Bought 40 SD at $7.68-LT Category/Bought 50 of the ADR NABZY at $24.55/Sold 1 Belo 7.75% Senior Bond Maturing in 2027 at 97/Lottery Ticket Basket Table

Mueller Water Products rose 21.05% yesterday, closing at $3.45 per share, after announcing an agreement to sell the United States Pipe and Foundry Company for $89.8 million in cash, subject to closing adjustments, and another estimate $10.2 payment for "certain liabilities". Form 8-K While I have bought and sold the common twice as a Lottery Ticket, I only own now 1 MWA senior subordinated bond. I view this development positively as an owner of the bond. This unit has been losing money, though the amount of its loss did decrease in the prior quarter to $1 million from $2.4 million in the 2010 4th quarter. (page 23, MWA.12.31.2011 - 10-Q).

Frequently, I observe widely disparate yields for two bonds that have the same rating and mature about at the same time. I always pay attention to these divergences since bond investors are expressing their disagreement about the ratings in their pricing of the bonds:

TEREX
8% Maturing 11/15/2017
Last Close 105.25
YTM=5.82%
Moody's Caa1

Colt Defense
8.75% Maturing 11/15/2017
Last Close 69
YTM 17.6%
Moody's Caa1


If I was going to draw a conclusion from the foregoing, I would infer that bond investors believe the Colt Defense bond will be downgraded further. I own both of these bonds.

1. Bought 40 Sandridge Energy (SD) at $7.68 Last Wednesday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): Sandridge has both a lot of potential and risk. The risks involve the high amount of leverage and the frequently bold actions of Sandridge's CEO. 

The company is being led by Tom Ward, who was a co-founder of Cheasapeake Energy (CHK). In 1989, Ward and Aubrey McClendon started Chesapeake Energy with a $50,000 initial investment and that company is now the largest producer of natural gas in the U.S. and was added as a component of the S & P 500 in 2006. Ward left CHK in 2006 and became the CEO of SandRidge. Tom L. Ward Profile 

Ward appears to me to be someone who will bet big on his convictions.

The most recent move involves the acquisition of Dynamic Offshore Resources, L.L.C., for an aggregate consideration of $1.275 billion. The consideration consists of approximately $680 million in cash plus 74 million Sandridge shares. This would give the current owners of Dynamic about a 20% ownership stake in Sandridge. (Equity Purchase Agreement; SEC Filed Press release). Dynamic operates primarily in shallow water in the Gulf of Mexico with a current production of 25Mboed, and about 50% of Dynamic's current production is oil. The year end proved reserves are 62.5MMboe and "are value at approximately $1.9 billion using SEC net present value discounted at 10 percent (PV-10)".

Dynamic had filed a S-1 registration statement with the SEC to go public. That registration provides the history of this company which was recently formed to acquire assets in the Gulf, completing 10 material ones since its formation in 2008. SEC Filing Two of those acquisitions are discussed at page 7 of that filing.

A critical analysis of the Dynamic acquisition can be found at TheStreet. I have no quarrel  with the author's conclusion that Sandridge paid a "fair" price for Dynamic and not a "cheap" one, assuming no substantial long term downdraft or updraft in current energy prices. Of course, the acquisition would be cheap if oil shot up to a range of $150 to $250 a barrel and stayed there for years.

Prior to the announcement of the Dynamic acquisition, which surprised analysts, the company had been focused on the Permian Basin, West Texas Overthrust (including the Pinion gas field), and the Mississippian formation. The Mississippian play is discussed in this recent article at Investopedia published yesterday.

For several years, the company has been an aggressive acquirer of onshore leases and has financed its activities in part by selling acreage, selling interests in royalty trusts (SandRidge Mississippian Trust I; SandRidge Permian Trust), and forming joint ventures. Some of this activity can be reviewed by simply reading several pages at Reuters Key Developments section.  Some of these activities are summarized in this recent article at Seeking Alpha.

Sandridge acquired Arena Resources in 2010 for $4.5 per share in cash and 4.7771 SD shares for each Arena share.

Profile at Reuters
2011 Annual Report: SEC FORM 10-K
Earnings Call Transcript for the 2011 4th Quarter

When looking at the long term chart of Sandridge, I probably need to mention the spike up to over $65 per share in 2008: SD Interactive Chart Personally, I thought that it was crazy but traders were in control during a brief period of skyrocketing natural gas prices.

The five year P.E.G. ratio, which may be too optimistic, is .17. SD Key Statistics

Yahoo Finance has started a Fantasy stock challenge, and I am playing in it. In that fantasy world, I own far more than 40 shares of SD.

2. BOUGHT 50 NABZY at $24.55 Last Wednesday (see Disclaimer): NABZY is an ADR, traded on the pink sheet exchange, that represents one ordinary share of the National Australia Bank.

National Australia Bank Profile Page at Reuters
NABZY page at Morningstar
National Australia Bank at Wikipedia

In the U.S., NAB owns the Great Western Bank  with branches in SD, NE, IA, KS, MO, CO and AZ.

Dividends are paid semi-annually in July and December and will go ex dividend generally in June and November. At the 2011 rate, the dividend yield would be about 7.2% at a total cost of $24.59 according to Marketwatch. That was the closing price last Wednesday.

I bought and sold this security in 2010. Bought 50 NABZY at $24.7 (March 2010);   ADDED 50 NABZY AT $19.51 (May 2010); Sold 100 NABZY at $25.2 (September 2010).

2010 NABZY Realized Gain 100 Shares +$285.6

I recall receiving one dividend for those shares but do not remember paying a withholding tax. I went back to my July 2010 brokerage statement and did not see any indication of a tax withholding for that dividend, though a $1 fee was charged:

NABZY Dividend Payment July 2010

See also Item #2  NABZY and the AUD/USD Exchange Rate A primary concern about this purchase is the current value of the Australian dollar against the USD. The Australian Dollar has already experienced a significant rally agains the USD and could easily decline for a number of reasons including a significant slowdown in China's consumption of commodities. If that happened, I could lose money by owning this ADR even when the price of the ordinary shares remains the same.

On the day of my purchase, the ordinary shares, NAB.AX, close at 23.43 AUDs rising .36 for the day. Without more, that would inform an investor that one AUD is worth more than 1 USD. On 3/7/12, last Wednesday, 23.43 AUDs converted into $24.74 USDs. AUD/USD Currency Converter

Since I am already familiar with this large Australian based bank, I simply reviewed its last earnings report before making this purchase. The highlights can be found at NAB's web site: Annual Reports and Presentations - National Australia Bank Group - NAB

I am always looking for assets to buy for diversification purposes that are priced in Swiss Francs, Australian and Canadian Dollars and the Norwegian Krone.

3. Sold 1 Belo 7.75% Senior Bond Maturing in 2027 at 97 Last Wednesday (Junk Bond Ladder Basket Strategy)(see Disclaimer): This bond was sold at break-even. I have been paring my lower yielding junk bonds. Moreover, given the maturity date in 2027, this bond also has a ton of interest rate risk.

4. Lottery Ticket Basket Table as of 3/8/12: This basket is growing. Although the limit for each purchase is $300, a few positions are worth more than that amount due to appreciation since purchase. The total realized gain from 2009 to date is currently $9,313.22 which is being tracked at the end of the Gateway Post, Lottery Ticket Strategy: New Gateway Post.

This strategy is run by the RB and is a form of entertainment for the OG. It was devised in response to losing money playing the Tennessee Powerball. LOTTERY TICKET PURCHASES: LINKS IN ONE POST

Bought 50 RRST at $3.95-LT Category/Jobs/Appleton Papers/CTL/John Hussman's Warning on Stocks/

Some bearish arguments made by John Hussman and Walter Zimmerman, a technical analyst, are summarized in Randall Forsyth's Barrons column. The referenced opinion of John Hussman can be found in his weekly market comment, particularly his last one titled   "Warning: A New Who's Who of Awful Times to Invest".

For the 4th quarter of 2011, Eurostat estimates that GDP declined .3% in both the euro area (EA 17) and the EU 27, compared to the third quarter of 2011.

Maureen Dowd wrote a good summary of recent statements by Romney and other GOP politicians that indicate an urge to start a war with Iran. NYT

The Street published an article yesterday that listed 10 small and profitable banks that pay out generous dividends. Of those banks, I own RNST, TRST, UVSP, VLY, NYB, and FFBC as part of my Regional Bank Basket Strategy.

ADP reported yesterday that private sector employment increased 216,000 from January to February on a seasonally adjusted basis. The consensus estimate was for a 208,000 jobs gain.

Most of my Canadian securities pay monthly dividends in Canadian Dollars. Those securities are held in a taxable account. The following snapshot shows some activity last night in a taxable account:

Canadian Dollar (CAD) Strategy

I recently bough Enerplus, a Canadian energy company that pays monthly dividends, in a retirement account to test the proposition that Canada will not require tax withholding for dividends paid into a retirement account. Bought 50 ERF at $24.39-ROTH IRA ERF and MSPRA Mentioned In Latest Richard Lehmann Forbes Column Canadian Tax Resource Blog I did recently review a snapshot from another person's account that showed no withholding for ERF's dividend paid into a retirement account. ERF was ex dividend yesterday.

1. APPLETON PAPERS (own 1 Bond: FINRA):  Appleton is a non-public company owned by its employees. For the 4th quarter, the company reported operating income of $3.876 million  on $205.624 million in revenues. SEC Filed Press Release The operating income number does not include several expenses such as interest. When those expenses are deducted, and why would I ignore such an important expense, Appleton suffered a $11.660 million dollar loss from continuing operations during the 4th quarter. Interest expense was $14.385 million.  

For 2011, the net loss was $2.212 million, much better than the $35.163 loss in 2010. However, the $23.229 million received in litigation, a non-recurring item, enhanced results. Interest expense for 2011 was $61.33 million. The total equity as of 12/31/2011 was ($189.937 million).  

The company reduced debt by $50.5 million in 2011. Part of that debt reduction was enabled by a $23.2 million net recovery in a lawsuit. As of 12/31/2011, the company had $510.533 million in long term debt and $7.241 million in cash and cash equivalents. The last 10-q shows the components of that $510 million in long term debt at 21. The senior secured second lien note, the one that I own, had $161.766  million outstanding at that time.

As discussed when I purchased this bond, there is a higher priority first lien senior secured note with $305 million outstanding that comes due a few months before the second lien note. Item # 1 Bought 1 Appleton Papers 2nd Lien Bond at 95.75 Appleton's operating history, and the size and maturity of the first lien note, substantially increase the risk of the second lien note in my opinion. For that risk, I receive a greater yield but I will not risk more than a thousand based on my assessment of the risk.  

I view the sheer amount of debt and the lack of profitability to be the main problems. Another issue is the lack of liquidity for this bond. I will not buy another one.   

While this report has some positive items, I view it negatively in its totality. I am increasing my risk rating on my 1 Appleton second lien bond to 8 from 6+. Personal Risk Ratings For Junk Bonds

The price of the bond has not yet reacted much to this latest earnings report. Volume is usually light and the recent trades were mostly between 91 to 95. This bond matures on 12/15/2015 and has a 11.25% coupon.

2. CenturyLink (CTL)(own senior bonds): CTL sold earlier this week $1.4 billion in ten year senior notes with a YTM of 5.821% (coupon 5.8%) and $650 of 7.65% thirty year senior notes. CenturyLink Prices $2.05 Billion of Debt Securities FWP for 5.8% 2022 Notes FWP for 7.65% 2042 Notes

The proceeds are being used by Embarq, one of the telephone companies previously acquired by CTL, to fund a tender for Embarq's 7.082% notes due 2016 and its 6.738% notes due 2013. CenturyLink Announces Increase of Tender Cap for Tender Offer of Embarq Corporation Notes I do not own those notes, nor do I own any note issued originally by CTL. Instead, I have owned trust certificates containing senior unsecured notes issued by Embarq and Qwest Trust Certificates: New Gateway Post

I currently own 150 shares of PJA, a TC with a 8% coupon containing a senior Qwest Capital bond maturing in 2031. Bought 50 PJA at 19.45 December 2009 Bought 50 PJA at 24.65 December 2010 Bought 50 of the TC PJA at 25.06 April 2011 Added 50 of the TC PJA at $24.6 November 2011 Sold 50 PJA at $25.4-ROTH IRA I have already harvested my gains in FJA, a TC containing a senior Embarq bond maturing in 2036.

2010 FJA 50 Shares +$458.02

2011 FJA 50 Shares +$516.02

I have also bought and sold the TC KCW, which contains a senior U S West Communications bond. U.S. West was acquired by Qwest who was later cobbled up by CTL. I currently own 2  U.S. West 7.5% senior bonds with $1,000 par values maturing in 2023. Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100  Bought 1 U S West Communications 7.5% Senior 2023 Bond @100.13 -ROTH IRA

3. Bought 50 RRST at $3.95 Yesterday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): The RB has been set free to do its thing, strut its stuff, within the confines of the Lottery Ticket Basket Strategy of course. That limits the maximum damage to Headknocker's capital base at $300 per stock. The $300 maximum limit per security can only be increased by prior profits realized from trading the stock.

RRsat Global Commuications is an Israeli company that provides global distribution services 24/7 to more than 630 channels and also offers occasional use services for sports, news and other events.

Profile at Reuters.
Key Developments page at Reuters.

RRST has one ugly chart, which is typical for LT selections. The stock broke down back in December 2007, falling below its 200 day SMA at around $19.18 on 12/24/2007, and it has been on a downhill slope since that time.  RRST Interactive Chart

This selection is based primarily on the following statistics:

YF Key Statistics as of 9/30/11:

PEG 5 Year Estimated= .6

Price to Sales=.62

Price to Book= .83

Cash Per Share= 1.65 (more as of 12/31/11) 

Total Debt= 0

The company is profitable. The current consensus estimate is for an E.P.S. of 41 cents this year and 44 cents next year. For the last quarter, the company reported earnings of 9 cents per share. RRST 4th Quarter 2011 As of 12/31/11, the company had $33.2 million in cash, cash equivalents or marketable securities, up from $28.7 million as of 9/30/11. The market cap is close to $68 million at the current price. Morningstar

WEB Site:  RRsat Global Communications Network Ltd.

RRST 2010 Annual Report  

Other SEC Filed Press Releases: 

RRST 3rd Quarter 2011  

RRST 2nd Quarter 2011  

RRST 4th Quarter and Full Year 2010 

The company has been paying a variable dividend. I checked the historical data and found that the company paid an annual dividend per share of 61 cents in 2009; and 49 cents in 2010. (page 6: 2010 Annual Report). The company paid 35 cents in 2011. The last cash dividend west ex dividend in August 2011.

I did find this statement about Israel's 20% withholding tax for the August 2011 dividend:

The dividend probably depends in part on earnings, which were down in 2011 compared to 2010, and the amount of necessary capital expenditures. The company had a loss in the third quarter of 2011.

RRSat Global Communications declined 5 cents in trading to close at $3.9. The 52 week trading range is between $3.5 and $7.75. The 3 month average volume is only 4,874 shares, and 55,900 traded yesterday. There is generally a wide bid/ask spread so I used a limit order.

There are of course unique risks attached to a company based in Israel. For that reason and others, this purchase was categorized as a LT. 

HAP/Bought 70 SYRG at $3.32-LT Category/ Sold 1 SuperValu 7.5% Senior Bond Maturing 2014 at 101.75

Sarah Palin, one of the Messiahs of the True Believers, will be the subject of an HBO movie, based on the book Game Change, that will be broadcast this Saturday night. Self proclaimed conservatives have criticized both the film and the book which depict Palin as a woefully inadequate candidate for Vice-President. Their general approach is to claim liberal media bias, a typical ploy when confronted with facts that they do not like. I read the book, soon after its release, and found the facts divulged about Palin's ignorance to be consistent with everything that I already knew about her. Unlike many of her supporters, I had actually watched Katie Couric's interviews with Palin and had made a point of studying her history.

As noted throughout this blog, I will frequently slice the acquisition and disposition of my positions into more than 1 order. I do not view the online commission cost to be a significant expense item.

Over a year ago, I bought, and still own, 50 shares of the ETF HAP that owns companies involved in the production of hard assets. Bought 50 of the ETF HAP at $39.22 (January 2011) I initially enjoyed a relatively short lived unrealized gain in those shares. Then, investors became concerned about an economic slowdown, particularly in China, and the shares fell from over $43 in May 2011 to close to $30 by early October. Hard Assets Prod ETF Chart

While I may be a decent trader, no one can predict the future or how investors will react to future events. And, it is not terribly perceptive to observe, based on several decades of actual experience, that stock prices go up and down. I do not presume to know the best possible price for establishing and building a position. No one has that kind of knowledge, though many may claim such talents due to egotism and/or self delusion.

I intend to buy another 50 shares of HAP but am undecided as to when and at what price. I neglected to average down when the shares fell to $30 and would certainly buy another 50 now at that price having previously missed that chance. If I had bought a 100 or 200 shares initially, however, I would unlikely average down when the opportunity arose. My maximum for this position would be 200 shares.

Market Vectors RVE Hard Assets Producers ETF fell $1.21 yesterday to close at $36.

As noted in this Reuters' article, Greece's private creditors have until Thursday night to "voluntarily" accept a bond exchange. The exchange will result in lower coupons, longer maturities, and a face value slash of 53.5% according to the WSJ. Greece is anxious to restore its "credibility" among its lenders and may have to resort to "pressure" to convince some debt owners to exchange their bonds. Many observers are questioning whether Greece will be able to service the new bonds.

The market is overdue for a pullback. Concerns about Greece, a recession in Europe and a slowdown in China were sufficient to cause yesterday's downdraft, particularly in light of the overbought situation. None of the foregoing issues are surprising in the least however.

The VIX rose 2.82 yesterday to close at 20.87. This trading indicator has been in an Unstable VIX Pattern since the August 2007 Trigger Event.

Mark Hulbert and the Use of the VIX as a Timing Model
VIX and Trading Rules in An Unstable Vix Pattern Within the Context of a Long Term Secular Bear Market
VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern
Vix Asset Allocation Model Explained Simply

1. BOUGHT 70 Synergy Resources at $3.32 Last Monday (Lottery Ticket Basket Strategy) (See Disclaimer): Synergy is a small energy exploration company.

For its fiscal 1st quarter ending 11/30/11, Synergy reported net income of $1.627 million or 4 cents per diluted share, compared to a 8 cent per share loss in the year earlier quarter. SEC Filed Press Release Net cash provided by operating activities was $4.587 million for the 2012 fiscal first quarter. As of 11/30/11, the company had 141 producing wells. For 2012,  SYRG estimates spending $41 million on its drilling program.

The current consensus estimate is for an E.P.S. of 29 cents in the 2012 fiscal year, ending in August, and 59 cents in fiscal 2012. SYRG Analyst Estimates

SYRG sold 14,636,363 shares of stock at $2.75 last December. (page 18 syrg_10q) As noted in that 10-Q, the gas/oil ratio at the end of the 11/30/11 quarter was 52/48 (page 20).

Wellington Management owned 8.56% as of 12/31/2011: SEC Form 13G

Yesterday, Synergy Resources provided an update on its 2012 drilling program.

A detailed discussion of this company can be found in this Seeking Alpha article.

Key Developments page at Reuters

Synergy Resources closed at $3.32 yesterday.

2. Sold 1 Supervalu 7.5% Senior Note Maturing 2014 at 101.75 (Junk Bond Ladder Baseket Strategy)(see Disclaimer): I made a small profit on this bond that was bought in December 2010 at 97.8. I have been selling my lower yielding junk bonds that are selling at a premium to their par values.

I am becoming a little concerned about the signals being given by the stock price. Yesterday, the stock touched $6 during the trading day. The SVU interactive chart at YF goes back to 1985 and that price appears to a low going back to August 1985. SVU needs to eliminate its stock dividend in my opinion.

I have now sold all of my bonds originally issued by Supervalu. I have sold 2 out of  4 bonds originally issued by Albertson's that are now SVU obligations. One of those was recently purchased.  Bought 1 Albertsons 7.11% Senior Bond Maturing 7/22/27 at 73 The YTM at my cost for that bond is 10.587%.

After hitting a new 52 ween low intra-day, Supervalu close up 22 cents at $6.32. 

Regional Bank Basket Table/FCBC/Bought 50 SYBT at $21.84/Bought 50 UVSP at $15.1/Bought 50 of the Stock ETF VYM at $47.61

First Community Bancshares (Nasdaq:FCBC), own, signed a merger agreement with the People's Bank of Virginia (PBV), whereby FCBC would acquire PBV for a total valuation of approximately of $40.6 million. After completion of this acquisition, FCBC would become the 10th largest Virginia based bank. PBV owns 4 branches in the greater Richmond area. Peoples Bank FCBC anticipates that the acquisition will be accretive in its first full year.

The Chinese Premier lowered expectations for China's GDP growth to 7.5% from 8%. This news drove commodity stocks down yesterday, along with currencies whose value is perceived to be linked to commodities.

The European PMI number for services was reported by Markit at 49.3. As with the U.S. numbers published by ISM, any number below 50 indicates contraction. The ISM index for U.S. services rose to 57.3% in February from 56.8% in January.

I do believe that it is inevitable that the U.S. government will face a severe financial crisis, and neither political party will do anything material to avert it. Instead, each party will contribute, in relatively close to equal amounts, to causing that crisis. Ultimately, the American people will be responsible for what will inevitably happen, though few will recognize their culpability. Certainly, few members of the GOP tribe will accept even a smidgen of responsibility, seeing no relationship for example between the Bush tax cuts and the burgeoning federal deficit, and virtually all of them suffer collective amnesia about the trillion or so dollar cost of the IRAQ War. 

Paul Krugman notes correctly in his NYT column that the proposals made by GOP candidates for President will increase the deficit. I previously noted that this conclusion was reached by the non-partisan Committee for a Responsible Federal Budget (2/24/12 Post, see Primary Numbers: The GOP Candidates and the National Debt | Committee for a Responsible Federal Budget)  I would also view that organizations conclusions to be self-evident and obvious. 

Notwithstanding all credible evidence to the contrary, the GOP tribe members still believe that tax cuts for the wealthy, now called the Job Creators, will generate more revenue than lost. And that canard is actually believed by a substantial number of GOP tribe members who receive little or no benefit flowing from those cuts. Yet, many of them do receive benefits from the programs that the GOP plans to cut, and the most obvious one is Medicare, where the Ryan proposal, approved by virtually every GOP politician, would end up costing in premiums about twice as much as traditional Medicare for those 55 or under. The middle class and the poor would be the ones paying for more tax cuts benefiting primarily those who richly fill the GOP's campaign coffers. Modern Day GOP: No Longer A Conservative Party GOP's Plan To Bankrupt the Middle Class The GOP does not have to worry about losing the True Believers' support since they frequently have a disconnect between what they receive from the government in benefits and what they actually pay in taxes. No amount of facts inconsistent with their beliefs will change their opinions.

There have been a number of studies done that establish that most Americans are unaware of their reliance on federal programs. One study is referenced in Ezra Klein column at  Bloomberg.

A Gallup poll shows that a majority of Americans have unfavorable opinions of both political parties.

I am under invested in my Regional Bank Basket Strategy after selling a number of positions. With the decline in prices last week, I started to add some new ones and will continue to do so on declines. My goal is to receive an averaged 10% annual total return with this strategy by investing between 40 and 50 thousand, and I am currently around seven thousand below that minimum target. So far, I have exceeded the 10% goal through a combination of realized gains and dividends that are being tracked in the Gateway Post for this topic.  Snapshots of the realized gains can be found at the end of REGIONAL BANK BASKET STRATEGY GATEWAY POST.

1. Bought 50 S.Y. Bancorp (SYBT) at $21.84 Last Wednesday (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): S.Y. Bancorp is a bank holding company that is the parent company for the Stock Yards Bank & Trust Company headquartered in Louisville, Kentucky. Stock Yards has 30 full service banking offices located in Louisville, Indianapolis, and Cincinnati metropolitan markets. Twenty five of those locations are located in the Louisville market, Item 2 at page 8 of the 2011 Annual Report.

For the 4th quarter of 2011, the bank reported net income of $6.342 million or 46 cents per share, up from 44 cents in the 2010 4th quarter. As of 12/31/11, the net interest margin was 3.91%; the efficiency ratio was at 60.57%; the total risk based capital ratio was 14.63%; the allowance for loan losses as a percentage of NPLs was 127.67%; NPLs stood at 1.51% of total loans; and the tangible common equity ratio was 9.11%.

SYBT recently increased its quarterly dividend by 5.6% to 19 cents per share. SEC Filed Press Release At a total cost of $21.84, the current dividend yield would be around 3.48%.

Another positive from my viewpoint is that the bank did not participate in TARP. SEC Filed Press Release

SYBT has a trust preferred security.  SYBTP It is currently selling at a premium to its $10 par value. Prospectus

This stock was not walloped by the Near Depression. The trading range was mostly between $22 and $26 before the Near Depression, with a brief spurt to $34. While the stock sank some in early 2009, the bottom was soon found at around $20. SYBT Interactive Chart

Importantly, the dividend was not cut during the recession. The annual dividend rate was 57 cents per share in 2006; 63 cents in 2007; 68 cents in 2008 and 2009;  69 cents in 2010 and 72 cents in 2011. With the recent raise, the annual dividend is currently running at 76 cents per share. For those who have suffered with Citigroup, Bank of America and the other large financial institutions, this kind of dividend history is more comforting to the OG.

S.Y. Bancorp rose 67 cents yesterday to close at $22.26.

2. Bought 50 of the Stock ETF VYM at $47.61 Last Thursday (see Disclaimer): VYM is the symbol for the Vanguard High Dividend Yield ETF. The expense ratio for this fund is .13%.  I bought this fund in a Vanguard brokerage account where I do not pay a commission for trading Vanguard ETFs as one of their "Voyager" customers.

This fund invests in dividend paying large caps. Vanguard VYM - All fund holdings

I have been increasing my holdings in stock ETFs just in case a Stable VIX Pattern forms. Some other recent additions include VWO and VEU:  Bought 50 of the ETF VWO at $39.73; Bought 50 of the Stock ETF VEU at $44

Vanguard High Dividend Yield ETF fell 3 cents yesterday to close at $47.56.

3. BOUGHT 50 UVSP at $15.10 Last Friday (Regional Bank Basket Strategy)(see Disclaimer): The main attraction of this small bank, headquartered in Souderton, Pennsylvania, is the 5.25 % dividend yield at my cost. I would be content to harvest a 10% annualized total return for this kind of investment, and the dividend gives me half of that return. Univest recently declared a 20 cent per share quarterly dividend. SEC Filed Press Release The stock went ex dividend yesterday.

There was across the board weakness in regional bank stocks last Friday. Normally, I would not buy a dividend, unless there is a downdraft in the stock price shortly before the ex dividend date to more than compensate for the dividend's after tax value.The price for UVSP had declined by more than the value of the dividend last Friday. The close on 2/28 was $16.01 and at $16.78 on 2/17/12. The stock was on my monitor list for potential adds to the regional bank basket so I noticed its abrupt decline last week just before the ex dividend date.

For the 2011 4th quarter, Univest reported net income of $5.3 million or 32 cents per share, up from 30 cents in the year ago quarter.

As of 12/31/11, the net interest margin was 3.96%; the efficiency ratio was 63.48%; the total risk based capital ratio was 15.56%; NPLs stood at 2.94% to total loans (high for my taste); and the allowance for loan losses to NPLs was 70.34%.

The bank did not participate in TARP:  SEC Filed Press Release

This bank operates in the Pennsylvania counties of Bucks, Chester, Montgomery and Lehigh. This is a link to the locations of the bank's 32 branches: Univest Bank Branches

While Univest did not cut its dividend during the Near Depression period, it has not raised it from its current quarterly rate of 20 cents per share since 2006. The annual rate was at 40 cents per share in 2003; 67 cents in 2004; 72 cents in 2005; 79 cents in 2006 and 80 cents starting in 2008 until now.

A long term chart, going back to 1998, reveals stock peaks at close to $35 per share in both 2004 and 2008. UVSP Interactive Chart

Adjusted for the ex dividend yesterday, Univest Corp. of Pennsylvania rose 36 cents to close at $15.36.

4. Regional Bank Basket Strategy Table:  I will frequently use basket strategies. I started the regional bank basket strategy in 2009 and had over 40 banks in this basket before cutting back. I have a loss in the First Niagara shares due to the incompetent decision made by management and its board after I bought the shares.  First Niagara: Just Another Incompetent Bank Board of Directors I am averaging down by reinvesting the dividend which was recently slashed by 50% due that incompetent decision. First Niagara Dividend Slash I was bushwhacked on that one.

I am not tracking shares purchased with reinvested dividends in this table. With a few exceptions, I am reinvesting the dividends. I am not reinvesting the dividends in banks where I have a large percentage gain such as UBSI and WASH. As mentioned above, I am waiting for opportunities to add to some existing positions or to purchase new ones. Most of these banks are relatively small.

As a general rule, I prefer to avoid taking my entire stock position with one purchase. So, even with baskets, where the total amount in each position is small, I will frequently slice the position into several orders and trade the small lots, averaging down in some cases, and selling the highest cost shares on pops to harvest gains and to lower my average cost using FIFO accounting.

An example in this basket would be my current 50 share position in FNB, which were the last shares bought in a cycle of buys and sells, with the shares purchased at $7.8 (July 2010).  Bought 50 FNB at 9.36 (April 2010); Bought 50 FNB at 8.42 (May 2010); Pared FNB: Sold 50 at $10 and 50 at $10.18 (December 2010). So, I harvested a gain on the highest cost shares after collecting a couple of dividends and kept the lowest cost shares which were bought last and are still owned as part of this basket. 

TRXT/Sold 100 ETV at $13.12/Sold 50 GSPRD at $20.47/Sold 2 Cenveo 7.875% Senior Sub Bonds Maturing in 2013 at 95/Bought 100 HTGC at $10.35-ROTH IRA

Jeremy Grantham's letter to GMO investors is worth a read. His 10 recommendations for individual investors are certainly worth remembering. He also argues that the U.S. brand of capitalism contains fatal flaw. One of his criticisms, the fact that money buys political influence, has been a flaw since the Gilded Age and will likely continue to be one. His criticism about rewarding reckless and irresponsible risk taking is potentially a major flaw. The Masters of Disaster have already shown their willingness to enrich themselves irrespective of the most extreme adverse consequences to their employers and the entire economic system.

Grantham also provides at page 12 his asset allocation recommendations. At page 3, he provides the GMO asset allocation forecast made in 12/2001 and compares those numbers to the actual results. The forecast was really good in my opinion. Based on the actual results, the top five asset categories were Emerging Market Equities, Emerging Market Debt, U.S. REITs, International Small Cap and U.S. TIPs.  I doubt that many financial advisors or brokers had meaningful concentrations in those five categories.

I read this recent article that contains TheStreet's top ten rankings for international small cap funds. I do not own any of those ETFs but I will consider buying one when and if there is a formation of a Stable VIX Pattern. I would add to that list, due to its low cost and broad coverage. The Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) currently has an expense ratio of .28% and owns 2880 stocks as of 1/31/2012.

PIMCO launched last week an ETF version of its Total Return mutual fund. PIMCO Total Return Exchange-Traded Fund (TRXT) Both funds will be managed by Bill Gross. The ETF will have a lower expense ratio at .55% than the Total Return fund offered to retail investors. Some other differences are discussed in this article at Zacks.com. The retail fund has a front end load charge of 3.75%. PTTAX -  PIMCO Total Return A I have never owned it, but did buy TRXT in a trust account on its launch day. {Another version of that fund available through brokerage accounts has the symbol PTTDX, which does not have a load but does have an expense ratio of .75%} This is a link to the sponsor's web site for the ETF: PIMCO Total Return Exchange-Traded Fund

1. Sold 100 of the Stock CEF ETV at $13.12 Last Wednesday (see Disclaimer): Bought 100 of the Stock CEF ETV @ 12.73 (April 2011). This CEF was bought in a satellite brokerage account where the overriding investment principle is preservation of capital. Prior to the onset of the Fed's Jihad Against the Savings Class, the funds were invested in bank certificates of deposit. When those CDs started to mature, the OG refused to roll them over and instead opened a linked brokerage account. The general idea is to collect dividends and hopefully sell the stock positions at a profit. This was accomplished with the CEF ETV, where the dividend yield was greater than 10% at my cost. I received several quarterly dividends and exited the position at a profit.

The dividend was supported in part by a return of capital. In that case, the goal is to realize a positive return on the shares based on my original cost basis and to capture the dividends without losing anything on the shares before the return of capital cost basis adjustment.

Eaton Vance Tax-Managed Buy-Write Opportunities Fund closed at $13.04 last Friday. 

2. Sold 50 GSPRD at $20.47 Last Wednesday (see Disclaimer): These shares were purchased at $18.6. (September 2011). I have been in a trading mode for floating rate equity preferred stocks since the summer of 2008. 

Advantages and Disadvantages of Equity Preferred Floating Rate Securities (snapshots of trades at the end of that post)
Floaters: Links in One Post

2012 GSPRD 50 Shares +$79.48

Goldman Sachs Group Inc. Dep. Shs Pfd. Series D  (GS.PD) closed at $20.5 last Friday.

I still have a position in GSPRA and the synthetic floaters GJS and PYT.


3. SOLD 2 Cenveo 7.875% Senior Subordinated Bonds Maturing 12/1/2013 at $95 Last Wednesday (Junk Bond Ladder Strategy)(see Disclaimer): I recently averaged down on this bond. Averaged Down by Buying 1 Cenveo 7.875% Senior Subordinated Maturing 12/1/2013 at 81.5

On Thursday, CVO announced adjusted earnings of 29 cents per share, much better than the consensus estimate of 19 cents. SEC Filed Press Release The company also announced a tender offer for its outstanding bonds. The terms of that tender are described in this SEC Filing. CVO is offering $972.50 for each 2013 bond plus an early tender premium of $30.

The 2013 rose to trade near its par value in response to the foregoing, so I sold a day too soon. But I have an excuse.

The OG is suffering from what has been diagnosed by the LB as the Eastman Kodak aversion syndrome. RB bought a 2013 EK bond early in 2011 and Headknocker is currently sitting on close to a 70% unrealized loss on that one. This has caused a knee jerk aversion to any junk bond maturing in the later half of 2013.

4. Bought 100 of the BDC HTGC at $10.35-ROTH IRA Last Wednesday (see Disclaimer): I recently sold the shares held in a taxable account after a pop occurring shortly after my purchase. Bought 100 HTGC @ $9.7 (1/26/2012 Post)- Sold 100 HTGC at $10.85 (2/7/12 Post) The pop occurred after Stifel Nicolaus upgraded HTGC to a buy with a $11.5 price target.

As with other BDCs the primary goal is simply to capture the dividend without suffering a loss on the shares.   

Hercules released its 4th quarter results after the close last Wednesday: SEC Filed Press Release Net investment income was 25 cents per share in the 4th quarter, up 25% from the 3rd quarter. This was two cents better than the consensus estimate. Distributable net investment income was reported at 27 cents per share for the 4th quarter. The Board increased the quarterly dividend by 5% to 23 cents per share. At that run rate, the dividend yield at a total cost of $10.35 would be around 8.88%. The next dividend will be payable on 3/15/12. 

HTGC noted that it had entered an agreement to acquire 307,500 Facebook shares at $31.08 per share, subject to certain closing conditions.  As of 12/31/2011, Hercules  owned warrant positions in 109 of its portfolio companies. One of those companies, Cempra, had completed an IPO earlier this year. Six other of those companies had filed S-1 registration statements for an IPO and had not withdrawn that registration as of 2/29/12.

The effective yield on the debt portfolio was 15.6%.

Hercules Technology Growth Capital rose 29 cents to close at $10.61 last Thursday in response to this report.  Last Friday, HTGC declined 16 cents to close at $10.45. 

MOU/Bought 100 of the Stock CEF IRR at $12.41-ROTH IRA/SOLD 200 BTZ at $13.26

Abnormally low interest rates have a large number of actual and potential adverse consequences. A recent article in Bloomberg points out that a number of large American corporations will have to substantially increase their pension contributions due to low interest rates.

The negative impact on those dependent on interest income to meet living expenses is well known. The purchasing power of the Savings Class in the U.S. has been significantly reduced by the Fed's long Jihad Against the Saving Class. The Real Cost of The Federal Reserve's Jihad against the Saver Class Part of that impact has been offset by those investors willing and able to invest in stocks since March 2009, assuming they had a relatively quick recovery from the shellacking between 9/2008 to 3/2009.

The most serious consequence has yet to arise. As investor's worldwide search for a return on their capital, and the world is flooded with liquidity by central banks, the prices for many asset classes have skyrocketed in value due in large part to a herd like demand for them. Those assets include investment grade bonds, gold & silver, stocks, and oil.

Bill Gross argues in his recent commentary that it is time to become defensive. He also highlights the fact that the Fed's Jihad, which he calls financial repression, is wrecking "havoc on historical business models connected to banking, money market funds, and the pension industry". PIMCO For me, I am the most circumspect now about investment grade bonds that have a negative real yield.

Medical Properties Trust closed its $400 million purchase of 16 healthcare facilities formerly owned by Ernest Health.

The market took a fast dip yesterday after the ISM reported a decline in manufacturing index to 52.4. The new orders component fell to 54.9 in February from 57.6 in January.

The ex dividend date for Zurich Financial's dividend is apparently 4/2: Financial calendar | Zurich Financial Services Ltd

A GOP measure that would allow employers to opt out of insurance coverage for birth control was narrowly defeated in the Senate yesterday. Rush Limbaugh called the young Georgetown student who testified before Congress a "slut" for advocating such insurance coverage.  MSNBC

1. Bought 100 of the Stock CEF IRR at $12.41 Last Tuesday-ROTH IRA (See Disclaimer): The ING Risk Managed Natural Resources Fund (IRR) is a stock closed end fund selling currently at a small discount to its net asset value.  As of 2/28/12, the net net asset value per share was $13.19. While the fund owns stocks in a variety of natural resource companies, it has close to a 75% weight in energy as of 8/31/2011. The fund is not currently using leverage and does utilize an option buy-write strategy.

IRR Page at the Closed-End Fund Association
Sponsor's web page:  ING Risk Managed Natural Resources Fund - Fund Profile
Annual Report for Period Ending 2/2011.pd
Semi-annual report for period ending 8/2011.pdf

This is a snapshot of the top 10 holdings as of 8/31/2011:

As shown above, this fund is tilted toward big cap energy companies.

The fund pays quarterly dividends at the current rate of $.33 per share, reduced from 36.3 cents last year. The fund has supported this dividend with a return of capital. The only realistic way for the fund to earn all of that dividend is through realized capital gains that are not offset by carryover losses from prior years.  Option income and dividends would likely remain insufficient to support the current payout.

The expense ratio is close to 1.2%. As shown at the Morningstar page for IRR, the average three year price is at a 1.42% premium to net asset value. That page also shows a substantial return of capital associated with recent dividend payments.

Assuming a continuation of the 33 cent quarterly dividend, the yield at a total cost of $12.41 would be about 10.64%.

For the shares held in the Roth IRA, the goal is simply to capture the dividend and to eventually sell the shares at any profit.

I also own shares recently bought in a taxable account: Bought Back 100 IRR at $12.17 So far, I have received one quarterly dividend on those shares. The goal for those shares is to capture the dividend and to sell the shares at a profit based on my original cost. For tax reporting purposes, of course, the original tax cost basis has to be adjusted down by the dividend amounts classified as returns of capital.

ING Risk Managed Natural Resources Fund closed at $12.63 yesterday.

2. Sold 200 BTZ at $13.26 Last Wednesday-Taxable Account (see Disclaimer): I own BTZ shares in both a taxable and a Roth IRA account. I sold last Wednesday my highest cost shares owned in the taxable account which were the first shares bought back in October 2010.  Sold 100 ERC at 16.27 and Bought 200 BTZ at 13.14 (Oct 2010). This will reduce my average cost per share for the remaining 188+ shares bought at lower prices. Bought 100 BTZ at 11.90 (SEPT 2011);  Added 50 BTZ at 11.24 (Oct 2011).

As with other bond CEFs, BTZ's discount to net asset value per share has fallen over the past several weeks.  The average 3 year discount is currently over 11%. On the day before I pared the position, that discount had narrowed to -8.18%.

With bond CEFs purchased from 1/1/2010 to date, I am content to sell the shares for any profit and to simply capture the dividend payments without diminution from a share loss. BTZ pays monthly dividends.

I sold the shares with a GTC AON limit order calculated to generate a profit after commissions. The amount of profit, given the objective, is not a material consideration for me.

BlackRock Credit Allocation Income Trust IV closed at $13.22 yesterday. The net asset value per share as of yesterday's close was $14.46 per share.

3. MOU (own): The Citigroup 3.00% Principal Protected Notes linked to Russell 2000 Index paid its annual interest payment yesterday:

I have not been paying much attention to my Citigroup Funding exchange traded "principal protected" notes. All of those unsecured senior notes mature in 2014 at $10 and pay minimum coupons. Given the low interest rate environment, I view the minimum coupon as satisfactory given the short maturity and view anything more as gravy.

I bought MOU at $10.12 back in April 2010, and hit pay dirt with its prior annual coupon which was 27% (see snapshot at MBC & MOU; and MOU Ends Second Annual Coupon Period With a 27.93% Gain) So I am content to hold this one. As long as Citigroup survives to pay par value in 2014, the worst that can happen is a 3% minimum coupon. If Citigroup is seized by the FDIC before that time, it is really simple to understand that anyone owning its "principal protected" senior unsecured notes is screwed.

MOU Pricing Supplement

The starting value in the Russell 2000 Index for the next annual coupon period is 829.23, the closing value of the RUT on 2/23/2012. ^RUT Historical Prices This places the maximum limit at 1136.04 during the current coupon period (1.37 x. 829.23).

As shown above, I received $37 in interest for the prior period, indicating a $7 improvement over the minimum amount. That sum would be calculated using the RUT's starting value on 2/23/11 at 799.65 and the ending value of 829.23, giving a percentage gain of 3.7% or $37 in interest per 100 shares of the $10 par value unsecured senior note.

MOU is a thinly traded security and limit orders have to be used. Fidelity does not permit its customers to buy it. Fidelity Prohibits New Purchases of SIPs If a Fidelity customer attempts to buy it, this ASININE message will appear:

Now, if I wanted to buy some wildly overvalued stock, which would virtually guarantee me a loss of capital, I am permitted to do that.

MOU closed at $10.15 yesterday. 

Sold 2 Edison Mission 7.75% Senior Bonds Maturing in 2016 at 73.25/KWK CLGX ARCC RRD/S & P Downgrade Colt Defense Senior Unsecured Bond

A Greek official asserted that Greece is trying to instill "trust" in its creditors after defaulting on its debt obligations in a "voluntary restructuring".   CNBC  Pimco's El-Erian believes that the latest bailout of Greece will "likely" fail.  CNBC

Based on a review of my recently received 1099s, I can confirm that the distributions made by the following equity preferred stocks were classified as qualified dividends: WLFCP, GSPRA, GSPRD, BMLPRJ, BMLPRL, BMLPRH, AEB, MSPRA, METPRA, SCEDN, STDPRB, ZBPRC, ZBPRA, HBAPRF AND HBAPRG. Of those securities, my largest unrealized gain is in MET.PA which is trading now near its par value. That security hit a low of $8.8 in November 2008. One of my first posts discussed it:  LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK (10/5/2008 Post-The Second Post)

For REIT equity preferred stocks that I owned in 2011, I did not see any part of their distributions classified as qualified dividends. Occasionally, I will note a small fraction so classified.

R.R. Donnelley & Sons Company (own bonds) announced that it was commencing a tender offer for its 2014 and 2015 bonds. For the 4.95% coupon 2014, which has an outstanding principal amount of $600 million, the maximum amount subject to the tender is $300 million. The tender offer for the 5.5% 2015 note, with $400 million outstanding, is subject to a $50 million maximum.

I discussed in 2009 the purchase of 3 ten year U.S. treasury inflation protected bonds directly at auction. Those securities were bought in the ROTH IRA. My broker did not charge a commission for submitting my non-competitive bid. It is impossible for me to garner much excitement about a treasury note with a 1.875% coupon, even with the inflation protection, but the market is really excited about that rate given the Fed's Jihad Against the Saving Class. I could now sell those notes for more profit than I could realize in interest payments from now until the note matures in 2019:

3 TIP Bonds Maturing 2019 Unrealized Profit +$792.46

If an investor wanted to buy a ten year TIP today, the coupon yield would be near zero.  Bloomberg

PepsiCo (own) was ex dividend yesterday.

S & P downgraded the 2017 unsecured senior Colt Defense bond to CCC+. TEXT-S&P cuts Colt Defense issue-level rating Their concerns are similar to my own which were expressed in a recent post: Colt Defense The report did mention that Colt would receive a 5% royalty in the event the U.S. government selected another supplier for the M4.

The Chicago PMI rose to 64 in February with the new order component accelerating to 69.2 from 63.6 in January.

The government revised its 2011 4th quarter real GNP to 3% from the prior 2.8% estimate. News Release: Gross Domestic Product

It did not take much to start a stampede out of gold and silver yesterday, just a few hardly surprising comments from Bernanke. Kitco WSJ There may be a lot of bullish gold investors, but many of them will head for the hills at the first sign of trouble. As noted in prior posts, I started to sell gold and silver bullion last September, when gold spiked over $1900 and continued my selling into this year.

1. Quicksilver Resources (own common as LT and 1 Bond-FINRA): Quicksilver Resources (KWK) reported adjusted earnings per share of zero for the 4th quarter, two cents worse than expected by the consensus estimate. GAAP net income per share was 28 cents. The common stock fell 6.09% on the day of this release to close at $5.71. Quicksilver's revenues were down 10% compared to the 4th quarter of 2010 but production was up 6%. The company expects a sequential decline in production during the current quarter. Given the low natural gas prices, none of the foregoing could be considered surprising or unexpected by investors. 

Reading the summary made by Reuters of this report, an investor would conclude that there was nothing whatsoever of a positive nature, which would be an incorrect conclusion.  The company replaced 165% of its production in 2011. Substantially all of its investments made in 2011 were funded with cash flow. The company raised $273 million in capital by selling its remaining interest in BreitBurn. 

The problem is the current low natural gas price and KWK's debt load. The company said that its 2011 production was weighted 81% in natural gas. I discussed recently the efforts being made to increase oil production. While oil production is relatively low now, Quicksilver does anticipate a 62% increase in 2012 compared to 2011. 

The common shares of Quicksilver Resources have fallen both days after this earnings report. The stock closed yesterday at $5.55, declining 27 cents in trading. The stock closed at $6.19 on 2/23/12, KWK Chart.

2. CoreLogic (own 2 senior bonds: FINRA): CoreLogic (CLGX) reported adjusted 4th quarter earnings of 23, nine cents better than the consensus estimate. CLGX ended the quarter with cash of $259.3 million and debt of $908.3 million. The company expects to reduce its debt by $100 million during the first six months of 2012 through scheduled and voluntary principal payments. For 2012, CLGX anticipates adjusted revenue of $1.425 to $1.475 billion and an adjusted E.P.S. of $.95 to $1.05. The current consensus estimate is for $.95. 

CLGX issued $400 million in 7.25% senior notes due in 2012 last May. There is a subordinated note maturing in April 2012 with an outstanding principal amount of $34.768 million as of 9/30/11. (CLGX-9.30.11-10Q at p. 16). I own the 2028 senior debenture which is also the underlying security in the trust certificate PJS. Bought 1 CoreLogic 7.55% Senior Bond Maturing 4/1/2028 at 84.95

The common shares, CLGX, rose 36 cents in trading yesterday to close at $15.36.

3. Ares Capital (ARCC)(own): Ares Capital Corporation, a BDC, reported 4th quarter adjusted E.P.S. of 48 cents (39 cents consensus), and GAAP net income per share of 58 cents. The Board increased the quarterly dividend by 1 cent per share to 37 cents. As of 12/31/2011, net asset value per share was reported at $15.34, up from $14.92 as of 12/31/2010.

In an earlier post, I mentioned that only a fraction of the dividends paid by BDCs will be classified as qualified dividends.  I checked my 1099 for 2011 and calculated that 5.32% of ARCC's distributions were classified as qualified dividends.

For Prospect Capital, the percentage was higher at 15%.

For all of my purchases of BDCs, particularly those with dividend yields over 10%, my goal is simple to capture one or more dividends and to sell the position at any profit. My position is ARCC is now barely profitable. Bought: 50 LXPPRD at 23.28, 50 of the BDC ARCC at 16.17 and at $16.3 (January 2011 Post). I sold my highest cost shares, bought at $16.89, last May at $17.7.

Ares Capital rose 15 cents in trading yesterday to close at $16.67. The next ex dividend date is 3/13. The dividend yield at a total cost of $16.67 is about 8.9% according to Marketwatch.

4. Sold 2 Edison Mission 7.75% Senior Notes Maturing in 2016 at 73.25 Yesterday-ROTH IRA (Junk Bond Ladder Strategy)(see Disclaimer): Given the interest in this bond, I decided to discuss this trade and EME's earnings release before turning to other trades made on Tuesday and Wednesday, which will be discussed in subsequent posts. 

Late yesterday, S & P reduced its ratings on EME's senior unsecured debt to CCC+ from B- and kept its outlook as negative. TEXT I am raising my risk rating to 9- from 8. Personal Risk Ratings For Junk Bonds This would be further into what I call the extreme risk category. Moody's had reduced several weeks ago its rating to Caa1 so S & P's downgrade brings the rating in line with Moody's.   

Due to the decline in power prices and new environmental regulations, EME has decided to shut down several midwestern coal plants. EME plans to shut down its Fisk power station by the end of this year and the Crawford station by the end of 2014: 

PAGE 112: Edison Mission Energy 2011 10K 

Given the firm's debt load, maturity schedule, adverse merchant power prices, and new environmental regulations, I decided to sell two of my remaining three EME senior unsecured bonds for a small loss. 

I have discussed the new environmental rules in earlier posts: Item # 3 Edison Mission Bonds 

EME's net loss for the 4th quarter was $1.060 billion, which includes a $1.047 after tax charge due to impairments. (page 114)

This loss was doubly embarrassing to the OG who bought the bonds by mistake, as explained in Added 2 Edison Mission 7.75% Bonds Maturing 6/15/2016 @ 86.12 in Roth. I did receive about 10 months of interest that reduced the total loss some. I do not view this bond to be appropriate for ownership in a retirement account where I mistakenly bought it. 

I was more than able to offset this loss with realized gains in other securities sold in the Roth this year.  I still own 1 of these bonds in a taxable account. I am likely to stay with that one until later this year or early next year.

While the two bonds were sold during the trading day Wednesday and before the earnings release and the S & P downgrade, I did know that the earnings would be released after the close and that the media had already reported on the plant closures. Reuters That report was not commented upon by EME but was the subject of a news release by the Sierra Club.

Added 6/6/12:  I raised the risk rating for EME bonds to 10- for the detailed reasons given in a subsequent post, Item # 1 Risk Rating Raised on Edison Mission Bond to 10- from 9-. Edison Mission has hired Kirkland & Ellis recently to assist the company in assessing its options.

Added 8/19/12: See subsequent post on potential bankruptcy option Stocks, Bonds & Politics: Edison Mission Statement SEC Form 10-Q on Bankruptcy Option at Item # 5

Added 11/28/12: Edison Mission failed to make the interest payments due on 11/15/12. ‎EME 8-K SEC Filing

Added: As expected, the WSJ.com reported on 12/15/12 that EME was preparing to file for bankruptcy, noting that EME would likely be in bankruptcy for some time.

Added: On 12/18/12, EME filed for bankruptcy as expected. SEC Form 8-K