Showing posts with label EWM. Show all posts
Showing posts with label EWM. Show all posts

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:

Stocks:

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)
  
Bonds:
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.   

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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: workforcesecurity.gov


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: markiteconomics.com

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. census.gov. 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.

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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%)

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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.

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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)

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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%)

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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%)

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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 Barrons.com 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%)

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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 $17.08; Item # 2 Sold 150 PIE at $16.76 September 2010-Bought 50 PIE at $10.01 October 2008, Bought 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 CAD, Bought: 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 - NASDAQ.com 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)

Last SEC Filed Shareholder Repot: BLACKROCK CREDIT ALLOCATION INCOME TRUST

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


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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. POLITICO.com

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

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 News.com

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 News; Bloomberg Businessweek; "Russian Disinformation"-Accuracy in Media; "Russia Conspiracy Theories"| New Republic; Russian Media

"In Russia, Crime Without Punishment | TIME"

Monday, May 13, 2013

BOUGHT FMIHX/Sold 100 of 250 VGI at $19.48/Sold 100 RRD at $12.41/Sold 50 AMJ at $47.99-ROTH IRA/Sold 100 EWM at 16.45/

Big Picture Synopsis

Stocks:
Stable Vix Pattern (Bullish)
Short Term: Slightly Bearish (expecting a 10%+ correction)
Intermediate and Long Term: Bullish

A stock market correction can happen at any moment. Such a correction would not be inconsistent with my longer term bullish thesis that powerful and positive forces are coalescing that will support decent U.S. GDP growth and better employment opportunities in a manner consistent with a long term secular bull market in stocks.  While corrections are always painful, I would welcome one right now. 

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

I am now predicting that the ten year treasury will be around 3.5% by this time next year which would cause about a 16% loss to a buyer at last Friday's closing yield of 1.9%.

All big picture opinions are constantly challenged with new information, without any interference from my ego or pre-existing beliefs, as if someone else had originally formulated the opinion.

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Warren Buffett is, as one would expect, positive on stocks long term and negative on bonds.  I would of course agree with his statement that bonds are priced artificially high due to the FED's monetary policies and will lose a lot of value when interest rates normalized to market based rates. He referred to bonds as a "terrible" investment now.

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FRB April Survey of Senior Loan Officers:

The FRB release its survey of senior loan officers. This is a quote from a pertinent part of that report: "domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in several loan categories over the past three months".

‎federalreserve.gov/snloansurvey/fullreport.pdf

Commercial loan activity is perking up after doing a swan dive during and immediately after the Near Depression:

Commercial and Industrial Loans at All Commercial Banks - St. Louis Fed

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Home Prices and Refinancings:

The FHFA reported that more than 463,000 refinances of mortgages owned just by Fannie and Freedie were completed in February. Feb2013Refinance.pdf Of those, 97,738 were completed under the HARP programmed designed to permit underwater homeowners to refinance. Over 15M mortgages owned by Fannie and Freddie have been refinanced through February 2013.

CoreLogic reported that its home price index rose by 10.2% Y-O-F in February, the largest Y-O-Y increase since March 2008 and the 12th consecutive such increase. CoreLogic Home Price Index

The data about home prices is important for several reasons.

A large number of underwater homeowners do not qualify for the HARP program, simply because their mortgage is not owned by Freddie or Fannie. As home prices increase, more of those homeowners are able to refinance at the current abnormally low rates and will consequently have more disposal income to spend to support the economy. A JPM study, summarized in a Bloomberg article, estimated that the number of underwater homeowners fell by almost 4 million last year due solely to the increase in home prices.

Another reason why the continue rise in home prices is important is the same reason why the decline was important. For most Americans, most of their wealth is reflected in their home's equity. Consumer confidence was adversely impacted by the rapid and steep decline in home prices.

I receive a constant stream of email's from Corelogic's free service called ePropertyWatch, notifying me of property sales in my neighborhood, the estimated value of my home based on those sales, any filings made in connection with my property at the register of deeds, and other information. I signed up for that service. Over the past couple of weeks, I received two emails that the value of my home had increased based on the most recent data.

I can also retrieve data about estimated value from Zillow which has a higher estimate of my home's value. Zillow has a chart of my home's estimated value going back to May 2003. The peak value was reached in December 2007. The property market in Middle Tennessee rose at a faster rate than historical trend between 2002-2007, but did not go parabolic with anything approaching 20%+ annualized increases that ultimately caused so much damage elsewhere. The decline from the peak was more of a gradual sloping decline, followed by a leveling out process and is now moving up at a decent clip returning to the April 2007 price level based on the last estimate.

Someone who bought a home in one of the parabolic markets, near the end of the parabola, will not likely see equity in their homes for a very long time. An example would be the San Jose, California market. Back in 2009, USATODAY reported that home prices had risen so fast in San Jose that only 16% of median household families could afford a median price house. What was a median price home in that city? The median price had hit $664,444 by January 2008 and had declined to $415,000 by early 2009. The median sales price for homes in Nashville was $164,000 for the 3 month period on 4/13/13, according to Trulia.com, and $356,450 in the affluent suburb of Brentwood, TN.

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National Federation of Independent Businesses (NFIB)

The NFIB releases two surveys that are worth examining each month.

The first is called the "Jobs Report".  In the April report, NFIB noted that April was "another positive, albeit lackluster month for job creation-but small-business owners are expressing a bit more enthusiasm in hiring plans"

Emphasis Supplied by the NFIB in the above quote and in the following one:

"But the big news is that job creation plans rose 6 points, to a net of 6% of small employers now planning to increase total employment in the next three months".

Small businesses are the job creators in the U.S. Most big corporations are just pathetic and a disgrace in that regard.

In a recent SA comment, I referred to a recent ADP employment report that showed decent hiring by small  (1-49 employees) and medium businesses (50 to 499). The large businesses shrank jobs by -2,000!!!! ADP National Employment Report - January 2013 | NER It is a systemic problem that large American corporations are quick to shed jobs, to outsource   jobs to cheaper foreign workers and to move factories and operations to the lowest cost and least restrictive places in terms of regulations.

And, then those large corporations complain about those billions stashed in overseas subsidiaries, which they would bring back to the U.S., provided Congress changed the tax laws. But, Congress did change the tax laws when those corporations "promised" to use the repatriated funds to create jobs, and what happened then? The corporations who repatriated the most money shed jobs, using the cash to increase executive compensation and perks as well as returning more money to shareholders in dividends and share buybacks. Senate report Just disgusting in the extreme.

The second NFIB survey is called the NFIB Optimism Index.

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Pembina Pipeline (Canada)

Pembina Pipeline reported first quarter revenues of C$1.2857B and an E.P.S. of C$30 cents. Adjusted cash flow per share from operating activities was reported at C$.7. The company pays monthly dividends. The total for the last quarter was $.41.

Bought 100 PBA at $29.21 (2/20/13 Post)

The stock reacted positively to the earnings news.

Closing Price 5/10/13: PBA: 33.97 +1.06 (+3.22%)

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Inflation Predictions Embodied in TIP Pricing:

I would urge everyone to become proficient in calculating the inflation estimate embodied in the pricing of treasury inflation protected bonds.

The relevant information can be found at the U.S. Treasury Website:

Daily Treasury Real Yield Curve Rates

Daily Treasury Yield Curve Rates

The inflation rate prediction is simply the difference between the yield of the nominal non-inflation treasury and the TIP yield for the same maturity. This is called the break-even point, the annual amount of inflation necessary for the buyer of the TIP to break-even with the buyer of the non-inflation protected security. What this data is telling us is significant. All treasuries maturing in ten years or less have significant negative real rates of return before taxes, a result that is impossible in a free market that has inflation expectations. In short, all rates are artificial now and are being determined by QE and ZIRP rather than the market. The FED will have to end both. There is already considerable dispute among FED members about continuing QE. FRB: FOMC Minutes, March 19-20, 2013 (third paragraph after "Committee Policy Action")

We all should know that the FED can not continue buying debt and bloating its balance sheet much longer. By year end, the FED will own almost $4 trillion dollars of securities by continuing to purchase at the current $85B per month rate.

I discussed over the weekend in comments to several SeekingAlpha articles my expectations for future interest rate predictions.

The End Of QE Won't Kill This Bull Market - Seeking Alpha

My current prediction is that the 10 year treasury will rise to a 3.5% yield by this time next year and will hover in that area due to the restraining impact of ZIRP on the yield curve. With a 2% increase in the ten year yield, the buyer at the current rate would lose around 16%-17% of the vintage bond's value at the current coupon rate.

After the short rates are allowed to rise to market levels sometime in 2015, I expect the 10 year to discover it market price somewhere between 4.5% to 5%.


1. Bought FMIHX (see disclaimer): 



Closing Price Last Friday: FMIHX: 20.01 +0.07 (+0.35%)

Security Description: FMI Large Cap is rated five stars by Morningstar and invests in a limited number of large capitalization stocks. The expense ratio is less than 1% and it is offered by several brokers on a NTF basis. Fund Purchase Information - MSN Money  

For the month endimg 4/30/13, the fund calculated its 10 year annualized return at 11.55% and at 10.45% for five years. FMI Mutual Funds 

I made the minimum initial investment of $2,500 last Thursday at $19.55 per share. After looking at this fund, and noticing that it was going to close to new investors on 6/30/13, I decided to stick a toe in the door with a minimum purchase, which at least allows me to make additional purchases when and if it makes sense to me.   

I had a favorable opinion of the fund's top 25 holdings: Top 25 - MSN Money In the top ten, the fund owned MMM, Berkshire (Baby "B" shares), Accenture and Sysco. Of the larger holdings, I would disagree with the large investment in Bank of New York (BK). Maybe it has started to do better: BK Interactive 5 Year Chart 

Income distributions have been primarily long term capital gains and secondarily from short term capital gains.  FMIMX Distribution Summary In 2012, for example, there was a $2.12186 per share long term capital distribution; a $.28379 short term capital gain distribution and only $.08649616 from income. Most of the ordinary income from common stock dividends will be eaten up by the fund's expenses. 

This is a link to the SemiAnnual Report for the period ending March 31, 2013: ‎fiduciarymgt.com3.pdf The holdings for FMIMX start at page 8 of that report

Prior Trades: None

Rationale: Notwithstanding the market reaching new highs and concerns about valuation or a correction, the large cap stocks still appear to me to be under valued as a stock sector, particularly in comparison to the Russell 2000 index of small cap stocks. 

This fund has a record of success over the past five and ten years, which includes the meltdown between September 2008 and March 2009. I would be pleased with 10% annualized returns over the next ten years. 

Since most of the dividends that have been paid historically are long term capital gains, that is more tax efficient given the 15% tax cap for most taxpayers, assuming their marginal rate is over 15%, compared to a bond fund where the distributions would be taxed at the taxpayer's highest marginal rate. 

Risks: Since I started to invest in stocks back in the late 1960s, I have learned that stocks are at times better at creating anxiety and steep losses rather than the hoped for returns. I have emphasized throughout this blog that stocks can produce tremendous annualized returns over prolonged periods, known generally as secular bull markets, and then cause considerable consternation over similarly long periods of time known as secular bear markets. The Roller Coaster Ride of the Long Term Secular Bear Market (May 2010);  The Big Picture Questions (August 2011). 

In retrospect, it would have been far better to make this investment on March 9, 2009 rather than now. But, as I have said in the past, an investor has the play the hand that is dealt.  

Future Buys: Likely to buy in small increments during stock market dips and corrections.


2. Sold 100 of the 250 VGI at $19.48 (see Disclaimer): I sold the shares bought in a satellite taxable account and kept the remaining 150 shares held in the ROTH IRA:

Snapshot of Trade:


Snapshot of History:

VGI History 100 Shares-Satellite Taxable Account

Snapshot of Profit:

2013 VGI 100 Shares +$87.95

Item #2 Bought 100 VGI at $18.46 (1/3/13 Post) On the day of purchase, VGI closed with a net asset value per share of $19.81 and at a -6.31 discount to the closing price. I caught the shares on an intra-day downdraft on 11/26/12 (day's range $18.42 to $18.69-VGI Historical Prices) 

Data as of 5/3/13 (Day after Sale)
Closing Net Asset Value Per Share: $20.76
Closing Price: $19.48
Discount: -6.17%


I still own 150 shares bought in the ROTH IRA where the dividends are tax free: Item # 4 Bought 50 of the Bond CEF VGI at $18.52 & Sold 100 SGL at $10.71-Roth IRA (11/29/13 Post); Item # 3 Pared Trade: Bought 100 VGI at $18.97 and Sold 82+ CWH at $22.31-Roth IRA.

VGI Page at Morningstar (Fund uses leverage and has a high expense ratio)

Closed-End Fund Detail | Virtus Investment Partners: Sponsor's webpage (link has been changed by the sponsor)

2012 SEC Filed Annual Report: Virtus Global Multi-Sector Income Fund (I do not care for the investment in an Argentina PIK note maturing in 2033 and hope that is only a short term trade, see page 7)

The annual report shows at page 21 (n.6) that the total expense ratio as of 12/31/12 was 1.74% excluding the interest cost and 2.19% with the interest expense. 


There was no return of capital in 2012: virtus.com/ Tax Information.pdf

Closing Price Last Friday: VGI: 19.37 -0.08 (-0.41%)

3. Sold 100 EWM at $16.545 (see Disclaimer): This ETF popped on 5/6/13 after the ruling party narrowly won the recent election. Malaysia’s Governing Coalition Retains Power - NYT This ETF had been weak due to concerns about the opposition winning the election.

The Malaysia stock market is discussed in an article published in this week's Barrons.com. One money manager opined that EWM was not "too pricey".

Snapshot of Trade:




Snapshot of Profit:

2013 EWM 100 Shares +$115.57
I have prematurely pared my stock position in the Asia-Pacific region in response to a slowdown in growth and the BOJ's policy to weaken the Yen that will hurt other export countries in the region. I am done paring having reduced my overall stock exposure in this region by more than $10,000.

Item # 1  Bought 100 of the ETF EWM at $15.23 (January 2013)

Closing Price Last Friday: EWM: $16.50

4. Sold 100 RRD at $12.41 (see Disclaimer): I am not a long term holder of RRD stock, but will buy a few shares when a combination of the price and dividend sufficiently tempt me to take a swing. 

Snapshot of Trade: 

Sold 100 RRD at $12.41
I took the following snapshot  of my position just before entering a limit order to sell at $12.41:

100 RRD Shares At the Time of Order Placement
As shown in this snapshot, the prevailing price was then $12.305. I entered a AON day limit order to sell the 100 shares at $12.41. I did not care particularly whether the order would be filled that day. I set the price above the market to more than compensate me for the brokerage commission cost. 

I realized a gain of $231.57 on this last RRD common stock flip.

Bought 100 RRD at $9.94 (November 2012)

I have received one $26 dollar dividend and will receive another on June 3, 2013 that was payable to stockholders of record as of 4/26/13. RR Donnelley Board of Directors Declares Quarterly Dividend  

With the two dividends, the total return was $283.57 or 28.31% based on a total cost of $1,001.45. The time period was slightly over 6 months. That is sufficient for this stock which I have sometimes called a "widow maker" for long term owners since 2006. RRD Interactive Chart

I recently flipped a small 50 share lot in the Roth IRA. Bought 50 RRD at $8.75 January 2013- Item # 3 Sold 50 RRD at $12.04-Roth IRA (April 2, 2013 Post) This was a repeat of another flip, where the purchase was at higher prices Sold 50 RRD at $11.92-Roth IRA July 2012-Bought 50 RRD at $10-ROTH IRA (May 2012)

I have also flipped other RRD bonds, including the 8.875% maturing in 2021 twice, and a Trust Certificate (PYS) containing a senior RRD bond maturing in 2029. Bought 50 PYS at 20.01 March 2010; Add 50 PYS at 19.59 June 2010; Sold 50 PYS at 20.76 July 2010; Sold  50 PYS @ 24 November 2010; Bought 50 PYS at 22.6 January 2011; Sold 50 of the TC PYS at 23.2 April 2011 (Prospectus: www.sec.gov)

I still own one RRD senior bond maturing on 1/15/17:


Bought 1 R.R. Donnelley 6.125% Senior Bond Maturing 1/15/2017 at 89

FINRA - Investor Information on 2017 Bond

I would sell that bond at the current price but have never seen an online bid willing to accept 1 bond. 

The only conclusion which I can draw from the foregoing is that this company makes the Old Geezer nervous but not so nervous as to avoid its securities altogether. 

RRD did release better than expected first quarter results which was the underlying cause of a stock price spurt. SEC Filed Press Release 

Stock Quote: RRD

Closing Price Last Friday: RRD: $12.69 +0.30 (+2.42%) 

5. Bought 200 SGL at $10.56- Main Taxable Account (see Disclaimer):


I just discussed this CEF and have nothing to add to last week's post other than the new data points.

Item # 2 Bought Back 100 SGL at $10.57-Roth IRA (5/6/13 Post)

Data from Friday 5/4/13
Closing Net Asset Value Per Share: $11.52
Closing Market Price: $10.67
Discount: -7.38%

Data from Date of Trade Tuesday 5/7/13
Closing Net Asset Value Per Share= $11.5
Closing Market Price= $10.55
Discount: -8.26%

Morningstar Page on  SGL: Average 3 year discount -5.65

Closing Price Last Friday: SGL: $10.64 +0.05 (+0.47%)

6. Sold 50 AMJ at $47.99-Roth IRA (see Disclaimer): The JPMorgan Alerian MLP ETN is an exchange traded note that tracks an MLP index. The sponsor quit creating new units of this product in mid-2012 that has caused AMJ to trade significantly over its net asset value per share periodically. The spread to the indicative value was unusually large on 5/8/13, so I harvested my profit.

Snapshot of Trade:

Snapshot of Profit:

2013 AMJ 50 Shares +$490.94
Bought Roth IRA: 50 KWN at $24.85. 50 GJS at $13.77, and 50 of the ETN AMJ at $37.89 (12/19/12 Post)

I sold this one in a bout of profit taking and due to the stock price selling at a significant premium to its net asset value per share. This issue was discussed in several news articles published last week. WSJ, Barrons.com I am certainly not bashful about harvesting profits, particularly in the IRA where capital preservation is the second most important objective after income generation.

Closing Indicative Value on 5/8/13: 46.22

Closing Indicative Value on Friday 5/10/12: 46.37

Daily values can be found at the sponsor's webpage: JPMorgan Alerian MLP Index ETN

I still own other MLP ETNs and one MLP ETF.  

Closing Price Last Friday: AMJ: 47.78 -0.30 (-0.62%)