Wednesday, February 27, 2013

KO/Commonwealth REIT/MOU Ends Annual Period with 10.48% Coupon/Sold 100 JSN at $12.7/Bought 600 EDV:CA at C$1.8/Sold 100 PFK at $28.25/Bought 50 MLPG at $31.26-ROTH IRA/Price Gouging by Hospitals/Sold 1 Knight Ridder 5.75% Senior Note Maturing in 2017 at 99/Sold 100 NBD at $22

I have removed the Google search box that used to be located at the top right corner. That search has been returning abysmally poor and incorrect results. The search box at the top left hand corner will provide adequate results but presents the results by returning an entire post rather than a clip.

Big Picture Synopsis

Stocks:

Stable Vix Pattern
Short Term: Slightly Bearish (possible 5% to 10% correction on the horizon)
Intermediate and Long Term: Bullish


Bonds:

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

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The EC forecasts a .3% contraction in the 17 eurozone countries. NYT

New single family home sales increased by 28.9% in January, compared to a year ago. This was the fastest pace in four years. census.gov/newressales.pdfWSJ.

In his testimony before Congress yesterday, Bernanke defended QE and indicated that the Fed's bond buying spree would continue, arguing that the risks seem minimal to him at the present time. FRB: Testimony--Bernanke, Semiannual Monetary Policy Report to the Congress--February 26, 2013 He also stated that he saw no evidence of an equity bubble. Reuters; Bloomberg

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Commonwealth REIT:

I own about 250+ shares of Commonwealth REIT.  The OG had previously stated that he owned 170, but found another 82+ in an IRA yesterday, with another 170 owned in a taxable account. LB helpfully noted that the OG needed to be retired as HT and sent to the Old Folks Home to play checkers and listen to Frank Sinatra all day and leave the heavy lifting here at HQ to those who are still compos mentis.

 The following snapshots were taken after the close yesterday:

ROTH IRA CWH 82+ Shares as of the close: 2/26/13
CWH 170 Shares Taxable Account:  as of the close on 2/26/13

Apparently, Fidelity has my cost basis as unknown, possibly due to a return of capital adjustment for a small odd lot purchased in 2007, and I am in no mood now to reconstruct the cost basis with historical 1099 and trade confirmations anytime soon, but the shares are profitable now. My last add in that account was 40 shares at $18.35 last August (total cost per share=$18.55) which has already been adjusted down to $18.31 due to returns of capital.



Due to a large increase in price yesterday (+53.94%), I am back into profit territory, which suggests that the Head Trader responsible for this selection has a timing problem. HK inquired whether anyone thought of buying more shares at $16?

Headknocker wanted to know which HT bought CWH. All Head Traders here at HQ denied any connection with the earlier CWH purchases at over $20 per share.

As HK has noted many times, one of the immutable laws of the universe, more universally accepted than the law of gravity by those in the know, is that success has many fathers while failure is an orphan.

RB understood HK's frustration, but would note for the record that CWH pays a dividend, and it is well known, beyond any reasonable doubt, that dividend paying stocks are outside of RB's investment orbit, so it had to be the OG or the Lame Brain who bought CWH.

LB responded that it has advised the OG on Monday that CWH was undervalued at $16, which went in one ear and out the other. The OG was more concerned why he had lost five Hearts games in a row.

Finally, and it is way overdue, hedge funds are challenging the management and Board of Trustees of this REIT. ReutersWSJ.comBloomberg Fire the external management company, REIT Management and Research L.L.C. controlled by Barry and Adam Portnoy who are two of the five trustees (see page 3: 2012 Annual Report-Form 10-K)

Yesterday, Corvex And Related Fund Managment announced that they controlled 9.8% of the common stock. Those entities wrote an open letter to CWH's Board of Trustees detailing their views on how management has destroyed shareholder value. Due to that mismanagement, the shares had closed at $15.85 last Monday after the company announced yet another share offering. CommonWealth-REIT Announces Proposed Offering of 27M Shares CWH also announced a tender offer for some low yielding senior bonds maturing between 2014-2016: CommonWealth REIT Announces Debt Tender Offer

Corvex and Related Fund Management filed this SEC form yesterday: SC 13D

Unless there is a shake up and compliance with the demands being made,  those funds are willing to make an offer for the company a "significant premium to the current market value".

The two hedge funds estimated that the net asset value per share was approximately $40 per share and they had a $50 price target on the shares after several changes were made including a change in the internal management structure and more shareholder friendly capital allocation. I agree with their criticisms of the Board and management, and have no opinion on their value and target estimates.

In a second letter from Corvex and Related, the two hedge funds stated that they were surprised the Board of Trustees had not yet canceled the 31.05M share offering, with the over allotment option and questioned the rationale given by CWH for such a large dilutive offering. This is a very strongly worded letter. The funds also stated that they are initially prepared to acquire the outstanding shares at $25, with "the opportunity to meaningfully increase this offer after completing due diligence".

CWH stated that it will proceed with the dilutive share offering, which will likely cause the shares to sink today. sec.govProspectus

As previously noted, CWH slashed its dividend by 50% to $.25 per share.

There is a poison pill provision outstanding and the Board serves in staggered terms. The only one up for election this year is the alleged independent trustee Joseph Morea. sec.gov I will of course vote against Mr. Morea.

I suspect that the two funds will receive a great deal of support from investors in any effort to oust management and the Board of Trustees or virtually anything else that stops the Portnoy's in their tracks. There should be a large reservoir of discontent with CWH's management that has obviously been tapped by these hedge funds judging from yesterday's price action.

Yesterday's Close (2/26/13): CWH: $24.40 +$8.55 (+53.94%)

In an earlier post, I noted how hostile analysts were in their questioning of the CEO during an earnings conference call, which was amusing to the OG, until the correct brain synapse fired, and a memory gelled for an instant, that he owned the shares.

See also: Commonwealth REIT: FFO and CAD Distinction (in introduction)

Item # 1 CWH (August 2012 Post)

Bought 40 CWH in the Roth IRA at $19.86


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Coca Cola

The Board of Directors of The Coca-Cola Company increased the quarterly dividend by 10% to $.28 per share. This raise brings the annual rate to $1.12 per share, up from $1.02. The company returned $9.1B to shareholders during 2012, through share repurchases and  dividends.

KO is owned under my dividend growth strategy. Item # 6 Common Stock Dividend Growth Strategy

Without adjusting for the 2 for 1 stock split, I computed the historic growth rate of KO's dividends in the comment section to this Seeking Alpha article as follows:

2012 $2.04 8.5%
2011 $1.88 6.8%
2010 $1.76 7.317%
2009 $1.64 7.89%
2008 $1.52 11.765%
2007 $1.36 9.677%
2006 $1.24 10.71%
2005 $1.12 12%
2004 $1.00 13.6%
2003 $  .88 10%
2002 $  .80 11.1%
2001 $  .72 5.8%
2000 $  .68 6.25%
1999 $  .64  

Investors Info: Dividends: The Coca-Cola Company

The stock responded positively to this announcement. (Closing price 2/22/13: KO: $38.52 +0.81 (+2.15%)

The rate of growth does slow down during recessions and then starts to pick up again during economic growth cycles.

KO 265+ Shares: As of the Close on 2/26/13


Coca Cola Closing Price Yesterday: KO: $38.11 +0.39 (+1.03%)

(1) Sold 100 JSN at $12.7 (see Disclaimer)Nuveen Equity Premium Opportunity Fund (JSN) is a buy-write closed end fund that attempts to replicate before fees and expenses the price movements of a 75%/25% combination of the S & P 500 and the Nasdaq 100 index respectively. 

I sold 100 shares:



The fund has supported its dividend with some returns of capital that reduces my cost basis. Fidelity does adjust the cost basis to reflect returns of capital.  

2013 100 JSN +$106.22
I bought those shares in April 2011 and have been paid $145.26 in dividends. The current quarterly dividend rate is $.279 per share. 

I roughly figure that my total return, before any cost basis adjustment and taxes, would be slightly in excess of the dividends.

I purchased the shares sold at $12.7 at $12.51. Item # 4 Added 100 of the Stock CEF JSN @ 12.51 I calculate the total return at 11.55% before taxes. 

I viewed that performance to be inadequate so I sold the shares. I calculated that the S & P 500 return over the same period, using the SPY ETF price unadjusted for dividends, was about 13.24% (SPY closing price value on 4/26/11 was 134.79, SPY Historical Prices, and was 152.63 at the time JSN was sold on 2/20/13) The SPY dividends would make the comparison worse in favor of SPY.  

I realized more of a gain for the shares sold earlier in an IRA where I had an advantageous entry point.   Item # 5 SOLD 209 Stock CEF JSN at $12.49-ROTH IRA (see snapshots therein); Pared JSN-Sold 100 at 12.38 in ROTH IRA

JSN Page at the CEFA

Another reason for selling JSN was the narrowing of its discount to net asset value per share:

JSN Data on 2/19/13 (day before sell)
Net Asset Value Per share= $13.52
Market Price=$12.72
Discount -5.92

I still own 300 shares of JLA, a similar Nuveen buy-write CEF which seeks to replicate the movement of a 50/50 split in the S & P 500 and Nasdaq 100. JLA - Nuveen Equity Premium Advantage Fund

On 2/19/13, JLA closed at a 8.58% discount to net asset value.

2. Bought 600 Endeavor Mining at C$1.8-Toronto Exchange (see Disclaimer): Last Wednesday, Gold had a particularly bad day, with spot gold prices declining $40.3 per ounce. The London P.M. fix was at $1,588.5 on 2/20/13. A gold price chart shows that the most recent high was at $1,784.5 on 9/21/12, and the price has been trending down since that time. The price hit $1,781 in February 2012 before swinging lower and then bottoming in the $1,550-$1,600 range during May-August 2012.

The P.M. London fix was $1,895 on 9/6/11.London Fix Historical gold That is when I made a decision to sell some gold and silver for the first time in my life. Sold Some Gold and Silver (9/7/11 Post);  Snapshot at Item # 1 Recent Gold and Silver Sales (9/15/11 Post); Sold Some Junk Silver Coins Yesterday (9/13/11 Post). I sold some coins in January 2012, generating a $3,421 profit on $5,322.45 in proceeds, when I decided to stop. Those sales will be reported on the IRS Form 8949.

The gold price did pop some yesterday.


Closing Price 2/20/13: EDV.TO: C$1.79 -0.12 (-6.28%)

Over the past two years, the price has spiked down temporarily to around C$1.8 before recovering fairly quickly. The past may not be prologue, but $1.8 per share seemed like a decent entry point looking at a two year chart: EDV.TO Interactive Chart

Company Description: Endeavour Mining Corp. (EDV-TOR) currently owns three operating mines: the   Tabakoto Gold Mine in Mali (ownership: 80%); the Nzema Gold Mine in Ghana (90%) and  the Youga Gold Mine  in Burkina Faso. Gold Operations. Those three mines are producing more than 300,000 ounces of gold per year according to the company.‎ Fact Sheet.pdf The anticipated 2013 margin, based on $1600 per ounce gold, is 230M.

The cash cost per ounce ranges from a low of $760 for the Youga Mine to $850 for the Tabakoto mine.

A 4th mine, the Agbaou Gold Project, is anticipated to commence production in the 2014 first quarter. This mine is expected to have an eight year life and produce 103,000 ounces of gold per year.

All of these mines are in West Africa.

Endeavour Mining profile page at Reuters

Endeavour Mining Key Developments page at Reuters

Endeavour Mining Corporation - Home Page

Key Statistics Page at Yahoo Finance (data as of 2/20/13)
EDV.TO Key Statistics
Forward P/E: 5.11 (est. $.35 E.P.S. in 2013)
Price/Sales: 1.65
Price/Book: .72
Total Cash: 130.59M
Cash Per Share: .53
Total Debt: 100M

Prior Earnings: For the 2013 third quarter, the company reported a net loss of $1.1M, compared to net earnings of $9.6M in the 2011 third quarter. The net loss was primarily the result of a $16M loss on financial instruments. Earnings from operations increased by $5.6M to $20.2M. Operating cash flow from mining operations increased by $25.6M to $40.7M. 2012Q3.pdf

The company has drawn $100M on a $200M credit facility. Cash and marketable securities were at $135.103M as of 9/30/12 including $4.517M of restricted cash.

Rationale: (1) Speculative Capital Appreciation Potential: This company has a lot of shares outstanding. Most likely, I would be a seller in the $2.40 to $2.6 price neighborhood. The company is profitable on an operating basis and has a new mine coming on stream early next year, which will increase Endeavour's gold production by over a 100,000 ounces per year.

Risks: (1) No One Can Predict the Price of Gold: Cash costs for mining are increasing. Needless to say, a major downdraft in gold prices would severely crimp operating profits given the cash costs per ounce, depending on the mine, between $760 and $850 per ounce.

(2) Country Risks are Substantial: One of the mines is located in Mali: Gold Investing News In 2011, there was a civil war in the Ivory Coast  which shut its main port. Second Ivorian Civil War - Wikipedia The new Agbaou mine is located in that country.  The potential for more tax levies on profits is always a potential problem. A flare up of that kind of issue recently occurred in the Ivory Coast Parliament. Bloomberg While that "windfall profits" tax was apparently taken off the table, other avenues for raising government revenues are being considered in that nation. Reuters Nationalization is of course always a possibility.

Closing Price Yesterday: EDV.TO: 1.84 +0.02 (+1.10%)

3. Sold 100 PFK at $28.25 (see Disclaimer): I still own PFK shares in the ROTH IRA.


The Prudential Financial Inc. Prudential Financial Inflation linked Retail Medium Term Nts (PFK) is an exchange traded bond that pays interest monthly, computed at a 2.4% spread to CPI, computed in the manner explained in a prior post. Item # 3 PFK

This note matures on 4/10/2018 at $25. Pricing Supplement No. 122 dated March 31, 2006

I sold at a 13% premium to the 2018 liquidation value after collecting almost four years of monthly interest payments.

I realized a gain of $962.38 on the 100 shares. Item # 7 Bought 100 PFK at $18.466 (6/26/2009 Post)

2013 Sold 100 PFK +$962.38
I would lose over $300 in capital gains by continuing to hold this security until maturity. Most of that gain in excess of the $25 par value would be lost within four years.

With the recent decline in CPI, the monthly interest rate paid by this security has likewise fallen. Over the last 12 months ending in January, the government reported last week that CPI rose 1.6% on a non-seasonally adjusted basis. Consumer Price Index Summary At that inflation rate, it would take about 3 years for PFK to generate $300 in interest income. Taking that CPI rate out to April 2018, when the note matures, I would generate about $200 in net income over five years by holding this security until maturity or roughly $50 per year. That net number is about a 1.77% annual return on $2817+. I can do better than that number by investing the $$2817+ in another security.

I may hold onto to my shares in the ROTH IRA for up to a year more, and then sell the shares provided I can receive over $28 per share.

This snapshot of the PFK position in the Roth was taken on 2/22/13 when the price was $28.1:



PFK is ex interest today for its monthly distribution. The distribution this month is $.08667 per share.

Closing Price Yesterday: PFK: 28.10 0.00 (0.00%)

4. Bought 50 MLPG at $31.26-ROTH IRA  (see Disclaimer):



Security Description: UBS AG E-TRACS linked to Alerian Natural Gas MLP Index 2040 (MLPG) is an exchange traded note issued by UBS that tracks an index of the 20 largest by market capitalization natural gas infrastructure MLPs. Each MLP is equal weighted and earns the majority of their cash flow from the transportation, storage and processing of natural gas and natural gas liquids.

Sponsor's website: ETRACS Alerian Natural Gas MLP Index - UBS Investment Bank

Constituent Weightings:



Distributions will be variable and are paid quarterly. The last dividend was $.4433 per share and went ex dividend on 1/10/13. Based on the last four distributions, the dividend yield would be about 5.67% at a total cost of $31.26 per share.

The annual tracking fee is .85%.

This week's cover story in Barrons is about MLPs.

Rationale: (1) Natural Gas Super Cycle: I discuss the RB's "vision thing" for a multi-decade super-cycle for natural gas demand in a previous post. Item # 4 Bought 50 FCG at $15.84 I mention in that post that I would not likely buy this ETN since I normally have an aversion to assuming both the credit risk of an ETN's issuer and the market risk of the security. I have overcome that aversion by limiting my purchase to just 50 shares. And, this ETN was the most direct way to play the super cycle in the MLP space.

This ETN owns MLPs that transport, store and process natural gas and natural gas liquids.

(2) Total Return Potential: Hopefully, the cash distributions will trend up over time and the existing distribution rate is desirable in a a low yield world.

UBS AG E-Tracs Alerian Natural Gas MLP ETN (MLPG) Chart

(3) The ETN Structure Eliminates the K-1 Hassle: As noted in the sponsor's fact sheet, the distributions are reported as ordinary income in a 1099 and the owner of this security will not receive a K-1 form. This is a major selling point for me since I hate fooling with K-1s at tax time.

Risks: (1) UBS Credit Risk: An ETN is a senior unsecured note. As such, the owner of MLPG is subject to the credit risk of UBS. If UBS goes bankrupt the owner of this security will be in the same position as all other owners of the issuer's unsecured senior debt. While the amount of recovery in such an eventuality is unknowable, I generally would anticipate around 15 to 25 cents on the dollar after a prolonged period in bankruptcy where nothing would be paid to the owners of the issuer's debt.

(2) Concentration and Market Risk. 

Other risks, including the call right, are described in the prospectus and the fact sheet: prospectus_supplement.pdf and ‎ factsheet.pdf

Future Buys and Sells:  I would likely at some point sell this security when and if I can harvest a 10% annualized multi-year total return or 15% total return at any time.

MLPG Closing Price Yesterday: MLPG: 31.27 -0.04 (-0.13%)

5. Update on MOU (own): I last gave an update on this exchange traded PPN in this post: Stocks, Bonds & Politics: Status of Citigroup Funding PPNs: MOU, MBC, MKN, MKZ (2/3/13 Post).

MOU finished its annual period with no Maximum Level Violation and will make a 10.48% annual interest payment on it $10 par value, calculated below:

Russell 2000 Starting Value: 829.23
Russell 2000 Close on 2/22/13: ^RUT: 916.16 +10.76 (+1.19%)
Gain During Annual Coupon Period= 86.93
Divide 86.93 by Starting Value of 829.23= 10.483% Coupon for Annual Period

I own 100 MOU, so I will receive $104.83 on 3/1/13.

I noted at Fidelity that its quote page has the ex interest data as 2/26/13 for $1.0483 per share:



There is just one coupon period remaining before this note matures at its $10 par value.

Data for Current Annual Coupon Period:

Starting Value Russell 2000= 916.16
Maximum Level Violation Number= 1255.14  (1.37 x. 916.16)

Pricing Supplement
Bought 100 MOU at $10.12 (4/2009 Post)

This has been a good one. MOU paid 27.93% for its coupon period ending in February 2011: see snapshot at MBC & MOU. The coupon period ending in February 2012 paid 3.7%: see snapshot at Item #3 MOU.

All of those coupons are substantially more than the YTM of a senior Citigroup fixed coupon bond maturing in 2014 which is close to 1%. FINRA

Closing Price Yesterday: MOL: 10.14 +0.11 (+1.10%) (price adjusted for ex interest payment)

6. Sold 1 Knight Ridder 5.75% Senior Bond Maturing 9/1/17 at 99 (Stocks, Bonds & Politics: Junk Bond Ladder Strategy)(see Disclaimer): I am just glad to make a profit on this one.


It has been rare for any buyer to appear willing to accept a one bond lot, so I jumped at the chance to unload this low coupon Knight Ridder bond near par value. Knight Ridder was acquired by the  McClatchy Company (MNI) after the issuance of this bond.

I still own a lot of junk bonds as part of my junk bond ladder strategy but I am no longer updating prior posts connected with this basket.

I bought this bond in April 2011: Bought 1 Knight Ridder 5.75% Senior Bond Maturing 9/1/2017 at 85

7. Sold 100 NBD at $22 in Main Taxable Account (see Disclaimer): The Nuveen Build America Bond Opportunity Fund (NBD) is a leveraged closed end bond fund that owns taxable municipal bonds. I mentioned in a recent post that I would be selling the shares owned in a taxable account as I transition to owning this fund (and NBB) in retirement accounts. Item # 2 Bought 100 NBB at $20.85-Regular IRA (2/6/13 Post). As noted in that post, I own 200 shares of NBD in the ROTH IRA.

I entered a GTC AON order to sell 100 at $22 which was filled yesterday:



I am in a trading mode for leveraged closed end bond funds. I am attempting to balance their risks with their income generation and hope to own none of them when interest rates start to appreciably rise. The balance is being achieved for now by simply trading them, selling when the discount narrows and/or whenever I have a profit after collecting several monthly dividends. The profit on this recent sale of NBD was negligible after receiving six month dividend payments.

Closing Price Yesterday: NBD: 21.97 +0.09 (+0.41%)

Stocks and Politics:

1. Price Gouging by Hospitals: An excellent article detailing how hospitals drive up health care costs through unconscionable price gouging was recently published by TIME.com. One way to drive down medical costs would be to cap the costs that hospitals can charge for routine items. In the TIME article, one person was billed $24 for a five cent niacin tablet. Another patient was charged a $1.5 for a generic Tylenol pill, available for purchase in 100 tablet bottles at Amazon for $1.49. The list of horrors is endless for anyone willing to delve into it.

Another practice, which should be outlawed, is patient referral for a test conducted by a facility where the doctor has some financial interest.

Another blatant conflict is that Medicare accepts nine out of ten payment recommendations made by the  AMA's Relative Value Scale Update Committee. Bloomberg Why are doctors setting the rates for their own payments?  

Monday, February 25, 2013

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

I am updating the tables for the Lottery Ticket Basket Strategy and the Regional Bank Basket Strategy on the last Monday of each month. The prices shown in the tables will be the closing prices 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.

The last table update for these baskets can be found at Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy (1/28/13 Post)

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. 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.

Realized Gains: $12,022.36 
Total Current Investment (37 stocks)= $7,542.71

Trade Snapshots are at the end of the Gateway Post: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

Lottery Ticket Basket as of 2/22/13

For the most part, Headknocker would have been better off holding the LT's sold over the past month.

The Old Geezer noted that the "RB, who runs the LT strategy, was better at entry than exit points".

RB quickly retorted that it was the OG who sold the LTs mentioned below, though due all of his mind mush memory and other old age issues and afflictions, being of course well past his prime,  he may no longer remember his culpability in interfering with RB's LT strategy".

Headknocker noted that all staff members here at HQ thanked the Lord every morning that the OG remembers to put on his pants before retrieving the morning papers.

A. SOLD  40 BRKS at $9.71 (see Disclaimer): This LT was bought on 10/4/12. Bought 40 BRKS at $7.23-LT Category After briefly reviewing the earnings report, where Brooks reported a better than expected loss, I was sufficiently unimpressed that I elected to harvest my close to 30% gain:

2013 BRKS 40 Shares $83.29

This completes my second round trip in Brooks' common stock, purchased only as part of the LT basket strategy.

Bought BRKS at 8.62 as LT-Sold LT BRKS at $10.2 (May 2010).

Link to Earnings Report: SEC Filed Press ReleaseForm 10-Q

Closing Price 2/22/13: BRKS: 10.19 +0.07 (+0.69%)

B. Xinyuan Real Estate (own): XIN was one of the largest percentage gainers on the NYSE on 2/7/13: XIN: 4.18 +0.42 (+11.17%). I did not see any news other than a raise in the quarterly dividend from 4 cents to 5 cents per share. Xinyuan Real Estate Co., Ltd. Announces Fourth Quarterly Dividend Payment for 2012 -- BEIJING

Bought 50 XIN at $2.57-LTAdded 50 to LT XIN at $2.36

Closing Price 2/22/13: XIN: $4.47 +0.10 (+2.29%)

C. Sold 50 Tetra Technologies at $9.97 (see Disclaimer): Tetra announced estimated 4th quarter earnings of $.18 to $20 and $.75 to $.85 for 2013, excluding charges. SEC Filed News Release. The consensus estimate for 2013 was for 82 cents per share, up from 61 cents in 2012. The 2012 4th quarter estimate was for 17 cents per share. TTI Analyst Estimates

2013 Sold 50 TTI Realized Gain +$140.89

When the profit on this one exceeded 50%, I decided to reap it. The shares were purchased in October 2012. Bought 50 TTI at $5.98 (10/16/12 Post)

TETRA Technologies

Closing Price 2/7/13: TTI: 9.18 +0.34 (+3.85%)/ Volume 1.06+M Shares, Avg. Vol. 651,164

Closing Price 2/22/13: TTI: 9.22 +0.06 (+0.66%)

D. Sold 50 RRST at $7.78 (see Disclaimer):  When this one came close to a 100% gain with the recent annual dividend payment, I decided to harvest the gain which was short term. The consensus 2013 estimate was for an E.P.S. of $.49, up from $.44 for 2012. RRST Analyst Estimates

2013 RRST 50 Shares +$175.59
Bought 50 RRST at $3.95-LT Category

Closing Price 2/22/13: RRST: 8.17 -0.08 (-0.97%)

E. Sold 30 SMS at $10.81 (see Disclaimer): I decided to unload this one after reviewing a press release relating to a serious ($60M) inventory adjustment in Sims U.K. operation. SEC Filed Press Release

2013 Sold 30 SMS  +$30.59
Bought 30 SMS at $9.26

Closing Price 2/22/13: SMS: $11.60 +$.91 (8.51%)

F. Datalink (own): DTLK beat estimates by 8 cents and guided first quarter revenues up. Datalink reported a non-GAAP E.P.S. of 31 cents per share, up from 24 cents, on a 28% increase in revenues to $147.3M.

Earnings Call Transcript - Seeking Alpha

Closing Price on 2/15/13 after earnings announcement: DTLK: $9.87 +0.60 (+6.47%)

Bought 35 DTLK at $7.49-LT Category

Closing Price 2/22/13: DTLK: $10.13 +0.10 (+1.00%)

2. Update for Regional Bank Basket Strategy:  This strategy is explained in the following post:

Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST

I am not tracking reinvested dividends in this table. The dividend yield shown in the table is calculated by Yahoo Finance and is based on last Friday's close.  

  
Regional Bank Basket as of 2/22/13

Realized Gains: +$9,921.43
Dividends 2010-2012: $4,690.79

A. United Bankshares (own): United Bankshares announced that it would acquire Virginia Commerce Bancorp (VCBI) which is headquartered in Arlington, Virginia. VCBI has 28 branches in Northern Virginia. Its acquisition represents a continued expansion of UBSI's footprint in the greater Washington, D.C. market. UBSI is headquartered in Charleston, West Virginia. 

UBSI will be exchanging .5442 of its shares of each VCBI share. 

I previously owned shares in VCBI as a Lottery Ticket: Bought 40 VCBI as LT at $5.56 (March 2011)- Sold 40 VCBI at 7.64 (January 2012). Needless to say, I sold those 40 shares too soon. 

VCBI recently was able to repurchase the government's TARP preferred stock. 

2012 4th Quarter VCBI:
Adjusted E.P.S. $.16
Net Interest Margin: 3.73% 
Efficiency Ratio=56.37%
Coverage ratio=112.77%
NPA Ratio=1.78%
Return on Average Assets: 1.03%
Return on Average Equity: 10.02%
Tangible Common Equity Ratio=8.69%
Total Capital Ratio (bank)=14.08%

I have been keeping UBSI primarily for its dividend yield at my constant cost number. I bought 50 shares at $16.56. Bought 50 of UBSI (November 2009). The bank has slightly raised that dividend since my purchase. Dividend History The current quarterly rate is $.31 per share. At a total cost of $16.56, the dividend yield at that rate would be about 7.49%. 

The dividend payout ratio is high and recent earnings growth has been slow. For the 2012 4th quarter, UBSI reported an E.P.S. of $.42, up from $.4 in the 2011 4th quarter. For 2012, E.P.S. was reported at $1.64, up from $1.61 in the year ago quarter. Net income growth was higher at 9% Y-O-Y ($82.6M vs. $75.6M). The share count was higher by about 3.46M shares. 
  
I view this fit as a good one for United Bankshares. With this acquisition, United will have the 8th largest deposit market share in the greater D.C. market. Overall, this acquisition will make me more inclined to keep UBSI shares. 

Day of Announcement (1/30/13):
UBSI: 25.14 -0.69 (-2.67%)
VCBI: 12.86 +0.65 (+5.32%)

Closing Price 2/22/13: UBSI: $26.15 +0.22 (+0.85%)

B. Washington Trust (own): This bank has been doing well since my purchase:

Washington Trust Announces Record Earnings for Fourth Quarter
4th Quarter 2012:
Net Income: $9.023M, up from $7.777M
E.P.S. $.55, up from $.48
Net Interest Margin: 3.28%
Return on Average Tangible Assets: 1.21%
Return on Average Tangible Equity: 15.29%
Tangible Equity to Tangible Assets: 7.69%
Total Risk-Based Capital Ratio: 13.26%
Non-accruing Loans to total loans=.98%
2012 Increase in Loans over 2011=7% (11% commercial)
2012 Increase in Deposits over 2011= 9%

I currently own 50 shares, part of the 100 share lot bought in January 2010.

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

Closing Price 2/22/13: WASH: $26.49 +$.35 (1.34%)

C.  Bought 50 BANC at $11.3 (see Disclaimer): This purchase was made in a satellite taxable account.

2013 Bought 50 BANC at $11.3

The expansion of the bank since November 2010 has been largely in the Los Angeles metropolitan area. A map showing the branches can be found in this SEC Filed Investor Presentation.




Back in August 2012, First PacTrust announced that it would acquire The Private Bank of California for approximately $50 million. First PacTrust Bancorp to Acquire The Private Bank of California The Private Bank of California has three branches in Hollywood, Irvine and Century City.

When reviewing this bank's earnings history, I did not like the operating results from the Near Depression period. The bank lost money in 2008, 2009, and 2011 (page 45). Non-performing assets spiked in 2008 to 4.33% of total assets from 1.82% in 2007, and then rose to 5.8% in 2009. That is just unacceptable, though understandable given the bank's market.

A long term chart reveals a steady upward trajectory between 2002 and 2006, as the stock moved from around $13 to a top over $30, followed by a water slide movement that bottomed at around $5 in late 2009. Between 2012 to date, the stock has mostly drifted in a channel between $10 and $12. BANC Interactive Chart

I decided to invest after the NPA's to total assets shrank to below 2% and earnings started to pick up.  The bank has used the recession to expand its operations into the Los Angeles metropolitan market. As of 9/30/12, the NPA ratio was at 1.49% (page 57:  Form 10-Q)

The capital ratios are good:

Capital Ratios as of 9/30/12
Page 66: Form 10-Q

The bank was increasing its dividend at a rapid rate from 2003 to 2007, going from a $.05 per share quarterly rate in 2003 first quarter to $.185 by June 2007. Then, as one would expect given the earnings numbers and acceleration in bad loans, the dividend was cut back to 5 cents in 2009. The bank started to raise the dividend again in the 2011 first quarter and is currently paying $.12 per share. Bancorp - Investor Relations - Dividends

So, the dividend rate is in no way "safe". At the current rate, the yield would be about 4.25% at a total cost of $11.3.

I also recently bought a BANC senior exchange traded bond. Item # 6 Bought Roth IRA: 50 BANCL at $25.20Prospectus.

Closing Price 2/22/13: BANC: $11.16 -.01

D. Monarch Financial Holdings (own): MNRK had an unusually good 4th quarter earnings report that sent the stock up over 7%:

Closing Price 1/31/13: MNRK: $9.36 +0.65 (+7.46%)

Monarch Financial 2012 4th Quarter:
Net Income: $3.768+M, up from $1.564+M
Diluted E.P.S.:  $.37 up from $.19
Net Interest Margin=4.07%
Efficiency Ratio (bank)=54.5%
Coverage Ratio=300%
NPA Ratio= .3%
Charge Offs to Average Loans=.08%
Return on Average Assets=1.28%
Return on Average Equity=17.51%
Tangible Book Value Per Share=$8.68
Total Risk Based Capital Ratio (bank)=12.73%

Last Thursday, Monarch announced the forced conversion of its preferred stock into common shares. Each share of the $25 par value preferred stock will be converted into 3.75 common shares. There will be a maximum of 1,160,055 shares of common stock issued as a result of this conversion. As of 12/31/12, there were 7,980,259 shares basic shares outstanding. This announcement caused a downdraft in the common share price on 2/21/13: MNRK: $9.73 -0.40 (-3.95%)

I was not very familiar with Monarch's exchange traded convertible preferred stock (MNRKP), but it certainly worked out for those who bought it at or near par value. That security paid a 7.8% coupon,  Prospectus, and will generate a good profit on conversion for any owner wishing to cash out. Given the high coupon, and the non-deductibility of equity preferred stock dividends, I am just glad that Monarch is getting rid of this security, though I would have much preferred a non-convertible feature as a common stockholder.  

Bought  120 MNRK at $8.65 (12/31/12 Post)
Five Year Chart: MNRK Interactive Chart

Closing Price 2/22/13: MNRK: $9.79 +0.06 (+0.62%)

E. Renasant (own): Renasant announced an agreement to acquire First M & F Corporation (FMFC), a bank holding company headquartered in Kosciusko, Mississippi and the parent company of Merchants & Farmers Bank. FMFC has 36 full service branches.

RNST will exchange .6425 of its shares for each FMFC share which would value the transaction at $118.8M or 119% of tangible book based on RNST's average 10 day price of $19.25 before the merger announcement. RNST expects the acquisition to be completed in the 2013 third quarter, subject to shareholder and regulatory approvals, and to be immediately accretive to estimated earnings.

After this merger announcement, Wunderlich upgraded RNST to buy and raised its price target to $25 from $20. Keefe, Bruyette & Woods raised RNST to outperform with a $23 price target.

I did look at the most recent FMFC earnings report.

2012 4th Quarter FMFC Earnings Report:
First M&F Corp
Net Income= $1.29M or $.14 per share, up from $.05 2011 4th
Efficiency Ratio= 74.83%
Net Charge-Offs=.46%
Tangible Common Equity to Tangible Assets=5.97%
Return on Average Assets annualized=.46%
Return on Average Equity annualized= 6.19%
Non-accruals to total loans= .75%
NPA ratio=2.13%
Total Assets Up 2.11% in 2012 to $1.602B
Deposits as of 12/31/12=$1.403B
Book Value per Share=$10.79

I did not see the capital ratios in the earnings release but found them in the last filed 10-Q for the Q/E 9/30/12:



Page 67: FMFC-2012.9.30-10Q

FMFC was trading mostly between $15 to $20 January 2003 to January 2008, and then went into a waterfall decline, bottoming in the $2 area in October 2009. FMFC Interactive Chart

Price Action Day of the Announcement (2/7/13)
RNST: 18.96 -0.48 (-2.47%)
FMFC: 11.70 +3.25 (+38.46%)

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

RNST was probably my best gainer over the past month in this basket.

Closing Price 2/22/13: RNST: 22.00 +0.01 (+0.05%)

The closing price on 1/25/12, the date of the last update, was $19.06: Stocks, Bonds & Politics: Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy/Sold 30 DELL at $10.82/Added 150 TRST at $5.17/Bought 50 UNB at $19.45/MBVT, RNST, PCBK, KEY, TRMK

F. Financial Institutions (FISI): Financial Institutions announced a 12.5% increase in its quarterly dividend to 18 cents per share.

Bought 50 FISI at $15.55 (April 2012 Post)

Closing Price 2/22/13: FISI: $20.2 -.07 

Wednesday, February 20, 2013

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

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

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

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

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

Big Picture Synopsis

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

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

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

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

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

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

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

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

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

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

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

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

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

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

************

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

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

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

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

*****************

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

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

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

***************

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

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

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

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

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

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

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

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

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

*************

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

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

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

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

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

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



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

PJA has a call warrant attached to it.

*********************

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

Link to November FHA Refinance Report: Nov2012RefiReport.pdf

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

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

**************

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

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



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

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

This last transaction netted a $59.57 profit:

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

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

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

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

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

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

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

Earnings Call Transcript - Seeking Alpha

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

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

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

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

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




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

Prospectus: Prospectus Supplement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Snapshot of Trade:


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

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

Stocks, Bonds & Politics: International Trading and Currency Risks

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

USD/CAD Currency Conversion Chart

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

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

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

Pembina Pipeline Profile Page at Reuters

Pembina Pipeline Key Developments Page at Reuters

About Pembina

Growth Projects

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

PBA has a three star rating from Morningstar.

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

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

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

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

Earnings Call Transcript - Seeking Alpha

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

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

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

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

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

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

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

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




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

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



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

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

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

Bill Ackman has not lost faith-yet.

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

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

FINRA Information on 2017 Bond

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

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

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

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

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

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

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

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

The recent JCP earnings reports have been worse than awful.

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

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

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

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



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

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

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

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

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

2010 FUND 300 Shares 

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

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

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

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

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

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

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


Politics and ETC.

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

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

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

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

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

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

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

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

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

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