United Refining/Bought 100 HSE:CA at 26.59 CAD/Bought 50 GJS at 16.9 in Roth IRA/Bought 100 of the CEF EXG at 10.61 in Regular IRA/Sold 50 of 100 GSBC at 19.27

I mentioned in an earlier post that United Refining had redeemed a senior bond, maturing in 2013 which I owned at that time, with the proceeds received from a private issuance of a senior secured bond maturing in 2018 United Refining 2012 Bond Redeemed at Par Value  Bought 1 United Refining Senior Bond at 95.5 The 2018 senior secured bond has now been registered with the SEC and can be purchased by individuals.  Prospectus

The 2018 bond is a 10.5% coupon first priority, senior secured bond. The collateral for the notes is a mortgage lien, subject to certain exceptions, on United's refinery at Warren, Pennsylvania and a pledge of the capital stock of a pipeline subsidiary. United has other assets. (see pp. 7, 44-48). I am simply monitoring the trading of the 2018 and have no interest in it at above par value. The Cusip # is  911358AKS. The 2018 bond is rated B3 by Moody's rates  and B by S & P, well into junk territory. This is a link to the FINRA Information on this new bond. 

If I do see 1 bond available for purchase at below par, I will first review United's latest earnings report for this private company before entering an order. I did briefly review the last filed Form 10-Q for the Q/E 2/28/11. The search term at Fidelity is not "United Refining" but "United Refng".

I thought that this was a good article, found at Seeking Alpha, explaining why Hewlett-Packard (HPQ) may be a good value stock for patient investors.

The ADP private payroll report showed an increase of 157,000 jobs in June.  adpemploymentreport.pdf

The P.M. London gold fix was $1527.5.

1. Bought Back 100 Husky Energy on the Toronto Exchange at 26.49 CAD Yesterday (Canadian Dollar (CAD)) Strategy (see Disclaimer): I have bought and sold Husky shares at higher levels. Stocks & Politics: Sold Viterra to Buy 100 Husky at 28.99 Canadian (February 2010); Sold HSE:TO at 30.48 CAD (April 2010).

The ordinary shares can be bought on the pink sheet exchange. HUSKF  I have bought shares only on the Toronto exchange using my CAD stash. The price on the U.S. exchange is higher than the price that I paid in Toronto because the CAD is now worth more than the U.S.D. (see CADUSD exchange rate). Since I am a very long term holder of Canadian Dollars, I am not concerned about exchange rates. The owner of HUSKF would need to be concerned, however, since a fall in the CAD versus the USD will negatively impact the price of HUSKF shares.  The converse is also true. For example, assume the CAD fell to .9 USD from the current 1.04 rate and Husky was selling at 26.49 on the Toronto exchange, its host market. Under those assumptions, I would expect to see HUSKF at around $23.93 versus its current price of around $27.75. So my price in CADs of 26.49 could remain the same but the exchange rate differential could result in a much lower price for HUSKF assuming a decline in the value of the Canadian dollar versus the USD. An investor needs to completely understand how exchange rates impact the value of their investments.

I will generally discuss the impact whenever I buy an ADR. See, generally, International Trading and Currency Risks (July 2010 Post); Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas (June 2010)(dollar is now weak); Bought 100 AXAHY at 14.69; ADDED 50 NABZY AT 19.51 (National Australia Bank; Added 70 RHHBY at 34.07-Completing Round Lot/ Swiss Franc-Euro).  If I owned only Canadian securities and all of my cash was sitting in CADs, then I would start to look outside Canada for investments to buy in countries with weaker currencies.That would include the U.S., where the Dollar has been weak for several months against most major currencies.  U.S. Dollar Index (DXY) That chart is starting to show some stabilization at around 75.

Husky pays a good dividend, currently around 30 cents per quarter which is one reason for buying it. In my Canadian Dollar strategy, I am searching for yield on my CADs. I will take the distributions in CADs from all securities purchased under this strategy, thereby increasing the CAD stash constantly, as most of the Canadian ETFs that I own pay monthly dividends. Husky pays quarterly.  Husky Energy - Dividend Information The next ex date will be in August, with a pay date of October 1, assuming Husky continues the same time line as the past.

Husky is of course an energy company. Husky Energy - About Husky

Husky has recently been aggressive in bidding for oil-drilling rights in the central Mackenzie Valley area in Canada's Northwest Territory.  Reuters

HSE.TO closed yesterday at 26.51 CAD.

2. Bought 50 of the TC GJS at $16.9 in the ROTH IRA Yesterday (see disclaimer): GJS is a Synthetic Floater in trust certificate form. The underlying security owned by the trust is a fixed coupon senior Goldman Sachs bond maturing in 2033. This GS bond has a 6.125% coupon and matures on 2/15/2033.  FINRA The owner of GJS does not receive the fixed coupon payment, however. GS pays the trustee that amount, and the trustee swaps those funds with the swap counterparty who delivers to the trustee the amount payable to the owners of GJS.

GJS Prospectus:  www.sec.gov
Underlying Bond Prospectus:  www.sec.gov

The swap agreement creates a floating rate at .9% over the three month treasury bill rate paid monthly on a $25 par value. The maximum rate is 7.5%. As with other TCs, the TC matures at the same time as the underlying bond. If GS survives to pay off the 2033 bond at maturity, then the owners of GJS will receive the $25 par value at that time. Assuming this occurs, it will add to the YTM given my purchase at a large discount to par value.  The GJS coupon at a 6% 3 month treasury bill would be 6.9%, paid on the $25 par value, by way of an example. By buying the security at a discount to par value, the current yield is of course juiced.

This security is selling at a large discount due to its low current yield. There is no minimum amount, which is the case with a number of other synthetic floaters that I own in the ROTH IRA. The 3 month treasury bill rate is currently near zero. The lack of interest in this security is understandable given the current yield.

When and if the FED ceases its JIHAD against savers, and treasury bill rates are allowed to rise to non-artificial levels, the coupon on GJS will rise. At some point, the rise in the coupon will cause investors to bid up the price of this security. Hopefully, I will not have to wait until 2033 to receive a price close to par value.  Before the FED started its JIHAD, this security was selling near its par value in 2006 and 2007. GJS Historical Prices  Synthetic Fixed-Income Securities Inc. Floating Rate STRATS Series 2006-2 for Goldman Sachs Group Secs , GJS 

At a 4% 3 month treasury bill rate during an applicable computation period, the coupon would become 4.9% and the yield at a total cost of $16.9 would then be 7.24% (.04% + .009% spread=.049% multiplied by $25 par value=$1.225 annualized rate divided by $16.9 cost=7.24%)

Like the other synthetic floaters, GJS has a maximum rate. This security will not pay more than 7.5% on the $25 par value. With the float, the maximum rate would be hit when the 3 month treasury bill is at 6.6% or greater during the applicable computation period. So there is no benefit to T Bills rising to above that level since GJS would be stuck at 7.5%. At the 7.5% maximum rate, the effective current yield for GJS  would however result in a much higher effective yield of 9.4% to the purchaser at a total cost of $16.9.

I have bought and sold this security for small profits and I am close to playing with the house's money on it.

GJS ROTH IRA 2009 +$244.53

GJS 2009 +$168.15

GJS Roth IRA 2010 + 68.04

Total = $480.72. Given the low T Bills bills in effect during my prior ownership periods, the interest payments have been negligible and an insignificant part of my total return.

Some of the prior trades are discussed in the following posts: Bought 100 GJS at 10.5 (April 2009); SOLD GJS at 13.06 (August 2009); Bought 100 GJS AT $13 (October 2009); Sold 100 GJS in the Roth IRA at $15.6 (November 2009); Bought: 50 GJS at 14.6 (August 2010); Sold 50 GJS @ 16.20 (October 2010). Since I started to trade the synthetic floaters in the spring of 2009, I have leaned more heavily on those that pay the higher of a minimum rate or some percentage float over a short term rate.  

Assuming GS remains creditworthy, I am inclined to hold onto these shares until I could sell them at a price higher than $22 which will require at a minimum an end to the JIHAD against savers and a rise in the 3 month treasury bill to somewhere north of 4%. This is not going to occur anytime soon, which is an understatement of course.

In January 2007, GJS was selling at around $23.5 and the 3 month T Bill was then yielding a tad over 5%.  The data can be downloaded at the FED's web site. FRB: H.15 Release--Selected Interest Rates--Historical Data

TRUST Certificates: Links in One Post Duplicate Post
Floaters: Links in One Post

3. Bought 100 of the stock CEF EXG at 10.61 in Regular IRA Yesterday (see Disclaimer): I had enough cash to buy 100 shares of this stock CEF that pays quarterly dividends. The current quarterly dividend, which went ex dividend in May, is 28 cents per share. Assuming a continuation of that rate, the yield at a total cost of $10.61 would be about 10.7%. Eaton Vance Tax-Managed Global Diversified Equity Income Fund, EXG Stock Quote  This brings me up to 200 shares in the IRA accounts: Item # 7 Stocks & Politics: Bought 100 EXG at 10.57 in the Roth IRA (April 2011). I do not have much to add to the discussion contained in that post.

This is a link to the Morningstar page. When I last bought this fund, Morningstar rated it 4 stars, and now has it at 3 stars. In recent times, the distribution has been supported by a return of capital, which I view negatively.  Hopefully, the fund will start to harvest capital gains sufficient to cover the payout. The Morningstar page also shows several dividend cuts. The Near Depression period took away the option of supporting the dividend with capital gains.

This is a link to the last SEC filed shareholder report for the period ending in April 2011: Tax-Managed Global Diversified Equity Income Fund As shown in that report, the fund does write call options on major indexes.  The expense ratio is shown at 1.05%. As of 4/30/11, the fund is showing a significant unrealized capital gain of over 700 million  on its common stock positions (see page 7).

4. Sold 50 GSBC at $19.27 on Wednesday (Regional Bank Stocks' basket strategy) (see Disclaimer): I just pared this one to sell my highest cost shares bought at $18.55. I am keeping the shares bought shortly thereafter at $17.27. The primary purpose of this kind of trade is just to lower my average cost basis for the remaining shares while harvesting a profit.

I will discuss the remaining trades from Thursday in the next post. 

CEF TABLE/BOUGHT 100 of the ADR BGAOY @ 6.95/ Bought 40 EXAR as LT at 6.23/ Unemployment Insurance Fraud/Sold 102 HFBC at 8.01

As noted in a recent NYT article, the NRA is doing God's work by making it as easy as possible for those suffering from serious mental illness to own more automatic weapons than they could possibly carry. 

The AP published a story on widespread fraud involving claims for unemployment compensation. A typical example would be a person continuing to draw benefits after going back to work.

A front page story in the USATODAY focused on the same problem, pointing to a Labor Department estimate that $1 out of every $9 constitutes an overpayment.  This kind of data can be found at Unemployment Insurance Benefit Payment Integrity, Employment & Training Administration (ETA) - U.S. Department of Labor

Michigan recently concluded an audit and found that unemployment insurance fraud cost that state about 260 million per year. Generally, perpetrators of this kind of fraud do not serve jail time and are requested simply to make restitution when and if they are caught. (NY sends out letters requesting repayment: WSJ.com) While that may be appropriate for a week or two of benefits, prison sentences need to be imposed where the intent to defraud is clear. The U.S. simply needs to start treating theft of public funds as a serious criminal matter.

Theft of government funds through fraudulent means is rampant in the U.S. primarily due to the lack of adequate enforcement and punishment. One of the major causes of the Near Depression was the widespread granting of credit to borrowers who lied about their income and bought homes that they could not afford. FBI Receives a Generous Grade of F- for Investigating Mortgage Fraud (April 2009 Post); Adding Failures of Law Enforcement to my Top 12 Causes (March 2009 Post)

Yet, there was virtually no criminal punishment for that kind of fraud and many no doubt are still living in their houses after defaulting on the mortgages. If new prisons have to be built to house those convicted of defrauding the government, then so be it. Over the long term, a really serious crackdown on fraud which results in prison time will cost honest citizens less money. For my lifetime, I am still waiting to see state and federal governments become serious about investigating and punishing those who are stealing public funds through fraudulent claims.

An editorial in USATODAY asserted that it would be as futile to negotiate with the GOP on tax issues as it would to bargain with the Taliban on allowing girls to attend schools.  The rigidity of the GOP's mindset on a number of issues is virtually the same as religious zealots.  The editorial pointed out that the overall tax burden as a share of the economy is currently 14.8%, the lowest it has been since Truman was President in 1950.  At least the GOP  occasionally causes the Democrats to become serious about spending cuts.  Based on viewing both parties in power for over four decades, I do not believe either tribe is serious about cutting waste and fraud, though both talk a good game on that subject.

1. Bought 100 of Belgacom  (BGAOY) at 6.95 on Tuesday (see Disclaimer):

I bought 100 shares of BGAOY on the pink sheet exchange. BGAOY is an unsponsored ADR, and equals .2 ordinary shares of Belgacom stock. The ordinary shares are traded on the Grey Market in the U.S. which I would prefer to avoid whenever possible.  BGAOF Belgacom Sa de Droit Public

Prior to buying an ADR, I want to know how the price for the ADR shares compare to the ordinary shares traded on the host stock exchange. Belgacom ordinary shares were trading at around €24.1 when I placed my order.  To compare prices, I will need to make an estimate of the currency exchange from Euro to U.S. Dollars since the pink sheet ADR shares are traded in USDs. On 7/5, I estimated that €24.1 would convert into $34.91.Currency Converter  Since BGAOY is equal to 1/5th of an ordinary share, I have to divide $34.91 by 5, which gave me $6.98.  I placed a limit order on Tuesday morning at $6.95 which was filled early that morning.   If the Euro slides against the USD in a meaningful way, I would consider buying another 100 of BGAOY.  It is always important to keep in mind that a US investor faces currency risks when buying a foreign stock, and it does not matter whether those shares are in ADR form or ordinary shares.

Belgacom is a telephone company providing phone (wireless and land line), internet and television services primarily in Belgium. According to Morningstar, the company has about a 70% share of the fixed line and 40% of the wireless markets in Belgium. As with other phone companies, the land line business is suffering revenue losses due in part to competition by other providers and to the increasing substitution of wireless service for land lines by individuals. During the first quarter of 2011, the company reported net income of €194 million and free cash flow of €239 million.    

My inconsequential interest in the company is due to its current dividend yield, calculated at over 9% by Bloomberg, though that value depends on currency conversion values for an owner of BGAOY. Other services have the yield at a lower rate. If the EURO rises against the USD, a dividend paid in Euros will buy more USDs, and the converse is of course also true.  I did not attempt to verify Bloomberg's dividend yield number.

I did find the following information about the tax withholding rate applicable to a dividend paid in 2010 from Belgacom: www.dtcc.com .pdf

This is a link to the firm's web site: Belgacom Group

This is a link to the quarterly report for the first quarter of 2011: www.belgacom.com/pdf

This is a link to the 182 page 2010 Annual Report: belgacom.com .pdf

2. Sold 102 Hopfed Bancorp (HFBC) at 8.01 on Tuesday (Regional Bank Stocks' basket strategy)(see disclaimer): It did not require reading between the lines to conclude that I was not pleased with this bank's last earnings report.  Item # 1 HFBC (5/5/2011). The LB ridiculed the management of this small bank in that post.  Since I viewed it as possible that this bank would become the 4th problematic holding in my regional bank basket, I decided to take a small loss before that situation had an opportunity to develop. The two shares came from a stock dividend. Bought 50 HFBC at 9.1 Added 50 HFBC at 9.26

The total loss was $131.23, which reduces my realized gains for this basket strategy to $6,688.41. Item # 3 Realized Gains Regional Banks  The unrealized appreciation has rebounded some, now fluctuating around $2,300 to $2,800. Those amounts do not include dividends which are important in this strategy.

3. BOUGHT 40 EXAR at $6.23 on Wednesday (LOTTERY TICKET strategy)(see Disclaimer): I previously bought and sold EXAR, realizing a $8.92 loss last year.  Bought Exar at $7.15-Lottery Ticket (September 2009 Post);  Bought 60 EXAR at $7.15 (April 2010 Post);  Sold 100 EXAR at $7.3 So, that prior trade saved me from losing about $100.

I do not have much to add to my prior discussions. Soros Capital Management continues to hold a large stake, owning about 14.76% of the outstanding stock, according to its last filed Schedule 13G. A Dimensional Fund has a 8.13% interest as of 12/31/2010. www.sec.gov  Renaissance Technoligies reported a 5.37% stake as of 12/31/2010.  www.sec.gov All of that data may be stale.

Exar still has a lot of cash on its balance sheet. As of 3/27/2011, the company reported 201 million in cash, cash equivalents, and short term marketable securities. Page 61 Form 10-K This equates to $4.51 per share. Book value is around $5.49. EXAR Key Statistics The company is not profitable.  The two analysts providing estimates predict an E.P.S. of 10 cents for the F/Y ending in March 2012 and 33 cents for the F/Y ending March 2013. Possibly, this LT will work out okay in the event those estimates prove to be in the ballpark.

I am not required to understand a firm's products in order to make a Lottery Ticket purchase. And, I certainly do not understand the products sold by this company.  Exar Profile I am placing some faith in the Soros firm as well as the low price to book and significant cash position.

4. Added 50 of the CEF BCF at 14.53 on Wednesday (see disclaimer):  BCF is the symbol for the closed end stock fund known as the  BlackRock Real Asset Equity Trust, currently yielding around 7.5% at the closing price from yesterday.  The quarterly dividend rate is currently 27 cents per share. BCF Distributions As of yesterday, this fund was selling at a negligible discount to its current net asset value.

I am a long term holder of this security. I am not reinvesting the dividend given the small discount to net asset value. This fund owns natural resource stocks.  My last added was in June 2011 before the ex dividend date: Added 30 to BCF at 14.26 That post contains snapshots of my holdings.  {see also added to bcf at $9.69 (July 2009);  Buy 50 BCF at $6.6 (February 2009)}.

This is a link to the sponsor's web site: BCF : Fund Profile

This is a link to the SEC filed shareholder for the period ending in April 2011:  BlackRock Real Asset Equity Trust (BCF)  The BCF holdings can be found starting at page 74. As shown at pages 75-78, the fund does use a buy-write strategy.

5. CEF Table: This is how my CEF table looks with some additional shares purchased with dividends and other changes:

GIS/Harland Clarke/ITC Decision on EK Patent Litigation/Exchanged VIPSX for VGHCX/The Foreclosure Mess-Rewards for Failing to Pay One's Obligations/

In effect, the Federal Reserve's JIHAD against savers is a confiscatory tax on responsible Americans, and a forced wealth transfer from the responsible to the irresponsible, at least for the most part. I am using irresponsible in the broadest sense to also include criminal behavior, such as lying on a mortgage application about income, and to what is routine behavior by the Masters of Disaster on Wall Street.

The current money market yield for the Vanguard Prime money market fund, with over 90 billion in assets, is .04%. Barrons If my math is correct, that rate would give me about $400 annually on a million dollars, give or take a buck,  before our destitute Uncle Sam takes his share in taxes.  Of course, even before tax, the real return on virtually all "safe" investments, where the value does not fluctuate, is negative adjusted for inflation. This would include FDIC insured certificates of deposits and savings accounts, treasury bills and notes.

Over the past several months, I have read a number of articles about the rewards granted by our system to those who have defaulted on their mortgage obligations. Due to the negligence of banks in preparing paperwork, there is frequently a question of who owns the mortgage note. There is not an issue that the borrower signed the note and has a quit paying anything on the loan. In literally hundreds of thousands of cases, the homeowner can stay in the home, for years in many cases, without having to pay anything, a process that makes those who pay their debts look like saps. What happens when you stop paying your mortgage? - CBS News

In Tennessee, the process is quick compared to those states who are intent on rewarding borrower defaults. The lender in Tennessee has the right to collect a deficiency  judgment in the event the property is sold in a commercially reasonable manner at an amount less than the loan balance plus the costs of foreclosure. I do not have a mortgage. If I did and defaulted, I would be out of my home in a few months and the bank would come after me in the event of a deficiency. Thus, a strategic default would not be an option for anyone with money in Tennessee.

In NY, the foreclosure process has slowed to such a crawl that it would now take 62 years to foreclose on all of the delinquent mortgages.  NYT New Jersey would take 49 years. This meltdown in the foreclosure process actually encourages more defaults, particularly in states where foreclosures are handled by the courts and the law provides for no deficiency judgments against borrowers who have defaulted on the loan. 60 Minutes The homeowner who has admittedly defaulted can continue to live in the home rent free until the foreclosure is finally completed, assuming that ever occurs for some homeowners. Item # 4 Strategic Defaults;  NYT (article on strategic defaults by homeowners that could make their mortgage payments.)

I read of one case in Florida where the homeowner has been living in her home since 1985 without making any payment on the defaulted loan. WSJ.com I have to tip my hat on the resourcefulness of that homeowner.  But, is there any doubt that she has defaulted on the note?

If the  government wanted to encourage responsible behavior, rather than to reward irresponsible behavior which must be the desired objective in the U.S., this situation could be quickly addressed in a fair manner. National legislation could be passed overriding state laws on foreclosure in some limited respects, or the states could modify their own foreclosure laws. For example, in states where courts are involved in the foreclosure process, a brief hearing would be required to ascertain whether (1) the homeowner signed a promissory note and (2) whether or not the homeowner has stopped making payments. If both conditions are found to exist, or the homeowner refuses to testify or appear at the hearing, then the homeowner would be either required to leave the home or to pay the mortgage payment.

In the event of any challenge to the legitimacy of the foreclosure, irrespective of merit, the homeowner would be required to make that payment into court until ownership of the note was resolved in a later proceeding. If the homeowner was unwilling to make such payments, then they would have to vacate the premises. This would take away the incentive for strategic defaults, i.e., the ability to continue living in the home indefinitely free of charge after admittedly defaulting on the loan. It would also speed up the foreclosure process and the eventual recovery of housing prices.  There would be legal challenges to such legislation initiated by those who favor rent free living but do not want to frame the issue in that way. Another legislative change would be allow for deficiency judgments in all states.

It has to emphasized that it is very rare for the issue to be the borrower's non-payment of a binding legal obligation embodied in a promissory note.  Instead, the issue is who owns the promissory note or who has the right to foreclose on the security for the note and take possession of the property.  This kind of approach is not politically feasible in the U.S. since the borrowers who admittedly fail to make payments and who are allowed to live free of charge in their homes are viewed as victims. They are certainly portrayed in the press as the victims.  The real victims are those who pay their obligations and have had the values of their homes decline due to the foreclosure mess and to  those who never had the income to buy the home in the first place.  

Senator Rand Paul (R-KY) claimed that he was not "completely without the sense that we may need to raise the debt ceiling"   C-SPAN I would give this Senator his due, he is completely without any sense at all and is not surprising that he is a Tea Party favorite. Paul would consider voting for an increase provided it was coupled with a balance budget amendment, which would require cutting a trillion or so in spending per year.  He voted against the Ryan budget plan since it did not go far enough in gutting Medicare and other entitlement programs.   In the name of conservatism, Paul would roll the U.S. back to the blissful days of the 19 century.  Rand Paul-Reactionary Not Conservative  I have an idea, why not allow the residents of Kentucky to actually experience his vision for about a decade. Item # 3 Conservative or Delusional Reactionaries?  (March 2010 Post)

Moody's downgraded Portugal's debt to junk yesterday. WSJ The downgrade was four notches to Ba2 from Baa1.  That action sent the market lower immediately after its release.

1. GENERAL MILLS (own: Common Stock Dividend Growth strategy): General Mills raised its annual dividend by 9% to $1.22 per share from the $1.12 per share in effect for its 2011 F/Y. The new quarterly rate will be $.305 per share. GIS and its predecessor have paid dividends without interruption or reduction for 112 years. 

General Mills also announced that it completed the acquisition of a 51% controlling interest in Yoplait S.A.S and a 50% in a related entity that holds the Yoplait brands for $1.2 billion.  The OG consumes one Yoplait yogurt a day, much preferring that brand over Dannon. Someone who does not believe in the consumption of sugar forced the OG to consume an organic yogurt which the OG promptly spit out and threw in the garbage. I am not saying she tried to poison the OG with that organic crap. To prove his forgiveness, and to show that the OG was not opposed to eating organic, he promptly purchased some Organic Lollipops to share with all.

GIS also reported results for its 2011 F/Y 4th quarter, ending on May 29.2011.    SEC Filed Press release of General Mills, Inc. dated June 29, 2011 The company reported diluted earnings per share of 55 cents. Excluding items, the E.P.S. was 52 cents for that quarter, up from 41 cents a year ago.  Net sales grew by 3% in the quarter to $3.6 billion. For the 2011 F/Y, GIS reported an E.P.S. of $2.48 excluding items, up from $2.30 on a comparable basis for F/Y 2010.  

Due to commodity price increases, GIS forecast F/Y 2012 at $2.6 to $2.62 below the then consensus of 2.68. The company estimated that energy and ingredient would rise 10-11% in F/Y 2012. That guidance does not include the Yoplait acquisition however.  

The Credit Suisse analyst, Robert Moskow, downgraded GIS to neutral yesterday, while maintaining his target price of $40, based in part on concerns about peak margins and commodity costs.

This is a snapshot of a long term chart of GIS, showing 3 two for one stock splits:

GIS Stock Price/2 for 1 Splits Shown with "S"

2. Eastman Kodak (own 2013 Senior Bond only):  This bond fell from 96.3 to 92.6 last Friday (FINRA) after the International Trade Commission issued a ruling on Kodak's patent infringement claims against Apple and RIMM.   RB Bought 1 Eastman Kodak Bond Maturing 2013 When I first bought this bond, I knew that the administrative law judge had ruled in favor of Apple and RIMM. Since royalties from patents is Kodak's profitable business, I view that earlier decision to be a negative.  I was simply betting that Kodak would survive long enough to pay off this bond maturing in November 2013.

Kodak attempted to spin the ITC decision as a victory. ( EK Press Release: ITC Commission Issues Favorable Ruling in Kodak Patent Case Against Apple and RIM)  The market clearly disagreed with that spin, taking the common stock (EK) down 14.25% last Friday. The common (EK) fell another 4.56% yesterday.  The EK bonds also fell in price, but not as much as the common stock.

I really do not see much long term hope for Kodak and do not own the common stock. The company is probably has some value for its intellectual property but its operations continue to lose money. As previously mentioned, the last quarter's earnings were awful. Form 10-Q And, the recent secured bond sale indicates to me a company in financial distress. EK recently sold 250 million of 10.625% senior secured notes maturing in 2019. SEC Filed Press Release That says a lot about how the bond ghouls view this company. EK used 50 million from the sale of the 2019 bond to redeem part of the outstanding 2013 bonds. Page 11 Form 10- for Q/E 3/2011

I see no reason to disagree with the market's view of the ITC's decision. Some articles discussing this decision can be found in the very bearish article at Motley Fool and at Bloomberg,

This is a link to the ITC's decision. www.usitc.gov .pdf The case is not over yet. The case is being remanded to the ALJ to consider several issues before the ITC renders its final decision. 

I will continue to hold my 2 EK 2013 senior bonds until I have a chance to review the next EK earnings report and the ITC's final decision.

3. Exchanged All Shares of Vanguard Inflation Protected Securities (VIPSX) for Vanguard Health Fund (VGHCX) (see Disclaimer): I had a good gain built up in the Vanguard Inflation Protected securities fund.  Based on the robust rally in treasuries, the coupon yield of inflation protected treasuries has fallen to a negligible level. The income generation from TIPs is simply not attractive to me. I will wait for better buying opportunities in this bond sector before repurchasing shares in VIPSX or the TIP ETF. My current thinking is to wait until the coupon yield on the 10 year TIP approaches 2%, close to where I purchased the 10 year TIP at auction in 2009, and the break-even spread is around 2% or less. The coupon now on the 10 year TIP is around .67%, while the coupon on the five year TIP is actually negative according to data at Bloomberg.

I do own individual 10 year TIPs in the ROTH IRA, maturing in 2019, that were bought at auction. I will hold those bonds until maturity.

I have limited exposure to healthcare stocks which was one reason for buying shares in the Vanguard Health Fund (VGHCX). In addition, the fund has opened its doors to initial investments and has lowered the initial purchase minimum to $3000 after being at $25,000. Vanguard cuts fund minimums, opens door to new investors This fund has had a good long term record but has not fared particularly well given the lackluster performance of large cap healthcare names over the past few years.

Since inception in 1984, the annual average return return has been 16.84% but only 6.4% over the past five years as of 6/30/2011: Vanguard - Health Care Fund Investor Shares - Price & Performance

The average expense ratio is low at .35%. Vanguard - Health Care Fund Investor Shares - Fees & Minimums

This is a link to the top holdings of VGHCX: VGHCX - Fund Top 25 holdings

While it is a cliche to say that demographics favor healthcare companies in the coming years, I do believe that cliche is true. Many of the big pharmaceutical companies have been lackluster performers due to patent expirations and failures to develop new drugs, and that appears to be changing for many of them.

4. Harland Clarke (own bonds: Junk Bond Ladder Strategy): I own three Harland Clarke senior bonds maturing in 2015. Item # 2  Bought 2 Harland Clarke 9.5% Senior Bonds Maturing on 5/15/2015 at 91.375 Bought 1 Harland Clarke Senior Bond Maturing 2015

This is a link to the FINRA Information on this bond.

Harland Clarke is an indirect wholly owned subsidiary of the publicly traded M and F Worldwide Corp (MFW) . I have no interest in the common stock of MFW due to Ronald Perelman controlling M & F Holdings.

I would note that MacAndrews and Forbes Holdings proposed the acquisition of MFW for $24 per share, Reuters, and that caused a number of law firms to launch "investigations" since M & F Holdings owned 43% (sc13d) of the outstanding MFW stock. SEC Filed Letter  Key Developments | Reuters  {See also discussion at this Seeking Alpha article and in an article written by Andrew Bary at  Barrons.com who refers to Harland Clarke as "debt heavy", which it is of course}  In an earlier article, Bary mentioned the declining business of Harland: Barrons.com

The offer made on 6/13 did not appear to me to have any impact on the 2015 senior bond which was trading at in a range between 91-93 both before and after this offer. I view the last earnings report, which was disappointing, as the cause for the roughly 5% decline in the bond's price to the current range.  Item # 2  Harland Clarke

I am mentioning this information since some readers are interested in the situation. Until a deal is struck, I am not able to evaluate the possible repercussions on the bond.  

The "60 Plus" Front Group and the GOP's Plan for Medicare/MSFT/Edison Mission/Added 100 PSEC at 10.1-Bought 50 GJO at 18.55: ROTH IRA/TRST/ISM Manufacturing-PMI for China

According to recent polling, only a narrow majority of Americans believe that a crisis will be caused by a failure to raise the debt limit. Of those who believe a crisis will ensue, 37% would still oppose a raise in the debt limit.

I recall talking to several members of the GOP tribe during the summer of 2008, all of whom would have preferred another Great Depression rather than support the TARP legislation which averted Financial Armageddon. TARP might actually end up turning a profit for the U.S. government. The Economist Notwithstanding all of that, the Tea Party members are still outraged that the federal government averted a financial meltdown. The Atlantic It would not do any good to give rigid ideologues a history lessons about he Great Depression and the economic conditions that gave rise to WWII.

Senator Orrin Hatch is repeatedly apologizing for his support of TARP, after seeing what the Know Nothings did to his fellow senator Robert Bennett.

It was humorous to see a political ad from a republican front group called "60 Plus" claiming that Ryan's Medicare proposal was a "reform" designed to save medicare for our seniors. The ad can be viewed at YouTube. Politicians regularly abuse the meaning of the word "reform", in order to convince the ignorant, gullible and weak minded that they are trying to improve something for the benefit of the voters when the opposite is true or some other undisclosed objective is being pursued.  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 (March 2009 Post)

The ad did not mention that the GOP "reform" would cost the intended beneficiaries, those poor souls who are now 55 or younger, about twice as much as traditional medicare according to the CBO. Most likely, it would end up being far more costly than that estimate. After all, the cost risk is passed to the individual under the GOP plan, medical costs have been increasing at a much faster rate than inflation for a long time as noted by the CBO, and the private insurance companies are in the business to make money. And, it is better to put that increased burden on those least able to afford it, rather than to have the wealthy pay more taxes. Paul Krugman asks rhetorically how the republicans could insist on deep cuts in Medicare and Medicaid while insisting on tax breaks favoring hedge fund managers. His opinion does cut to gist of the matter.

Under Ryan's plan, approved by the House of Representatives without any Democrat voting for it, the government would provide partial support for the purchase of health insurance from private insurance companies for individuals who are now 55 years old or younger. The general idea of this plan is to pass the risks of medical cost inflation to individuals and away from the government. (see analysis of Ryan's proposal by the CBO at www.cbo.gov.pdf). The government pays less and the individual pays more, compared to traditional medicare, and that is how Medicare is saved- by ending it in its current form.  (see analysis by the National Council on Aging)

Needless to say, the "60 Plus" ad neglected to mention those little tidbits when talking about the GOP's proposed reform of medicare. In effect, the GOP would impose a 100% death tax on the middle class, whose usually meager savings would be devoured by health insurance premiums paid to private insurance companies during their retirement years, while at the same time granting additional tax breaks to the very wealthy. GOP Comes Out of the Closet on Medicare The GOP Budget Plan and The Middle Class David Stockman and the GOP/GOP Reaffirms Commitment to Ryan's Plan for Medicare, Medicaid and Food Stamps Never in my lifetime has the modern day GOP shown its true colors so clearly.

The 60 Plus Association, the purported sponsor of this ad, has lobbied for the privatization of Social Security, the next goal for the GOP, the abolition of the estate tax (already abolished except for the super rich-larger than 10 million dollar estates with use of bypass trusts for spouses) and for gun rights.  More about the funding for that right wing organization can be found at StealthPacs.org. Let's just say that this front group receives a lot of donations in excess of $5,000.

From my perspective, none of this will have any adverse impact on me. If the GOP is able to achieve its objective, it may be a form of divine justice for a large segment of the population including the Tea Party crowd. I wonder how much the victims of this plan will squeal when they finally figure out that they are being roasted and hosed by the GOP.  To accomplish this objective, it is only necessary to elect a GOP President and a few more senators to implement all of their plans for Medicare, Social Security and other entitlement programs for the poor and the middle class. If they achieve their objective, it will certainly be a financial benefit to me, but I am not under any illusion about what they are up to either.

I read an editorial in the Nashville Tennessean over the weekend, where the author claims that forcing contributions into Social Security interferes with our freedoms.

There is a great deal that could be done now to slow down Medicare spending, provided there were sensible and practical people in Washington willing to address the problem. I am referring to members of both political tribes now. Just as an example, there are all kinds of expensive procedures, paid for by Medicare, that are unnecessary and even harmful to patients.  Some of those procedures are discussed in this NYT opinion column. A typical example is giving a patient two CT SCANs, when only one is necessary, a process that unnecessarily exposes the patient to radiation, while enriching the provider which is probably the main goal in virtually all cases. Two CT Scans are roughly equivalent to 700 X Rays. The potential harm to the patient far outweighs any benefit, and it costs a lot of money. This was the subject of a recent article in the NYT.

I regularly read articles about waste and fraud in the Medicare system, and the waste could be eliminated provided there is a political will by both political tribes to do so.  The rampant fraud will require more extensive investigations and criminal prosecutions.  Rampant Medicare Fraud (FEB 2010 Post); Medicare Fraud & the Government (November 2009 Post); Medicare Fraud: A $60 Billion Crime - CBS News

PolitiFact has an article summarizing their fact checking for the demagogue and reactionary Glen Beck, who like Michele excels in the "Pants on Fire" rating.  

China's PMI data showed a decline to 50.9 in June, the lowest reading in 28 months. As with U.S. PMI data, any number below 50 indicates contraction. 

Moody's downgraded Edison Mission's senior debt to Caa1 from B3, with a negative outlook. As previously discussed, I own 5 Edison Mission bonds after the OG mistakenly bought 2 in the wrong account. At some point before the end of this year, I intend to sell 1 or 2 of them. Item # 1 Bought 2 Edison Mission 7.75% Bonds Maturing 6/15/2016 I am not comfortable holding 5 into 2012.  

The ISM manufacturing survey for June was reported at 55.3, better than expected. The consensus estimate was for a reading of 51.8. New orders were reported at 51.6, up slightly from the prior month. The price component dropped to 68 from 76.5 in May. 

1. Trustco (own: Regional Bank Stocks' basket strategy): The stock of Trustco Bank (TRST) has been sliding since the bank announced its intent to sell common stock. Trustco announced its intent to sell 13.6 million shares on June 8th.  

An offering of 13.6 million shares, plus an over allotment option of an additional 2.04 million shares, was priced at $4.6. SEC Form8-k The bank claims that it will use the proceeds for general corporate purposes, "including investment in its subsidiary, TrustCo Bank". SEC Filed Press Release

As a result of this transaction, undertaken for no good reason publicly disclosed, TRST stock has been regularly hitting new 52 week lows virtually every trading day since TRST announced its intention for this offering. The stock has recently sunk to levels last seen in 1995.  (see TRST Maximum Period Chart at GF).

TRST did not participate in TARP so it does not need to raise funds to pay back the government.  (page 5 of 2009 form10k)

Institutional investors may be dumping the stock for one or more reasons. This kind of transaction may signal accelerating loan losses in the quarters to come, and consequently the need to replenish capital in the operating bank.  If that fear is unfounded, and only time will tell, then the competency of TRST's management is in doubt.  Raising capital at a 1995 price, when it is not absolutely necessary, would be a clear manifestation of incompetency to many investors. Possibly, TRST intends to use the new capital in furtherance of an acquisition or expansion. That would possibly be the most benign explanation, compared to the first two options. Tangible book value was $3.34 per share as of 3/31/2011: SEC Filed Press Release 

I am reinvesting the dividend to buy additional shares.  Needless to say, this one has turned into a loser for me.   I may add some shares at below $5, but would prefer to wait until I can review the next earnings report due soon.  I will vote for as long as I own shares against the election of all members of the Board of Directors, and against management's pay packages.  When the stock price is hovering at 1995 levels, there is no other choice for me or for any other shareholder in my opinion.     

2. Bought 50 GJO at 18.55 Last Thursday (see Disclaimer):  This purchase was made in the ROTH IRA due to tax issues associated with Synthetic Floaters.

I am trying to think ahead on this one. GJO is a trust certificate with a $25 par value.  The underlying bond is a 7.55% senior bond issued by Wal-Mart maturing on 2/15/2030.  GJO is a synthetic floater, which means that an owner of this TC does not receive a fixed coupon payment unless the swap agreement creating the float agreement is terminated for any reason. The swap counterparty is identified in the prospectus as Wachovia which has been acquired by Wells Fargo. If the swap agreement was terminated, then the owner of GJO would be entitled to receive the 7.55% coupon payment made by WMT, which would be clearly advantageous to the owner of GJO.  This is unlikely to happen however. For all practical purposes, it would require a bankruptcy by WFC.  

For as long as the swap agreement remains in effect, the owner of GJO will receive a monthly interest payment based on a spread of .5% above the 3 month LIBOR rate. However, the rate can not exceed 7.5%: www.sec.gov 

Given the abnormally low LIBOR rates now, the coupon payment is less than 1%. There is only one positive comment that I can make about the current yield. It is far better than the yield on the money market fund, which was used as the source of funds for this purchase.

The maximum yield at a total cost of $18.55 would be 10.1% ($25 par value multiplied by 7.5% maximum coupon=$1.875 annualized per Certificate divided by total cost per Certificate of $18.55= 10.1%). At a 5% annualized 3 month LIBOR rate, the yield at that cost number would be around 7.4%.  

Once I avoid focusing on the current yield, I can see a few advantages to this security in the ROTH IRA:

a. While the owner of GJO is still exposed to the credit risk of WMT, I am not concerned about that risk.  The underlying bond is rated Aa2 by Moody's and AA by S & P. FINRA Therefore, I view it as likely that WMT will survive until 2030 to pay off the note, whereupon the owner of GJO will receive the $25 par value. That will make the actual Yield to Maturity look much better given the purchase at a substantial discount to the $25 par value.  It is conceivable that WMT may redeem the bond early, but I would not view that as likely given the presence of a "make whole" provision.  If WMT did elect at some point to redeem the bond owned by the trust, that would result in the payment of GJO's $25 par value, which would of course be beneficial to me given my purchase price.   

b. I suspect that this floater will increase in value when investors believe short rates will start to rise. A return to just normal LIBOR rates may result in this security selling near its par value, which would give me the option of capturing the spread between par value and my cost before the redemption date.  I have given up trying to estimate when the FED will end its JIHAD against savers.  

c. Hopefully, we are nearer to the end, rather than to the beginning. of abnormally low short rates. Consequently, the main disadvantage of this security, its current yield, may not last that much longer. It would be a pure guess as to when the FED will end its JIHAD against savers. LIBOR Rates History (Historical)

I have bought and sold GJO.  Buy of GJO at $16.5 (March 2009)- SOLD GJO at $17.08 (April 2009).  I changed my mind soon after that 2009 purchase, based on the likelihood of the low current yield remaining in effect for an extended period.  That proved to be an accurate prediction. Hopefully, savers will see the end of the Jihad being waged against them by central banks.

GJO closed at $18.5 last Friday on volume of 500 shares.

3. Bought 100 PSEC at 10.1 in the ROTH IRA (see Disclaimer):  I do not intend on holding those shares for the long term.  The price has declined recently due in part to yet another issuance of common stock by this Business Development Corporation. Item # 1  Prospect Capital (PSEC)

Issuing more stock near or below book value hurts existing shareholders. Ultimately, if PSEC is lucky enough to invest those funds wisely, there would be a benefit to shareholders but that remains to be seen.

In that last linked post, I discuss PSEC in more detail and highlight the many disadvantages of this security.  Constantly selling shares at low prices is just one of the negative issues from my point of view.

The main advantage is the dividend yield, close to 12% at my purchase price according to  Marketwatch. That kind of yield is enticing for the ROTH IRA. In effect, it is equivalent to a tax free yield when held in that type of retirement account for a U.S. taxpayer. Money will double in about 6.12 years at a 12% rate.  Estimate Compound Interest

The trick will be to exit the position with a profit after collecting some dividends, which are paid monthly.  My commission cost in that account is $7, so I will need to sell those shares at $10.25 or higher.   I view the AGNC shares held in the same account in the same way. 

This brings me up to 350 shares of PSEC.   

PSEC closed at $10.14 last Friday.

4. Microsoft (own: Large Cap Valuation Strategy): I recently repurchased shares of MSFT as part of the Large Cap Valuation Strategy,  and I am reinvesting the dividend to buy additional shares.

This article at Seeking Alpha describes the launch of Microsoft's Office 365 product last week.  This  is a cloud product, allowing customers to access several products, including Microsoft Office, online for a subscription fee.  More about this product can be found at Microsoft's web site.

MSFT stock did climb 7% last week to close at $26.02.  After that rise, and based on the consensus $2.77 E.P.S.   estimate for the F/Y ending 6/2012, the P/E is 9.39. Cash per share was $5.78 as of 3/31/2011. MSFT Key Statistics  Five year estimated P.E.G. is 1.02.

Yesterday, Baidu announced that it would use Microsoft's Bing for English language searches.   Reuters  Bloomberg

A reporter at ZDNet claimed that a trusted source told her that MSFT's Windows 8 is "on track" to be released for manufacturing by April 2012, earlier than expected.

I did not have any interest in Microsoft for at least one decade prior to repurchasing shares in 2009.  ADD 50 MSFT at $17.99 (January 2009 Post);  Bought 50 MSFT at $17.79 (April 2009).

The long term chart is fairly typical for a large cap stock whose valuation became stretched during the blowout phase of the prior long term bull market which started in August 1982.

MSFT SEPT 1997 TO JULY 2011

HPQ, another holding, has a similar chart:

HPQ SEPT 1997 TO PRESENT

The blowout phase of the prior bull market took Microsoft stock up to a level in early 2000 that could not conceivably be justified by any rational human being. The P/E was over 50 in 2000, a totally unrealistic valuation given MSFT's size and the law of large numbers.

After bottoming in early 2000 near 20, the stock has meandered largely in a channel range between $20 to $30. During that long churning phase, lasting over a decade, MSFT increased its annual earnings from around 45 cents in 1998 to over $2 per share now.  A regular quarterly dividend was initiated in 2003 and has been raised every year since that time.  The dividend rate doubled from the annual rate of 34 cents in 2006 to the 64 cents now.  The payout ratio is hovering around 25% so there is room for further dividend increases.

I reinitiated a position in 2009 when the stock fell to below $18 and sold the sold the stock when it approached $30 a share. I sold out of MSFT in November 2009 at $28.11.

I decided to re-enter the position for the reasons given in Item # 3, RB BOUGHT 100 MSFT at 27.08. (February 2011). After the RB paid too much, it was necessary for the LB to average down in three increments:  Item # 1 Added 30 MSFT at $24.15 (May 2011)(Snapshot of trading gains in 2009 and 2010 =$623.89); ADDED 50 MSFT at 25.81 (March 2011);  Added 50 MSFT at $25.55. I am currently near break-even and may sell the highest cost lot, purchased first, when and if the stock crosses $30 per share.

WMT has a similar tale of woe over the past decade, as earnings and the dividend have risen:

WMT

ADDED 50 WMT at $52.68 (7/1/2011 Post).  As previously mentioned, I do not view the problem with that stock as having much to do with the company, as the knuckleheads who drove the price skyward in 1997 to 2000. 

ADDED 50 WMT at $52.68/Bought Back 100 APF at 16.84/MKZ/Chicago PMI/Greek Parliament Approves Austerity Plan

The Shiller  P/E 10 number uses GAAP earnings.

The P.M. London gold fix for 6/30/11 was at $1505.50.  MTY has not yet suffered a maximum level violation. MTY Down to the Wire and MTY. The current annual period ends on Wednesday 7/27/2011, see page PS-2 Final Pricing Supplement.

The Greek Parliament actually approved the cuts necessary to implement the austerity plan. Maybe the U.S. can avoid a default now. S & P said yesterday that it would downgrade U.S. debt to "D" from AAA unless the debt limit is raised by August 4th. Apparently many in the GOP would prefer that result than to agree on any tax increase for their benefactors.

I did buy the double short ETF on 7-10 year treasuries yesterday, mostly as a hedge for my corporate bond portfolio and insurance against the GOP House members going off the deep end and taking the country with them, as a matter of their principles or so they say. It is just extremely irresponsible to hold a debt limit increase hostage to anything.

It will be interesting to see which side blinks first. I doubt that the GOP will approve a tax increase for the the wealthy or hedge fund managers, so it will have to be the Democrats. The GOP politicians are fully aware that the money spigot can be turned off, or down, by voting for any tax increase on the wealthy. Instead, their near unanimous vote on the Ryan budget showed their desire to cut tax rates for their benefactors even more, while requiring the middle class and the poor to bear the entire brunt of their proposed budget cuts. GOP Comes Out of the Closet on Medicare David Stockman and the GOP/GOP Reaffirms Commitment to Ryan's Plan for Medicare, Medicaid and Food Stamps (May 2011 Post)  The GOP Budget Plan and The Middle Class.

Ezra Klein details what caused the republicans to walk out of discussions, even after the Democrats agreed to the goal of 2.4 trillion in spending cuts over 10 years and the parties had agreed to 1 trillion in cuts. Irresponsible is just not an adequate word to describe their behavior.

The Democrats, of course, believe the wealthy need to transfer large chunks of their income to the Democrats' constituencies, and the tax code is simply the means for effectuating that wealth transfer.  The Democrats do seem intent on raising the marginal tax rate back to 50% on high income earners when all taxes are added up, including the higher taxes imposed by the "health reform" law. (see item # 8 in  Kiplinger magazine article).

There is a option for the President in the event the GOP causes the U.S. to default on its sovereign obligations.  Section 4 of the 14th Amendment to the U.S. Constitution provides that the "validity of the public debt of the United States, authorized by law, . . . shall not be questioned". Some legal scholars argue that this provision would give the President the right and the responsibility to pay the nation's obligations in the event the Congress behaves in an irresponsible manner. (see The Atlantic and article written by Bruce Bartlett  for The Fiscal Times) Support for that interpretation is found in the Supreme Court's decision in Perry v. United States, 294 U.S. 330 (1935). While that argument may in the end prove successful, a resort to it would not prevent a loss of confidence among U.S. lenders.

The Chicago PMI number released yesterday was much better than expected by the consensus estimate. That gauge rose to 61.1 from 56.6.

Recently uncovered evidence casts doubt on whether prosecutors will pursue the sexual assault case against the form IMF head Dominque Strauss-Kahn, according to an article in the NYT. That evidence allegedly calls into question the credibility of the accuser.

1. ADDED 50 Wal-Mart at $52.68 on Wednesday (Large Cap Valuation Strategy)(see Disclaimer): The decline in the VIX last Wednesday caused me to repurchase the 50 shares of WMT sold at $ 56.17.

The current consensus E.P.S. for the F/Y ending in January 2012 is $4.47. Earlier in 2011, WMT increased its annual dividend 21% to $1.46 per share. Walmartstores.com: Investor Relations 

In 2001, WMT had earnings of $1.49 and paid out 28 cents per share in dividends. ( 2002 F/Y Annual Report  sec.gov at p. 13). Now, was the price of WMT shares higher or lower in 2001 compared to the present?   The price is about the same, unadjusted for subsequent dividend payments.  WMT Historical Prices There has not been a stock split since 1999.  

For an entire decade, the stock has gone up and down, mostly in a $50 to $60 range, and has ended up going nowhere.  This can be seen using the chart at Google Finance and adjusting the bar underneath the volume to show only the 2000 to present period. 

Yet, the earnings and dividends have continued to increase over the past decade at a good clip.   The problem is not WMT but the investors who bid the stock up to a $50+ price in 2001 when earnings were hovering around a $1.5 per share.  

I have no idea when the worm will turn for WMT shares. So, I move in and out with some regularity. (see, e.g. Bought 100 WMT at $49.55 (9/2009 Post)-Sold 100 WMT) 

I am reinvesting the dividends to buy additional shares. 

Morningstar has a 4 star rating on WMT shares.

This brings me back up to 100+ shares, with the other 50 bought at about the same price last March. Added 50 WMT at 52.21 (3/10/11 Post).

One knock against WMT is that same store sales have been falling for Walmart U.S. SEC FILED Press Release for Q/E 1/2011 Press Release for Q/E 4/30/11 It remains to be seen whether WMT will be able to turn this trend around for its Walmart U.S. operations (which excludes Sams Club), or whether the trend over the past few quarters is mostly due to the current high unemployment rate in the U.S. and the after shocks from the Near Depression. I suspect that the later reason has more to do with it.

See also: Item # 1  WMT and the Large Cap Valuation Strategy (March 2011 Post). 

2. MKZ (OWN):  I noted that the annual interest payment for the "principal protected" note MKZ was paid yesterday. MKZ is an unsecured senior note issued by Citigroup Funding and guaranteed by Citigroup as provided in the prospectus. Thus, the buyer of this kind of note is subject to the credit risk of Citigroup Funding and Citigroup. This note matures on 7/11/2014. Pricing Supplement

As previously noted, MKZ paid its minimum coupon of 3% after suffering what I call a maximum level violation during its annual coupon period. MKZ Reversion to Its 3% Guarantee Since I own 100 shares, bought at $9.96, I received $30 in interest for this note's second annual period which ended on 6/23/2011. The third annual coupon begins on the same day.

This note pays the greater of 3% or up to 31%, based on the percentage gain of the DJ-UBS Commodity Index during the annual coupon period, with the usual proviso on reversion to the 3% minimum. To make this calculation, I need to know the "starting value" of that index on the first day.

Based on the information at the  WSJ.com, the DJ-UBS index closed at 155.967 on 6/23/2011.  The maximum level during the current period is therefore 204.317 (1.31 x. 155.967= 204.31677). One close above that maximum level during the current annual period will cause this security to pay the 3% guarantee, irrespective of where the DJ-UBS index closes on 6/25/2012.  However, if there is no maximum level violation, and that index closes at say 200 for illustration purpose only, then the annual coupon would become 28.23% (200 minus 155.967=44.033 divided by 155.967=28.23%)

So, if Citigroup survives to pay off this note in 2014, the worst that can happen is a 3% coupon for each annual coupon period, plus a loss of around $3 on the shares since the commission cost took my total cost slightly above the $10 par value. The upside is the potential for a coupon of up to 31%. Another note tied to the same index has hit twice so far. Bought 100 MKN at 9.85  MKN Closes with a 25.56% Gain in the Commodity Index-No Maximum Level Violation  Note ON MKN (18% coupon for 1st Annual Period) Snapshots of those interest payments can be found at MTY (5/9/11/ Post). As noted in that post, I own 8 "principle protected" notes issued by Citigroup Funding whose coupon payments are tied to an index or to the price of gold.

So given the different annual coupon periods for MKN and MKZ, there is a justification for owning both of them. Both were bought at less than par value. There is simply no way to know what will happen during the current year. Maybe MKZ will hit this year.  

The 3% minimum coupon needs to be kept in perspective too. If I went into the bond market now, and purchased a fixed coupon Citigroup bond, my yield to maturity for such a bond maturing in 2014 would be around 2.7%. FINRA - Investor Information on C.HDI  FINRA - Investor Information on C.GOR Both of those bonds are selling at premiums to their par value. The YTM includes the loss on the bond at maturity.

I am consequently receiving a larger minimum yield, due to my total cost numbers, with both MKZ and MKN, but I have the potential for more, possibly much more, compared to the buyers of those fixed coupon bonds. So, unless I become spooked about the credit risk, I intend to hold these notes until maturity.

See also: Item # 1 MKZ and MKN Now (2/2011 Post); MKZ vs. MKN (December 2009); MKZ (June 2010).

3. Bought Back 100 of the CEF APF at 16.84 on Wednesday (see Disclaimer): I sold earlier in the year 200 shares of APF for a gain of $292.96:

The movement in the VIX has caused me to repurchase 1/2 of that position.

I have discussed this CEF in several prior posts. Sold 100 of APF at 17.32 (April 2011);  Added 100 of APF at 15.64;  Bought 100 CEF APF at 15.08; Added 100 of the CEF APF at $15

This stock fund invests in companies from the Asia-Pacific region.

As of 6/29/2011, the net asset value per share was $18.89.  That information can be found at the sponsor's web site, Daily Prices and at the Closed-End Fund Association.  The discount as of the close on 6/29 was at -10.64%.

The expense ratio is 1.15%, which is low for this kind of international fund.

This fund recently completed a tender offer for its shares at a small discount to net asset value.  www.sec.gov While institutional owners like that kind of deal, I would prefer to see the fund spend that kind of dough buying the shares on the open market, when the discount to net asset value is close to 10% or preferably higher.

This is a link to the last filed SEC Form N-Q, listing the fund's holdings as of 3/31/2011.

This is a link to the last SEC filed shareholder report for the period ending 12/31/2010.

This is a link to the APF page at Morningstar.

The VIX declined 4.34% to close at 16.52. That decline also resulted in the sale of a double short stock ETF for a small loss. I will discuss the trades from Thursday in the next post.