart
Freeport-McMoRan Copper & Gold, Stock Chart
VALE S.A. American Depositary Stock Chart
BHP Billiton Limited Common Sto Stock Chart
Rio Tinto Plc Common Stock Stock Chart
Chevron Corporation Common Stoc Stock Chart
Exxon Mobil Corporation Common Stock Chart
BHP and Rit Tinto were downgraded by Macquarie to neutral last week. Macquarie was concerned that the spurt in iron ore prices had only a "limited longevity". BHP Billiton was also downgraded by BAC to underperform last Thursday.
For reasons stated in the comment section to several recent SA articles, I believe that thermal coal companies are already in a long term secular bear market. (Seeking Alpha and Seeking Alpha)
Rationale: (1) Income with Appreciation Potential Long Term: The current dividend yield is about 10.47% at a total cost of $10.7 per share.
While is frequently not apparent in the here and now, I expect that natural resource stocks are now and will continue to be in a long term secular bull market due simply to easily understood supply/demand factors, particularly as those factors relate to the hyper growth of emerging markets.
Asian countries are increasingly acquiring natural resource companies to secure their future access to those resources, clearly thinking long term.
Risk: Again, the risk is typical for a buy-write closed end stock fund that focuses on a specific industry grouping. This fund will not do well when natural resource stocks are declining.
Future Buys: I am not likely to buy more of this CEF. Instead, I will add more to my Petroleum & Resources Corp. (PEO) position at some point.
I may start reinvesting the IRR dividend at some point.
Politics and Etc.
1. Infamous Stringdusters: You can easy spot a talented group of musicians who can lay down live tracks as good or better than other groups who have to have their recordings massaged endlessly by studio technicians.
This is a link to some live tracks performed by the Infamous Stringdusters in Nashville's Music Fog studio:
The Infamous Stringdusters "You Can't Stop the Changes" - YouTube
The Infamous Stringdusters "All the Same" - YouTube
The Infamous Stringdusters "Magic #9" - YouTube
2. GOP Willing to Cause a Debt Default: It should come as no surprise to anyone that a very large number of republicans are prepared to cause the U.S. government to default on its debt unless they get what they want. Some of them, including the Cathy Rodgers of Washington state, are quoted in this article at POLITICO expressing their willingness to pursue that option.
3. Payroll Tax: As part of the effort to stimulate the economy, the government temporarily reduced the payroll tax from 6.2% to 4.2%. The 2010 rate was restored on 1/1/13. Social Security has to be funded of course and this reduction probably was a bad idea from the start.
Many Americans are now viewing the restoration of the 6.2% rate as an Obama tax hike.
Economists are worrying that consumers will pull back their spending in response to the "tax hike" and are busy shaving their first quarter GDP estimates. CNBC It is now widely expected that the restoration of the payroll tax to 6.2% will cut about .6% off GDP this year.
It will have a negative impact since the dollar amount will average about $700. Yet some of the sting could be lessened by lower expenses elsewhere. Gas prices seem to be lower than they were last year. I did not receive an increase this year in my health insurance premium for the first time in a long time. That was huge for me.
I may start reinvesting the IRR dividend at some point.
Politics and Etc.
1. Infamous Stringdusters: You can easy spot a talented group of musicians who can lay down live tracks as good or better than other groups who have to have their recordings massaged endlessly by studio technicians.
This is a link to some live tracks performed by the Infamous Stringdusters in Nashville's Music Fog studio:
The Infamous Stringdusters "You Can't Stop the Changes" - YouTube
The Infamous Stringdusters "All the Same" - YouTube
The Infamous Stringdusters "Magic #9" - YouTube
2. GOP Willing to Cause a Debt Default: It should come as no surprise to anyone that a very large number of republicans are prepared to cause the U.S. government to default on its debt unless they get what they want. Some of them, including the Cathy Rodgers of Washington state, are quoted in this article at POLITICO expressing their willingness to pursue that option.
3. Payroll Tax: As part of the effort to stimulate the economy, the government temporarily reduced the payroll tax from 6.2% to 4.2%. The 2010 rate was restored on 1/1/13. Social Security has to be funded of course and this reduction probably was a bad idea from the start.
Many Americans are now viewing the restoration of the 6.2% rate as an Obama tax hike.
Economists are worrying that consumers will pull back their spending in response to the "tax hike" and are busy shaving their first quarter GDP estimates. CNBC It is now widely expected that the restoration of the payroll tax to 6.2% will cut about .6% off GDP this year.
It will have a negative impact since the dollar amount will average about $700. Yet some of the sting could be lessened by lower expenses elsewhere. Gas prices seem to be lower than they were last year. I did not receive an increase this year in my health insurance premium for the first time in a long time. That was huge for me.
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