Claymore Canadian Bond ETFs/Preferred Stock ETFs: Bought 200 PGX at 13.53/

The revised GDP number for the 1st quarter will be released later this morning. If it is 1.5% or lower, LB will not have to worry about the Old Geezer returning from his sabbatical, most likely for the remainder of the summer and into the Fall. Even the RB has simmered down, no longer howling "go all in", apparently content to help the OG in his spiritual pursuits. LB enjoys the peace and quiet, as it turns to playing small ball in the market and turning what only appears to be chaos into order.

Some may say that LB is misrepresenting its appearance with the current profile picture. That is just an outrageous and slanderous contention, having no basis in fact. The LB has not aged since the photo was snapped in 1972 showing its essence. Don't confuse the LB with that balding, over-weight, dilapidated 58 year old structure commonly referred to as the Old Geezer-what an embarrassment! The LB is still razor sharp, capable of running a mile without drawing a deep breath, fit and muscular, with lots of hair, and would prefer reading the Internal Revenue Code to all of that spiritual stuff. In short, LB is not a day over 21 years of age.

Besides LB already knows about all of that spiritual stuff, heaven and all of that. Heaven is where the LB can go about its business 24/7 without being interrupted by that noise problem, the nit wit RB, and no longer has to worry about the OG interfering with its well thought out strategies based on some whimsical, barely coherent thought. Yes, that is the place where the LB can ponder the millions of variables and contingencies in peace and quiet, creating order out of the appearance of chaos.

Out of nowhere, LB heard "What a boring Nerd, let's party".

A reader sent me last night this article written by Doug Kass, who is more optimistic than the general doom and gloom consensus permeating the market which was noted by Cramer last night at the start of his show on CNBC. If the OG was around, acting as the Head Trader rather than reading that spiritual stuff(buy the Old Goat a rocking chair!), the OG would agree with KASS and would be buying right now some large cap blue chips that appear to be undervalued and would hold them for the long term. But the OG is on sabbatical at the Old Folks Home, LB is in charge of the trading desk, and LB is a trader playing small ball now.

Out of nowhere, LB heard "Tunnel Vision Nerd, remember one of the OG's famous sayings, 'take whatever the knuckleheads give you' ".

1. Claymore Canadian ETFs (Canadian Dollar (CAD) Strategy): The two Canadian bond ETFs that I own, CBO.TO and CLF.TO, go ex dividend today for their quarterly distributions. Both ETFs are available on the Toronto exchange but can be purchased on the Grey Market in the U.S. with great difficulty. I am a long term holder of Canadian dollars so I am not concerned by exchange rate risk. Needless to say it would not take much of a decline in the Canadian dollar for the unrealized loss in the currency to wipe out the value of the dividend paid by these ETFs.

By long term, I am talking about maintaining a Canadian dollar position for the remainder of my life. I am therefore concerned about earning interest and dividends on the CAD position rather than temporary fluctuations in the exchange rate. My holding period is not certain, since flexibility is a virtue in investing, and I might be tempted to exchange those CADs back into the USD when I can buy $1.25 for 1 CAD. I can wait for the most advantageous exchange rate before converting the CADs back into USDs, and that point is a key point in maintaining and expanding my CAD position.

If I was a Canadian citizen wishing to invest my CADs, I would like both of these ETFs even more. Both use a ladder approach with equal weights in bonds maturing in 1 to 5 years. When the five year bonds mature and the 1 year bonds mature, the proceeds from the five year bonds are then rolled into buying new 1 year bonds, and so on. Along with the relatively short maturities and the bond ladder, this process substantially reduces interest rate risk to me and to the Canadian citizen who does not have to worry about currency risk. One of the ETFs invests in Canadian government bonds, both from the federal government and the provinces, while the other invests in higher quality corporate bonds. The expense ratios are low:Claymore 1-5 Yr Laddered Government Bond ETF - CLF Claymore 1-5 Yr Laddered Corporate Bond ETF ( CBO) CLF's expense ratios is just .15%.

I will receive my dividends in Canadian dollars which is what I want. I will then use that cash flow to buy more Canadian income producing securities, occasionally buying Canadian dollars directly to boost my CAD position.

I would not buy foreign dividend paying securities in a retirement account due to the withholding tax issue. Canada requires 15% to be withheld from the dividend payment, which can not be recovered as a foreign tax credit when the dividend is paid into a retirement account.

I currently own 200 shares of CLF and 100 shares of CBO. Most likely, I will add to CLF over time.

Previous discussions of these ETFs, and their risks and benefits, can be found in the following posts:

Item # 4 Bought 100 CBO:TO at 20.4 & 100 CPD:TO at 16.09

Item # 1 Sold HSE:TO at 30.48 CAD/Bought 100 ETF CDZ:TO at 19.24 CAD and 100 of ETF CLF:TO at 20.10 CAD

Item # 6 Added 100 CLF:TO-Sold 100 CPD:TO

When placed into a taxable account, and for someone who has the financial ability and flexibility to weather the currency risk issue, I would view these ETFs as conservative investments. Due to the currency risk issue, they would not be conservative for those who lack that ability and long term flexibility. This opinion is based on a variety of factors, including the quality of the bonds, their short duration, and the use of the ladder and the roll. But, for me, I also have a favorable long term view of the Canadian dollars value compared to the USD, which is why I have a long term CAD position. Besides, it is best to humor the RB sometimes, who has all of these grand, idiotic plans, and its most secret plan is to acquire Canada, all of it, followed thereafter by a tender offer for Switzerland, all of it. It is embarrassing to the LB to even mention the Lame Brain's plans, fortunately most of them are kept out of the minutes of HQ's operation.

2. Home Purchase Tax Credit: I mentioned in yesterday's post my opinion that the tax credit for home purchases accomplished nothing of lasting value. Item # 1 Housing If I was thirty and looking to buy my first home, the tax credit would have been one of three good reasons to make the purchase, with the other two being low mortgage rates and the decline in home prices.

The USATODAY ran a story yesterday that 1295 prison inmates, who did not file joint returns, claimed a tax credit for a home purchase, including 241 prisoners serving life sentences. What can you say? Maybe the prisoners need to expand their horizons some and open medical supply businesses to bill Medicare for equipment that does not exist. Item # 2 Fraud is Too Easy In America

The 30 year mortgage rate has fallen to 4.69% on average, the lowest level since Freddie Mac started compiling this data in 1971.

3. Preferred Stock ETFs/Bought 200 PGX at $13.528 (see Disclaimer): Over the last few years, several ETFs have been launched that contain "preferred" stocks. There have been for a long time a large number of closed end funds devoted to preferred stocks, which frequently sell at large discounts to their net asset values. Most of the CEFs can be found at this WSJ page, though several of those funds also own some stocks and other asset categories such as JQC and CSQ which I own. JQC - Nuveen Multi-Strategy Income and Growth Fund 2 I certainly would not buy one of the CEFs listed on that page which sell at a premium to its net asset value. This page at the Closed-End Fund Association also contains a list of them. (CLICK HEADING INCOME & PREFERRED STOCK FUNDS)

I have been aware of the preferred stock ETFs for some time but have declined to buy one of them prior to yesterday for several reasons.

First, I like to pick individual securities to buy in this asset category, and I own several trust preferred and traditional equity preferred stocks. These ETFs contain trust preferred securities which are in effect junior bonds and European hybrids which are bonds with some equity attributes. I own a few such hybrids issued by Aegon and ING, but I noted several from other European financial institutions contained in one of these ETFs. (see PowerShares Exchange-Traded Funds | PGX - Preferred Portfolio Holdings) A few traditional preferred stocks are owned as well, depending on the fund. And I saw a few holdings that would more appropriately be characterized as a First Mortgage Bond or a senior bond. (see, e.g. link above, Entergy Louisiana & Entergy Texas are first mortgage bonds and Amerprise Financial issue is a senior bond). So preferred stock is a misnomer in that it conveys the impression to many investors of traditional preferred stocks. Trust Preferred Securities: Links in One Post Trust Certificate Links in One Post Aegon Hybrids: Gateway Post ING Hybrids: Links in one Post

Second, I am able to juice my yield by buying CEFs at significant discounts to their net asset value. The ETFs are priced closed to their NAV.

Third, the ETFs are relatively expensive in terms of their expense ratios compared to what I am use to buying. PGX, referenced above, has a .5% expense ratio. Some of the CEFs can be bought generally for expense ratios in the .8% area. I would be more interested in the ETFs when and if they are offered with expense ratios of less than .3%.

Many of the CEFs that invest in "preferred" stocks use leverage which can juice the return in a low interest rate environment provided the securities are going up in value. If securities plunge in value, as these funds did during the Near Depression period, leverage just adds to the woes. Leverage will work in a stable to up period in asset prices, when interest rates are low compared to the preferred stock yields. Leverage would be disadvantageous in a period where the preferred stocks are declining in value and/or the interest paid on borrowed funds starts to exceed the yields of the assets acquired with the borrowed funds. The ETFs do not use leverage.

There are several "preferred" stock ETFs that are currently available.

I decided to take a small 200 share position yesterday in PowerShares Preferred Portfolio (PGX) for several reasons. The fund has to hold investment grade securities. The index is rebalanced on a monthly basis. So if one of the holdings loses its investment grade status, it has to be sold. This is a way to manage credit risk. The overall quality of the portfolio is good recognizing of course that the holdings are mostly junior securities. I estimated that close to 50% of the securities are trust preferred stocks by just eyeballing the list of holdings. There are several European hybrids including issues from Aegon, Deutshe Bank and Allianz. The portfolio has a few REIT equity preferred stocks. As previously mentioned, the Entergy Texas security, with a 7.88% coupon, is a First Mortgage Bond: /www.sec.gov The Ameriprise Financial "preferred" stock, with a 7.75% coupon, is a senior bond: www.sec.gov I own it. There are a few other senior bonds in this portfolio including the following:

ALABAMA POWER maturing on 4/1/2047;

CBS, www.sec.gov, maturing on 3/27/2056

Comcast e424b2, maturing on 9/15/2055

Viacom Prospectus Supplement Dated December 6, 2006, maturing on 12/15/2055

GE Capital www.sec.gov, maturing on 11/15/2032

Telephone & Date www.sec.gov, maturing on 3/31/2045

AT & T e424b2, maturing on 2/15/2056

I would not be inclined to buy individually most of these senior bonds since the maturity date is just too far out for me. I do not mind so much buying a portfolio of securities that includes them however. They are senior bonds (always preferable to junior bonds or equity preferred stocks from the same issuer) and provide some diversification by industry. Most TPs are issued by financial institutions but this ETF has several issued by electric utilities which is a plus too. (e.g. Dominion, Scana, FPL, Xcel). And some of the TPs from financial institutions are from life insurance and reinsurance companies which is a plus from my point of view since bank TPs have their own issues.

The main disadvantage of this portfolio is its duration and the presence of some securities which have no maturity date. Some of the securities are perpetual. Moreover, many of the ones with maturity dates are way out into the future, maturing when I am unlikely to be breathing fresh air. This simply means that these bonds have a ton of interest rate risk. Most likely, I will sell 100 of the 200 shares when I start to become concern with interest rate risk, possibly before the 10 year treasury note reaches 4% for this particular security.

The purchase of PGX was a low expectation buy. The current dividend yield at my cost is shown at Marketwatch at 6.76% annualized, paid on a monthly basis. The SEC yield shown at the Powershares web page is slightly over 7%. I would be pleased to receive a 6.75% annualized yield for a few months, and then to pare 1/2 of the 200 share position with a $5 gain in the shares.

There are other "preferred stock" ETFs. I am not interested in the other one from Powershares that is focused on securities issued by financial firms. PowerShares Exchange-Traded Funds | Financial Preferred Portfolio | PGF I do not like the narrow focus: Holdings This kind of ETF could conceivably be a way for me to speculate on a turnaround in financial "preferred" stocks in a period similar to the recent Near Depression. I am not interested in it now however.

SPDR has a preferred stock ETF with a slightly lower expense ratio of .45%. My initial reaction to PSK is that it had a greater weight in bank "preferred" stocks than the Powershares product, but I did not do a detailed calculation. It owns many of the same securites as PGX.

iShares has one too with a .48% expense ratio. Again, just looking at the Holdings, I was concerned about the weight to bank issues. Most of the securities are bank TPs.

So I went with the Powershares product primarily due to the presence of its diversification by industry and a the number of senior type securities including a few first mortgage bonds. I viewed the small difference in expense ratios to be a non-issue but would prefer to see all of these ETFs with expense ratios at or below .3%.

This kind of purchase is based in part on a recognition that my money market funds are likely to pay nothing for the remainder of this year and possibly well into 2011. It is also what can be expected from the small ball playing LB who is currently the HT here at HQ.

For individuals who invest in these securities, it is important to keep in mind that their duration and fixed coupons make them particular susceptible to losing value during a period of rising interest rates. And their low priority makes them volatile to the downside due to their low priority in the capital structure and/or time periods such as the Near Depression when market participants have a heightened concern about credit risk.

4. Dividends and Interest: I always check the WSJ dividend page every night. This page is updated daily during the weekdays. I sometimes make a note in this blog of securities that I own which are about to go ex dividend or interest. Every security mentioned in this section is owned. I also look at this page for any securities which may be of interest that I do not own. Some of my ideas start by seeing the name of security on this page that is unknown to me and then I spend some time investigating whether or not to place it on a monitor list for possible purchase.

On Monday June 28, I noted the following securities going ex dividend or ex interest:

1. KVW and KTN, trust certificates containing a Aon TP go ex for their semi-annual interest payments Bought KTN at 13.1 Bought KTN at less than $14 Sold 100 KVW at 24.75-KEEPING 100 bought at $16.08;

2. CBL Properties (CBL) common stock, one of my lottery ticket purchases, LOTTERY TICKET PURCHASES: LINKS IN ONE POST;

3. Glimcher Realty (GRT) and its preferred stock GRTPRF, also both LT purchases, GRTPRF: A WALK ON THE WILD SIDE/ KTN add;

4. Kraft (KFT) common stock Bought 100 KFT at 29.86;

5. the CEF Latin American Discovery Fund;

6. LXPPRD, a preferred stock from Lexington Realty Buy 50 LXPPRD at $7;

7. a Odyssey Re fixed coupon equity preferred stock Added 50 ORHPRA at $25 ;

8. a SL Green Realty preferred stock, SLGPRC Bought SLGPRC at $10.5 Buy SLGPRC at $11.89;

9. GJN, a synthetic floaterBUY 50 GJN, containing a senior AT & T bond as its underlying security;

10. TDA, a senior bond from Telephone Data, Bought 100 TDA at 25.22

11. Winstream (WIN), common stock; and

12. Washington Trust (WASH), part of the regional bank strategy, Bought 100 WASH at $15.26.

This is just an example of my diversification in income generating securities. Some of these securities provide such good yields at my cost that I am unlikely to ever sell them, whereas a security like TDA will be on the chopping block whenever I become more concerned about interest rate risk.

I also noticed a few securities that declared their dividends. Medtronic increased its dividend to $.225 from $.205. I am going to start reinvesting the MDT dividends. HGI, a Claymore ETF, declared its quarterly dividend. This ETF focuses on high yielding foreign stocks. HGI has already gone ex dividend as has ENY. It is normal for the WSJ to publish ETF dividend declarations on the day of the ex dividend or soon thereafter. First South (FSBK) declared its regular quarterly dividend and the WSJ page shows the yield at be 7.02%. Bought 50 FSBK at 10.15 FSBK is also part of the Regional Bank Stocks basket strategy. Campbell Soup bought in early March 2009 also declared its regular quarterly dividend. Buys of CPB LQD SYY XKK Bought CPB at 25.35

Bought 50 PJS at 23.73/Sold 50 of 100 PJI at 21.35/MKZ/Housing/Sold 100 AXAHY

LB is in a hyper trading mode. And readers will note the abundance of hair in the new profile picture.

The Fed said yesterday that financial "conditions have become less supportive of economic growth on balance, largely reflecting developments abroad", referring to the European sovereign debt crisis and the austerity programs recently introduced or passed by European governments. The FED referred to housing as depressed and noted that employers were reluctant to hire. FRB: Press Release--FOMC statement--June 23, 2010 This statement was a clear downgrade of the U.S. economy compared to its prior assessment, as highlighted in this WSJ article comparing the statement released yesterday with the prior one released in April. The FED reiterated its intent to continue its Jihad against savers and other responsible Americans for an "extended period of time", by keeping the federal funds rate near zero. As noted in this WSJ article on this FED statement, most economists now believe there will be no increase in the federal funds rate until 2011 with some predicting no increase until 2012.

In revising its assessment down of the current state of the economy, the Fed was stating the obvious. And, that is one reason why I have started to increase, ever so slightly, my holdings in long term bonds yielding 8% or greater, in spite of their heightened interest rate risk profile. Hopefully, I will be able to pare some of those holdings before credit or interest rate risks come home to roost.

I mentioned in a prior post that I would start to sell some of the long corporate bond positions when the 10 year treasury crossed back over 4.25%. Item # 1 Bought 100 BDF at 17.2 I am going to lower that threshold to 4% in order to potentially decrease my overall interest rate risk associated with long term bonds. The ten year is currently priced to yield about 3.12%. U.S. Government Bonds I do not expect the 10 year treasury to trade above 4% for the remainder of 2010.

1. Housing Sales and the Expiration of the Government's Bribe to Buy Homes: The most recent tax credit for home purchases expired in April. What exactly did the government accomplish? By granting the tax credit, the government managed to deprive itself of revenue for those buyers who would have purchased homes without the tax credit. Those buyers would have bought due to the substantial fall in home prices and the favorable mortgage rates. For new home buyers with good credit and solid incomes, there was no better time in my lifetime to buy a home than the period covered by the federal government's tax credit for home purchases. The other result is that the government moved some buyers off the fence with the tax credit but this is basically a shuffle in time of housing demand. The demand for a home for those buyers was merely transferred from later in 2010 or 2011 into the period before April. In other words, nothing positive was accomplished of lasting significance for the overall economy.

This conclusion is buttressed by the release yesterday of the dismal new home sales for May by the Commerce Department. www.census.gov/ newressales.pdf New home sales in May were the lowest on record, falling to an annual rate of just 300,000 units. The decline was 32.7% from the revised April number.

2. Sold 50 of the 100 PJI at $21.35 on Tuesday and Bought 50 PJS at $23.73 (See Disclaimer): I mentioned in yesterday's post that I might buy back some of the PJS shares previously sold. Item # 5 PJS The amount invested to buy the 50 shares purchased yesterday at $23.73 represents about 1/2 of the profit realized on this security in prior trades. The underlying security in the trust certificate PJS is a senior bond issued by First American that matures on 4/1/2028. So, this bond has the interest rate risks inherent in long bonds. The TC coupon is 7.55%, paid semi-annually. www.sec.gov The trading information on the underlying bond can be found at the FINRA site. The underlying bond is lightly traded. At a total cost of $23.73, the current yield is around 7.95%. I decided to buy some shares primarily for the sake of diversity in my taxable account bond portfolio.

When LB is in a hyper trading mode, as now, some trades only make sense to it and it is best to just shake your head in disapproval as the RB has said many times rather than trying to understand its rationale. On Tuesday, LB sold 50 shares of the trust certificate PJI at $21.35, realizing a total profit after commissions of $9.08. This TC contains a senior Goldman Sachs bond maturing in 2033. LB is slightly uncomfortable with the total position in GS bonds, which includes shares in JBK, GYB, PYT and PJI. So this concern was alleviated somewhat by selling the 50 of PJI, along with the prior pare of 100 of GYB. The 50 PJI shares sold were the highest cost of the two fifty share lots previously purchased. Bought 50 PJI at 20.85 (Sold using FIFO accounting) Added 50 PJI at 20.17 (kept using FIFO) This in effect lowers the cost basis of the remaining shares thus giving me some breathing room in the event of another downdraft in GS bonds which occurred after the government announced the bringing of civil fraud charges a few weeks ago.

3. Sold 100 AXAHY at $16.66 (see disclaimer): These shares were just bought at 14.69 a few days ago. This was another example of the LB's hyper trading mode. I decided that I would whether own a bond rather than a European insurance company whose shares are priced in EUROs. I am more comfortable holding securities priced in Swiss Francs (e.g. Novartis and Roche) or Canadian dollars. I added to my Canadian dollar position yesterday too which gives me over 3 thousand CADs to fund further purchases of dividend paying Canadian companies or ETFs. Some of the recent ETFS purchases include the Claymore 1-5 Yr Laddered Corporate Bond ETF ( CBO), the Claymore S&P/TSX Canadian Dividend ETF - CDZ , and the Claymore 1-5 Yr Laddered Government Bond ETF - CLF, all traded on the Toronto exchange and purchased with existing CADs in the account.

4. MKZ (own): The principal protected note tied to the performance of the commodity index ended its first annual period yesterday with a thud. The DJ UBS Commodity index fell 1.24 to close at 126.58: WSJ.com That number is both the ending value for first coupon period and the starting value for the second annual period. I can now compute the percentage gain in the index from its starting value of 123.338-not much. The percentage increase is just 2.628%. Since that increase is less than the 3% guarantee, Citigroup Funding will soon pay the 3% guarantee, applied to the $10 par value of this note, as its first distribution ($30 per 100 shares). (MKZ Prospectus: Pricing Supplement) MKN worked out better with a $180 distribution in its first coupon period. In the second coupon period the maximum level for the DJ UBS Index will be 165.8198. If there is one close in the index above that number, then there is a reversion to the 3% guarantee and the percentage gain in the index by the closing date is no longer relevant in the distribution computation. (See Details in Item # 3 Bought 100 MKZ at 9.91 in the Roth IRA; Bought 100 MKN at 9.85) The most recent discussion of MKZ is in Item # 2 Sh-- Happens from the post dated 6/18/2010.

Bought 50 KRBPRE at 24.62 in Roth IRA/WAG/Sold all GXP at 17.96/PJS

There was a chart in this WSJ article that shows the Case Shiller index of home prices recovering to the 2003-2004 level in 2015, according to forecasts made by economists and other analysts polled by MacroMarkets.

The Democrats still believe that anyone should be able to buy a house that they can not afford. Recently, they voted down a proposal by Tennessee Senator Bob Corker that would have imposed a 5% down payment requirement and some income verification. Democrats The proposal voted down by the Democrats is described in this link from Senator Bob Corker's office. I mentioned in an earlier post that politicians would never do what was necessary to prevent another real estate bubble caused by easy credit, which would include imposing a 5% down payment requirement. Item # 2 Delays in Foreclosure Encouraging Defaults

Obama's plea to the Europeans to keep spending like crazy has fallen on deaf ears. The U.K. government has prepared an austerity budget that has 40 billion pounds in spending cuts and tax increases, with about 77% in spending cuts and the remaining 23% in tax increases. MarketWatch.com 'Unavoidable' Budget - WSJ Merkel's government in Germany also just unveiled an austerity plan. NYT

1. Bought 50 KRBPRE at 24.62 in the Roth on Monday (See Disclaimer): This purchase marked the successful transition of a Bank of America trust preferred security out of the taxable account and into a retirement account. My overall exposure in dollar terms to BAC remains about the same, but I have transitioned 50 shares of the exposure to the Roth IRA. This transition was initiated by selling 50 shares of the trust certificate MJH, which contains a BAC TP as its underlying security and then completed with the purchase of KRPRE in the Roth on Monday. /Sold 50 MJH at 23.6

There is some concern about whether Congress, in need of funds at some future time, will change the current rules about distributions from a Roth IRA . This kind of concern can never be resolved with any type of certainty. Any politician who votes for taxing distributions out of a Roth, which would now be free of taxation, would earn the wrath of a large number of voters. I would certainly vote against any politician who supported such a change. And if the change was advocated by a majority of the members of one political party, I would vote against every candidate of that political party. In other words, I would view such a change with extreme dissatisfaction.

As it stands now, the primary benefit of the Roth to me, compared to the regular IRA, is that I do not have to take distributions at a certain age as I do with the regular IRA. Roth Or Traditional IRA The second benefit is that distributions from the Roth will be tax free whenever taken after a year or so from now for me, whereas I have to include distributions from the regular IRA in my gross income for tax purposes. Traditional IRAs: Distributions Roth IRAs: Distributions So, what I can do for planning purposes is to allow the Roth to appreciate free from taxation until I have exhausted all other funds which hopefully will never occur. But, if I am 100 and I have only assets in the Roth and social security left, I can start to take distributions at that time.

The current law governing Roth IRA dictates to a significant degree the kind of assets that I want to put into it. Based on my own current financial situation, a long term bond makes more sense in the Roth than in a taxable account. While I still face interest rate risk, I am more concerned about generating a stream of tax free income that can be reinvested into other securities that have good yields. If rates rise, I will have enough funds to invest in new purchases that pay an even higher yield, thereby increasing the compounding effect.

KRBPRE is what I commonly refer to as a typical trust preferred security. MBNA Capital E, KRBPRE It was initially issued by MBNA Capital, a Delaware trust, that was formed by MBNA, a credit card company later acquired by Bank of America. It is now listed by BAC as one of its trust preferred securities: Bank of America | Investor Relations | Capital Issuances Interest payments are made quarterly and may be deferred for up to five years provided no payments are made on more junior securities. Any deferred distribution will earn interest at the coupon rate. (see page S-3 www.sec.gov). Deferred distributions have tax consequences (see pages S-30 to S-31).

A TP is a preferred stock in a trust that represents a beneficial interest in the assets of the trust. For KRBPRE, the asset of the trust is a junior bond issued originally by MBNA. The underlying bond in the trust matures at the same time as the TP, with both maturing on 2/15/2033. As shown at the QuantumOnline.com site, this TP is rated the same as the ones originally issued by a trust formed by Bank of America, as are the two shown on the same page originally issued by a trust created by FleetBoston.

The coupon on KRBPRE is 8.1% which gives me close to a 8.22% current yield at a total cost of $24.62. At a 8.22% rate, my money doubles in about 8.77 years. Estimate Compound Interest This is slightly better yield than the TPs originally issued by a trust created by Bank of America.

This is a link to the prospectus: /www.sec.gov

I have been moving up the priority ladder on BAC securities. I have sold all of my BAC non-cumulative equity preferred floaters ( the last sell- Sold 100 BMLPRH AT 17.42). The bonds, which are the underlying securities in the BAC TPs, are more senior in priority than the traditional preferred stocks which are part of BAC's equity. In addition, unlike the BAC equity preferred stocks, the TPs have maturity dates and are cumulative.

The ratings for the BAC TPs can be found at Bank of America | Investor Relations | Fixed Income Investor Relations. Only Moody's has an investment grade rating (Baa3), whereas both Fitch and S & P rate the BAC TPs in the junk category. This kind of investment can never be out of sight, out of mind.

What I really like to see is for both retirement accounts to register gains when the market tanks, which occurred yesterday.

2. Walgreens (WAG)(owned): Walgreen reported awful earnings for its fiscal third quarter of 47 cents which included 7 cents in charges. Excluding those charges, the company missed expectations by 4 cents. Revenues increased to $17.2 billion slightly ahead of the consensus forecast of 17.14 billion.

Comparable store sales increased by .7% in the quarter and sales increased by 6.1%. Prescriptions, which accounted for 65.4% of sales, increased by 5.7% during the quarter and by 1% on a comparable store basis. WAG completed its acquisition of 258 Duane Reade stores in April and claims to be on track in its integration and pleased with the "strong performanc" of the new and renovated Duane Reade stores. Walgreens expects organic store growth of between 4.5 to 5% in fiscal 2010 and between 2.5% and 3% annually beginning in 2011. As of 5/31/2010, the company operated 8019 locations (7522 drugstores).

Some of the recent analyst recommendations are summarized in this article from the StreetInsider.com.

I recently bought 50 shares of WAG at 30.15. In a long term secular bear market, it often pays to slice and dice buy orders into small pieces rather than taking a full position all at once. I am now free to average down at my leisure by buying another 50 shares to create a round lot of 100. I am in no hurry to add those 50 shares.

3. SOLD GXP AT 17.96 on Monday (see Disclaimer): GXP was a loser. It is an electric utility operating in Kansas and Missouri that cut its dividend in half after I purchased shares in 2008. Bought GXP at 19.25 The dividend was cut from a quarterly rate of $.415 to $.2075. The dividend has not been increased since that cut and I view other utilities as more attractive at current prices.

4. 2 Year Treasury Auction: The U.S. treasury sold 40 billion in two year notes yesterday at a record low yield of .738%. It is likely that these notes will provide a negative real rate of return over the next years before taxes. The current inflation rate over the past 12 months is about 2%. There were 137.7 billion in competitive bids submitted in this auction: www.treasurydirect.gov .pdf In other words, the buyers of this 2 year note were falling all over themselves for the privilege of lending our destitute-binge borrower-Uncle Sam money at yields that virtually guarantees them a negative real rate of return. Apparently, the so-called bond vigilantes are in hibernation.. This auction illustrates that a lot of investors are far more interested in the return of their money rather than the return on their money.

Something is amiss. Either those investors lending money to the U.S. government at negative real rates of return have lost their marbles, or I am missing something that needs to scare me a lot more than the sum total of all of my concerns.

5. Trust Certificate PJS (no longer own): I sold my shares of PJS after First American made a tender at the $25 par value. {See item # 6 Sold 50 COP at 56.63; Sold ALL PJS at 24.75 & 24.65} At some point, I may buy back the shares. Of the original outstanding principal amount of 45 million dollars, First American bought $21,819,000 or 48.49% of the total. The First American Corporation Announces Results of Tender Offers and Consent Solicitations; Accepts Validly Tendered Securities for Purchase - First American - News - 2010 The PJS shares are still trading. This one had been bought as low as $7.2 and as high as $17.95.Bought PJS at 7.2-October 2008 /Bought 50 PJS at 17.95 August 2009 Bought 50 PJS at $17.8 in Roth First American has recently split into two companies. First American Financial Corporation and CoreLogic, Inc. Announce Completion of Spin-Off Transaction

Prior to the tender made by First American for both the TC shares PJS as well as the underlying bond, I had decided to limit my exposure to 250 shares, and I hit that limit. This limit is particular to my financial situation and risk tolerance. I am lowering my maximum exposure to 100 shares from 250 as a result of the break-up of FAF into two companies. I will need to research further which of the two companies, CoreLogic or First American Financial Corporation, will be paying the interest in the future on the underlying bond in PJS.

Managing Interest Rate Risk/Continued Discussion on 1982 or 1974/

1. Interest Rate Risk in the Retirement Accounts: I did sell Tuesday the only remaining stock ETF in a retirement account to raise funds to buy senior bonds, thereby increasing my cash flow and diversifying my individual bond holdings further.

I am dealing with interest rate risk in the retirement accounts by a variety of tactics. I of course realize that the price of a bond will go down in value as interest rate rise. I have discussed this particular topic in multiple prior posts and will just summarize some of these tactics to deal with interest rate risk.

First, if I own individual bonds with maturity dates, I have the option of recovering any loss value due to a rise in interest rates by holding the bond until maturity. I also have sufficient funds to diversify my holdings of investment grade bonds to lessen the credit risk issue associated with buying individual bonds versus a well-diversified bond fund.

Second, I have bought the 10 year TIP at auction. When rates start to rise due to inflation, and ultimately this will happen, the TIP provides me some protection against unanticipated increases in the inflation rate. However, given the low coupon prevalent now, I do not intend to add to my current position until the coupon on the 10 year TIP exceeds 2%. (see e.g. purchase at TIP auction in Item # 4: 10 Year TIP Auction, and generally: Advantages and Disadvantages of Treasury Inflation Protected Securities and Treasury Inflation Protected Securities as a Non-Correlated Asset)

Third, during the Near Depression period, I purchased several securities that pay the greater of a guarantee (typically in the 3 to 4% range) or some percentage above a short term rate (frequently 3 month Libor). These securities provide both a measure of inflation and deflation protection in the same security. (December 2008 Post: Inflation or Deflation: Bond Alternatives/) The deflation protection is the guarantee while the float component provides some protection in a rising rate environment. These securities can be dividend into two general classifications: (1) synthetic floaters and (2) floating rate equity preferred stocks. The synthetics are tied to bonds.

I have sold the Synthetic Floaters bought in the retirement accounts except for GYC, GYB, PYT and GJN (GYB pared). The sales were based on profit taking and the desire to increase my yield. GYB was recently pared to lessen my overall exposure to Goldman Sachs bonds in the retirement accounts. Sold 100 GYB at 18.09 All of the floaters are paying their minimum guarantees in the current low rate environment. So, I have sold GJS,GJP, GJR, GJK, PYV, GJL, GJT, and GJO. However, since I have a constant stream of cash flow into the retirement accounts from interest and dividend distributions, I will add one or more of those back when I start to become concerned more about interest rate risk than now. I always have some concerns about the inflation bogeyman since inflation is the primary enemy of my bond portfolio.

The only pure equity preferred floating rate stock owned in the retirement account is METPRA which I do not intend to sell given my favorable purchase price. I also own AEB, a hybrid floater from Aegon. Advantages and Disadvantages of Equity Preferred Floating Rate Securities I will generally lump AEB with the equity preferred stocks due to the U.S. tax treatment of its dividends, but it is in reality a bond. Aegon Hybrids: Gateway Post

The fourth way that I am attempting to cope with interest rate risk is the purchase of corporate bonds that pay monthly interest tied to CPI. I own PFK and OSM in both the retirement and taxable accounts. {Most recent discussion of OSM is in Item # 1 CPI; see also /Bought 100 OSM at 15.75-Regular IRA; /Added 50 PFK at $17.83; Bought PFK in IRA/ Bought 100 PFK/; Item # 3 CPI & CPI Floaters;CPI FLoaters PFK AND OSM/; CPI and CPI Floaters-OSM; Item # 1: CPI and CPI Floaters OSM and PFK/Added 50 PFK at $17.83} I have been discussing these securities since starting this blog in 2008.

Fifth, while I have a few bond funds that do not have a term date currently in the ROTH (200 ACG & 100 BDF), most of my bond fund allocation is currently devoted to term bond funds. They come in two general flavors: (1) ETFs with term liquidation dates and (2) Closed End Funds with term dates. I recently added two investment grade corporate bond funds in the IRA that liquidate in 2014 and 2015 respectively. Bought 100 BSCE/ Bought BSCF at 20.18. I also have 245 shares of the CEF GDO in the retirement accounts which liquidates in 2024. While the term date does not insulate me completely from interest rate risk, it does serve to mitigate the impact of a rising rate environment in that the term date is as close as a bond fund can come to the option of holding an individual bond to maturity. Discussions of term CEFs can be found at the following posts: Bought 70 of the CEF GDO in Regular IRA at 18.61 Bought 100 GDO Bought 100 of the CEF GDO at 18.6 Bought 100 CEF IGI at $19.89 Added 100 of the CEF IGI at 19.78 Bought 200 of the CEF GDO. I have since sold the 200 shares of IGI but I may at some point buy some or all of those shares back.

And, lastly, I am dealing with interest rate risk by maximizing my cash flow. As I increase my cash flow with bonds, I will be in a position to buy higher yielding bonds when interest rates start to rise causing a fall in bond prices and a rise in yields.

While I am still subject to interest rate risk in my fixed coupon preferred stocks and bonds, I am not that concerned about it for several reasons. The most important reason is that I have already taken measures outlined above to deal with that risk. And, secondly, many of the fixed coupon securities were bought during the Near Depression period and have very high yields at my cost. I am more concerned about credit risk than interest rate risk as a result. If I become queasy about credit risk, I am more likely to dump the security compared to a heightened concern about a developing and imminent interest rate risk issue.

2. Laszlo Birinyi on 1974 or 1982: In this interview in Barrons.com, Birinyi argues history may be repeating itself, but the appropriate parallel is not to the short cyclical bull move between 1974 to 1976 which occurred within a long term secular bear market. Instead, he believes the appropriate historical analogy is to 1982, the start of a long term secular bull market. I would disagree on that point.

However, it is true that many of the problems that existed in 1982 were as bad or worse than the ones now. Both unemployment and inflation were still high in 1982. The sovereign debt problems in Latin America, where there were actual defaults, were arguably far more serious than anything that has happened this year. In August 1982, the starting month of the long term secular bull market, Mexico declared that it could not pay its debts. www.fdic.gov/bank.pdf Mexico nationalized its entire banking industry (page 3 www.minneapolisfed..pdf) These kind of problems may help to place Greece's non-default into some kind of historical perspective.

My difference with Birinyi starts with identifying where we are in addressing the underlying cause of the current long term secular bear market. Inflation was the source cause of the bear market which started in 1965 and ended in August 1982. Due to the efforts of the Federal Reserve, it was clear by the summer of 1982 that the inflation problem had been solved. Although it was not known or appreciated at that time, the second main driver of the bull market, increasing productivity due to technological innovation, was also well underway with advances made by Intel in micro processors to be rapidly followed by other innovations that improved productivity and help to keep inflation at bay.

The underlying source cause of the current long term secular bear market is excessive debt and leverage by individuals, financial institutions and governments, primarily in developed nations (the U.S., Western Europe and Japan). While it is open to some dispute, the lingering effects of the de-leveraging process- which has only just begun- will lead to a prolonged slowdown in economic activity when the benefit of massive economic government stimulus is withdrawn, a different result than the burst of economic activity occurring with the taming of inflation and the productivity revolution. So, I would be surprised if today was like October 1982. I believe the worst is over but another two or three year workout period is in order before the world can sustain the kind of burst in economic activity experienced after 1982. (posts from September 2009: 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? more on 1982 or 1974) Thus, I anticipate a grinding market moving in a sideways pattern mostly between 950 to 1250 on the S & P 500 for the next two or three years.

These big picture topics, which I frequently explore in this blog, are viewed as the most important undertaking in my hopefully continued successful management of my money. I start from the top and then move down. Individual security selection is important but the overall driver of successful money management is appropriate asset allocation under the prevailing circumstances. I will turn to a few more trades that I made on Monday and today in a post later on Wednesday.