Monday, July 28, 2014

Update for Lottery Ticket, REIT and Regional Bank Basket Strategies/Sold 101+ BRKL at $9.53/Bought 50 LARK at $19.76, 50 UVSP at $18.8, 100 SUSQ at $10.15, 50 UVSP at $18.8/Bought 50 ODP at $5.09 as a LT/CBU, BHLB, FFBC, WASH, FNLC, FMER, FISI, TRST, CCNE, HBAN, BPFH, NYCB, NPBC, WTBA, FNB, MBVT, UBCP

The combined market value of the three baskets discussed below was $120,993.7 as of 7/25/14. The combined decline last Friday was $273.92 or .00227%.

7/25/14: S&P 500 -.48%

The regional bank, REIT and lottery ticket basket strategies are updated on the last Monday of each month. The price shown in the following tables will be from last Friday.

Last Update 6/30/14: Stocks, Bonds & Politics: Update for Regional Bank, Lottery Ticket and REIT Basket Strategies/Bought 50 NKSH at $30.4

I frequently use a basket approach, particularly with industry sectors, that will vary in size as to the number of components. The focus will be on the total return of the basket, rather than individual components. Some of the advantages to this approach include diversification and risk mitigation. I am not concerned about a few mishaps provided other components are doing better than I anticipated when I made the initial purchase. As noted previously, I have been surprised by some of best and worst performers in the regional bank basket.

1. Update of 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, though I may occasionally buy one who does not fit those common criteria. Any technical analyst would most likely have a sell rating on the stock.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

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 slightly under $6,000.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit.

Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and to keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

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

There were no deletions since the last update. There was one addition discussed below.

Net Realized Gains: $14,024 (same as last update)

Click to Enlarge:

Lottery Ticket Basket as of 7/25/14
The unrealized gains exceeding 30% are as follows:

AMOT +105.73%
AMOT corrected some since the last update and almost lost its number #1 pole position to the up and coming RFMD.
RFMD +103.85%
RFMD reported better than expected earnings and raised guidance: Reuters; News Release

FCE/A +64.1%
AWCMY +61.81%
ING +48.44%
FCF +43.55%
NPBC +30%

A. Bought 50 ODP at $5.09 (see Disclaimer):

Snapshot of Trade:

Office Depot qualifies as a Lottery Ticket due to its recovery potential after its acquisition of OfficeMax late last year. This consolidation in the office supply space makes sense to me. The recovery potential is tied to a reduction in competition and store rationalization at a time when employment and the economy are gathering upward momentum, hopefully for the remainder of 2014 and throughout 2015. ODP plans to close about 400 stores by 2016 due to overlapping locations. NYTimes One of those closures will likely be near HQ, since the OMX and ODP stores are within a few hundred feet of one another.

I would not expect much, if any, share price gain until investors become convinced that the current analyst consensus forecast will be achieved or exceeded by ODP. The current consensus forecast, as of 7/22/14, was for an E.P.S. of $.15 this year and $.34 in 2015. ODP Analyst Estimates The P/E on that forward 2015 estimate would be about 14.97 at a total cost of $5.09 per share. A primary issue would be a confirmation of the acceleration in earnings growth in 2015, rather than the current P/E or even the forecasted P/E based on the 2015 estimate, in my opinion.

Goldman Sachs has ODP as one of its 25 small caps to buy. The price target is just $7.

S & P has the stock rated 5 stars as of 7/22/14 with a 12 month price target of $8.

ODP Key Statistics (based on $5.09 price and earnings reports through March 14)
P/B: 1.38
P/S: .21
P.E.G.: .37 (estimated 5 years)

I also own two senior unsecured bonds that were an OfficeMax obligation but are not an ODP debt obligation Bought 2 OfficeMax Senior Bonds at 97.494 (1/11/11 Post). That bond has a 7.35% coupon and matures on 2/1/16. Finra Information As of 12/31/13, only $18M in principal amount was outstanding. (Note 8 at page 81, 10-K) Total recourse debt stood $696M, including capital lease obligations, as of 12/31/13.

2. Update for REIT Common and Preferred Stock Basket:

This basket is starting to contract, primarily though preferred stock deletions under the current trading guidelines. The first publication of this basket was made on 3/5/14: Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14

I am using a blended strategy of including both common and preferred stocks. I am not likely to add back preferred stocks until there is another meaningful correction in their prices.

Since my last update, I have sold the following securities:

Sold on the Toronto Exchange: 200 CAR_UN:CA at C$23.16/Sold Roth IRA 50 DLRPRE at $25.5 (7/12/14 Post)

Sold 100 REI_UN.CA at C$27.04 (7/19/14 Post)

Click to Enlarge:

REIT Basket as of 7/25/14 
3. Update for Regional Bank Basket Strategy:

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

Snapshots of realized gains and losses can be found at the end of that post.

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.

Dividend Yields 5% or higher: Based on Total Cost
NYCB: 8.44%
UBSI: 7.66%
WASH: 7.56%
CZNC: 5.39%
FNLC: 5.38%
CBU: 5.15%
TRST: 5.1%
CCNE: 5.%

CBU is a new addition to the list after raising its quarterly dividend to $.3 per share. My total cost for the 50 share lot, bought at $23.18, is $1,166. (see discussion in Item F below)

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

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.

After a number of adds, I am now over my minimum $40,000 allocation after a bout of profit taking last year. 

I have not been impressed with several of the recent earnings reports from regional banks. Some of the banks discussed below have decent 2014 second quarter reports. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011. I will have to increase my current exposure in order to exceed the 2013 amount this year, given my light exposure for the first four months which was several thousand below the "minimum" level.    

Regional bank stocks are in a funk this year as interest rates started to go back down. One of the regional bank ETFs, KRE, closed at $40.61 on 12/31/13 and at $39.12 last Friday, but has closed as low as $36.84 this year (2/3/14). SPDR S&P Regional Banking ETF ETF Chart That ETF had worked its way back over its 50 and 200 SMA lines when I published the last update but has since fallen below those lines again.

The abnormally low rates benefited banks some when deposit yields were repriced down, but even 5 year bank CDs taken out in 2008 at higher rates have now matured, and the positive impact of that repricing is no longer present to any meaningful degree. 

Instead, the decline in rates for loans simply compresses net interest margin. When rates were rising last year, regional bank stocks were in an uptrend based on the common belief that higher intermediate and long rates would be a net positive for them, particularly when short terms were likely to remain near zero through mid-2015 and then rise slowly and modestly in 2016-2017. The rate spike starting last May impacted intermediate and long term rates. Short term rates remained anchored by ZIRP. 

I have used the downdraft in prices this year to add positions to my basket after selling into last year's strength.  

Realized Gains 2010 to Date: $16,156.25  (snapshots in Gateway Post)
Dividends Received 2010 through 2013=$6,623.72

Click to Enlarge:

Regional Bank Basket as of 7/25/14

Comparison Data From the St. Louis Fed:
Net Interest Margin for all U.S. Banks
Net Interest Margin for U.S. Banks with average assets under $1B
Net Interest Margin for U.S. Banks with average assets between $1B and $15B
Return on Average Equity for all U.S. Banks   (abbreviated to "ROE")
Return on Average Assets for all U.S. Banks (abbreviated to "ROA")
Nonperforming Loans (past due 90+ days plus nonaccrual) to Total Loans for all U.S. Banks (abbreviated to "NPL ratio")
Charge-Off Rate On All Loans, All Commercial Banks
Assets at Banks whose ALLL exceeds their Nonperforming Loans (coverage ratio over 100%)(ALLL=Allowance for loan losses)

A. Sold 100 BRKL at $9.53 (see Disclaimer):

Snapshot of Trade:

2014 Sold 101+BRKL at $9.53 
Closing Price on Day of Trade (7/1/14): BRKL: $9.49 +0.12 (+1.28%)

Snapshot of Profit:

2014 BRKL 101+ Shares +$92.21
Bought 100 BRKL at $8.48

Snapshot of History:

Total Return= $151.71 or 17.75% 

The TTM P/E was close to 18 at the $9.53 price, which is a rich valuation for a small regional bank estimated to grow its E.P.S to $.59 per share next year from $.54 in 2014. I consequently chose to sell this stock and to redeploy the proceeds into another bank stock.

Closing Price Last Friday: BRKL: $9.20 -0.02 (-0.22%)

B. Bought Back LARK at $19.76 (see Disclaimer):

Snapshot of Quote Shortly Before Order Entry:

Even for LARK shares, a volume of just 4 shares within an hour of the closing bell is lighter than normal.

Normally, there is a large bid/ask spread. The market capitalization is around $61M at the $19.76 price.

Snapshot of Trade:

2014 Bought 50 LARK at $19.76

I recently sold 50 LARK shares after an inexplicable pop in the shares. Item # 4 Sold 50 LARK at $23.5 (6/29/14 Post) I had bought those shares earlier this year at $19.7 (1/13/14 Post).

I had earlier bought and sold a 50 share lot. SOLD 52 LARK at $18.75 (1/9/12 Post)-Bought 50 LARK @ 16.6 (5/2/11 Post)

Landmark Bancorp Inc. (LARK) is a bank holding company that owns Landmark National Bank which currently has 30 branches across Kansas and is headquartered in Manhattan Kansas: Landmark National Bank Locations

As noted in the quote snapshot, the bank is currently paying a quarterly dividend of $.19 per share. Landmark Bancorp Inc. (LARK) Dividend History At a total cost of $19.76 per share, the dividend yield is respectable at about 3.85%.

Even though the quarterly dividend has remained at $.19 per share since 2006, LARK has paid a 5% stock dividend every year since 2001. Landmark National Bank-Dividends In effect, that stock dividend results in an equivalent dividend increase every year assuming my math skills, or lack thereof, are correct (since the same penny amount is paid on 5% more shares each year).

2014 First Quarter Earnings Report:
SEC Filed Press Release

2014 1st Q vs. 2013 1st Q
Net Income: $1.699M / $1.44M
E.P.S. (diluted): $.53 / $.46
Net Interest Margin: 3.49% / 3.38%
NPA Ratio: 1.53% / 1.24%
Coverage Ratio: 45.66% / 56.32%
ROA: .84% / .92%LARK has been paying a 5% stock dividend every year since 2001
ROE: 10.81% / 9.18%
ROTE: 16.5% / 12.14%
Book Value Per Share: $20.64 / $19.96

Capital ratios are okay as of 3/31/14:

Page 27 SEC Form 10-Q for the Q/E 3/31/14

Landmark did report a decline in earnings during and after the Near Depression. In 2008, E.P.S. was reported at $1.56, and then declined to $1.13 per share in 2009 before bottoming in 2010 at $.7. Thereafter, E.P.S. rebounded to $1.54 in 2011 and $2.18 in 2012. (page 37-2012 Annual Report SEC Form 10-K Risk factors are summarized starting at page 27 of the 2013 Annual Report.

While remaining a small bank, Landmark has grown some through acquisitions. Effective 11/1/13, Landmark completed its acquisition of Citizens Bank which added eight branches: Page 67. Earnings in 2013 were impacted by $1.9M in costs associated with this acquisition: Page 42.

Landmark owns its main office and 24 of its branches. Five branches are leased: Page 37.

Landmark did not participate in TARP: Page 9 2009 Annual Report 10-K.

After my purchase, LARK reported second quarter net income of $2.1M or $.65 per share, up from $.45 in the year ago quarter. SEC Filed Press Release

There are no analyst forecasts. I view 2014 earnings of $2.05 to $2.1 per share or higher to be a reasonable forecast given the first and second quarter results, though an unexpected large loan loss could derail that result. Any E.P.S. number over $1.96 would result in a less than 10 P/E at a total cost of $19.6 per share.

Closing Price Last Friday 7/25/14: LARK: $20.51 +0.17 (+0.84%)

C. Boston Private Financial (BPFH): Boston Private Financial Holdings, Inc. reported second quarter net income of $21.3M or $.25 per share, up from $.11 in the 2013 third quarter (adjusted to $.18 after items)

Net Interest Margin: 3.14%
Efficiency Ratio (non-GAAP):  64.39%
Nonaccruals to Total Loans: .82%
Coverage Ratio: 179%
ROA: 1.32%
ROTE: 17.15%
Tangible Equity to Tangible Assets: 7.77%

The capital ratios are good:

Closing Price Last Friday: BPFH: $12.70 +0.04 (+0.32%)

D. Huntington Bancshares (HBAN): Huntington's stock price reacted positively to the second quarter earning's report, rising 4.84% on 7/18/14: HBAN: $9.75 +0.45 (+4.84%) Net income rose 9% to $164.6M or $.19 per share, up from $.17 in the 2013 second quarter and one cent better than the consensus estimate of $.18. An encouraging sign was the 9% increase in total lending and a 39% increase in auto lending. News Release

I took a snapshot of some key data points:

Quarterly Financial Supplement

HBAN shares were initially bough in the LT category and later promoted to the regional bank basket. Added 40 HBAN at $7.04Bought 30 HBAN @ 7.25 as LTAdded 30 HBAN as LT at $4.8

Closing Price Last Friday: HBAN: $9.98 +0.01 (+0.10%)

E. CNB Financial (CCNE): CNB Financial reported net income of $.39 per share. The estimate, made by just one analyst, was for $.34. CCNE Analyst Estimate

2014 Second Quarter vs. 2013 Second Quarter
The capital ratios are okay:

Capital Ratios CCNE as of 6/30/14
I recently averaged up in CCNE: Item # 6 Added 50 CCNE at $16.11 (6/14/14 Post). The prior purchase was at $11.06 (6/30/10 Post)

Closing Price Last Friday: CCNE: $16.53 -0.35 (-2.07%)

F. Community Bank System (CBU): Community Bank System reported second quarter net income of $23.7M or $.57 per diluted share, up from $.52 in the the 2013 second quarter. The consensus estimate was for an E.P.S. of $.54. CBU Analyst Estimates As of 7/21/14, the day of the earnings release, the consensus E.P.S. estimate for 2014 is $2.17 and $2.23 for 2015.

The Board increased the quarterly dividend by 7.1%. The new rate will be $.30 per share, up from the previous $.28. This increase constitutes the 22nd  consecutive year of increased dividends.

Metrics: Net Interest Margin 3.94%

Bought 50 CBU @ $23.18 (October 2010)

Closing Price Last Friday: CBU: $35.92 -0.11 (-0.31%) 

G. Washington Trust Bancorp (WASH): Washington Trust reported net income of $9.8M or 58 cents per share, up from $.55 in the year ago quarter. The consensus estimate was for $.59 per share. WASH Analyst Estimates

Net Interest Margin: 3.35%
NPL Ratio: .49%
NPA Ratio: .42%

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44 (January 2011)

Closing Price Last Friday: WASH: $34.16 -0.14 (-0.41%)

H. TrustCo (TRST): TrustCo reported net income improved by 20.9% to $11.8M compared to $9.9M in the 2013 second quarter. E.P.S. was reported at $.125 per share. The consensus E.P.S. estimate was for $.11  TRST Analyst Estimates

Net Interest Margin: 3.15%
Efficiency Ratio: 53%
Tangible Equity to Tangible Assets: 8.38%
Tangible Book Value Per Share: $4.06

My last two transactions were to pare my position based on valuation. Sold 308 TRST at $6.64 (profit $271.05); Sold 50 TRST at $7.29 (profit: $32.67). I currently own with 315+ shares at an average cost of $5.16. Bought 50 TRST at $4.01 (August 2011)ADDED 50 TRST at $5.1 (June 2012); Added 150 TRST at $5.17 (January 2013)(plus some reinvested dividends)

J. First Merit (FMER): FirstMerit reported second quarter net income of $59.5M or $.35 per share, up from $.29 in the 2013 second quarter. The consensus E.P.S. estimates were for $.36 and $1.45 this year. FMER Analyst Estimates 

The market reacted negatively to this report:

Closing Price 7/22/14: FMER: $18.23 -0.45 (-2.41%)

I thought that was an overreaction and simply changed my dividend option to reinvestment in response.

JPM downgraded FMER to neutral based on "accretion" headwinds, an issue that was well known prior to that downgrade. Barron's. The accretion issues impact on net interest margin is discussed at page 6 of the earnings call transcript.

Earnings Call Transcript | Seeking Alpha (page 5-expects net interest margin to decline in next two quarters)

After selling my 100 highest cost shares, I currently own 141+ at an average cost per share of $14.52: Item # 2 Bought 30 FMER at $11.35 (August 2011)Item # 2 Added 50 FMER at $15.2 (September 2012)Item # 3 Added 50 FMER at $15.09 (February 13, 2013 Post) The foregoing purchases account for 130 of the 141+ shares with shares purchased with dividends accounting for the remainder. I quit reinvesting the dividend based on valuation after the 2013 second quarter.

Closing Price Last Friday: FMER: $18.00 -0.23 (-1.26%)

K. Merchants Bancshares (MBVT): Merchants Bancshares reported second quarter net income of $3.41M or $.54 per share. The consensus E.P.S. estimate was for $.53. MBVT Analyst Estimates Profit will be hurt this year by spending on a "core conversion project" whose benefits will will start to be "seen in the fourth quarter".

In addition, MBVT is reducing "exposure to price volatility in the investment portfolio, increasing liquidity and building capital" in response "to market conditions that do not favor asset extension or compensate adequately for credit risk". I would agree with that approach now.

The NPA and NPL ratios are the lowest in my regional bank basket.

After harvesting a profit on one 50 share lot, I currently own 50 shares of MBVT: Item # 5  Bought 50 MBVT at $26.25 (5/2/2012)

The market responded favorably to this report:

Closing Price on 7/23/14: MBVT: $30.04 +0.54 (+1.83%)

L. F.N.B. (FNB): F.N.B. reported second quarter net income of $32.821M or $.2 per share. The consensus E.P.S. estimates were for $.2 and $.83 for the year. FNB Analyst Estimates For the 2013 second quarter, FNB reported net income of $29.123M or $.2 per share. There were more shares outstanding in the last quarter (diluted shares at 167.867+M vs.  145.844+M)

After some profitable trading, I was left with 50 shares bought at using FIFO accounting. Added 50 FNB at $7.8 (July 2010). I later added another 50. Bought 50 FNB at $11.25 (6/24/13)

The market responded favorably to this report:

Closing Price 7/23/14:  FNB: $12.40 +0.27 (+2.23%)

Closing Price 7/25/14: FNB: $12.58 +0.02 (+0.16%)

M. West Bancorporation (WTBA): West Bancorporation reported second quarter net income of $4.74M or $.3 per share, up from $.25 for the 2013 second quarter. The consensus estimate was for $.28 and $1.13 for the year. WTBA Analyst Estimates

Bought 100 WTBA at $11.67 (6/29/13 Post)

The market responded favorably to this report:

Closing Price 7/25/14: WTBA: $14.57 +0.35 (+2.46%)

N. National Penn (NPBC): National Penn Bancshares reported net income of $26.2M or $.19 per share. The consensus E.P.S. estimates were for $.17 in the second quarter and $.7 for the year. NPBC Analyst Estimates

NPL Ratio: .8%
Coverage Ratio: 207%

Other metrics include the following:

Capital ratios are good:

NPBC was initially bought in the LT basket and was later promoted to the regional bank basket with the original LT purchase remaining in that basket. Item # 2 Added 100 NPBC at $10.68 (8/17/13 Post)Added 50 NPBC at $9.85 (October 28, 2013 Post);  Item # 1 RB Bought as LT 30 NPBC @ $7.83 (4/26/11 Post)

Closing Price Last Friday 7/25/14: NPBC: $10.49 +0.03 (+0.29%)

O. Bought 100 SUSQ at $10.15-Satellite Taxable Account (see Disclaimer): I initially bought and sold SUSQ shares as part of the LT basket. Bought 50 SUSQ at $5.85 (10/1/09 Post)Sold: 50 SUSQ @ 7.5 (11/3/2010 Post). I later decided to buy the shares back as an LT, Bought 30 SUSQ at $8.75, and will simply keep those shares in that basket. I am now elevating SUSQ to the Regional Bank Basket Strategy which is a "risk on" promotion.

Snapshot of Email Confirmation:

After my purchase, Susquehanna Bancshares reported second quarter net income of $43.5M or $.23 per share. The consensus E.P.S. estimates were for $.2 and $.8 for 2014. SUSQ Analyst Estimates The Board also announced a stock repurchase program of up to 3.5% of the outstanding shares.

SUSQ was originally classified as a LT due to its poor performance in 2008-2009. The poor results were manifested by the steep dividend cuts and severe share price decline. In the 2009 first quarter, the quarterly dividend was $.29 per share, which was then cut to $.05 for the 2009 second quarter, and then cut again to $.01 per share by the 2009 4th quarter. Susquehanna Bancshares, Inc. (SUSQ) Dividend Date & History The share price decline from $27+ in 2006 to 5+ in early 2009. SUSQ Interactive Chart

Earnings reports during that period reflected the problems during that period. E.P.S. declined from $1.23 in 2007 to a loss of 5 cents per share in 2009, barely recovering to just a $.13 per share annual profit in 2010. FORM 10-K at page 29.

Susquehanna Bancshares recently increased its quarterly dividend by 1 cent to 9 cents per share.

Closing Price Last Friday: SUSQ: $10.36 -0.04 (-0.38%)

P. Berkshire Hills (BHLB): Berkshire Hills reported second quarter core earnings of $.44 per share. The consensus E.P.S. estimates were for $.42 in the quarter; $1.68 for 2014 and $1.85 for 2015. BHLB Analyst Estimates

Net Interest Margin: 3.26%
Efficiency Ratio: 62.96%
Core Return Tangible Equity: 11.34%
NPL Ratio: .59%
NPA Ratio: .45%
Coverage Ratio: 132%
Charge-Offs to Total Loans (annualized): .31%

I am slightly in the hole after profitably selling a 50 share lot: Added 50 BHLB at $23.75Bought: 50 BHLB at $24.51

Item # 1 Sold 50 BHLB at $28.74+ (7/13/13 Post)-Item # 2 Bought 50 BHLB AT $21.66 (3/12/12 Post)

The market responded favorably to this report:

Closing Price 7/24/14: BHLB: $23.67 +$1.07 (+4.73%)

Closing Price Last Friday 7/25/14: BHLB: $23.67 0.00 (0.00%)

Q. New York Community Bank (NYCB): New York Community Bancorp reported cash earnings of $.29 per share (GAAP at $.27). The consensus E.P.S. estimate was for $.26. NYCB Analyst Estimates

The capital ratios are okay:

The board declared a regular dividend of $.25 per share. At that quarterly rate, the dividend yield is about 8.43% at my total average cost per share of $11.86. Item # 2 Bought 50 NYB at $11.3 (10/15/2009 Post)Item # 4 Added 50 NYB at $10.57 (11/4/2009 Post)Item # 1 Added 50 NYB at $12.79 (2/17/2012 Post)

The largest of the three gains realized to date was booked on this 50 share lot: Bought 50 NYB at $10.57-Item # 7 Sold 50 NYB in IRA at $17.51 (7/28/2010 Post)($331.03-snapshot in Gateway Post on this topic)

The market responded favorably to this report:

Closing Price on 7/23/14: NYCB: $15.90 +0.34 (+2.19%)

Closing Price Last Friday 7/25/14: NYCB: $16.05 +0.06 (+0.38%)

R. Financial Institutions (FISI): Financial Institutions reported net income of $7M or $.48 cents per share for the 2014 second quarter. The consensus E.P.S. estimates were for $.46; $1.9 for 2014 and $2.07 in 2015. FISI Analyst Estimates

Net Interest Margin: 3.47%
Efficiency Ratio: 60.15%
NPL Ratio: .47%
NPA Ratio: .32%
Coverage Ratio: 306%
ROA:    .95%
ROE: 10.52%
ROTE:  13.31%

The capital ratios are okay as of 6/30/14:

Bought 50 FISI at $15.55 (4/17/12 Post)

Added 50 FISI at $19.8 (8/30/13 Post)-Item # 5 Sold 50 of 150+ FISI at $21.26 (10/13/13 Post)

Added 50 FISI at $18.8 (9/30/13 Post)

Closing Price Last Friday: FISI: $22.53 +0.75 (+3.44%)

S. First Bancorp (FNLC): The First Bancorp Reports reported second quarter E.P.S. of $.35 per share up from $.29 per share in the 2013 second quarter. There are no analyst estimates.

I recently bought back a small position: Bought:  50 FNLC at $15.6

Bought 50 FNLC at $12.79-Sold 52 FNLC at $15.55 (June 2012)

Closing Price Last Friday: FNLC: $16.40 0.00 (0.00%)

T. United Bancorp (UBCP): This small Ohio banks is mostly out of sight, out of mind. I did notice an unusual earnings report that I decided to just briefly mention by linking the press release: United Bancorp, Inc. Reports Quarterly Earnings up 40% ($.14 vs. $.1)

I am reinvesting the dividend and currently own 100 shares bought in the open market.

Bought 50 UBCP @ 8.13Bought 50 UBCP at 7.99

Sold 50 UBCP at $10.05 (May 2012)-Bought 50 UBCP at $8.49 (May 2010)

Closing Price Last Friday: UBCP: $8.10 +0.18 (+2.27%)

U. First Financial (FFBC): First Financial Bancorp reported second quarter net income of $16M or $.28 per share.  The consensus E.P.S. estimate was for $.27. FFBC Analyst Estimates

Net Interest Margin: 3.7%
ROA: .99%
ROE: 9.19%

The capital ratios are good:

This bank holding company was paying out a regular and special quarterly dividend that together equalled its net income, with the last special payment made last year. When that was occurring, I reinvested the dividends. That practice started in the 2011 third quarter and ended in the 2013 third quarter. When the extra payment started, the regular dividend was $.12 per share and is now at $.15. Stock Splits & Cash Dividends | First Financial Bank

After profitably selling my highest cost shares, I currently own 139+ shares at an average cost of $14.88. Item # 4 Sold 57 FFBC at $17.03-Highest Cost Share (December 2013 Post)Item # 3 Sold 50 FFBC at $17.51 (September 2012) The current dividend yield based on that total cost number is 4.04%. 

The open market purchases-for the shares currently owned-were discussed in these posts: Item # 1 ADDED 50 FFBC at $14.87 (December 2011 Post); Added Regional Bank Basket: 30 FFBC at $14.24 December 2012)Item # 2 Added 50 FFBC at $14.65 (June 2013 Post)

Closing Price Last Friday: FFBC: $16.59 +0.23 (+1.41%)

V. Bought Back 50 UVSP at $18.8-Satellite Taxable Account (see Disclaimer): I happened to notice late Friday that this stock had fallen back into my buy range, so I placed a limit order below the then existing bid price which was filled late in the trading day. The shares continued to slide after my purchase on lower than average volume:

Closing Price 7/25/14: UVSP: $18.74 -0.47 (-2.45%)

At that closing price, the TTM P/E was about 14.37, a little high for this bank, but the P/E based on the consensus E.P.S. for 2015 was acceptable at 11.12. UVSP Key Statistics The E.P.S. estimates are generated, however, by only one analyst: UVSP Analyst Estimates The estimate from that analyst is for an E.P.S. of $1.37 this year and $1.68 in 2015.

Snapshot of Trade:

Email Confirmation-Satellite Taxable Account
I have previously sold UVSP: Bought 50 UVSP at $15.1 (March 2012 Post)-Item # 3 Sold UVSP at $20.5 (July 2013 Post)(snapshot of profit=$253.1)

When I sold those shares about one year ago at $20.5, the T.T.M. P/E was about 16.48. I was concerned about the valuation, so I decided to harvest a profit and move on to something else.

For the 2014 second quarter, Univest Corporation of Pennsylvania reported net income of $5.1M or $.31 per share, which included 2 cents per share of acquisition related costs.

As of 6/30/14, the capital ratios are okay:

The current quarterly dividend is $.2 per share. Univest Corporation of Pennsylvania (UVSP) Dividend Date & At that rate, the dividend yield at a total cost of $18.8 per share is about 4.25%. On the positive side, the dividend was not cut during the Near Depression period. On the negative side, the quarterly dividend was last raised from $.19 per share back in 2006. Given a payout ratio of over 60%, I would not anticipate an increase in the dividend anytime soon. Univest - Stock Splits & Dividends The last ex dividend date was on 6/9/14.

Univest currently has 31 branches. It owns the insurance broker Univest InsuranceUnivest Capital Inc (corporate lease financing for business equipment and technology solutions); and Univest Investments (a full service broker and investment advisory firm).

Univest is in the process of acquiring the privately held Valley Green Bank with three offices in the Philadelphia. Univest - Mergers & Acquisitions

Valley Green Bank Branch Locations & Hours

The Valley Green branches look much better than the typical Univest branch located in rural areas near Philadelphia. The market may not like this move, given the price action since the announcement, but it at least appears to me to be a potentially positive bolt on acquisition. The Univest branches are located in rural areas near Philadelphia.

When buying a bank stock, I will drag and drop addresses of branch offices into my browser, and then click "google maps" for that address. I will take a tour of the area. The main Univest office is in a place called Souderton, PA. I did not see anything that look new in the town after driving my little google man around town. It looked like a small rural town. When the map is expanded, I can see that the branches are near the greater metropolitan Philadelphia area.

14 N Main St - Google Maps

Univest  Stock Chart (long term)

The stock broke its 50 and 200 day SMA lines-to the downside-earlier this month. (One Year Univest Stock Chart)

Closing Price Last Friday: UVSP: $18.74 -0.47 (-2.45%) 

Saturday, July 26, 2014

KO, PEP, OHI, O, GE/Bought 100 BTZ at $13.7-Roth IRA/Sold Roth IRA: 100 ZTR at $14.43/Cascades Bond Redemption/Sold Taxable Accounts: 100 CDZ:CA at C$26.24, 100 FDL at $23.82. 100 EWS at $13.68, 100 EWM at $16.17, 100 ASEA at $17.14, 50 PIE at $18.95

Closing Prices 7/25/14:
S & P 500 1,978.34 -9.64 (-0.48%)
VIX: 12.69 +0.85 (+7.18%) : VOLATILITY S&P 500  (stable vix pattern)
DJIA: 16,960.57 -123.23 (-0.72%)
Nasdaq Composite: 4,449.56 -22.54 (-0.50%)
Russell 2000 1,144.72 -11.54 (-1.00%)

TLT: $115.67 +1.35 (+1.18%) : iShares 20 Year Treasury Bond ETF
LQD: $119.46 +0.46 (+0.39%) : iShares Investment Grade Corporate Bond ETF
JNK: $41.19 -0.10 (-0.25%) : SPDR Barclays High Yield Bond ETF
MUB: $109.03 +0.17 (+0.16%) : iShares National AMT-Free Municipal Bond ETF

VNQ: $76.03 -0.53 (-0.69%) : Vanguard REIT ETF (negative correlation with investment grade bonds)
KRE: 39.12 +0.03 (+0.08%) : SPDR S&P Regional Banking ETF
XLK: $39.70 -0.07 (-0.18%) : SPDR Select Sector Fund - Technology ETF
VWO: $44.88 -0.20 (-0.44%) : Vanguard FTSE Emerging Markets  ETF

Big Picture Synopsis:


Stable Vix Pattern (Bullish)
Use of the VIX as a Timing Model
Short Term: Market Needs a 15%+ Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish

In an article published by Seeking Alpha, David Stockman argues that ZIRP has dismantled "the market's natural stability mechanisms" which deters "excessive financial gambling".  The result in his view is that the stock market has coiled "dangerously upward, divorced completely from the fundamentals of earnings and cash flow and real world economic conditions and prospects".

I view the foregoing statements to be hyperbole and an exaggeration. However, I would agree with Stockman's general thrust that six years of extremely abnormal central bank policies, including ZIRP, have caused investors to drive up the prices of risk assets including bonds and stocks.

Bonds are probably being mispriced more than stocks in my opinion, but stocks have become mostly unappealing to me over the short term with a few exceptions.

After reducing my stock allocation by $31,000+, the net additions between February and June, Stocks, Bonds & Politics: Stock and Stock Fund Update 6/6/14, I have now embarked on reducing the allocation by another $23,000+ (the net additions between October 2013 and February 2014: Stocks, Bonds & Politics: Stock an Stock Fund Update as of 2/28/14)
Short to Long Term: Slightly Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization

The foregoing forecast is based on an average annual CPI rate of 2% to 2.25% over the next ten years. I am referring to the break-even spread for the 10 year TIP.   

Recent Developments:

CPI rose .3% in June on a seasonally adjusted basis and 2.1% over the past 12 months without seasonal adjustment. The rise in gasoline prices accounted for two-thirds of June's increase. Core CPI rose a less than expected .01% and is up 1.9% over the past year through June. Consumer Price Index Summary

Jobless claims fell to the lowest level since 2/18/06 for the week ending 7/19:

4-Week Moving Average of Initial Claims-St. Louis Fed

The HSBC flash manufacturing PMI for China rose to 52 in July, a 18 month high. markit

Markit's manufacturing PMI for the U.S. was reported at 56.3:

The Commerce Department reported last Thursday that new home sales fell 4.9% during the first six months compared to last year. WSJ Sales of new single family homes fell to a seasonally adjusted annual rate of 406,000 in June 2014 or 11.5% below the the June 2013 rate. This is disconcerting.

New home sales continue to hover near prior recession lows hit in 1970, 1974, 1982 and 1991:

New One Family Houses Sold: United States-St. Louis Fed

The new home sales may be one of the bears' better data points.

Coca Cola (own):

The Coca-Cola Company reported non-GAAP E.P.S. of $.64, beating the consensus estimate by 1 cent per share. Revenues declined by 1%. However, excluding structural changes, currency neutral net revenues grew 3%. Currency conversions continue to be a headwind for KO. Worldwide sparkling beverage volume grew 2% during the quarter. Still beverage volume increased by 5%. Still beverages include tea, water, sports drinks and juices.

Year-to-date cash from operations was $4.5B. The company expects that bottling transaction completed in 2013 would have a 1 to 2 point headwind on net revenues and an approximate 3 point headwind on operating income this year, up from a prior estimate of a 1% unfavorable impact on both revenues and operating income. A slightly lower tax rate than previously expected will partially offset the foregoing headwind, with the net result being about a 2 cent unfavorable impact to comparable E.P.S.

Earnings Call Transcript | Seeking Alpha

I view KO shares to be outside of a fair value range and have consequently ceased purchasing more shares with my dividend payments. I also simply do not want to own more shares.

I currently own 265+ shares at an average cost per share of $25.41. (snapshot in introduction section at KO)

The market reacted negatively to this report:

Closing Price 7/22/14: KO: $41.19 -$1.21 (-2.85%)

Closing Price 7/25/14: KO: $41.00 +0.03 (+0.07%)


Cascades Bond Redemption: 

The Canadian corporation Cascades, Inc. redeemed my 7.75% senior unsecured note at a 3.875% premium to its par value.

Bought 1 Cascades 7.75% Senior Bond Maturing on 12/15/2017 at 96.5 (9/1/11 Post)

Snapshot of Profit:

Cascades raised the funds necessary for this redemption by selling a 5.5% senior note maturing in 2022.

This is just one example among thousands where corporations are using the FED's Jihad Against the Savings Class to refinance existing bonds at much lower coupons while also extending the maturities.

Pepsico (own): 

PepsiCo reported adjusted earnings of $1.32 per share, nine cents better than the consensus estimate. Snack revenues grew 5% on a currency neutral basis, better than the 2% rise for beverages. The company raised its 2014 adjusted E.P.S. growth rate to 8% from 7% (currency neutral terms). Carbonated beverage sales declined 2% in North America with non-carbonated beverages increasing by 1% (e.g. Gatorade, Tropicana) Exclusive of currency impacts, PEP realized 8% Y-O-Y organic revenue gains in developing and emerging markets.

Earnings Call Transcript | Seeking Alpha

The market responded favorably to this report:

Closing Price on 7/23/14: PEP: $90.82 +1.65 (+1.85%)

Closing Price 7/25/14: PEP: $91.55 -0.36 (-0.39%)

I viewed the report with less enthusiasm.

I am not reinvesting the dividend.

Bought 50 PEP at $78.25 (2/25/14 Post)

Omega Healthcare (own):

Omega reported 2nd quarter FFO of $79.7M or $.63 per share. AFFO was reported at $.69 per share, up from $.62 in the 2013 third quarter. The company raised its 2014 AFFO guidance to a range between $2.82 to $2.85 and its 2014 Funds Available for Distribution guidance to a range between $2.58 to $2.51. Revenues rose 18.8% Y-O-Y to $121.8M vs. a consensus estimate of $96.5M.

I am not reinvesting the dividend.

Bought: 100 OHI at $29.85 (12/23/13 Post)

Closing Price 7/25/14: OHI: $37.93 -0.54 (-1.40%)

Realty Income (own): 

Realty Income reported that FFO per share increased 6.7% to $.64 compared to the 2013 second quarter. AFFO per share rose 8.5% to $.64 per share. Portfolio occupancy stood at 98.2%. Same store rents increased by 1.4%. Guidance for 2014 AFFO per share was given in a range between $2.55 to $2.57, an increase of 5.8% to 6.6% over 2013.

Realty Income's share price is currently outside of my fair value range for a purchase. I considered selling the shares when the price went over $45 but decided to hang onto them for now. I would anticipate a slow and steady increase in the dividend over time. Realty Income Common Stock Dividend History

The purchases of Omega and Realty Income were part of a sector rotation into REIT stocks which started last September. I am not reinvesting the dividend.

Item # 6 Bought: 100 Realty Income (O) at $36.96 (December 2013 Post)

Closing Price 7/25/14: O: $44.69 -0.03 (-0.07%)

General Electric (own):

In last week's post, I noted the weakness in GE's stock price. The price has now fallen below the 200 day SMA line: GE Interactive Chart Some of the reasons for this downdraft are discussed by analysts, whose opinions are summarized in this article.

I am in a hold pattern for my 531+ shares (average cost per share near $20), which means that I am neither a buyer nor a seller. The 2014 E.P.S. consensus estimate is currently $1.68 for 2014 and $1.83 for 2014. At a $25.8 price, the P/E is about 15.35 based on the 2014 estimate and 14.1 on the 2014 estimate.

I am not reinvesting the dividend:

Closing Price 7/25/14: GE: $25.79 -0.15 (-0.58%)


In this post, I am highlighting the stock fund dispositions that resulted in a $31,000+ net reduction in my stock allocation, when added to the ones previously discussed, the approximate increase in the stock allocation which occurred between between February and June 2014. I started this pairing process after performing this analysis in June: Stocks, Bonds & Politics: Stock and Stock Fund Update 6/6/14 I did not intend to add to my allocation. I am keeping track on a weekly basis now the dollar amounts of my buys and sells.

This reduction has been ongoing since early June 2014, so it took about one month. All of these funds may be bought back at lower prices. None are viewed as core stock fund positions and all have previously been bought and sold as trades. These kind of ETFs are used as a source of funds when I decide to reduce my stock allocation after a buildup.

1. Sold 100 ZTR at $14.43-Roth IRA (see Disclaimer):

Snapshot of Trade: 

Snapshot of History:

Total Dividends: $105.6

Snapshot of Profit: 
Total Return: $252.68 or 19.6% (holding period about 1 year)

Security Description: The Zweig Total Return Fund (ZTR) is a balanced CEF.

Data From Date of Trade (7/8/14)
Closing Net Asset Value Per Share: $15.82
Closing Market Price: $14.4
Discount: -8.99%
CEFConnect Page for ZTR

Sponsor's website: Closed-End Fund Detail | Virtus Investment Partners

Quarterly Report 3/31/14: Zweig Total Return Fund 

Total Realized Gains: $345.6 plus dividends

Rationale: I am de-risking my IRA accounts and reducing my overall stock allocation. This fund's bond allocation is weighted in very low yielding treasuries. 

I do not view those low yielding securities as providing meaningful income generation. And, the owners of ZTR are paying a management fee (about 1%) to own those low yielders. ZTR Possibly, if the managers traded those securities, harvesting the current profit, I would be more favorably inclined toward such a 20+% weighting, but I suspect that the managers will hold to maturity. I check the holdings in a September 2012 report and found the same treasuries, ZWEIG TOTAL RETURN, owned in the same amounts.

Future Buys: I may come back to this CEF after a significant correction resulting in a decline below my purchase price of $12.82 for this lot.

Closing Price Last Friday: ZTR: $14.37 -0.01 (-0.07%)

2. Sold 100 EWS at $13.68-Satellite Taxable Account (see Disclaimer): 

Snapshot of Trade:

Snapshot of History:

Dividends: $44.96

Snapshot of Profit: 

2014 EWS 100 Shares +$44.45
Bought Back 100 EWS at $13.1 (12/17/13 Post) 

Total Return=$89.41 or 6.79% (holding period about 8 months)

This was not a satisfactory return given the time period. 

Total Trading Gains: $170.82

Security Description: The iShares MSCI Singapore Index Fund (EWS) is an ETF that owns stocks in a Singapore stock index. 

EWS Page at Morningstar

Rationale: Non-core stock ETFs are viewed as a source of funds when I am reducing my stock allocation.

If I increase my stock allocation in the coming weeks, I will more likely buy an individual stock based on valuation rather than a fund, though I may add a small number of shares in low cost international stock ETFs that can be bought commission free which makes dollar cost averaging with small lots economical.  

Future Buys: I am in a trading mode for this stock ETF and will consider buying it back after a 10%+ correction in price.

Closing Price Last Friday: EWS: $14.05 -0.09 (-0.60%) 

3. Sold 100 ASEA at $17.14 (see Disclaimer):

Snapshot of Trade:

Snapshot of Profit:

2014 ASEA 100 Shares +$41.07
Bought: 100 ASEA at $16.57 (5/31/14 Post)

Security Description: The Global X FTSE ASEAN 40 ETF (ASEA) tracks the 40 largest companies located in the ASEAN region: Indonesia, Malaysia, Singapore, Thailand and the Philippines.

Sponsor's webpage: Global X ASEAN 40 ETF - ASEA

Prior Trades: Item # 1 Bought 100 of the ETF ASEA at $17.09 (January 2013)-Item # 4 Sold 100 ASEA at $17.8 (April 2013)

Rationale: Non-core stock ETFs are always viewed as potential candidates for disposition when I decide to reduce my stock allocation.

Future Buys: I will consider repurchasing this security after a correction that drives the price below $16 per share.

Closing Price Last Friday: ASEA: $17.42 -0.11 (-0.61%)

4. Sold 100 EWM at $16.17 (see Disclaimer):

Snapshot of Trade:

2014 Sold 100 EWM at $16.17
Snapshot of Profit:

2014 100 EWM +$78.46
Item # 7 Bought: 100 EWM at $15.23 (1/20/14 Post)

Dividend Received:

Total Return: $104.91 or 6.85% (holding period about 6 months)

Security Description: The iShares MSCI Malaysia ETF (EWM) is an ETF that owns stocks based in Malaysia.

Sponsor's website: iShares MSCI Malaysia Index Fund (EWM): Overview - iShares

EWM Page at Morningstar

Prior Trades: I realized a $172.64 trading EWM in 2013: Item # 5 Sold 100 EWM at $16.01 (9/21/13 Post)-Item # 4 Bought Back 100 EWM at $15.29 (8/17/13 Post); Item # 1 Sold 100 EWM at $16.45 (May 2013)-Item # 1 Bought 100 of the ETF EWM at $15.23 (January 2013)

Rationale: Non-core ETFs are viewed as a potential candidate for disposition whenever I elect to reduce my stock allocation.

Future Buys: I am apparently in a trading mode for this security, content with small realized gains.

Closing Price Last Friday: EWM: $16.13 +0.04 (+0.25%)

5. Sold 50 PIE at $18.95 (see Disclaimer):

Snapshot of Trade:

2014 Sold 50 PIE at $18.95
Snapshot of Profit:

2014 Sold 50 PIE +$31.57
Item # 4 Bought:  50 PIE at $18 12/3/13 Post)

Security Description: The PowerShares DWA Emerging Markets Technical Leaders Fund (PIE) is a quant fund that uses a momentum based technical strategy to select emerging market stocks.

Sponsor's Website: DWA Emerging Markets Technical Leaders Portfolio

Prior Trades: Item # 4 Sold: 50 PIE at $18.75 (10/11/13 Post)-Item # 3 Bought Back PIE at $17.63 (July 2013)Sold 50 PIE @ $20.06 April 2013-Bought 50 PIE at $17.08Item # 2 Sold 150 PIE at $16.76 September 2010-Bought 50 PIE at $10.01 October 2008Bought 50 PIE at $14.04 (2/2010)

Rationale: In addition to simply reducing my stock allocation, this ETF was selected for disposition due to its poor price performance.

Future Buys: I am having difficulty earning a decent return on this one, so I may need a large downdraft in price for a possible re-entry.

Closing Price Last Friday: PIE: $19.01 -0.05 (-0.26%)

6. Sold 100 CDZ:CA at C$26.45 (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Snapshot of Trade:

2014 Sold 100 CDZ:CA at C$26.24  
Profit in CADs: C$460
Proceeds: C$2,605.
Cost: C$2,145

Cost C$2,145
Snapshot of Profit in USDs:

2014 Sold 100 CDZ-CA +USD$186.13
Bought 100 CDZ:CA at C$21.26

Security Description: The iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ:TOR) is a Canadian ETF that owns Canadian dividend Aristocrats.

Prior Trade: Sold: 200 CDZ.TO @ 20.13 (Realized Gain: USD$285.19)-Bought 100 ETF CDZ:TO at 19.24 CADBought: 100 CDZ.TO @ 18.64 CAD

Total USD Realized Gains= $471.32 plus dividends

Rationale: I am hoping for a stock market correction and a potential re-entry point significantly lower than the current price. Due to the decline in the CAD/USD exchange rate during my ownership period, I realized a higher profit in CADs than in USDs. As a U.S. taxpayer, my taxable gains are computed in USDs rather than CADs.

Closing Price Last Friday: CDZ.TO: C$26.40 -0.05 (-0.19%)

7. Sold 100 FDL at $23.82 (see Disclaimer):

Snapshot of Trade:

2014 Sold 100 FDL at $23.82
Snapshot of Profit:

2014 Sold 100 FDL +$62.53
Bought 100 FDL at $23.04 (5/31/14 Post)

Snapshot of One Dividend Received:

Total Return: $81.82 (holding period about 1½ months)

Security Description: The First Trust Morningstar Dividend Leaders Index Fund (FDL) is an ETF that attempts to track, before fees and expenses, the Morningstar Dividend Leaders Index.

Sponsor's website: First Trust Morningstar Dividend Leaders Index Fund (FDL)

Rationale: This ETF was a recent add and was consequently viewed as a security that could be sold as part of my stock allocation reduction.

Closing Price Last Friday: FDL: $24.03 -0.10 (-0.41%)

8. Added 100 BTZ at $13.7-Roth IRA (see Disclaimer): Since I have not discussed any buys so far in this post, I decided to briefly mention this purchase, even though there are many other purchases and sales that have not yet been discussed occurring prior to this one. I recently noted that BTZ had been favorably mentioned in two financial articles: Morningstar and Barron's.

My most recent action was to sell shares in another Roth IRA account: Sold Roth IRA: 210+ BTZ at $13.62 (3/17/14 Post)(snapshot of profit=$128.85).

My last two purchases are discussed in these posts: Item # 3 Added 50 BTZ at $12.35 (8/31/13 Post)(snapshots of realized gains to that time=$413.8); Item # 4 Added 70 BTZ at $12.63 (7/13/13 Post)

The rationale and risks for this investment are discussed in those two posts. I am mostly concerned about interest rate risks and what I call normal risks associated with leveraged closed end bond funds particularly during periods of rising rates and/or market stress.

Snapshot of Trade: 

Snapshot of Vanguard Roth IRA Account BTZ History: 

I bought the first 100 share lot in this account back in December 2012. Initially, I elected to receive the dividends in cash. When interest rates started to rise last year, I switched to reinvestment and have thereafter been buying more shares with the monthly dividend payment.

The current monthly dividend rate is $.085 per share or $.966 annually. BlackRock Credit Allocation Income Trust (BTZ) Dividend Date & History - Assuming a continuation of that rate, which is in no way assured, the dividend yield would be about 7% at a total cost of $13.7 per share.

When owned in the Roth IRA, that yield becomes a tax free one.

CEFConnect Page for BTZ

Data on Date of Trade (7/21/14):
Closing Net Asset Value Per Share: $15.51
Closing Market Price: $13.67
Discount: -11.86%

Under the "Portfolio Characteristics" tab at CEFConnect, the fund is weighted in investment grade bonds but has a significant allocation to junk rated securities (as of 4/30/14: BB=21.7%; B=13.8%; CCC=2.7%)

Sponsor's Website: Credit Allocation Income Trust | BTZ (number of holdings as of 6/30/14=573; effective duration shown at 5.64 years-Get to know your bond fund: Duration| Vanguard)


Snapshot of Position in Taxable Account as of 7/21/14:

BTZ Taxable Account Position as of 7/21/14=361+ Shares Unrealized Gain +$204.45
I am no longer reinvesting the BTZ dividend paid into that taxable account.

I may sell those shares when and if I become even more concerned than now about a rise in rates. The inevitable rise in short term rates will result in an increase in borrowing costs for leveraged CEFs. If that occurs when intermediate and longer term rates are also rising, then the bonds owned by the fund will also be declining including those securities bought with borrowed funds. The discount to net asset value per share would likely be expanding too in that scenario (e.g. rates rising throughout the maturity spectrum), creating a triple whammy for owner's of leveraged bond CEFs. .

Closing Price Last Friday: BTZ: $13.72


Politics and Etc:

1. Russia and Korean Airlines Flight 007/USS Vincennes and Iran Air Flight 655: 

As a reminder, just in case anyone forgets about Russia's true nature, Putin gave a medal to the Soviet commander, Anatoly Kornukov, who ordered the murder of 269 civilians, including a U.S. congressman, aboard Korean Air Lines Flight 007 in 1983. Kornukov ordered the murder of those civilians even if it was confirmed that the plane was a civilian aircraft and its destruction occurred over international waters. Russia at first denied responsibility and interfered with efforts to recover the bodies. When confronted with incontrovertible evidence of its complicity, Russia claimed that its actions were justified since the civilian airline was a spy mission that apparently could not be carried out by satellites and reconnaissance aircraft specifically designed for that purpose.

The U.S. Navy shot down an Iranian civilian aircraft in July 1988, Iran Air Flight 655, mistaking that aircraft for a F-14 Tomcat fighter which has no anti-ship capability at the time. Naval Science 302 The U.S. admitted that it shot down the aircraft and eventually paid reparations belatedly in 1996 after being sued in the International Court of Justice. The actions of the Captain and crew of the Vincennes were in my opinion negligent.Vincennes: A Case Study | U.S. Naval Institute This incident occurred near the end of the Iran–Iraq War, started by Saddam Hussein who later received support from the U.S. United States support for Iraq during the Iran–Iraq war There were Iranian attacks on shipping in the Strait of Hormuz. An Iranian F-1 Mirage jet did attack a U.S. navy frigate, the USS Stark, in May 1987 killing 37 sailors.

2. Is Free Water a Constitutional Right?: I was struck by the protesters in Detroit, a city so messed up that it had to file for bankruptcy, who were complaining about water shutoffs for customers who refused to pay their water bill. Of 175,000 customers, Detroit has about 80,000 customers who owe $43M. The city had to raise water rates recently to those who pay their bills due to that widespread delinquency. The protesters believe that water is a human right that has to be provided free of charge or paid by taxes imposed on "Wall Street". MarketWatch 

After much observation for several decades, I have determined that freedom from responsibility must be a constitutional right in the U.S., perhaps embodied in one of the "penumbras" and "emanations" appearing between the lines of the Constitution and observed by the Supreme Court in Griswold v. Connecticut. After all, that freedom is so prevalent in modern day America. Stocks, Bonds & Politics: Freedom From Responsibility

The general predisposition is to tell the government what you want from it, either free of charge or heavily subsidized, and then the government borrows money to fund those wants and desires. Borrowing increases exponentially over time since an important corollary is that the citizens do not actually want to pay for what they receive because they are after all entitled to it because they exist. Freedom from responsibility is nurtured, encouraged and rewarded by the government.

3. Who Is the Daddy Show? I watch almost no TV. However, when I visit my mother who is attended 24/7 by caregivers, the TV is always on and my senses are bombarded by whatever passes for entertainment in the U.S. now.

One of those shows being watched probably has a name, but I simply call it "Who Is My Daddy Show". Women bring their child or children to the show and are joined by a man or men who might be the daddy. DNA tests are given to determine who is the Daddy. Sometimes, it is necessary for the woman to appear on several shows before the real Daddy is discovered. The behavior during the show is hardly reflective of our species best attributes.

4. Abortion and Birth Control: The Supreme Court's decision in Griswold struck down a law in Connecticut that made it unlawful to sell birth control. For many, and this never has made any sense to me, abortion and birth control are synonymous, and they are intent in imposing their beliefs on the rest of society with their usual amount of zealotry.

{In this connection, I would simply note that 46% of Americans believe that the earth is less than 10,000 years old, CNN, and among those True Believers is none other than Mark Rubio who may just be our next President. The monument to their religious beliefs is the creation museum in Kentucky which shows Adam and Eve walking with the Dinosaurs, NYT; Creation Museum|Vanity Fair. Perhaps those TBs can be excused from science classes, obviously a waste of time that would be better spent learning the bible by heart and then reciting it with your head bobbing up and down. There are stories in the Bible justifying being stoned to death, and maybe an exception to murder can be made for such "honor killings" based on religious beliefs in the future. I came up with a list of possible offenses: BIBLE VERSES}

Recently, the "conservatives" on the Supreme Court struck down a provision in Obamacare that required employers to provide contraceptives in their insurance plans.

I was struck by signs carried by those outside the Court that basically equated contraception and abortion.

The purported rationale for the decision was that the state was interfering with the free exercise of religion by corporations.

The republicans later blocked action in the Senate that sought to remedy the problem. Senate GOP Blocks Bill -USA Today The powerful and large American Taliban wing of the GOP is dead set against it. I will be voting in the Republican primary here in Tennessee on 8/7. I will not be voting for the Tea Party candidates. I will cast a vote for Senator Lamar Alexander (R).

5. Putin TV: There is no free press in Russia. The media operates to further Putin's interests and those of his cronies. Frequently, the propaganda can only be labelled as so ridiculous that one has to wonder whether anyone is sufficiently stupid to swallow it. I believe that a clear majority of Russians accept Putin's reality creations and support his policies. A new Gallup Poll reflects that his approval rating in Russia has hit an all time high at 83%. NBC

Russian media is controlled by Putin, who operates with no checks and balances other than possibly from the KGB or the Russian military, and would never investigate for example Russian complicity in the shoot down of Malaysian Flight 17. Instead, CBS, Bloomberg and other media outlets report that Russian stations refer to Ukraine shooting down MH17 in a mistaken effort to kill Putin or that the plane was struck by shrapnel from a Ukrainian artillery shell. CBS NewsBloomberg Businessweek"Russian Disinformation"-Accuracy in Media"Russia Conspiracy Theories"| New RepublicRussian Media

"In Russia, Crime Without Punishment | TIME"