Current Status of The Vix Asset Allocation Model Signal

1. Current Status of the Vix Asset Allocation Model Signal: The last major signal given by my Vix Asset Allocation Model was to reduce stock exposure after the Trigger Event in August 2007. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern A Trigger Event occurs when the VIX shoots out a long-standing Stable Vix Pattern of continuous movement below 20 by rising close to 30, and then remaining at elevated levels for several days.Vix Asset Allocation Model Explained Simply The Trigger Event marks the formation of an Unstable Vix Pattern, a far more dangerous market for an individual investor, particularly those facing significant situational risk. The Trigger Event is by far the most important signal given by the model, and one that can not be ignored.

The U.S. stock market has been in an Unstable VIX Pattern since August 2007. To end this pattern, I will require 3 movements of movement below 20, possibly allowing for a brief move into the low 20s without restarting the count. Earlier in 2010, the VIX was moving in a continuous pattern below 20 for several weeks before the European sovereign debt crisis caused the VIX to quickly move back into the 30s. ^VIX: Historical Prices for VOLATILITY S&P 500 That disruption is not a Trigger Event but is simply a reconfirmation of the Unstable Vix Pattern. Other problems contributed to the resumption of instability, including data indicating a slowdown in U.S. growth and a continuation of stagnation in hiring.

After receiving a big jolt starting in early May which took the VIX briefly over 40, the VIX has been gradually returning toward the important 20 demarcation line again. This is a characteristic of the Phase 1 of the Unstable Vix Pattern, a period marked by rallies and declines, sound and fury, with the end result being stagnant or negative returns over a long period of time particularly after adjusting for inflation.

The Unstable Vix Pattern will likely be anathema to the buy and hold stock investor. It is a trader's market, and an extremely difficult one to trade. One of the major dangers for the trader is being caught long when a Phase 2 Unstable Vix Pattern forms. Generally speaking, the Trigger Event will cause me to substantially reduce my stock exposure and to enter into a trading phase. Possibly some long term positions will be added during this phase, but mostly I am in a trading mode. One tenet of the trading mode is to sell on pops and buy on the dips, and part of that activity can be timed by the movement in the VIX. During the Unstable Vix Pattern, Phase 1, the VIX will be in a whipsaw pattern moving mostly between 20 to 30, as now, with fairly brief spurts above 30 and below 20. The movement below 20 would be a signal to lighten up some and then to add back positions on a pop to the low or mid-30s. Trading and Asset Allocation in Stable and Unstable VIX Pattern More on VIX AND ASSET ALLOCATION The problem comes when the movement into the 30s explodes into a huge spike into the 40s and beyond. That could catch the trader long and cause severe pain. My response is just to reverse the recent buys when I see a Phase 2, Unstable Vix Pattern form, as I did in September 2008 but nowhere near enough. SEPTEMBER 2008: FORMATION OF THE DEADLY PHASE 2 OF THE UNSTABLE VIX PATTERN While there was a couple of days in September 2008 to make that change before the crap hit the fan in a big way, there is no guarantee that any warning will be given before there is a collapse in prices characteristic of a Phase 2, Unstable Vix Pattern (also called the catastrophic phase of a long term bear market in this blog; every long term secular bear will have at least one catastrophic phase that will give long term investors with strong hands and stronger stomachs excellent entry points).

Prior to the VIX data, there was volatility data on the S & P 100 which had a Trigger Event before the 1987 crash. Parallels to VXO 1987-1988 There was no warning (^VXO: Historical Prices) , however, of a formation of the Phase 2 pattern before the October crash. The VXO went from 36.37 on 10/16/1987 to 150.19 on 10/19 and 140 on 10/20. So the model would have saved an investor money by reducing stock exposure after the Trigger Event in 1987 but would have caught the traders in the crash unless something else had spooked them to reduce positions.

I thought that it would be helpful to copy how I break the time periods into patterns since the CBOE started to publish VIX data in 1990:

"3. Historical Time Periods for Unstable and Stable Vix Patterns and S & P Movement Within Each Pattern:

In numerous posts I have discussed the importance of identifying whether the U.S. stock market is in an Unstable or Stable Vix Pattern for purposes of providing some guidance about asset allocation and trading strategy decisions.{ See, e.g. More on Failures of Standard Asset Allocation Models and Target Funds/Use of Volatility in an Asset Class to Make Adjustments to an Asset Allocation Trading and Asset Allocation in Stable and Unstable VIX Pattern The Roller Coaster Ride of the Long Term Secular Bear Market }

The following synopsis assumes familiarity with the broad contours of the VIX Asset Allocation Model as outlined in Vix Asset Allocation Model Explained Simply With as Few Words as Possible. The application of the model to an asset allocation decision in 2007, which mandated a reduction of stock exposure in August 2007 after a Trigger Event, a major disruption in a Stable Vix Pattern, is outlined in VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern.

Some other important posts that discuss the importance of these events in asset allocation and trading strategies include the following:

When VIX Model Gives A Signal To Change Asset Allocation-Each Individual Needs to Assess Their Own Situational Risks

VIX and S & P Compared 1990 to 1997

Multiple Confirmations of VIX Model-Canary in a Coal Mine

More on VIX AND ASSET ALLOCATION

In the following Table, I am defining the periods of the Unstable and Stable Vix Patterns since the onset of the VIX data in 1990. At the start of the Vix data series in 1990, the stock market is in a cyclical bear market within a long term secular bull market starting in August 1982. I am marking the end of an Unstable Vix Pattern by continuous movement below 20 in the VIX for 3 months, allowing for some minor and short term movement above 20. Before making an asset allocation change after the start of the Unstable Vix Pattern, I wait for the return of the VIX to below 20 after the Trigger Event. This has worked since 1990 but may not in the future. It permits the investor to sell at a better price after the Trigger Event, which is invariably associated with a decline in stock prices.

Stable VIX Pattern: March 1991 to October 1997

Week Ending 6/12/1991 S & P 500 382 ^GSPC ^VIX

End of Stable Pattern October 1997-Early Nov 1997: ^VIX

Wait for Return Below 20 in the VIX-W/E 2/9/1998 S & P 500 1012^GSPC ^VIX

Unstable VIX Pattern October 1997 to October 2003

Start of Unstable Pattern: S & P 500 at 1012 (Measured not from Trigger but return of Vix to less than 20)

End of Unstable Pattern: S & P 500 at 1050 ^GSPC ^VIX

Stable VIX Pattern October 2003 to August 2007

Start of Stable Vix Pattern: S& P 500 at 1050

Return of VIX below 20 After END of Stable Vix Pattern in 8/2007: S & P 500 at 1525 (9/17/2007) ^VIX: ^GSPC

Unstable Vix Pattern August 2007 to Present

Return of Vix to Below 20 after Start of Unstable Vix Pattern: S & P 500 at 1525

Currently: S & P 500 Closed Friday 7/2/2010 at 1022.58. (as of last Friday, August 6, 2010: 1121.64)

I date the start of the long term secular bear market in October 1997 and one reason is shown in the foregoing. The start of an Unstable Vix Pattern in October 1997 is coupled with a return in the S & P 500 back to the level that the model said to sell in February 1998. Even during an Unstable VIX Pattern, there can be profound up cycles which could be profitable for those who are lucky enough to play the move. However, the lesson from the Vix's history is that the market will end an Unstable Vix Pattern period at or below the starting point, usually after a number of years. Before the onset of the current Unstable VIX Pattern, the prior one lasted SIX YEARS. I suspect, more of a guess, that the start of the next Stable VIX Pattern will start below S & P 1525, possibly around S & P 1250, possibly in 2 or 3 years, near the mid-point of the last Stable VIX Pattern move."

Rationale for the Regional Bank Stock Strategy/Historical Unstable and Stable Vix Patterns and Asset Allocation Decisions

Sold: 50 AFE at 24.59 & PJS at 25.45/Bought 50 PFS at 12.74/Bought 100 IGD at 10.94/Added 50 JZJ at 24.75/KFT BRKS

The preceding table contains the CEF positions currently held. This is a balanced portfolio within a portfolio. By balance, I am referring to a fairly typical bond/stock allocation for someone my age, and then a further division within each of those broad categories (e.g. for stocks, into different market caps, sectors and regions). I have added to some positions, while deleting EBI, since this table was last posted in June: Added 100 MSF at 13.57 Some of the adds include 200 GDV, 50 RMT, CSQ, IGD (discussed in item # 9 below) and 50 ADX. Added 200 GDV at 13.33/ Bought 100 of the CEF CSQ in Roth at 8.49 Added 50 ADX at 9.7 and 50 RMT at 7.82 with Cash Flow

1. Kraft (own): I have traded in and out of KFT several times over the past two years, with the last 100 shares bought at 29.86. After the close yesterday, Kraft Foods beat the consensus estimate by 8 cents reporting earnings per share of 60 cents excluding non-recurring items. Kraft reaffirmed 2010 operating guidance of at least $2 per share. KFT also increased its estimate of cost synergies from the Cadbury acquisition to at least 750 million, up 75 million from its previous forecast. Gross margins increased from 35.9% in the 2009 quarter to 38.3% of sales.

2. Bought 50 Provident Financial Services (PFS) at 12.74 on Wednesday (category 2- Regional Bank Stocks basket strategy) (see Disclaimer): Provident is based in New Jersey and has around 81 full service branches in the New Jersey counties of Hudson, Bergen, Essex, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Union. Provident reported net income of 12.9 million or 23 cents per share for the second quarter of 2010, up from 11 cents per share in the 2nd quarter of 2009. The bank did not participate in TARP: www.sec.gov

As of 6/30/2010, the net interest margin was 3.48%; the efficiency ratio was 56.44%; NPLs to total loans was at 2.15%; NPAs to total assets was 1.43%; and allowance for loans losses to NPLs was 65.98%. I did not see the capital ratios set out in this earnings release. The capital ratios set out in the last filed Form 10-Q at page 25 for the Q/E 3/2010 were in excess of well capitalized levels.

The consensus estimate for 2011 earnings from 7 analysts is $1.02: PFS: Analyst Estimates for Provident Financial Services Co

PFS closed at $12.53 on Thursday, down 26 cents.

3. Sold 50 of the 100 AFE at $24.59 on Wednesday (see Disclaimer): I sold the 50 shares of AFE held in the Roth IRA as it approached par value. I bought those shares in June at $23.17. I received one quarterly interest payment. At $24.59 the yield slipped below 7.4% for this senior bond maturing in 2034. As I have discussed, I may be far more concerned now about interest rate risk for long bonds than most investors. I am keeping the shares for now bought at 22.87 in a taxable account.

4. Pinnacle West (PNW)(own): Pinnacle West, an electric utility operating in Arizona, reported second quarter net income of 114.8 million or $1.07 per share, up form 69 cents in the linked quarter. Excluding earnings from discontinued operations, PNW earned 83 cents per share compared to 75 cents on that basis in the 2009 linked quarter. PNW reiterated its 2010 guidance of $2.95 to $3.10. PNW is a non-core electric utility holding. I recently pared the position: Pared PNW at 39.25

5. News Corporation (NWSA)(own): News Corporation reported net income of 875 million or 33 cents per share. The consensus estimate was for 20 cents. Revenues increased 6% to 8.11 billion. My last purchase of NWSA shares was in 2008 at $6.65 and I currently own about 120. NWSA However, those results included a number of one time gains which was partially offset by a 217 million dollar impairment charge. The NYT claims that the E.P.S. number was 30 excluding items.

NWSA was up 50 cents or 3.61% yesterday, closing at $14.35.

6. Apollo Investment (AINV)(own): Apollo Investment Corporation declared a 28 cent per share quarterly dividend and reported net investment income of 22 cents per share. Net asset value per share was $9.51 as of 6/30/2010. Analysts were expecting 25 cents. This BDC is an underwhelming investment. LB blames the Old Geezer for keeping it around. While AINV shareholders have not fared that well over the past few years, Chart, the Masters of the Universe who run this BDC have done well for themselves in compensation. AINV did file a Form 10-Q with the SEC yesterday for the latest quarter. The net asset value was $14.27 as of 3/31/2005.

AINV deservedly fell 6.1% to close at $10 yesterday.

7. Added 50 JZJ at $24.75 Yesterday (see Disclaimer): I have discussed this trust certificate containing a senior AT & T bond since starting this blog in October 2008. Some of the discussions can be found in the following posts: JZE: MORE DETAIL Trust Certificate JZJ AT & T BOND Added to Long Bond Positions: AT & T Senior Bond/JZJ Some Nibbles Got Filled: JZE, PJS, INZ and FAX

Yesterday's purchase of 50 shares rounded my lot to 200 shares in a taxable account. The previous shares were acquired in 2008 at a total average cost of $17.97 including commission.

The coupon of the underlying AT & T bond is adjustable, but has a minimum guarantee of 8%. JZJ has a lower guarantee of 6.375% which is the current coupon rate of this $25 par value TC. As previously discussed in detail, the rate of the underlying bond can be adjusted up or down 1/4% by a one notch upgrade or downgrade in the bond's rating by Moody's or S & P. When this bond was originally issued, AT & T was a long distance company and was subsequently acquired by SBC Communications, a large regional phone company. This improved the rating of the original AT & T bond by several notches, so the interest rate on the underlying bond was reduced from 8.75% to the guarantee of 8% as a result of the rating upgrades.(SBC changed its name to AT & T after the acquisition and subsequently acquired BellSouth) All of the TCs containing this same bond likewise had their starting rates reduced by the upgrades. JZJ started at 7.125% and hit its guarantee of 6.375% due to the ratings upgrades of the underlying AT & T bond by the ratings agencies. The adjustable rate feature of this TC and the underlying bond are explained in the prospectus: www.sec.gov

I have also mentioned that the underlying bond is now trading at a substantial premium to its par value. When I bought JZJ yesterday, the underlying bond was trading at over a 32% premium to its par value. FINRA I have stated that any of the TCs containing this AT & T bond could be called at anytime by AT & T or the owner of the call warrant. (see More on the Call Warrant in TCs & Call Warrants and Trust Certificates for a discussion of the call warrant provision and how this will impact the price of a TC when the underlying bond is trading at a premium to its par value)

Yesterday, I noticed that GJF, a TC containing the same AT & T bond, was called by the call warrant holder. Synthetic Fixed-Income Securities, Inc. Announces Conditional Redemption of STRATS (SM) Trust for AT&T Securities, Series 2004-4 - WSJ.com I no longer own GJF, having previously sold my position. Sold 50 GJF at 24.25 This means that the owners of GJF will receive the $25 par value for this security plus accrued interest. I own another TC JZE, bought at $12.5, that contains the same AT & T bond. Both GJF and JZE are slightly different than JZJ, in that their guarantees are 6% compared to the 6.375% of JZJ. Notwithstanding that fact, which gives JZJ a better yield than JZE now, JZE is selling at over par value whereas I bought JZJ at a small discount to par.

It really makes sense for the owner of the call warrant to exercise that warrant. The TC owners receive par value plus accrued interest and the owner of the call warrant could turn around and sell the underlying bonds for a 30+% profit. While the call warrant has not been exercised yet for JZE and JZJ, it would make sense for this to happen, which also recently took place for XFL that I also owned.

So, if it does happen, I will realized a long term gain on the shares in JZE and JZJ acquired in 2008 and a small profit plus interest on the JZJ shares acquired yesterday.

The current yield on JZJ at a total cost of $24.75 would be about 6.44%. If either S & P or Moody's downgrades the debt one notch, the yield would rise to 6.69%. I mentioned in an earlier post that S & P was considering whether or not to downgrade AT & T's debt by one notch.

When I sold a TP from US Bank recently, I mentioned that it was possible to buy a senior bond maturing sooner than that TP with a higher yield. Sold 50 USBPRF at 23.94 JZJ would be one example. The TP is in effect a junior bond whose interest payments can be deferred, whereas the owner of JZJ does not have to worry about deferral, only bankruptcy.

The SEC filings for JZJ can be found at Search Results. This is a link to the last trustee's report from May 2010 summarizing the interest distributions to the owners of this TC: Trustee's Distribution Statement to the Corporate Backed Trust Certificates The trustee collects the interest payments made by AT &T and then distributes those funds to the owners of the TCs.

Trust Certificates Links in One Post

8. SOLD 50 PJS at $25.45 Yesterday (See Disclaimer): This TC was just bought at 23.73. Although this TC will go ex interest soon, I have no interest in it at over par value. More importantly, as a psychological issue for the OG, I do not want to muck up my good record trading this TC, which I am prone to do sometimes after going to the well one time too much. Sold ALL PJS at 24.65 and 24.75 Bought PJS at $7.2 Bought 50 PJS at $17.8 in Roth Bought 50 PJS at 17.95

Headknocker noted that PJS traded at $26.32 after the OG sold 50 at $25.45 and wanted to know why the OG donated over $40 of HK's capital to that unknown buyer. OG replied that individuals were bidding up prices of these TCs, searching for yield wherever they can find it, and some may be buying the next interest payment by bidding up the price. And the OG noted that PJS closed the day at $25.89.

9. Bought 100 IGD in the Roth IRA at $10.94 (see Disclaimer): I own about 233 shares of the CEF IGD in a taxable account and quit using the dividends to buy additional shares in March 2009. Until fairly recently, this CEF was selling a premium to its net asset value. As shown in the graph at Morningstar page for IGD, the premium was hitting 10-11% in 2010. IGD pays a monthly dividend, always viewed as desirable, and that dividend was recently cut from $.125 to $.10 per share. This resulted in a correction in the stock price to the point where this CEF was selling at a small discount to its NAV. Even at the reduced rate, the annual dividend of $1.2 results in a dividend yield of 10.96% at a total cost of $10.94. This CEF is a stock CEF investing globally. ING Global Equity Dividend and Premium Opportunity Fund - Overview It buys puts to protect against market declines and writes calls to "potentially" add to returns and to reduce volatility.

This is a link to the last quarterly report filed with the SEC for the Q/E 5/2010.

For the time being I am using exchange traded principal protected notes and stock CEFs that have high yields to increase my equity exposure in the retirement accounts. Another recent buy along this line is JSN: Bought 100 JSN at 12.8 in regular IRA The accounts are still bond heavy with over a 90% allocation to individual bonds (mostly TCs), preferred and trust preferred securities, and bond funds (primarily term bond CEFs and ETFs).

10. Brooks Automation (BRKS)(own-Lottery Ticket category): BRKS was a recent add: Bought BKRS at 7.72. The company beat the consensus estimate by 5 cents reporting net income of 26 cents per share on a 257.3% increase in revenues. The CEO made the following comment about the quarter in the press release: "Business activity continues to be strong across our entire portfolio of critical component and system solutions. Over the course of twelve months, our top line has more than tripled and today we are delivering the best operating performance in the entire history of Brooks."

Cash and marketable securities at the end of the quarter totaled 104.1 million.

LB is embarrassed by the OG's other trades on Thursday and declines to discuss them to preserve the reputation of the storied HQ trading operation. LB wants our Great Leader to know that it is willing to make a good faith effort to work more than 24/7 to advance HK's capital position, and is willing to return as the HT provided no criticism is leveled against it in case LB fails to work more than 24/7. LB would add for HK's consideration that there was another blowup in one of HK's 400 or positions yesterday, and the OG was responsible for it, almost as bad as PBI on Wednesday.

DUK UNUM CBL PBI BCBP CWH/ISM Service Index/Bought 50 SSBI at 6.3/Sold 50 of 100 DKQ at 21

The ISM services index rose to 54.3% in July from 53.8% registered in June. The consensus estimate was for a decline to 53. Employment crossed above 50, the threshold for expansion, increasing from 49.7% in June to 50.9 in July. New orders increased to 56.7.

Last night, Steven Colbert endorsed Basil Marceaux in the Republican primary for Governor of Tennessee. Republican Gubernatorial Primary Battle Watch '010 - Basil Marceaux.com | August 03, 2010 Many of Basil's new and fresh ideas, discussed previously by me in an earlier post, resonated with Steven.

Colbert was really smitten with Basil's strict constructionist's view of the Second Amendment. Where does it say, after all, in that Amendment that "nutcases" can not have guns? In the video clip of Basil shown on the Colbert Report, Basil advocates arming all citizens, even if the Tennessee state government had to buy the firearms. The state would fine anyone who did not own a gun. (an earlier segment on Colbert Nation about Tennessee's governor's race: Republican Gubernatorial Primary Battle Watch '010 - Tennessee)

Colbert also referenced a recent remark by another GOP candidate for Tennessee's Governor, Zach Wamp, formerly a GOP congressman, that voters needed to cast their lots with the GOP in 2010 and 2012, so that states will not have to consider separation from the U.S. (that remark also discussed in Notable & Quotable - WSJ.com)

I am reminded of a quote from an article in the The Atlantic magazine to the effect that Democrats may be incompetent but at least they are not crazy. About 1 in 4 members of the GOP believe that Obama is the AntiChrist. Party of Nuts: Poll Shows GOP Thinks Obama is a Muslim

1. Duke Energy (DUK): Except for the 50 shares owned in a satellite taxable account, which will be traded, my remaining Duke shares are regarded as a core electric utility holding. The consensus estimate was for adjusted earnings of 27 cents. Excluding charges, Duke Energy reported an adjusted E.P.S. of 34 cents, up from 26 in the second quarter of 2009. Duke also increased its estimate for 2010 to a range of $1.30 to $1.35 from $1.25 to $1.30. Since starting this blog in October 2008, I have discussed adding Duke shares at $13.56 and $15.79 to the core position. The most recent add was at 16.25 in a satellite account whose primary purpose is to build up a savings account and to use those funds to buy some CDs from an online bank. However, under the current interest rate environment, I am willing to accept anything being offered in terms of CD rates, and the savings account yield is around 1%, which is why I have retreated to a temporary fall back position of buying dividend paying stocks in that account. Once interest rates return to more normal levels, say 4 to 5% (or more) for a 1 year CD, I am likely to opt for that option rather than to continue owning stocks in this account. The Duke shares held in that account will therefore be traded to clip a profit and a few dividend payments. The yield on DUK shares bought at a total cost of $16.25 is close to 6%.

2. BCB Bancorp (BCBP)( own- Regional Bank Stocks basket strategy ): BCB Bancorp, Inc. reported earnings of 20 cents per share for the 2nd quarter, up from 14 cents in the 2nd quarter of 2009. The Board declared the regular quarterly dividend of 12 cents per share. BCB recently completed the acquisition of Pamrapo Bancorp. BCB Community Bank

3. Pitney Bowes (own): Pitney Bowes reported adjusted earning of 48 cents, down from 55 cents in the prior quarter. The consensus estimate was for 57 cents. GAAP earnings were just 30 cents per share. On a GAAP basis the company generated 118 million in cash from operations. The PBI President made the following comment about this disappointing earnings report: "After seeing some early signs of stabilization among our small to mid-sized customer base in the first quarter, we experienced a decline in activity levels in the latter part of the second quarter." Revenues fell 6% and PBI trimmed its full year's guidance to $2.10 to $2.30 from $2.30 to $2.5.

I bought PBI primarily for the dividend. Bought 100 PBI at 21.9 The stock goes ex dividend on 8/11. Pitney Bowes Inc, PBI Stock Quote While I am in no hurry to jettison the shares given the dividend yield, I view this report as insufficient to support a long term hold in the stock, even with no cut in the diviend. Consequently I may sell the position at anytime and would not consider buying any additional shares.

PBI shares were shellacked yesterday, falling 15.87% to close at $21. Maybe that was just a tad too much even for that awful report and guidance. I would hope that the dividend would support the share price at or around the current level. The yield is about 7% at that price, assuming no dividend cut. I would view a dividend raise to be unlikely for the foreseeable future.

4. CBL Properties (CBL)(own Common as LT/own CBLPRC): CBL & Associates reported FFO of 49 cents for the second quarter, and an increase in occupancy to 89.6%. CBL increased its 2010 FFO guidance by 5 cents to a range of $1.87 to $1.90.

5. Unum (own senior bond in TC form only-PJR): After trading junior bonds on several occasions, I finally settled on keeping a Unum senior bond contained in the TC PJR which has done well since my small purchases. bought 50 pjr at $16.72 ADDED TO PJR at $20.70 This TC is currently trading close to its $25 par value. UNUM reported net income of 228.6 million or adjusted earnings of 69 cents per share, beating the consensus estimate by 2 cents. From the viewpoint of a senior bond holder, this is just fine.

6. Commonwealth REIT (own senior bond, CWHN, and common shares): This office REIT changed its name and symbol recently and was formerly known as HRPT Properties. I own 200 shares of this REIT's senior exchange traded bond whose new symbol is CWHN (formerly HRPN). This senior note matures in 2019 at $20 and is currently selling slightly over its par value. Bought 100 HRPN at 19.32 Added 100 HRPN AT 19.15

I also own the common shares, CWH, and I am reinvesting the dividend, currently 50 cents per quarter. CommonWealth REIT Announces Quarterly Common and Preferred Dividends I have traded one of the cumulative equity preferred stocks but no longer have a position, opting instead for shares in the senior bond with a maturity date.

CommonWealth reported a FFO (funds from operation) of 92 cents per diluted share for the Q/E 6/30. The occupancy rate slipped to 86% from 86.6% at the end of the March quarter and 89.1% as of 6/30/2009.

7. MWA (own-Lottery Ticket category): Mueller Water Products, a recently acquired LT, reported net sales of 375.9 million in the quarter and a loss of 3.8 million. Revenues increased 3.5% from the 2009 linked quarter, which is a positive sign considering this firm's results during the recession. MWA fell almost 9% in trading yesterday to close at $3.48.

8. Sold 50 of the 100 DKQ at $21 (see Disclaimer): I sold the 50 shares of this Trust Certificate, containing a senior bond originally issued by May Department Store (now part of Macy's), bought in the ROTH IRA last March at 19.03. So I made some money on the shares plus one semi-annual interest payment. I will keep the shares bought in a taxable account at $15.95. Those 50 shares in the taxable account have a current yield of around 9.8%.

9. Bought 50 Summit State Bank (SSBI) at $6.3 (category 1-Regional Bank Stocks basket strategy)(see Disclaimer): This will be the replacement for BKMU, recently sold after the LB lambasted BKMU's management for their stewardship and the recent dividend cut announced without taking at the same time strong action to improve that bank's awful efficiency ratio. Summit State Bank recently announced its regular quarterly dividend of nine cents and reported net income for the 2nd quarter of $506,000 or 8 cents after the deduction of preferred dividends. This is an extremely small California state bank headquartered in Santa Rosa, CA. I had no idea where that was and looked it up on Google Maps. The city is located north of San Francisco on highway 101.

I counted five branches: two in Santa Rosa, one in Petaluma and one each in Rohnert Park and Healdsburg: Summit State Bank

This bank is so small that it does not file reports with the SEC but with the FDIC.

This is a link to the annual report: www.summitstatebank.com.pdf

The last quarterly report for the period ending 6/30/2010 showed a net interest margin of 4.56% which is good, but the NPLs to total loans was high at 3.68%. However, NPLs did fall from a more elevated 3.98% of total loans as of 12/31/2009. The efficiency ratio was 60.11. The capital ratios are good. The tier 1 leverage capital ratio was 14.7%; the tier 1 risk-based capital ratio was 18.1%; and the total risk based capital ratio was 19.4%. The bank participated in TARP and received 8.5 million from the government in exchange for preferred stock. www.summitstatebank.com _12-19-08.pdf This amount is still shown on the balance sheet, and that is viewed as a negative. I placed the bank in category due to a number of considerations: the bank has not paid paid the government yet; the dividend payout ratio is high; earnings growth is erratic and the P/E is high. If the dividend is maintained at 36 cents annually, the yield at a total cost of $6.3 would be about 5.71%. That is one reason to buy it but the possibility of a dividend cut given the high payout ratio is a reason for restraint. In the last analyst, LB did not hurl as many criticisms at the management of this small bank as it did against BKMU. (the amount invested slightly exceeded the $300 limit for category 1 investments, but LB gave a waiver)

I added another bank to the regional bank basket, and sold another exchange traded bond in the Roth IRA on Wednesday. Both of those transactions will be discussed in the next post.

10. New Windows & a Tax Credit: I had some new windows installed this week which has disrupted the trading operation. It is my understanding that I will be able to claim a $1500 tax credit for that installation. Is there a tax credit for windows, doors, and skylights? (30% of the costs excluding labor up to $5000 which caps the credit at $1500 total for 2009-2010, and no more than a total of $1500 can be claimed no matter how many energy saving items are installed in my principal residence) Federal Tax Credits for Energy Efficiency : ENERGY STAR The windows cost more than $5,000 but $1500 is the maximum credit regardless of how much I go over. Unless extended by Congress, the credit expires at the end of this year. (see Top Ten FAQs : ENERGY STAR-particularly the response to Is the $1,500 tax credit for each product? Each year? Each person?)

To prove his magnanimity to the legends of peon minions and minion peon staff members here at HQ, once again, our Great Leader, Headknocker, will give Staff five days to generate enough realized profits to pay for the windows, using only newly acquired positions. As one would expect, and as another gesture of his generosity that knows no bounds, HK will allow staff to add the tax credit to said profits to achieve this goal.

The Old Geezer was dumbfounded, and just wanted to eat some more ice cream and then take a long nap. OG did not want to disappoint the Great Leader, and not knowing what to do, asked the RB what it would do to accomplish the task set down by the GL. RB replied that it like blondes and wants to make more progress in its secret plan to acquire Canada, all of it.

Some readers objected to renaming Canada "Greater Tennessee" after the acquisition is completed, as that name implied that something could be greater than Tennessee. So, instead, RB has settled on renaming Canada "Northern Tennessee". RB wondered who the Canadians would want as their next Governor. RB thought that some might object to Basil, which could interfere with RB plan to acquire Canada, all of it.