Sold 100 GYB @ 19.4, Sold 50 PFX at 19.02/Bought 50 CWB @ 39.31, 50 of JNK at 40.25, 100 PHB @ 18.5, 50 HEPRU @ 25.05 IRA/Einhorn-ST Joe/SOLD JOE @ 22.24

I thought the following article at Morningstar, written by Axel Merk, provides an excellent summary of the limitations and dangers associated with another round of quantitative easing.

1. Sold 100 GYB in Regular IRA at 19.4 (see disclaimer): The prior sale of 100 GYB in the regular IRA was more profitable, netting a profit after commissions of $691.71. Those shares were bought at $10.95 in April 2009 and sold last April at 18.09, I am attempting to keep my overall exposure to Goldman Sachs' bonds at close to the same level while upgrading to TCs containing the 2033 senior bond. There are several reasons for upgrading including the potential capital gains potential in those senior bond TCs originating from a redemption by the call warrant owner.

In the case of GYB, I suspect it is going to be stuck at its guaranteed rate of 3.25% for many more months. Consequently, the senior TCs with GS bonds would provide me with more interest than any of the Synthetic Floaters, tied to a GS bond, for at least several more months, and possibly for another year or two. I still own 100 shares of GYB in the Roth IRA, and 50 shares of another synthetic floater, GJS, which is tied to the 2033 senior bond with no guarantee. GJS has been bought and sold many times. Bought 100 GJS at 10.5 Bought 100 GJS at 12.25 SOLD GJS at 13.06 Sold 100 GJS at 15.6 Bought: 50 GJS at 14.6

I bought the 100 GYB sold on Tuesday in two lots, one at 17.97 and at 18.49. Part of that purchase was a pared trade involving a similar synthetic floater, PYT, which was sold at 18.66.

The owner of the call warrant does not have to do anything. The call is optional. Possibly, the owner of that warrant may be waiting for a better price for the underlying security before exercising it. All that I can deduce is that it would be profitable for the owner of the call warrant on all of the TCs containing the 2033 senior bond to exercise the warrant, pay the $25 par and accrued interest to the TC owners, take possession of the bonds, and then sell them in the bond market. When the underlying bond is trading at a premium to its par value, and the TC is still trading at a discount, there is at least the possibility that owner of the TC can realize an immediate elimination of the discount by a redemption from the call warrant owner.

2. Bought 50 of the ETF JNK at $40.25 and sold 50 PFX at $19.02 (see Disclaimer): PFX is a deservedly rated junk senior bond from Phoenix Insurance that has been bought and sold, with a purchase as low as $6 and change. Sold PFX at $17.57 Basically, I am selling one of my junk rated securities at a profit and using the proceeds to partially pay for the buy of a junk bond ETF. The PFX shares sold on Tuesday were bought at 16.12 in August 2010, and I will soon receive one interest quarterly interest payment.

There are several junk bond ETFs, and I previously bought 100 shares of one from Powershares that attempts to weight its holdings according to objective criteria relating to the ability of the companies to pay. Bought 100 PHB at 18.15

JNK, the junk bond ETF purchased on Tuesday, makes its selection primarily based on liquidity, limiting the selections to those issues with at least 600 million or more of outstanding face value. SPDR Barclays Capital High Yield Bond ETF The expense ratio is .4, and this ETF currently has 181 holdings. The average maturity is 7.56 years. Distributions are paid monthly: www.spdrs.com _9.30.2010a.pdf The current yield shown at the sponsor's web site is 8.64%.

This is a link to the the Annual Report for the period ending 6.30.10 in pdf format. The list of holdings for JNK starts at page 142. Other fixed income funds from SPDR are included in the report.

3. Added 100 PHB at 18.5 on Tuesday in Regular IRA (see disclaimer): This purchase was made in the regular IRA and is the replacement for 100 GYB. PowerShares Fundamental High Yield Corporate Bond Portfolio (PHB) I discuss this junk bond ETF adequately in a post from September: Bought 100 PHB at 18.15. Those shares were bought in a taxable account and may be sold when and if the share price exceeds $19. This switch does give me a higher yield and provides me with the option of transferring the shares into a ROTH IRA in the event PHB suffers a significant fall in value, which is not that uncommon in junk bonds.

4. Bought 50 of the ETF CWB at $39.31 on Tuesday (see Disclaimer): This purchase was just a quick way to increase my exposure to convertible securities. www.spdrs.com/ =CWB The expense ratio is .4%. This fund currently has 119 holdings. Distributions are paid monthly. A list of holdings can be assessed at the sponsor's web site referenced above, along with the annual and semi-annual reports. The last filed shareholder report can be assessed at the SEC's web site, with the list of holdings starting at page 94.

5. Sold 100 PPH at 66.16 on Tuesday (see Disclaimer): After I bought this ETF at 65.42 in mid April 2010, it immediately sprang a leak on me, falling to $58.18 by 6/4. PPH Historical Prices Since I am in a trading mode, and would prefer to buy at $58 and then sell at $66.16, I elected to sell my 100 shares on Tuesday and hopefully buy them back at a lower price. On the positive side, I collected a few dividends and made more on the shares than I would have on cash sitting in a money market.

6. Bought 50 HECO CAP 6.50% PER QUIPS at 25.05 in ROTH IRA on Wednesday (see Disclaimer): This is another income security that is at best a marginal buy based on the yield, credit rating and long maturity date, but it does provide me with more diversity. HEPRU is a trust preferred issued by HECO Capital Trust III and guaranteed as provided in the prospectus by Hawaii Electric (HE).

This is a typical TP. HE forms a Delaware Trust that sells preferred stock in that trust in a public offering. The proceeds are used to buy a junior bond from HE, and the preferred stock represents an undivided beneficial interest in those bonds. Distributions are taxable as interest. Interest may be deferred for up to 20 quarters. During any deferral period, Hawaii Electric can not pay a dividend on a junior security which means that the common stock dividend would have to be eliminated before HE could defer interest on the junior bond. The underlying bond in the TP and the TP mature on 3/18/2034 at $25. The coupon is 6.5%. Final Prospectus

I also own in the Roth a similar security originating from an electric utility in Florida. Bought 50 Shares of FPCPRA

7. David Einhorn and JOE-Sold All Shares at $22.24 (own): St Joe is one of my four long term real estate plays. Yesterday, the shares fell over $2 in response to a negative presentation made by Einhorn at an investor's conference. Bloomberg A detailed discussion of his presentation can be found at Barrons. While the summary in Barron's was disconcerting, the article in the WSJ summarizing in even greater detail caused me to unload my position at a small profit. The revelations made by Einhorn, while coming from someone who has shorted the stock, appear to me to be reliable . My shares were bought at $15.69 and more recently at 24.57. I replaced JOE with two new contrarian plays that will be discussed in the next post.

I also was able yesterday to buy one of the Canadian REITs that I tried to buy on Tuesday.

The remaining 4 trades from Wednesday will be discussed in the next post.

FED Buying up to 300 Billion in Treasuries/Buy 50 of DDT/Nibbled at ST JOE/Sold a Couple of International Lease Bonds/Oracle

1. Fed Buying 300 Billion in Treasury Paper: In its statement released today, the Federal Reserve removed a sentence from its prior statement that it expected a recovery to start later this year. 

The Fed also said that it would buy up to 300 billion in  treasury paper which caused a major rally in the treasury market This statement caused a major spike down in my hedge positions in TBT and PST, which is okay since I am looking for opportunities to add to them as I expand my corporate bond positions.   

The Fed's action also knocked the dollar for a loop,  which put some upward momentum for a change in two of my foreign bond ETFs, BWX and WIP and my only foreign currency holding FXA.

2.  Oracle: I own Oracle, as a recent purchase, and was shocked that it declared a dividend.

Under the circumstances, and relatively speaking, I thought Oracle's earnings report was okay. 

3. International Lease Bonds: I reduced my exposure to International Lease Finance bonds by selling two bonds.  

4. Dillards Junior Note DDT: I also added a very speculative long bond position in Dillards (DDS) department store by buying 50 shares of DDT at 5.82. This is a junior note with a 7.5% coupon and a maturity in 2038. Interest is paid quarterly.  Par value is $25. 

The current yield at my cost is around 32%.

Technically, it is similar to a typical bank Trust Preferred. The issuer is Dillard's Capital and Dillards guarantees the note.  Interest can be deferred for up to five years but payments are cumulative. Dillards is still paying a cash common stock dividend. 

I will not buy more of DDT.  

This purchase is a play on a potential recovery in the economy before something very negative happens to this retailer.  

If a retailer bankrupts, I would not expect much recovery as a holder of a junior debt instrument but at a cost of $5.82 anything would be okay. This security was originally issued back in 1998. Fitch rates it as junk with a B- rating. 

The prospectus can be found at this link: Prospectus 

Before buying this bond, I read the latest quarterly earnings report filed by Dillards and a few analyst reports. Dillard's, Inc. Reports Fourth Quarter and Fiscal Year Results: Financial News - Yahoo! Finance Dillard's posts $149M 4Q loss: Financial News - Yahoo! Finance UPDATE 1-Dillard's posts surprise loss, to close 5 stores | Markets | Markets News | ReutersS & P has it rated 3 stars.  Comparable retail store figures were down double digits in recent monthly reports. 

5. Bond Buying & Frank Sinatra Music:  As I have mentioned, when I was a young man, say three years ago, I believed that bonds were for old geezers, not a young stud like myself.  But, at about the time 

I started listening to Frank Sinatra for the first time in my life a couple of years ago,  I underwent a change in attitude  and started to add bonds to my portfolio.   

So, at best, I am a novice bond investor, at the beginning of my learning curve.   

I am not saying that everyone who starts to listen to Frank will become a bond buyer, but I can only speak for myself.

6.  Buy of ST Joe at $15.69: I also did a nibble by buying St. Joe (JOE) at 15.69.  This one is purely an asset play and has to be characterized at the start as a long term hold.  For this one, I am talking 5 years as a minimum holding period.   

My last sale was about this time last year in the mid 40s somewhere.  Since then the stock has caved in a big way.  

St Joe owns about 600,000 acres of land in Florida and claims that around 426,000 acres are within 15 miles of the coast in the northwest Florida Panhandle. 

It is the largest land holder in Florida.  Their land near the coast would be worth 4.3 billion if one assigned a value of 10 grand an acre. The inland land of 182,000 acres might be valued at 2 grand an acre. This would bring the land value to about $50 to $55 a share. 

The company owns about 75000 acres around Panama City, in what it calls its West Bay sector. A new airport is being built in Panama City and I believe that St Joe donated the land for it.   

I also like the balance sheet. JOE: Balance Sheet for ST JOE CO (THE) - Yahoo! Finance

Due to the shutdown in Florida real estate over the past year or so, JOE has struggled to sell much of anything.  The unlocked land value will have to be realized over time and will be dependent on a recovery in real estate.  

These estimates on land values are not mine but gleamed from several analyst reports.  Ten grand might look dirt cheap for parcels near the coast in ten to fifteen years, or maybe not. 

7. Land Rich Companies-Tejon, St Joe, Texas Pacific Land and Alexander & Baldwin:  I have been familiar with land rich companies like Tejon Ranch, St. Joe, Alexander & Baldwin, Texas Pacific Land Trust and some others for a very long time.  I did review early today, before making my purchase, reports from Morningstar, S & P and Value Line, and looked at the recent earnings release again.The St. Joe Company Reports Fourth Quarter and Full Year 2008 Financial Results: Financial News - Yahoo! Finance  The St. Joe Company., Q4 2008 Earnings Call Transcript -- Seeking Alpha So, I have now inched my way back into Tejon Ranch and St. Joe. 

8. Liddy and AIG: I understand why Liddy does not want to make the names of those receiving bonuses public. MarketWatch  

I doubt that the real reason is the one expressed by him in his testimony.  

I strongly believe that the public's right to know far outweighs the extremely remote possibility of some physical harm coming to one of them.  

A few people may have vented their anger in an inappropriate way.    

Personally, I believe in shining a light on all of the Master of Disaster at AIG's Financial Product Unit. For all practical purposes now, AIG is a public company and  should be subject to the same disclosure rules on compensation as any public enterprise.  

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.