Wednesday, February 20, 2013

GE, ARR, GIS, CTL & WIN, OMX/Sold 50 Cisco at $21.06/Bought 100 PBA at $29.21/Bought 50 WBSPRE at $25.1/Sold 207+ FUND at $7.28/Bought Back 1 JCP 7.95% Senior Unsecured Bond Maturing in 2017 at $95

As a housekeeping matter, I have moved the google search box to the last item in the right hand column. A few days ago, that search quit producing anything remotely close to adequate search results. The results are so bad now that I will eliminate that search option altogether soon. The results produced by the Google search box are just way, way off and frequently return "no results" when there would be a large number of hits with a properly functioning search. In short, it has become worse than worthless.

The box in the upper left hand corner is better, but inadequate in many respects including the display of relevant material.

Another way to search the blog, which produces decent results, is to use the Google Advanced Search, enter my domain address in the "site or domain" box (Stocks, Bonds & Politics) and then enter the search term.

There is a reason that I have the word verification option for the comment section. If I turned it off, I would have at least twenty comments within a few hours to examine and all of them would be spam. While I could immediately delete those that are in a foreign language, I would have to read those in English.

Big Picture Synopsis

Stable Vix Pattern
Short Term: Slightly Bearish
Intermediate and Long Term: Bullish

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

I lowered my short term outlook for stocks based in part on the deteriorating euro-zone economies. Last week, Eurostat released updated 4th quarter GDP numbers for the European countries. eurostat..PDF GDP is currently estimated to have declined by .6% in the 4th quarter, compared to the third, or at an annualized rate of 2.3%. Importantly, GDP in Germany declined .6% from the previous quarter. Italy's GDP slid at an annualized rate of 3.7%.

I would not expect much of a recovery in Europe before the 2013 second half. The euro-zone will continue to be a drag on worldwide GDP for at least another year.

Sequestration is scheduled to activate on 3/1/13 unless Congress grants another extension. No one really knows how the market will react. Sequestration will cause job losses. There will be a significant number of job cuts in the civilian labor force connected to defense spending. (Washington Post: The sequester cuts in one graph) Since there would be a 2% cut in Medicare spending, limited to provider and insurer payments, there would also likely be significant job losses in the healthcare industry.

The Director of the CBO, Douglas Elmendorf, estimated that the sequester could result in the loss of 750,000 jobs in 2013.

On the other hand, the U.S. economy can not rely on the government spending $1+ trillion per year more than its revenues to keep it out of a recession. Many investors may react positively to the government being forced to trim spending, even though virtually everyone recognizes the sequester as an inappropriate method to use. It may be the only viable means to reduce federal spending, given the level of dysfunction however.

The increasing likelihood of sequestration is another reason for the near term stock outlook downgrade.

The main reason is just a feeling in my gut that a 5% to 10% correction is just overdue.

So far, my response to that change was a relatively small trim in stock CEF positions and the elimination of the CEF FUND, as noted below.

My next post will be the regular monthly update of the Lottery Ticket and Regional Bank Basket strategies which is published on the last Monday of each month.

I noted in a January post that Goldman Sachs had slapped a sell rating on General Mills (own). 1/15/13 Post That downgrade caused the stock to decline from a close of $41.6 on 1/10/13 to $40.62 the next day. The stock has been on an uphill trajectory thereafter.

The market shrugged off the GS analyst after just one day, and the stock popped on very heavy volume on the day that Berkshire announced the proposed acquisition of Heinz.

In connection with the Consumer Analyst Group conference on 2/19, General Mills reaffirmed guidance for the fiscal year ending May 26, 2013 of $2.65 to $2.67 per share before certain items. The company expects high single digit E.P.S. growth for the 2014 F/Y. The consensus estimate for the 2014 F/Y was an 8% increase in E.P.S. to $2.9 per share.


Market Vectors launched last week an ETF that owns 25 Business Development Corporations: Market Vectors BDC Income ETF (BIZD)

Sponsor's website: Market Vectors® BDC Income ETF - BIZD- Van Eck Global


In a interview, Rob Arnott stated that the U.S. may already be in a recession and that "mainstream stocks and bonds are expensive and vulnerable".  I did not read any cogent or persuasive reasons for his opinion. I would not regard investor sentiment to be a criteria for investment decisions.

I do own shares in a mutual fund managed by Arnott. PAUDX - PIMCO All Asset All Authority D 


I received a good pop last week in my General Electric position based on this news: GE Sells Remaining Stake in NBCUniversal Joint Venture and Related Assets to Comcast for $18.1B 

GE Position as of 2/13/13
Closing Price 2/13/13: GE: $23.39 +$0.81 (+3.59%)

My average cost per share is currently $20.04. My long term plan is to reduce my average cost per share to around $15 by selling 172 shares, bought in 2008, at over $30 (see snapshot in the introduction of Stocks, Bonds & Politics: GE 12/12/12 Post). I hope that price target can be reached in 12 to 18 months.  


One of the many known hazards inherent in owning both BDCs and Mortgage REITs is the replenishment of funds through sizable new share offerings. ARMOUR Residential REIT announced last Thursday that it was selling 65M shares, plus up to 9.75M additional shares in the over-allotment option. Prospectus Needless to say, that announcement caused a downdraft in the common stock price. I recently bought 100 shares in an IRA. Bought Roth IRA 100 ARR at $6.86 & 100 BKCC at $10.38 I would generally view this kind of activity as a positive for the owners of cumulative preferred stock, and I own 50 shares of ARRPRA. Bought 150 ARR at $7.46 & Bought 50 ARRPRA at $25.50

ARR Closing Price 2/14/13: ARR: 6.70 -0.39 (-5.50%).

The stock declined another ten cents on last Friday (2/15/13). Deutsche Bank downgraded ARR to hold and reduced its price target to $6.75 from $8.3.

Armour also recently sold 5.4M shares of a cumulative preferred stock with a 7.875% coupon. That preferred stock will trade under the symbol ARRPRB. Prospectus

The company also announced preliminary results for the 4th quarter. GAAP earnings were estimated to be $.36 to $.38 per share with a book value between $7.28 to $7.3 per share. SEC Filed Press Release The company estimated that its current book value after the issuance of 5.4 million series B preferred shares would be between $6.7 to $6.76 as of 2/12/13. I believe the total value of those series B shares (5.4 million x. $25 per share) would be subtracted from the prior book value number which probably would account for most of the decline from 12/31/12.

Book value per share=Shareholder Equity minus Par Value of Preferred Stock Divided by Average Outstanding Common Stock: Equity Valuation: Book ValueAccounting Principles

Deutsche Bank noted the decline in book value in its downgrade and further stated that the recent capital raise could be "slightly accretive" assuming roughly 9 times leverage.

Bank of America/Merrill Lynch downgraded ARR from buy to hold shortly before the capital raise.

I will be keeping my position in the common and preferred stock. I start reinvesting the common's monthly dividends as my only response to date to this downdraft.


CenturyLink cut its quarterly dividend 25% from $.725 per share to $.54 and authorized a new share repurchase program to buy up to $2B in stock. This announcement caused a substantial downdraft in the stock last Thursday (2/14/13): CTL: $32.27 -$9.42 (-22.60%)

The announcement also caused a severe downdraft in Windstream's stock price: WIN: $9.09 -$0.73 (-7.39%)

I bought 50 shares of WIN in the regular IRA: Item # 1 Bought 50 WIN at $8.5-Regular IRA As I have noted in that post, investors are rationally concerned that WIN will cut its generous $.25 per share quarterly dividend.

On 2/19/13, Windstream reported 4th quarter results and announced that the Board had unanimously agreed to continue its $1 per share annual dividend. I have not had an opportunity yet to review this report. I did see that UBS downgraded Windstream to sell, reducing their price target to $7.5 from $9. Zacks referred to the report as "lackluster" which is not unusual for Windstream.

While I do not own any CTL stock, I do own a trust certificate PJA that has, as its underlying security, a senior Qwest Capital bond maturing in February 2031. CTL acquired Qwest in 2011. That TC just went ex interest (2/12/13) for its semi-annual interest payment. Merrill Lynch Depositor Inc. PreferredPLUS Cl A 8% TRUCs QWS-2 for Qwest Capital Funding  (PJA) Stock Quote

I received the interest payment on 2/15/13.

The TC has a 8% coupon on a $25 par value. The underlying bond has a 7.75% coupon. FINRA I currently own 150 PJA shares: Bought 50 PJA at 19.45 December 2009Bought 50 PJA at 24.65 December 2010 Roth IRA-Sold 50 PJA at $25.4-ROTH IRABought 50 of the TC PJA at 25.06 April 2011Added 50 of the TC PJA at $24.6 November 2011

PJA has a call warrant attached to it.


The FHA reported yesterday that 130,000 homeowners refinanced their mortgages through the HARP program in November, bringing the 2012 total close to 1 million. From inception through November 2012, there have been 2,088,560 refinances completed through the HARP program.

Link to November FHA Refinance Report: Nov2012RefiReport.pdf

HARP is set to expire at the end of this year.

The government reported today that single family housing starts in January rose to the highest level since July 2008. Overall, builders broke ground on 613,000 single family homes at an annual rate last month.


1. Sold 50 of 153+ Cisco at $21.06 (see Disclaimer): Shortly before the closing bell last Wednesday, when Cisco was scheduled to report earnings, I made a spur of the moment decision to pare my position. While this may sound a tad ridiculous, I simultaneously made the decision to substitute 50 shares of WBSPRE for those 50 Cisco shares. I do pick up almost 4% in yield with this switch. 

LB is quick to note that it had nothing to do with this silly pared trade. Maybe the Old Geezer, who is unfortunately Headkocker's Head Trader here at HQ during Stable Vix Patterns, just reacts rather than thinks, which is of course to be expected from someone way past his prime. 

This pare lowered my average cost per share slightly to $19.45. 

Prior Trades: I frequently sell some or all of my Cisco position before an earnings release, expecting more often than not a downdraft in the stock price thereafter.   

This last transaction netted a $59.57 profit:

2013 Cisco 50 Shares +$59.57
From the OG's perspective, he is not losing money trading Cisco shares, but admittedly those trades are unlikely to generate enough profits  to pay for his nursing home expenses down the road.

Similar round trip transaction have occurred in the past: Bought 50 CSCO at $22.45 (June 2010)-Sold Cisco near the closing price of $24.31 Aug. 2010); Bought CSCO at $20.39 (September 2010)-SOLD 50 CSCO @ $24.42 on 11/8/2010

I am reinvesting the dividend to buy more shares. Cisco did raise its quarterly dividend to 14 cents per share from 6 cents last year.

I have only become slightly interested in Cisco shares, starting in 2010, for the first time since the late 1990s, and my interest was perked only after the shares were pummeled from the bubble land heights reached in 1999-2000.

Recent Earnings Release: For its second fiscal quarter ending on 1/26/13, Cisco reported non-GAAP income of $2.7B or 51 cents per share on revenues of $12.098B, compared to $2.6B and 47 cents per share in the year earlier quarter. The consensus estimate was for 46 cents. SEC Filed Earnings Release (GAAP at 53 cents per share) Cash flow for the quarter was $3.3B, up from $3.1B in the 2012 fiscal second quarter.

As of 1/26/13, cash and cash equivalents totaled $46.4B. Long term debt stood at $16.254B. The debt is low cost. FINRA Information of Cisco Debt One of the higher cost issues with a 5.5% coupon matures in 2016 and is currently trading with a YTM of less than 1%. FINRA

Cisco repurchased approximately 25 million shares during the quarter at an average cost of $20.34. 

Earnings Call Transcript - Seeking Alpha

In response to the earnings release, the stock traded in a $20.51 to $21 range on 66.89+M shares, compared to the average volume of 38+M, and closed down 15 cents on 2/14/13: CSCO: 20.99 -0.15 (-0.71%)

Rationale: (1) Attempting to Manage My Small Position to Harvest Some Gains and To Lower My Average Cost Per Share Over Time: I need to do better in executing that objective. It would have been better, for example, to buy some shares when the price fell below $17 last November or, better yet, below $16 last July. CSCO Interactive Chart I failed at that simple task. If I get another chance, I will add to the position at those levels and then sell my higher cost shares on another pop to lower my average cost per share. Admittedly, this approach can be characterized as picayune, given my small lots and meager goals, but I am only comfortable playing Cisco stock in this fashion. 

Future Buys/Sells: I will be looking to buy back 50 shares at less than my average cost per share, preferably at below $19. I will certainly add 50 at below $17 unless there is some really bad news events causing the price adjustment.

If I am unable to average down, I will start to consider selling the remaining shares at $22, though my 12 to 18 month target range is closer to $25. 

2. Bought 50 WBSPRE at $25.1 (see Disclaimer): Both the RB and the LB renounce this pick and simply note for posterity that it was the Old Geezer's selection:  

Security Description: Webster Financial Corp. Dep Shs (Rep. 1/1000th 6.4% Non-Cum. Perp. Pfd. Series E) (WBS.PE) is an equity preferred stock issued by Webster Financial that pays non-cumulative, qualified dividends at 6.4% on a $25 par value. Dividends are paid quarterly. The security has no maturity date. Webster has the right to redeem this security at par value, plus accrued dividends, on or after 12/15/2017. That kind of provision gives Webster the option to refinance at a lower rate after the call option date, whereas the owner of the security has no way to stop the bleeding when interest rates rise other than to sell at a lose.

Prospectus: Prospectus Supplement

The prospectus has a typical stopper clause. Webster can not eliminate the non-cumulative preferred dividend unless it eliminates its common share dividend. (see pp.17-18). The stopper clause extends to share repurchases, with certain usual exceptions.

Webster Financial is a bank holding company who operates, through its banking subsidiary (Webster Bank), 165 branches throughout New England and Westchester County, NY.

Webster's quarterly common stock dividend was slashed from $.30 per share to just one penny in 2009 and has since been raised to $.10 per share. Webster Financial Corp. - Investor Relations - Dividend History

Prior Trades: WBSPRE is a new issue. In a somewhat inspired trade, RB bought the common shares as a lottery ticket during the Dark Period and sold the shares for a large percentage profit:

2011 WBS 50 Shares +$879.52
Buy of 50 WBS at $4.58: Lottery Ticket (March 2009)-Sold 50 WBS at $22.49 (March 2011)

Recent Earnings Release: Even though I bought the preferred stock, a review of earnings reports are relevant for the purpose of making a judgment about the continued payment of the preferred dividend.

2012 4th Quarter:
Q4 Earnings release
Net Income=$47.9M or $.52 per share vs. $.43 Q/E 12/31/2011
Net Interest Margin= 3.27%
Efficiency Ratio= 59.68%
NPL Ratio=1.62%
Coverage Ratio= 90.93%
NPA Ratio= 1.65%
Tangible Equity Ratio= 7.94%
Tier 1 Common Equity Ratio= 10.78%
Total Risk Based Capital Ratio= 13.73%
Return on Average Assets=.98%
Return on Average Shareholder Equity=9.54%
Tangible Book Value per share= $16.47

Webster repaid TARP in 2010 (page 10, 2011 Annual Report: Form 10-K)

The bank's turnaround from its mistakes made prior to the Near Depression is discussed in this 2011 article published by Barrons.

Rationale: (1) Decent Qualified Dividend Income in the Current Abnormally Low Yield Environment: The owner of a preferred stock does not have a real equity stake in the business. The preferred stock owner only has their dividend. The WBSPRE dividend yield at a total cost of $25.1 is about 6.37%, whereas the common shares yielded about 1.75% at their closing price of $22.82 on 2/13/13. It will take several years for the common shareholder to receive dividends sufficient to generate a 6.37% yield on that closing price.

WBSPRE goes ex dividend on 2/27/14. Webster Financial Corp. - Investor Relations - News Release That dividend is for $.448889 per share which includes both the 2013 first quarter and a brief period from the late 2012 IPO date. The normal quarterly dividend will be $.40 per share based on my calculation (.064% x. $25 par value=$1.6 annually and $.4 per quarter).

And, the common shareholders can have their dividend cut, which is not the case for the owners of WBSPRE. Both can have their dividends eliminated by the bank however. But if WBS hits the skids again, and reduces its common dividend to one cent per share, it has to pay the preferred dividend in full. The only way to eliminate the non-cumulative preferred dividend is to eliminate the common cash dividend altogether.

I may be wrong about the likely course of interest rates over the near or intermediate term. It is possible,  that deflation will occur once the FED ends QE. I currently anticipate that inflation will become a problem. In effect, by buying this security and a few more like it, I am betting against my forecast to a very limited degree.

Hopefully, I can exit this position with a small loss if and when it becomes apparent that my current forecast proves to be correct.  

Risks: 1. Interest Rate Risk is Huge: WBSPRE will not hold its value during a period of rising rates. Possibly, the loss in value would be lessened in such an eventuality, which will happen sooner or later, by an improving credit profile, where this security goes from a junk rating to investment grade.

2. Downside Risk Is a Zero Price with a Lack of Meaningful Upside from the Current Price: Anyone owning equity and even trust preferred stocks issued by financial institutions during the recent Near Depression does not need to be told about the downside risk. I bought trust preferred issues from Wells Fargo and Bank of America during that period in the single digits. Those securities are in effect junior bonds, senior in the capital structure to equity preferred stocks. I also bought equity preferred stocks in the single digits. Back then, I could have bought virtually every equity preferred stock at some point at less than $10. That needs to be kept in mind when buying these securities now, when they are selling near their par values.

If WBS is seized by the FDIC, WBSPRE would be a worthless security. 

3. Non-cumulative Equity Preferred Stocks Have a Tendency to be Volatile with a Downside Bias: Volatility is calm now, but give it time. These securities can hit air pockets that can make virtually any owner nauseous.  

Future Buys: I may average down by buying another 50 shares, but only when I can generate a current yield on 100 shares greater than 7%. An 8% yield would result with a 50 share buy at a total cost of $20, so I would be looking for a possible add in the $20 to $21 area only.

3. Bought 100 of Pembina Pipeline at $29.2067 (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Snapshot of Trade:

The shares were bought on the NYSE using USDs. It is slightly cheaper from a commission standpoint to buy the shares in the U.S. using USDs rather than on the Toronto exchange using my CADs. I am exposed to currency risk irrespective of whether I use USDs to buy the ADR or convert my USDs into CADs in order to buy ordinary shares on the Toronto exchange.

Pembina Pipeline Corp. Stock Price (PBA:NYSE)
Pembina Pipeline Corp. (PPL:TOR)

Stocks, Bonds & Politics: International Trading and Currency Risks

Stocks, Bonds & Politics: Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas

USD/CAD Currency Conversion Chart

Security Description: Pembina Pipeline is a Canadian company that owns and operates pipelines that transport crude, natural gas liquids, diluents and diluted bitumen produced in western Canada. The company also owns natural gas liquids infrastructure and logistics businesses.

The company owns about 9,500-km of pipelines, including 1500-km of oil sands and heavy oil pipelines, that transport approximately 50% of Alberta's conventional crude and 30% of Western Canada's natural gas liquids. The company has allocated more than C$600M to expand its liquids pipelines.

I am describing above only part of the Pembina's businesses. A more complete description can be found at the following sites:

Pembina Pipeline Profile Page at Reuters

Pembina Pipeline Key Developments Page at Reuters

About Pembina

Growth Projects

2011 Annual Report.pdf  For 2011, the company reported net income of C$.99 per share on revenues of C$1.676.7B, up from C$1.232B in 2010. Pembina reported adjusted cash flow of C$297.5B and paid out C$261.2B in dividends.

PBA has a three star rating from Morningstar.

The stock has performed well given the nature of the company: PBA Interactive Chart

PBA closed the acquisition of Provident Energy, formerly traded under the symbol PVX in the U.S., last April. Pembina Pipeline Corporation - Provident News Release

PBA is discussed in this Seeking Alpha article. The best report is the one from Morningstar, available to its subscribers.

Recent Earnings Report: For the 2012 third quarter, Pembina reported an E.P.S. of C$.11 cents per share, down from C$.18 in the 2011 third quarter, on revenues of $C.815.3. Adjusted cash flow from operations was C$133.2 or C$.46 per share. The company paid out C$.405 per share in dividends during the 2012 third quarter. SEC Filed News Release

Earnings Call Transcript - Seeking Alpha

Rational: (1) Monthly Dividend Income: The dividend yield before tax is about 5.5% at a total cost of $29.21. The Canadian Dollar strategy is premised on increasing my CAD stash primarily through dividends paid on securities bought on the Toronto exchange, and secondarily through some profits on security sales.

The stock will go ex dividend on 2/21/13 for its monthly distribution.

The current payout is C$.135 per month. - Dividends

Risks: 1. Capital Appreciation is Limited at the Current Price: I would not expect more than an annualized 8% total return, before taxes, with the dividend. I would need to buy this stock in the $24 to $26 range to rationally estimate a 10% total return before taxes.

(2) Potential Competition/Potential Accidents/Capital Intensive Business

(3) Increasing Costs in Exploration in PBA's Service Area Could Limit Future Production Thereby Negatively Impacting PBA's Pipeline Returns.

Future Buys: I may buy 50 in an IRA provided I can acquire the shares at below $27.  Canada does not currently withhold its 15% tax for dividends paid into an IRA.

4. Bought Back 1 JCP 7.95% Senior Unsecured Bond Maturing on 4/1/17 at $95 (see Disclaimer): I bought this bond in my Vanguard brokerage account where my commission was $2 for this one bond purchase.

Vanguard has made significant improvements in its online brokerage, particularly in the presentation of positions and navigation.

The bond order page has more information than any other broker that I currently use, and I took a snapshot of that page for this JCP bond:

Security Description: This is a senior unsecured bond.  If JCP borrows money under its secured credit facility, those borrowings would have a superior claim to this unsecured bond in the event of a bankruptcy.

JCP recently increased it borrowing capacity under its bank facility to $2.25B with a $400M accordion feature from $1.75B. jcpenney8k JCP has not drawn on that facility.

The author of this WSJ article headlined the story about this credit facility expansion with the phrase "J C Penney Not Acting Like "Financially Healthy Company'" As noted in that article, UBS cut JCP to sell based on concerns about deteriorating earnings and cash flow distress as the company continues to plod through the CEO's "turnaround" strategy. It certainly remains to be seen whether that strategy will be successful.

Bill Ackman has not lost faith-yet.

The CEO maintains that JCP will return to growth this year: JCP's CEO CNBC Video Interview

According to FINRA, this bond is currently rated Caa1 by Moody's and B- by S & P.

FINRA Information on 2017 Bond

JCP Common Stock Chart: This chart highlights that JCP is a struggling company.

2011 Annual Report: Form 10-K The JCP properties are listed starting at page 11. As of 1/28/12, JCP had 1,102 department stores, of which 426 were owned, including 121 stores located on ground leases. The long term debt is set out at page F-18. The weighted average maturity was then 23 years.

Long Term Debt Due Before 4/1/2017:
200M 6.875% due 2015 FINRA
200M 7.65% due 2016 FINRA

Prior Trades: I have bought and sold this bond one time.

Bought 1 J.C. Penney 7.95% Senior Bond Maturing on 4/1/17 at $97.5 with commission-Sold 1 J.C. Penney 7.95% Senior Bond Maturing in 2017 at 105 (September 2012).

Rationale: (1) Income with a Possibility of Capital Appreciation: My confirmation states that the yield to maturity at my cost is 9.378%. I thought that was worth the risk of a one bond purchase only. The annualized current yield is 8.35%.

(2) Some Analysts are Optimistic: The JCP Morningstar analyst is one such optimist. Morningstar has a 5 star rating on the stock with a consider to buy price at $22.8 or less and a $38 fair value estimate.

Risks: 1. Default Risk is Growing: I suspect that JCP will have at least another tough year. If and when there is significant proof that the turnaround strategy is working, then I will hopefully be able to sell this bond at over 100 again after collecting some interest. Otherwise, I may have to sweat it out on being repaid at maturity. I am obviously concerned since I limited my purchase to just one bond purchase.

The recent JCP earnings reports have been worse than awful.

10-Q for the Q/E 10/27/12 E.P.S. of ($.56)

10-Q for the Q/E. 7/28/12 E.P.S. ($.67)

10-Q for the Q/E 4/28/12   E.P.S. ($.75)

5. Sold 207+ of the Stock CEF FUND at $7.2826 (see Disclaimer): I am in a trading mode for this stock CEF.

I am a long term holder of two other Royce closed end funds, RVT and RMT, where I have not yet sold any shares. By trading FUND, I satisfy my urge to sell something.

This is my second round trip for the Royce Focus Trust (FUND) I made a decision to harvest the profit after seeing that the total return exceeded 15% since these shares were purchased last July.

2013 FUND 207 Shares +$176.98
Part of the total return was due to a narrowing of the discount, which was close to 13% at the time of the purchase. Item # 1  Bought 200 of the Stock CEF FUND at $6.34

FUND Data on 2/15/2013 (date sold)
Net Asset Value Per Share= $7.96
Market Price = $7.31
Discount -8.17

My only other transaction occurred in 2010, when I flipped a 300 share lot:

2010 FUND 300 Shares 

RB Bought 300 of the CEF FUND at $6.22-Sold: 300 FUND @ $7.2

6. OfficeMax and Office Depot Merger: I own two senior OfficeMax bonds. Item # 1 Bought 2 OfficeMax Senior Bonds at $97.494 (January 2011); FINRA - Investor Information on 2016 bond That bond was originally issued by Boise Cascade, who acquired OfficeMax in 2003, and then changed its name to OfficeMax.

In 2004, OMX sold its forest products and timberland operations, part of the original Boise Cascade to Boise Cascade, LLC, a company created by Madison Dearborn Partners. OfficeMax received earlier this month $129M related to investment in Boise Cascade Holdings, LLC when the Boise Cascade Company (BCC) was taken public earlier this month. OMX retained a 20.4% ownership interest in Boise Cascade Holdings which owns 29.7M shares of BCC after the IPO plus another $28M or so in cash.

OMX was looking better to me as a result of that IPO.

Office Depot agreed to acquire OfficeMax in shares, whereby each OMX share will be exchanged for 2.69 shares in ODP. OfficeMax And Office Depot Announce Merger Of EqualsBloomberg;

Consolidation is necessary in this retailing sector, but it remains to be seen whether this merger will pass antitrust scrutiny. In areas near HQ, it is not unusual to see a ODP and a OMX store near one another. In Brentwood, TN, where I live, the stores are within a quarter mile of each other.  If the merger closes, one of those stores will be closed which inherently reduces competition in my geographic area. At least around here, the OfficeDepot stores are free standing, while the OMX stores are part of strip centers.

As an OMX bond owner, I would just as soon see OMX stand alone. Over time, this combination could increase profitability due to store closings and reduced competition. ODP is in my opinion the weaker of the two entities.

Politics and ETC.

1. Democrats Won the 2012 Popular Vote in House of Representative Races: In an earlier post, I discussed how gerrymandering of congressional districts skews elections in an undemocratic manner.  The republicans lost the popular vote cast in House races but won 234 districts to 201 for the Democrats. House Seats vs. Popular Vote

2. The GOP Has Found Their New Joe McCarthy: While all politicians engage in certain amount of reality creation, the modern day GOP takes it to a new level. The new republican Senator from Texas, Ted Cruz, is one of the modern day "conservatives" who believe that telling the truth or being accurate with one's statements are in no way conservative values. Needless to say, Senator Cruz is a Tea Party darling.

An article in the NYT mentions that Senator Cruz accused Chuck Hagel, a former republican senator from Nebraska and a decorated war veteran, of all kinds of possible activities including accepting money from North Korea without offering a shed of evidence in support. Trail Blazers BlogMorning Joe Cruz of course avoided military service.

3. Eisenhower and Nixon: I read the NYT review of a new book titled "Ike and Dick" and thought that this statement by Eisenhower was priceless. During the close presidential between Nixon and Kennedy, Eisenhower was asked to name one policy position that Nixon had influenced and Ike said "give me a week, I might think of one".

4. Mississippi Finally Ratifies the 13 Amendment: After a Mississippi resident watched the new "Lincoln" movie, he started to do some research and discovered that Mississippi had never ratified that Amendment which abolished slavery. This "oversight" was just corrected as Mississippi became the last state to ratify this Amendment. CBS News

5. Judicial Foreclosures: In prior posts, I noted that foreclosures had slowed to a crawl in states that required court approval prior to a foreclosure. The Foreclosure Mess-Rewards for Failing to Pay One's Obligations A 2011 article in the NYT pointed out that it would take 62 years to foreclose on all delinquent mortgages at the then current pace, and 49 years in New Jersey. Those kind of delays encourage defaults since the homeowner continues to live in their home until the lender can successfully remove them. What happens when you stop paying your mortgage? - CBS News Possibly the record for living rent free after defaulting on a mortgage is held by a Florida resident who has successfully fought off foreclosure after defaulting on their mortgage loan in 1985. I have to admit that is impressive. But why is it allowed?

In these cases, it can be shown without any doubt that the homeowner borrowed money, signed a note and defaulted on the payments. Those facts are not even in dispute. The problem is frequently that the paperwork is so messed up that the lender can not prove to the satisfaction of a court that it owns the loan.

One simple law change could end abuses by homeowners who game the system after admittedly defaulting on a loan. One remedy would be to end judicial foreclosures altogether and adopt the Tennessee model for non-judicial foreclosures.

That may not be practical politically in some states that now require court approval. I would then propose the following. The Court would allow the person or entity claiming to own the loan to foreclose once it is proven by the preponderance of the evidence that the borrower signed the loan document and defaulted on the loan. At that point, the homeowner is absolved from any further liability based solely on who owns the loan, but would still be liable for any deficiency judgment.  If another person and entity claims to own the loan, their right of action would be against the person or entity who incorrectly instituted the foreclosure proceeding and would be entitled to collect attorney's fees and prejudgment interest solely against the person or entity who wrongfully asserted ownership of the mortgage. The solution to these problems and issues is relatively easy to figure out, but the will to do so is just absent in most cases.

I decided to bring this subject up again after reading an article earlier this week in USAToday that home prices have generally recovered faster in states where courts do not have to approve foreclosures.  


  1. Thanks for clarification on the Google search box not returning accurate results. Interesting you mentioned PAUDX in this same post as I was trying to search for it a couple days ago on your blog and got "no results" which I was confused by, simply because your blog is where I originally was made aware of it as well as PRPFX.

  2. That Gooogle search box will be missed, true it was growing unpredictable recently. I suggest you post a comment on their official search blog who knows maybe they will fix it, after all it was working before. And while at it they should add chrono vs relevance ordering option for the results, useful in the investment diary type of blogs like yours.

    They also have an official bug submission procedure available.

  3. I sent an email notification but there was no response.

    The google search box returned "no results" for PAUDX even though there are discussions in the blog. It has simply quit working.

    The search box at the top left hand corner returns decent results but it includes the entire post, and I have to scroll through each long post to find the relevant material.

    The search box in the upper left hand corner turned up a reference to PAUDX in a July 16, 2012 post, Item #1 where I noted adding to the fund. Another reference is to a July 22, 2011 post when I made my initial investment.

    Oddly, you can go directly to Google's website, use the advanced search option, drag my site address into the "site or domain" box, and then search for PAUDX and you will get decent results, presented in the way the google search box in the blog would do.