Bought 50 BAX at $49.79/Bought 50 ENY at $17.18/Sold 50 AFE at $25.5/Added to MACSX/Sold 1 Vulcan Materials 7% Senior Bond Maturing 2018 at 103

Last Monday, based on improving economic data, I made a slight shift out of bonds into stocks. The primary stock purchase, however, was Baxter International, which I do not view as particularly sensitive to an improving economy.

The Treasury sold 10 year notes yesterday at the lowest yield on record. This auction was a reopening of a prior 10 year auction, with 9 years and 10 months remaining on the term. The yield was 1.9%. www.treasurydirect.gov.pdf

I am starting to prepare a list of European stocks that have declined in value in their local markets and are even cheaper for me to buy using my USDs due to the recent and ongoing decline of the Euro. I would just call that a double whammy for existing U.S. owners of those securities. Some of the securities being considered are discussed in this Seeking Alpha article. An earlier example of a purchase made after a double whammy was a buy of 100 AXAHY at $14.69 back in June 2010. That post involves a fairly extensive discussion of my analysis that led to that purchase which included the currency exchange factor.

The currency issue is certainly a wild card. By looking at a two year chart of the EUR/USD, I can see that I waited for the conversion rate to fall to around 1.2 before buying AXA back in June 2010. And my subsequent profit, realized a few days after the purchase, was due in large part to just a rally in the Euro against the USD. Sold 100 AXAHY at $16.66 June 2010 (see also: International Trading and Currency Risks) The shares are now trading below my June 2010 purchase price: AXAHY AXA I do not currently have a position.  

1. Bought 50 Baxter International (BAX) at $49.79 Last Monday (Large Cap Valuation Strategy)(see Disclaimer): This selection does qualify under the large cap valuation strategy. The current consensus estimate is for a 2011 E.P.S. of $4.31 and $4.64 this year. BAX Analyst Estimates The forward 5 year estimate P.E.G. is 1.18. The company had $4.15 per share in cash as of 9/30/11. Return on equity is around 31.68%. 

In 2011, Baxter raised its quarterly dividend to $.335 per share from $.31. Baxter U.S. - Information for Investors: Dividends & Splits The stock does not qualify, however, under the Common Stock Dividend Growth Strategy due to the current dividend yield being lower than 3% and other reasons such as a lack of dividend growth between 2003 through 2008. Common Stock Dividend Growth Strategy

Morningstar currently has a 4 star rating on BAX, and a consider to buy target of $49.

Baxter's profile page at Reuters
Baxter's key developments page at Reuters

For the quarter ending in September 2011, Baxter reported net income of $624 million or $1.09 per share, adjusted for extraordinary items. SEC Filed Press Release Revenues were reported at $3.479 billion for the quarter. Net sales for the first nine months of 2011 were $10.299 billion, up from $9.345 billion in the comparable 2010 period.

BAX is a financially sound company. Its bonds are rated A+ by S & P and A3 by Moody's. FINRA

Baxter International rose 68 cents in trading yesterday to close at $50.86.

2. Sold 1 Vulcan Materials 7% Senior Bond Maturing 2018 at 103 Last Monday (Junk Bond Ladder Strategy)(see Disclaimer): This bond popped after Martin Marietta made a hostile offer for Vulcan.  I am taking profits on lower yielding junk bonds when there is a pop over par value. I bought this bond at 95.5. Bought  1 Vulcan Materials 7% Senior Bond Maturing 6/15/2018 at 95.5 (August 2011). I still own a Vulcan bond maturing in 2021:  Bought 1 Vulcan Materials 7.5% Senior Bond Maturing 6/15/2021 at 99.874 in Regular IRA I would like to sell that bond at its current price, but have not seen a bid yet willing to accept a 1 bond sale. FINRA 

3. Added to MACSX (see Disclaimer): MACSX Matthews Asian Growth & Income is rated five stars by Morningstar. The expense ratio of around 1.13% is low for this kind of fund. In 2011, the fund paid a total dividend distribution of $1.0832 per share. Of that amount, the long term capital gain distribution was $.5915.Distributions - Matthews Asian Growth and Income Fund

I will generally avoid buying any stocks from Asian companies and will achieve exposure to this stock sector solely through stock funds.  This fund recently reopened to new investors.Matthews Asia to Re-Open Two Funds I am reinvesting the dividends to buy additional shares.

Sponsor's webpage: Overview - Matthews Asian Growth and Income Fund
Link to top 25 holdings:   Top 25

This fund is available on a NTF basis at most major discount brokerages. Fund Purchase Information

This is a link to the shareholder report for the third quarter: matthewsasia.com/pdf I also own Matthews Pacific Tiger Fund for several years, selling most of my position prior to the Near Depression. I initiated a position in MACSX back in 2009. Bought Matthews Asian Growth and Income (MACSX)

Matthews Asian Growth & Income Fund closed at $15.24 yesterday. 

4. Sold 50 AFE at $25.5 Last Monday (see Disclaimer): When buying long term bonds at or near par value, I am antsy about the interest rate risk. AFE is an exchange traded bond that matures in 2034. It has a 7 1/8% coupon on a $25 par value. Interest payments are made quarterly. Prospectus

This last purchase was made at $24.88 last March.  I have bought and sold this senior bond several times: Bought 50 AFE at $22.87 June 2010 Bought 50 AFE at $23.17 June 2010 Sold: 50 AFE at 24.59 August 2010 Sold 50 AFE at 24.78 September 2008

I still own 200 shares of the exchange traded bond GFW, Final Prospectus Supplement, issued by a related company. Exchange Traded Bonds

American Financial Group Inc. 7.125% Sr. Deb. 2034 rose 10 cents in trading yesterday to close at $25.54.  

5. Bought 50 of the stock ETF ENY at $17.18 Last Monday (see Disclaimer): This ETF has a  relatively high expense ratio of .65%. ENY - Guggenheim Canadian Energy Income ETF. As of 9/30/11, the fund owned 34 Canadian energy companies.  This is a link to the current holdings: ENY Holdings Dividends are paid quarterly. ENY Distributions

I will buy some of the individual names owned by this fund, and currently have positions in Husky Energy, Suncor, and Enerplus.  Of those individual positions, Husky is currently the largest at 200 shares after a recent 100 share purchase. Bought 100 HUSKF at $23.81

By buying the ETF ENY, I increase my exposure to this sector a tad without increasing the specific risk associated with individual stocks. The investment theme here involves a belief in the long term potential of Canadian energy companies, particularly those with significant oil sand projects. (see discussion at Barrons, 2/12/11 edition; and my recent post at Item #2 Bought 50 SU at $28.67)

Guggenheim Canadian Energy Income ETF declined 28 cents yesterday to close at $17.06.

The WSJ has a story in today's paper about the glut in natural gas prices. Natural gas prices fell 5.7% in trading yesterday. (Henry Hub spot price declined 17 cents to close at 2.81  Bloomberg)

Exchange Traded Bond and Equity Preferred Stock Table as of 1/10/12/Hulbert Article On VIX/Recent Lottery Ticket Transactions: Bought 30 HUN @ 9.91 and 30 FCE/A at 11.58 & Sold 40 VCBI at 7.64

The FED made an estimated $76.9 billion during 2011, and delivered its ill gotten gains to the U.S. treasury. It is a racket. The FED basically creates money, uses that money to buy bonds, and then drives down interest rates making those bonds more valuable. Rather than delivering those profits to the U.S. government, more worthy beneficiaries would be the victims of the Fed's Jihad Against the Saving Class, primarily for the benefit of those who enriched themselves during the housing bubble years and facilitated the Near Depression.

Mark Hulbert has penned another article on the use of the VIX as a timing model for stock allocation decisions. MarketWatch As previously discussed, I would not view the movement of the VIX below 20 during an Unstable VIX Pattern period to be a buy signal, unless there was continuous movement below 20 for three months, which historically would signal a prolonged period of low volatility and the onset of a durable bull market.  Mark Hulbert and the Use of the VIX as a Timing Model

CommonWealth REIT (own) popped yesterday after announcing its regular 50 cent per share quarterly dividend. I suspect that many investors were anticipating a reduction.


1. Recent Lottery Ticket Purchases: Bought 30 HUN at $9.91 and 30 FCE/A at $11.58 (Lottery Ticket Strategy)(see Disclaimer): Huntsman (HUN) is one of the largest American chemical companies. 

The current consensus estimate is for an E.P.S. of $1.68 in 2011 and $1.91 for 2012. HUN Analyst Estimates The 5 year forward P.E.G. is currently estimated at .78. Price to book is 1.29 and price to sales is at .21, through the third quarter of 2011. HUN Key Statistics 

SEC Press Release Announcing Third Quarter 2011 Results
Last Filed SEC Form 10-Q
SEC Filed 2010 Annual Report
Huntsman Corp Profile Page at Reuters
Huntsman Corp Key Developments page at Reuters
Morningstar page on Huntsman
Recent Discussion of Huntsman in a Seeking Alpha article.

Huntsman has been paying a ten cent quarterly dividend. At that rate, the yield at a total cost of $9.91 is around 4%.  The company is highly leveraged.

Huntsman rose 36 cents in trading yesterday to close at $10.2.

The common of Forest City Enterprises Inc. Cl A (FCE.A) was purchased as a Lottery Ticket back in 2009 with a favorable outcome:

2009 FCE/A 50 Shares Realized Gain= +$327.48

LOTTERY TICKET PURCHASE: 50 SHARES OF FCEA-FOREST CITY COMMON @ $6.3 May 2009   Sold FCE/A LT at $13.23 September 2009 

I have also owned briefly an exchange traded bond, FCY, issued by Forest City:

2009 FCY Realized Gain +$213.98

FCY: Forest City Enterprises Senior Bond (FCY (December 2008 Post);  FCY: Odd lot limit order filled at $9.95 December 2008;  FCY: Forest City Senior Bond & Discussion of Process Use to Make a Purchase Decision April 2009 Post. I have no interest in that bond now, given the credit risk, price, and long maturity.  I did purchase again 50 FCY shares at $18.75 (December 2009)I sold those shares at $20.5 (February 2010), and I have not purchased FCY back.

(see also Forbes Article on Land Rich Companies:FCE/A JOE and TRC May 2009 Post)

When I was buying and selling these securities primarily in 2009, I was often critical of Forest's management. I believed that the company had the pedal to the metal well into 2008. A highly leveraged real estate company needs to anticipate major downturns in order to survive and prosper during the good times. As a result, the company had too much leverage going into the Near Depression period, and had to raise money by selling stock at $6.6, when the shares had traded over $61 in 2007: Forest City Enterprises Stock Chart | FCE-A 

FCE-A is not organized as a REIT, and consequently is under no legal requirement to pay dividends to maintain a REIT's tax status. Theoretically, this should allow the company to retain capital and to use that capital to prudently grows its asset base and enhance shareholder value. That result occurred prior to the Near Depression as the FCE stock price moved from around $2 after the 1990-1992 recession to the $61 level reached in 2007.  Due to management's shortsightedness, however, the stock thereafter plunged, hitting a low of $3.71 on April 1, 2009. FCE-A Historical Prices  That was a round trip back to March 1993 prices.

One thing is for certain about commercial real estate prices. The elevator does not go up in perpetuity and has a tendency to abruptly fall to the ground floor. While this fact of life is well known, you would not know it by examining the conduct of highly leveraged real estate operators.

Forest City has a lot of debt.  As of 10/31/11, the company had mortgage debt of $5.493 billion and another $1.038 billion of senior unsecured debt.  The senior notes are summarized at page 15 of the last filed 10-Q.

And, to be fair, it also owns a lot of real estate. The real estate assets are carried at $8.113 billion as of 10/31/11: 10-Q

Forest City Enterprises Profile Page at Reuters
Forest City Enterprises Key Developments Page at Reuters
Link to Company Webpage: Forest City
Link to Last SEC Filed Annual Report: Annual Report for F/Y Ending Jan 2011

I have one tidbit about this trade. Fidelity would not allow me to enter a market order when the bid/ask spread was a penny, claiming that this security was illiquid and Fidelity no longer allows market orders for illiquid securities.  Okay, that is fine with me, so I entered a limit order at the ask price, which was one cent above the bid price. The volume was over a million shares. I would just reiterate that the persons responsible for the propagation and expansion of trading restrictions and prohibitions at Fidelity do not have a clue.

Forest City Enterprises Inc. Cl A (FCE.A) declined 9 cents to close at $11.38 yesterday. Volume was over 1 million shares.

As with other LT purchases, the stock of Forest City was deservedly crushed by the market, but it does have upside potential.

2. Sold 40 VCBI at $7.64 (Lottery Ticket Basket Strategy)(see Disclaimer): Virginia Commerce Bancorp has not yet paid back the government's TARP money. And that is the primary reason for taking my profit on this LT purchase. Bought 40 VCBI as LT at 5.56 I do recall that VCBI attempted to sell some stock to fund the repurchase of the government's preferred stock, but withdrew the offering after the price sank in response. SEC Filed Press Release This occurred in 2010.  The amount of stock was $75 million, Prospectus. The bank received $71 million in TARP fund, www.sec.gov, and the dividend rate goes up to 9% after five years (late 2013).   

Virginia Commerce Bancorp closed at $7.8 yesterday.

3. Exchange Traded Bond and Equity Preferred Stock Table as of 1/10/12: This table includes trust certificates, trust preferred, equity preferred, synthetic floaters, European hybrids, baby bonds, and "principal protected" notes. The common characteristic of these securities is that all of them are traded on the stock exchange and have par values no greater than $25.  I have been reducing my exposure to this asset category.  I group equity preferred stocks with bonds since their bond characteristics dominate over their equity features. Trust preferred stocks are in effect junior bonds and are senior in priority to traditional equity preferred stocks.

Part 1

Part 2

Exchange Traded Bonds
Trust Certificates: New Gateway Post
Trust Preferred Securities: Links in One Post
ING HYBRIDS: Links in one Post
Aegon Hybrids: Gateway Post
Advantages and Disadvantages of Equity Preferred Floating Rate Securities
Synthetic Floaters
Item # 2  Principal Protected Notes 

Sold 50 PJA at $25.4-ROTH IRA/Sold 1 Apria 11.25% Senior Secured Bond at $104/Bought 100 HUSKF at $23.81

Goldman Sachs predicts that U.S. housing prices will bottom out in 2013 and will not return to their 2006 peak until 2023.  MSNBC  Three out of 10 mortgage defaults during 2010 were by homeowners who could afford their mortgage payments according to a study referenced in that article.

China's exports rose 13.4% in December, above the consensus forecast of 12.5%.


1. Sold 50 PJA at $25.4 Roth IRA Last Thursday (see Disclaimer): These shares were purchased in December 2010. Item # 2 Bought 50 PJA at 24.65 December 2010  I made a $22.52 profit on the shares and clipped two interest payments. Since the profit is less than $30, I will not provide a snapshot of the realized gain in Trust Certificates: New Gateway Post. The trade links in that post will be grouped under "CTL". 

PJA is a trust certificate with a 8% coupon on a $25 par value. I sold this TC to keep my exposure to CTL relatively constant after buying 1 U.S. West Communications bond last Friday in this account. The same kind of trade was made when I bought the same U.S. West Communications bond in a taxable account and sold the TC KCW at $25.44.

My current exposure to CTL is solely in senior bonds and consists of the following:

Bought 50 PJA at 19.45 December 2009

Bought 50 of the TC PJA at 25.06 April 2011

Added 50 of the TC PJA at $24.6 November 2011

150 PJA Taxable Account-Unrealized Gain

(Total PJA Cost=$3,479.61)

Bought 1 U S West Communications 7.5% Senior 2023 Bond at 100.13 -ROTH IRA 

Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100

Total Cost of $5,499.61-current exposure to CTL

Trading Gains from FJA, underlying security a senior Embarq bond (now part of CTL)=$974.04 in two 50 lot transactions.

Excluding interest gains and small profits from other CTL related trust certificates, the net exposure after subtracting the FJA realized gains is $4,525.57.

2. Sold 1 Apria Healtcare 11.25% Senior Secured Bond Maturing in 2014 at 104 Last Friday (Junk Bond Ladder Strategy)(see Disclaimer): I decided to sell the "Series A" bond, which has a 11.25% coupon, after I had an opportunity to sell just 1 bond at 104, recognizing a small profit on that bond plus interest associated with my holding period.  I still own the Series B secured bond, which has a higher coupon, and is selling at a discount to its par value. The main difference in the two series is that the "A" bond has priority in the event of a bankruptcy.  The current yield spread between the two series is significant, and I decided to go with the "B" bond, which has the higher yield and greater potential for profit at maturity.  Bought 1 Apria 12.375% Senior Secured Maturing on 11/1/2014 at 91.625 Bought 1 Senior Secured 11.25% Apria Healthcare Maturing on 11/1/2014

3. Bought 100 HUSKF at $23.81 Last Friday (see Disclaimer):  This brings me up to 200 shares of Husky Energy, with the other 100 shares bought on the Toronto exchange as part of my Canadian Dollar (CAD) Strategy. The HUSKF shares were purchased with USDs on the pink sheet exchange in the U.S. HUSKF Husky Energy

When purchasing foreign securities on the pink sheet exchange, any symbol which ends in an "F" means that the investor is purchasing or selling, as the case may be, "ordinary shares", rather than a ADR. A pink sheet traded foreign security that has a symbol ending in "Y" is an ADR. Research In both cases, the investor is exposed to currency risks.  International Trading and Currency Risks

The Husky shares traded on the Toronto exchange closed last Friday at 24.26 CADs: Husky Energy (link to Toronto exchange Quotes)  I would expect the HUSKF price to reflect that price in USDs. The  HUSKF closed at $23.58 USDs. That tells me that 1 CAD is worth less than 1 USD. CADUSD If I converted 24.26 CADs into USDs based on the closing exchange rate from last Friday, Currency Converter, I would have $23.58 USDs. Now, what if the 1 CAD bought 1.06 USD, which was the case back in late July 2011, then a 24.26 price on the Canadian exchange would translate into a $25.71 price for HUSKF rather than $23.58. Conversely the price could remain at 24.26 on the Toronto exchange but Husky could decline from Friday's close based solely on a decline in the CAD vs. the USD.

While I will end up paying the Canadian withholding tax on the dividend, irrespective of whether I own HUSKF OR HSE:CA, I will receive the dividend in USDs when I own HUSKF, while the dividends for the shares bought on the Toronto exchange will be paid in CADs.  Another important difference is that there is a lot of liquidity when trading shares on the Toronto exchange for this security, with narrow bid/ask spreads, while there is negligible volume in the HUSKF shares.

Husky pays a good quarterly dividend, currently 30 Canadian cents a share. Husky Energy - News Releases Based on the closing price on the Toronto exchange last Friday, this would give me around a 4.9% yield at a total cost of 24.26 CADs. The actual yield will depend on the conversion rate at the time the payment is made and will be reduced by the 15% Canadian withholding tax.

Reuters Profile page on Husky
Reuters Key Developments page on Husky
Link to Press Release on Third Quarter Earnings: husky.pdf

For the third quarter, Husky reported net earnings of $521 million or 53 cents per share. Cash flow was reported at 1.326 billion CADs or 1.39 per share. Price to book is around 1.34, with price to sales near 1. HUSKF.PK Key Statistics The current E.P.S. estimate is for 2.42 in 2011 and 2.01 in 2012. Analyst Consensus and Earnings Estimates

For this investment to work in 2012, Husky will need to do much better than 2.01 E.P.S. this year. I would note that production from the Liwan Gas Project is projected to start in 2013/2014. Husky Energy - The Liwan Gas Project – Block 29/26

The Liwan gas project is a major field located about 300 kilometers southeast of Hong Kong in the South China Sea. Husky's partner in this project is CNOOC, traded in the U.S. under the symbol CEO.

I intend to use my CAD stash to buy other securities on the Toronto exchange. I do save a few bucks in brokerage commission by buying HUSKY rather than HSE:CA on the Toronto exchange.

4. Texas Industries (own 1 senior bond: 2020): TXI continues to put up ugly earnings numbers. A few weeks ago, TXI eliminated its common dividend to preserve capital. Item # 5 TXI. For its fiscal second quarter ending 11/30/11, Texas Industries reported a GAAP loss of $21 million or 75 cents per share and an adjusted loss of $11.2 million. The company CEO noted that the improvement in the economy had not  manifested itself in "increased construction activity in our markets".  Net sales for the quarter were $156.071 million. 

JOBS/XIDE/Bought 50 CVY at $20.68/SOLD 52 LARK at $18.75/Edison Mission/Bought 1 ArvinMeritor 8.125% Senior Bond Maturing 9/15/2015 at 93.5

The Labor Department reported a 200,000 increase in December nonfarm payrolls and a drop in the unemployment rate to 8.5%. Employment Situation Summary The U-6 number continued to trend down, falling to 15.2 from 15.6 in November. Table A-15. Alternative measures of labor underutilization The consensus forecast was for 150,000 jobs and an unemployment rate of 8.7%.  Wages increased by four cents an hour. Over the past twelve months, wages rose 2.1%, lower than the 3.4% inflation rate. The decrease in the unemployment rate came largely from real gains in jobs, rather than workers becoming discouraged and leaving the work force.

XIDE rose 11.39% last Friday, closing at $3.13, after Wedbush raised the stock from neutral to outperform, with a price target of $12. CBS News  Last Thursday, the Maxim Group initiated coverage with a buy rating and a $7 price target. I do not have access to either report. I own 70 shares of XIDE as a Lottery Ticket and two of its senior secured bonds.  Bought 70 XIDE as LT at $2.75 Bought 2 Exide 8.625% Senior Secured Bonds Maturing 2/1/2018 at 81.375

1. Bought 50 of the ETF CVY at $20.68 (see Disclaimer): CVY is an ETF that invests in dividend paying large cap value stocks. For an ETF, the expense ratio is high at .6%. 

Sponsor's webpage: CVY - Guggenheim Multi-Asset Income ETF 

List of Holdings: CVY Holdings 

Fact Card:  cvy_fact_card.pdf

Dividends are paid quarterly at a variable rate. CVY Distributions. For 2011, the total payment was $1.107 per share. At that rate and at a total cost of $20.68, the dividend yield would be around 5.35%. The fund is unleveraged. 

Morningstar currently rates this fund 4 stars: Morningstar As shown at that page, the dividend is not supported by any return of capital.  This is a link to the ETF Guide page on this fund.

Guggenheim Multi-Asset Income ETF closed at $20.7 last Friday, down 2 cents or .1% from Thursday's close.  The DJIA Index closed down .45%. 

2. Bought 1 ArvinMeritor 8.125% Senior Bond Maturing on 9/15/2015 at 93.5 (Junk Bond Ladder Strategy)(see disclaimer): This purchase was made in a satellite taxable brokerage account held at Vangurad, taking advantage of that firm's new $2 commission rate for a 1 bond purchase (applicable to Voyager customers).

FINRA Information on this Bond

Prospectus: ArvinMeritor  

My confirm states that the YTM is 10.283% and my current yield is 8.69%.

ArvinMeritor is now known as Meritor (MTOR). I briefly discussed this company in connection with another bond purchase.  Bought 1 ArvinMeritor 10.625% Senior Bond Maturing on 3/15/2018 at 96 

The current consensus estimate is for $1.34 for the F/Y ending September 2012 and $1.75 for F/Y 2013. MTOR 

This is a junk bond, currently rated B3 by Moody's, CCC+ by S & P and B- by Fitch. The Finra page on this bond provides the ratings, as does the information provided to me by Vanguard on the order and confirmation pages: 

Confirmation Page

3. Sold 52 Landmark Bank (LARK) at $18.75 Last Thursday (REGIONAL BANK BASKET STRATEGY GATEWAY POST)(see Disclaimer): Two of these shares originate from a recent 5% stock dividend. This bank is thinly traded, with a wide bid/ask spread. I just decided to take a small profit and reinvest the proceeds in a more liquid stock.  Bought 50 LARK @ 16.6

LARK 52 SHARES +$129.08

I totaled up my 2011 cash dividends paid in 2011 by the stocks contained in this basket and the total was $1,660.57.  That number is noted at the end of the REGIONAL BANK BASKET STRATEGY GATEWAY POST. Dividends will be an important component of this strategies total return.

4. EDISON MISSION (own 3 2016 senior unsecured bonds-FINRA)(Junk Bond Ladder Strategy): Midwest Generation, a subsidiary of Edison Mission, announced that it had completed the "installation of Selective Non-Catalytic Reduction systems to reduce emissions of nitrogen oxides . . . These new controls will enable Midwest Generation to comply with both State of Illinois and USEPA limits for NOx which are scheduled to take effect Jan. 1, 2012" The company added that it will meet the new USEPA limits on sulfur dioxide that are scheduled to go into effect this month. Midwest Generation owns 6 coal fired units in Illinois. 

The emissions problems appear to be more problematic from a cost-benefit analysis for the coal plants at Homer.

In another recent development, EMG closed on $242 million in financing for three wind energy projects, with a total generating capacity of 204 megawatts. 

I will discuss the remaining trades from last Thursday and Friday in the next two posts.

Realized Gains Regional Bank Basket Strategy/Private Sector Jobs/Macy's/Bought 1 U S West Communications 7.5% Senior 2023 Bond @100.13 -ROTH IRA/Sold 50 TRMK at 24.7/Sold 50 CBLPRC at $24.88

ADP reported yesterday that private sector jobs increased by 325,000 from November to December on a seasonally adjusted basis. report.pdf The consensus estimate was for 180,000. That was good news, even though the numbers may have been distorted some by year end seasonal factors. Ultimately, the cure for the U.S. home price problem will be more jobs rather than just low rates. Yesterday, Freddie Mac reported that the average 30 year mortgage loan was at 3.91%, with the 15 year fixed rate at 3.23%. Primary Mortgage Market Survey (PMMS) - Freddie Mac

The Labor Department releases later this morning its report on employment for December. It will be important to see a confirmation in private sector hiring.

Macy’s reported a 6.2% rise in same store sales for December and increased its full year guidance by three cents. The new range is $2.73 to $2.78. I own the 2030 senior bond originally issued by the May Department stores. Since my purchase, both Fitch and S & P raised their credit ratings to BBB-, while Moody's still has the bond rated junk at Ba1.  Bought 1 Macy's 7.875% Senior Bond Maturing in 2030 @ 99.5 (January 2010).

Both European bank shares and the Euro had bad days yesterday. This latest decline started Wednesday after the Italian bank UniCredit had to issue stock at a 43% discount to the then prevailing price to sell shares. The CurrencyShares Euro Trust (FXE) declined $1.49 yesterday to close at $127.47. The U.S. Dollar Index (DXY) rose .77 to 80.89, indicating USD strength against a basket of six foreign currencies weighted significantly in the Euro. France's statistics agency believes that France entered into a recession during the 4th quarter of 2011. Insee - Economic analysis

For a change, Microsoft has shown some upward momentum this week, having closed last Friday at $25.96 and at $27.68 yesterday. The stock is now trading above its 50 and 200 day SMA: Microsoft Corporation Stock Chart For me to be impressed, however, I would want to see a strong burst over $29 on heavier than normal volume. The highest cost shares currently owned were the first bought, so I may sell them to lower my average cost some for the remaining shares. (snapshots of 2009 trades can be found at Item # 1: Added 30 MSFT at 24.15 May 2011; ADD 50 MSFT at $17.99 January 2009 Bought 50 MSFT at $17.79 April 2009).  I did pare my position some last July and September by selling 100 MSFT @ 27.9 in July 2011 and 100 MSFT @ 27.9 in July 2011. My last buy was at $25.02 back in November. I do not expect much up and down movement in these shares which is why I am commenting on the pop this week.


1. Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100.15 with Commission-ROTH IRA-Last Wednesday (see Disclaimer): I received a message from Vanguard Brokerage that their bond commission had been reduce to just $2 per bond. That is one reason why I will start to favor that company with my bond purchases. For small 1 to 3 bond purchases, the commission will be cheaper than Fidelity. Unlike TD Ameritrade and Schwab,  which do not permit online purchases of junk rated bonds, Vanguard does permit their customers to make those purchases. 

I also much prefer the order page at Vanguard to the other brokers. This is the detail that Vanguard provided me before I entered the order to buy the 1 U S West bond:

             

This is a snapshot of the confirmation page: 

As shown on that page, the commission rate for this 1 bond purchase was $2. I am a Vanguard Voyager customer. I view this presentation more favorably compared to the other brokers. 

I already discussed this bond in a recent post: Item # 1 Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100.  U.S. West was later absorbed into Qwest which was itself acquired by CenturyLink Inc (CTL) last year. 

FINRA Information on this bond. 

My current yield will be a tad below the coupon rate since the purchase was made at a total cost of .15 above this bond's par value  In a Roth IRA,  this will in effect be a tax free yield from a bond currently rated investment grade.

After adding this bond in the ROTH I elected to sell a trust certificate in that account yesterday that contains as its underlying security a Qwest Capital senior bond.  By doing that, I keep my overall exposure to CTL constant. I also shortened my average weighted maturity to CTL bonds some,  thereby lessening my interest rate risk associated with long term bonds.

I would add that CTL bond investors need to be concerned about the generous dividend paid to the common shareholders, the overall level of debt and the declining land line phone business.

For small bond purchases, I now prefer Vanguard over my other brokers and will throw more business their way. 

2. Sold 50 CBLPRC at $24.88 Last Wednesday (see Disclaimer):  This transaction was just a clip of two dividend payments plus a small profit on the shares. Bought 50 CBLPRC at $24.36 I will trade REIT preferred stocks, bought near par value, for small profits. I bought this security as low as $10 during the Near Depression, and that needs to be kept in mind:

50 SHARE PURCHASE CONFIRM CBLPRC AT $10 (10/29/2008)

I also have some other trades in this security: Bought 50 CBLPRC at 21.87 (June 2010);  SOLD CBLPRC at 24.25 August 2010;  Bought 100 CBLPRC @ 24.36 (November 2010); Sold: 50 CBLPRC at 25.36 (May 2011) 

REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

CBL & Associates Properties Inc. Dep. Pfd. (CBL.PC) closed yesterday at $25.

3. Sold 50 Trustmark (TRMK) at $24.7 Last Wednesday (REGIONAL BANK BASKET STRATEGY)(see (Disclaimer):  This was just profit taking on a small position. I had a long term capital gain from shares bought at $19.57 (August 2010).

2012 TRMK 50 Shares +$240.57

The Raymond James downgrade to market perform did not influence this decision, but I suspect that this stock has minimal near term upside potential.

Trustmark continued to rise in trading yesterday, closing at $25.37.

4. Realized Gains Regional Bank Strategy-Carryforward:

The total realized gains from this strategy for 2010-2011 was $7,642.05: Item # 3 Realized Gains Regional Banks. This post will track the realized gains for 2012.

2010-2011 Carry Forward: $7,642.05

2012 Summary Gains and Losses:

50 TRUSTMARK (TRMK) $240.57: See Item # 3 Above
52  Landmark (LARK) +$91.89
50+ Astoria (AF) + $10.9 (no snapshot)
100 New Hampshire Thrift +248.02

New Total=$8,233.43

When the gain or loss is more than $30, I will make a snapshot of the transaction and post it in the Gateway Post for this subject: REGIONAL BANK BASKET STRATEGY GATEWAY POST

Eastman Kodak/Year End Junk Bond Ladder Table/More Asinine Trading Restrictions from Fidelity/Vanguard Lowers Bond Commission For Its Voyager Customers

This article at Seeking Alpha has a table of closed end funds selling at over a 10% discount to their respective net asset values per share, along with the expense ratio of each fund and the current dividend yield.  When looking at CEF dividend yields, it is always important to determine whether the yield is supported by a return of capital. Morningstar will provide recent data showing that kind of information.

This table at Barrons.com provides a table of 4th quarter earnings guidance from ompanies in the S & P 500.

The WSJ claims that Eastman Kodak is preparing to file a bankruptcy petition soon, unless it succeeds in a "last ditch" effort to sell some patents. Based on EK's pathetic operating results (Update on Third Quarter Earnings Report), and Kodak's hideous cash burn rate, a bankruptcy appears to be the best option.

Possibly, a bankruptcy may facilitate the sell of those digital patents and address some overhanging liabilities such as unfunded pension costs. The best alternative for unsecured bond owners may be the quick sell of most operations, including all money losing ones, or a shut down of those operations to preserve capital. I do not anticipate recovering more than 20 to 30 cents on the dollar for my two 2013 EK unsecured senior bonds, and that recovery may require a quick sale of those patents for an amount sufficient to pay off all secured creditors including the debtor-in-possession creditors. EK has suffered over the years from incredibly bad management. Eastman Kodak (EK) Bonds-Own 2013 Senior Bond; Moody's and Eastman Kodak

Kodak responded that it had a longstanding policy of not commenting on rumors and market speculation. However, as noted in a prior post, EK did say in response to an earlier rumor about a possible bankruptcy filing that it was committed to meeting all of its obligations and had no intention of filing for bankruptcy. (see EK press release dated 9/30/11: Kodak States No Intention to File for Bankruptcy). So much for the purported long standing policy for not responding to "rumors". I am working under the assumption that a bankruptcy will be filed later this month or in February. No one should be surprised by such a filing.

Moody's lowered EK's senior unsecured debt to Ca from Caa3 and kept the outlook as negative.

I was disappointed to learn that Michelle Backmann has ended her quest to become President of the United States. I have always been entertained by Michele but found another former candidate, who ran for the GOP nomination for Governor of Tennessee, to be even more entertaining. Basil Marceaux : The Next Governor of Tennessee - YouTube


1. Year End Junk Bond Ladder Table (Junk Bond Ladder Strategy): This is easily my highest risk strategy. I have not included in this table my 1 AMR and 1 General Maritime bonds, since both firms have declared bankruptcy and are no longer paying interest on their bond obligations. When I can quantify my losses for those bonds, I will include those numbers in my realized gains/losses post.  

                                    

Realized Gains Junk Bond Ladder Strategy

FINRA Links to Bonds in Junk Bond Ladder Strategy

Personal Risk Ratings For Junk Bonds

In addition to GMR, AMR, and Eastman Kodak, I have serious and substantial doubts about receiving par value  at maturity for my 3 Travelport bonds,  1 AGY Holdings bond, and 1 Reddy ICE bond.

2. Another Fidelity Trading Restrictions: Fidelity's myriad trading restrictions defy any rational explanation. I will just note them in my blog as I am confronted with yet another one.

Yesterday, I tried to sell my 1 Vulcan Materials 2018 bond. FINRA It has a relatively low yield and popped to over its par value after Martin Marietta made a takeover bid for VMC. I recognize that the bond market does not have anywhere near the liquidity of the stock market. To sell my one bond at Fidelity, I have to wait for a bid to be made which would accept that 1 bond. I would prefer a market where I am at least allowed to enter a GTC limit order at my price, but I accept the lack of liquidity issue.

My problem with Fidelity is that I could have sold my 1 bond yesterday at 102. The bids were 150(10) at 102.206 and 50(1) at 102. The number in parenthesis is the minimum amount that the bidder will buy, so I could not sell 1 bond at 102.206 but could at 102. The difference is meaningless to me. If permitted to make that sale, I would have netted close to a $80 profit on that 1 bond.

Yesterday afternoon, the best bid price had fallen to 102.067 with a 10 bond minimum order. There was a buyer of 1 bond at 102, but I was not permitted by Fidelity to sell to that buyer, receiving the trade message copied below.

Another fact relevant to this trading restriction is that the ask price was really close to the bid prices. I could have bought 1 bond at 103.

I was not allowed to even enter the order to sell 1 bond at the bid price of 102, and instead received this asinine message:

In an email response to my complaint about this matter, Fidelity claimed that there was no bid for 1 bond.  I then sent to them the following snapshot, which shows the bids late yesterday afternoon contradicting their statement. This snapshot was made immediately after my order to sell 1 bond at 102 was rejected by Fidelity with the foregoing trade message:

Vulcan 2018 Bid Book Wednesday 1/4/2012

The "sell" notation above would take me to an order page to sell the bond at that 102 price.

See also, Fidelity Prohibits New Purchases of Exchange Traded Principal Protected Notes Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP

Another recent addition to the no buy list is the exchange traded hybrid AEB. AEB will average close to 30,000 shares a day and pays a quarterly, qualified dividend of 4% or 7/8% above the three month Libor rate,  whichever is higher, on a $25 par value. I have done very well with that security. See Snapshots at Aegon Hybrids: Gateway Post This is what happened last night when I tried to enter an order for this security at Fidelity:

This same message would pop up if a Fidelity customer wanted to buy the preferred stock HBAPRF, but not for the functionally equivalent HBAPRG from the same issuer, etc. and so on. Ridiculous does not even begin to describe these restrictions. Asinine is too kind of a word to describe them.

3. VANGUARD SUBSTANTIALLY LOWERS COMMISSION ON BOND TRADING: Last year, Vanguard had a flat $50 commission for secondary market corporate bond purchases. I quit using them for those purchases for that reason and instead used other brokers. I noticed yesterday morning that Vanguard had lowered my commission as a Vanguard Voyager commission to $2 per bond, and I bought 1 bond in my ROTH IRA. I will discuss that purchase in tomorrow's post. This is their new commission schedule:

As I will explain in more detail tomorrow, Vanguard is now substantially better than Fidelity for small bond purchases.

I can not sell corporate bonds online at Vanguard, however. I did talk with one of their bond brokers yesterday, and was told that the online commission applies for those broker assisted transactions.  

CEF Portfolio as of 12/31/2011/CWH/ISM Manufacturing Index/Sold 50 CBLPRD at $23.71

The S & P 500 ended 2011 at 1,257.60, falling .04 points over the course of the year. Given the inflation rate for 2011, the real rate of return for this index, with reinvestment of dividends, would be slightly negative. For the major U.S. stock indexes, the Russell 2000 declined the most, with a 5.5% decline, while the DJIA posted the largest gain at 5.5%. 

The ten year treasury note ended the year with a 1.874% yield. The 5 year treasury was at .837% and the 30 year at 2.889%. The 3 month Libor rate was last quoted at .58%, with the 3 month treasury bill continuing to hug zero at .02%. The equity risk premium is close to a 40 year high. Barrons.com

According to the WSJ, the forward 12 month P/E ratio for the Russell 2000 was 37.96, 11.21 on the DJIA, and 14.58 on the S & P 500, all as of 12/30/2011. The forward P/E of the MSCI World Index is close to 11.  

Bank of America was easily the worst performing stock in the DJIA, losing close to $80 billion of its market value and declining 58%. BAC finished the year at $5.56, and closed 2010 at $13.34. The 52 week high was at $15.31.

The EURO lost 3.2% last year. The Dollar Index rose 1.5%.

The ISM manufacturing index for December rose to 53.9%. The new orders component increased to 57.6. Employment rose to 55.1 from 51.8 in November.

1. Commonwealth REIT (CWH-Own Common): CWH is planning to split off a large number of its properties into a separate company called Select Income REIT and to sell shares of that company in an IPO. www.sec.gov This new REIT will have 253 properties currently owned by CWH, including properties in Oahu, Hawaii. For the nine months ending 9/30/11, the total revenues from those properties were $81.775 million from 21.4 million rentable square feet. The rentable square footage leased was 95.2%.

CWH's last filed SEC Form 10-Q indicates to me that the properties being spun off may be the cream. www.sec.gov As of 9/30/2011, 87% of the total square footage was leased which indicates that the properties being contributed to Select Income will cause a meaningful decline in the lease rate percentage for the remaining properties owned by CWH.

S & P put CWH's credit ratings on negative CreditWatch. S & P noted that the properties being contributed to this new REIT included "some of the most stable assets". Text-S&P

CWH has been divesting properties in this manner for some time. The last divestiture consisted of properties contributed to Government Properties Income Trust (GOV). (see page 4 www.sec.gov). Two prior transactions involved the formation of Senior Housing Properties (SNH) and Hospitality Properties Trust (HPT). CommonWealth REIT

I no longer own the CWH's exchange traded bond (CWHN), which has a $20 par value.  Sold 100 CWHN at $21.22 in Roth; Sold 100 CWHN at $20.57

2. SOLD 50 CBLPRD at $23.71 Yesterday (see Disclaimer): I still own CBLPRC. I just clipped the quarterly dividend on CBLPRD and realized a few bucks on the shares recently bought at $23. (12/12/11 Post). This security is a cumulative equity preferred stock issued by the REIT CB & L Properties, an owner of retail properties.

REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

3. Cisco (own common shares only): I am at break-even on my 100+ shares of Cisco after the shares popped yesterday. J.P. Morgan raised its rating to outperform and increased the price target to $21 from $19. TheStreet JPM expects federal IT spending to increase 3.1% in 2012 after declining by 2.1% in 2011.

I have previously traded small lots for profits. SOLD 50 CSCO @ 24.42 (Nov. 2010)-Bought CSCO at 20.39 (September 2010); Sold Cisco (August 2010)-Bought 50 CSCO at $22.45 (June 2010).

My last two buys were near where the stock closed yesterday: Added 50 CSCO at $18.75 (February 2011);  Bought 50 CSCO @ 19.55 (November 2010).

Cisco shares were purchased under the Large Cap Valuation Strategy. (see also: Explaining Low Valuations of Large Cap Tech Stocks (September 2010 Post). Microsoft is another large cap tech stock, which I own, purchased under the same strategy.

4. CEF Portfolio as of 12/31/2011:  With CEF's, I attempt to achieve a balanced world allocation. I will move the bond and stock allocations up and down, though most of the allocation shifts are relatively minor.

The following table includes several recently received shares purchased with dividends. Some of the largest share purchases included ADX, JQD, RVT and RMT:

ADX Reinvestment

JQC Reinvestment

RMT and RVT Reinvestment

The ADX dividend shown above was mostly a year end capital gain distribution, while JQC, RVT and RMT are quarterly distributions.

Yesterday, the S & P 500 rose 1.55%. The focus of the following CEF table is income generation, mostly on a monthly or quarterly basis. This portfolio rose 1.35% yesterday:

CEF Portfolio as of 12/31/2011

The only remaining large dividend originating from 2011, which will be used to purchase shares when paid, was made by the Swiss Helvetia Fund.  

Bought 30 MPEL AT $9.32 as LT/Bought 100 SGL at $10.03/Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100

Morningstar has a list of 17 Scary Numbers released in the 4th quarter. 


According to the WSJ, Bridgewater Associates believes that interest rates will be locked near zero for years in both the U.S. and Europe.

China PMI was to a 50.3 reading in December, higher than the consensus estimate.


1. Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100 Last Friday (see Disclaimer):  Based on a series of acquisitions occurring after the issuance of this bond, U.S. West Communications is part of CenturyLink (CTL). U.S. West Communications, formerly one of the Baby Bells, was merged into Qwest Communications International in 2000, and then Qwest was acquired by CTL earlier this year. 

CenturyLink Inc (CTL) Profile Page at Reuters 

CenturyLink Inc (CTL) Key Developments Page at Reuters

The current consensus E.P.S estimate for 2012 is $2.6. CTL Analyst Estimates

This is a link to the FINRA Information on this bond. According to FINRA, it is rated at the lowest tier of investment grade by the three rating agencies (Baa3 by Moody's, BBB- by both Fitch and S & P. 

The bond was originally issued in 1993, and is consequently not available with an Edgar SEC search. The FINRA information indicates that it is continuously callable now. 

2. Bought 30 MPEL at $9.32 Last Friday (Lottery Ticket Strategy)(see Disclaimer):  This is my second purchase of Melco (MPEL) as a Lottery Ticket. Bought 40 MPEL at $7.36 (January 2011)-Sold MPEL at 11.46 (June 2011):

For this kind of inconsequential investment, I did not conduct much research. I did review the Morningstar report on this company, available to subscribers. The report was generally favorable.  The analyst has a 4 star rating on MPEL with a $17 fair value estimate and a consider to buy target at $8.5 or below.  Morningstar

MPEL owns and operates casinos in Macau. (profile page of Melco Crown Entertainment at Reuters). It is one of the six companies licensed to operate casinos in Macau.

Melco Crown Entertainment key developments page.

The last filed Form 6-K, providing financial information, can be accessed at the SEC. Condensed Consolidated Financial Statements and Reconciliations Form 6-K is filed by foreign issuers of securities traded in the U.S.

The press release announcing the last quarter's earnings can be accessed at the SEC.

The current consensus E.P.S. estimate is for $.59 in 2012, up from $.49 in 2011. MPEL Analyst Estimates The estimated five year P.E.G. is .35. Price to sales is around 1.43.  MPEL Key Statistics The company recently estimated that industry revenue growth in Macau to slow to about 15% to 20% this year. Bloomberg

3. Bought 100 SGL at $10.03 Last Friday-Regular IRA (see Disclaimer): SGL is a closed end fund that invests in bonds worldwide. As of 5/31/11, 47.5% of the portfolio was weighted with bonds priced in USDs, and the rating characteristics of the portfolio at that time were as follow:

Since the fund is actively managed the weighting will of course vary and the forgoing is just a snapshot in time.

This is a link to the last SEC filed shareholder report for the period ending 5/31/2011.  www.sec.gov

The last filed Form N-Q, which contains the fund's holdings as of 8/31/2011, cab be found at  www.sec.gov.

Closed-End Fund Association on SGL

Morningstar page on SGL. 

If realized, the fund will generally pay out in December any realized short and long term capital gains. SGL recently went ex dividend for a long term capital gain distribution of $.2687 per share and a $.0188 per share in a short term capital gains distribution.  Distribution Declarations and Updated Price & Distribution Rate Information As noted in the foregoing press release, this fund makes monthly distributions at an annualized rate equal to 6% of the fund's net asset value, as calculated in the matter set forth in that release.

UBS is the sponsor of this CEF.  UBS Closed-end Funds

Strategic Global Income Fund closed at $10.17 last Friday. As of 12/30/2011, the net asset value per share was at $11.18, creating a discount to net asset value of -9.03 based on last Friday's closing price.