Bought 100 WMT at $49.55/Sold 100 XLI at $26.65/ Temptation of Long Bonds in a Low Interest Rate Environment

1. Bought 100 Wal Mart (WMT) at $49.55 Today (see Disclaimer): The purchase this morning of WMT can only be considered a flair up of whatever old geezer type disease that causes purchases of stocks of this nature. What can I expect for this 5 grand? Not much, though I feel safe with it. It is hard to visualize much downside risk at the current price of below $50, at least in terms of anything other than a short duration fall toward the 52 week low of around $46. The plan is relatively simple. I will hold to sell at $55 or higher, provided that price occurs sometime between now and a year or so from now. Otherwise, I will hold out for a $60 price. The dividend yield is okay for a retailer at a tad over 2%. S & P has it rated 5 stars with a $62 target. Barclays has it overweight also with a $62 target. WMT is selling around 12.78 times the fiscal year 2011 earnings, which ends in January 2011: WMT: Analyst Estimates I am not sure that my memory bank can recall when WMT sold for such a low multiple. The stock is not getting any love from investors since the market rally off the March lows. The stock closed at $49.75 on March 5, 2009: WMT: Historical Prices WMT is the only retailer in my portfolio.

2. Sold 100 XLI at $26.65 (see disclaimer): I bought two ETFs containing industrial stocks and decided to keep one and to sell the other. I am keeping VIS, the one from Vanguard that has a much larger sampling of industrial companies than XLI which is limited to the industrial companies in the S & P 500. I bought XLI on 5/29/09 at $22.16 and will receive one quarterly dividend for the current quarter. Sold out of IR and Bought XLI/ Bought 50 MWA as a Lottery Ticket/Dollar Crumbles with Dollar Index Now Below 80/More Recovery Signs The unrealized profit on VIS bought in late July is over $700 now.

The following snapshot includes XLK which was sold on 10/2/2009:

XLI 100 Shares +$432.16/XLK 100 Shares +$195.17w

A few of my higher yielding stocks/bonds went ex distribution today. PJS, a TC containing a senior bond from First American is ex interest today with its 6 month semi-annual payment, which will be paid on 10/1. This one has been a stellar performer since it was bought during a meltdown at the $7 and change level. Winstream, another add this year, will not have much earnings growth but the generous dividend went ex today also. The best Lottery Ticket over a one year period ever, at least so far, GRTPRF went ex dividend, a yield of 75% based on my $2.9 cost. Another one was the floating rate equity preferred stock from Morgan Stanley, MSPRA.

Bought MSPRA RJZ & ADX/ COMMODITIES AS AN ASSET CLASS

I am currently trying to resist the urge to buy back some exchange traded bonds that I sold near par value. The urge to find yield when money market rates are yielding near zero is powerful, but I have to remind myself that buying long bonds with fixed coupons, at or near par value, with yields in the 7 to 8% range, involves more risk than I am generally willing to assume. No one knows the future, but I am concerned that we are nearing the end of a long term secular bull market in bonds. I know it is hard to believe, based on experience with bonds since 1982, but there are long historical periods when bonds fail as an asset class. That would have been true for about 20 or so years prior to 1982, with the worst phase of that long term secular bear market in bonds being in the 1970s, to around 1982.

Bond trading is an important part of my asset allocation, and I want to have alternatives other than those available on the stock exchanges in such instruments as Trust Certificates, Trust Preferred and and baby bonds. The following are some links to what I call Gateway Posts on the subject of exchange traded bonds:

Trust Certificates Links in One Post

Trust Preferred Securities: Links in One Post

Exchange Traded Bonds:

Floaters: Links in One Post

Synthetic Floaters

Advantages and Disadvantages of Equity Preferred Floating Rate Securities This last category contains stocks that would be listed on a balance sheet as equity, but I view their bond characteristics as predominant over their equity characteristics.

I would not be concerned about the new strictures placed by Fidelity on bond trading two years ago, since I was a Stock Stud back then when I was a young man. Now, being an Old Geezer, I like the stability of bonds and will now have to start using another online broker for my bond trades. As I have become older, my tolerance for being aggravated needlessly has decreased. If anyone has an idea on who to use, please leave a comment or send me an email. The Email address can be accessed by clicking the profile section under my picture to the right of this blog.

Sold out of IR and Bought XLI/ Bought 50 MWA as a Lottery Ticket/Dollar Crumbles with Dollar Index Now Below 80/More Recovery Signs

1. More signs of a Recovery:  India reported that its March Quarter GDP rose a faster than expected 5.6%. Reuters  Japan reported the biggest monthly spike in industrial output since 1953. The CRB index is about to set its largest monthly rise since 1974. The Australian dollar surged to an 8 month high.  Reuters

Home prices rose 1.2% in Britain in May. Reuters

The British Pound hit a new six month high against the dollar. 

Bill Gross thinks that the green shoots will be about what investors can expect from the economy, and "not much more".  He expects just 1 to 2% growth over the next few years with unemployment remaining at high levels of 7 to 8% for years to come.  He recommends high quality investment grade corporate bonds yielding 6 to 8%, and consumer staple stocks like Coca Cola and Proctor & Gamble, both owned by me. International Business Times  PIMCO - IO May 09 Gross 2 2 4  

2. R.H. Donnelley bankruptcy:  The debt ladened publisher of the yellow pages filed for bankruptcy. I mention this primarily as an object lesson about a company gouging on debt and what can be expected to happen after a company misses a payment on its senior debt obligations. Donnelley missed a payment on April 15 and then it exercised the 30 day grace period for forbearance. Donnelley ran out of time.  This is to be contrasted with the liberal deferral rights permitted in a typical prospectus for a junior debt issue, which normally allows a deferral for up to five years for any reason without triggering a default. When a company misses one payment on its senior debt, bankruptcy is just around the corner.

3. Hertz:  HTZ completed its 749 million dollar capital raise by issuing common stock and convertible notes.  Moreover, private equity firms committed to buying 200 million in stock. All of this is relevant to my small position in DKR, a Trust Certificate containing a senior bond from Hertz maturing in June 2012, which so far looks like a home run after being purchased in October of last year at $6.45 TRUST CERTIFICATE HERTZ BOND DKR(1/2 of position sold on an earlier spike SOLD 1/2 POSITION DKR, with 2 semi-annual interest payments to date, and close to a 300% rise in price).

I am not critical of my decision not to buy more given my conservative and generally cautious nature, and based on what I knew at the time the opportunity to buy more at around $6 presented itself. See, generally, Hertz Bond Information in One Post  Since the current yield at my $6.45 cost is around 27% annually, I am inclined to keep DKR until maturity in 2012, receive the interest and hopefully the $25 par value then, unless I become spooked by some subsequent news. 

4.  Continuing Liquidation of Short Term Bonds:  My overweight position in short term bonds which arose out of a shift from stocks in 2007 is gradually being pared, as I see a recovery in their prices to close to par value. I noticed that my remaining 5 BAC bonds, which mature in 2013, are now being priced at close to par value by the third party used by my broker, and those bonds came close to a 70 price in early March. The liquidation of the short bond positions fueled the purchase of stocks in early March, and the ones sold since I exhausted those proceeds with stock purchases are being held in a mental escrow. 

5.  Bought 50 shares of Mueller Water Products (MWA)  at $3.62-Lottery Ticket Category:  The best profile description of a company can be found at Reuters.  This is a link to Reuters discussion of MWA  Reuters.com

The main long term issue with MWA is that it has in my opinion way too much debt for a company of its size that is in a cyclical business. The company said on its conference call that it was close to breaching its debt covenants, and expects to be in breach later, so it is re-negotiating those covenants. (see p. 3: Seeking Alpha) Net sales for this water infrastructure company fell 23.6% during the last quarter.  In that last earnings release, the company maintained that the decline in its largest end market may be easing but that its non-residential construction market will continue to decline. 

Prior to the current recession, MWA's stock peaked at over 19 in June 2007 and hit a low in early March 2009 at less than $2.

6. Estimate for Fed's April Revenue Down 34% from a Year Ago: This is a link to an article in US Today about an estimate by American Institute for Economic Research for the federal government's tax revue for April 2009, with the estimate being 138 billion below April 2007. USATODAY.com 

This is a link to the research that produced this estimate along with a helpful chart of tax revenue. Tax Revenue Plummets

7.  Richard Fisher, Dallas Fed President on Unfunded Medicare and Social Security Obligations: Richard Fisher, the Dallas Fed President, claims that the unfunded U.S. obligation for Medicare and Social Security totals  99.2 trillion dollars. Storms on the Horizon Richard Fisher Speeches; International Business Times 

And the politicians want to add to that another health care program? Some Political Type Observations from the Newly Appointed Leader of the Ornery Party Which Can be Ignored by the Stock Jocks

8.  Dollar Index Breaks below 80: The U.S. dollar was being hit hard this morning. INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote

9.  Sold IR and Substituted 100 XLI:  LB broke its promise to RB and sold the Ingersoll (IR) shares at $20.16 that were bought in early March at $11.72. The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology

LB likes security blankets as a rule, and substituted the Industrial SPDR (XLI) by buying 100 shares at $22.16. This ETF has all of the industrial stocks in it that are part of the S & P 500. This would include IR but only at a .91% weight of the total holdings. Composition - Select Sector SPDRs

The expense ratio for this ETF is just .21% and it contains 59 stocks. XLI has not done so well during this bear market. But I am way underweight American industrial companies so XLI is an easy way to diversify quickly into this sector.  

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 readers of these posts 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.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   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.  Anyone interested in a topic may want to review all discussions contained in the blog about it by using a relevant search term in the box at the top. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.