RNST SLM/Sold 50 of the TC JBI at $26.47/Sold 50 PHO at $17.96

The VIX has been in an Unstable Vix Pattern since the first Trigger Event in August 2007, as defined in my Vix Asset Allocation Model. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern In Phase 1 of that Unstable Vix Pattern, the VIX will have a whipsaw movement mostly between 20 to 30, with spurts over 30 and below 20.

Recently, the VIX experienced a typical whipsaw pattern as it moved quickly from below 20 to over 30, and spiking to a high of 48 on August 8, 2011. This movement would normally be associated with a market decline:

Vix Upward Spike Starting July 26, 2011 VIX Index Chart
Vix Double TOP October 3, 2011 at 45.45
Thereafter, A Move Down In the VIX Until 1/19/2012 with the VIX Now Less than 20

S & P 500 7/26/11 = 1,331.94 Historical Prices
S & P 500 10/3/2011= 1,099.23
S & P 500 1/20/2012= 1,315.38


Generally, until the VIX Stable Pattern forms, the trading philosophy would be to buy hedges for stock positions when the VIX starts to move below 20 and to lighten up on the stock allocation. The spurt into the 30s would require at least some paring of the hedges and selective repurchasing of stock positions. That pattern would be repeated over and over again until the Stable VIX Pattern forms.  Mark Hulbert and the Use of the VIX as a Timing Model More Discussion on Asset Allocation in Unstable Vix Patterns VIX and Trading Rules in An Unstable Vix Pattern Within the Context of a Long Term Secular Bear Market

Historically, the Stable Vix Pattern reveals itself by a continuous movement in the VIX below 20 for 3 months, allowing for some minor and temporary blips above 20 without restarting the count. The count now stands at two days.


1. SOLD 50 of the Trust Certificate JBI at $26.47 Last Tuesday-ROTH IRA (see Disclaimer):  This TC has a 7.875% coupon paid on a $25 par value. Both the TC and the underlying senior bond, originally issued by Duke Capital (now Spectra Capital), mature on  2/15/2032. www.sec.gov

There are at least three reasons for selling this security. The first is psychological. The OG prefers to avoid messing up a winning streak on a security. JBI was one of the first trust certificates discussed in this blog, and it was then trading at around $17. TRUST CERTIFICATES JBI (October 2008 Post);  SOLD 100 JBI AT PAR VALUE January 2009 All of my recent purchases have been made near par value including the shares sold last Tuesday in the ROTH IRA. Bought 100 of the TC JBI at $25.1 October 2009; Sold 100 JBI at 26.5 January 2011; Bought 50 of the TC JBI at 25.31 March 2010; Bought 50 JBI at 24.81-ROTH IRA MAY 2010 (shares sold at $26.47); Sold 50 of 100 JBI at $26.25. Normally I try to resist this emotional issue, which is sometimes successful, but there were some other reasons supporting this sale. 

The second reason involves concerns about interest rate risk associated with all long term bonds. One possible outcome of the extraordinary and unprecedented actions by the Federal Reserve is hyper inflation. 

The last reason is that there can not rationally be much upside to JBI above $26, given the call warrant attached to the TC which allows its owner to redeem JBI at par value plus accrued interest. While there is no rational upside, there is certainly the usual downside credit and interest rate risks.  So when buying trust certificates with long maturities  near par value, particularly those with call warrant features, I will likely hold them only for a relatively brief period and will accept small profits on their sale. More on the Call Warrant in TCs Call Warrants and Trust Certificates

2012 ROTH IRA 50 Shares JBI +$68.02

Snapshots of TC trades can be found in the Trust Certificates: New Gateway Post.

2. Renasant (RNST)(own 150+ shares: REGIONAL BANK BASKET STRATEGY): Renasant reported net income for the 4th quarter of $5.79 million or $.23 per share, up from 19 cents in the 2010 4th quarter. SEC Filed Press Release This beat the consensus estimate by 2 cents. 

As of 12/31/2011, the net interest margin was 3.84%; the efficiency ratio was at 69.5%; the tangible capital ratio was 7.38%; the total risk based capital ratio was at 14.58%; the tangible book value per share was $11.8; NPLs to total loans not subject to loss share with the FDIC stood at 1.56%; and the allowance for loan losses to NPLs was 127%.

3. Sold 50 of PHO at $17.96 Last Wednesday (see Disclaimer):  PHO is an ETF recently bought at $16.5.

4. SLM (own exchange traded CPI floating rate senior bonds OSM and ISM): For the 4th quarter, SLM reported GAAP net income of $511 million or 99 cents per share. Core earnings were reported at $268 million or 52 cents per share, down from $401 million in the 2010 4th quarter. Core earnings declined due to lower gains realized from loan sales and debt repurchases. The consensus estimate was for 49 cents. Loan originations rose 19%. SEC Filed Press Release

On the day of the earnings release, the common shares rose 65 cents to close at $14.29. SLM Corp Stock Price OSM matures in 2017 and ISM in 2018, so I am concerned primarily about being paid par value at maturity.

Floaters: Links in One Post

Bought 100 BTZ at 11.90/Bought 30 TEX at $13.59/Bought 50 PHO at $16.5/Greece is Hopeless

Randall Forsyth discusses closed end municipal bond funds in his Barrons' column.  Recently, I have added a few leveraged closed end municipal funds yielding over 6%.  Bought 200 NPT at 12.2 (9/1/11 Post); Bought Municipal Bond CEFs: 200 NMO at 13.03, 200 MUE at $12.89 and 100 BAF at $13.89/Sold NQS at 14.44 (9/9/11 Post).

The 2 year treasury note touched a .12% yield yesterday.

The WSJ dividend page shows that the October interest payment for OSM will be $.1142 per share and $.1153 for ISM.  AGNC, a Mortgage REIT, will be going ex dividend for a $1.4 per share distribution on Wednesday, 9/21/2011.  Other securities which are owned will also go ex dividend that day, including the CEFs EOI, IGR, ETW, ETV and GDO.  Monthly dividends are paid by EOI, IGR, and GDO.

I really do not care for the U.S. stock market being whipped around by developments, or rumors, relating to Greek government debt. What can you say about a society where the government tries to levy a tax on swimming pools, due to widespread income tax evasion? Then the owners of the swimming pools try to evade paying that tax so the government flies helicopters over the "Job Creators" homes trying to find swimming pools undisclosed on the tax forms.  NYT The New Yorker (and see my February 2010 Post, Greece-Entitlement Society Run Amok, Item # 5 in my May 2010 Post Greece-Citizens in Aggressive Denial; and Michael Lewis article in Vanity Fair) The only solutions appear to be either to give most Greek citizens a brain transplant or to visit upon them the consequences of their irresponsibility that will naturally result from an uncontrolled default on Greek government debt.

The Greek government is scrambling to raise revenue with a new property tax, payable as part of the electricity bill to increase the odds of it actually being paid. Bloomberg  Reuters

S & P downgraded Italian government debt to "A" yesterday and kept its credit outlook as "negative". I can almost feel now the potential contagion effect emanating from Greece.

Many believe that U.S. corporations need tax breaks to create more jobs. The Federal Reserve reported last week that cash and other liquid holdings at non-financial U.S. companies rose to $2.047 trillion last quarter. This was the highest number on record and represented a 4.5% increase compared to the first quarter. That number does not include the cash held at the foreign subsidiaries of U.S. companies. The U.S. household total net worth edged down .3% during the last quarter. Household debt declined at a 1/2 percent annual rate in the second quarter.  www.federalreserve.gov. pdf WSJ

The savings rate has been increasing since falling to a 1% to 3% range between 2/2005 to 12/2007: (data research.stlouisfed.org). Savings rate is a disposable personal income minus taxes and expenditures divided by disposable personal income. This is a chart of that rate that shows a problem developing in the waning years of the Age of Leverage:

                                            

Intel (owned) sold $5 billion in senior notes. Of that amount, $1.5 billion consisted of 4.8% senior notes maturing in 2041; 3.3% notes maturing in 2021; and 1.95% notes maturing in 2016. www.sec.gov Intel stated in the prospectus that it intended to use the proceeds primarily to repurchase its stock, and for general corporate purposes. If Intel uses all proceeds from that issuance to repurchase stock, Nomura Equity Research opined that earnings would increase by about 9 cents per share in 2012.  Barrons

I did find a list of Countrywide Financial debt assumed by Bank of America in this SEC filing, Form 8-K.  I am going to discuss tomorrow the issue of successor liability in relation to the underlying security in the trust certificate CPP. Item # 1 Bought 50 of CPP at $21.4 (8/15/11 Post)- Sold 50 CPP at $24 (9/2/11 Post) I discuss generally the issue of BAC's liability for the underlying security contained in CPP in that first linked post. This is particularly important given BAC's recent statement that a bankruptcy filing for Countrywide is a possibility if litigation threatens to cripple the parent.  Bloomberg

1. Added 100 BTZ at $11.896 Last Friday (see Disclaimer): This brings me up to 538 BTZ shares.  BTZ is a closed end bond fund that invests primarily in investment grade bonds.  

Last Friday, BTZ closed at $11.89, with a net asset value per share of $13.63, creating a discount to net asset value per share of -12.77 as of that date.  Daily NAV information can be found at the  sponsor's website, the Closed-End Fund Association, and the WSJ's Closed-End Funds data center under "investment grade bond funds". 

Dividends are paid monthly. The current  distribution rate is $.069 per share. BTZ Assuming a continuation of that rate, the yield would be about 6.95% at a total cost of $11.9. 

This is a link to the last SEC filed shareholder report. The credit quality of the holdings as of 4/30/11 can be found at page 11 of that report. A list of holdings starts at page 34. BTZ does use leverage. A summary of the fund's borrowing costs can be found starting at page 67. 

BTZ is currently rated 3 stars by Morningstar.

BlackRock Credit Allocation Income Trust IV closed at $11.86 yesterday.

2. Bought 30 TEX at $13.59 Last Friday (see Disclaimer):  I recently bought a Terex bond.  Bought: 1 Terex 8% Senior Subordinated Bond Maturing on 11/15/2017 at 96.947 I have some interest in the long term potential of this company, whose stock traded over $90 in 2007 and hit $38 earlier in 2011: TEX Interactive Chart As mentioned in the post discussing the bond purchase, Terex makes various types of machinery and equipment, including aerial platforms, cranes and compact construction equipment. Profile | Reuters.com The company lower its earnings guidance last July.  Terex

This is a link to the last quarterly report: TEX-6.30.11-10Q

The consensus estimate for 2011, made by 18 analysts, is for an E.P.S. of 50 cents, increasing to $1.95 in 2012. TEX Analyst Estimates

I intend to hold this small lot until the price goes to zero or over 30.  If the shares fall below $10, I will average down with another small lot purchase.

Before buying that 1 bond, I reviewed the S & P and Morningstar analyst reports.  S & P currently has Terex common shares rated at 4 stars with a $35 price target. Morningstar has it rated 5 stars.

The stock fell 3.9% last Friday to close at $13.57. Terex closed yesterday at $13.5, trading as low as $13.01 intraday.

I suspect that most stock purchases now will have to be made with a very long term view in order to realize a successful outcome.

3. Bought 50 PHO at $16.5 Last Friday (see Disclaimer): I have generally traded this ETF for small gains. I previously bought and sold 100 shares of this stock ETF. The purchase last Friday was just 50 shares, which shows my trepidation under the prevailing macroeconomic circumstances. The last round trip was at higher prices, so I am just grateful to having unloaded 100 shares at @ 19.74 last February. Another realized gain resulted from about a two week holding period in 2009:

PHO is the symbol for the ETF Water Resources Portfolio. The fund currently has just 32 holdings and has an expense ratio of .64%. A list of the holdings can be found at PHO Holdings. Close to 75% of the portfolio is in industrial companies. I find the water utilities to be uninspiring and this ETF has a 13.07% weight in those companies.

Guggenheim has a global water ETF that has 49 holdings, as of 630/11, and a 43.9% weighting in utilities.

During the recent market selloff, PHO has declined about 18% since 7/7/11, when it closed at $20.17. PHO Historical Prices

PowerShares Exchange Traded Fund Water Resource Portfolio closed at $16.29 yesterday, down 18 cents. 

Sold 100 PHO @ 19.74-Bought 100 JTD @ 13.31/KO/Added 50 GYC at $21.60 in Roth IRA/CISCO

Cramer called VALE the most undervalued commodity play in the world on Monday.  Seeking Alpha  Some of the current weakness in that stock is tied to China raising interest rates.  VALE closed yesterday at $33.5, down 2.59% or 89 cents.  I view this kind of decline to be a knee jerk reaction to China's most recent interest rate increase, as the quick trigger crowd starts to imagine a slowdown starting that would adversely impact Vale's sales to China.  Brazil's government also released a plan to cut spending in 2011 by approximately 30.1 billion, as that country tries to curb inflation which rose to 5.9% in 2010, and jumped in January 2011 by the highest amount in 6 years. IBGE - Instituto Brasileiro de Geografia e Estatística Bloomberg

Zillow  reported yesterday that 27% of American homeowners are underwater on their mortgages at the end of 2010.    Zillow also provides its estimates for percentage changes in home values by city:    Zillow Local Info

1. Sold 100 PHO at 19.74 and Bought 100 JTD at 13.31 on Tuesday (see Disclaimer):  These transactions were made in a satellite taxable account, who primary purpose was to buy bank certificate of deposits.  As those CDs matured, and faced with a negligible reinvestment yield due to the Fed's Jihad against savers, I opened a brokerage account linked to a savings account at that institution and started to invest some of funds in income generating stocks.   The purpose is simply to generate income, hopefully make some money on the shares, and then to start buying CDs again when rates return to a more normal level.   The CEF JTD pays more than PHO.  And, I was able to realize a small gain on the shares of PHO bought recently at $18.97.  PHO is a PowerShares ETF for Water Resources.

The CEF JTD has a managed distribution policy and currently pays a quarterly dividend of 26 cents per share, giving it close to a 7.78% yield at the $13.31 price.   JTD - Nuveen Tax-Advantaged Dividend Growth Fund  As of 2/8/2011, this CEF was selling at a -8.36 discount to its net asset value of $14.59 based on a market close that day at $13.37.  The fund will invest at least 80% of its funds in securities that pay qualified dividends.  As of the last shareholder's report, the fund had about a 73% allocation to common stocks and most of the remainder were in "preferred" stocks.   Nuveen has another fund with a similar objective, JTA, that was selling at a larger discount, with a higher yield than JTD, but I had a more favorable opinion of JTD's portfolio. 

This is the last filed  Form N-Q for the period ending 12/31/2010. When I look at the "preferred" securities, most of them do not pay qualified dividends.  There is an assortment of trust preferred stocks that pay interest of course,    a few exchange traded senior bonds, and at least two First Mortgage bonds.   There are some equity preferred stocks that pay qualified dividends, including two from Zions, one of which is the ZBPRC that I currently own.   

This is a link to the last SEC filed shareholder report for the period ending in June 2010:   Report   The fund does write some calls on index options.  The fund is also leveraged and rated just 2 stars by Morningstar.  The expense ratio shown on that page from Morninstar includes interest expense.   For new investors, it is important to look at the recent dividend history shown at Morningstar to determine whether the fund is supporting the dividend with a return of investor's capital.  This is the case for JTD.  Given what happened in 2008, I am not surprised by that, since this kind of fund needs capital gains to support the dividend, and most funds had their unrealized appreciation wiped out in short order during the Dark Period.   The chart at Morningstar does show that the percentage of the dividend classified as a return of capital has been shrinking since 2008.   Overall I would be satisfied collecting a few dividends and then selling the shares for a small profit. 

I do not expect much, if any, appreciation from the "preferred" securities in the portfolio.  The common stocks are for the most part viewed as good companies. 

2. Coca Cola (owned): I am near my maximum limit of $10,000 for securities issued by one company with my position in the common shares of KO.   I re-initiated a position during the Dark Period by buying shares at 38.72 (March 2009).  I am reinvesting the dividends.  

Coca Cola reported 4th quarter net income of 5.77 billion or $2.46 per share.  Excluding items, KO reported earnings per share of 72 cents, meeting the consensus estimate.   Revenue grew 14% in Eurasia and Africa.  The Pacific region had only 6% revenue growth, dragged down by a 3% decline in China.  Adjusted for foreign exchange and the benefit of cross licensed brands, worldwide revenue rose 8%.   

KO shares rose as high as $64.75 before closing at $63.15, up 28 cents for the day.  

3. Added 50 of the TC GYC at $21.60 in the Roth IRA (see Disclaimer):  GYC is a trust certificate which is classified by me as a  Synthetic Floaters.  I will buy synthetic floaters only in a retirement account due to the complicated tax issues associated with the swap agreement which creates the float.  For as long as the swap agreement is in effect, GYC will pay the greater of 3.25% or .65% above the 3 month LIBOR rate up to a maximum yield of 8% on its $25 par value. 

GYC Prospectus: www.sec.gov  GYC is a trust certificate issued by a grantor trust, and that certificate represents an undivided interest in the assets of the trust which consists of the swap agreement and senior bonds issued by SBC Communications, now known as AT & T.  That bond is a senior debt obligation maturing on 6/15/2034.  When that bond matures, the owners of GYC would receive their $25 par value assuming AT & T or its successor is still around to make the payment.  As with all TCs, the TC matures at the same time as the bonds owned by the trust.  

While this is a tad complicated, the owner of GYC is not entitled to receive the fixed coupon interest of the underlying bond which is 6.45%.  The trust does receive  payment from AT & T at that rate for the bonds owned by it.  The trust then engages in a swap transaction with the swap counterparty, identified in the prospectus as UBS.  The trustee swaps the interest received from AT & T for the amount due to the TC owners, which is currently the guarantee of 3.25%.  So UBS is making money on the spread now, without assuming the risk of a default by AT & T.  Credit risk is being shouldered solely by the owner of the TCs.  UBS does face some risk however, in that the LIBOR rate could rise to such a high level that it has to pay more to the TC owners under the float than it receives from the trustee.  It may have hedged that risk. 

The underlying bond is rated A2 by Moody's and A by S & P.  So, for now, I am not concerned about the credit risk.  Part of the reason for buying more now is the quality of the credit and the possibility that the FED's Jihad against savers will end sometime in 2011.  The float is triggered when the 3 month LIBOR rate exceeds 2.6% during the relevant computation period, which is not a very high threshold from a historical perspective. LIBOR   

I can also calculate the range of yields available to me for GYC at a total cost of $21.6, based on the guarantee of 3.25% and the maximum yield of 8% which would be triggered when the 3 month LIBOR rate rises above 7.35% during the relevant computation period.  My low yield would be the one payable now, approximately 3.76%, and the high yield would be 9.26%. 

I transferred my Roth IRA account to Vanguard since Fidelity will not allow their customers to buy synthetic floaters and other exchange traded bonds.   For some reason, some of my original cost information did not survive the transfer but Vanguard does show the original cost information of the 50 shares of GYC that I bought in the Roth in 2009 which is still owned in that account:

GYC 50 Shares AVG Cost $15.41

I bought those shares  at $15.5 (May 2009). (note: some of the difference in cost is due to adjustments to the cost basis apparently caused by some tax issue connected with the swap agreement,  and that adjustment was done by Fidelity)  So, I have a good profit in those shares which have been pumping out quarterly interest payments at the guaranteed rate since I purchased them.  When I made that purchase in May 2009, I had the following comments about it: 

"At a $15.5 cost, the maximum yield would be 11.8%, okay but not great. The current yield based on the 3.25% guarantee and a $15.5 cost would be 5.24%, barely okay at least to me, an old geezer who started enjoying Frank Sinatra two years ago, given the quality of the credit. I am confident the Young Turks would just sneer at it. But the old tortoise is almost up 15% this year and just about back to where the codger was in October 2007 in my main taxable account. Slow and steady works sometimes."

I have bought and sold GYC in the regular IRA.  


Information about the underlying bond can be found at FINRA.  If the Swap agreement is terminated for any reason, then the owners of GYC would receive the coupon payment of the underlying bond on a semi-annual schedule.  The prospectus for the underlying bond can be found at Final Prospectus Supplement.

GYC closed yesterday at $21.40, down 21 cents.  For this security, volume was heavy yesterday at 13,075 shares with the average volume close to 1500. 

4. Cisco (own): I have been selling out of my small position just before Cisco released its earnings report, and that has worked for the prior two quarters, the one for CSCO's 1st quarter in its 2011 F/Y and its 4th quarter for F/Y 2010 ending in July 2010.   Bought 50 CSCO at $22.45 (June 2010)-- Sold Cisco near the closing price of $24.31 (August 2010); Bought CSCO at 20.39 (Sept 2010) --SOLD 50 CSCO @ 24.42 on 11/8/2010. 

I decided to keep my shares, bought at $19.55, after the release of the 2010 F/Y 4th quarter results last November, which caused a large drop in the stock price on very heavy volume.  (11/19/2010 Post)  Cisco does fit into my Large Cap Valuation Strategy.  Based on the after market reaction to Cisco's report and guidance, I would have been better off selling those shares again just before the earnings release, and then buying them back again when the dust settles some.  

Cisco reported earnings for its second fiscal quarter, which ended on 1/29/2011, of 1.5 billion or 27 cents per share on a GAAP basis.  Net sales for the quarter were 10.4 billion dollars, representing a 6% gain year-over year.  The consensus forecast was for 10.24 billion. The Non-GAAP results were reported at 37 cents per share, beating the consensus estimate by 2 cents.  NYT 

Gross margins declined sequentially. Year-over-year, gross margin fell to 60.2% on a GAAP basis from 64.5%, and to 62.4% on a Non-GAAP basis from 65.6% in the year earlier period. This would be a cause for the market's adverse reaction.

Cash flows from operations were 2.6 billion during the 2nd F/Y quarter, and Cisco ended the 2nd fiscal quarter with 40.2 billion in cash. Long term debt was shown at 12.152 billion on the balance sheet as of 1/29/2011.    Cisco repurchased 89 million shares at an average cost of $20.15 per share. 

In the current quarter, Cisco expects its 3rd quarter sales to rise between 4 to 6%, compared in the year earlier quarter, and estimates a rise in revenues of between 8 to 11% for the 4th quarter.  This would put the current quarter's revenue at between 10.78 billion to 10.99 billion.  The mid-point of both estimates would be higher than the consensus estimate before this guidance.  However, the forecast for 3rd quarter earnings made by Cisco was between 35 to 38 cents, yet another disappointment, since the consensus was at 40 cents.

Chambers expects a majority of state and local governments in the developed world will continue to decrease discretionary IT spending and expects challenges in Cisco's government business to spread to the federal level, saying that he expects the "challenges will worsen over the next several quarters."   

Some of the analyst forecasts made before the earnings release and guidance can be found in Tiernan Ray's column in  Barrons.

Based on all of the foregoing, it looks to me like CISCO stock is likely to be range bound for several more quarters, hovering near the $20 level with limited upside potential above $22 or downside risk below $18.  Even with its problems, the stock is still cheap, and the balance sheet is more than healthy.  

Realized Gains Regional Banks/Bought 50 GSPRD at 21.58/Bought Stock ETF PHO at 18.97/Sold 50 of 100 MWR and Bought 50 of the Stock CEF IDE at 19.57

After applying electric shock therapy to the Old Geezer's ten functioning brain cells, the OG remembered to put on his pants before leaving HQ yesterday morning. While that is viewed as substantial progress, it is unlikely that the OG will be returning to HQ as Head Trader anytime soon.

The ADP December employment report for the private sector showed an increase of 297,000 jobs from November to December.  The ADP report noted that strength in hiring was evident in every major industry and every size of business.  ADP further noted that the December increase in employment was consistent with what is "usually associated" with a declining unemployment rate. The consensus estimate for December was for a gain of 100,000.

Goldman Sachs raised General Mills (GIS) to buy yesterday. Exelon (EXC) was raised to market perform from underperform at Wells Fargo, while First Energy (FE) was started at market perform by Wells Fargo.  Webster Financial was raised to buy from hold at Jefferies. Alcoa was cut to hold from buy at Citigroup. Boyd Gaming, a recently added Lottery Ticket spurted yesterday after Barclays raised this casino company to overweight. I bought 1 senior Boyd bond at the same time as the common stock: Bought 1 Boyd Gaming Senior Bond and 30 BYD as an LT at $9.78 All of the foregoing stocks are owned by me.  Both EXC and FE are part of my core electric utility holdings.  

The first order of business for the House Republicans was to weaken the anti-deficit rules to allow tax cuts even though such cuts would increase the budget deficit.  Bloomberg Their belief is that Bush tax cuts ushered in an era of prosperity for the U.S., ignoring what actually happened over the past eight years.Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ Bush Lead During Weakest Economy in Decades Economy Made Few Gains In Bush Years - CBS News Aughts were a lost decade for U.S. economy, workers - washingtonpost.comThere just was no meaningful job creation during the Bush Presidency, with most of the job creation in industries that were beneficiaries of the housing bubble and were soon lost in 2008-2009. There was no inflation adjusted income growth for the average family.

 The stock market went up and down and ended up falling during those eight years:

S & P 500 During the Bush Presidency

Any sensible person would recognize that the tax cuts, which inured mainly to the wealthy who finance GOP candidates, added to the government's budget deficits. Tax Cuts: Myths and Realities — Center on Budget and Policy Priorities And there was no meaningful reduction in the growth of spending and new costly programs were added such as the medicare drug benefit, all during the first 6 years when the GOP controlled both houses and the Presidency. It is impossible to take republican politicians seriously as budget hawks unless one is willing to disregard facts and history and to accept their blather as gospel which is easy and natural for all of the True Believers whose Messiah is Rush Limbaugh.

I watched an interview of Ben Stein on CNN who opined that the GOP's budget proposals were just more political posturing for the GOP faithful rather than part of a serious effort to meaningfully reduce the nation's trillion dollar plus budget deficit. Of course, even if the GOP was successful in cutting 100 billion annually, that is just a drop in the bucket, and I would agree with Stein that very few politicians have the fortitude to reduce spending anywhere near that amount. It was also interesting to hear a republican say, as a matter of fact, that Bush inherited a good situation and turned into a disaster, and then he added that Obama inherited a bad situation and made it worse.

1. Bought 100 of the ETF PHO at $18.97 on Tuesday (see Disclaimer): I last bought this ETF in March 2009 at $13.6. I mentioned in that post that I do not like the expense ratio of this ETF, which is high at .6%, but I prefer it to the other ETFs that contain companies that provide and treat water. I prefer it to the others since PHO has a higher concentration in the industrial companies that provide technology related to safe water consumption and consequently a lower concentration in the water utilities. PHO's weight is 88.24% in favor of the industrial, materials, and technology companies and just 11.75% in the water utilities. PowerShares Exchange-Traded Funds | PHO - Water Resources Portfolio Holdings  An alternative is CGW, the Guggenheim S&P Global Water Index ETF.   But CGW has a 43.97% weighting in utilities  (holdings) and a similarly high expense ratio at .65%.

Powershares has a Global Water Portfolio (PIO) which I would prefer only to CGW.  PIO has a 34.4% weighting in utilities. The only advantage in the global water ETFs is their inclusion of foreign companies, some of whom are important in this sector such as Geberit AG. (GEBN.VX) My reason for owning this ETF is to acquire a sampling of the industrial companies in this space. I find the water utilities to be uninspiring at their current prices.

Another alternative for this sector is the First Trust ISE Water Index Fund (FIW), which has a .6% expense ratio, and a 21.85% weighting in utilities. 

2. Bought 50 of GSPRD at 21.58 on Tuesday (see Disclaimer): GSPRD is one of the three equity preferred stocks issued by Goldman Sachs that pay non-cumulative dividends at the greater of a guarantee or a percentage above the three month LIBOR rate. The other two are GSPRA and GSPRC. All three of the GS floaters pay qualified dividends computed on a $25 par value. None of them have maturity dates and all of them are senior only to common stock. There are minor differences in the guarantees and/or percentage float above the 3 month LIBOR. It is not uncommon for those minor differences to be blown out of proportion in the market's price. 

I have previously discussed in several posts GSPRA, which pays the greater of 3.75% or .75% above 3 month LIBOR.  The most recent discussion was in connection with a 50 share purchase a few days ago: Bought 50 GSPRA at 21 

GSPRC pays the greater of 4% or .75% above three month LIBOR. I did not buy that one. 

I bought GSPRD which pays the greater of 4% or .67% above three month LIBOR. 

The basic terms of these three securities can be found at the Goldman Sachs' website.  

The only difference in terms between GSPRC and GSPRD is that the "C" shares pay .08% more in the event the Libor part of the rate computation is greater than the guarantee, which is not now the case of course. 

But what is that .08% worth. Say the 3 month LIBOR is 5% during the relevant computation period. GSPRC's coupon would then be 5.75% whereas GSPRD would be a tad behind at 5.67%. Annualized, that difference for an investor owning 100 shares would amount to just $2 annually. GSPRD closed yesterday at $21.59 and  GSPRC finished at $22.48. So the 100 shares of GSPRD would cost me $89 less. It would take almost 45 years to recoup that difference with the $2 difference in dividends under the 5% 3 month LIBOR assumption. And, since both pay a 4% guarantee, which is currently greater than the Libor computation, GSPRD provides me with a greater yield at the guarantee than GSPRC due to its lower cost.  

I have several posts discussing how I compare the GS equity preferred floaters and the synthetic floaters that contain GS bonds. GOLDMAN SACHS FLOATERS (Oct 2009); Goldman Sachs Synthetic Floaters and Floating Rate Non-Cumulative Preferred (April 2009) I am not able to buy the GS synthetic floaters in my Fidelity retirement accounts, which is the only appropriate place for them in my opinion, due to unreasonable prohibitions recently adopted by that firm. I am in the process of transferring those accounts from Fidelity to another firm more interested in my business. Unfortunately, the new brokerage company has not yet received those assets from Fidelity. So I am not able as a practical matter to buy one of the synthetic floaters now. 

This is a link to the historical 3 month LIBOR information going back to 1989: LIBOR Rates I view this historical information as important in trying to assess the possible average LIBOR rates over long periods of time, rather than just focusing on the here and now abnormally low rates. 

My main post discussing the equity preferred floaters is Advantages and Disadvantages of Equity Preferred Floating Rate Securities.

GSPRD Prospectus: 424B2

I am returning to the floaters as I become more pessimistic by the day about bonds. TLT, the ETF for the 20+ year U.S. treasury bonds fell $2.06 or 2.2% yesterday.  I would just note that a 2.2% decline is more than a half year of interest for that security.   That is what can happen, and will continue to happen, if the worm has finally turned against the bond bulls.

3. Realized Gains Regional Bank Stocks' Basket Strategy: This is where I am going to track the realized gains in the regional bank basket.

2010 Realized Gains: +3,133.37   Item # 3  2010 Realized Gains Regional Bank Stock
2011 Realized Gains:
50 WASH:  $ 347.03 ST   Sold 50 of 100 WASH @ 22.44
50 FBNC:  $193.1   Sold 50 FBNC at 16.27
100 TOBC: $128.6  Sold 100 TOBC at 23.12
100 AF $222.39   Sold 101 AF at 14.89
50 GBCI $59.1  Sold 50 GBCI at 14.58
50 FNFG  $32.56 Sold 50 of 250 of FNFG at 14.67
50 WSBC $315.6 ST  Sold 50 WSBC @ 20.01
50 ORIT $25.6 ST Sold 50 ORIT @ 12.49
50 STL $176.10 LT  Sold STL at 10.5
50 NWBI $31.6 Sold 50 NWBI @ 12.5
100 CIZN $184.61 ST SOLD 100 CIZN @ 20.56
50 WBS LT $879.52  Sold 50 WBS at 22.49
50 PFS ST $144.08  SOLD 50 PFS at 14.88
100 EBTC ST 491.11  Sold 100 EBTC at $15.95
50 FFIC LT $96.6 (kept 50 shares after earnings report)  Sold 50 FFIC @ 14.51
50 NRIM LT $153.38  Sold 50 NRIM at 20.05
100 First Community ST $35.1 Sold 100 FCBC at 14.44
156.5828 Northwest Bancshares $170.19  Sold 156+ NWBI at $12.52
102 HopFed -131.23 Sold 102 HFBC at 8.01
50 Great Southern ST +20.06 Sold 50 of 100 GSBC at 19.27
50 Merchants Bancshares LT +160.10 SOLD 50 MBVT at 26.5
107+ Southside Bancshares  Sold 107+ SBSI at 20.5
50 Great Southern ST +95.58 Sold Remaining 50 GSBC at $19.5
50 Union Bankshares ST $59.08 Sold 50 UNB at 19.5 
100 Citizens & Northern LT +517.61 Sold 100 CZNC at 16.53
50 Oneida LT +62.57  Sold 50+ ONFC at $9.35
50 Oceanfirst Financial LT $81.1 Sold OCFC at $12.45
100 Brookline -62.92 ST  Sold 101+ BRKL at $8.23
50 First Bancorp LT $16.58 Sold 50 FNLC at $14.25
50 Flushing Financial $104.1  Sold 50 FFIC at $13.53
50 Glacier ST $103.08  Sold 50 GBCI at $12.53
Sold 53+ Porter Bancorp at $624.48 Loss
51+ Community Bank Systems +65.58
Cumulative Total: $7,642.05

No Longer Tracking Gains/Losses Here See Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST

I am not tracking realized gains and losses in the foregoing list originating from reinvested dividends, but I am tracking shares acquired from stock dividends and splits. REGIONAL BANK BASKET STRATEGY GATEWAY POST

4. Pared Trade: Sold 50 of 100 MWR at 22.91 and Bought 50 of the stock CEF IDE at $19.57 on Wednesday (see Disclaimer): The potential for a major correction in bonds has been noted many times in this blog. By correction, I am not referring to a temporary decline in bond prices followed by a resumption in the long term secular bull market in bonds. I am referring to the onset of a relentless long term secular bear market for bonds lasting for years. One way that I will deal with that possibility is just to own more individual bonds in a ladder strategy, weighting those with intermediate terms, and to gradually diminish bond funds with no liquidation dates. I spent about five hours yesterday working on a ladder for investment grade bonds. I had to go out at least ten years or so to find yields in excess of 6%. I selected about 30 bonds that I may buy, and will start to monitor. However, I am not likely to begin purchasing them with any gusto until the yields rise to over 7% which will require a significant decline in their current prices.

In this pared trade made yesterday, I reduced a position in a long Morgan Stanley junior bond, maturing in 2033, and used part of the proceeds to add to my existing position in the stock CEF IDE. That stock CEF just went ex dividend for its quarterly dividend. My prior purchase was 100 shares in two fifty share lots. Bought 50 of the CEF IDE at 17.4 Added 50 IDE at $16.85 I thereafter sold the highest cost fifty shares at 18.7. And, all the RB could say, typical NERD MACHINE trading, whereupon the LB launched into a 6 hour dissertation, with a powerpoint presentation, of why it was prudent to sell those 50 shares at $18.7 in September 2010 and to buy them back at $19.51 on Wednesday.

I am keeping the Morgan Stanley TP MWR bought in the regular IRA.  I sold the 50 MWR recently bought in the taxable account at 22. (Dec 28 2010 Post).

IDE is a closed end stock fund that invests in the infrastructure, industrials and materials sectors.   ING Infrastructure, Industrials and Materials Fund - Overview On 1/4/2011, it closed with a net asset value of $21.66.  The market close that day was $19.51 which created a discount to net asset value of -9.93%.  The fund is currently paying a 45 cent per share quarterly dividend. Distributions  At that rate, the dividend yield would be about 9.2% at a total cost of $19.57.  I am taking the distribution in cash.

Since this is a new fund, the current distribution rate is not be supported by earnings. The primary support for such a high yield would have to be realized capital gains, both short and long term. Since the fund is new, there could not yet be any long term capital gains. But the fund is doing better now and may be able to realize sufficient gains over the course of 2011 to support the dividend payout and thereby avoid a return of capital issue for distributions later in the year.  For the period ending in August 2010, there was a significant return of capital classification as shown at page 8 of the following referenced semi-annual report. This information on a penny bais can be found at Morningstar. However, until this fund starts to earn the dividend, I will keep my position at or under 100 shares.   If it fails to earn the dividend within a year or two, I will eliminate it unless the dividend is reduced to reflect actual earnings per share.

This is a link to the SEC filed shareholder report for the semi-annual period ending 8/31/2010. ING Infrastructure, Industrials and Materials Fund  I generally like the portfolio and there is little duplication in my individual stock holdings.

This is a link to the CEFA page on this fund.