Wednesday, March 27, 2013

TDIV, FJA/Bought 100 NGD at $9.39/Sold 352+ of the Stock CEF ETW at $11.173/Sold 50 Vale at $17.15/Added 50 GYLD at $26.73/Bought Back GDO at $19.95-Roth IRA

Big Picture Synopsis


Stable Vix Pattern
The Use of the VIX as a Timing Model
Short Term: Slightly Bearish (expecting a correction)
Intermediate and Long Term: Bullish


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

Cyprus Bailout:

There was a lot of hand wringing earlier this week on whether the Cyprus bailout was a template for future EU bailouts.

When a bank fails and has to be seized by the government, uninsured depositors can lose some or all of their money. This has to be expected by anyone with money in excess of the insurance limit. And, senior unsecured and junior bondholders could easily find themselves holding worthless paper. That is how the system is supposed to work. Taxpayers are not supposed to bailout bond owners and uninsured deposits in a bank failure. That is the normal template for dealing with this kind of situation.

The template should not be the seizure of insured bank deposits or the bailing out of bondholders and uninsured deposits by the government directly or indirectly by the taxpayers.

I read a number of stories where citizens were interviewed by the reporter. The citizens blamed the EU for the failure of the two Cypriot banks, rather than the banks themselves or the government for its lax oversight.

A deep recession is unavoidable in Cyprus.

Billions of Euros have already left Cyprus, even with banking controls, as noted in this Reuters article. The reliance on banking as a source of growth is kaput, as one of the two Cypriot banks will be liquidated and the other will likely be downsized in the coming years.

Case-Shiller Home Prices and Federal Reserve Report on Home Value

The Case-Shiller home price index for the 20 largest metropolitan areas rose 8.1% in January year-over-year, the largest annual increase since June 2006. All 20 housing markets showed annual gains.

Separately, Federal Reserve data showed that homeowner's equity rose to $8.2 trillion in 2012, a gain of 25%.  Bloomberg

Architect's Billing Index for February:

This index is a leading indicator for nonresidential construction activity with a 9-12 month lag period.

The February AIA Billings Index was reported at 54.9, the strongest growth in billings since early 2008. The inquiries index was also strong at 64.8.  Billings and Inquiries

Census Bureau Report on Household Debt in the U.S.: 2000-2011

The Census Bureau released its household debt report last week. In 2011, 31% of U.S. households had no debt. The level of debt free households in 2000 was 26%. ‎ Those folks are the backbone of what I call the Saving Class.

In 2011, secured debt, which includes debt against one's primary residence and automobiles, accounted for 89% of all household debt. Home debt accounted for 78% of all secured debt.

The percentage of households having credit card debt decreased from 51% in 2000 to 38% in 2011.


Caterpillar, Oracle and FedEx: Warning Lights

Caterpillar reported last week that global retail sales fell 13% for the three month period through February, compared to a year ago. Sales declined 26% in Asia. SEC Filing: February 2013 Dealer Stats

FedEx reported last Wednesday that its third fiscal quarter earnings declined to $361M or $1.13 a share from $521M or $1.65 per share in the year ago period. Excluding costs associated with an employee buyout program, earnings were at $1.23 on a 4% increase in revenues to $11B. The consensus estimate was for $1.38. FedEx also reduced guidance for its fiscal 4th quarter to $1.9 to $2.1 per share. SEC Filed Press Release The stock declined $7.44 or 6.89% in response to that report (3/20/13).

Oracle reported that its fiscal third quarter revenues declined 1% to $9B, with new software licenses and cloud software subscriptions falling 2% to $2.3B. Hardware sales fell 23%. In response to this report, the stock declined 9.68% last Thursday, ORCL: 32.30 -3.47 (-9.69%), and another $.32 per share on Friday.

Those reports taken in tandem caused the OG to hyperventilate, but the overall market shrugged these reports off.

FHA Home Prices and Existing Home Sales

The FHA reported last week that home prices rose a seasonally adjusted .6% in January and 6.5% year-over-year. The U.S. price index is still 14.4% below its April 2007 peak.

The National Association of Realtors reported that existing home sales rose .8% in February to an annual rate of 4.98M, the highest level since November 2009. The median price rose 11.6% from a year ago.

Markit PMI Data Europe and U.S.

The Eurozone flash PMI data for March continued to decline with Markit reporting that its composite PMI index fell to 46.5 from 47.9 in February. Any number below 50 indicates contraction. This data series indicates that the EU downturn may intensify in the coming months.

The Markit flash PMI for U.S. manufacturing was reported at 54.9 in March, up from 54.3 in February. The new orders component rose to 55.9 from 55.4.

After the indecisive election in Italy, the political parties have been unable to agree on a governing alliance. The leader of the Italian Democratic Party, Pier Luigi Bersani, said today that only an insane person would want to govern Italy which he called a "mess".

Federal Reserve Predictions on GDP and Inflation:

The current predictions are contained in this document: FRB: March 20, 2013: FOMC Projections materials

The FED lowered its inflation prediction range for 2013 slightly from its December forecast. The new range is for PCE inflation at 1.3 to 1.7 in 2013; 1.5% to 2% in 2014 and 1.7% to 2% in 2015.  Real GDP is estimated at 2.3 to 2.8 in 2013; 2.9 to 3.4 in 2014; and 2.9 to 3.7 in 2015.

If the inflation predictions prove to be prescient, it would turn out to be a relatively benign environment for both stocks and bonds. If both the inflation and real GDP forecasts prove prescient, then that would be an optimal environment for stocks, particularly in relation to the low yields offered by bonds.



The First Trust NASDAQ Technology Dividend Index Fund (TDIV) now includes Apple as one of its holdings. When I first purchased this ETF, Apple was not included, just as well considering what happened to the share price since 9/19/12, when the shares closed at $702.1. AAPL Interactive Chart  The fund required the payment of a dividend for a minimum amount of time before the stock becomes eligible for purchase by the fund. Item # 1 Bought 50 TDIV at $19.95 (August 2012); Item # 1 Bought 50 TDIV at $19.94-ROTH IRA (October 2012);  Item # 3 Added 50 TDIV at $19.2 (October 2012)

RMT and RVT Quarterly Dividends

I am continuing to reinvest the quarterly dividends paid by the two Royce closed end funds that I currently own. Royce Micro-Cap Trust (RMT) and Royce Value Trust (RVT). I am a long term holder of both funds. To satisfy my urge to take profits, I will occasionally buy a third Royce CEF, Royce Focus Trust (FUND), and then sell those shares on a pop. Bought 200 of the Stock CEF FUND at $6.34-Sold 207+ FUND at $7.28RB Bought 300 of the CEF FUND at $6.22-Sold: 300 FUND @ $7.2.

The Royce Value Trust paid a $.19 per share quarterly dividend. The Royce Micro-Cap Trust paid a $.13 per share quarterly dividend.


Trust Certificate FJA

The trustee for the TC FJA decided to terminate the trust. It gave the owner of the call warrant notice of that intention, which triggered a ten day period for the call warrant owner to exercise the warrant, pay the owners of FJA the $25 par value plus accrued interest and then take possession of the underlying Embarq senior unsecured bonds. Notice of Underlying Securities Issuer of Concentrated Underlying Securities Ceasing to be a Reporting Company and the Subsequent Trust Termination to the Certificateholders for PPLUS Trust Certificates Series EQ-1 

Embarq was acquired by CTL: CTL Acquires Embarq.

The Embarq bond matures in 2036 and has a higher coupon at 7.995% than the TC at 7.1%. That means there is less than a $1000 par value bond behind each $1,000 par value in trust certificates.

The call warrant owner did not exercise their call option. Thereafter, the trustee distributed to the owners of the TC FJA 2 Embarq bonds and $305.75 in cash for every 100 shares. An owner of 100 shares did not receive $500, the difference between the par value of two bonds and the $2,500 par value of 100 FJA shares, due to the lower number of bonds owned by the trust as mentioned above.

The 2036 Embarq bonds are selling at over par value: FINRA

Underlying Bond Prospectus: SEC

I had sold my remaining shares in FJA in 2011 and had traded it profitably. (see snapshots at Stocks, Bonds & Politics: Trust Certificates: New Gateway Post); BOUGHT 100 of the TC FJA at $15.35 May 2009Bought another 50 FJA at $14.2 May 2009Sold 50 of 100 FJA at 24.75 December 2010Sold 50 of the TC FJA at $24.84 June 2011

Lexington Realty Trust will be redeeming its 7.55% Series D cumulative preferred stock at its $25 par value plus accrued dividends. Lexington recently sold 20 million shares at $11.7.

During the Near Depression period, I was able to buy this security at $6.60 and at $7.


1. Bought 100 NGD at $9.39 (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): NGD is a gold miner. I view the purchase of any gold mining stock to be highly speculative and consequently limit my risk to insignificant sums by placing this stock in my Flyers Basket Strategy. 

Company Description:  New Gold Inc. (NGD) has four operating mines: Mesquite (gold); Peak (gold and copper); Cerro San Pedro (gold and silver); and New Afton (gold, silver and copper). New Gold Operations: Australia Mexico USA Producing Mines 

The New Afton mine, located in British Columbia, began commercial operations in July 2012. The company expects during the life of that mine an annual production of 85,000 ounces of gold; 75 million  pounds of copper; and 214,000 ounces of silver. New Afton

The San Pedro mine is located in Mexico and produced 138,000 ounces of gold and 1.9 million ounces of silver during 2012. Cerro San Pedro This mine commenced operations in 2007. During the 2012 4th quarter, this mine produced 401.3 ounces of silver and 32,100 ounces of gold. The average realized price for silver during the 2012 4th quarter was $32.46 and $1,578 for gold. (page 3: newsrelease)

The Mesquite mine is located in Arizona. Mesquite That mine produced 142,000 ounces of gold in 2012. Mesquite commenced operations in 2008.

The Peak mine is located in Australia. Peak Mines That mine produced 96,000 ounces of gold and 14,000 ounces of silver in 2012.  New Gold Operations Peak commenced operations in 1992.

Key Developments page at Reuters

Company Website: NewGold 

The share price has not been hit as bad as most other gold mining stocks. NGD was selling at less than a $1 in December 2008 and thereafter climbed to $13.9 by September 2011, when the gold price hit its peak of over $1,900.  The shares closed at $12.72 on 9/17/12 before retreating to the current range.  NGD Interactive Chart

Prior Purchases: NONE

Last Earnings Report: For 2012, the company reported net income of $199M or $.42 per diluted share, up from $179M in 2011. Revenues for 2012 rose to $791.3M from $695.9M in 2011. As of 12/31/12, NGD had $687.8M in cash and $163.3M in inventory with long term debt at $847.8M. SEC Filing 

Part of the long term debt consists of $300M in face value of 7% senior unsecured notes due in 2020 and $500M of of senior unsecured notes due in 2022.

For the 2012 4th quarter, NGD reported adjusted earnings per share of $.11 on $250.9M in revenues, up from $177.3 million in the 2011 4th quarter. Gold production during the quarter was 112,883 ounces. Earnings from mine operations were reported at $99.2M. Net cash generated from operations was $106M.

Cash costs for mine operations was very low at $254 per ounce. SEC Filed News Release 

Copper production increased by 236% in 2012 due to the start up of production at New Afton and a 13% increase in copper production at the Peak mine. Copper production for the 2012 4th quarter was reported at 20.9M pounds with an average selling price per pound of $3.52.

The company also discusses two developmental projects in this press release. One is El Morro located in Chile, with NGD having a 30% interest and Goldcorp being the other owner.

In 2013, New Gold estimates that it will produce 440,000 to 480,000 ounces of gold at a cash cost of $265 to $285 per ounce.

The company estimates that its "all-in" sustaining costs is $875 per ounce, but expects to reduce the sustaining cost by $100 an ounce "in each of the next few years". Seeking Alpha-Earnings Call Transcript

Rationale: (1) Reasonable Upside Potential Assuming Gold-Silver Prices Stabilize and Turn Up. While NGD is a low cost producer, profitability still hinges on the unpredictable gold and silver prices. Hopefully, gold and silver prices will stabilize around current levels and start to trend back up. If gold can move back over $1750 an ounce, it would be rationale to predict a return to the September 2012 price for NGD stock, somewhere in the $12 to $13 range. If the price continues to fall, I may become an involuntary long term holder of this stock.

A disadvantage is a lack of a dividend. Several gold mining companies have over 2% dividend yields at current prices.

Risks: (1) Country risks are not as pronounced compared to many other miners given the country locations of NGD's mines. The main risk is the prices for gold and silver, which are totally unpredictable in my opinion. If the gold price turned out to be $1,000 or $3,000 an ounce in a few years, I would not be surprised by either price. Other risks of gold mining stocks are outlined in my posts discussing the purchases of AUY and EGO. Bought 100 EGO at $9.3Bought 50 AUY at $14.25

The share price of gold miners tend to exaggerate price movements in the spot gold price. Last Tuesday, spot gold declined $7.4 to $1596.8 per ounce or just a .46% decline. NGD fell 2.56%. NGD: 9.15 -0.24 (-2.56%)

If NGD is successful in lowering more its already favorable "all in" costs numbers, then it consequently has less of a profit risk, due to a decline in gold price, than other miners with much higher all-in costs who could see there profits disappear with a significant decline.

As noted in this Kitco News item, Barclays expects that the 12 year rally in gold will end this year. The main culprit in Barclays opinion is selling in Gold ETFs, but an acceleration of the decline in jewelry demand and a "steep slowdown" in central bank buying will contribute to gold's problems.

In another Kitco News item, Societe Generale predicted gold would fall to $1,400 an ounce by year end.

No one really knows of course. The price goes down a few hundred bucks and the "analysts" and other card carrying herd members and fellow travelers turn bearish. Demand and price can turn on a dime, up or further down.

Future Buys/Sells: I would likely be a seller in the $13 to $15 range. I am not going to buy more shares until I sell the first 100 share lot at a profit. I would possibly buy back that 100 share lot when and if the price declined below $9, provided there is no material adverse development.

2. Sold 352+ of the Stock CEF ETW at $11.173 (see Disclaimer): The gain on this one was largely due to return of capital adjustments.

2013 Sold 352+ ETW +$753
As noted in the big picture synopsis section, I have turned negative in my short term stock outlook, and that negativity was reinforced with some recent earnings reports and European data, discussed in the introduction section above. I will frequently move into and out of stock CEFs and ETFs as a way to adjust my overall stock allocation. The disposition of my ETW shares was a very minor adjustment to my stock allocation.

This CEF recently changed to monthly dividends and went ex dividend on 3/19/13: Eaton Vance Tax-Managed Global Buy-Write Opportunities Fund (ETW)

ETW page at the CEFA

ETW page at CEFConnect

ETW page at Morningstar (rated 4 stars, average 3 year discount -9.83%)

I still have similar positions in two other Eaton Vance buy-write CEFs: Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) (436+ shares in IRAs) and Eaton Vance Enhanced Equity Income Fund (EOI) (405+ Shares). Both of those funds pay monthly dividends.

3. Sold 50 Vale at $17.15 (Stocks, Bonds & Politics: The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): I bought these shares last August: Bought 50 Vale at $15.9 I discussed in that post several potential negative factors, and those issues are still around.

2013 Sold 50 Vale $46.58
I can not spend much time monitoring the small positions in my LT and Flyer's Basket Strategies. After reviewing several recent reports and news items, I have turned negative on Vale.

Over the weekend, I decided to look at Vale again after reading a negative story about iron ore prices in "The Trader" column in this week's The article mentioned that a supply glut is developing with new mines, while demand from China is expected to slowdown. Needless to say, decreasing demand and increasing supply for any product spell trouble for the price.

A similar article about a possible crash in iron ore prices was published by Forbes.

It would not be surprising to see a slowdown in China's iron ore purchases due to overbuilding (e.g. the ghost towns) and the government's efforts to slowdown construction. I discussed the ghost towns in my prior post in relation to Xinyuan Real Estate. Update on Lottery Ticket and Regional Bank Basket Strategies/Sold 100 XIN at $5.82

China is also increasing its ability to recycle steel and to increase its ore supplies. And, that lower demand is occurring at a time when substantial new iron ore projects will soon be contributing to supply, primarily in Australia. The Goldman Sachs analyst claims that those new projects are past the point of cancellation.

Another negative for Vale is the recent cancellation of work at its Rio Colorado potash project in Argentina, Reuters, where it had spent about $2.2B through 2012. Vale needs to diversify, so the cancellation of this project after substantial expenditures is a major negative.

Morningstar currently has a 3 star rating on VALE and a consider to buy target of $11.4 or less. If the supply glut turns out to be accurate, and given the dependency of Vale on iron ore sales (about 70% and 90% of EBITDA), I would not be surprised to see a price lower than $10.

Stock Quote: Vale S.A. ADS

4. Added 50 of the Balanced ETF GYLD at $26.73 (see Disclaimer): This brings me up to 150 shares of this world balanced ETF.

I recently discussed this security and have nothing to add. Item # 2 Bought 100 of the ETF GYLD (50 in Roth IRA at $27.13)

Dividends are paid monthly which is always viewed positively.

Sponsor's website: Welcome to Arrow Shares

The expense ratio is high at .75%.

Quote: Arrow Dow Jones Global Yield ETF (GYLD)

5. Bought 100 of the Bond CEF GDO at $19.95 (see Disclaimer): The bond CEF Western Asset Global Corp Defined Opportunity Fund (GDO) has been bought and sold numerous times. At one time, I owned close to 1,000 shares.

With this last purchase, I am back to owning just 100 shares. I ran out of good alternatives for income generation more than two years ago. At least this bond CEF gives me a diversified worldwide bond portfolio and a current yield over 7%.

2013 Roth IRA Bought 100 GDO at $19.95

Security Description: Unlike most bond funds, GDO has a term date.

The fund will liquidate on or about 12/2/2024.

This gives the fund one of the characteristics of owning an individual bond, the promise to pay the investor at a time certain. Unlike the individual bond, however, this fund does not promise to pay a specific sum at a future date. The investor is GDO will receive their pro-rata share of the liquidation proceeds, which may be more or less than the current net asset value per share.

GDO page at CEFConnect. This is a new link that I am providing for CEFs. Some readers may prefer it to the Closed End Fund Association site.

GDO page at the CEFA

GDO page at Morningstar (rated 3 stars with no analyst report; 3 year average discount -4.58)

None of the 2012 dividends paid by GDO were classified as a return of capital:

Net Asset Value Per Share on 3/25/13 (day before purchase): $20.79
Closing Market Price: $19.92
Discount -4.18%

Net Asset Value Per Share on 3/26/13 (day of purchase)=
Closing Market Price= $19.97
Discount= -3.94%

Sponsor's Website: Legg Mason Individual Investor - GDO

List of Holdings

The fund is weighted in investment grade bonds, but has a significant junk bond exposure:

The fund had 249 holdings as of 12/31/12 with an average effective duration of 4.29 years. The fund was using a modest degree of leverage as of 12/31/12 as shown above under "reverse repurchase agreements".

Generally, I would anticipate that a bond with a duration of five years will rise 5% with a one percent decline in rates and decline by 5% with a 1% rise in rates.

Dividends are paid monthly. When I first purchased shares in 2010, the monthly dividend was $.13 per share. Now, it is $.12. GDO Monthly Distributions I would anticipate that the dividend rate will continue to trend down, particularly when more higher yielding securities mature and the fund is faced with non-optimal reinvestment options in the current abnormally low interest rate environment.

Prior Trades: I have probably linked some, but not all, of my trades on this security here: Bought 100 of the CEF GDO at $18.6 March 2010; Bought 70 of the CEF GDO in Regular IRA at $18.61 March 2010; Bought 200 of the CEF GDO at 18.63 and 18.53 (100 in Roth and 100 Taxable Account respectively) March 2010;  Bought 100 GDO at $18.57 April 2010; Bought Back 50 shares of GDO at 17.8 in the Roth IRA previously sold at $19.24 December 2010; Sold 100 GDO at $18.72 January 2012;  Sold 200 GDO at $19.18 June 2012; Sold Remaining GDO in Taxable Account at $19.69 July 2012Bought 100 Shares of GDO at $18.9 November 2012;  Sold 100 GDO at $20.79 December 2012; Pared Trade Roth IRA: Sold 120 GDO at $20.73-Bought 100 GSPRD at $21.38

The last trade yielded a $340.33 profit for shares purchased in December 2010.

Rationale: (1) I must be addicted to this security since I am unable to stay away for long after liquidating my position.

This fund does have several advantages.

I was able to buy it at a discount to net asset value. Many CEF bond funds sell at a premium to net asset value. If I held the fund until the liquidation date in 2024, purchasing GDO at a discount may enhance the profit or lessen the loss.

I also juice my dividend yield by buying the fund at a discount compared to a bond mutual fund selling at net asset value.

Yield is currently being juiced by the the spread between short term borrowing costs and the yield on bonds purchased with those borrowed funds.

The dividend yield is currently about 7.22% at a total cost of $19.95, which is tax free in the Roth IRA. Money will double in about 9.94 years at 7.22%. Estimate Compound Interest

The portfolio is well diversified which lessens credit risk compared to owning a few individual bonds.

The duration is relatively short which will mitigate interest rate risk.

While the fund has significant junk bond exposure, the fund is weighted in BBB rated or higher bonds.

Risks: I believe that readers of this blog are fully familiar with bond risks. The two major risks involve a rise in interest rates and credit risk. Since this fund invests in foreign bonds, currency risk, primarily involving the Euro, is an important risk.

Some of this material may be useful to anyone who is not familiar with the interest rate risk issue:

Rising Interest Rates and Your Bond Portfolio-Charles Schwab

Smart Bond Investing—Bond Funds: Comparing Bonds and Bond Funds - FINRA

Rising Rates and Your Investments: Securities Industry and Financial Markets Association (SIFMA)

Fidelity Learning Center: Risks of fixed income

Fidelity Learning Center: Bond vs. Bond funds

As mentioned above, I would anticipate that the dividend rate will gradually decline and that decline will likely accelerate as the fund nears its 2024 liquidation date, as the managers shorten the duration. 

Tuesday, March 26, 2013

Search Box Fixed?

I tested the Google search box with a few inquiries and it appears to be running normally again. 

I have for now restored that search box in the upper right hand corner of the blog. 

If anyone conducts a search, and receives inadequate results, please let me know.   

Monday, March 25, 2013

Update on Lottery Ticket and Regional Bank Basket Strategies/Sold 100 XIN at $5.82/Bought LT Basket: 100 CIDM at $1.55 & 40 AUQ at $6.55/ Sold: 50 NYCB at $14.25, 51+ FIBK at $19.33 and 100 MNRK at $10.59/FNFG HBAN FOE WASH

I am updating the tables for the Lottery Ticket Basket and the Regional Bank Basket Strategies on the last Monday of each month. The prices shown in the following tables are from last Friday. 

My basket strategies will have a large number of securities in them. The focus is on the overall return of the basket rather than on any component.

1. Update for Lottery Ticket Basket Strategy:

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart. Any technical analyst would most likely have a sell rating on the stock.

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently under $8,000.

Snapshots of realized gains and losses can be found at the end of Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

Realized Gain To Date: $12,383.71

Lottery Ticket Basket as of 3/22/13
As of 3/22/13, the largest unrealized gains include Datalink at +52.65%; Forest City at +47.32%; Alumina at +35.64%; Susquehanna at +34.54%; BNC Bancorp at +34.32%; National Penn at +31.93%; and Qlogic at +30%. 

I sold last month several gainers that were discussed in the last update. Those gains are now included in the realized gain total, increasing that amount by $430+. Stocks, Bonds & Politics: Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy/Lottery Ticket Sales: 50 TTI at $9.97, 50 RRST at $7.78, 30 SMA at $10.81, 40 BRKS at $9.71/Bought 50 BANC at $11.3 (2/25/13 Post).

I promoted KeyCorp and Huntington from the LT Basket to the Regional Bank Basket a few weeks ago. The LT purchases of KEY and HBAN are now included in the regional bank basket table.

The leading LT loser is Velti at -75.39%.

Sutor is my remaining Chinese micro cap after I realized a 100+% gain on XIN, discussed below. For whatever it is worth, Zacks recently upgraded Sutor to a strong buy. I am down about 33% on that one. I still consider SUTR to be a Lottery Ticket and have no interest in adding to my negligible LT position.

Given the small amount of money devoted to each selection, I can hold my losers forever, assuming the company can stay out of  bankruptcy, and I have had many come back from steep losses.

A. Sold 100 Xinyuan Real Estate at $5.82 (see Disclaimer): I keep mentioning XIN in my monthly Lottery Ticket update since it was making a strong up move. Earnings were released on 2/27/13 and the stock popped again. The shares closed at $5.05, up $.55 cents or 12.3% that day. I took a snapshot of my 100 shares position after the close on 2/27/13:

100 Shares XIN as of 2/27/13
The shares continued to move up on 2/28/13, a down day for the market: XIN: $5.47 +0.45 (+8.96%).

That rise put my unrealized gain over 100%.

This article at Seeking Alpha discusses the earnings report.

I left a comment to that article which did not say much. Another reader left some comments with links to videos about China's ghost towns. I had watched one of those about two years ago. He also mentioned that 60 minutes was about to run a story about the bubble in China's housing market and the ghost towns.

I then went to CBS and watched the promo for the show. He was right so I decided to jettison the XIN position.

SOLD 100 XIN at $5.82

Besides I do not want to be a pig when my long term gain is already over 100%:

2013 XIN 100 Shares +$310.13
This is a link to the 60 minutes program that aired that Sunday: China's real estate bubble - 60 Minutes A transcript of this broadcast can be found at CBS News.

The speculative building in China surpasses by far anything previously seen in history. Whole cities are being built with few inhabitants, empty malls and multi-lane highways with no traffic at rush hour. The apartments are being sold to middle class families who are buying them for "investments", frequently using their life savings to make a purchase.

In an interview with CNBC, Jim Chanos highlighted the 60 minutes story to justify his short positions in companies related to China's construction.

XIN is diversifying its real estate holdings by buying land in the U.S.

The issue raised by the 60 minutes program is far broader than the valuation of China's real estate companies. Would any investor accept U.S. GDP numbers if those numbers were materially influenced by ghost towns being built in Kansas and Nebraska? China's GDP needs to be adjusted down for the expenditures on these projects.

Friday's Close: XIN: $5.06 -0.16 (-3.07%)

(B) Ferro: A. Schulman offered to acquire Ferro for $6.5 per share, half in cash and half in Schulman shares (SHLM) The offer was based on publicly available information and "could be adjusted" after due diligence. Ferro rejected the offer.

Ferro shares surged on 3/4/13 after public disclosure of this development: FOE: 6.80 +1.60 (+30.77%)

After Schulman announced its offer and Ferro's rejection, Ferro reported another dismal earnings report.
SEC Filed Press Release

Headknocker noted that the surge was good since it took him back into profit territory by a couple of bucks, which is better than being kicked in the groin, but would have preferred for Right Brain to buy the shares at $2.38, the 52 week low reached intra-day on 11/16/12 (FOE Historical Prices) and wonders why the RB failed to buy the shares at that moment in time.

Left Brain was quick to agree with our Dear Leader HK; it is after all sad that a 31% rise in a stock price barely brings HK into profit territory. This kind of event happened earlier when HK realized a loss on the LT Big Band Networks even after it rose 70% in response to an acquisition offer. Sold 50 of LT BBND at $2.21

"You win some, you lose some, get over it," a voice was heard to say.

Bought 40 FOE at $6.32

Friday's Close: FOE: 6.72 -0.03 (-0.44%)

C. Bought 100 CIDM at $1.55 (see disclaimer):

I was slightly intrigued by this leveraged micro cap after seeing a news story that Prospect Capital had participated in its recapitalization. I own PSEC, a Business Development Company and have it listed in a Yahoo Finance portfolio of "main" positions which has over 200 names in it. I currently own 478+ PSEC shares with 100 of those owned in the ROTH IRA.

Anyway,  I open that portfolio several times a day and YF shows recent news stories about companies in that list. I noticed this story filed under PSEC in that list. Prospect Capital Provides a $70 Million Term Loan to Support the Recapitalization of Cinedigm. I then decided to check out Cinedigm Digital Cinema (CIDM) in more detail.

This was an usual way for me to find a LT selection. Usually, I use stock screens to find companies unknown to me. Some selections are well known and have just fallen on hard times.  

For lottery ticket purchases, I am not going to spend much time investigating a possible purchase, when the maximum exposure is $300 plus any prior realized gains.

CIDM claims to be a leader in the digital entertainment revolution with its "pioneering digital cinema deployment and servicing efforts, and the state-of-the-art distribution and exhibition software". The company also has a library of over 18,000 movies and television episodes (documentaries, low budget independent films, etc).

I then read a very long and detailed stock report on this company published by Seeking Alpha. I would simply refer anyone interested to that article. My next stop was a review of the last earnings call transcript published by Seeking Alpha. Lastly, I read the earnings press release for the last quarter, CIDM's fiscal third quarter ending 12/31/12: SEC Filed Press Release Revenues rose 17% to $23.2 million with a loss per share of $.03, down from a ten cent loss per share in the year ago quarter. CIDM's total domestic digital screen deployment totaled 11,697 with 269 exhibitors, with 835 screens installed in the fiscal third quarter. For this line of business, the expansion opportunities appear to be overseas.

The company also releases two low budget films theatrically during the quarter, and distributed 2830 hours of film and digital content to "more than 22 digital partners".


The company is highly leveraged for its size and existing revenue streams. There is also always the possibility of a competitor emerging with better products and/or lower cost services. The company is not yet profitable but is at least moving in the direction of profitability. All of those risks suggested to me that this position had to be, for now, categorized as a Lottery Ticket.

Friday's Close: CIDM: 1.53 +0.01 (+0.66%)

D. Bought 40 AuRico Gold (AUQ) at $6.55 (see Disclaimer): I am near the end of my gold mining stock purchases. All of those purchases will be assigned to my high risk Lottery Ticket and Flyers strategies which by definition severely limits my monetary exposure.

2013 Bought 40 AUQ at $6.65
AuRico Gold sold its Ocampo mine for $750M last December and bought back $300 million in common shares earlier this year. During the 4th quarter, the company produced 41,146 ounces of gold and anticipates 2013 production from its Young Davidson and El Chanate (Mexico) to be between 190,000 to 220,000 ounces. The operating cash cost is estimated to be between $540-$620 per ounce. The "all-in" cash costs is estimated to be between $1,100 to $1,200 per ounce. The company defines "all-in" costs to include "cash costs, sustaining capital, corporate general and administrative expense and exploration expense".

AuRico recently started to pay a quarterly dividend of $.04 per share.

AuRico Gold - Operations - Young-Davidson

AuRico claims to have mines with relatively long lives:

(snapshot from AuRico Gold - Investor Information - Presentations - Corporate Presentation)

For whatever it is worth, AuRico was a Fred Hickey pick in the 2013 Barron's Roundtable. The price was then $8.08. He argues that "AuRico is one of the cheapest gold stocks you can find". The Young Davidson mine has a reserve life of 21 years, while El Chanate has about 7 years left. Hickey claims that there are upsides to both, and AuRico has a "potentially major project in British Columbia".

The current consensus E.P.S. estimate is for $.39 in 2013. AUQ Analyst Estimates I would not pay much attention to that number given the volatility of the gold price. Price to book is shown at .8 at AUQ Key Statistics based on a $6.67 stock price and data as of 9/30/12.

One reason for labeling AuRico a Lottery Ticket can be found in this article published by Motley Fool that criticizes the company for selling some mines. Another reason is its relatively high all-in costs compared to other miners recently purchased as part of the Flyer's strategy, including one that will be discussed in the next post which has dramatically lower all-in costs and was consequently bought as part of the Flyer's Basket Strategy.

Stock Quote U.S. Exchange: AuRico Gold
Stock Quote Toronto: AuRico Gold

Friday's Close: AUQ: $6.64 -0.20 (-2.92%)

E. SuperValue (SVU): SUPERVALU completed the sale of Albertsons, Aceme, Jewel-Osco, Shaw's and Star Market Stores to a Cerberus led consortium. The consideration for the sale was the assumption of $3.2B in debt plus $100M in cash. Symphony Investors, another Cerberus led consortium, bought 42+M in newly issued SVU shares at $4 and completed a tender offer for another 11+M shares at $4. Symphony is now SVU's largest shareholder, owning approximately 21.2% of the outstanding stock.

What is left? SVU still owns over 1,300 Save-A-Lot stores and has a large wholesale grocery business that sells to over 2,000 independent retailers.

In my opinion, SVU is a better company now after shedding that $3.2B in debt, the capital infusion and the Albertson stores divestiture. The primary reason for its problems was the debt financed acquisition of Albertsons.

Friday's Close: SVU: $4.95 +0.27 (+5.77%)

2. Update for Regional Bank Basket Strategy:

This strategy is explained in the following post:


I am not tracking reinvested dividends in this table. The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher. Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000. I did not have any additions since my last update.

Realized Gains 2010-To Date: $10,332.24
Dividends 2010-2012: $4,690.79

The unrealized total gain is more than $4,600+.

Regional Bank Basket as of 3/22/13

A. Sold 100 MNRK at $10.59 (see Disclaimer): Left Brain feels obligated to disclose that the Old Geezer, confused, muddled and addled as usual, barely able to form a coherent though except by accident or the grace of God, thought that he entered an order to sell Headknocker's entire position in Monarch Financial.

The OG had forgot that the stock had undergone a 6 for 5 stock split soon after he purchased 100 shares, which left Our Dear Leader Headknocker with 120 shares, not 100. So now our Great Leader owns 20 shares of Monarch Financial (MNRK).

I  bought these shares last November and realized a gain of $186.06, or roughly 21.5% on the shares.

2013 Sold 100 MNRK $186.06
Added Regional Bank Basket:  120 MNRK at $8.65 (bought 100 and received 20 more due to 6/5 stock split)

Profit taking was one motive. Another involves dividend yield. A key aspect of the regional bank basket strategy is to generate dividend income. MNRK's current dividend yield at a $10.59 price is less than 2%.

I was impressed with Monarch's 4th quarter earnings report, as noted in my last update for this basket strategy. (Updated Tables Regional Bank Basket Strategy: D. Monarch Financial Holdings)

The valuation is reasonable based on estimated 2013 and 2014 earnings at the current price. MNRK Analyst Estimates I may keep the other 20 shares for awhile, just to see whether I can sell at over $11.5 which would more than pay for another brokerage commission. The OG added that the foregoing may have been his plan all along, but doesn't remember.

Monarch completed the mandatory conversion of its Series B convertible preferred stock into common stock, issuing approximately 10.365M shares to the owners of those preferred shares. Form 8-K

Friday's Close: MNRK: 10.85 +0.03 (+0.28%)

B. Huntington (HBAN) and KeyCorp (KEY (both owned): Both Huntington Bancshares and KeyCorp received no objection from the Federal Reserve to their capital action plans. Both passed the stress test. KeyCorp raised its dividend to $.055, and its Board authorized the purchase of up to $426M in stock. Huntington raised its quarterly dividend by 25% to $.05 per share, and its Board authorized the purchase of up to $227 million in stock.

Both HBAN and KEY were initially purchased as part of the Lottery Ticket Basket Strategy and later promoted to the Regional Bank Basket Strategy.

Added 70 KEY at $8.77Bought 30 KEY at 8.75Added 40 KEY at $7.87

Added 40 HBAN at $7.04Bought 30 HBAN @ 7.25 as LTAdded 30 HBAN as LT at $4.8

C. Sold 51+ FIBK at $19.33-satellite taxable account (see Disclaimer): First Interstate BancSystem Inc. Cl A (FIBK) is the banking holding company for First Interstate Bank which has 72 branches in 42 communities in Montana, Wyoming and South Dakota.

EMail Confirmation
For most of my ownership period, this position was in the red. Recently, it has surged in price, moving from $13.52 in mid-November 2012 to a $19.34 close on 3/15/13. FIBK Interactive Chart At the current price, the dividend yield is less than 3%. The current consensus E.P.S. estimate is for $1.45 in 2013 and $1.56 in 2014. FIBK Analyst Estimates

I decided to harvest my profit.

2013 FIBK 51+ Shares +$175.18
Bought 50 FIBK at $15.64 (May 2010 Post)

Friday's Close: FIBK: $19.09 +0.08 (+0.42%)

D. Sold 50 of 200 NYCB at $14.25 (see Disclaimer):

2013 Regular IRA 50 Shares Realized Gain +$49.58
Those shares were bought in December:  Bought 50 NYCB at $12.94-Regular IRA

I have been trading NYCB in my regular IRA while keeping the shares owned in a taxable account. With this last trade, I have realized a total gain of $403.09 in that account.

2010 Regular IRA 50 Shares Realized Gain +$331.03
2009 Regular IRA 50 Shares +$21.28
I have also clipped several $.25 per share quarterly dividend payments.

I still own 150 shares in a taxable account. Added 50 NYB at $12.79 (2/7/12 Post); Bought 50 NYB at $11.3 (October 2009 Post); and 50 shares at $11 in October 2009.

NYCB is currently rated 3 stars by Morningstar, down from a 4 star rating when I purchased shares in November. Their fair value estimate is $14.

During my entire period of ownership dating back to October 2009, NYCB has paid a $.25 per share quarterly dividend, which was not cut during the last recession but has not been raised either, since the 2004 second quarter. New York Community Bancorp Dividend History The payout ratio is close to 90%.

A recent negative article on NYCB published at Seeking Alpha did not influence my decision to sell 50 of my 200 shares.

Friday's Close: NYCB: $14.17 -0.01 (-0.07%)

E. First Niagara (own): First Niagara is my largest loser in the regional bank basket due to the boneheaded decision to acquire HSBC branches for $1B in cash. To raise that money, FNFG had to slash the dividend by 50% and to sell a boatload of common stock at depressed prices, as well as other types of securities at prices disadvantageous to existing common shareholders. First Niagara: Just Another Incompetent Bank Board of DirectorsFirst Niagara Dividend SlashFNFG-Destruction of Shareholder Value

The CEO John Koelmel called this acquisition a "home run". A more appropriate baseball analogy would be a batter deliberately moving in front of a Nolan Ryan 100+ mile per hour fastball so that it would pop him in the groin.

The Board has finally decided to replace Koelmel, showing him the door with a $5.4 million severance package. Failure is rewarded in America. The severance package was apparently a reward for the shares losing almost 1/2 of their value over the past three years.

Ultimately, the Board is responsible for what has happened to FNFG's shareholders by approving the HSBC transaction, and all of the Board members who voted for that acquisition need to be fired also.

As previously noted, I do not expect the bank to recover quickly from Koelmel's mistakes. My current prediction is that the dividend will not recover to its pre-slash levels within ten years after the 2011 50% reduction. SEC Filed Press Release Announcing the 50% Reduction

A recent article published at TheStreet argues that FNFG shares "may be a strong turnaround investment" and "may be undervalued" after Koelmel got the boot.

Friday's Close: FNFG: $8.88 +0.07 (+0.79%)

F. Washington Trust (WASH): Washington Trust Bancorp increased its quarterly dividend to $.25 per share from $.24, the third dividend increase over the past 12 months.

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44

I currently own 50 shares, part of the 100 share bought at $15.26.

50 Shares WASH Unrealized Gain as of 3/22/13=$767
2011 50 Shares WASH Realized Gain 50 Shares=$347.03

At a total cost of $15.26, the dividend yield based on a $.25 quarterly dividend would be 6.55% for the remaining 50 shares. If I was to lower that cost by the prior realized gain of $347.03, the yield becomes 12.02%.

Last Friday's Close: WASH: $27.88 +0.17 (+0.61%)

G. Largest Unrealized Gain in Regional Bank Basket:  My largest unrealized gain in this basket is 155+ shares of Renasant (RNST), held in a satellite taxable account:

155+ Shares RNST Unrealized Gain as of 3/22/13=$1,260.83.
Renasant is headquartered in Tupelo, Mississippi.

Bought 50 RNST at $14.14Bought: 50 RNST at $13.70Sold 50 RNST at $14.91Added 50 RNST at $15.85

As noted in Item # 4 RNST (Oct. 2012 Post), I had bought 50 shares at $13.85 in September 2011 with no write up  (see snapshots). 

Tuesday, March 19, 2013

DSR and FOR Ratios/TICC, ARR, GIS/Gold/Added to PRPFX/Bought 100 EGO at $9.3/Initiated Position in ABRZX/Bought 200 of the Bond CEF BTZ at $13.96-Regular IRA/Bought 50 HGI at $17.53 Roth IRA/Sold 1 HCA 7.5% Senior Bond Maturing in 2023 at 104.77

Big Picture Synopsis


Stable Vix Pattern
Short Term:  Slightly Bearish (waiting for a pullback)
Intermediate and Long Term Bullish


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

Cyprus Bank Bailout-Tax on Small Depositors-Better or Worse than ZIRP?:

The Masters of Disaster have found a new way to force savers to pay for their mistakes. As a condition to receiving €10B for its troubled banks, the Cyprus President agreed with European finance ministers to levy a one time tax on bank deposits. The deal still has to be approved by the Cyprus Parliament. The proposed tax would be 6.75% on deposits under €100,000 and 9.9% over €100,000.

According to Reuters, the Cyprus government is willing now to exempt accounts with less than €20,000, but would take 6.75% of amounts between €20,000 and €100,000 and 9.9% over €100,000. That structure would raise less than required by the EU and is unlikely to pass anyway according to Reuters.

Based on a Bloomberg report published last night, three political parties including the communists have stated that they will oppose the bailout. If that is true, and those politicians remain steadfast in their disapproval, the government does not have enough votes to pass the bailout package which could lead to a collapse of the Cypriot banks.

Levying a tax on deposits is certainly a more direct way for savers to recapitalize improvident financial institutions, compared to the indirect way of taking savers money adopted by the Federal Reserve in its ZIRP monetary policy. In both cases, innocent citizens are required to pay for the mistakes of others.

Banks in Cyprus has been a bank haven for wealthy Russians due to lax banking laws. It has been widely reported that the banks were used for money laundering. As a result, Cyprus's banks had assets greater than 8 times the nation's GDP and deposits at approximately 4 times GDP.

The two large Cypriot banks lost a great deal of money investing in Greek government bonds.

Cyprus has a guarantee on deposits of up to €100,000. Is that guarantee worth anything without a bailout? Cypriot banks held about €30B in insured deposits and €35B in uninsured deposits. The EU finance ministers wanted Cyprus to raise €5.8B as a condition to securing the €10B from the EU and the IMF.

The Cyprus President was willing to throw small depositors under the train in order to please Moscow. Cyprus was renegotiating a €2.5B loan from Russia.  

This approach is not likely to restore confidence in a banking system.

It was not surprising to see gold rise yesterday, but I did expect more of a pop. After all, the signal sent by this latest development reinforces and rejuvenates gold bug fever and rational paranoia, in that it highlights and reinforces the following fears and concerns: (1) insured bank deposits are not really safe; (2) the government can tax just about anything, tangible or intangible, including a failure to act (e.g. individual mandate in Obamacare); (3) the power to tax can easily escalate into the power to destroy and to confiscate and then redistribute to others more favored; and (4) government guarantees can be withdrawn or changed in significant ways.

Still, I do not see anything happening in Cyprus as having a long term impact, even though a potentially dangerous precedent has been established at least in Europe.

In 2009, the EC made it clear that common shareholders and owners of junior debt would have to share the burden for any future state aid given to a particular company. (paragraph 26 at page 8 This would be particularly important to the owners of hybrid securities whose distributions can be deferred once the common dividend is eliminated by the company.

Retail Sales

Notwithstanding the increase in the payroll tax, the government reported that retail sales increased by 1.1% in February compared to January. Excluding gasoline purchases, retail sales rose .6%. The gain was 4.6% over February 2012.

General Mills

General Mills (owned) announced a 15% increase in its quarterly dividend, effective with the August 1, 2013 payment. The increase will be from the current $.33 per share to $.38. The next dividend will be $.33 and will be payable on 5/1/2013 to stockholders of record on 4/10/13.

GIS has paid dividends without interruption or reduction for 114 consecutive years.


Armour Residential

ARMOUR Residential REIT cut its monthly dividend to $.07 from $.08. The seven cent monthly dividend was declared for the months of April, May and June.

ARR has been cutting its dividend every year as shown in the dividend history available at

I decided to go with a blended dividend strategy with ARR by owning both its common and its preferred stock ARRPRA. The dividend yield on the cumulative preferred stock is lower but can not be cut or eliminated outside of bankruptcy. The dividend is paid monthly also on the preferred shares. The preferred dividend can only be deferred after ARR eliminates the common dividend. Bought 150 ARR at $7.46 & Bought 50 ARRPRA at $25.50

This is a link to a recent positive article about Armour published at Seeking Alpha.

This is a link to a negative article written by an investor who has shorted the common stock. Seeking Alpha I published a response to this article.

Home Prices and Refinancings

The FHA reported that 1.074M mortgages were refinanced in 2012 under the HARP program. Dec12RefiReport.pdf Since inception, there have been 2.165+M refinancings under that program.

JPM predicts a 7% increase in home prices for 2013, whereas BAC estimates a 8% increase.  Bloomberg

Consumer Price Index for February:

Consumer Prices increased sharply in February at .7% on a seasonally adjusted basis with a .9% rise in gasoline prices accounting for almost three-fourths of that rise. Core CPI rose .2%. The annual increase without seasonal adjustments rose to 2%.

Intermediate and long term treasuries rose in price and fell in yields in response to this report.

The ten year treasury closed at 2% yield last Friday.

As of 3/15/13, the break-even on the 10 year TIP was 2.55%.

10 YEAR TIP=  -55% Daily Treasury Real Yield Curve Rates

Natural Gas Super Cycle

A recent article published by MarketWatch highlights the increasing demand for natural gas.

Industrial Production:

Industrial production rose .7% in February, with manufacturing output increasing .8%. The capacity utilization rate for all industries increased to 79.6%. slightly below the long run average of 80.2. Industrial Production and Capacity Utilization

The Empire State Manufacturing general business conditions was reported at 9.2. Any number of zero indicates expansion.

DSR and FOR Ratios

The debt service payment to disposable income ratio (DSR) declined in the 2012 4th quarter to 10.38, the lowest reading since the Federal Reserve started to compile data. Household Debt Service and Financial Obligations Ratios

Household Debt Service Payments as a Percent of Disposable Personal Income- St. Louis Fed

With lower debt service payments as a percent of disposable income, consumers have the capacity to save and/or to spend more of their disposable income.

The Financial Obligations to Disposable Personal Income ratio (FOR) was reported by the FED at 13.6.  That is the sixth lowest FOR ratio on record, and the lowest since the 1980 4th quarter. The FOR ratio adds  automobile lease payments, rental payments on tenant-occupied property, homeowner's insurance and property tax payments to the debt service ratio.

TICC Capital (own):

After the close yesterday, TICC commenced the offering of 3M common shares, plus an over allotment of an additional 450,000. TICC is a BDC and share offerings are a known hazard for owners of this type of company.

In the recently filed annual report, net asset value per share was shown at $9.9 as of 12/31/12. (page 45:‎ Form 10-K)

The shares were priced at $10.2.

I currently hold 100 shares in two separate accounts. Item # 1 Bought 100 of the BDC TICC at $9.8-ROTH IRA (February 2012); Item # 5 Added 100 TICC at $10.30 (January 2013),

GS and MS Strategists Raise 2013 Target For S & P 500

The Goldman Sach's equity strategist raised his target for the S & P 500 yesterday to 1,625 from 1575. The Morgan Stanley strategist raised his target to 1,600 from 1,434. Bloomberg


1. Bought 100 EGO at $9.30-Satellite Taxable Account (The $500 to $1,000 Flyers Basket Strategy) (see Disclaimer): EGO was bought last week. I mentioned near the end of my prior post that I would be discussing one other gold mining stock bought prior to the publication of that post.

Like its predecessor in time, The Lottery Ticket Basket Strategy, the Flyers Basket Strategy is viewed as high risk. And, for  investments with serious risks of capital losses, risk is controlled by severely limiting the amount of the investment, rather than to avoid the security altogether.  

2013 Bought 100 EGO at $9.3

Company DescriptionEldorado Gold Corp. is a mid-tier gold company with mines located in Turkey, China, Greece, Brazil and Romania.

I am primarily relying on a comprehensive report from Morningstar which currently has a 4 star rating on EGO and a $14 fair value estimate with a high uncertainty value. EGO Eldorado Gold Corp EGO is also assigned a "narrow moat".

Key Developments Page at Reuters

Company Website:

Over the past year, the shares have been on a roller coaster ride. The most recent up move started in July 2012 at $9.8 and ended at $15.96 in September 2012, and then started a range bound movement largely between $14 to $16 before collapsing to the $9.3 level. The largest part of that decline had occurred in 2013 with the stock falling from over $13 on 1/22/13. EGO Interactive Chart  

A five year chart reveals a high of $21.48 on 9/5/11, when the P.M. London gold fix was at $1,895 per ounce.  Kitco Inc. - Past Historical London Fix On the day of my EGO purchase (3/11/13), the P.M. London Fix was $1,579, so the spot price of gold had declined about 16.68% between 9/5/11 to 3/11/13. EGO declined approximately 56.7% during that same time period. So, the stock qualifies now for purchase under my Flyers strategy.

As noted in this Bloomberg article, a number of brokerage firms and hedge funds have turned negative on gold. After prices of anything goes down significantly, the Wall Street "analysts" will turn negative espousing numerous reasons why the decline will continue. And, after prices of anything goes up significantly, the "analysts" will turn positive, singing the praises of whatever it is that is going up in price. Those analysts are merely weather vanes, very astute in informing investors about the wind's direction rather than actually making a worthwhile weather forecast.

Kitco reported yesterday that HSBC looks for gold to recover in 2013 and to average $1,700 an ounce during the year.

An analyst interviewed the Gold Report, published by Seeking Alpha, had a positive comment about Eldorado. His version of all-in costs for the largest 13 gold miners is sitting near $1,600 an ounce. He is including in his cost estimate the costs associated with exploration and the building of new mines, some of the general and administrative expenses, operating cash costs, financing costs, and sustaining capital costs, all of which drain cash. Given the useful life of most new mines, the companies have a need to explore for and to build new mines just to stay in business long term. Generally, newer mines will have lower grades which are more expensive to mine, and that cost increase is frequently driven higher by the remote locations of many new mines. I thought that this article was worth reading for anyone investing in ("speculating in") gold mining stocks.

Eldorado's main mine, which accounted for 40% of its gold production in 2011, is known as Kisladag located in Turkey. The mine is expected to last more than 3 decades at 2011 production levels.

Another mine in Turkey, known as Efemcukuru, stated commercial production in December 2011 and is ramping up to full production. This mine is currently estimated to have less gold than Kisladag but will be lower cost due to higher grade ore.

In February 2012, Eldorado purchased for $2.4 billion European Goldfields which had one mine in operation, Stratoni, in Greece but two other shovel ready projects in Greece known as Skouries and Olympus. Skouries is a copper/gold project. It was attacked by armed intruders in February who destroyed office trailers and mobile equipment. The European Goldfields purchase also brought into the EGO fold a late stage project in Romania known as the Certej gold project.

In 2009, EGO acquired Sino Mines for $1.9B which brought into EGO's fold two mines in China, known as the Jinfeng and White Mountain, and a late stage project known as Eastern Dragon which is currently experiencing permit delays. In 2012,  White Mountain had 80,869 ounces of gold production (cash costs=$625 per ounce):and Jinfeng had 107,854 ounces (cash costs=$817 per ounce) It is hard for me to see the accretive value in the Sino Mines acquisition unless Eastern Dragon overcomes its permit delays and proves to be a lower cost mine than the other two. 

Recent Earnings Release: For the 4th quarter, EGO reported net earnings of $115M or 16 cents per share, beating the consensus estimate by 2 cents. Gold production rose 13% to 190,530 ounces, but costs rose 17% to $566 per ounce. That is not an all-in cost number. The company is currently planning for 2013 capital spending of $410 million. For 2012, the company reported basic earnings of $.44 per share, down from $.58 in 2011. The company paid C$.15 per share in dividend during 2012, up from C$.11 in 2011. Total gold production for 2012 totaled 656,324 ounces. SEC Filed News Release 

Risks: Some of the risks are highlighted in some of the discussion above. There is a holdup in permitting for the Eastern Dragon mine in China. It may not have been a good idea to spend $1.9B to acquire mines in China. Greece has raised its corporate tax rate recently. There was also recently a large protest in a Greek town over a proposed EGO mine.

I discussed other risks applicable to gold miners in my last post. Besides the country risks, this companies are highly leveraged to the price of gold which is currently in a significant downtrend that has already caused a substantial decline in share prices. The all-in mining costs are substantially higher than the operating cash costs for a specific mine. Item # 5 Bought 50 AUY at $14.25

Any purchase of a gold mining stock now is analogous to catching that proverbial falling knife. Anyone willing to catch the falling knife needs to be prepared to lose money.

And, a substantial amount of their cash flow is eaten up with exploration and new mine development, a never ending cycle of keeping the company in business.

This is a link to the free cash flow numbers provided by YCharts: Eldorado Gold

I have a negative view of gold miners as investments, an opinion buttressed by EGO's share price decline since 9/5/11 noted above.

Future Buys and Sells: I will not buy anymore shares until I successfully trade this 100 share lot profitably. My hope is to sell the stock north of $12 within 12 to 18 months.

Yesterday's Closing Price: EGO: $9.65 +0.16 (+1.69%) 

2. Bought 200 of the Bond CEF BTZ at $13.96-Regular IRA (see Disclaimer): BlackRock Credit Allocation Income Trust (BTZ) is a leveraged closed end bond fund.

2013 Regular IRA Bought 200 BTZ at $13.96

I intend to sell my BTZ position held in a taxable account soon. I took a snapshot of that position shortly after buying 200 shares in the regular IRA on 3/13/13.

Main Taxable Account 222+ BTZ Shares as of 3/12/13
I am basically transferring this bond CEF position from a taxable account to an IRA.

The general idea will be to collect several monthly dividends and then hopefully exit the position without a loss within the next 12 months. I am in a trading mode for leveraged closed end bond funds.

Security Description: This bond CEF will generally maintain more than 50% of its portfolio in investment grade bonds (mostly BBB rated) and the rest in junk. I could only find information as of 12/31/12:

BTZ was ex dividend on 3/13/13, the day after my purchase. The current monthly distribution rate is $.0785 per share. Distribution Dates and Amounts Announced for Certain BlackRock Closed-End Funds At that rate, the yield at a total cost of $13.96 would be about 6.75%.

On 3/12/13, this security had declined by seven cents, while major bond indexes were increasing slightly in price. I therefore anticipated a slight rise in the net asset value per share and an increase in the discount to net asset value which was already high for a bond fund.

As previously mentioned, three similar Blackrock bond CEFs were merged into BTZ last December and no longer exist. I owned one of those, PSY, and received shares of BTZ in exchange for my PSY shares. To date, there has not been an SEC filing detailing the portfolio positions for BTZ subsequent to the merge. The last filed shareholder report is for the period ending 10/31/12, when all four funds were still separate. BlackRock Credit Allocation Income Trust IV

BTZ Page at Morningstar (rated 2 stars, averaged 3 year discount=10.35%)

BTZ Page at the CEFA

Sponsor's Webpage: BTZ : Fund Profile : Products : Individual Investors : BlackRock

Data from 3/11/13 (day before purchase)
Closing Net Asset Value Per Share= $15.33
Closing Market Price=$14.03
Discount to Net Asset Value: -8.48%

Data from 3/12/13 (day of purchase)
Closing Net Asset Value Per Share= $15.36
Closing Market Price= $13.95
Discount to Net Asset Value= -9.18%

Data from 3/15/13 (after ex dividend)
Closing Net Asset Value Per Share= $15.31
Closing Market Price= $13.9
Discount: -9.21

Prior Trades: I am just content to collect some dividends and to hopefully exit the position without losing any money on the shares.

I have realized small profits on my positions so far:

2012 BTZ 388+ Shares +$279.19
2010 BTZ 200 Shares (two 100 Share Lots)  Avg. Cost Per Share=$134.61

I may be pushing my luck with this last purchase. Leveraged bond funds are something that I do not want to own when interest rates start to go up in a meaningful way.

I also recently bough 100 shares in the Roth IRA: Item # 2 Pared Trade: Sold 100 GDO at $20.79 and Bought 100 BTZ at $13.83 (December 2012) I noted in that post that the shares closed that day with a net asset value per share of $15.32 and at a -9.73% discount.

It is more time consuming finding prior posts on a subject after the google search box quit working. I did find some prior discussions about BTZ: Item # 2 Added 50 BTZ at $11.24 (Oct. 2011); Item # 1 Bought 100 BTZ at $11.90 (September 2011); Item # 5 Bought BTZ at $11.45 in the Roth.

Rationale: (1) I am simply attempting to generate some income in a retirement account when money market funds are hugging zero yields. The trick will be to exit the position before interest rates can do material damage to the fund's performance. As with all CEFs, it is possible for the fund's net asset value per share to increase with the price remaining about the same or even going lower, which causes the discount to widen. The ideal situation for my exit strategy would be a steady or rising net asset value coupled with some narrowing of the discount to net asset value from 9.18%.

Risks: (1) CEF Prices are Determined by Frequently Irrational Investors: This is risk applicable to all CEFs. Irrationality can result in a CEF selling at a significant premium to net asset value or at an increasing discount even when the net asset value per share is going up.

(2) Rise in Interest Rates: When interest rates start to rise, the leveraged bond CEF would be one of the worst investments to own. The fund's borrowing cost would be going up at a time when the bonds are going down in value. Most likely, the discount to net asset value would be widening in that scenario-The Infamous Triple Whammy!

(3) Default and Credit Risk:  Junk bonds have a significant default rate and can go down significantly in price even without a default as shown by what happened in the last recession. The average yield for junk bonds spiked to over 22.5%. BofA Merrill Lynch US High Yield Master II Effective Yield ( - St. Louis Fed

Future Buys/Sells: As noted above, I intend to sell the 222+ shares owned in a taxable account soon as I transition that position to the regular IRA.

Yesterday's Closing Price: BTZ: 13.92 +0.02 (+0.14%)

3. Bought 50 of the ETF HGI at $17.53-Roth IRA (see Disclaimer):

2013 ROTH IRA Bought 50 HGI at $17.53

Security Description: The Guggenheim International Multi-Asset Income ETF (HGI) seeks to replicate, before fund fees and expenses, the Zacks International Multi-Asset Income Index.

Sponsor's Webpage: ETFs | Guggenheim Investments (expense cap at .65% through 12/31/15; total number of securities= 157 with a P/E of 12.2  and Price to Book of 1.5, both as of 3/12/13 )

The following snapshot captures only those holdings with greater than a 1% weight, just to give an idea of the kinds of companies owned by this fund:

Some Holdings as of 3/13/13

Distributions are paid quarterly at a variable rate. Based on the 2012 distributions totaling $.772 per share, the yield at a total cost of $17.53 would be about 4.12%.

The fund currently has a 4 star rating by Morningstar.

Prior Trades: I currently own 100 HGI shares in a taxable account. Item # 5 Bought 100 of the ETF HGI at $17.18 (January 2012)

I did sell 100 shares back in 2010 in the ROTH IRA: Sold 100 HGI at $16.93 in Roth

2010 ROTH IRA 100 Shares +$617.53
Rationale:  The income generation is okay for a stock fund, and there is some appreciation potential. Some of the international markets have lagged the performance of the U.S. stock market.

Risks: The normal risks for a stock ETF that invests in international companies. The value and income tilt of this fund mitigates some of those risks. The expense ratio is viewed as high for an ETF.

Future Buys and Sells: I will periodically buy and sell shares of this ETF. Most likely, I would be a seller of the shares bought in the ROTH IRA at over $20 and a buyer of another 50 shares at below $16. If I bought a second 50 share lot at less than $16, I would lower my price target for the first lot to more than $19.

Yesterday's Closing Price: HGI: 17.47 -0.07 (-0.40%)

4. Sold 1 HCA 7.5% Senior Bond Maturing on 12/15/23 at $104.77 (Stocks, Bonds & Politics: Junk Bond Ladder Strategy)(see disclaimer): I am no longer updating prior posts relating to the junk bond ladder strategy. I am in a liquidation mode for most of my positions, viewing most junk bonds as overpriced in relation to their risks and yields. I currently expect to exit this strategy without suffering a a net loss on the bonds, notwithstanding several defaults. One of the defaults was an AMR bond, which has recovered in price and is now selling over par value. FINRA AMR 2016 I have sold that one too.

I bought this bond back in May 2011: Item # 6 Bought 1 Senior 7.5% HCA Bond Maturing 12/15/2023 at 96.854

HCA is a highly leverage owner of hospitals that has been borrowing even more money to pay special dividends to its common stockholders. I view that activity to be most unfriendly toward bond owners as noted when I recently sold another HCA bond. Item # 1 Sold 1 HCA 7.69% Senior Bond Maturing in 2025 at 104.18

FINRA - Investor Information on 2023 Bond

5. Initiated Position in the Mutual Fund ABRZX (see Disclaimer): Invesco Balanced-Risk Allocation Fund; A (ABRZX) is a balanced mutual fund that seeks "total return with low to moderate correlation to traditional financial market indexes". ‎FactSheet.PDF

The managers are engaged in "tactical allocation" among a variety of asset classes (commodities, currency, bonds, stocks, precious metals, etc)

I discussed tactical/dynamic asset allocation in my last post. One of my earliest discussions was in a 2008 post. Stocks, Bonds & Politics: Static v. Dynamic Asset Allocation

I mentioned this fund in a June 2012 post titled Volatility and Asset Allocation (first paragraph). I had just read an article in the WSJ about a new breed of mutual funds that take into account volatility of asset classes when making asset allocation decisions. ABRZX was mentioned in that article.

MSN Money shows the performance at 12.92 for 2010, 10.3% in 2011 and 10.57% in 2012.

The fund is sold by Fidelity on a NTF basis with the load fee waived by the fund. ABRZX Summary - Invesco Balanced-Risk Allocation Fund Class A | Fidelity Investments I would never pay a load to buy a mutual fund.

The fund is mentioned in Brendan Conway's "Focus on Funds" column in

Morningstar has a five star rating on ABRZX.

Sponsor's Webpage: Invesco | Fund Overview

Annual Report  (period ending 10/31/12)

Prospectus (risks at pages 2-4). The fund uses derivatives, which creates leverage, to achieve its long positions:

The turnover is high. The MSN Money page referenced above shows a portfolio turnover rate of 282% which is not unexpected given the reliance on derivatives and the tactical allocation objective.

Yesterday's Closing Net Asset Value Per Share: ABRZX: $12.67 -0.01 (-0.08%)

6. Added to Position in the Permanent Portfolio (PRPFX)(see Disclaimer):

This "conservative" allocation fund is rated five stars by Morningstar and uses a static asset allocation approach.

The percentage weights will vary slightly over time but will be close to the following: 20% in gold; 5% in silver; 10% in Swiss Franc assets (e.g. Swiss government bonds); 15% in REITs and natural resource companies; 15% in "aggressive" growth common stocks (more aptly labelled value stocks in my opinion); and 35% in USD assets consisting primarily of treasuries (heavy into shorter maturities) and investment grade corporate bonds.

PRPFX at MSN Money

PRPFX at Morningstar

Sponsor's webpage The Permanent Portfolio Family of Funds

SEC Form N-Q listing the holdings as of 10/31/12


Given the plunge in gold and silver prices, the fund has held up relatively well in 2013, in that it has not lost value through 3/15/13. The stock selections remain relatively constant over time too.

The average annual return over the past ten years through 12/31/12 is 10.2% before taxes.   Performance Page

Distributions are paid annually and are generally modest given the static allocation and relatively low selling activity. In 2012, the PRPFX paid a $.27 per share ordinary income dividend and a $.36 per share capital gain distribution. The reinvestment price was $48.37, representing a total yield at that price of only 1.3%.

I have been reinvesting the dividends and have not sold any shares. My unrealized gain is close to $3,000.

I view this fund as sort of disaster insurance. The fund did perform well in 2008 losing only slightly more than 8%.

I have discussed this fund on several occasions. I grouped it with PAUDX in my unusual allocation funds that now includes ABRZX discussed in Item # 5 above. Item # 2 Bought PAUDX/Unusual Allocation Funds

Yesterday's Closing Net Asset Value Per Share: PRPFX: $48.90 -0.05 (-0.10%)
Yesterday's Closing Net Asset Value Per Share: PAUDX: $10.98 -0.01 (-0.09%)
Yesterday's Close S&P 500 1,552.1 -8.6 (-.55%)

This post is long enough.

I will discuss the addition of yet another gold mining stock to the Flyers basket strategy in my next weekly post. I also added one last week to the LT basket strategy. I am buying into the gold mining sector in small amounts due to the smashed stock prices in that sector and their potential for a price recovery. The buying is unrelated to the Cyprus shenanigans or to any other recent event. Instead, the buying is simply the end result of a typical selection process for stocks to be included in either the Lottery Ticket Basket Strategy or the $500 to $1,000 Flyers Basket Strategy.

The next post, scheduled for Monday, will be the monthly update on the regional bank and lottery ticket basket strategies.