Sold 100 ERC at 16.27 and Bought 200 BTZ at 13.14/Bought 100 STLPRA at 10.05/ISM Services Index/WAG MSFT

The preceding table summarizes my current holdings in my closed end fund mini-portfolio that reflects a number of changes since I last posted this table on 8/6/2010: Bought 100 IGD at 10.94. It would be a fair characterization to say that I have been trading in and out of several bond and stock CEFs for several months now, and a number of CEFs have been entirely eliminated from the ownership list. It is probably questionable whether or not I am improving the overall quality of my CEF portfolio with that hyper trading activity. I am garnering several short term gains, a debatable approach given the level of ST realized gains so far in 2010.

Christine O'Donnell starts her new campaign commercial by declaring that she is not a witch. YouTube She then asserts that "I am you". I am not sure what she means by that assertion. She lied about her education on her resume until just recently. Educating Christine O'Donnell The Washington Monthly The Plum Line Maybe that is commonplace in America today. Apparently, being unemployed or under employed is another common characteristic that Christine shares, as she reported income of less than 6 thousand for the past two years. She claims to be from the working class.

According to her former campaign manager, she was living on campaign donations, a charge denied by her. NYT And, she has defaulted on her mortgage and had a federal tax lien imposed on her.

Frank Rich argues in his Sunday's column that Christine is just a tool for the real power in the GOP. While he makes a somewhat convincing case on that point, I really view her simply as extension of the Sarah phenomenon.

I have seen a large number of ads on local TV stations from republican candidates who want to balance the budget but make no attempts to inform voters how they intend to accomplish that task. Once a politician starts to get into those kind of details, they all recognize that they start to lose votes. If LB had dictatorial powers in the U.S. for the next ten years, fiscal sanity would be restored at a cost of course. The issue is not how to do it, but whether the American people have the will to do it. Neither the democrats nor the republicans will ever do what is necessary. I suspect that nothing meaningful will ever be done until it is too late, with the U.S. government having the pedal to the metal, racing toward fiscal Armageddon, where discipline will ultimately be enforced by our creditors in a far larger version of what just happened in Greece. If there is a good explanation for the relentless bull market in gold, I just gave it.

So what will the GOP hopefuls do that their predecessors during the Reagan, Bush Sr. and Bush Jr. years failed to do? The three largest percentages increases in the national debt were during those 20 years. National debt by U.S. presidential terms I would just emphasize that social security, defense, interest on the national debt, medicare and medicaid, and benefits for federal retirees and veterans accounted for 74% of the 2010 budget. Center on Budget and Policy Priorities If I add other safety net programs like unemployment insurance, food stamps and school meals, the total becomes 88%. The remainder goes to education (2 %), transportation and infrastructure (3%), scientific and medical research (2%), international security (1%), and other (4%). The interest on the national debt will most likely become a far more serious problem soon, as the total debt has increased dramatically due in large part to the Near Depression, caused in significant part by the negligence and malfeasance of both political tribes, and the interest rate on that ballooning balance will eventually increase to levels that many can not imagine now. So, where are the 1.3 or 1.4 trillion dollars in annual cuts going to take place? Will the GOP cut defense? Is there some kind of emerging political consensus among either party to slash social security and medicare? Isn't the cost of servicing the national debt ultimately controlled by the market rather than politicians? Maybe the GOP wants to dramatically reduce expenditures for education and infrastructure improvements or to eliminate school meals for the needy children. In the last analysis, the American people do not want to pay for what they believe are entitlements somehow connected with their birth as citizens, and politicians know that the road to their early retirement would be to say no in any meaningful way.

1. Microsoft (owned): After selling out of a small position in Microsoft at $28.11, I made a chicken buy of just 30 shares at $24.54. I read Barrons summary of the Goldman Sachs' downgrade of MSFT to neutral. GS also lowered its price target to $28 from $32 and cut its earnings estimate for fiscal years 2011, 2012, and 2013. One concern, frequently expressed by analysts, is the emergence of tablet computing, raising a fear among some that the tablet will replace the laptop. I doubt that. While it is just an opinion, I view the IPad as a larger, more versatile IPhone without the phone function. It would not have the same functionality as a laptop for me.

If someone asked you, who is the innovator, MSFT or AAPL, what would be your answer? Still, I suspect that for many more years, Windows and Office will be cash cows. The current price is less than 10 times the FY 2012 consensus estimate of $2.63 per year. The 2012 FY ends in June 2012. MSFT Analyst Estimates

MSFT did recently raise its quarterly dividend to 16 cents per share from 13 cents. At a $24 total cost per share, that would translate into a current yield of 2.67%. I would agree with the GS analysts that MSFT needs to pay out a larger percentage of its net income. Forbes.com Paying out $1 per share would still be less than 50% of net income and that would bump the yield to 4.17%, more in line with the lower range of electric utility stocks now and in keeping with my view that MSFT shares many of the attributes of a utility company. Maybe that view will change with new leadership at MSFT, or possibly when elephants learn to tap dance.

2. Pared Bond CEF Trades: Sold 100 of 450 of ERC at 16.27 and Added 200 BTZ at $13.14 (see disclaimer): This particular pared trade was based on the relative current discount to net asset value for these two bond CEFs. BTZ closed at $13.1 on Monday and had a NAV at that time of $14.55, creating a -9.97% discount. WSJ.com ERC closed at $16.22 with a net asset value of $16.5, resulting in a -1.7 discount. WSJ.com Both of these bond CEFs pay monthly dividends.

In a recent posts discussing a purchase of BTZ at 12.05, I mentioned that this fund recently changed its focus to owning more investment grade bonds. As of 4/30, the date of the last semi-annual report, the fund had 78% of its holdings in investment grade bonds. Semi-Annual Report file with the SEC (31% at A)

This brings me to 400 shares of BTZ, evenly dividend between the Roth IRA and a taxable account. The shares in the Roth were bought last month: Bought 200 BTZ in ROTH IRA at 13.23

I sold 100 of my 450 shares of ERC, which were my highest cost shares using FIFO accounting. In effect, I lowered my average cost. I have discussed this CEF in several prior posts: Added 100 of the CEF ERC at 15.25 Added 50 of the CEF ERC at $14.14 My lowest cost shares were purchased in July 2009 at $12.96. I noted in the post discussing the purchase at $14.14 that the discount was then -9.42.

Based on its last filed semi-annual report, ERC had about 52.2% of its assets in investment grade bonds, lower than BTZ, but ERC had 39.8% at AAA. (see page 28 www.sec.gov). I have been taking my dividends in cash since taking a position in ERC.

BTZ closed yesterday at $13.16, a -9.8% discount to its $14.59 per share net asset value. At its closing price of $16.28 yesterday, ERC was at a -1.57% discount.

3. Walgreens (owned): Jefferies upgraded WAG to buy from neutral yesterday and raised is price target from $29 to $45. WAG also reported better than expected same store sales for September. Analysts were expecting a -1.1 and the company inched into positive territory with a +.4%. At best, I am still lukewarm on this stock.

WAG closed at $33.98 yesterday, up 2.63%. My last purchase was 50 shares at 30.15 in June 2010. My last disposal of all of my then existing WAG shares was at $38.55 in October 2009

4. ISM Service Index: The consensus estimate for September was for a reading of 52. The ISM reported yesterday that its non-manufacturing index rose to 53.2%. The new orders component rose to 54.9 from 52.4 in August. Employment crossed the 50 demarcation line, rising to 50.2. Any reading over 50 indicates expansion.

5. Iron Mountain (own): LB just wants to say that the RB was responsible for the purchase of IRM shares, proving once again that the Lame Brain needs to be kept in check and in chains 24/7. IRM warned yesterday that it now expects 2011 earnings of between $1.17 to $1.26. The analysts were expecting $1.32. The revenue forecast at 3.20 to 3.27 billion was below the consensus of 3.33 billion. And, IRM said that it expected the 2010 revenue to fall into the low range of its prior guidance. The company did add that its Board increased its buyback authorization of up to 200 million dollars. SEC FILED PRESS RELEASE

It does not need to be repeated, since it so well known, but LB will say again anyway. The Stock Stud has never made a mistake, other than possibly concentrating too much on its trading rule book, thereby becoming so distracted performing its duty to advance Headknocker's capital position that the Old Geezer or the RB, or some unholy amalgamation of those two, are able to seize control over the trading desk and do something stupid. Of course, all of the mistakes made here at HQ are attributable to the OG and/or the RB.

6. Bought 100 STLPRA at $10.05 (see Disclaimer): STLPRA is a trust preferred security that has as its underlying security a junior bond issued by Sterling Bank (STL), maturing in 2032 at $10. The coupon is 8.375%, so my current yield will be close to the coupon rate.

I have bought and sold STLPRA. Prior to yesterday, I still owned 50 shares bought in November 2009 at $8.99 I previously bought and sold shares, as previously noted in the blog: Added 50 STLPRA at 8.69 Bought 100 STLPRA at 8.87 Sold 50 STLPRA at $9.4 Sold 100 of the TP STLPRA at 10.25 I am coming back to this kind of security almost entirely due to a lack of alternative income investments after the Fed's ongoing JIHAD against savers and other responsible Americans, now in its third year. Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans & the Potential Major Correction in Bonds Down the Road

I also own the common shares as part of my Regional Bank Stocks' bank basket strategy which has over 50 banks in it: Bought 50 STL at 6.58 The realized gains and losses from that strategy are being tallied in Item # 3, 2010 Realized Gains Regional Bank Stock.

I have discussed this bank in several other posts: Item # 4 STL & Item # 3 STL.

Sterling sold 8.625 million shares in March 2010 at $8 per share. www.sec.gov This offering resulted in net proceeds of 64.9 million dollars. The bank sold 42 million in preferred stock to the government, which pays 5% for the first five years and 9% thereafter. 8-K (letter agreement: EX-10.1) This stock is classified by me as equity preferred stock which is more junior than the bond contained in the trust preferred. Consequently, for Sterling to defer payments to the owners of STLPRA, it would first have to eliminate the common stock dividend and then defer the government's cumulative preferred dividend. The stopper provision in STLPRA is typical and can be found at page 35 of the prospectus. At the present time, I would review the interest rate risk associated with this 2032 maturity bond to be more worrisome than the credit risk issue.

The common shares rose 4.94% yesterday to close at $9.14. The bank is currently paying a 9 cent quarterly dividend, and has not yet redeemed the government's preferred stock, which is still shown on the balance sheet as of 6/30/2010 (see page 3 sterling-10q.). The capital ratios are in excess of well capitalized levels (see page 50).

Prospectus: sec.gov Interest payments are made quarterly, and this security just went ex interest last month. If there is a lawful deferral of interest, the deferred payments accumulate and earn interest at the coupon rate, compounded quarterly. (see pages 4-5 and pages 19-20 www.sec.gov)

Trust Preferred Securities: Links in One Post

Sold: 50 MI at 7.14, 200 NIE at 17.19, 100 APF at 15.83, 50 OFGPRA at 23.4 /Bought: 50 TDA @ 25.14, 200 ADX @ 9.99, 50 SBSI @ 18.73, 50 STIPRA @ 19.75

1. Pared Stock CEF Trade: Added 200 shares of Adams Express at 9.99 & Sold 200 NIE at $17.19 Last Friday (see Disclaimer): ADX is selling at a much larger discount to net asset value than NIE. I also just received the quarterly dividend paid on my 200 NIE shares purchased at 16.61. I am keeping the 90 shares of NIE bought in the Roth IRA at 16.62 for now.

This is a link to ADX's web site: Adams Express As of Friday's close, ADX was selling at a 15.6% discount to its net asset value of $11.83. Yesterday it closed at a 15.54% discount.

This is a link to the last ADX shareholder report, for the period ending in June 2010: ADAMS EXPRESS COMPANY - FORM N-CSRS - JUNE 30, 2010 ADX is a stock CEF, primarily investing in large American companies. ADX also has a significant stake in Petroleum & Resources Corp (PEO), another CEF, with both CEFs sharing office space and personnel. ADX had a 4.7% of assets invested in PEO as of 6/30 worth $43,669,877. I also own shares in PEO. This is a link to PEO's last filed semi-annual report: PETROLEUM & RESOURCES CORPORATION - FORM N-CSRS - JUNE 30, 2010

The only information that I had about NIE's net asset value when I sold my shares was from the close on 9/30, last Thursday. At that time, based on a closing market price of $17.14 and a NAV of $18.03, the discount to NAV was just 4.93%.

2. Sold 100 APF in the Roth IRA at 15.83 Last Friday (see Disclaimer): This reduces my overall exposure to the Morgan Stanley Asia-Pacific Fund (APF) to 200 shares. I basically replaced APF in the ROTH with GGN which produces monthly income. The APF shares were bought in the Roth at $15.

3. Pared Trade: Sold 50 OFGPRA at 23.4 and Bought 50 of TDA at $25.14 (see Disclaimer): I am now at my maximum comfort level for this senior bond from Telephone & Data Systems.. The purchase on Friday was made in the regular IRA and that brings me to 200 shares altogether, with 150 of that amount in taxable accounts.

ORGPRA is a non-cumulative equity preferred stock issued by Oriental Financial Group, a bank based in Puerto Rico. My shares were bought at 19.55 in February. At the $23.4 price, the yield is 7.6%. The TDA yield is about 7.56% at the $25.13 price. Telephone and Data Systems Inc, TDA So, I basically substituted a senior investment grade bond for a non-cumulative equity preferred stock without sacrificing any yield, while booking a profit on the ORGPRA shares.

TDA pays interest and it was purchased in a retirement account. ORGPRA pays qualified dividends, and it was owned in a taxable account.

Exchange Traded Bonds:

4. Bought 50 STIPRA at 19.75 Last Friday (see Disclaimer): STIPRA is a non-cumulative floating rate preferred stock with a guarantee issued by SunTrust Banks (STI). This security pays the greater of 4% or .53% over the 3 month LIBOR. Final Prospectus Supplement Distributions are classified as qualified dividends.

Advantages and Disadvantages of Equity Preferred Floating Rate Securities

I previously sold this security at $20.90 after collecting some dividends. Those shares were purchased at $17.2 in September 2009.

5. Sold 50 MI at 7.14 and Bought 50 SBSI at 18.73 (Regional Bank Stocks' basket strategy)(see Disclaimer): Marshall & Ilsley (MI) has recovery potential, but I suspect that it will be a slow slog given the mistakes made by this bank's management during the real estate bubble years. MI has not paid the government back, and owes 1.715 billion in TARP funds (p. 120 Form 10-K). The government's preferred stock is still shown on the balance sheet as of 6/30/2010 (p. 2 10q). This article at TheStreet focuses on ten regional banks that have not repaid the government, and MI is one of them One way for MI to pay back TARP funds is to sell common stock to raise funds, which will have a further dilutive impact on existing shareholders.

MI sold 100 million shares at $5.75 back in June 2009. The bank then sold another 156.4 million shares at $5.75 in October 2009. (p.120 Form 10-K) The bank did not use any of those funds to pay back TARP. I do not expect MI to raise the dividend until the government is paid back. Even after the government's preferred stock is redeemed, I would expect slow and modest increases for years to come, partly due to the substantially increased share base.

I bought those 50 shares at 5.84. Another reason for selling MI is just to cut down on the workload in following so many regional banks.

I added 50 shares at $18.73 to my position in Southside Bancshares, a bank based in Tyler, Texas. While Marshall & Ilsley may have more upside potential over the long term, SBSI does not have the MI's issues. For one, as I previously discussed when I purchased 50 shares of SBSI at 19.49, Southside did not accept TARP funds and has excellent capital ratios without government money. SBSI is also paying its shareholders a decent dividend and has not diluted their ownership by issuing stock at depressed levels to raise capital. The current dividend yield is about 3.6% at a total cost of $18.73. Southside Bancshares Inc, SBSI Stock Quote

Since I was busy yesterday, I did not conduct anymore trades which has allowed me to catch up.

Sold 200 HTD at 15.42/Bought 300 MMT at 6.95/Bought 50 DKI at 24.95/Bought 100 BDSI as LT at 2.93/Sold 100 JTD at 12.38/Bought 100 GGN at 17.41

This article at Seeking Alpha, summarizing John Paulson's recommendations, is worth reading. While I am in general agreement with him on the relative valuation of stocks versus bonds, I am not as bullish about gold. Paulson believes that gold could hit $2400 just on monetary expansion and $4000 with significant inflation.

China's purchasing manager's index for manufacturing rose to 53.8 in September from 51.7 in August.

Personal income and disposable income rose .5% in August, while personal consumption expenditures increased by .4%. News Release: Personal Income and Outlays, August 2010

The ISM reported a small decline in its manufacturing survey for September. The PMI declined from a reading of 56.3 in August to 54.4 in September. The new orders component continued to decelerate, falling to 51.1 from 53.3.

I lightened up on stock exposure some more last Friday. The following summaries of my trades do not include the last 6 trades made last Friday which will be summarized in Tuesday's post.

I find myself agreeing with Robert Johnson's column at Morningstar. The recent economic numbers do not make be feel giddy either.

Part of the recent euphoria may have more to do with a growing belief that the FED will undertake more quantitative easing. The market did take off when the FED announced a large scale QE program in March 2009. FRB: Press Release--FOMC statement--March 18, 2009 I discussed in a post from March 2009 how the market took off in 1933 when the Fed launched a large scale QE program. Stock Rallies and Quantitative Easing This increase in odds of more QE was tied to remarks made by the NY Fed President William Dudley. NYT

1. Bought 300 MMT on Thursday at 6.95 (see Disclaimer): Over the past two weeks, I have probably added around 20 grand to a money market account with no yield. I added two securities on Thursday as a temporary placeholder for some of those funds. One of those securities was the bond CEF MMT and the other was a TC containing a senior Sprint Capital bond, DKI.

MMT has a mixture of junk and investment grade bonds. It is a multi-market bond fund. This is a link to the last SEC filed N-Q, MFS MULTIMARKET INCOME TRUST, which contains the funds holdings as of 7/31/2010. The last shareholder report for the period ending in June 2010 can be found at the SEC's web site. At page 2 of that report, U.S bonds have the greatest weighting at 59.2%. Foreign bonds make up the remainder. As to credit quality, 19.8% of the bonds are rated BBB, 6.8% at A, 6.2% at AA and 10.6% at AAA. So, about 43.4% of the bonds are investment grade quality. When scrolling through the list of holdings, I do see a number of bonds that I recognize as junk rated securities.

This is a link to the sponsor's web site: MFS Closed-End Funds The fund is currently paying a monthly dividend of $.045 per share which was increased from $.038 for the November 2009 distribution. Distribution History for MFS Multimarket Income Trust At a total cost of $6.95, the yield at that penny rate would be 7.77% assuming that penny rate of $.045 per month remained in effect for an entire year.

Net asset value information can be found at the WSJ.com and at the Closed-End Fund Association web site. On Wednesday, the day before my purchase, the NAV was reported at $7.33 and the closing market price for 9/29 was $6.94, resulting in a -5.32 discount as of that date. The NAV increased to $7.35 on 9/30. The discount at last Friday's close was -5.03.

The expense ratio is around 1.02%.

This is a link to the Morningstar page on MMT, rated 4 stars. MMT is one of the few CEFs covered in the Value Line Investment Survey. I subscribe to both services.

2. Bought 50 DKI at 24.95 on Thursday (see disclaimer): This was the second income security purchased in the a taxable account last Thursday in an effort to soak up some of the excess cash recently generated. DKI is a trust certificate containing a Sprint Capital bond maturing in 2032. This is not the same bond that is the underlying security in the trust certificates GJD and DHM, previously bought and sold. Sold DHM at 24.4 Bought 50 DHM at 22.84 Bought 50 of the TC DHM at 21.35 Bought 50 GJD at 17.49 (March 2010) Bought 50 GJD at 17.8-Roth IRA Sold 100 GJD at 20.2 The Sprint Capital bond in GJD and DHM matures in 2028 whereas the underlying Sprint Capital bond in DKI has a 2032 maturity. There are four TCs containing the same 2028 Sprint Capital bond.

DHM Cobalts Tr For Sprint Cap Nt COBALS 8.125%

PYG Stock Quote - Pplus Tr SPR-1 TR CTF28

GJD Stock Quote - Strats Tr For Sprint Secs STRATS A1 6.5%

JZK Stock Quote - Corporate Backed Tr Ctfs 03-17 SPRINT

See also: Current Yield and Yield to Maturity: Comparison of Sprint TCs

Of all of the TCs containing Sprint Capital bonds, DKI had the highest yield last Thursday by a significant amount. DKI has a current yield of close to 8.69% at a total cost of $24.85. The next closest yield was DHM at 8.2%, followed by PYG at 7.43%, all yields as of last Thursday's closing prices. GJD was around 7.19% when I placed my order. Since GJD is selling at a larger discount, the YTM would add more to its current yield than the much narrower discounts for the others.

DKI did recently go ex interest whereas the 2028 TCs went ex interest in May (i.e. carrying about 4 more months of interest).

DKI prospectus: www.sec.gov There is a call warrant attached to this TC.

The underlying security is rated junk, one reason for my light exposure to Sprint Capital TCs. The underlying bond trades can be found at FINRA. Recently, it has been trading above its par value.

The prospectus for the underlying bond in DKI can be found at www.sec.gov.

3. Bought 100 BDSI at 2.93 on Friday ( LOTTERY TICKET strategy) (see Disclaimer): There is nothing in my background or my current state of knowledge that would give me any insight into biotech companies. Occasionally, I read an article that perks my interest sufficiently to invest a small amount in one of them. My track record in this area is just abysmal but I keep trying.

I came across BioDelivery Sciences International (BDSI) last week by using at screen at Joel Greenblatt's Magic Formula Investing web site. BDSI was one of the 50 stocks displayed with market caps over 50 million.

I then did some research and read this article at TheStreet that discusses some compounds in Phase III clinical trials. The author of that article also mentions that BDSI's first approved drug for treating cancer pain, Onsolis, had a poor launch due to the FDA's requirements on risk-management for this drug. Other drugs used for this purpose do not have the same restrictions, thereby placing Onsolis at a disadvantage. The company hopes the FDA will level the playing field later this year by requiring the competing drugs to follow a risk-management plan too.

I also briefly reviewed sections of BDSI's last quarterly report: Form 10-Q

4. Sold 100 JTD at 12.38 on Friday (see Disclaimer): It is hard to keep up with the return of capital distributions made by CEFs that I own. Periodically, I check the cost number displayed at my brokerage account and that will sometimes give me an idea. The broker has been adjusting my cost basis down by the amount of the dividends classified as returns of capital. I noticed that my cost basis for 100 shares of JTD, purchased over a year ago, was $9.95, and that number may not include an adjustment for this year's return of capital distributions. I then checked my blog, which is the main way that I keep track of what I have done and why, and found that I bought those 100 shares at $10.13 or close to $10.22 with the commission cost. While that is not too bad on the return of capital, I also do not believe that the 2010 adjustment is baked into my cost basis yet. I decided to go ahead and take my long term capital gain having just received the third quarter dividend distribution.

I also previously did a trade on JTD in the Roth IRA: Sold 100 JTD at 12.25

5. Sold 200 HTD at 15.42 on Friday (see Disclaimer): I just bought this CEF at $14.13. Bought 200 of the CEF HTD at 14.13 This is just profit taking, based on too much of a percentage gain for this type of investment over a short period of time. In an Unstable Vix Pattern, I will not hesitate to book that kind of profit and then look for another opportunity to buy the shares back at a lower price.

6. Bought 100 GGN in the Roth IRA at $17.41 on Friday (see Disclaimer): Normally, I would not buy a CEF selling at a premium. As of Thursday's close, GGN was selling at a 3.19% premium to its net asset value. NAV information for this fund can be found at the Closed-End Fund Association web site, at the fund sponsor's web site or at the WSJ.com. The premium fell some on Friday, with the closing share price of $17.49 representing a 2.58% premium to a NAV of $17.05 per share.

Another issue that I do not like is that a significant part of the dividend distribution represents a return of capital. GAMCO Investors, Inc. The current dividend rate is 14 cents per month. If that was actually earned, through dividends and security gains, it would certainly be a plus since the yield at that rate would be 9.65%. The current data at the GAMCO website shows that around 46% of the monthly dividend is not being earned and represents a return of capital. Those figures could change by year end. With improving markets for the securities owned and more optimal conditions for the fund's option writing strategy, the fund could return to earning that dividend. If this does not happen soon, it needs to be cut in my opinion.

The last shareholder report is available at the SEC's web site. This fund invests in natural resource stocks. For the period ending in June 2010, the fund had a 28.4% allocation to energy and energy service stocks and 53.2% to mining.

Morningstar does not care for this fund, rating it just two stars. And the expense ratio is high. So why buy it at all with all of these negatives.

I really have almost no exposure to gold stocks. This purchase was just a quick way to gain exposure, and possibly Paulson may end up being more right about gold's future prospects than me.

I have been increasing my exposure some to commodity stocks. One plausible scenario for the future is a replay of the 1970s, a decade where stocks and bonds failed and commodities shined. Between 1/1/1970 to 12/31/1981, the annualized inflation adjusted return of the S & P 500, with dividends invested, was -1%. Between 1970 thru 1982, inflation averaged 7.88%. Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis The ten year treasury had an average rate for those years of 8.36%, using annual data from the FED: www.federalreserve.gov

The remaining 6 trades from Friday will be discussed in the next post.

Sold 50 KRH at 24.6/Bought 57 CWH at 25.2/Pared Trades in Roth: Sold 100 PYT at 19.25 & Bought 100 GYB at 18.98, Sold 50 AHLPRA at 24.25 & Bought PJR

For the week ending 9/25, the Labor Department reported a seasonally adjusted decline of 16,000 initial claims for unemployment. ETA Press Release: Unemployment Insurance Weekly Claims Report The government increased its estimate for 2nd quarter GDP from 1.6% to 1.7%. Gross Domestic Product There was also a positive manufacturing the Chicago ISM which unexpectedly rose to 60.4 in September. The consensus forecast was for a reading of 55.5.

Based on the reaction after hours yesterday, investors do not care for the selection of a canned SAP executive to head HPQ. The pick just reconfirms to me that the HP Board is infested with nitwits struggling to become lamebrains.

TIME magazine has a cover story on the rise of militias in the U.S. One of the growing number of extremists, James Cummings, was building a dirty bomb to kill Obama, and was further along in that endeavor than any known terrorist. He was abusing his wife, who shot him to death, and that incident revealed to authorities just how far Cummings had come with his plans (see page 3).

Carl Paladino, who has been embraced by the GOP in NY, threatened to "take out" a reporter. YouTube To really understand Carl's mind set, it is important to actually view some of his emails on bestiality, porn, and race. WNYmedia.net Some may remember Christopher Cox, Nixon's son-in-law, who is the head of NY's GOP. Cox stated recently that Carl is energizing the GOP and New Yorkers will like Carl once they get to know him better. The Business Review (Albany)

While 25% of republicans believe that Obama may be the AntiChrist (usnews.com), Carl believes the speaker of NY Assembly, an Orthodox Jew, is the AntiChrist. NYT

1. Sold 50 KRH at $24.6 in Roth IRA on Wednesday (see disclaimer): KRH is a trust certificate that contains a TP issued by AFC Capital containing a junior bond from Hanover Insurance as the underlying security. I bought the shares at $18.62 in July 2009. Interest payments are made in August and February so I received 3 semi-annual interest payments and almost $6 per share in profit.

I currently own 150 shares of a functionally equivalent TC, PKM, that contains the same underlying security as KRH. PKM has a 8% coupon compared to 7.75% for KRH. The relevant purchase criteria for functionally equivalent securities is not the coupon rate but the yield at my purchase price.

My first buy of a TC containing the Hanover junior bond was a 150 share purchase made in two lots, one at $17.8 and the other at $17.6. I later sold 50 of the higher cost shares, booking a profit. After PKM become slightly more attractive in yield than KRH, I bought back the 50 shares of PKM in the ROTH IRA, Bought 50 PKM at 24.84, with the intention of selling the KRH at or near the same price as the PKM purchase. I would generally not make this kind of trade, except in a retirement account.

I still own 50 of KRH bought in a taxable account. Bought 50 of the TC KRH at $19 As of now, my limit on TCs containing this junk rated bond from Hanover is $5000. I may occasionally go over that limit in making a trade, or undertaking an exchange of functionally equivalent securities to improve my yield some in the retirement accounts, particularly in the Roth IRA for tax reasons unique to that type of account. Tax Treatment Of Roth IRA Distributions

I calculated the yield differential of KRH at 24.6 and PKM at 24.84 to be almost .4% in favor of PKM.

2. Bought 57 Commonwealth REIT on Thursday (CWH) at 25.2 on Thursday (see Disclaimer): I ended up with an odd lot of 43 shares after this REIT had a 1 for 4 reverse stock split on 7/1/2010. CWH Stock Charts The odd number of shares came from reinvestment of dividends. I previously bought and sold 200 shares of CWH's senior exchange traded note. Sold 100 CWHN at 21.22 in Roth Sold 100 CWHN at $20.57 At their respective current prices, the common shares yield more than that fixed coupon senior note (CWHN). Of course, the common dividend can be cut, but it can be raised too. CWH is paying 50 cents per quarter which results in a yield of 7.94% at a total cost of $25.2.

CWH fell in price some after selling 7.5 million shares at $26.75, 8k, intending to use the proceeds to fund a portion of its redemption of its 8.75% series B preferred stock and to repay amounts outstanding under its credit facility.

As of 6/30/10, CWH owned about 31.8% of the outstanding shares of Government Properties Income Trust, a former subsidiary. (p. 8 10q)

As of June 30, 2010, CWH owned 291 suburban office properties, 44 central business district office properties and 186 industrial & other properties, excluding one property classified as held for sale and included in discontinued operations. Included in those totals is 17.9 million square feet in of industrial and commercial lands in Oahu, Hawaii.

CWH has a 89.1% of its total square footage under lease as of 6/30/10. Rental rates are under pressure due to the recession. Occupancy rates are still trending down. One knock on this REIT is the number of suburban properties owned by it. Generally speaking, there are no barriers to entry in that kind of market.

CWH entered agreements to sell 15 properties to GOV with approximately 1,900,000 square feet for an aggregate sales price of $231m, excluding closing costs.

This REIT was formerly known as HRPT Properties.

S & P has CWH rated 4 stars with a $30 12 month price target.

Price to book is shown at .58 at Y F.

3. Pared Trade-Bought 100 GYB at $18.98 and Sold 100 PYT in the Roth IRA at $19.25 on Thursday (see Disclaimer): This kind of pared trade only makes sense in my retirement accounts. Both GYB and PYT are trust certificates, classified by me as Synthetic Floaters, and both are tied to the same GS TP maturing in 2034. So I view them as subject to my trading rules for functionally equivalent bonds.

There are two significant difference between PYT and GYB. PYT has a 3% guarantee while GYB has a 3.25% guarantee. Secondly, the maximum rate for GYB is 8.25%, or .25% higher than the maximum rate for PYT. For as long as the swap agreement is in effect which is what creates the float, these securities will pay the greater of their respective guarantees or .85% above the 3 month Libor rate. In a perfect pricing environment, GYB should not be priced below PYT, but that was the case yesterday.

GYB Prospectus: www.sec.gov

PYT Prospectus: www.sec.gov

My total cost in the PYT shares was $12.33, which includes two commissions, for 50 shares bought at 11.2 in April 2009 and another 50 in August 2009 at 13.34. The share profit was around 56% plus several interest payments.

I have also previously bought and sold GYB in my regular IRA account: Bought GYB at $10.95 Sold 100 GYB at 18.09 I currently own 100 GYB in that account.

For as long as the guarantees remain the applicable rate, I pick up slightly about .38% in yield by selling 100 PYT at $19.25 and buying 100 GYB at $18.98 (4.28% for GYB at a total cost of 18.98 and 3.9% for PYT at a total cost of 19.25).

As a result of this trade, I no longer have a position in PYT and currently own 200 GYB in the two retirement accounts (100 in each). If there was a significant fall in GYB's price, I have the option of doing a Roth conversion for the shares held in the regular IRA.

4. PARED TRADE: Sold 50 AHLPRA at 24.25 and Bought 50 PJR at 24.88 in Roth IRA (see Disclaimer): This is another trade that would only be made in the retirement account. I recently purchased in the ROTH 100 shares of the non-cumulative equity preferred stock from Aspen Insurance at 22.54. (prospectus: www.sec.gov). This equity preferred stock is currently paying 7.401% on a $25 par value and just went ex dividend. PJR is a trust certificate containing a senior bond from Unum (UNM) that matures in 2028 and that TC also has a 7.4% coupon, higher than the underlying bond which has a 6.75% coupon. FINRA Most of the recent trades on that bond have been near its par value of 100 (if bought in the bond market, 1 bond =$1,000 par value, and an order to buy 1 bond at 100 would cost $1,000). So, in a non-taxable transaction in the Roth IRA, I basically substituted a senior investment grade bond for a non-cumulative equity preferred stock, with both securities yielding about the same at their respective current prices.

There used to be another TC containing the same Unum senior bond, KVN, but it was called by the owner of the call warrant for that TC (not by UNUM!). The owner of the call warrant for KVN called it as its $25 par value plus accrued interest. corts_unum-8k.htm

My first purchase of the TC PJR was the result of another pared trade. I noticed that it was selling at price which produced a greater yield than TCs containing a junior bond in TP form originally issued by Provident, later acquired by UNM. And, the junior bonds matured almost 10 years later than the senior one. This was back in July 2009 when I purchased PJR shares at $16.72 and I still own those shares. I also bought 50 PJR $20.70 in the regular IRA and still own those shares. I now own 200 shares of PJR with the highest cost shares being the ones purchased last Thursday. So, unfortunately, I have been averaging up on PJR since my original purchase.

I have a general discussion of the TC's containing UNUM junior and senior bonds in a post from July 2009: Item # 3 Sunday Meanderings: Peggy Noonan Nails Sarah/Shiller on the Market/Trust Certificates Containing Unum Debt/Junk Bonds/Cheney & Yoo-The Dark Force

I made two more trades on Thursday which I hope to discuss in the next post. Those trades are income producing securities that are temporary placeholders for a small amount of cash raised over the past 10 trading days.