AMAT/Bought 1 CoreLogic 7.55% Senior Bond Maturing 4/1/2028 at 84.95/Sold 100 TY at $15.65 & Bought 200 FOFI at $6.77/Sold 1 Telecom Italia Capital 5.25% Senior Bond at 101.328 Maturing 11/15/2013

Macy’s reported 4th quarter adjusted E.P.S. of $1.74, beating the consensus estimate of $1.65, and up from $1.57 in the year ago quarter. Same store sales increased 5.2% during the quarter. I own 1 bond. Bought 1 Macy's 7.851% Senior Bond Maturing in 2030 @ 99.5 That bond was originally issued by May Department Stores. This bond trades infrequently. FINRA It is the probably the only bond purchased as part of the Junk Bond Ladder strategy that is now rated investment grade at Baa3 by Moody's and BBB- by S & P.

Xerox, one of the few LT selections with a recognizable name, was upgraded to buy by TheStreet's rating system.

The GOP front runner for President, Preacher Rick Santorum, who is apparently on a personal mission from GOD to save the U.S., gave an interesting speech about how Satan has been attacking the U.S. for 200 years and will continue to do so. CNN.com There is no question who, in Santorum's mush of a mind, is carrying Satan's water in the political arena.

All of my 1099s from brokerages are delayed due to reporting issues. I received a notice last night that the first one was available for download into TurboTax. I quickly noticed one error where the broker reported a zero cost basis for security and treated the entire sales price as a gain. The security was bought via that broker and the gain was actually $16.55 rather than the reported $1250. I just wanted to warn everybody to check each item.

I also found out quickly that even the deluxe TurboTax requires an override entry to deal with accrued interest paid to bond sellers. That program is entirely silent on how to deal with the issue which is negligent on their part. If I did not know better, I could easily have paid several hundred more in taxes that was not owed by me.

When I buy a bond in the bond market, I have to pay accrued interest to the seller. The total sum was close to $2,000 for 2011. My broker included the interest that I paid to the sellers in the amount reported as interest paid to me in the recently reviewed Form 1099. In other words, say I paid $30 in accrued interest to the bond seller and then received in three months $60 in interest from the company. The broker would include the entire $60 as paid to me.  Accrued Interest on Bonds

It is my understanding that I can deduct those interest payments made to the bond seller as a line item in schedule B, provided I received the interest payment in 2011, and the broker included the entire amount in the 1099. I could only make that entry in TurboTax by entering an override in that schedule. I discuss this issue more fully in Item # 1 Tax Accounting For Bonds Purchased and Sold in the Secondary Market. I made a snapshot of accrued interest paid in 2010 in that post, which could not be used then as an offset because I had not been paid interest by the bond issuer yet.

See: IRS Publication 550 (2010), Investment Income and Expenses

1. Added 1 CoreLogic 7.55% Senior Bond Maturing 4/1/2028 at 84.95 Last Thursday (Junk Bond Ladder Strategy)(see Disclaimer): This bond was originally issued by First American. I explain in a prior post why this bond is now a CoreLogic obligation. Item # 3 Bought 50 of the TC PJS at 24.84 Corelogic is a publicly traded company: Profile and Key Developments

This bond is also the underlying security in the trust certificate PJS which also has a 7.55% coupon. The par value of that TC is $25. On the day of my purchase, Merrill Lynch Depositor Inc. PreferredPLUS 7.55% Trust Cert. Series FAR-1 for First American Corp., (PJS) closed at $24.91. At that price and a typical online commission, the current yield and the YTM for PJS would be very close to its 7.55% coupon. I receive a better deal by buying the bond rather than this TC. My confirmation states that the current yield at my cost 8.804% and the YTM is 9.268%:

The bond lacks liquidity however. As shown by the data at FINRA, trading is infrequent. I could probably sell PJS virtually any trading day provided I was willing to hit the bid price. I have traded that security successfully, booking several interest payments and a number of gains. The following are snapshots of the two best trades, and all of them have been profitable:

2010 ROTH IRA 100 PJS +$ 1,079.22

2010 Taxable Account 250 PJS +$1,10018 

This bond was trading infrequently before a large quantity was redeemed by the issuer.  Originally, there was $100 million outstanding. As of 9/30/11, there was only $59.645M left. The smaller quantity contributes to the illiquidity. There is another senior note, with a 7.25%, maturing in 2021, FINRA, with $400M outstanding and a 8.5% subordinated note in the amount of $34.768M due this April. {Page 15 CLGX-9.30.11-10Q}

The current consensus estimate is for a 2012 E.P.S. of 95 cents. 

2. Sold 100 of the Stock CEF TY at $15.65 and Bought 200 of the CEF FOFI at $6.77 (see Disclaimer): The OG wanted to add some spice to the portfolio, though only in a small dose, by buying 200 of FOFI and selling 100 TY. The OG needs to limit the intake of spice  to avoid hyperventilation. Tri-Continental is a more staid investment fund than the First Opportunity Fund (FOFI) which is traded on the pink sheet exchange. FOFI 

While TY sells at a significant discount to its net asset value per share, FOFI has one of the largest discounts among closed end funds. This fund reports NAV weekly, rather than daily, and the last number prior to my purchase originates from 2/10/12. At that time, the net asset value was reported at $9.02 per share and the closing market price that day was $6.65. The discount to net asset value was therefore -26.27%. That kind of discount would inform  investors that something is unusual about this fund. As of 2/17/12, the net asset value per share was reported at $9.1, creating a -25.82% discount based on a closing price of $6.75.

The fund originally invested in financial stocks. The fund management changed when the Horejsi family and their related trusts acquired a substantial stake in the fund. FOFI.PK Major Holders Stewart Horejsi is one of the largest individual investors in Berkshire Hathaway. Phoenix Business Journal Forbes Mr. Horejsi started out as an owner of welding supply business in Salina, Kansas. THE WELDER

The primary change so far has been large investments in four hedge funds affiliated with Wellington Management Company. As of  9/30/11, those 4 hedge funds accounted for 52.5% of the fund's assets:

FOFI Hedge Fund Investments as of 9/30/2011

First Opportunity Semi-Annual Report I do not know anything about those hedge funds. I did read an interview with a mutual fund manage who asserted that the Bay Pond Partners fund, run by Nick Adams, was "highly successful" and closed to new investors. TheStreet The fund also has a sub-advisory agreement with Wellington to manage the "legacy" individual securities.

So, the interesting feature for me at least is that I am buying, indirectly of course, an interest in those hedge funds at a discount.  It would not be correct to say that I am buying those hedge funds at a discount, since I have no control over what the fund does with those positions. If the discount does not narrow, and it may persist at high levels, I do not realize a benefit from that discount, unless the fund sales those positions for a profit and then distributes the capital gains to its shareholders.

Website: First Opportunity Fund 

List of Holdings at Sponsor's Website:  Fund Holdings

CEFA Page for First Opportunity Fund

Morningstar currently has a 3 star rating on FOFI.

This is a link to the 13G filings made by Bay Pond Partners, one of FOFI's holdings. The first one in that list was for Old Line Bancshares (OLBK), sec.gov; the second one was for Monarch Financial Holdings, (MNRK), sec.gov; and the third one in a long list was for Citizens Republic Bancorp,  (CRBC), sec.gov I randomly checked a few more, and they were small banks or mortgage REITs. I would not pay anyone to make these selection when HQ has LB running our REGIONAL BANK BASKET STRATEGY for free.

First Opportunity  is traded on the pink sheet exchange after the NYSE delisted it in the "public interest". www.sec.gov This was due to the fund's decision to invest significant amounts in private equity funds.

First Opportunity Fund closed at $6.77 in trading yesterday.

A recent detailed discussion of another Horejsi controlled CEF, Boulder Total Return, can be found at Morningstar. I would pay particular attention to the points made by the author on page 2 of that article. Those points warrant, in my opinion, a cautious approach to Horejsi controlled CEFs. I have bought and sold the Boulder Total Return fund and currently have no ownership stake. Please note that my position in that fund was just 100 shares:

3. SOLD 1 Telecom Italia Capital 5.25% Bond Maturing 11/15/2013 at 101.328 Last Thursday (see Disclaimer): While this bond is barely investment grade, I was not enthusiastic about its yield.  When I bought this bond at 96.429 (12/23/11 Post), I noted that the current yield was 5.399% at my cost, with the YTM at 6.829% which is actually good for any investment grade bond with a similar maturity. By selling the bond at over its par value, I more than captured that part of the YTM associated with the profit on the bond at the 11/15/2013 maturity.

Still, I am not interested in that kind of yield, notwithstanding the Fed's Jihad Against the Saving Class and its likely duration. This is particularly the case when held in a taxable account where the interest is taxable by both the Feds and by Tennessee's 6% income tax on dividends and interest.  So I took my $32.99 gain, plus interest, and will take more risk elsewhere for a better yield. 

4. Applied Materials (own: Large Cap Valuation Strategy): For its 2012 fiscal first quarter, Applied Materials reported a non-GAAP E.P.S. of 18 cents (9 cents GAAP) on net sales of $2.19B. The consensus estimate was for non-GAAP E.P.S. of 12 cents on $1.97B in revenues. Revenues were down 18.5% year over year.

The company sees "solid order momentum and improved outlook for our second quarter." SEC Filed Press Release AMAT expects second quarter sales to be up 5% to 10% sequentially, with non-GAAP E.P.S. falling in a range of $.20 to $.28. Prior to that forecast, the consensus estimate was of 16 cents.

I have traded AMAT profitably, always in small lots, and currently own just 50 shares. Bought 50 AMAT at $12.45 AMAT is currently paying a 8 cent per share quarterly dividend.

Applied Materials fell 20 cents in trading yesterday to close at $12.71. 

Junk Bond Ladder Table/Bought 1 7.55% CoreLogic Senior Bond Maturing 4/1/2028 @ 94.975/BDGE CBU UBSI KO VLY JNJ DXY/Added 100 of the Stock CEF JSN @ 12.51/Bought 1 Travelport 11.875% Senior Sub Maturing 9/1/2016

Based on a study conducted by USATODAY.com, wages now account for the lowest shares of Americans' income since the government started to keep statistics in 1929.  And, a record 18.3% of the nation's total personal income comes from payments made by the federal government. Those payments are made pursuant to Social Security, Medicare, food stamps, unemployment benefits, and other federal programs. 

The U.S. Dollar Index hit a new two year low yesterday, DXY Index Chart, as the USD continued its slide against a basket of 6 currencies. MarketWatch This most recent slide in the USD's value is pretty much across the board.  One AUD will now buy more than 1.09 USD. AUDUSD  One CAD will more more than 1.05 USD. CADUSD=X. Gold rose over $14 per ounce yesterday. Live Gold, Silver Spot  Gold Price Silver is near $50 an ounce. The ETN  for the DJ-UBS commodity index (DJP) is trading well above its 200 day moving average line:  iPath Dow Jones UBS Commodity  Chart  I own two "principal protected" notes with $10 par values whose coupon payments are linked to the performance of that index.

According to the IMF, China's economy will exceed that of the U.S. in 2016. IMF bombshell Will the 'Age of America' end in 2016? - CNN.com

The Federal Reserve's balance sheet has hit an all time record, possibly they can make a tender offer for the S & P 500 companies with the 2.695 trillion dollars currently on their expanding balance sheet.  No, I don't think that would be enough.  More money needs to be created. Maybe in a few years those USDs can replace monopoly money.

Johnson and Johnson (JNJ-own) raised its quarterly dividend from 54 to 57 cents. Johnson & Johnson Announces Dividend Increase of 5.6%  The raise last year was from 49 to 54 cents.  Johnson & Johnson Announces Dividend Increase of 10.2%

1. UBSI BDGE CBU VLY (own: Regional Bank Stocks' basket strategy)

United Bankshares (UBSI) reported 1st quarter net income of 17.9 million or 41 cents per share, up only slightly from the 40 cents earned in the year ago quarter.  As of 3/31/2011, NPLs to total loans were at 1.4%; the efficiency ratio was okay at 53.44%, the coverage ratio was comforting at 100% (peer group average was 77.6% as of 12/31/2010): the total risk based capital ratio was estimated at 13.9%, and the net interest margin was relatively good at 3.92%.  The capital ratios are clean in that there is no government money providing equity capital.  In previous posts, I indicated a desire to sell UBSI when the price hit 30.

I have expressed that desire twice and have yet to sell the shares even though I could have done so at that price.   There are a few reasons for holding UBSI.  The dividend yield at my constant cost is around 7.25%, based on the current annual rate of $1.2 per share.   Bought 50 of UBSI at $16.56 The bank also appears to be relatively well run, meaning that a swashbuckler Master of Disaster is not in charge.  It is important that the bank made it through the Near Depression period without cutting the dividend.  And, the bank has been moving into higher growth areas outside of its base in WV. I would also view the bank as a potential acquisition target. 

 Some countervailing considerations is that the dividend growth rate is anemic.  The annual dividend in 2003 was $1 per share and is now $1.2 in 2011.  The earnings growth rate and the payout ratio suggests that trend is likely to continue.  I also have a decent percentage long term capital gain in the shares.  

United Bankshares has 111 branches mainly serving West Virginia and the District of Columbia metropolitan area.  The bank has about 10% of the deposits in WV.  The bank has grown with almost 30 acquisitions since 1982. 

Bridge Bancorp (BDGE) reported a 1st quarter E.P.S. of 34 cents or 36 cents without the acquisition costs associated with its purchase of Hampton's State Bank. The core net income number was 9% higher than the 1st quarter of 2010. As of 3/31/2011, the net interest margin was relatively good at 4.14%; loan growth was at 15% compared to the first quarter of 2010; deposits grew 20%; the total capital to risk weighted assets ratio was 13.6%; the tier 1 capital to risk weighted assets was 12.3%; NPLs to total loans were at 1.43%; the allowance for losses to NPLs was a comforting 120.67%; and the efficiency ratio was okay at 61.72%. Bridge did not participate in TARP: SEC Filed Press Release In my parlance, its equity ratios are clean.

Bridge is a new edition to the regional bank basket strategy.  I am reinvesting the dividend.  Bought 50 BDGE at 23.11 Bought: 50 BDGE @ 22.14  I am a few bucks in the red so far.

Community Bank System (CBU) reported net income of 16.2 million, a 15.4% increase over the 1st quarter of 2010. Earnings per share were up 14.3% to 48 cents per share, including a 1 cent acquisition related expense. This was the Wilber acquisition which was owned at the time of the merger announcement. The consensus estimate made by 5 analysts was for 46 cents per share in earnings.   CBU Analyst Estimates  CBU  is a new addition to the regional bank basket strategy, and I am near break-even so far. 

Valley National Bancorp, one of my larger holdings in the regional bank basket, announced after the close yesterday that it will acquire State Bancorp (STBC), based on a fixed exchange ratio of one VLY share for each share of STBC.  State Bancorp is a small bank with 17 branches and provides Valley an entry into the Long Island market. Upon completion of this acquisition, VLY is expected to become the 37th largest commercial bank in the U.S.  Last year, Valley acquired two banking institutions, Liberty Pointe and The Park Avenue Bank (Form 8-K), in an FDIC assisted transaction.  SEC Filed Press Release announcing the Park Avenue Bank Acquisition  SEC Filed Press Release announcing the LibertyPointe Bank Acquisition I discussed VLY's first quarter earnings' report in yesterday's post.

2. Coca Cola (own: Common Stock Dividend Growth Strategy):  Coca Cola missed the consensus estimate by one cent. The company reported a net income of 1.9 billion or 82 cents. On an adjusted basis the company reported 86 cents per share.   KO grew earnings in the first quarter by 18%, with 6% worldwide volume growth or 5% excluding new products. North American volumes were up 2%. This report is discussed at several financial sites including  MarketWatch,  Bloomberg,  and Reuters.  I recently quit reinvesting the dividend to buy additional shares.

I have booked some profits on KO shares but still owns shares bought in March 2009  at $38.72 and two 50 share purchases in April 2010. ADDED 50 KO AT 54.26 (4/7/2010 Post)  Bought 50 KO at 53.77 (4/24/2010). I go into some detail about KO's dividend growth in Item #1 Barrons (August 15, 2009 Post). The current quarterly dividend is 47 cents per share: Coca-Cola - Press Center  - Quarterly Dividend  The annual dividend rate per share was 88 cents in 2003 and $1.76 in 2010.   

3. Bought 1 CoreLogic 7.55% Senior Bond Maturing 4/1/2028 at 94.975 Last Tuesday (Junk Bond Ladder Strategy) (see Disclaimer):  This bond was originally issued by First American and is now an obligation of  CoreLogic for the reasons discussed in several prior posts. See, e.g. Item # 3 Bought 50 of the TC PJS at 24.84

This bond is the underlying security in the Trust Certificate PJS which I also own. TCs are in effect Exchange Traded Bonds.   I have bought and sold that TC many times and have already booked some significant capital gains.  Since I have owned that TC in various quantities for over 2 years, I have also received several semi-annual interest payments. Bought PJS at 7.2-October 2008 Bought 50 PJS at 17.95 August 2009 Bought 50 PJS at $17.8 in Roth  Sold ALL PJS at 24.75 & 24.65 Bought 50 PJS at 23.73 Sold PJS at 25.45 Bought 50 of the TC PJS at 24.84 Bought 50 PJS @ 24.6 This TC has the same 7.55% coupon as the underlying bond:  www.sec.gov I currently own 150 shares and this security just went ex interest for its semi-annual interest payment.   Preferredplus Trust Series Far 1, PJS Stock Quote  Since I now own the underlying bond, I may sell 50 or 100 shares of my TC position when and if the price exceeds the $25 par value.

By buying the bond directly, I received a slightly better current yield and YTM compared to buying more PJS.  This bond will be harder to trade than the exchange traded TC. I look at what can be bought in small amounts in the bond market at least twice a day and this bond has not been available in less than a 5 bond lot until Tuesday over the past several months. And,  no bids have ever been shown for this bond for as long as I have looked at it, so I suspect that it will be virtually impossible to sell a 1 bond position.   Twenty bonds were available when I placed my order, with the minimum lot being 1 bond, so I bought just 1.

This is a link to the  FINRA information about this bond.

This is a link to the prospectus: www.sec.gov

The current consensus estimate for CLGX is for an E.P.S. of $1.12 in 2011 and $1.29 in 2012: CLGX Analyst Estimates | CoreLogic, Inc.   A description of this company can be found at  Reuters.com, and I also reviewed the Key Developments page at Reuters.com even though I am already familiar with this company.

This is a link to the recently filed Annual Report: form10k  I will always try to review the most recent information that falls under the headings of "long term debt" and "liquidity and capital resources.". (see pages 43-46; and pages 68-70). Some of the history of the 7.55% bond can be found at page 45 and at page 70.  It is listed among the long term debt obligations at page 68.  

My confirmation states that the current yield at my cost is 7.883% and the YTM is 8%.

4. Added 100 of the Stock CEF JSN at 12.51 Last Tuesday (see Disclaimer): I own 259 shares of JSN in a Roth IRA and added 100 in a taxable account last Tuesday.  I recently discussed this stock CEF and have nothing to add to that discussion:  Item # 3 Added 50 JSN at 12.23 in Roth IRA  As of 4/27/2011, the net asset value was $13.79 per share and the discount to net asset was -9.21% based on a closing price that day of $12.52. CEFA 

5. Bought 1 Travelport 11.875% Senior Sub Bond Maturing on 9/1/2016 at 92 Last Tuesday (Junk Bond Ladder Strategy) (see Disclaimer):  This brings me up to 3 Travelport bonds, which is precisely three more than the OG's comfort level.  The yield enticed the RB to lobby the OG, who is obviously suffering from some sort of old age issue, to buy one more.  It will not be long, LB added for good measure, before the OG embarrasses all staff members by leaving HQ without his pants.   It was noted by several staff members here at HQ that the OG's hand was trembling before hitting the buy button, and he was heard to mutter "I don't want to start eating at Mission's soup kitchen, they do not even have cheeseburgers".

Travelport has recently been sued by American Airlines.  Travelport characterizes that suit as meritless and states in its press release that AMR is using litigation as a bargaining tool in connection with a new contract. Travelport 

I have nothing to add to my prior discussions of Travelport:   Bought 1 Travelport Senior 9% Maturing 3/1/2016   Bought 1 Travelport 9.875% Senior Bond Maturing in 9/1/2014

This is a link to the FINRA Information  on this bond.  It is of course rated DEEP into junk terriotory and would be characterized by any sensible person as very risky.   Please note that it is a "senior subordinated" bond.  LB calls that kind of bond a junior bond.  It is junior to both senior unsecured debt and senior secured debt.  You would be hard pressed to find a "senior subordinated" bond that is senior to any bond in the capital structure.  

This is a link to the prospectus:  www.sec.gov

This is a link to the recently filed Travelport 2010 Annual Report: 10-k  It would be nice to see the company turn a profit for a change (see page 39).  The company did report revenues of 2.29 billion dollars in 2010 and a net loss of 43 million, which RB characterizes as a vast improvement over the 871 million lost in 2009.  LB disclaims any connection with anything the OG and its Nit Wit ally are doing now in either the LT strategy or the Junk Bond Ladder Strategy.

My confirmation states that the current yield at my cost is 12.796% and the YTM is 13.813%.  It also shows that Moody's rates this bond at Caa1 and S & P has it at CCC.  The OG regards ratings that begin with the letter "C" to be equivalent to flashing red lights and blaring warning sirens.

6. JUNK BOND TABLE: This is a snapshot of my junk bond ladder table prepared by my broker.  For the first time, I was able to exclude the Prudential investment grade bond position in this table. The green in 2021 and 2022 represents $922 in interest payments for bonds maturing after 2022:

Added: PJS at 24.72, 50 TRST @ 5.48/RNST HCBK/SOLD: 100 FSBK @ 10.1, 50 PG at 63.33, 100 BTF at 15.56

The preceding table consists of stocks currently in the regional bank basket. After selling a number of names, I was finally able to take a snapshot of it. Modification Regional Bank Strategy For stocks with multiple trades, I just use the average cost of the owned shares as the "price paid" and use the date of the last purchase as the trade date. The dividend yield shown is at the closing market price for yesterday, not at my cost. The table only includes unrealized gains and losses. I am keeping track of the realized gains in another post: Item # 2010 Realized Gains Regional Bank Stock (close to +$2500 this year). I am not keeping track of the dividends paid and how those payments impact my overall return, though I have made a deliberate effort to pick a number of the better yielding regional banks for this basket. I am not keeping track of reinvested dividends in this table, and are currently reinvesting dividends in a number of them. I do track stock dividends. A 2% stock dividend was recently paid by HFBC, and I received earlier in the year a 5% stock dividend from VLY. My last post of this table was back in June: Added 50 EBTC at 10.33.

I previously mentioned that one of my equity preferred stocks, ORHPRA, was called by the issuer at its $25 par value, and I received the proceeds from that redemption yesterday. This one had a 8.125% coupon.

It should come as no surprise that Christine O'Donnell does not believe in separation of church and state. WSJ Her ignorance knows no bounds.

1. Added 50 shares of TrustCo Bank Corp NY (TRST) at 5.48 on Tuesday (Regional Bank Stocks basket strategy)(see Disclaimer): The 1 analyst that provides earnings estimates predicted an E.P.S. of 8 cents for the 3rd quarter. TRST reported net income of 8.4 million or $.109 per share. SEC Filed Press Release As of 9/30, the total risk adjusted capital ratio was 13.76%; the efficiency ratio was 49.06% (the lower the better); NPLs to total loans was at 2.15%; the net interest margin was 3.42%; NPAs to total assets was a respectable 1.44, and the coverage ratio was at 80% (i.e. allowances for loan losses divided by total NPLs). I do not like to see a number below 50 on the coverage ratio in the current economic environment, and am much more comfortable with a ratio over 100%. I am okay with 80% and a relatively low NPLs to total loans.

The dividend is covered by earnings. The current rate is $.066 per quarter, which was raised 5% last August. SEC Filed Press Release Assuming that rate continues, the yield at a total cost of $5.48 is around 4.82%.

This bank has 133 branches: Trustco Bank: Branch/ATM Locator - Home A recent article discussing this bank can be found at Seeking Alpha. This last purchase brings me up to 220 shares, excluding reinvested dividends.

2. Renasant (RNST)(own regional bank basket strategy): I recently sold my highest cost shares of RNST at 14.91 and kept my lowest cost shares bought at 13.70. Renasant reported GAAP net income of 19.551 million or 81 cents, but that number includes a pre-tax gain of 42.2 million connected with the FDIC assisted acquisition of assets from a North Georgia bank. I found it annoying that the company did not break out the earnings before that accounting gain. The consensus estimate was for 19 cents, which most likely did not include the acquisition gain. The StreetInsider says the E.P.S. number was 18 cents without the extraordinary item, but I did not attempt to verity that number.

The net interest margin fell to 2.81% from 3.15% in the prior quarter. NPLs to total loans stood at 2.93%, and the allowance for loan losses as a percentage on NPLs was 68.8%. The capital ratios remain above well capitalized levels, with the total risk-based capital ratio at 14.8%.

3. Hudson City (HCBK)(own regional bank basket): Hudson City Bancorp reported net income of 124.6 million, down from 135.1 million in the 3rd quarter of 2009. Third quarter E.P.S. was 25 cents, down from 27 cents earned in the 2009 linked quarter. The estimate was 26 cents. As of 9/30/2010, Hudson's efficiency ratio was an excellent at 20.27%; the net interest margin was disconcertingly low at 1.97%; NPLs to total loans was a tad above my comfort level at 2.64%; NPAs to total assets was at 1.45%; the allowance for loan losses to NPLs continued at a potentially problematic 25.83%; tangible book value per share was $11.08; and the capital ratios remain good with the total capital risk-based ratio at 22.42%.

The President of HCBK explained Hudson's current problem as follows: "The continued low interest rate environment further negatively impacted our net interest margin in the third quarter. We believe that these historically-low market interest rates coupled with the expected second round of quantitative easing by the Federal Reserve Board will continue to place pressure on our net interest margin for the remainder of 2010. Asset growth in this environment is just not prudent."

The consensus earnings estimates for 2010 and 2011 are $1.1 and $1.11, or no earnings growth in the current rate environment. Hudson may very well be a 2012 story, assuming the Fed has ended its Jihad before then.

4. Bought 50 of the TC PJS at 24.72 in the Roth IRA (see disclaimer): Needless to say, the options for an income investor have been fluctuating lately between bleak and dismal as the Fed's Jihad against savers continues deeper into its third year. As a result, I am revisiting trust certificates previously sold.

I made an excellent buy of PJS during the Dark Period at $7.2. Bought PJS at $7.2 I sold those shares, along with shares bought at less than $18, after the issuer made a tender offer at this TC's $25 par value: Sold ALL PJS at 24.65 and 24.75 So, in my continuing effort to , I bought some of the shares back in the Roth IRA at 24.72 on Wednesday. This TC just went ex interest for its semi-annual payment in late September. PJS Stock Quote

I have explained this TC's history in another post. The underlying bond in PJS is a senior bond, originally issued by the title insurance company First American. I believe that that this bond is currently an obligation of CoreLogic Inc, (CLGX), which was part of First American before the title insurance operations. The operations that became CoreLogic were separated with CLGX becoming the successor corporation to the old First American and the title insurance company becoming a separate corporation traded under the First American Financial name, and the symbol (FAF) of the old First American that originally issue the bond. (see discussion at Item # 3 TC PJS).

Both the TC and the underlying bond have the same coupon of 7.55% and mature in 2028. (prospectus: www.sec.gov). The underlying bond was rated investment grade prior to the separation and is currently rated B1 by Moody's and B+ by S & P, which are a junk ratings. I would not hazard a guess about what would happen in the event CLGX defaulted on the bond and some enterprising lawyers attempted to tag FAF with the payment obligation. The underlying bond is infrequently traded as shown in the data at FINRA.

I am still reading Michael Lewis' new book The Big Short: Inside the Doomsday Machine. I just finished the part of the book that summarized the incompetence of the ratings agencies, and how their stupidity was gamed by the Masters of Disaster at the investment banks, particularly Goldman Sachs.

Trust Certificates: Links in One Post Duplicate Post

5. Sold 100 FSBK at $10.1 (Regional Bank Stocks' basket strategy) (See Disclaimer): I have been paring the stocks in my regional bank stock basket after the basket went over 50 names. That was just too many to follow.Modification Regional Bank Strategy I did not realize until yesterday that First South Bancorp had reported earnings last Wednesday. I mentioned in an earlier post discussing this bank's dividend cut that I would look at the earning report and then decide whether to keep it. I was underwhelmed by the bank's 3rd quarter report. The bank reported a decline in earnings to 10 cents from 18 cents in the 3rd quarter of 2009: SEC Filed Press Release. This transaction was close to break-even. Added 50 FSBK at 9.81 Bought 50 FSBK at 10.15

6. Sold 50 PG at 63.33 (see Disclaimer): For reasons that are not entirely clear to any staff member here at HQ, our Head Trader, the OG, has been selling stock into rallies. Perhaps, as the LB just mused, the OG is suffering another anxiety attack, bringing the total for the year now to 1,234,302. Or given the OG's feeble understanding of the the Stock Stud's Vix Asset Allocation Model, the OG is still playing the swing trade in the Unstable Vix Pattern, where stock positions are pared when the VIX moves below 20 and purchases are made when there is a spike over 30. Whatever the reason, and the OG is rarely in a state of reasoning, sort of like Sarah in that regard, LB had no choice but to request that Headknocker relieve the OG of the Head Trader's duties while there are still stock positions left and then to restore the Stock Stud to its rightful place.

Why was PG sold near the close? There is no reason other than the OG is at the helm. The shares were bought at 59.81 in September.

7. Sold 100 of the CEF BTF at $15.56 (see Disclaimer): Why was BTF sold, ditto Item # 6 above. LB does not like this stock CEF anyway since it views the expense ratio as too high. These shares were bought at 13.65 last March.

+$175.07

Bought 50 KRBPRE at 24.62 in Roth IRA/WAG/Sold all GXP at 17.96/PJS

There was a chart in this WSJ article that shows the Case Shiller index of home prices recovering to the 2003-2004 level in 2015, according to forecasts made by economists and other analysts polled by MacroMarkets.

The Democrats still believe that anyone should be able to buy a house that they can not afford. Recently, they voted down a proposal by Tennessee Senator Bob Corker that would have imposed a 5% down payment requirement and some income verification. Democrats The proposal voted down by the Democrats is described in this link from Senator Bob Corker's office. I mentioned in an earlier post that politicians would never do what was necessary to prevent another real estate bubble caused by easy credit, which would include imposing a 5% down payment requirement. Item # 2 Delays in Foreclosure Encouraging Defaults

Obama's plea to the Europeans to keep spending like crazy has fallen on deaf ears. The U.K. government has prepared an austerity budget that has 40 billion pounds in spending cuts and tax increases, with about 77% in spending cuts and the remaining 23% in tax increases. MarketWatch.com 'Unavoidable' Budget - WSJ Merkel's government in Germany also just unveiled an austerity plan. NYT

1. Bought 50 KRBPRE at 24.62 in the Roth on Monday (See Disclaimer): This purchase marked the successful transition of a Bank of America trust preferred security out of the taxable account and into a retirement account. My overall exposure in dollar terms to BAC remains about the same, but I have transitioned 50 shares of the exposure to the Roth IRA. This transition was initiated by selling 50 shares of the trust certificate MJH, which contains a BAC TP as its underlying security and then completed with the purchase of KRPRE in the Roth on Monday. /Sold 50 MJH at 23.6

There is some concern about whether Congress, in need of funds at some future time, will change the current rules about distributions from a Roth IRA . This kind of concern can never be resolved with any type of certainty. Any politician who votes for taxing distributions out of a Roth, which would now be free of taxation, would earn the wrath of a large number of voters. I would certainly vote against any politician who supported such a change. And if the change was advocated by a majority of the members of one political party, I would vote against every candidate of that political party. In other words, I would view such a change with extreme dissatisfaction.

As it stands now, the primary benefit of the Roth to me, compared to the regular IRA, is that I do not have to take distributions at a certain age as I do with the regular IRA. Roth Or Traditional IRA The second benefit is that distributions from the Roth will be tax free whenever taken after a year or so from now for me, whereas I have to include distributions from the regular IRA in my gross income for tax purposes. Traditional IRAs: Distributions Roth IRAs: Distributions So, what I can do for planning purposes is to allow the Roth to appreciate free from taxation until I have exhausted all other funds which hopefully will never occur. But, if I am 100 and I have only assets in the Roth and social security left, I can start to take distributions at that time.

The current law governing Roth IRA dictates to a significant degree the kind of assets that I want to put into it. Based on my own current financial situation, a long term bond makes more sense in the Roth than in a taxable account. While I still face interest rate risk, I am more concerned about generating a stream of tax free income that can be reinvested into other securities that have good yields. If rates rise, I will have enough funds to invest in new purchases that pay an even higher yield, thereby increasing the compounding effect.

KRBPRE is what I commonly refer to as a typical trust preferred security. MBNA Capital E, KRBPRE It was initially issued by MBNA Capital, a Delaware trust, that was formed by MBNA, a credit card company later acquired by Bank of America. It is now listed by BAC as one of its trust preferred securities: Bank of America | Investor Relations | Capital Issuances Interest payments are made quarterly and may be deferred for up to five years provided no payments are made on more junior securities. Any deferred distribution will earn interest at the coupon rate. (see page S-3 www.sec.gov). Deferred distributions have tax consequences (see pages S-30 to S-31).

A TP is a preferred stock in a trust that represents a beneficial interest in the assets of the trust. For KRBPRE, the asset of the trust is a junior bond issued originally by MBNA. The underlying bond in the trust matures at the same time as the TP, with both maturing on 2/15/2033. As shown at the QuantumOnline.com site, this TP is rated the same as the ones originally issued by a trust formed by Bank of America, as are the two shown on the same page originally issued by a trust created by FleetBoston.

The coupon on KRBPRE is 8.1% which gives me close to a 8.22% current yield at a total cost of $24.62. At a 8.22% rate, my money doubles in about 8.77 years. Estimate Compound Interest This is slightly better yield than the TPs originally issued by a trust created by Bank of America.

This is a link to the prospectus: /www.sec.gov

I have been moving up the priority ladder on BAC securities. I have sold all of my BAC non-cumulative equity preferred floaters ( the last sell- Sold 100 BMLPRH AT 17.42). The bonds, which are the underlying securities in the BAC TPs, are more senior in priority than the traditional preferred stocks which are part of BAC's equity. In addition, unlike the BAC equity preferred stocks, the TPs have maturity dates and are cumulative.

The ratings for the BAC TPs can be found at Bank of America | Investor Relations | Fixed Income Investor Relations. Only Moody's has an investment grade rating (Baa3), whereas both Fitch and S & P rate the BAC TPs in the junk category. This kind of investment can never be out of sight, out of mind.

What I really like to see is for both retirement accounts to register gains when the market tanks, which occurred yesterday.

2. Walgreens (WAG)(owned): Walgreen reported awful earnings for its fiscal third quarter of 47 cents which included 7 cents in charges. Excluding those charges, the company missed expectations by 4 cents. Revenues increased to $17.2 billion slightly ahead of the consensus forecast of 17.14 billion.

Comparable store sales increased by .7% in the quarter and sales increased by 6.1%. Prescriptions, which accounted for 65.4% of sales, increased by 5.7% during the quarter and by 1% on a comparable store basis. WAG completed its acquisition of 258 Duane Reade stores in April and claims to be on track in its integration and pleased with the "strong performanc" of the new and renovated Duane Reade stores. Walgreens expects organic store growth of between 4.5 to 5% in fiscal 2010 and between 2.5% and 3% annually beginning in 2011. As of 5/31/2010, the company operated 8019 locations (7522 drugstores).

Some of the recent analyst recommendations are summarized in this article from the StreetInsider.com.

I recently bought 50 shares of WAG at 30.15. In a long term secular bear market, it often pays to slice and dice buy orders into small pieces rather than taking a full position all at once. I am now free to average down at my leisure by buying another 50 shares to create a round lot of 100. I am in no hurry to add those 50 shares.

3. SOLD GXP AT 17.96 on Monday (see Disclaimer): GXP was a loser. It is an electric utility operating in Kansas and Missouri that cut its dividend in half after I purchased shares in 2008. Bought GXP at 19.25 The dividend was cut from a quarterly rate of $.415 to $.2075. The dividend has not been increased since that cut and I view other utilities as more attractive at current prices.

4. 2 Year Treasury Auction: The U.S. treasury sold 40 billion in two year notes yesterday at a record low yield of .738%. It is likely that these notes will provide a negative real rate of return over the next years before taxes. The current inflation rate over the past 12 months is about 2%. There were 137.7 billion in competitive bids submitted in this auction: www.treasurydirect.gov .pdf In other words, the buyers of this 2 year note were falling all over themselves for the privilege of lending our destitute-binge borrower-Uncle Sam money at yields that virtually guarantees them a negative real rate of return. Apparently, the so-called bond vigilantes are in hibernation.. This auction illustrates that a lot of investors are far more interested in the return of their money rather than the return on their money.

Something is amiss. Either those investors lending money to the U.S. government at negative real rates of return have lost their marbles, or I am missing something that needs to scare me a lot more than the sum total of all of my concerns.

5. Trust Certificate PJS (no longer own): I sold my shares of PJS after First American made a tender at the $25 par value. {See item # 6 Sold 50 COP at 56.63; Sold ALL PJS at 24.75 & 24.65} At some point, I may buy back the shares. Of the original outstanding principal amount of 45 million dollars, First American bought $21,819,000 or 48.49% of the total. The First American Corporation Announces Results of Tender Offers and Consent Solicitations; Accepts Validly Tendered Securities for Purchase - First American - News - 2010 The PJS shares are still trading. This one had been bought as low as $7.2 and as high as $17.95.Bought PJS at 7.2-October 2008 /Bought 50 PJS at 17.95 August 2009 Bought 50 PJS at $17.8 in Roth First American has recently split into two companies. First American Financial Corporation and CoreLogic, Inc. Announce Completion of Spin-Off Transaction

Prior to the tender made by First American for both the TC shares PJS as well as the underlying bond, I had decided to limit my exposure to 250 shares, and I hit that limit. This limit is particular to my financial situation and risk tolerance. I am lowering my maximum exposure to 100 shares from 250 as a result of the break-up of FAF into two companies. I will need to research further which of the two companies, CoreLogic or First American Financial Corporation, will be paying the interest in the future on the underlying bond in PJS.