Tuesday, April 30, 2013

More Bad News for Exide/Bought 50 ANCX/Sold 2 Pactiv 6.4% Senior Bonds Maturing in 2018 at 93/Added 50 SWZ at $12.22/Added 50 GHY at $18.55/Sold 300 of the Bond CEF MMT at $7.57-ROTH IRA/Sold 50 EELV at $29/GE, MSFT, Zurich Financial/GDP, Home Prices, Durable Goods

Big Picture Synopsis 


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

My short term outlook for stocks continues to be slightly bearish. While I am expecting a 10% correction, the market is not cooperating with that forecast, even though it made a feint in that direction last week. It is entirely possible that the market will rise more than 10%, possibly considerably more, since I inaugurated this short term bearish tilt, making the forecast less than optimal.

There are always reasons to be bearish. A number of bears are Seeking Alpha contributors. I responded to one of them who believes that the stock market is still in a long term secular bear market starting in 2000, which is about to reassert itself. (Lawrence Fuller Article dated 4/28/13 published by Seeking Alpha; and Fuller article dated 2/25/13 at Seeking Alpha). He may end up being right but his reasons are not convincing and do not support his opinion when countervailing evidence is evaluated along with the items relied upon by him.

I am not naturally bullish or bearish and will always try to form an opinion based on the available evidence.  I am inclined to make a judgment based on a non-biased evaluation of the evidence-all of the evidence that I know, rather than bits and pieces selected only for their support of a pre-existing opinion or tendency. And, I am certainly not inclined to twist or to clearly misinterpret that selected evidence to support one thesis or another.

I am currently inclined to believe that the U.S. stock market started a long term secular bull trend on March 8, 2009. I would anticipate that the first phase of the long term upward move will last up to two more years, followed by a prolonged period of digestion and sideways movement before the bull reasserts itself. A 10%-15% correction can happen at anytime and is not inconsistent with the long term bull thesis. Historically, long term bull moves will produce 14%+ annualized gains in the S & P 500, adjusted for inflation and with dividends reinvested. A long term chart will reveal a 45 decree upward sloping move with blips. A large part of the gain can be concentrated in a few years, such as the move from March 2009 to date.  


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

Durable Goods:

The Commerce Department reported last week that the shipment of durable goods in March declined by 5.7%. Excluding transportation (e.g. aircraft), orders declined 1.4%. census.gov.pdf

FHFA and Case-Shiller Reports On Housing Prices:

The Federal Housing Finance Agency reported that home prices rose a seasonally adjusted .7% in February compared to March. The Y-O-Y increase was 7.1%. fhfa.gov.pdf However, the FHFA home price index is still 13.6% below its April 2007 peak and is near its October 2004 level.

Case-Shiller reported that home price rose 8.6% and 9.3% for the 10 and 20 city composites for the 12 months ending February. The largest one year change was a 23% increase in Phoenix, followed by 18.9% in San Francisco; 17.6% in Las Vegas and 16.5% in Atlanta. The lowest Y-O-Y increase was 1.9% in New York.

First Estimate of 1st Quarter GDP:

Last Friday, the government released its first estimate of first quarter GDP, and it was a disappointing report.  News Release: Gross Domestic Product Real GDP was estimated to have increased 2.5% in the 2013 first quarter from the 2012 4th quarter.

The price index for gross domestic purchases increased 1.1%, down from the 1.6% increase in the 2012 4th quarter.

Real personal consumption expenditures increased by 3.2%, up from 1.8% in the 2012 4th quarter. However, the personal savings rate decreased to 2.2% from 4.7% in the prior quarter.

Real GDP for the private sector rose 3.3%.

Real federal government consumption and gross investment decreased 8.4% in the quarter. Government  spending reduced GDP by .8%, with the federal government's spending contributing to a .65% decline, partly due to the sequester which started on March 1, 2013.

Residential construction grew at a 12.6% annualized, seasonally adjusted rate.

The personal consumption price index fell to 1.3% annualized from 1.6% in the 2012 4th quarter.

March Consumer Spending and Income

The Commerce Department that consumer spending in March increased .2%, while incomes rose .2%. The personal savings rate was 2.7% in March. Real disposable income increased .3%. The price index for personal consumption expenditures declined .1%.

News Release: Personal Income and Outlays


The EU's statistical agency Eurostat reported that the euro area (EA17) seasonally adjusted unemployment rate rose to 12.1% in March, up from 12% in February. The EU27 unemployment was 10.9%. Germany had a 5.4% unemployment rate while Spain and Greece continue to suffer at depression level rates of 26.7% and 27.2% respectively. eurostat.ec.PDF

Eurostat reported that euro area inflation is expected to decline to 1.2% in March down from 1.7% in March. eurostat.ec.PDF


Zurich Financial Dividend (ZURVY):

This Swiss financial company paid its annual dividend on 4/22/13. The entire dividend was classified as a return of capital:

ZURVY Annual Dividend
Zurich is earning the dividend. Since the dividend was paid from capital contribution reserves, I did not have to pay Swiss withholding tax on the dividend, and the dividend was classified as a return of capital. Consequently, I will not pay a tax on the dividend, but my cost basis will be reduced by the amount of the dividend. The same treatment occurred with the annual dividend paid in April 2012: Item # 2 Zurich Financial ($1.85 per share dividend paid in 2012 reduced my cost basis from $24.8 to $22.95 per share).

Item # 2 BOUGHT 100 ZFSVY at $24.72

As a result of those two annual dividends being classified as returns of capital, my cost basis is now $21.13 per share.

Microsoft Sells Bonds

Last week, Microsoft raised $1.95B by selling the following senior unsecured notes:

$450M Maturing in 2018 at 1%
$1B Maturing in 2023 at 2.375%
$500M Maturing in 2043 at 3.75%


Microsoft sold another €550M 2.625% notes due in 2033.

General Electric:

For now, I am reinvesting the GE dividend to buy more shares:

The market responded to GE's first quarter earnings release by knocking the stock down about 4% percent. SEC Filed Earnings Press ReleaseGE Historical Prices: 4/19 GE reported operating earnings of $.39 per share on $35B in revenues, but industrial operating earnings were down 11%. E.P.S. was $.35 from continuing operations. Profit in the power and water businesses slumped 39% to $719M on a 26% decline in revenue.  The transportation segment reported a 15% increase in profit to $267M. The oil and gas segment reported a 4% decline in profits to $325M. Aviation's profit increased by 9% to $936M.

The most important decline is in the power and water business segment, where there has been a significant decline in orders for gas turbines in developed countries Y-O-Y.

The backlog increased to its highest point ever at $216B.

Cash balances increased to $138.1B from $125.9B at the end of the prior quarter.


EXIDE: Update from Exide (4/9/13 Post)

The bad news continues for Exide, as California ordered Exide to suspend operations at its Vernon battery recycling plant due to the release of hazardous materials into the soil allegedly resulting from a degraded pipeline. latimes.comExide Receives Order From California Department of Toxic Substances Control Regarding Its Vernon, CA Facility

At least on the surface, Exide management appears clueless about the Vernon plant's operational issues and problems and are in a reacting mode rather than being proactive in preventing problems before they arise.

I am not making any suggestion that the order by California is justified by the facts.

The stock cratered again on 4/25/13: XIDE: 1.02 -0.32 (-23.88%)

I do not own the common. In a recent Seeking Alpha article published on 4/19/2013, the author, Tom Konrad, mentioned that he had bought Exide common at $1.4 and $1.42 in his "most aggressive mandate". I left some comments to that article.

However, the news about the forced closure of the Vernon plant was enough to turn Konrad bearish and to sell his position at a loss. Selling Exide - Forbes

A bankruptcy filing is certainly a possibility, which would likely wipe out the common shareholders and cause the owners of senior secured debt to take a significant hit.

Bankruptcy may even be the best option as Exide's legal problems mushroom.

There are a number of legal issues involving environmental cleanup responsibilities after a bankruptcy filing provided the company abandons the site. The Discharge of Environmental Claims in Bankruptcy; Environmental Injunctions are Not Claims Subject to Discharge in Bankruptcy

I still own two senior secured bonds maturing in 2018, which are in effect second lien bonds, that declined about six points in response to this news. Online bids for this bond disappeared throughout 4/25/13. This bond traded as low as 65.4 before closing at 69.125. I would anticipate continued downward pressure on this bond. The price may ultimately reach a level where investors are pricing the bond's value in a bankruptcy organization.

FINRA - Investor Information - Exide 8.625% Bond Maturing 2018

The 2013 busted convertible, a senior subordinated bond which matures this September, closed last Friday at 29. Needless to say, that price for a bond maturing in September 2013 is not consistent with a likely pay off at maturity.

When and if I can sell those two bonds near 80, I will probably do so. Otherwise, I will just continue monitoring the worsening situation. Those bonds have value, given their security, but the security is  second lien to the collateral that secures the bank borrowings.


1. Added 50 of the Stock CEF SWZ at $12.22 (see Disclaimer): I try to buy at least 50 or 100 shares of SWZ every year. I am reinvesting the dividends. I have traded this CEF in a retirement account  (Sold  SWZ in Roth IRA), but have not sold shares in the taxable account, where I now own over 500 shares. 

The Swiss Helvetia Fund (SWZ) is a closed end stock fund that invests in companies headquartered in Switzerland. The fund is not currently using leverage based on information contained in the last shareholder's report.

I discussed this CEF in more detail when I made my 2012 purchase last November:  Item # 3 Added 50 SWZ at $10.64 I have little to add to that post.

The Swiss Helvetia Fund: Shareholder Report for the Period Ending 12/31/12

The expense ratio is high at 1.44% for the previous year (see page 30). As of 12/31/12, the fund shows net assets of $402.279+M, purchased at a cost of $283.947+M (page 25).

For several years since around 1994, most of the dividends paid by this fund have been from capital gains, primarily long term capital gains. SWZ.com - Swiss Helvetia Fund

Long Term Capital Gain Distributions Per Share By Pay Date
SWZ.com - Swiss Helvetia Fund
2012: $1.074
2011: $  .727
2010: $  .264
2009: $  .366
2008: $  .023 and $ .097=$.12
2007: $1.162; $ .527 and $1.175=$2.864
2006: $  .203 and $1.276= $1.479
Total LT Distributions 2006-12=$6.894 per share

During the foregoing period, there were several short term capital gain and income distributions.

Data As of 4/19/13 (Date of Purchase)
Closing Net Asset Value Per Share= $14.16
Closing Market Price: $12.23
Discount: -13.63

Data as of 4/25/13
Closing Net Asset Value Per Share= $14.45
Closing Market Price= $12.41
Discount: -14.12

Sponsor's Website: SWZ.com - Swiss Helvetia Fund

SWZ Page at the Closed-End Fund Association

SWZ Page at Morningstar

SWZ Page at CEFConnect

2. Sold 2 Pactiv 6.4% Bonds Maturing in 2018 at 93 (Junk Bond Ladder Strategy-No Longer Being Updated)(see Disclaimer): I have now sold out of all Tenneco Packaging/Pactiv bonds. 

Bought 1 Pactiv 6.4% Senior Bond Maturing on 1/15/2018 at 91.5 April 2011Added 1 Pactiv 6.4% Senior Note Maturing in 2018 at 77 October 2011

I will receive $35.2 in accrued interest from the buyer:

Sell Confirmation Pactiv Bonds
The price shown in the confirmation of 92.6 reflects a $8 commission off the sales price of 93 (proceeds from the principal amount at 93=$1,860; adjusted to $1852 in confirmation to reflect the brokerage commission). Brokerage firms that I use do not show the commission in the confirmation but adjust the price to reflect the commission.

I made $93.98 on these two bonds plus interest payments.

The cost basis was adjusted by the broker up to reflect an amortization of the market discount from the acquisition date through the disposition date using a straight line method.  Tax Accounting For Bonds Purchased in the Secondary Market-Too Complicated This calculation is just one of many way for the IRS to needlessly cause consternation to investors. I suspect that the rationale has something to do with the lower capital gains rate and the government's desire to classify some of the profit as interest taxable at an investor's highest marginal rate (the amortized portion), rather than the lower capital gains rate.

Cost Basis - Bonds bought at a discount
Taxation of bond discounts and premiums. - Free Online Library
‎www.aaii.com/journal (page  32)

Tenneco Packaging changed its name to Pactiv which was then acquired by Reynolds Group, a highly leveraged company based in New Zealand, a serial acquirer using junk rated debt. In my opinion, the senior unsecured debt is deservedly rated deep into junk at Caa2 by Moody's

FINRA - Investor Information on the 2018 Pactiv Bond

FINRA - Investor Information on the 2025 Tenneco Packaging Bond

FINRA - Investor Information on the 2027 Tenneco Packaging Bond

3. Sold 300 MMT at $7.57 Roth IRA (see Disclaimer): The MFS Multimarket Income Trust (MMT)

2013 Sold 300 MMT at $7.57
This is a snapshot of my recent ROTH IRA history for this holding:

ROTH IRA History
As noted in that history, 100 shares was transferred to this brokerage firm from another.

I also generated a profit on the shares. Any profit for a bond fund is viewed as acceptable:

2013 Roth IRA 300 MMT +$217.15
Item # 3 Added 200 MMT at $6.8 in Roth IRA (June 2011)

Data as of 4/19/13 (Friday)
Closing Net Asset Value: $7.73
Closing Market Price: $7.58
Discount: -1.94

Data as of 4/22/13 (Monday-Date of Sell)  
Closing Net Asset Value Per Share= $7.74
Closing Market Price: $7.55
Discount: -2.45%

Data as of  Friday 4/26/13
Closing Net Asset Value Per Share= $7.76
Closing Market Price= $7.65
Discount: -1.42%

CEFConnect Page for MMT

MMT Page at Morningstar (rated 3 stars; three year average discount -6.03%; dividend not supported by a return of capital)

Prior Trades:

Item # 5 Sold 300 of 1000 MMT at 6.89 (July 2011); Item # 1Added 300 of the bond CEF MMT at 6.61-Satellite Taxable Account (March 2011)

Sold 300+of the Bond CEF MMT at $6.83-Another Satellite Taxable Account (January 2012)(contains snapshot-$84.07 profit on the shares plus dividends)- Item # 2 Bought 300 of the Bond CEF MMT at $6.49 (September 2011)

Sold 300 of the BOND CEF MMT at $7.09 (January 2012)(contains snapshot-+$26.66 on the shares plus dividends)- Item # 1 Bought 300 MMT at 6.95 (October 2010)

Bought 100 MMT @ 6.67 (November 2010)

4. Sold 50 EELV at $29 (see Disclaimer): The PowerShares S&P Emerging Markets Low Volatility Portfolio Fund  (EELV) This sale is part of my ongoing pare of low yielding stock ETFs.

Sold 50 EELV at $29

2013 EELV 50 Shares +$74.06

Bought 50 of the Stock ETF EELV at $27.2 (November 2012)

5. Added 50 GHY at $18.55 (see Disclaimer): The Prudential Global Short Duration High Yield Fund (GHY) is a bond CEF that invests in short term junk bonds.

I recently discussed this bond CEF. More detail can be found in that post: Item # 4 Bought 50 of the Bond CEF GHY at $18.77-Roth IRA

This last purchase was made in a taxable account, where I may gradually buy more shares at lower prices.

Data from Date of Purchase (4/24/13):
Closing Net Asset Value Per Share= $19.07
Closing Market Price= $18.47
Discount= -3.15%

Data from Friday 4/26/13
Closing Net Asset Value Per Share: $19.11
Closing Market Price= $18.72
Discount= -2.04%

Dividends are paid monthly at the current rate of $.125 per share. At a total cost of $18.55 and assuming a continuation of that rate which is no way assured, the dividend yield would be about 8.09%.

GHY Page at CEFConnect

Sponsor's Website: Prudential Global Short Duration High Yield Fund, Inc. - Prudential Investments

Holdings: Holdings - Prudential Investments

Last SEC Filed Report for the Period Ending 1/31/13: Prudential Global Short Duration High Yield Fund, Inc.

6. Bought 50 ANCX at 12.11 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):

Company Description: Access National Corp. is the bank holding company, founded in 2002, and headquartered in Reston, Virginia which is located in the metropolitan D.C. geographic area. ANCX is the parent company of Access National Bank. This is a small bank with five branches: Locations The market cap is approximately $126M at the $12.11 price.

Dividends have been paid since 2006. Access National Bank Initially, the quarterly dividend was .005 per share and is now $.10 per share.  The dividend was recently raised from $.09 to $.10 per share. The bank currently intends to pay out 40% of its core earnings.

At a total cost of $12.11 per share, the dividend yield would now be about 3.3%.

Profile Page at Reuters

The current analyst forecast is for an E.P.S. of $1.19 in 2013.

Apparently, the stock rose earlier this year in response to a rumored takeover, but the bank denied that it had received any offer and had not solicited any. The CEO then said in an interview that the bank was not in "active" discussions (see interview at Washington Business Journal) The stock hit $17.63 back in March: ANCX Interactive Chart The stock price decline also coincided with the announcement about the closure of the Denver mortgage office.

Prior Trades: None. This stock was on my monitor list for potential adds to the regional bank basket.

Last Earnings Report: I initiated a position in this small bank since I liked a number of items in its last earnings report. The NPA ratio is one of the lowest that I have seen, matched only by Merchants Bancshares (MBVT). The return on assets and return on equity are among the highest in my basket. The dividend is being raised at a decent clip. On the negative side, E.P.S. growth is slowing:

Access National Increases First Quarter Earnings and Dividend
2013 1st Quarter vs. 2012 1st Quarter
Net Income: $3.684M/ $3.437M
Diluted E.P.S.: $.35/ $.33
Net Interest Margin: 3.73%/ 3.82%
Efficiency Ratio (bank only): 53.22% / 52.17%
NPA Ratio: .2%
Coverage Ratio: 739.93% (the highest that I have seen)
Return on Average Assets: 1.66%
Return on Average Equity: 16.03%

The bank did announced the closure of its Denver mortgage production branch on April 2, 2013 and presented pro forma number for the March quarter which excluded the activities for that branch. As shown in the pro forma numbers, that closure would reduce net income numbers significantly, as shown in the bank's pro forma analysis for 2012: (8-K $1.71 to $1.17)

The bank did not report its capital ratios in this earnings release, other than the equity to assets ratio which was 10.72%. I did look at the Annual Report and made a snapshot of the capital ratios as of 12/31/12.

2012 Annual Report at page 72

Rationale and Risks: The risks are the usual ones for small community banks, which include net interest margin compression due to the Fed's Jihad Against the Savings Class, increased regulatory costs, a slow down in earnings growth due in large part to the preceding factors, and a potential for an acceleration of loan losses particularly during a recession.

When addressing those risks, I attempt to focus on a number of items from the last earnings report and the bank's ability to navigate through the recent Near Depression. I do not want a bank managed by Masters of Disaster who are likely to blow their bank up in pursuit of their own personal greed. I therefore attempt to make a judgment about the bank's management by looking at loan losses during a stress period and currently.

The non-performing assets to total assets ratio for this small bank is among the lowest that I have seen to date at .2%. The allowance for loan losses as a percentage of NPAs is the highest that I have seen. Normally, I am comfortable when a bank has already set aside 100% in reserves for NPAs when I make my initial purchase. Access had a coverage ratio of 739% as of 3/31/13. I believe the Texas Ratio is extremely low at around 2.3%. (see discussion of the Texas Ratio at dallasfed.org.pdf; a third party service calculated the Texas Ratio at 2.61% as of 12/31/13: Access National Bank)

The most recent Annual Report, referenced above, contains historical information relevant to assessing the prudence of this  bank's management at page 25. The bank did take a hit in 2008, with an E.P.S. of $.46 per share and net charge offs to average loans at 1.12%. The bank bounced quickly back in 2009 with an annual E.P.S. of $.93 per share. Net charge offs to average loans had fallen to .13% in 2012.

While the total risk based capital ratio declined to 13.11% in 2008, that is still a good number and started to improve significantly in 2009 (page 26).

ANCX declined to participate in TARP: 2009 10-K at page 10

For this bank, I would highlight one additional potential risk and benefit. The mortgage division operates in several states and is not focused in Northern Virginia. Some banks have experienced problems when attempting to go outside of their local territory for mortgage originations. The 2012 Annual Report shows mortgage originations by state at page 4. Virginia accounted for only 21.36% of mortgage originations during 2012. I would not be too concerned about this national mortgage operation provided rigorous loan criteria are followed and monitored aggressively by risk officers.

Future Buys: I may average down at below $11.5.

This post is long enough, particularly considering the other lengthy post published on Monday. I will discuss some of the trades in the next post made prior to this post's publication. 

Monday, April 29, 2013

Update of Lottery Ticket and Regional Bank Basket Strategies/Bought 80 MNRK at $9.97/Pared Trade: Bought 50 SYBT at $22.16 and Sold 50 SBSI at $21.27/Bought 50 AXU at $2.73 & Sold 40 SVU at $5.94-LT Basket/FMER, PBCT, TRMK, KEY, FNB, BHB, CBU, VLY

Both the Regional Bank and Lottery Ticket Basket strategies are updated 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 can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

I sold my 40 shares of SVU at $5.94, realizing a $57.51 loss, after reviewing what I considered a disappointing earnings report.

Realized Gains To Date: $12,326.2

Table of Current Holdings:

Lottery Ticket Basket as of 4/26/13
Currently, the largest unrealized gain is 56% from the 30 shares of Forest City Enterprises (FCE-A: 18.47 +0.12). The largest unrealized loss continues to be Velti at -74%.

National Penn Bancshares (NPBC) is under consideration for a promotion to the Regional Bank Basket Strategy which would allow for another purchase. This bank has been increasing its quarterly dividend after slashing it from $.17 per share to $.05 and then to a penny in 2009. The quarterly dividend is back up to $.10 per share. National Penn Bancshares, Inc. - Investor Relations The 2013 first quarter earnings report was just okay. National Penn Bancshares, Inc. Reports First Quarter 2013 Results As of 3/31/13, the net interest margin was 3.49% (down from 3.55% in the 2012 1st quarter); the efficiency ratio was at 58.61%; adjusted E.P.S. was $.16, down from $.17; delinquent loans to total loans was at .46%; the coverage ratio was 199.3%; and the total capital ratio was 16.67%.

A. Bought 50 AXU at $2.73 (See Disclaimer): 

Bought 50 AXU at $2.73
Gold and silver mining stocks plunged in early April, far more than the declines in silver and gold prices. My recent nibbles in this industry sector are under water. Needless to say, I am keeping my investments at insignificant amounts with a long time horizon if necessary. When I refer to the LT strategy as catching a falling knife, these recent gold & silver mining purchases illustrate succinctly what is meant by that phrase.

Alexco Resource (AXU) is primarily a silver miner but also has some production in zinc, lead and gold.  It is headquartered in Vancouver and has its principal mining activities concentrated in the Keno Hill District of Canada's Yukon Territory.

A long term chart reveals a stock on a roller coaster ride. A low was hit at less than $.5 back in December 2008. Thereafter there was a rocket launch to a high of $10.17 in April 2011, followed by a descent to its current price. AXU Interactive Chart A smashed stock price and an ugly looking chart are characteristics common to all Lottery Ticket selections.

For the mining stocks recently purchased as part of the Lottery Ticket or Flyer's Basket Strategies, they do not have other characteristics common to selections in those high risk categories, such as a Price to Sales and Price to Book Ratios at less than 1, a single digit P/E, an appetizing P.E.G. ratio, and/or any other criteria usually found in those selections.

Alexus does currently have a forward P/E estimate of 10.84, AXU Key Statistics, which is better than most miners, but I would take any estimate for gold and silver mining companies with a grain of salt.

For the 2012, Alexco reported net income of C$3.4M or C$.06 per share. The company produced 2,150,959 ounces of silver at its Bellekeno Mine, located in Canada'sYukon Territory. In addition to silver, that mine also produced 17.2 million pounds of lead and 4.8 million pounds of zinc. Cash production costs for the year were $11.89 "per ounce of payable silver produced, net of by-product credits." The averaged realized price for silver was USD $31.54 per ounce; USD $.95 per pound for lead; and USD $.89 per pound for the zinc.

The company also expects that the final permit necessary for commencement of operations at its Onek  and Lucky Queen mines, a water permit, is "anticipated early in the second quarter of 2013".  With that permit, the company expects production from Onek to commence in the 2013 second quarter followed by Lucky Queen in the third quarter.

A new exploratory mine, Flame & Moth, is estimated to have 22.9M ounces of "indicated silver". The company has two other exploratory properties: Bermingham and Husky.

During 2013, the company anticipates that its Bellekeno mine will have silver production "in the range from 1.9 million to 2.1 million ounces, approximately 17 million pounds of lead, and 9 million pounds of zinc".

As of 12/31/12, the company had C$23.088M in cash.

The author of an article, published by Seeking Alpha, claims that demand for silver coins and the ETF SLV have remained robust as silver has declined in price.  

AXU was mentioned positively by an analyst in this Seeking Alpha article.

Last Friday's Closing Price: AXU: 2.04 -0.13 (-5.99%)

B. Boyd Gaming (own): On 4/11/13, Boyd Gaming shares rose 14% after Morgan Stanley upgraded BYD to outperform and raised its price target to $12 per share. According to Barrons, the upgrade is based on the likely increase in online gambling after New Jersey approved online gambling last February. MS expects online gambling to become as big as the gambling centers in Las Vegas and Atlantic City combined by 2020. MS views Boyd to be the best positioned among its coverage universe of gaming companies to take advantage of this trend, given its size and positioning.

Close on 4/11/13: BYD: $8.85 +0.65 (+7.93%)

Last Wednesday, Boyd Gaming reported better than expected first quarter results, beating expectations by 6 cents per share. Adjusted earnings were reported at $.01 per share. For its wholly owned businesses, revenues increased 25.1% to $569.9M with a 42.3% in adjusted EBITDA to $135.1M.

Close on 4/24/13: BYD: $10.98 +2.03 (+22.68%) 

It has taken two recent large percentage gain to bring me into profit territory on my Boyd common LT purchase:

Bought  30 BYD as an LT at $9.78

I have made money on Boyd's bonds and currently own just 1 senior unsecured bond maturing in 2018:

Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 (October 2011)

FINRA - Investor Information on BYD 2018 Bond

Last Friday's Closing Price: BYD: $11.48 -0.01 (-0.09%)

2. Update for Regional Bank Basket Strategy

This strategy is explained in my Gateway Post on this topic:


I am not tracking reinvested dividends in the following 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. Needless to say, the dividend yield for each position is higher than the 1.668% yield on the 10 year treasury as of last Friday's close. Standard Chart - WSJ.com Most of the dividend yields are higher than the 2.862% yield on the 30 year treasury (Standard Chart - WSJ.com), and many of these banks are raising their dividends. A buyer of that 30 year treasury bond with a 2.862% is stuck with that yield until the bond is sold.

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.

Since the last update, I sold my 200 share position in Sterling Bank (STL) after it agreed to be acquired by PBNY. Sold 200 STL at $11.39 (4/9/13 Post)

Realized Gains To Date: $10,862.71
Dividends 2010-2012: $4,690.79

Table of Current Holdings:

Regional Bank Basket As of 4/26/13
Unrealized appreciation is approximately $2,800, down from $4,500 as of the last update. Most of that downdraft is due to price depreciation with some caused by profit taking. The STL transaction netted $491 in profits and less than $40 was realized in the SBSI disposition discussed below.

A.  CNB Financial (CCNE): CNB Financial announced that it would acquire The Farmers Citizens Bank (FCBZ) for $30 in cash and stock or approximately $40.4 million. FCBZ has 8 branches in northern and central Ohio with its headquarters in Bucyrus, Ohio and a presence in the greater Columbus area. Locations | Farmers Citizens Bank Prior to this acquisition, CNB Bank had branches only in Pennsylvania. CNB Bank - Locations & Hours CNB expects the transaction to be accretive to earnings in the first full year.

Bought 50 CCNE at $11.06 (June 2010).

This position is flying well under my radar.

I drew a blank on CNB's dividend history, so I checked it out. CNB Bank - Stock Splits/Dividends The bank has been paying a $.165 per share quarterly dividend since the 4th quarter of 2008. Prior to that time, the dividend was raised every year since 1991, with a few special dividends. Hopefully, the bank will soon return to a dividend grower. The payout ratio is 49%.

For the 2013 first quarter, CNB Financial Corporation reported net income of $4.3M or $.34 per share, down from $.35 per share in the 2012 first quarter. As of 3/31/13, the net interest margin was 3.41%; the NPA ratio was at .93%; the total risk based capital ratio was 15.53%; the tangible equity to tangible asset ratio was at 7.51%; the return on average assets was .96%; the return on average equity was 11.76%; and net charge offs to average loans was .47%.

Last Friday's Closing Price: CCNE: $16.15 -0.31 (-1.88%)

B. Pared Trade: Sold 50 SBSI at $21.27 and Bought 50 SYBT at $22.16 (see Disclaimer):

Pared Trade Regional Bank Basket Strategy

I have previously bought and sold both S.Y. Bancorp (SYBT) and Southside Bancshares (SBSI) in this basket strategy.

The dividend yield based on regular quarterly dividends is almost identical for these two stocks. The reason for the trade is that SBSI is selling at a higher P/E and has a lower quality of past earnings.

As I noted previously, SBSI's earnings have been significantly supported by realized profits from the sale of securities.

The consensus E.P.S. estimate is for $1.42 in 2013 and $1.32 in 2014. SBSI Analyst Estimates

SBSI reported diluted E.P.S. of $2 in 2012, down from $2.21 in 2011. Press Release 12-31-12 The bank reported $34.695M in net income earned for 2012. The profit from the sale of securities was $17.966M, up from $11.795M in 2011. The realized profits from security sales were $25.789M in 2010 and $33.446M in 2009. Those gains have supported special dividends in addition to the regular quarterly dividends. Southside Bancshares Investor Relations

A far more reliable source of income would be from banking operations. While it is commendable that SBSI has been able to earn such large gains from trading activities, conditions have been optimal for generating this kind of non-recurring profits over the past several years. Without significant gains, the core operating earnings would likely be below $1.5 in both 2013 and 2014, particularly since the bank's net interest margin is shrinking, falling to 3.09% in the 2012 4th quarter from 3.47% in the 2011 4th quarter.  I made this same point in a comment to a bullish Seeking Alpha article on SBSI and in previous posts on SBSI. Item # 3  Bought 50 SBSI at $20.2 (11/9/12 Post).

SBSI does have good NPA and NPL ratios. The capital ratios are excellent.

SBSI did recently declare its normal 5% stock dividend. It intends to maintain its quarterly dividend rate at $.20 per share, which effectively gives its shareholders a 5% dividend boost after they receive the stock dividend shares. Southside Bancshares Declares 5% Stock Dividend I have zero interest in those kind of stock dividends.

I realized a gain of $39.37 on this last transaction plus $36.5 in dividends:
2013 SBSI 50 Shares +$39.47

SBSI Transaction Since Last Purchase

This brings my total realized gain from SBSI trades to $345.11 with the following prior transactions which netted $305.74:
2011 SBSI 52+ Shares +$87.79

2011 SBSI 54+ Shares $120.9
2012 SBSI 100 Shares +$97.05
My only previous transactions in SYBT are summarized in these posts: Bought 50 SYBT at $21.84 March 2012-SOLD 50 SYBT at $24.31 July 2012

2012 SYBT 50 Shares +$107.58
SYBT is a bank holding company. Its operating bank is known as the Stock Yards Bank and Trust Company. The bank is headquartered in Louisville, Kentucky and has 31 branches as of 12/31/12, with 25 of those in the Louisville metropolitan area and 3 each in Cincinnati and Indianapolis. Item 2 at page  8 of the 2012 Annual Report: 10-K

For the year ending 12/31/12, the bank reported a diluted E.P.S. of $1.86, up from $1.71 in 2011. Other items of interest include the following:

Return on Average Assets: 1.25%
Return on Average Equity: 13.06%
Net Interest Margin 3.94%
Efficiency Ratio: 57.38%
Net Charge Offs to Average Loans: .6%
NPA Ratio: 1.74%
Tangible Common Equity Ratio: 9.52%
Total Risk Based Capital Ratio (Consolidated): 14.42%
Tier 1 Risk Based Capital Ratio (Consolidated): 13.17%

Subsequent to my purchase, SYBT reported first quarter results:

S.Y. Bancorp Reports Record Net Income for the First Quarter of 2013 of $6.8 Million or $0.49 Per Diluted Share

2013 First Quarter vs. 2012 First Quarter:
E.P.S.= $.49/$.47
Net Interest Margin: 3.83%/4.07%
Efficiency Ratio: 55.76%/52.32%
NPL Ratio=2.09%/1.9%
NPA Ratio=1.85%/1.84%
Coverage Ratio: 95.55%/107.35%
Net Charge Offs to Average Loans:  .14%/.17%
Total Risk Based Capital Ratio=14.86%/14.39%
Tangible Common Equity Ratio: 9.82%/9.37%
Annualized Return on Average Assets: 1.3%/1.29%
Annualized Return on Average Equity: 13.6%/13.13%
Quarterly Dividend Per Share= $.20/$.19

SYBT expects to close during the 2013 second quarter, subject to approvals, the acquisition of The Bank-Oldham County which operates 4 branches in Kentucky, one each in Pewee Valley, La Grange, Crestwood, and Prospect. This acquisition is expected to be "slightly" accretive to SYBT's earnings per share. SEC Filed Press Release These branches are located in Oldham County, Kentucky, the richest county in Kentucky and 48th wealthiest in the country according to Wikipedia. This county is also part of the Louisville Metropolitan Statistical Area.

SYBT did not cut its dividend during the Near Depression period. The dividend was maintained at $.17 per share in 2008 and 2009 and was raised to $.18 in 2010. The rate was increased twice in 2012, first to $.19 and then to $.2 per share. Banking | Stock Yards Bank

I also believe it is important to examine how a bank performed during the recent recession. This information can be gleaned from a review of an Annual Report. I just look for a page that gives historical earnings information. While SYBT did suffer a decline in earnings during 2008-2009, the bank was still profitable during those years, earning $1.59 per diluted share in 2008 and $1.19 in 2009, and then rebounded in 2010 with a $1.67 diluted E.P.S. The NPL and NPA ratios stayed below 1 in those years. 2011 Annual Report, ‎10-k.

I left a comment to this Seeking Alpha article which briefly mentioned SYBT, but failed to adequately discuss the fundamentals and history.

Last Friday's Closing Prices:
SBSI: $21.11 +0.16 (+0.76%)
SYBT: $22.04 -0.23 (-1.03%)

C. FNB (own): FNB, the parent company of First National Bank of Pennsylvania, completed its acquisition of Annapolis Bancorp (formerly trading under the symbol ANNB). SEC Filed Press Release Annapolis had 8 branches in Anne Arundel and Queen Anne's Counties in Maryland. FNB has over 250 banking locations in Ohio, Pennsylvania, Maryland and West Virginia.

FNB Data as of 12/31/12: 10-K

2012 Diluted E.P.S.= $.79 up from $.7
Annual Dividend+ $.48 per share, unchanged since 2008
Net Interest Margin=3.73%
NPA Ratio .99%
Coverage Ratio=123.88%
Total Capital to Risk Weighted Assets (consolidated)=12.2%
Return on Average Assets=.94%
Return on Average Tangible Assets=1.05%
Dividend Payout Ratio 61.27%

I have bought and sold FNB. I currently own just 50 shares, the last shares bought using FIFO accounting. Added 50 FNB at $7.8 (July 2010 Post)

For the 2013 first quarter, FNB reported net income of $28.5M or $.2 per share.

Last Friday's Closing Price: FNB: $11.35 +0.02 (+0.18%)

D. KeyCorp and FirstMerit (own both): Both KeyCorp and FirstMerit were listed a mid cap value plays by the UBS analyst. The foregoing links are to an article at TheStreet which summarizes the UBS recommendations.

FMER was also favorably discussed in this article published at the investing website StreetAuthority. Of the four banks mentioned in that article, I currently own three of them as part of the regional bank basket strategy (FMER, FFBC and TRST) and have owned the fourth (ONB).

I recently pared my position by selling a higher cost 50 share lot: Item # 5 Sold 50 FMER at $16.9-2nd Pare of Higher Cost Shares (4/16/13 Post)

Last Tuesday, FMER reported first quarter earnings of $.33 per share, beating expectations by 2 cents. FirstMerit Reports First Quarter 2013 EPS of $0.33 Per Share

Some of the FMER highlights include the following:

2013 First Quarter vs. 2012 First Quarter
Net Income: $37.346M/$30.44M
E.P.S. = $.33/$.28
Net Interest Margin= 3.46%/3.78%
Efficiency Ratio= 62.06%/65.52%
NPA Ratio= .59%/.86%
Coverage Ratio= 254.32%/205.13%
Net Charge Offs to Average Loans=.27%/.62%
Return on Average Assets; 1.01%/.84%
Tangible common equity to tangible assets=8.03%/7.86%
Quarterly Dividend=$.16/$.16

FirstMerit- Earnings Call Transcript - Seeking Alpha

KeyCorp reported first quarter net income of $196M or $.21 per share, one cent better than the consensus forecast.

Last Friday's Closing Prices:
FMER: 16.88 +0.01 (+0.06%)
KEY: 9.80 -0.03 (-0.31%)

E. People's Financial (PBCT): People's United Financial increased its dividend to an annual rate of $.65 per share from $.64. For the 2013 1st quarter, the bank reported operating earnings of $.18 per share. Tangible equity to tangible assets was reported at 9.6%, with a total risk-based capital ratio of 13.7%. The NPL ratio was at 1.25% as of 3/31/13, down from 1.67% as of 3/31/12.

Among the negative factors, the payout ratio is close to 100%; net interest margin contracted to 3.38% from 3.97% as of 3/31/12; and the returns on average assets and tangible common equity are below most of the banks in my basket at .7% and 7.4% respectively. The contraction in net interest margin is a common problem now due to the Fed's monetary policies.

PBCT is a marginal hold.  I am keeping the shares for now due to the dividend yield at my cost and my overall favorable opinion of this banking institution. At my total cost of $11.55, which includes commission, the dividend yield at a $.65 annual rate is about 5.67%.

Over the long term, I anticipate that dividends will provide 40% to 50% of my total return in this basket strategy. The percentage contribution to total return is currently far less.

Bought 100 PBCT at $11.47 (June 2012)

Last Friday's Closing Price: PBCT: $13.13 -0.02 (-0.15%)

F. Trustmark (TRMK): Trustmark Corporation reported first quarter adjusted earnings of $.46, beating the consensus estimate by 5 cents: TRMK Analyst Estimates GAAP E.P.S. was $.38 which included non-routine merger related costs. During the quarter, TRMK completed the acquisition of BancTrust Financial headquartered in Mobile, Alabama.

Some of the key metrics as of 3/31/13:

Net Interest Margin: 3.98%
Efficiency Ratio: 67.84%
Total Risk Based Capital Ratio: 14.52%
Tangible Common Equity to Tangible Assets: 8.2%
Net Charge Offs to Average Loans: -.08% (recoveries exceeded charge-offs)
Coverage Ratio 92.29%
Return on Average Tangible Equity: 10.82%
Return on Average Assets: .93%
Quarterly Dividend = $.23

The quarterly dividend has been stuck at $.23 per share since the 2007 4th quarter: Trustmark Prior to then, the dividend had been raised each year going back to 1987.

My current position was bought last November:  Bought 50 TRMK at $21.54

I previously traded a 50 share lot: Bought 50 TRMK at $19.57 (August 2010 Post)-Sold 50 TRMK at $24.7 (January 2012)

Closing Price on 4/24/13 (Day of Earnings Release): TRMK: $24.59 +0.86 (+3.62%)

Last Friday's Closing Price: TRMK: $24.35 -0.18 (-0.73%)

G. Bought 80 MNRK at $9.97 (see Disclaimer): I recently sold 100 shares of Monarch Financial. {Item A in Regional Bank Basket Section: Sold 100 MNRK at $10.59 (3/25/13 Post)}. I was under the mistaken impression that I owned just 100 shares. Actually, as a result of a 6 for 5 stock split, I owned 120 shares. After reviewing the first quarter earnings report, which looked good, I decided to round my holding to 100 shares by buying back 80 of the 100 shares previously sold. I included a snapshot of that trade which netted a quick $186.06 profit, having purchased 120 shares, adjusted for the subsequent split, at $8.65. (Item E: Regional Bank Basket Strategy Section).

Two analysts provide earnings estimates for Monarch. Their consensus estimate is for an E.P.S. of $1.11 in 2013 and $1.35 in 2014. Using the forward year consensus estimate, the P/E at a total cost of $9.97 would be around 7.39 with a one year growth rate of 21.62%.

Monarch Financial Reports Record First Quarter Financial Performance

2013 First Quarter vs. 2012 First Quarter:

Net Income: $3.458+M/ $2.516+M
Diluted E.P.S. $.33/ $.25
Net Interest Margin: 4.12%/ 4.44%
Efficiency Ratio (Bank Only): 53.1%/51.4%
NPL Ratio: .51%/ 1.52%
NPA Ratio: .34%/ 1.2%
Coverage Ratio: 308.23%/ 114.7%
Annualized Net Charge Offs to Average Loans= .07%/ .97%
Total Risk Based Capital Ratio (BANK)= 13.78%/ 12.58%
Tangible Book Value Per Share= $8.63/ 7.87%
Return on Average Assets: 1.27%/ 1.1%
Return on Average Equity: 15.86%/13.1%

Monarch Financial is the holding company for Monarch Bank which has 11 branch offices in Coastal Virginia, including Norfolk, Virginia Beach, Suffolk and Chesapeake, and offices in Kitty Hawk and Nags Head North Carolina. Monarch Bank Locations | Virginia Beach, Norfolk, Chesapeake, Outer Banks The bank is headquartered in Chesapeake which is in close geographic proximity to Norfolk and Virginia Beach.

The bank recently called for conversion a convertible preferred security that significantly increased the share count. Form 8-Kmonarchbank.PreferredCall.pdf That exchange traded security had a 7.8% coupon.

The dividend yield is viewed as inadequate for stocks in my regional bank basket. The last quarterly dividend was $.05 per share. At that rate, the dividend yield at a total cost of $9.97 would be about 2%. The bank increased its quarterly dividend to $.5 in February 2012 and then declared a 6 for 5 stock split (20%) during the 2012 4th quarter. It subsequently declared after the stock split a 5 cent quarterly dividend which was in effect a 20% increase in the quarterly rate. monarchbank.com/Dividend.pdf

The 2011 Annual Report, Form 10-K, shows at page 26 that the bank did not lose money during the recent recession. Annual diluted E.P.S. did sink from $.63 in 2007 to $.21 in 2008 and the recovered to $.66 in 2009; $.75 in 2010 and $.84 in 2011. The NPL ratio went from .1% in 2007 to a peak at 1.61% before receding to current low levels, which is excellent under the circumstances.

Last Friday's Closing Price: MNRK: $10.06 -0.12 (-1.18%)

H. Renasant (RNST): Currently, my largest unrealized gain in this basket strategy is RNST, which I may harvest before the next update. The first quarter earnings report was okay overall. Since the total return of this basket strategy will depend on dividends to a significant degree, I am concerned about RNST's failure to increase the quarterly rate since the 2007 third quarter.  Renasant Bank - Dividends

The consensus E.P.S. for 2013 is currently $1.34 and $1.72 for 2014. RNST Analyst Estimates RNST beat the $.28 first quarter consensus by 2 cents per share.

Renasant Corporation Announces 2013 First Quarter Earnings

1st Quarter 2013 vs. 1st Quarter 2012:
Net Income: $7.571M/ $5.974M
E.P.S. $.3/ .24
Quarterly Dividend Per Share: $.17/ $.17
Net Interest Margin: 3.89%/ 3.85%
Efficiency Ratio: 72.1%/ 71.7%
NPL Ratio=1.08%/ 1.33%
NPA Ratio=1.59%/ 2.28%
Coverage Ratio=  166.19%/ 145.15%
Charge-Offs to Loans=.13%/ .77%
Total Risk Based Capital Ratio: 14.13%/ 14.57%
Tangible Capital Ratio= 7.65%/ 7.47%
Return on Average Assets: .73%/ .57%

Earnings Call Transcript - Seeking Alpha

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

Last Friday's Closing Price: RNST: $22.25 -0.01 (-0.04%)

(I) Miscellaneous Items: 

Valley National (VLY) had a disappointing first quarter report, missing the consensus estimate. The bank earned $.16 per share, down from $.18 in the year ago quarter. The net interest margin plummeted from 3.7% to 3.18%. The NPL ratio increased slightly Y-O-Y. Valley National Bancorp Reports First Quarter Earnings, Solid Asset Quality And RecordQ1 2013 Results - Earnings Call Transcript - Seeking Alpha  VLY is currently paying a $.1625 per share quarterly dividend, or more than a 100% payout ratio. Shareholder and stock NYSE VLY information - Valley National Bank A significant dividend cut would not be surprising and would be viewed as prudent here at HQ in the event VLY does not substantially improve its earnings. VLY closed last Friday at $8.95. At a total cost of $8.95, the dividend yield at the current quarterly rate would be about 7.26%. I am not reinvesting the dividend.

Bar Harbor Bankshares increased its quarterly dividend by 1.6% to 31 cents per share. That rate places the dividend at 6.9% above the 2012 second quarter rate. Bought 50 BHB at $30

Community Bank System reported net income of $20.2M, up from $18.8M in the 2012 first quarter. For the quarter, return on assets was reported at 1.1%; the return on average tangible equity was 15.32%; the net interest margin was 3.86%; the NPA ratio stood at .47%; the coverage ratio was 157%;  net charge offs to average loans was .14%; and the tangible equity to tangible assets ratio was 7.58%. This bank is notable for raising its dividend during the recent Near Depression period and its aftermath. Community Bank NA :: Investor Relations The current quarterly rate is $.27 per share.

Bought 50 CBU @ 23.18 (still own); Added 50 CBU @ 25.19-Sold 51+ CBU at $26.82

Tuesday, April 23, 2013

What is Gold's "Fair Value"?/Reinhardt and Rogoff Challenged/Sold 100 ASEA at $17.8/Added 50 BWG at $20.55/Sold 100 APF at $16.4/Sold 100 IF at $12.91/Sold 50 SANPRA @ $21.72-ROTH IRA/Sold 100 GSPRD @ $23.89/Sold 50 PIE @ $20.06/Sold 100 EWS @ $13.91/MSFT & INTC/LBAI/Bought 50 FAM at $17.51

Big Picture Synopsis

Stable Vix Pattern
Vix Asset Allocation Model Explained Simply
The Use of the VIX as a Timing Model
Short Term: Slightly Bearish
Intermediate and Long Term: Bullish

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

As previously noted, Goldman Sachs believes that 2013 will be the transition year to significantly higher rates. Barrons.com I agree with that assessment which is reflected in my Big Picture Synopsis for bonds.

Even without a significant pick up in inflation, rates are abnormally low now due to intervention of the Federal Reserve in the bond market. The FED is the main buyer of treasury securities and does not want a market rate for those purchases. Unlike other buyers, the FED wants the lowest yield.

The current pricing of the 10 year TIP is predicting an average inflation rate of 2.4% to 2.5% over the next ten years, yet the 10 year nominal treasury rate is hovering now near 1.7% (the 10 year TIP yield is negative of course: Daily Treasury Real Yield Curve Rates; note the negative yield on the five year TIP). The market rate would be more like 3% to 3.5% for the 10 year treasury with that current inflation forecast. Virtually all "A" rated securities maturing within 10 years would have a negative real rate of return with an average inflation rate at 2.5%.

When the market becomes convinced that the FED is going to cease its intervention, rates will likely start to rise to market levels. It is not just that the treasury market has lost its main purchaser of newly issued treasuries, who desires the highest price and worst yield possible. The other issue, and people will start asking this question when the time draws near, what is the FED going to do with $4 trillion of that paper?  Some of it will have to be sold, and the buyers will want the market rate rather than an abnormally low and artificial rate.

The current holdings by security and maturity can be found at the NY FED's website (just click the relevant tab to see the maturity dates):

System Open Market Account Holdings - Federal Reserve Bank of New York


The government reported last week that consumer prices fell .2% on a seasonally adjusted basis, lower than the consensus forecast of no change. The gasoline index fell 4.4%. Core CPI rose a less than expected .1%.

On a non-seasonally adjusted basis, CPI increased by 1.5% over the last twelve months.

INTEL (own)-Microsoft (own)-IBM (do not own)

Intel (own) reported 2013 first quarter net income of $2 billion or $.4 cents per share on $12.6B in revenues. The company generated approximately $4.3B in cash from operations, using $533M to buy back shares and paying another $1.1B in dividends.

Revenues declined by 2.5% from the 2012 first quarter.  E.P.S. declined 24.5% on a diluted share basis, with Intel earnings $.53 per share in the year ago quarter compared to $.4 in the 2013 first quarter. Gross margin declined 8 percentage points Y-O-Y. The margin decline was at least in part due to increased production of the new Haswell line of processors in advance of their qualification for sale.

The data center group revenue was down sequentially but up 7.5% Y-O-Y. The PC Client Group revenue declined 6% Y-O-Y. Given the weakness in PC sales during the 1st quarter, this slowdown was within expectations.

The company currently estimates that 2013 capital spending will be $12B, plus or minus $500M, down $1B from its prior forecast.

Intel ended the quarter with $10.021B in cash and short term investments. Long term debt was at $13.143B. The debt is low cost (see  FINRA list)

The company is predicting a return of growth in the second half. (page 3: Earnings Call Transcript - Seeking Alpha)

Subsequent to the earnings release, Dimitra Defotis attempted to make a case for owning Intel in her Barrons' column. The main thrust of her argument is that investor's are being paid "handsomely" to wait for Intel's investment in new products to pay off. I would generally agree with her theme with this caveat. Intel is not going to do a moon shot even if those new products take off. An investor in Intel stock has to have reasonable expectations for total return.

Possibly, Intel will do a moon shot, similar to what happened in the 1980s and 1990s, rising from around $.30 per share to over $70 by 2000 on a split adjusted basis, when and if it invents a microprocessor that can be implanted in the OG's brain, capable of communicating with, and replace when need be, the mush that remains.

I currently own 276+ shares at an average cost of $17.85 per share. At that total cost number and the current quarterly dividend of $.225 per share, my yield is 5%. Intel Corporation - Dividend Summary

I started to reinvest the dividend again with the last payment but may quit in the event the shares move above $23 consistently. I took the dividend in cash starting in 2011 4th quarter. I changed the distribution to reinvestment earlier this year and bought 2.975 shares at a total cost of $20.68 with the first quarter dividend.

I am supposed to sell 80 shares between $26 to $28 that were bought at a total cost of $16.04 (50 shares) and at $14.73 (30 shares). Both of those purchases were made in October 2008. Stocks, Bonds & Politics: SPECIAL POST ON LB'S INTEL LECTURE (12/18/12 Post)

If I am able to sell in that range, which I forgot to do earlier, I will consider buying the shares back at below $20. I call this channel trading, a technique that I use for stocks that have limited upside and a decent dividend yield. The general idea is to generate a 10% annualized return with the dividend.

Yesterday's Closing Price: INTC: 22.88 +0.44 (+1.96%)

Microsoft (own) reported a better than expected net income of $6.06B or $.72 per share for the 2013 fiscal  third quarter. The forecast was for $.68. Operating income was reported at $7.612B. Press Release As of 3/31/13, Microsoft had $74.483 billion in cash, cash equivalents and short term investments. Net cash from operations for the last quarter totaled $9.666B.

Tiernan Ray gives a good summary of how the analysts responded to MSFT's report: Barrons.com

MSFT received a lift yesterday after CNBC reported that ValueAct Capital had taken a $2 billion stake, which was later confirmed by the ValueAct CEO. Reuters

Yesterday's Closing Price: MSFT: $30.83 +1.07 (+3.58%)

The earnings report from IBM was disconcerting. First quarter revenue declined 5% Y-O-Y to $23.41B, below the consensus estimate of $24.7B. Adjusting for currency, revenues fell 3%. If a company can not grow the top line, sooner or later the bottom line will turn south too. Even sales in the "growth market" which includes the BRIC nations declined 1%. Services revenue declined 4%. Software revenue was flat. IBM reported an adjusted E.P.S. of $3, missing the consensus estimate of $3.06. ‎SEC Form 8-K (press release) The stock reacted badly to this report last Friday: IBM: $190.00 -17.15 (-8.28%)

Gold's Price: Is There a "Fair Value"?

I read an article by Mark Hulbert, summarizing a research report by a Duke finance professor and a former commodities portfolio manager, that the "fair value" of gold is below $800. MarketWatch The report is also summarized in Hulbert's Barrons column.

Apparently, these two gentleman have studied the historical relationship between gold and CPI, "going back as far as they were able to obtain data" and found that the "average" ratio was a 3.2 to 1 ratio to the CPI index.

That formula would put the fair value of gold at $744.87 per ounce, based on the March 2013 non-seasonally adjusted number of 232.773. ‎research.stlouisfed.org

There is at least one glaring problem with that analysis. U.S. CPI data goes back to at least 1913 (Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis), but the price of gold was fixed for a prolonged period until the early 1970s. A long term chart of the London P.M. gold fix, which goes back to 1833, shows that gold was at fixed prices until 1971. (this link which shows the yearly average gold price may not work: London Fix Historical gold)

As a result of the Bretton Woods agreement in 1944, the U.S. agreed that one USD was convertible into gold at $35 per ounce. Nixon ended that convertibility by Executive Order in 1971.

It was even illegal for U.S. citizens to own gold bullion between 1933, when FDR issued Executive Order 6102 and January 1, 1975.

FDR devalued the USD in 1933 by almost 70% by raising the fixed price of gold convertibility to $35 per ounce from $20.67.

I fail to see how any data before 1/1/75 could be used to prove anything. I would be very suspicious of anyone using prior data to support any argument about gold's "fair value". Personally, I think that anyone attempting to discover gold's definitive "inherent value" is chasing their tail.

A similar type of research paper, published at Minyanville, places fair value at less than $800 per ounce, using historical comparisons with inflation, stocks, wages and real estate. According to that author, (Minyanville), fair value for gold is around $616 when comparing gold to historical stock prices since 1800, which is so ridiculous that is just laughable. I would not even trust any of the stock data as being remotely reliable before around 1920 or so.

Barry Ritholz dismisses all arguments in favor of gold and argues that the justifications for owning gold are consistent only with the beliefs of a religious cult. The Big Picture

If anyone is actually serious about attempting to determine gold's inherent value by making comparisons with other asset classes or inflation, I would suggest, at a minimum, starting with data series since 1/1/1975.

I am certainly no gold bug. Personally, I view anyone's attempt to compute a fair value for gold as an exercise in absurdity. Gold has no clearly ascertainable fair or intrinsic value. It has no P/E, P/S, P/B, P.E.G or any other financial ratio used to determine value. It produces no income stream.

Gold is simply a currency, a store of value, whose daily value is determined by the laws of supply and demand, generated by fallible human beings, particularly those who are concerned about the value of paper currencies backed by the "full faith and credit" of irresponsible governments who engage frequently in periodic debasements of their own currencies.

Gold is the non-government currency. As such, it has value and can be used as a medium of exchange. It has been viewed that way by humans over the centuries without question. The reason for the allure and status is not as important as the fact of their existence, since the allure and status undeniably exist  and have existed for well over 2,000 years.

Gold has a timeless presence and reminds me of my relatively short period of life. When I was 13, for example, I bought a U.S. gold piece minted in the 1880s with money made one summer mowing lawns at $2 per lawn with hand clipping and sweeping with a broom included in that princely sum. The gold piece was bright and shiny at the time of purchase. Unlike its then and current owner, it has not aged a single minute and looks exactly as it did when struck over a 100 years ago. That is just part of the allure.

The price of gold started to rise in the U.S. when the government effectively devalued the USD by removing its convertibility into gold at $35 per ounce.

Between 1971 to September 2011, the gold price did go up from $35 per ounce to over $1,900. I would not argue with the gold bugs too much about "intrinsic" value or "fair value" given that historical record. Individuals are obviously willing to trade paper money backed by the full faith and credit of a sovereign for gold.

While I do not believe that the gold price is tied to the S & P 500, there is a long term correlation (i.e. 1971 to present) between the gold price per ounce and the S & P 500 index level. In August 1976, gold was mostly trading in the $105 to $115 per ounce range. The S & P 500 was then mostly trading in a narrow range of 102-104, Historical Prices | S&P 500 Index The S & P 500 is now near 1560. Even after the recent plunge gold was close to $1425 per ounce yesterday.

In a debate between Doug Kass and and the gold bug Peter Schiff, Kass argued that gold was an unproductive asset whose value was based on beliefs rather than any "intrinsic value". A dollar bill in my wallet is an unproductive asset too. Gold is not an apartment building or farmland, a stock or a business. All currencies are unproductive assets in that sense. The problem is that gold has no fixed and or clearly ascertainable value as a currency.

I used the calculator at the The Federal Reserve Bank of Minneapolis and found that it would take almost $95 to buy the same goods or services that $20 would buy in 1974, so maybe that $20 bill does not in reality have a fixed real value either as a matter of fact.

Another correlation that is almost perfect is the percentage rise in gold over the last decade compared to the percentage increase in my waist size.

As readers are aware, I sold my junk silver coins in September 2011 and January 2012:

The Road to Political Power: Lying Works/Recent Gold and Silver Sales (September 2011 with snapshots)

Stocks, Bonds & Politics: Snapshots of Coin Sales In January 2012

I had missed the opportunity to sell the junk silver coins at about the same price before Ronald Reagan was elected President. The price went as high as $55 per ounce. Nelson Bunker Hunt - Wikipedia


Sentiment was not helped last week after Germany's top central banker stated that the debt crisis could take a decade to overcome.  MarketWatch

The Europeans statistical agency reported that home prices in the Euro area declined 1.8% Y-O-Y in the 2012 4th quarter. eurostat.ec.PDF

Construction declined by .8% in February: eurostat.PDF

Reinhardt and Rogoff Challenged with Their Own Data

One historical justification offered by the proponents of austerity, particularly in Europe, is the conclusion reached by Reinhardt and Rogoff in their seminal study "Growth in a Time of Debt" published in January 2010. They later published a book on the subject titled This Time Is Different: Eight Centuries of Financial Folly: Carmen M. Reinhart, Kenneth Rogoff.

Another study used the same data and undermined the central conclusion made by Reinhardt and Rogoff.  (downloadable at A Critique of Reinhart and Rogoff) That study is summarized in recent articles published by WSJ and the NYT.

In that paper, which focuses on a shorter time span starting in 1946, the authors claim that they found "coding errors, selective exclusion of available data, and unconventional weighting of summary statistics" that led to "serious errors". As a consequence, the authors claim that Rogoff and Reinhardt draw inaccurate conclusions about the relationship of a government's public debt and GDP growth among the 20 largest economies.

Reinhardt and Rogoff claim that GDP growth slows to -.1% when the public debt to GDP ratio is over 90%. BloombergThe Global Debt Bomb - Forbes.com The authors of the critique found that the data actually shows growth of 2.2%. That number was, however, 1% lower than for countries with lower than 90% debt to GDP ratios.

The general thrust of this critique is that a 90%+ public debt to GDP ratio restrains growth, compared to lower than 90% ratios, but there is still meaningful GDP growth rather than a contraction.

Reinhart and Rogoff admit to their coding error in excel but dispute the other conclusions.

Reinhard and Rogoff go farther back in time, as in eight centuries, which is one of their defenses.

I would view data for at least 700 of that 800 year time span to be inherently unreliable. Reliance on unreliable data will lead to erroneous conclusions. If the point can not be supported with data post WWII, then the conclusion is at a minimum highly suspect.

A similar type issue has been raised in criticisms of Jeremy Siegel's work.

Jeremy Siegel goes back to 1802 to support his argument for stocks, contained in his book titled Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies.

The data for most of that period, particularly for the 19th century, is just not reliable and/or relevant, as pointed out by Barry Ritholtz in a column published at The Big Picture and by Jason Zweig in his WSJ column.

In addition to those criticisms, I question the relevance for an individual investor when the conclusion is based on a data series going back to 1802. People do not live to be 200, which seems like an obvious point, and face numerous situational risks that would require the expenditure of funds invested in stocks, possibly at the most inopportune times.

Most individuals have a very narrow time span where money can be saved and invested in significant amounts and can consequently be inordinately impacted by a long term secular bear market in stocks that typically lasts for 15 years or more, especially when governments make policy mistakes which was the case during the Great Depression. Stocks, Bonds & Politics: To Professor Siegel: Time for a Re-ThinkStocks, Bonds & Politics: WSJ Exposes Jeremy Siegel

If Reinhart and Rogoff can not make their case with data since WWII, then their conclusions are undermined in my opinion. The data needs to be examined by competent people with no axe to grind or books to sell.

Small Recent Raise in Cash Allocation:

I have engaged in some selling over the past week and hope to buy back all, or most of what I have sold at prices below my prior purchases. If I am wrong about a correction being in progress, then I will have left some profit on the table.

Whenever I become concerned about a market correction, I will sell stock ETFs and CEFs to lower my overall stock allocation. The purpose is mostly psychological. If a correction ensues, I will take a lot of hits since my stock exposure remains high. However, I am more inclined to buy the dip after raising some cash even if the amount is relatively insignificant to me in the scheme of things.

One reason for selecting ETFs and CEFs focused on Asia has to do with recent economic data.

Another reason for selecting these securities is that they do not produce much income.

Some of the weak data includes the following:

Singapore reported that its GDP actually declined in the last quarter. GDP declined at an annualized 1.4% during the March 2013 quarter. Credit Suisse lowered its growth forecast for Singapore GDP to 1.5%.

China released recently a lower than expected 7.7% increase in GDP Y-O-Y for the first quarter. The number is suspected by many to be too high anyway and is at least partly based on construction in ghost cities.

Unemployment in Australia rose to 5.6% in March from 5.4%.  Labour Force, Australia, Mar 2013

The ETF for emerging market stocks (EEM) broke below its 50 day moving average on 4/15/13. The 200 day moving average was pierced to the downside earlier-around 2/20/13. EEM retested that line in early March and was unable to break above it and then started a slide from $44 to a $41.04 close on 4/18/13.

I am also in general agreement with Scott Minerd, the chief investment officer of Guggenheim Partners. In an interview published by Barrons, Minerd noted the breakdown in the transports (a leading indicator), the prolonged sluggishness in Europe likely to continue longer than previously expected, and other recent economic data when forecasting that the market is at the "brink of a fairly healthy correction in equities", probably around 10% and possibly more. I also agree with his general prognosis for the U.S. and U.S. stocks when he stated that a large number of positive factors are lining up for a 10-15 year Age of Prosperity, with U.S. stocks substantially higher in the intermediate and longer term.

If I was certain that the market was going to have at least a 10% correction, I would be selling more equities. No one can have any certainty about the future. It would not be surprising to see the market continue to rise and then correct 10+% at much higher levels. So a prediction for a correction is more of a feel based on a large sample of data points rather than a firm forecast.

Consequently, I have only pared my stock exposure only by a tad, mostly focusing on lower yielding securities. I also threw into the cash raise a couple of floating rate equity preferred stocks where I am an active buyer and seller.

I may start to substitute higher yielding common stocks for the stock CEFs and ETFs that have been recently sold. An example would be a 50 share add of Royal Dutch shares, RDS/A, that I recently bought at higher levels. Bought 50 RDS/A at $68.93 (ex dividend after purchase: RDS.A Stock Quote). No decision has been made on the substitutes. I would buy back what was sold at lower prices too.

I would note also that I recently initiated the minimum $3,000 investments in two Vanguard mutual funds: Item # 5 Initiated Position in Vanguard Capital Opportunity (VHCOX) (4/9/13 Post); Initiated Position in Vanguard Wellington Fund (VWELX)(4/2/13 Post)

1. Sold 50 of the Stock ETF PIE at $20.06 (see Disclaimer): The PowerShares DWA Emerging Markets Technical Leaders (PIE) is a stock ETF that selects securities based on technicals (e.g. relative strength)

Sold 50 PIE at $20.06  

With slowing growth in several emerging markets, I thought that this momentum based ETF for a small profits was due for a correction. The trigger was a decline in the ETF iShares MSCI Emerging Index Fund ETF below its 200 SMA on 4/15/13.

2013 Sold 50 Shares PIE  +$133.12

I bought the shares last September. Item # 2 Bought 50 PIE at $17.08

This was my second round trip in this ETF. Item # 2 Sold 150 PIE at 16.76 & Bought 100 PHB at 18.15Bought 50 PIE at $10.01Bought 50 PIE at $14.04 in 2/2010

Yesterday's Closing Price: PIE: 20.60 +0.19 (+0.93%)

2. Sold 100 of the Stock CEF APF at $16.4 (see Disclaimer): The Morgan Stanley Asia-Pacific Fund (APF) is a closed end stock fund that invests in companies based in the Asia-Pacific region, including Japan, India, Australia, Indonesia and China.

Sold 100 APF at $16.4
In addition to emerging market stocks, APF has a large allocation to Japan, with close to 38% weighting in that country. Japanese stocks have experienced a robust move following the Japanese government and the BOJ decided to weaken the YEN and to combat deflation with money printing. The BOJ intends to double its monetary base by the end of 2014 by buying government bonds.

The NIKKEI 225 Index has risen from 8665 in November 2012 to over 13,200 last Monday or over 52% in about five months. While the index could continue to move up in a parabolic fashion, I will generally sell into that kind of move, finding more often than not that it is not sustainable.

I still have some exposure to Japan's stock market through other funds where the weighting is less. I own, for example, the Vanguard FTSE All-World ex-US ETF, which has a .15% expense ratio and about a 12.5% weighting in Japan as of 12/31/12:

VEU Weightings as of 12/31/12

I also have a 480+ share position in the Matthews Asian Growth and Income Fund, which had a 9.1% weighting in Japan as of 3/31/13.

By selling APF, I reduced my overall indirect exposure to Japan. I have no direct exposure with individual names.

I realized a gain of $169.07 on this 100 share lot:

2013 APF 100 Shares +$169.07
Bought 100 APF at $14.55 (December 2012)

This brings my total trading gain for APF, excluding dividends, up to $616.83. The largest annual gains were from three 100 share lots traded in 2011:

2011 APF  +$340.16 ($292.86 LT; $47.3 ST)
Sold 100 of APF at 17.32 (April 2011)-Added 100 of APF at 15.64 (April 2010); SOLD 100 APF @ 17.47 (July 2011)-Bought Back 100 APF at 16.84 (June 2011); Bought 100 CEF APF at 15.08 (March 2010)- Sold 100 APF at $16.65 (March 2011)

I realized a smaller gain in 2012:

2012 APF 100 Shares +$40.16
Bought 100 APF at $13.58 (August 2012). There was a large capital gains distribution paid in December 2011 of $1.121 per share.

I also flipped 100 shares in the ROTH IRA in 2010: Item # 4 Bought 100 of the CEF APF at $15-ROTH IRA (March 2010):

2010 Roth IRA 100 APF +$67.44

APF page at CEFConnect.

Yesterday's Closing Price: APF: 16.54 +0.01 (+0.08%)

3. Sold 100 EWS at $13.91 (see Disclaimer): The iShares MSCI Singapore (Free) Index Fund Fund is a country stock ETF.

Sold 100 of the Stock ETF EWS at $13.91
I realized a small short term capital gain on these shares purchased last September plus one dividend payment of $34.63 .

2013 EWS 100 Shares +$79.22
Bought 100 EWS at $12.96 (September 2012 Post)

EWS page at Morningstar

Sponsor's webpage: iShares MSCI Singapore Index Fund (EWS)

I had previously bought and sold this ETF: Item # 1 BOUGHT 100 ETF EWS AT $10.9 (February 2010)-Sold EWS at $11.55 (June 2010). As noted in that last linked post, EWS was sold at that time, along with other securities, in what I call a "de-risking process". I would have been better off just keeping the shares bought in February 2010, based on what subsequently happened, but I will confess to all concerned that I can not really predict the future.

I will consider buying back this ETF at below $12.75.

Yesterday's Closing Price: EWS: 13.88 -0.07 (-0.50%)

4. Sold 100 ASEA at $17.8 (see Disclaimer): The Global X FTSE ASEAN 40 ETF is another Asia focused ETF. This was part of my risk off trade and a temporary reduction in my overall allocation to Asia's stock markets.

Sold 100 of the Stock ETF ASEA at $17.8

I bought this ETF earlier this year:

2013 ASEA 100 Shares +$55.16
Bought 100 of the ETF ASEA at $17.09 (January 2013 Post)

ASEA Global X FTSE ASEAN 40 ETF page at Morningstar

I will consider buying this ETF back at below $16.9.

Yesterday's Closing Price: ASEA: 17.96 -0.06 (-0.32%)

5. Sold 100 of the Stock CEF IF at $12.91 (see Disclaimer):

Sold 100 IF at $12.91
I bought these shares in January 2013: Bought 100 of IF at $11.64

I realized a short term capital gain of $110.77 or close to 10% at my total cost $1,172.36:

2013 100 Shares of IF +$110.77

I will consider buying the security back at or below my last purchase price.

Yesterday's Closing Price: IF: 12.95 -0.01 (-0.08%)

6. Sold 100 GSPRD at $23.89 (see Disclaimer): The Goldman Sachs Group Inc. Dep. Pfd. Series D (GS.PD:NYSE) is a floating rate equity preferred stock that pays qualified dividends at the greater of 4% or .67% above the three month Libor rate on a $25 par value. Prospectus

Sold 100 GSPRD at $23.89-Satellite Taxable Account

I bought these shares in January 2013: Bought 100 GSPRD at $21.18 and Sold 50 GSPRA at $21.73. As noted in that post, I sold another Goldman Sachs floating rate equity preferred stock, GSPRA, in order to buy GSPRD. This is what I would call a relative value trade of functionally equivalent securities. I have traded both preferred stocks multiple times.

This is a snapshot of my recent GSPRD trading history in this account taken before I sold these shares:

I realized a short term capital gain of $257.24 on this trade:

2013 GSPRD 100 Shares +$257.24

Stocks, Bonds & Politics: Floaters: Links in One Post

I have traded this security repetitively:

Bought 50 GSPRD at 21.58Sold 50 GSPRD @ 22.72Bought 50 GSPRD at $18.6Sold 50 GSPRD at $20.47Bought Back GSPRD at $18.9Sold 50 GSPRD at $20.03Bought 50 GSPRD at $20.6Pared Trade: Bought 100 GSPRD at $21.18 and Sold 50 GSPRA at $21.73Bought 100 GSPRD at $21.38Sold 100 GSPRD at $23.71-Roth IRA.

This bring me down to just 50 shares of GDPRD bought in December 2012: Stocks, Bonds & Politics: Bought 50 GSPRD at $20.6

This transaction is primarily motivated by profit taking and a healthy respect for downside risk of equity preferred stocks issued by heavily leveraged financial institutions. Anyone buying, selling or just owning this type of security during the recent financial crisis does not need to be told twice about the downside risk. I also do not find them particularly appealing as they approach par value.

Given their many disadvantages, I have elected to trade them and have not been a long term holder of any non-cumulative equity preferred stock.

Snapshots of my trades in this category can be found at the end of this post: Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Yesterday's Closing Price: GS-PD: $23.51 -0.21 (-0.89%)

7. Sold 50 SANPRD at $21.72 Roth IRA (see Disclaimer): The Santander Finance Preferred S.A. Unipersonal Floating Rate Gtd. Pfd. Series 6 (SAN.PB) is a floating rate equity  preferred stock issued by Santander Finance that pays qualified dividends at the higher of 4% or .52% above the three month Libor rate on a $25 par value. Banco Santander guarantees payment only as provided in the Prospectus.

This is a snapshot of my recent SANPRA trading history in the ROTH IRA taken shortly before I sold this security.

I realized a gain of $225.47 on this 50 share lot:

2013 ROTH IRA SANPRB 50 Shares +$225.47
Bought 50 SANPRB at $16.93-Roth IRA (October 2012 Post)

I have bought and sold this floating rate equity preferred stock in other accounts  and currently own just 80 shares with a total average cost of $14.7. Bought: STDPRB at $13Added 50 STDPRB at $15.44 (symbol change to SANPRB later).

This is a snapshot of my unrealized gain in the remaining 80 SANPRB shares in this satellite taxable account taken later in the day:

Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Stocks, Bonds & Politics: Floaters: Links in One Post

Yesterday's Closing Price: SAN-PB: 21.30 -0.05 (-0.23%)

8. Lakeland Bancorp (own): I discussed my purchase of 100 LBAI shares in my last post and wanted to update that recent post with the first quarter earnings:

Lakeland Bancorp Reports First Quarter Results Nasdaq:LBAI

2013 1st Quarter / 2012 1st Quarter

Net Income: $5.1M/$4.4M
E.P.S.: $.17/ $.16
Adjusted E.P.S. $.19  (up 19%; excludes Somerset merger expenses)
Consensus Estimate=$.19
Net Interest Margin: 3.71% / 3.76%
Efficiency Ratio: 59.85%/57.71%
Return on Average Tangible Equity: 10.59% / 12.83%
Annualized Return on Average Assets: .72% / .71%
Tangible Common Equity to Tangible Assets: 6.98% / 5.6%
NPL Ratio: 1.15% / 2.03%
NPA Ratio: .89% / 1.52%
Annualized Net-Charge Offs: .47% / .83%
Total Risk Based Capital Ratio: 12.85% / 12.37%

LBAI is in the process of acquiring Somerset Hills Bancorp. That bank reported a decline in first quarter earnings even on an adjusted basis: Somerset Hills Bancorp Reports 2013 First Quarter Earnings (SOMH). As of 3/31/13, SOMH's NPA ratio was .21%; the coverage ratio was 428%; the efficiency ratio was at 64%; and the net interest margin was at 3.37% (down from 3.84% as of 3/31/12).

LBAI did rise slightly in response to this release: LBAI: 9.35 +0.04 (+0.43%) The S & P 500 declined .67% that day.

9. Added 50 of the Bond CEF BWG at $20.55 (see Disclaimer): I discussed this bond CEF in my last post. I decided to initiate a position in a taxable account by buying 50 at $20.55 last Friday and then average down with another 50 share buy at or below $20. In the meantime, I will reinvest the dividend to buy more shares. At a total cost of $20.55, the current dividend yield is around 7%.

Item # 4 Bought 100 of the Global Bond CEF BWG at $20.87-ROTH IRA

Since that purchase in an IRA, BWG has gone ex dividend for a $.12 monthly dividend. The following is a snapshot of my last purchase:

Bought 50 BWG at $20.55
When I placed this limit order, BWG was selling about 10 cents higher.

This is the relevant data points as of the 4/19/13:

Closing Net Asset Value Per Share: $22.46
Closing Market Price: $20.5
Discount to Net Asset Value- 8.73%

Last SEC Filed Shareholder Report

BWG page at CEFConnect

Yesterday's Closing Price: BWG: 20.53 +0.03 (+0.15%)
Closing Net Asset Value Per Share on 4/22/13: $22.52
Discount: -8.84%

10. Bought 50 FAM at $17.51 (see Disclaimer): I will keep my exposure to this bond CEF to a minimum due to its disadvantages. The major disadvantage is the high expense ratio shown as 1.7% at CEFConnect before interest expense.

The sponsor's webpage shows a 1.71% expense ratio, excluding leverage expenses, on a percent of net assets and 1.3% as a percent of managed assets, both as of 12/31/12. First Trust/Aberdeen Global Opportunity Income Fund (FAM)

The fund does use leverage which is beneficial when the assets purchased with borrowed money go up in value and the short term borrowing costs are sufficiently low to generate a meaningful spread between the borrowing cost and the yield generated by the bonds bought with those borrowed funds.

FAM page at CEFConnect

FAM page at the CEFA

FAM Page at Morningstar (rated 3 stars, average 3 year discount 2.75%)

Last SEC Filed Shareholder Report: ‎www.sec.gov (period ending 12/31/12)

Since this fund invests in foreign bonds, currency risk is important. Changes in the relative value of a foreign currency can wipe out the value of the bond's interests payments, or add value to those payments.  Currency risk adds a third major risk item to a bond fund which already has interest rate and credit risks. In the credit risk category, I would highlight the 4.9% weighting in Republic of Venezuela bonds and 1.6% in Republic of Argentina bonds, both as of 12/31/12.

Another negative is that recent dividend payments have in part been supported by a return of capital. I would prefer that a bond CEF support the dividend entirely with earnings. I would want to see most of the dividend covered by interest payments received by the fund and will not look unfavorably upon capital gains providing an insubstantial support.

The fund at least has the option of supporting the dividend with capital gains at the moment. As of 12/31/12, the balance sheet shown $56+M in unrealized net gains.

I would not rely on a third party service to accurately provide details about returns of capital. Instead, I would go directly to the sponsor's website first and then to the shareholder reports when the sponsor does not provide that information.

For FAM, the sponsor does provide three years of tax information at its website. (see links under "Tax Letter" under "News and Literature" tab at First Trust/Aberdeen Global Opportunity Income Fund (FAM) There was less than a penny return of capital in 2011 with $1.55 paid out in dividends. There was no return of capital in 2010. In 2012 however, $.24192 per share in dividends paid per share were nontaxable return of capital.

On the positive side, I would highlight the following:

(1) FAM pays monthly dividends at the current rate of $.13 per share. At a total cost of $17.51, the yield would be approximately 8.91%.

(2) The credit weighting is in investment grade bonds:

3. The average three and five year annualized returns are good at 12.49% and 12.4% respectively, based on the share price and through 3/31/13. The cumulative five year total return through 3/31/13 was 79.39% based on the share price and 61.88% based on net asset value.

4. I have harvested a number of dividends from this security in the past, while being able to exit the position at a profit. The $.13 monthly rate has been in force since early 2005. FAM Dividend History

In 2012, for example, I was able to generate a realized gain of $227.54 on 200 shares. I held 100 of those shares for almost two years and another 100 for over a year. That is what I view as a successful bond fund investment.

2012 FAM Profit $227.54

Sold 150 of 200 FAM at $18.64 (October 2012 Post); SOLD 50 of 100 FAM at $17.9 (November 2012); Bought 50 FAM @ 17.37 (November 2010); Bought 100 FAM @ 17.9 (November 2010);  Item # 4 Added 50 of the Bond CEF FAM at $16.08 (October 2011);

I also currently own 50 shares in the ROTH IRA that I bought during one of the periodic downdrafts in this security.

Item # 5 Bought 50 FAM @ $16.79-ROTH IRA (November 2012).


This post is long enough. No one is likely to seriously dispute that statement. I will discuss some more purchases and sales made last week in the next post. I been unusually active as of late.