Bought Back 50 CPP at $21.35/Sold 50 of the TC PIS at $24.83-Roth IRA/

Michelle Bachmann, whose expertise is reality creation, asserted that the HPV vaccine was "dangerous". NYT   PolitiFact | Michele Bachmann says HPV vaccine can cause mental retardation  True Believers (TBs) do not require any factual support for their opinions, which are frequently stated as facts, even when those opinions are bizarre or based on clearly erroneous information.  A TB will routinely phrase their opinions as statements of fact.

While it is not desirable to have an ill informed electorate, it is far more dangerous to have political leaders who hold learning in disdain, as noted by Maureen Dowd in her NYT opinion column.

Steve Forbes believes that the Know Nothing Rick Perry will be our next President.

Another fact checking organization has published an analysis of the false and misleading claims made by GOP candidates in their recent debate. FactCheck.org : CNN/Tea Party Debate

Lying works in politics because so many Americans are uninformed and have no desire to acquire and assimilate accurate information. The Road to Political Power: Lying Works;  Accurate Information is Not a Side to an Issue/ W & the Housing Crisis/Lying Works In Politics (December 2008 Post);

Oracle reported after the close yesterday, beating estimates.

Microsoft (owned) hiked its quarterly dividend 25% to 20 cents per share. I am reinvesting the dividend to buy additional shares.

1. BOUGHT BACK 50 CPP at $21.35 Last Monday-CPP is a Trust Certificate Containing a Trust Preferred Security Issued by Countrywide Capital III (see Disclaimer):

This is going to be a complicated discussion.

CPP is a trust certificate representing an undivided beneficial interest in a trust preferred security issued by a Delaware trust. The trust preferred stock, issued by Countrywide Capital III, represents an undivided beneficial interest in junior bonds originally issued by Countrywide Credit Industries, later known as Countrywide Financial. Bank of America later acquired Countrywide Financial. 

Trust Preferred Securities: Links in One Post 

Regular Preferred and Trust Preferred

CPP has a 8.05% coupon on a $25 par value. www.sec.gov  CPP can be redeemed at a premium to its par value (see Annex A, starting at S-53) CPP and the underlying trust preferred security mature on 6/15/2027. Interest is paid semi-annually in June and December. 

I have recently discussed the terms of CPP when I purchased 50 shares at $21.4, sold a few days later at $24. 

I want to discuss the issue of Bank of America's liability for Countrywide's obligation solely in connection with the trust preferred stock that is the underlying security in CPP. I will not repeat any of the discussion previously made on this subject in Item # 1, Bought 50 of CPP at $21.4  (8/15/2011 Post). I have a few more details to offer on this specific issue. 

I found yesterday a BAC SEC filing listing the obligations assumed by Bank of America when it bought Countrywide. Form 8-K

Among those listed obligations assumed by BAC (Documents for 0001193125-08-230518), there are two references to an indenture dated June 4, 1997:

                                             

This is a link to both of those agreements, whereby Bank of America expressly assumes the obligations under that 6/4/1997 indenture. 2nd Supp. Ind. dated as of 11/7/08 to the Ind. dated as of 6/04/97 3rd Supp. Ind. dated as of 11/7/08 to the Ind. dated as of 6/04/97                                        

This is the specific language whereby BAC, referred to as the "Corporation", expressly assumes the obligations of the issuer under the 6/4/1997 Indenture:

BAC Assumption of Indenture Obligations

2nd Supp. Ind. dated as of 11/7/08 to the Ind. dated as of 6/04/97

This is the specific language whereby BAC, referred to now as the "Issuer" of the bond, due to the foregoing referenced agreement, assumes the obligations of the guarantor under the 6/4/1997 Indenture:

3rd Supp. Ind. dated as of 11/7/08 to the Ind. dated as of 6/04/97

So, based on that document, it does appear that BAC assumed CHL's obligations as issuer and Countrywide's obligation as guarantor under the 6/4/1997 indenture, which it was required to do under section 10.2 of that indenture.  The foregoing documents specifically reference section 10.2 of the 6/4/1997 Indenture.  

I found a 6/4/1997 Indenture involving the parties identified in the forgoing documents attached as Exhibit 4.4 to this filing made by Countrywide in 1997. This is section 10.2 of that Indenture:

Section 10.2 June 4, 1997 Indenture  

This indenture is attached as Exhibit 4.4 to the prospectus for the TP issued by Countrywide Capital III: www.sec.gov That indenture is for the 8.05% subordinated debenture issued by Countrywide Home Loans and guaranteed by Countrywide with the Bank of New York as trustee. Countrywide Capital III purchased that junior bond with the proceeds from the sale of trust preferred securities. It is that TP that is the underlying security in the trust certificate CPP. Section 10.2 of that indenture at page 58 (snapshot above) does require the assumption of obligations by a successor company. And that is the specific section mentioned in the BAC assumption referenced above.     

While the foregoing gives me more comfort about the successor issue, there is still the credit issues associated with any junior BAC obligation, whether originally issued by it or where it expressly assumed the obligation from a predecessor company. I am willing to shoulder that risk, to a small decree, in exchange for around a 9.43% current yield at at total cost of $21.35. This would be a significantly higher yield than the currently prevailing yield of other BAC TPs with longer maturities and subject to being called at their par values now. 

BAC Capital Trust IV 5.875% Cap. Secs., BAC.PU Maturing 2033

BAC Capital Trust I 7% Capital Secs., BAC.PW Maturing 2031

BAC Capital Trust II 7% Capital Secs., BAC.PV Maturing 2051

BAC Capital Trust X 6.25% Cap. Secs., BAC.PB Maturing 2055 

This is my third entry into this security, having bought and sold it twice before. 

I decided to research this specific issue relating to the TC CPP after BAC expressed an intent to put Countrywide in bankruptcy in the event litigation threatens to cripple the parent. Bloomberg Please note in that article an opinion expressed by Adam Cohen that BAC must stand behind the $16.6 billion in Countrywide obligations expressly assumed by it.

While I am more comfortable about BAC's liability for this particular Countrywide TP, I have to recognize that this security will likely be vulnerable to news similar to what was discussed in the foregoing Bloomberg article. CPP fell in response to that story. All BAC TPs are also subject to concerns about BAC's creditworthiness. I bought a TC containing a $25 BAC TP at $7.51 during the Near Depression, later selling that security for an handsome profit after collecting several interest payments.  Buy of 50 MJH at $7.51 Sold 50 MJH at 23.6 I mention the purchase price of MJH to highlight the danger of bank trust preferred securities.

I am bumping up against my $10,000 in exposure to a single company with this last purchase.  That limit is a circuit breaker to prevent significant losses due to a failure of a single company.  I own securities throughout BAC's capital structure (common, equity preferred, trust preferred and senior notes). For some companies, I am near that limit with just the common stock (e.g. KO, GE).

CPP closed at $21.35 on Monday and at $21.51 yesterday.  Merrill Lynch Depositor Inc. PfdPLUS 8.05% Trust Ctf. CCR-1, CPP Stock Quote

TCs trade flat. If I bought the underlying bond in CPP in the bond market, which is possible to do only with great difficulty, I would have to pay the seller accrued interest.  The last sale of the TP issued by Countrywide Capital III was in August 2011, in a small lot.

This is a link to the FINRA Investor Information on the 8.05% Countrywide Capital III TP maturing 6/15/2027, Symbol BAC.IEF, CUSIP 22237AAB2.  According to FINRA, the ratings are as follows: Baa3 Moody's, BB+ by S & P, BBB by Fitch.  The ratings from Moody's and Fitch are investment grade, though at the lowest level for Moody's.  Bond credit rating - Wikipedia 

2. Sold 50 of the TC PIS at $24.83 in the ROTH IRA Last Monday (see Disclaimer):  I am always a reluctant owner of Liberty Media bond, due to John Malone's continuous efforts to undermine the security of Liberty's bond owners. ITEM # 1 Liberty Media and its Bondholders  The TC PIS has as its underlying security a senior bond issue from Liberty Media. www.sec.gov I decided to exit the position near break-even, with a small total return with the interest payments.  Bought 50 PIS at 24.88 in Roth IRA

I recently received the semi-annual interest payment for PIS.

Merrill Lynch Depositor Inc. PreferredPLUS 8.75% Trust Ctf. Series LMG-1 (Issued by Liberty Media Corp.) closed at $24.85 yesterday. 

I also wanted to raise my cash level in the IRAs some, in case better opportunities come along soon.  I have also be de-risking some in my IRAs. The underlying bond in PIS is rated junk.  FINRA 

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

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

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

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

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

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

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

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

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

                                            

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

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

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

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

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

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

BTZ is currently rated 3 stars by Morningstar.

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

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

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

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

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

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

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

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

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

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

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

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

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

Travelport/AGY Holding/Added 50 ERC at 14.75-Roth IRA/Sold 100 AEB at $18.2635 ROTH IRA-Average Total Cost $6.05/

CYS, a Mortgage REIT, goes ex dividend on 9/19/11: Forbes I own just 50 shares held in the ROTH IRA. The Real Cost of The Federal Reserve's Jihad against the Saver Class/AA/Bought 50 CYS at 12.97

The Greece problem is back on the front burner, as the Greek government was told that it had to do more to receive the next installment of its bailout funds. WSJ  Reuters

The 31 year old Master of Disaster, who allegedly cost UBS $2.3 billion, is photographed in a perpetual smiling state, as if the youngster had just won the lottery. Reuters This article shows him smiling in handcuffs and has pictures of his £1,000 a week apartment in London.  Mail Online

I mentioned last Friday the downward spiral in AGY Holding's 2014 bond. AGY HOLDING 2014 BOND PLUNGE IN PRICE  The snapshot in that post shows a decline from 87.250 to 25.5 last Friday, a one day loss of 70.77%.  For 1 bond, that decline equals  $617.5. On Saturday, the third party service for my broker priced that bond at 52, representing a 103.92% increased from the prior day's price:

I have not seen anything to account for this gyration. Whenever I see an anomaly, I will follow a routine procedure in an effort to discover whether there is any publicly disclosed reason for the anomalous price action. Where the firm's stock is publicly traded, this routine would involve checking Yahoo Finance, Marketwatch or other news services for any news item. I will then perform several google searches, using relevant terms. For example, for the AGY Bond, I would enter a search for the exact phrase "AGY Holding", limiting the time period of the search to one day, then one week. I would also use a few generic search phrases such as "AGY Holding downgrade", looking for a downgrade to explain the recent action. I did not find any information with those searches that would explain the plunge in price. I will also routinely check the SEC's website. While AGY Holding is a private company, it does have a publicly traded bond registered with the SEC and files reports with the SEC.  There has been no filings since AGY filed its Form 10-Q for the Q/E 6/2011 (EDGAR Search Results), yet another disappointing report, as I previously mentioned.  That report was filed almost a month ago on 8/15/11. The results were announced in a Press Release dated 8/12/2011:  SEC Filed Press Release

1. Added 50 ERC at $14.75 in Roth IRA last Thursday (see Disclaimer): My last transaction was to sell 100 shares of ERC at at $15.49.  That sale was in a taxable account. The add last Thursday was in the ROTH IRA. This last purchase brings me up to 500 shares, with 150 held in the ROTH IRA. I recently initiated a position in the ROTH.    Bought 100 of the Bond CEF ERC at 15.13 (3/3/11 Post). Form 10-Q

ERC closed last Thursday with a net asset value per share of $16.16. Based on a closing price of $14.71 that day, the discount to net asset value was then -8.97.                     

This is a link to the last SEC filed shareholder report:  Wells Fargo Advantage Multi-Sector Income Fund

The fund is currently rated 4 stars by Morningstar.  The fund uses leverage.

The current monthly dividend is 10 cents per share:   Wells Fargo Advantage Multi-Sector Income Fund - Wells Fargo Advantage Funds At a total cost of $14.75, the yield would be around 8.13%.

This is a link to the fund's fact sheet:  FactSheet_CEF_MultiSectorIncome.pdf The credit quality of the holdings can be found at page 1 to the bottom right. 

Last Friday, ERC closed at $14.74, with a net value per share of $16.16, creating at that time a discount to NAV of -8.79%.

Link to page at CEFA.

2. Travelport: I received an alert that my two senior Travelport bonds were downgraded by S & P to CCC- and the 2016  senior subordinated bond was lowered to CC. Reuters The immediate problem involves a $693 million PIK note that comes due in March 2012 at the holding company level. If a credible refinancing plan is not produced in three months, S & P "will likely" lower the rating again. This seems more negative than the comments made by Moody's when it downgraded the debt in mid-August. Moody's; Travelport (8/22/11 Post)

It is my understanding that the PIK notes are not obligations of Travelport but are instead obligations of the company that owns Travelport. A failure to resolve this issue could trigger a change in control provision that would require Travelport to buy back its debt, which would be difficult to say the least. The issue is not primarily the ability to make interest payments at the current time.

Another issue pointed out by the rating services is the tightening leverage ratios in the secured credit facility. (see pages 36-38 of Travelports' recently filed Form 10-Q discussing these issues). 

A reader inquired about Travelport bonds last Friday, inquiring whether I intended to average down on my position. The short answer to that question is no.  

In my risk rating, I previously had the unsecured senior bonds at 9 and the 2016 senior subordinated at 10: Personal Risk Ratings For Junk Bonds In my system, 10+ would be the rating assigned to the highest risk of a default, and I am raising the senior subordinated bond to 10+ from 10. I am raising the senior unsecured bonds to 10- from 9. Both increases are due to the failure so far to resolve the PIK maturity issue. 

3. Sold 100 AEB at $18.2635 Last Friday in ROTH IRA (see disclaimer):  There are several reasons for selling this security, and most of them involve the sovereign debt issues in Europe.  I am concerned that those problems may be spinning out of control. Given the huge percentage gain in the AEB shares, I decided to harvest the profit for the shares held in the ROTH IRA, and to keep the shares held in a taxable account which have a similar cost basis. I do not have to pay taxes on the profit realized in the ROTH IRA which is another consideration.  

100 Shares of AEB ROTH IRA Total Cost Per Share $6.05

The realized gain was $1,213.76:

100 Shares of AEB Realized Gain $1,213.76 on $605.55 Investment Plus Quarterly Dividends

At some point, I may buy a fixed coupon AEGON Hybrid in a taxable account.  Aegon Hybrids: Gateway Post

AEB closed last Friday at $18.49.

I no longer have any European hybrids in my retirement accounts, and have no intention of buying any in those accounts after my recent sales of INZ, AEH and AEB.  European Banks and IAS 39/VIX/Sold 50 of the ING Hybrid INZ at 21.21 Bought at a Total Cost of $7.82-Last ING Hybrid Owned;  Sold Aegon Hybrid AEH at $23.09 Bought at $4.63

I will discuss the remaining trades from last Friday in the next post. 

AGY HOLDING 2014 BOND PLUNGE IN PRICE

I had an inquiry about the plunge in price of the AGY Holding's 2014 bond. I noticed this plunge early this morning: 

The short answer is that I do not know. I ran a google search and did not find anything.  I went to the firm's website and did not see any news:  AGY :: Strength in Materials I went to the SEC's website and did not see any filings since AGY filed its last Form 10-Q.   EDGAR Search Results I mentioned that I was not impressed with that earnings report in a prior post. Item # 3 AGY (8/17/11 Post)  All of those steps need to be done whenever an unusual event happens. 

Possibly, some independent rating service or commentator had some negative comments that provoked an owner to unload a position in a highly illiquid market. Another possibility is a stressed seller in an illiquid market.  An example of a stress seller is one who has to sell positions due to a margin call. 

The trading is bizarre this week as shown at FINRA - Investor Information. That site shows no change in the ratings, B3 by Moody's and CCC+ by S & P.  I looked on my confirmation for the buy of 1 bond back in May, and the ratings were the same then.  

The trading can be observed by entering a date range at the bottom of that FINRA page, starting with 9/14/11, and clicking the button.

Added 11/16/2011: I discuss the third quarter earnings report from AGY holdings in Item # 4 Earnings: AGY Holdings

Added 11/28/2011: I noticed today that Moody's had downgraded AGY's debt to Caa3 from B3 and kept a negative outlook. Moody's  I had already raised my risk rating to 10 from 9+ after reviewing the latest earnings report. (see link in 11/16 addition above). Personal Risk Ratings For Junk Bonds

Bought 50 JSN at 11.07 in Roth IRA/ Bought 50 GBCI at $10.15/Sold 100 of 300 XKK at $10.03/Snapshot: Cash Flow into 1 Taxable Account for 9/15/11

In a long interview with Jim Cramer, treasury secretary Timothy Geithner said that there is an absolute commitment among key European leaders to keep the EU together and do what was necessary to meet their current challenges.    CNBC TRANSCRIPT  He added that there "was no chance" of a Lehman type event coming out of Europe.  This interview, along with some statements made by Germany's Chancellor Angela Merkel, seemed to calm the market last Tuesday and set the stage for a rally. NYT

The Barrons' technical analyst maintains that the long term conditions in the market continue to deteriorate as the market rallied this week.  He references the MACD technical indicator moving into bearish territory this week.  I heard another technical analyst discuss the importance of the MACD indicator:  CNBC.com

The ECB, Federal Reserve, and three other central banks will make an unlimited quantity of USDs available to European banks for the next three months.  The FED's counterparty will be the ECB rather than the European banks. This action will relieve some liquidity concerns but will not resolve the longer term solvency issues. WSJ  The equity markets responded positively yesterday to this development. The ^VIX declined 7.6% to close at 31.97. 

There is no ray of sunshine on the jobs front. Initial claims for unemployment rose unexpectedly for the week ending 9/10 to 428,000, up from a upwardly revised 417,000 in the previous week.  ETA Press Release: Unemployment Insurance Weekly Claims Report

Twelve thousand U.S. "Job Creators" have come clean about the existence of undeclared overseas accounts, used in their effort to avoid paying even the lowered rates under the Bush tax cuts. 

1. Added 50 JSN in Roth IRA at $11.07 (see disclaimer): I pared my JSN position in later July by selling 100 shares  at 12.38.  Those shares had been purchased at a total cost of $9.04, as shown in a snapshot found at the preceding linked post. I added 50 of those 100 shares back at  last Wednesday at $11.07. JSN went ex dividend for its quarterly distribution of $.295 per share shortly before this purchase. Assuming a continuation of that rate, which of course can be reduced, the yield at a total cost of $11.07 is around 10.66%. JSN - Nuveen Equity Premium Opportunity Fund As of 9/13/2011, the fund had a net asset value of $11.10 per share and closed that day at a -9.75% discount to its net asset value. The fund seeks to duplicate the price movements of a portfolio 75% in the S & P 500 and 25% in the Nasdaq 100. The fund will also sell options on those indexes in an effort to moderate volatility. 

This is a link to the last SEC filed shareholder report: www.sec.gov

Morningstar currently has a four star rating on this fund. A negative is that the dividend has been supported in recent times by a return of capital, as shown in the data found at Morningstar.  The fund is not leveraged.

Nuveen Equity Premium Opportunity Fund closed yesterday at $11.24. 

2. Bought 50 GBCI at $10.15 last Wednesday (Regional Bank Stocks' basket strategy)(see Disclaimer):  I previously bought and sold GBBI as part of this strategy.  Bought 50 GBCI at 13  Sold 50 GBCI at 14.58 The reason for selling the stock, as discussed in that last linked post, was a string of "borderline pathetic" earnings reports.  After a 30% decline in price from $14.58, the stock became interesting to me on a long term valuation basis, in spite of the near term earnings challenges. The current consensus estimate, made by 11 analysts, is for an E.P.S. of 70 cents in 2011 and 97 cents in 2012.  I would expect a decent return in the event GBCI actually hits that 2012 estimate.  Part of that return would be a dividend providing over a 5% yield at my cost. Glacier Bancorp 

Before the onset of the Near Depression, GBCI's common shares hit a high of $40 in 2007. 

The bank did not participate in TARP. 

The last earnings report was okay, but still showed problems. SEC Filed Press Release The bank reported earnings of 17 cents per share.  The net interest margin increased to 4.01%.  As of 6/30/11, NPAs to total assets was high for banks in my basket at 3.68% (though down from 4.01% as of 6/10); the allowance for losses to total non-performing loans increased to 86% from 55% a year ago which is viewed here at HQ as a positive; and the capital ratios are good. Those ratios can be found at page 56 of the last filed SEC Form 10-Q.

Glacier Bancorp closed at $10.58 yesterday. 

Realized Gains Regional Banks (2011)
2010 Realized Gains Regional Bank Stocks' Basket Strategy

3. Sold 100 of 300 XKK at $10.03 Last Wednesday (see Disclaimer):  I started trading this trust certificate, containing as its underlying security a senior Goodyear Tire bond maturing in 2028, during the Dark Period. I have purchased this security as low as $3.8 in IRA. The shares sold last Wednesday has an average cost of $8.02, held in a taxable account, and the holding period was long term:

Average Cost 100 Long Term Shares=$8.02

This TC has a 8% coupon on a $10 par value, a higher coupon than 7% coupon of the underlying GT bond.  The GT bond is rated junk. XKK went ex interest a day before my sale so I did just receive the semi-annual interest payment on those 100 shares sold, as shown below. One reason for selling the shares, besides capturing a long term capital gain, was that the security immediately recouped the value of the interest payment. 

Historically, this TC has been extremely volatile to the downside during times of market stress.  I try to remember to look at its pricing on such days, in order to evaluate a potential purchase.  For example, during the later part of 2008 and into 2009, XKK was frequently selling below $5 a share, hitting a closing low of $3.9 on 3/9/09:  XKK Historical Prices On the day of the flash crash (5/6/10), the price hit $5. XKK Historical Prices 

For my bond positions, I am satisfied to exit a position with any profit from the security, since my main purpose is simply to receive the interest payments. On 50 shares sold last Wednesday, I bought those shares in September 2008 at a total cost of $6.91. The other shares were purchased in May 2010: Added 50 XKK at 8.98

XKK closed at $10.08 yesterday.

4. THE MOST BASIC STRATEGY: GENERATE CASH FLOW TO FUND MORE INVESTMENTS IN GOOD TIMES AND BAD: I have frequently mentioned that this is my most basic and fundamental strategy. I sometimes take a snapshot of the cash flow for one day, coming into a single taxable account, to show exactly what I mean by cash flow generation.   (9/30  and 10/1 will be a bigger days since many quarterly dividends are paid at that time, as well as most monthly dividends paid by CEFs). Two dividends are not shown, received for ZBPRA and AEB, due to space limitations in the snapshots. 

                                                          

                                                          

A few of the bonds bought in the bond market make monthly interest payments. All of the GMAC bonds showed above pay monthly as does the one issued by Prudential. During the Dark Period, I was using cash flow to fund purchases. 

The Road to Political Power: Lying Works/Recent Gold and Silver Sales

I did have three limit orders filled while I was away from HQ yesterday. Due to time constraints, I will discuss them in the next post.

M & F Worldwide (MFW) has entered a definitive agreement to be acquired by MacAndrews & Forbes: SEC Filed Press Release One of MFW's subsidiaries is Harland Clarke. M & F Worldwide Corp. I own 3 Harland senior bonds maturing in 2015 (FINRA) which is the reason for tracking this development. 

Road to Political Power - Lying Works: Politicians do not feel the need to be accurate with their statements. Misleading the American public is the norm. Lying works in politics since most Americans would agree with factually inaccurate and/or misleading statements by members of their own political tribe. The road to political power is paved with lies, factual inaccuracies, and opinions expressed as facts that have little or no factual basis. Those politicians who profess to be conservative, which frequently conveys in name only the value of truth telling, are frequently artful practitioners of the "political lie". I watched some of the last GOP debate, in between commercials for a baseball game, and was not surprised by what I heard from the pseudo conservatives. Some of the "pants on fire" statements are analyzed by the fact checking service. PolitiFact

The federal government is allegedly taking some interest in reducing fraud. The GAO estimates that $70 billion was lost to fraud in 2010, as a result of improper payments made under Medicare and Medicaid. The GAO estimates that 48 billion in improper payments was made just in the Medicare program in 2010. U.S. GAO - Improper Payments: Reported Medicare Estimates and Key Remediation Strategies The Labor Department is reportedly stepping up its cooperative efforts with states to reduce unemployment insurance fraud. The government estimates that Louisiana has a 40% rate of improper payments of unemployment insurance. USATODAY

Some readers are interested in information about Beth Slater Whitson, a songwriter who wrote "Let Me Call You Sweetheart" and many other songs. A picture of her holding a guitar can be found at Beth Slater Whitson. Her father is buried next to my great-grandfather who was his brother. She had an interesting life story, leaving rural Tennessee with a one way train ticket to Chicago, when she was a young woman to pitch her "poems" as songs. She told her story in a 1925 magazine article: bethslaterwhitson.com .pdf

1. Recent Silver and Gold Coin Sales:

The 1988 gold proof set has 1.85 ounces of gold in it.

These transactions will have to be reported on my 2011 tax return so it is important to keep good records.

For the junk silver coins, my cost basis is the face value of the coins. The total cost basis for the junk silver coins would therefore be $43.9 and the proceeds from their sale was $1,330.90.  

As mentioned previously, I obviously would have been better off selling those coins in early 1980 for roughly the same amount.  I intend to keep selling those junk silver coins acquired for their face value, having no numismatic value. The assigned value of the junk silver coins is not the value of the silver content, but the value of the silver minus a hypothetical melt price.

The gold proof set was purchased in 1988 for a total cost of $1,095. I still have my cancelled check to establish my cost basis for tax reporting purposes. The gain will be $2,420. 

Learning the Value of a Dollar/Sold 1 MeadWestvaco 6.8% Senior Bond at 96.237/Sold 50 of 200 GFW at $25.48

I was away from HQ yesterday. LB was working all day on another matter in downtown Nashville. And, after an arduous day of mental labor, the Saturn would not start. "RB is embarrassed to be seen in that Saturn. Maybe the Nerd Machine needs to trade that aging Saturn for a new Lexus convertible, the RB has one picked out, not that the RB knows much about it except that it looks cool and the color matches the OG's eyes".

I thought this was an interesting statistic compiled by the Pentagon. Approximately 75% of Americans between the ages of 17 to 24 are unfit for military service because they have a criminal record, failed to graduate from high school or are too physically unfit. NYT  From the same article, it is noted that 1% of Americans now control 40% of the wealth and take in 25% of the nation's annual income. In the parlance of the GOP, these are the "Job Creators" in need of more tax breaks.

When I was in that age bracket, more than a few moons ago, I was in the best shape of my life, due in no small part to working for my father during my summer "vacation". After my sophomore year at Tulane, due to my hard work, always being on time, never taking more than a 30 minute lunch break, and my attention to detail, I had worked myself up to $2 per hour:

Click to Enlarge

I do recall asking my Dad for a quarter an hour raise. He just looked at me, as if I had lost my mind, and then said he "was already paying me more than I was worth". (My father had met his business partner before WWII in the championship round of the southern Golden Gloves tournament, and both thought that was a good introduction for a business partnership lasting until the business was sold in the late 1980s to Beazer: Stocks & Politics: Left Brain & Right Brain Decision Making)

While some may say that the boss's son would be drinking piña coladas  for this kind of money, that would be a false assumption. I will describe a typical day. The work day started at 6:00 A.M. For this typical day, I was assigned to work with another unfortunate soul to "batter board". While I would not purport to know how this is done now, I can describe based on considerable personal experience how it was done in 1971. The purpose of the exercise is to lay out the foundation plan of a home. My father was a homebuilder. To accomplish that task, a number of wooden stakes would have to be driven into the ground. So picture this scene. It is about 95 decrees in July, very humid, and the OG is in a mostly uncleared field, whose other inhabitants are mostly snakes and other small critters. There has been no rain for about a week and no moisture in the soil. As the OG's co-worker holds the stake, praying no doubt, the OG swings a sledgehammer as hard as possible to drive the stake into the ground. Now, back in July 1971, the OG was a fine specimen. A thud is heard, and the OG looks down at the ground to see a few flakes of Tennessee clay scattered around the tip of the stake which is still sitting on the top of the ground. Several stakes had to be driven into the ground for just one house, and then string would be strung to provide instructions for the foundation, Batter Boarding .pdf.

Besides the free suntan and workout, that experience at least taught me the value of a $1.

And, I made every dollar count with my investments, including taking every silver U.S. mint coin out of circulation that came my way during the 1960s and buying my first stock, HCA, soon after its IPO when it had one hospital located near Vanderbilt.

Referring back to the fitness of the current generation to serve in the military, I was probably fit enough to join the Navy Seals, had no criminal record of course, and had more than a high school education. I was not, however, going to volunteer to fight in the Vietnam War, having the same opinion then as I do now about that conflict. I view all of those who are responsible for America's involvement in that conflict as recklessly negligent idiots, who are responsible for the deaths of almost 60 thousand young Americans (Vietnam War casualties), countless Vietnamese civilians, the maiming of tens of thousands,  the onset and acceleration of inflation in the U.S., and the loss of around 700 billion dollars in 2008 Dollars (CBS News)

Brian Williams asked Governor Perry whether he was concerned about an innocent man being among the 234 executed during his tenure. The crowd erupted in applause and whistling at the mere asking of that question. NYT

The BAC technical analyst believes there is a chance that the S & P will hold in the 1100 to 1120 range, but she believes there is a 50% chance of a test between 910-985. CNBC My downside target for serious buying would be in the 950 neighborhood.  While nothing about the market is certain, I feel that there is real risk to the downside, so I am not being brave with my cash stash.

I have raised, mostly with a reduction in my stock allocation, my cash stash to around 25% of investable assets.  The last sales occurred in the later part of July. SOLD: 100 EXC @ 44.67, 100 APF @ 17.47, 50 DLN @ 49.38, 100 PEO @ 30.62, 100 MSFT @ 27.9 (7/27/11 Post) Sold 103+ of the Stock ETF OEF at $59.98 (7/25/2011 Post);  Sold 50 UNB at 19.5/ Pared JSN-Sold 100 at 12.38 in ROTH IRA (7/26/11 Post) I have been trimming the stock allocation since early March. Sold 100 VEU at 49.19 (3/3/11);  Sold 100 of the stock ETF VV at $60.69 (3/1/11 Post); SOLD 100 CIZN @ 20.56 (3/2/11); Sold 100 of the Stock CEF IDE at 20.3.  I will frequently start a pare by selling stock ETFs and CEFs.  Some funds may be devoted to short term trading opportunities or to more defensive individual names, but the overall trend will be to reduce my stock exposure.

The reasoning has been explained in numerous discussions and involve the weakening economy and other macro issues. I always make allocation decisions based on my judgments about big picture issues and relative valuation/risks of asset classes. Another reason has to do with the identification of the market as being in an Unstable Vix Pattern within the context of a long term bear market. A cyclical bull move, off a catastrophic low, may last about two years, as shown by the move off the catastrophic low in 1974. I have drawn that analogy in many posts, and my views are well know to readers of this blog.  The Roller Coaster Ride of the Long Term Secular Bear Market 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? More on 1982 or 1974 The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets The Big Picture Questions Static v. Dynamic Asset Allocation

My investable assets do not include "safe" money that would not be invested in any security that fluctuates in value.  I would not include either my "hard" assets, all owned free and clear of any debt. Investable assets includes only those funds held in a brokerage account and invested in a  money market fund.  If I could earn 4% on that cash now, I would be at a 35% cash allocation. Since money market funds are paying nothing, I am attempting to plough some funds into risk assets, primarily bonds, in search of a higher yield. The recent purchases of several municipal bond CEFs are part of that strategy. I define a "risk" asset as anything that fluctuates in value. And, there are of course various decrees of risk to different securities. The highest risk strategy currently being pursued is the junk bond ladder strategy.    

Bank of America is going to cut 30,000 more jobs over the next few years. USATODAY.com

Moody's downgraded Credit Agricole and Societe Generale ratings earlier today based on its exposure to Greece.  An article in yesterday's  NYT provided some interesting details about how investors are reducing their credit exposure to European banks. For example, U.S. money market funds did not refinance 50 billion in short term that came due in August.

HSBC's Managing Director of Investment Strategy Asia believes there will be a relief rally in October, taking world equities up 10-15%. CNBC


I am busy on other matters this week.

1. Sold 1 MeadWestvaco 6.8% Senior Bond Maturing in 2032 at 96.237 Last Monday (Junk Bond Ladder Strategy)(see Disclaimer):  I intend to use the proceeds from this transaction to buy a higher yielding junk bond.  Given the volatility and uncertainty prevailing today, plus the heightened risk of a recession in the U.S. and particularly in Europe, I am currently anticipating that junk bonds will fall in price and rise in yield. By selling the MWV bond, I will not have to dip into my cash stash to buy my next junk bond.

I made a small profit on the bond, plus 1 interest payment and accrued interest paid to me by the seller:  Bought 1 MeadWestvaco 6.8% Senior Bond Maturing 2032 at 92.926

The MWV bond had the longest maturity in my junk bond ladder, so its sale will reduce my average maturity a tad.

Realized Gains Junk Bond Ladder Strategy

2. Sold 50 of 200 GFW Last Monday at $25.48 (see Disclaimer):  This security pays quarterly distributions taxed as interest. I still own 150 shares in IRAs. I sold the 50 shares bought in a taxable account at a small profit after collecting a few interest payments. Bought 50 GFW at $24.82 This baby bond just went ex interest.  Par value is $25.  Final Prospectus Supplement

The shares currently in the ROTH and Regular IRAs were bought at the following prices: Bought 50 GFW at 22.63 (Feb 2010 Post); Bought 50 GFW @25.04; Added 50 GFW at 24.9 in the Regular IRA (Dec 2010 Post)

I previously sold shares at $25.13 bought at $22.76.

AAG Holding Company Inc. 7.50% closed at $25.09 yesterday, down 1 cent for the day.  I may buy those shares back at some point in an IRA.

Exchange Traded Bonds 

Sold 50 METPRA at 23.27 in Regular IRA-Total Cost Per Share $13.26/Sold Some Junk Silver Coins Yesterday/European Banks Continue Declining in a Big Way

Marc Faber says the FED is responsible for the bubbles and volatility with its low interest rate policies. He also views gold as relatively low in price.  I would not hazard a prediction on gold's movements, but would be shocked to see it at $6000 to $10,000 per ounce, a range bandied about by Faber.

I sold some more of my junk silver coins yesterday.  I do intend to sell more junk silver coins before the end of this year assuming there is a 2% to 5% spike from the current price, mostly in the $40 to $41 per ounce range. Spot Silver Chart The sale yesterday was made when silver was selling near $41 per ounce.

For now, I am keeping my brilliant uncirculated silver coins, mostly purchased, while selling most of the common date coins taken out of circulation at their face value back in the 1960s, mostly in very good or worse condition, and unlikely to ever be worth more than their melt value.

An example of the silver coins, being kept for now, is a purchase made in 1995, consisting of 2 rolls of brilliant uncirculated American Silver Dollar Eagles (40 coins/40 ounces of silver), a roll of BU 1964 John F. Kennedy Silver Half Dollars, and a roll of BU silver Roosevelt Dimes (50 coins). The total purchase was $342. Silver was then less than $7 an ounce.

While I did sell some gold proof coins last week, when the price hit $1900 per ounce (Sold Some Gold and Silver), I am inclined to keep the bulk of the silver and gold for the reasons those assets were acquired in the first place. Ultimately, I own those type of assets as a hedge for financial Armageddon. (More precisely, a financial Armageddon that involves a collapse of major currencies such as the USD and/or EURO) Until last week, I had never sold any of those precious metals stored in two bank lock boxes.

In the event silver prices collapse, I will use the proceeds recently realized to buy the silver ETF SLV, but I would be looking for a collapse in price below $10 before buying. I can wait.

John Bogle is predicting that stocks will return an average annual return, with dividends, of 7% over the next decade, assuming no apocalypse.  WSJ

The treasury sold 32 billion in three year treasury notes yesterday. The coupon was .25%. With the OID, the yield for those notes would be .334%. www.treasurydirect.gov.pdf

Jonathan Laing asserts in his Barron's column that another round of quantitative easing will have beneficial results. I do expect the FED to announce an "Operation Twist", where the FED sells short term notes and buys longer term issues, and to eliminate the .25% rate paid by it on bank reserves held at the FED.  I fail to see how any of those actions will accomplish anything worthwhile.  When the economy is facing a demand problem, as now, a further reduction in interest rates will only serve to deprive the Saving Class of money to spend.  And, the ten year treasury note is already below 2%, which is at least a sixty year low. The banks are not going to increase their loans by removing their balances with the FED. At most, they would likely shift those balances to earning slightly less by buying two year treasury notes, which yields now less than .25%.  U.S. Government Bonds

China's annualized consumer inflation rate rose 6.2% in August, down from a 6.5% rate in July.  Industrial production increased 13.5% in August compared to a year ago.  

The House GOP members are preparing to pass a bill forcing all states to recognize a permit granted by any state to carry a concealed weapon.  It is extremely easy in many states to secure such a permit, easier than a driver's license.  Bloomberg   Once the GOP came into complete power recently in Tennessee, there highest priority was to pass legislation permitting the carrying of weapons into bars.

The trust certificate (XKK) was ex interest yesterday for its semi-annual interest payment. The underlying security is a senior Goodyear Tire bond.  The TC has a 8% coupon on a $10 par value. I currently own 300 shares and have traded this TC. 

Bloomberg claimed in a story yesterday that the German government was preparing for a Greece default.  Another report at Bloomberg maintained that Greece's default risk had risen to 98%. This article published in the  Guardian a few months ago breaks down the European bank exposure to Greek government debt.

According to a report at CNBC, Italy has turned to China for purchases of its bonds.

Shares of the big three French banks continued to decline yesterday, falling more than 10%. WSJ ( on German bank decline Businessweek)

I am busy on other matters today and for the remainder of this week.  Consequently, I will just make a brief note of a transaction from last Friday in today's post.  I may skip at least one post this week due to time constraints.  Since I will not be able to focus on the market for the remainder of this week, I bought a double short stock ETF near the close in case the bottom falls out while I am distracted by other matters.  LB refused to admit that this purchase was a rule violation. For all other members of staff, one of LB's stinking rules prohibits the purchase of a double short stock ETF during an Unstable VIX Pattern, when the VIX is above 20.   Trading and Asset Allocation in Stable and Unstable VIX Pattern (November 2008 Post)  More on VIX AND ASSET ALLOCATION (November 2008 Post). LB claims that a recent modification to that rule, tailored to narrowly fit the current occasion and circumstances, was duly adopted and passed by it by a vote of 1 to zero after legally appropriate notice and consideration.

LB has also prepared a Complaint and Summons to serve on those wild turkeys for illegally grazing on HQ's property, which complaint contains several counts as one would expect, including trespass, conversion, and intentional infliction of emotional distress on the LB.

1. Sold 50 METPRA at $23.27 Last Friday in Regular IRA-Bought at a Total Cost of $13.26 (see Disclaimer):  This transaction still leaves me with 100 shares bought in a taxable account at a lower price. I previously pared my position in the regular IRA by selling 50 shares. As a result of this last sale, I no longer have a position in the IRA. I will consider buying METPRA back at below $20 a share, though I will make the purchase only in a taxable account. This security pays qualified dividends. All things being equal, I would prefer to own a security paying interest in an IRA, while purchasing securities paying qualified dividends in a taxable account.  I bought several securities paying qualified dividends in IRAs back in 2009 for a variety of reasons, primarily due to my view that those securities presented me with the best opportunity for idle cash at that moment in time.  I don't think that anyone could argue with that assessment given the percentage 2011 realized gains in INZ, AEH and now METPRA, just in the regular IRA. Sold Aegon Hybrid AEH at $23.09 Bought at $4.63

The METPRA shares sold last Friday were bought at a total cost of $13.26:

50 Shares METPRA Total Cost Per share=$13.26/Bought 9/15/2008

This security was the subject of my second post: LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK (October 5, 2008 Post). The stock was then selling at less than $10 per share.

The realized gain on the shares was $492.52, plus about $155 in dividends, for a total gain of $648 on a $663 investment:

50 METPRA Regular IRA 2011 Realized Gain =$492.52-On Investment of $663

MET.PA closed yesterday at $23.25, down seven cents for the day.

Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Floaters: Links in One Post