Interest in Exchange Traded Bonds

I am aware that most people come to this blog wanting to know about exchange traded bonds. If you enter "exchange traded bonds" in the Google Advanced Search box "exact wording or phrase", my gateway post for Exchange Traded Bonds is near the top. If you go to Ask.com and inquire what is a synthetic floater, my Gateway Post for Synthetic Floaters is the top entry. The same is true for these inquiries: what is aaegon hybrid - Ask.com Search; "ing hybrid" - Google Search; what is a ing preferred stock - Ask.com Search; what is a hertz bond - Ask.com Search, "aegon hybrid" - Google Search etc. As I understand it, the search engines will rank the results based on a variety of factors, including hits. This tells me that my posts on bonds are receiving for more interest than the ones on individual stocks.

I think that many investors are becoming desperate for yields. This is not the best time to start learning about exchange traded bonds, after the most robust rally in bonds in my lifetime with yields falling to historic lows. Anytime is a good time to learn more about particular asset classes and the options available to individual investors. Learning more about exchange traded bonds such as trust preferred stocks or trust certificates is always a plus, but the separate issue is whether or not now is a good time to buy.

In my opinion, this is a time for caution for any new bond purchases. I am paring my long term positions, and find nothing attractive to buy at current prices. For bonds to be attractive at current yields, an investor would have to postulate a fairly long term low inflation/deflation economic scenario, and I personally do not believe that is the most rational long term forecast. What is the More Rational Prediction for the Future-Inflation or Deflation This is the kind of issue where each individual needs to make their own decision. Since I came of age as an investor in the 1970s, I do not need to be told twice about interest rate risk and a long term bear market in bonds decimating their value.

While bonds may continue to rally some, or hold their value for a few more months, it is my opinion that the risk for the intermediate and long term is weighted more to a decline in prices and a rise in yield, with better buying opportunities likely to come in 2 to 5 years than now.

Exchange Traded Bonds:

Trust Certificate Links in One Post

Trust Preferred Securities: Links in One Post

Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Aegon Hybrids: Gateway Post

ING Hybrids

Synthetic Floaters

REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

Advantages and Disadvantages of Treasury Inflation Protected Securities:

LINKS TO FINRA INFORMATION ON UNDERLYING BONDS IN TRUST CERTIFICATES

SUBSEQUENT POST: Coping with the Federal Reserve's Jihad Against Savers & Responsible Americans & the Potential Major Correction in Bonds Down the Road

Sold 50 FE at 38.77/NAL TOBC BNCN/AT & T Bonds/Bought 100 DHS at 35.32/Added 50 ADX at 9.7 and 50 RMT at 7.82 with Cash Flow

S & P placed AT & T's credit rating on credit watch with negative implications. If there is a credit downgrade from the current A rating, S & P noted that it would be one notch. I own two TCs containing the same AT & T senior bond, JZE and JZJ, both bought during the Dark Period. JZE was bought at $12.50. The underlying bond in those two TCs, as well as the TCs, have a guaranteed rate which is being paid now. In the event of a debt downgrade, the rate will increase 1/4% per notch. I explained that provision in several posts from 2008: JZE: MORE DETAIL Trust Certificate JZJ AT & T BOND Some Nibbles Got Filled: JZE, PJS, INZ and FAX This increase is tied to a downgrade of one notch by either Moody's or S & P: www.sec.gov. I would like to thank again that person who sold me JZE at $12.50.

I am surprised that AT & T has not called the underlying bond, given this feature, and the 8% guaranteed rate of that bond which is much higher than the TC rates of 6% for JZE and 6.375% for JZJ. My two TCs are certainly in danger of being called by the owner of the Call Warrant. The underlying bond is trading at close to a 30% premium to its par value: FINRA - Investor Information (see generally More on the Call Warrant in TCs). The mere existence of the call warrant, as explained in that earlier post, will restrain the price movement of the TCs containing that AT & T bond as the underlying security (JZE, JZJ, GJF). I do not want either AT & T to call the underlying bond or the owner of the call warrant to redeem the TCs at the $25 par value plus accrued interest.

Sprint reported its first net gain in customers in three years, though the company did lose 15 cents a share excluding extraordinary charges. MarketWatch I have no interest in the common shares, and only own senior Sprint Capital bonds in Trust Certificate legal form-GJD and DHM. GJD rose 54 cents or 2.87% to close at $19.34 yesterday, and DHM rose 1.6% to close at $23.47. I am in a trading mode on both securities given their junk status. Bought 50 of the TC DHM at 21.35 Added 50 GJD at 17.95 Bought 50 GJD at 17.49 Bought 50 GJD at 17.8-Roth IRA Sold 50 of the 150 GJD at 18.59 (see generally Trust Certificates Links in One Post and underlying bond information at FINRA) The underlying bond has a coupon of 6.875%. DHM's coupon is 8.125%. GJD's coupon is 6.5%.

I previously mentioned that the Tennessee GOP finally realized one its dream, passing a law over the Democrat Governor's veto, permitting gun owners to carry their weapons into bars. Ron Ramsey, the Speaker of the Tennessee State Senate (now controlled by the GOP) and consequently the Lieutenant Governor, is running for the GOP nomination for Governor. The ultimate winner of that primary will most likely be Tennessee's next Governor.

Ron made national news earlier this week with the following comment: "Now you could even argue whether being a Muslim is actually a religion, or is it a nationality, a way of life or cult, whatever you want to call it? We do protect our religions, but at the same time, this is something that we are going to have to face." USATODAY The response was given to this question by another "conservative": "We've got a threat that's invading our country from the Muslims. What's your stand". Ron even made the papers around the globe with his views about Islam not being a religion. Telegraph A video clip of his views can be found in this TPMDC article.

Ron, like many who call themselves conservative today, has almost nothing in common with true conservatism. Yes, he is all for freedom for religion-his religion.

While Ramsey received an endorsement from the Gun Owners of America, all of the GOP candidates are falling over one another claiming that they are the gun candidate, as if the Supreme Court did not just decide that gun ownership is a constitutional right on par with freedom of speech. Ramsey is also a big believer in States Rights and the Tenth Amendment, and most southerners know the meaning of those code words. Gun Owners Endorse Ramsey And 20 tea party groups have endorsed him since he is almost a perfect fit with their ideology. The Tennessean

1. Conoco (COP)(owned): I have been trading in and out of COP for some time. As previously noted, the LB has a great deal of influence here at HQ, particularly during a long term secular bear market in stocks. The LB has a short term time horizon, a noted linear thinker, who will capture pops in positions without giving much thought to whether the position was purchased at a price consistent with a long term hold. The RB helpfully added to that statement, "a deep thinker in the sense of generating a million variables and crunching them perpetually, a mile wide and an inch deep approach, a worthless NERD", the RB concluded. The last buy was earlier this month, when I purchased 50 shares in one of the satellite taxable accounts at 48.75. LB noted that it successfully bought COP at $38.60 and sold those shares at $46.45. And then LB further showed its prowess as a Stock Stud by recently selling shares at 56.63 bought at $51.22, and selling shares at $54.71 bought at 51.35. RB just said that it wanted to buy a 1000 at $38.6 and then leave it alone. A heated argument then ensued between the LB and RB about what to do with the shares bought at $48.74 in early July. The OG stayed out of it, just wanting some peace and quiet, and thinking about his nap later today and then decided to eat some peppermint rather than becoming involved in the discussion about COP. The OG did note that COP was ex dividend today: ConocoPhillips, COP

ConocoPhillips reported 2nd quarter earnings of 4.2 billion or $2.77 per share. Excluding extraordinary items, COP had an E.P.S. of $1.67. The gains resulted from the sell of COP's investments in Syncrude and CFJ. COP also announced an agreement to sell its entire stake in LUKOIL to LUKOIL. Forty per cent of that stake will be sold for 3.44 billion this year, with the remaining shares sold by the end of 2011.

2. Sold 50 of the 150 of FirstEnergy (FE) on Tuesday at 38.77 (see Disclaimer): The shares that were sold were purchased in a satellite account at $38. I decided to use those funds to purchase a stock ETF. I am keeping the 100 FE owned in a main taxable account where I will reinvest the dividends. Some of the electric utilities that are heavy into coal generation rose on Tuesday after Harry Reid introduced a climate bill without cap and trade. CSMonitor.com With republicans likely to pick up a large number of seats in the midterm election, it is just impossible to see anything remotely resembling cap and trade passing the Congress for the foreseeable future. The ETF replacement for FE was DHS discussed below.

3. NewAlliance (NAL) -BNC Bancorp (BNCN)-Tower Bancorp (own- Regional Bank Stocks basket strategy): NewAlliance reported net income of 16.3 million or 16 cents per share, a 61% increase from the 10 cents per share earned in the linked quarter. The estimate was for 15 cents. The net interest margin is low at 3.02%. NPLs to total loans was good at 1.39%. As of 6/30/2010, the capital ratios were excellent, with the total risk-based capital ratio at 21.19% and the tangible common equity ratio at 11.11%. The allowance for loan losses as a percent of NPLs was 80.45.

BNC Bancorp reported second quarter earnings impacted by unusual gains, so I will not mention the earnings number. As of 6/30/2010, tangible book value was $9.82 per share and the capital ratios are above well capitalized. Part of the unusual gain was related to the FDIC assisted acquisition of Beach First. NPAs not covered by the loss sharing agreement with the FDIC were 1.93% of total assets. Net interest margin was 3.39%.

Tower Bancorp ( TOBC) announced 2nd quarter non-GAAP earnings, adjusted for merger related expenses, of 27 cents per share, down 1 cent from the prior quarter and 17 cents from the 2nd quarter of 2009. The consensus estimate from 3 analysts was 30 cents. The Board declared the regular 28 cent quarterly dividend. As of 6/30/2010, the net interest margin was 3.73%; NPAs were .83% of total assets; allowance for losses to total NPLs was 106.99%; and the total capital to risk weighted assets ratio was 14.49%. The efficiency ratio was high at 72.04% and needs to come down some. TOBC was a recent add, with only a 40 share buy: Bought 40 TOBC at 21.35 I wanted to review this earnings report before making a decision on whether to add more shares. After reviewing the report, I will wait to make that decision until after the release of the 3rd quarter report.

4. New York Community Bank (NYB) (own Regional Bank Stocks basket strategy): New York Community Bancorp reported operating earnings of 30 cents per share, which excluded a 1 cent "purchase gain" associated with the bank's FDIC assisted acquisition of Desert Hills Bank. Analysts expected 31 cents. The GAAP number was 31 cents, so I would call that a 1 cent miss. The allowance for loan losses to NPLs was 22.08. Tangible book was $6.7 per share. Net interest margin was 3.42%. The capital ratios are okay.

I sold my 100 shares of NYB bought in the regular IRA at close to a 60% gain on the shares. This report is sufficient for me to continue holding the 100 shares held in the taxable account.

5. Bought 100 of the ETF DHS at 35.32 Wednesday (see Disclaimer): This is the last stock ETF that a plan to buy for awhile, and its purchase was really more of a risk dispersal. By risk dispersal in this context, I am referring to taking less risk by selling an individual common stock and buying an ETF. The ETF substantially reduces the risk inherent in individual stock selections but still leaves me with the risk to stocks as an asset class. DHS does have a good dividend of close to 5% at my cost. WisdomTree Equity Income Fund (DHS) The expense ratio is .38. While the fund owns 318 common stocks, the weighting is concentrated in about 20 names. The following is a list of the top 19 holdings as of 7/27/2010:

1. AT&T Inc (T)	US	9.26
2. CHEVRON CORP (CVX)	US	5.34
3. Verizon Communications Inc (VZ)	US	4.70
4. Philip Morris International In (PM)	US	4.66
5. MERCK & COMPANY INCORPORATED (MRK)	US	4.37
6. PFIZER INC (PFE)	US	4.31
7. CONOCOPHILLIPS (COP)	US	3.25
8. Altria Group Inc (MO)	US	3.17
9. MCDONALD'S CORP (MCD)	US	2.69
10. Bristol-Myers Squibb Co (BMY)	US	2.42
11. Eli Lilly & Co (LLY)	US	2.28
12. KRAFT FOODS INC (KFT)	US	1.89
13. EI DU PONT DE NEMOURS & CO (DD)	US	1.88
14. SOUTHERN CO (SO)	US	1.52
15. Duke Energy Corp (DUK)	US	1.25
16. Exelon Corp (EXC)	US	1.17
17. Dominion Resources Inc/VA (D)	US	1.16
18. Reynolds American Inc (RAI)	US	1.15
19. Kimberly-Clark Corp (KMB)	US	1.03

This ETF is concentrated in a few sectors, primarily electric and phone utilities, REITS, consumer staples, pharmaceutical companies and integrated energy firms. When moving down the list of holdings, the first bank stock is at # 41, M & T, with a .46% weight, and the next one is New York Community (NYB) at #44.

In the top 19 names listed above, I already own positions in AT & T, Verizon, Conoco, Duke, DuPont, Bristol-Myers, Kraft, Exelon, and Kimberly-Clark. PPH, another ETF which is owned, would add to the positions in the large cap pharmaceuticals. I also have individual positions in other names in this ETF including Winstream, FirstEnergy, Heinz, Sysco, Consolidated Edison, Pitney (PBI), NYB and around 19 more with less than a .4% weight. So I generally favor the kind of stocks in this ETF, and this purchase is just a way to easily increased my weighting with one purchase. I would point out that the dividend yield is almost 2% more than the 10 year treasury.

6. Added to CEFs ADX at $9.70 and RMT at $7.8 Wednesday (see Disclaimer): Both of this adds were with cash flow and were 50 share purchases. Both of these CEFs are currently selling at over a 16% discount to their respective net asset values. The net asset values can be found for both CEFs on the same WSJ.com. Adams Express was a CEF started before the Great Depression and more information about it can be found at its web site: Adams Express Company The ADAMS EXPRESS COMPANY filed its semi-annual report for the period ending in June 2010 with the SEC.

At yesterday's closing price of $9.68, the discount was -16.12 based on a NAV of $11.54 per share.

The last filed SEC report for the Royce Micro-Cap Trust (RMT) can be found at www.sec.gov. More information is available at the sponsor's web site: Royce Micro-Cap Trust (RMT) At yesterday's closing price of $7.75, the discount was -16.58% based on a NAV of $9.29. I discuss RMT is several prior posts: Bought RMT at $6.73; Added to CEF RMT at $7.64

Since LB is falling way behind in preparing the minutes of HQ's trading operation, more trades from Wednesday may be discussed in the next post, along with some earnings reports relevant to HK's 400 or so positions.

Added 30 GYB in IRA at 17.97/Sold 100 BDF at 17.90/Sold 50 PYS at 20.76/HMA MBVT DD/Sold 50 NYB in IRA at 17.51 & Bought 100 JSN at 12.8

RB bought 50 shares of Regions Financial at $3.47 back in March 2009, and those shares were appropriately placed in what I call Category 1 of the Regional Bank Stocks' basket strategy. I reviewed the "earnings" report from Regions yesterday, and I made some decisions about my immaterial position. First, I am just amazed about how many financial institutions select their top managers. Randomly picking names out of a phone book would probably produce better results for the shareholders. Second, the reports from Regions are in my estimation just awful, but the market is reacting positively to the latest one since the losses were less than expected by the consensus estimate. To avoid the heartburn and negative vibes associated with reading a RF quarterly report, and to mollify the LB who is already sick and tired of reading earnings reports from well run banks, Headknocker decreed that no further earnings reports from RF will be read for at least the next five years. Possibly, I will be surprised by something positive after the expiration of that five year period.

The Old Geezer woke up from his nap just in time for the staff meeting prior to the market's open yesterday, and promptly asked the RB whether there were any stocks it wanted to buy this morning. A voice from out of nowhere said, "you have got to be kidding". RB was thrilled with the opportunity to prove itself, as it did after its coup d'etat at the trading desk here at HQ on 3/3/2009. RB blurted out that it likes blonds and the name Virginia, which just rolls of one's lips, and causes the RB to think of amour. While those comments will not make any sense to many as stock selections, the OG is used to translating the RB's recommendations. Some members of the staff thought they heard the LB say a prayer, but knew that this had to be some sort of delusion.

Housing prices will be in the crapper in many areas "for an extended period of time". Some metropolitan areas in California, including San Francisco, are experiencing a decent recovery in housing prices, but most major metropolitan areas will likely take several more years to return to 2006 prices. The Case-Shiller 20 city composite index of housing prices did show a 1.3% increase in May, compared to April, and was up 4.6% in the past year. SF was up 18.3% over the last 12 months, while Las Vegas has declined 6.5%. Both the 20 city and 10 city composite indexes are where there were in 2003.

The Conference Board's confidence index declined to 50.4 in July, as consumers continued to sour about both the present and the future. Consumer Confidence

1. FNB (own - Regional Bank Stocks basket strategy): FNB was expected to earn 14 cents. After the close on Monday, F.N.B. Corporation reported a net income of 17.9 million or 16 cents per share, up from 14 cents in the linked quarter. Before the earnings release on Monday, the stock rose 51 cents to close $8.5. As of 6/30/2010, tangible equity to tangible assets was 5.97%; the allowance for loan losses as a percentage of NPLs was 103.57; and NPLs to total loans was 1.39%.

2. Sold 100 of the 200 BDF at $17.90 and 50 of the 100 of the TC PYS at 20.76 on Monday (See Disclaimer): These transactions were part of the bond pare on Monday in taxable accounts. The CEF Rivus Bond Fund (BDF) was ex dividend on Monday and I sold the 100 shares bought in the taxable account at 17.2. I am keeping the 100 BDF bought in the ROTH IRA at 17.1.

Using FIFO accounting I sold the highest cost shares of the TC PYS purchased at 20.01 and kept the lower cost shares purchased at 19.59. If I can pick the 50 shares sold last Monday at less than $18.50, I will consider it. I am far more wary of interest rate risk in my long term corporate bonds than other bond investors, judging from the current yields for both long term treasuries and investment grade corporates. This constant paring and re-purchasing at a lower price is part of the way that I am managing interest rate risk. Managing Interest Rate Risk

3. Added 30 GYB in Regular IRA at 17.97 to Bring Lot up to 100 shares on Monday (See Disclaimer): GYB is a synthetic floater tied to a GS TP maturing in 2034. I have had some success over the past couple of years trading the synthetic floaters tied to GS junior and senior bonds, and fixed coupon trust certificates containing GS bonds as the underlying security. I have traded in and out of the synthetics several times. I sold 100 GYB in the same IRA account at 18.09 purchased at $10.95 in April 2009. Part of the reason for paring the position was the negative news about GS at that time.

GYB is a trust certificate containing a GS Capital Trust Preferred maturing in 2034. The float is created by a swap agreement. As long as that swap agreement is in force, the owner of GYB will not receive the fixed coupon of the GS TP which is 6.345%. Instead, GYB will pay the greater of 3.25% or .85% above the 3 month Libor rate currently at an abnormally low rate. There is a maximum rate, 8.25%, which would be hit when the 3 month LIBOR rate exceeds 7.4% during the relevant computation period. (prospectus: www.sec.gov). At the maximum rate, the yield at a total cost of $17.97 would be around 11.48%. At the 3.25% minimum rate, which is in effect now, the yield would be around 4.52%. So, the rate paid by GYB will fluctuate between 4.52% and 11.48% at a total cost of $17.97. Since the security was bought at a discount to its $25 par value, there would be an additional return realized by holding GYB until maturity in 2034, assuming Goldman is still around to pay the $25 par value.

I am not too concerned about what may happen between now and 2034 since I am now playing with the house's money on these GS trust certificates, taking into account interest payments and realized profits compared to the cost of unsold positions. I believe that this objective was achieved by selling 50 of the 150 JBK. Bought 50 of the TC JBK at $16 (closed at $21.15 on Monday) The lowest cost shares remaining include 100 shares of PYT bought in two 50 share lots at $11 and $13.34, and the remaining 100 JBK purchased in the main taxable account at $16.15. I can not find where I sold the other 50 of GYB bought at $11 but this was apparently done at some point. I will only buy the synthetic floaters in retirement accounts due to tax issues related to the swap agreement.

Some of the transactions on trust certificates containing GS Bonds include the following:

Bought 100 GYB at $10.95 in April 2009 Added another 100 GYB in Regular IRA at $11 Sold 100 GYB at 18.09 Sold 50 GYB at $15 (other 50 sold at some point)

Sold 70 PYT at 18.66 (bought at 15.75) and Bought 70 GYB at 18.49 in Regular IRA

Bought 50 PYT in Roth at $13.34

Bought 50 PYT at $11

Bought 100 JBK at $16.15

Added 50 PJI at 20.17 Sold 50 of 100 PJI at 21.35

Bought 100 GJS at $10.5 SOLD GJS at $13.06 Bought 100 GJS at $12.25 Sold 100 GJS at $15.6 in Roth

(see generally: Synthetic Floaters)

4. Merchants Bancshares (MBVT) (own-regional bank basket strategy): Merchants Bancshares announced net income of 4.59 million for the 2nd quarter or 74 cents per share, up from 34 cents in the linked quarter. I thought that might be a misprint when I first saw it. The one analyst that follows the bank estimated 54 cents. As a result of improved credit quality, MBVT announced it had reduced its loan loss provision to zero. LB thought that had to be some kind of mistake. Maybe some of the swashbucklers from Georgia need to take a lesson or two from the Vermont bankers at MBVT. NPAs as a percent of total assets was .63%. The tier 1 leverage ratio was 8.02%, and the net interest margin was 3.81%.

MBVT rose 2.73% or 64 cents yesterday to close at $24.09.

5. Health Management Associates (HMA)(owned-2010 Speculative Strategy): Health Management Associates reported 2nd quarter earnings of 16 cents per share, an increase of 23.1% from the 2nd quarter of 2009 and 1 cent better than the consensus estimate. Revenues were 1.2478 billion. The provision for doubtful accounts was 12% of net revenue, down from 12.1% in the year ago quarter. HMA rose 2% in trading yesterday to close at $7.14.

The author of the most recent weekday trader column in Barrons believes Wall Street is underestimating HMA's "ability to generate profit". The obvious point made by the author is that the recently enacted healthcare reform legislation will substantially reduce the number of uninsured patients starting in 2014, thereby significantly limiting the bad debt problem experienced by all U.S. hospitals. An analyst at T. Rowe Price is quoted as saying that HMA will be one of the big winners from the Democrats legislation, opposed by all republicans in Congress who will do whatever they can to repeal it. HMA is discussed in the following posts: Bought 100 HMA at $8.82 Sold 100 HMA at 9.28 Bought 50 HMA at 7.55 Added 50 HMA at 6.75/ & item # 6 HMA.

6. Dupont (DD)(owned): Prior to Tuesday, I had only two individual stock positions in the IRAs now. One of the two is DuPont and the other was sold yesterday (see Item # 7 below) Keeping DD around has less to do with DD than the purchase price paid for the shares during the Dark Period. My yield at the purchase price of $16.68 in early March 2009 is near 10%. Still I may take the profit soon.

As I mentioned in a few recent posts, there seems to be a disconnect between the forecasts being made by American corporations and the ones made by practitioners of the dismal science, who may be infected with the perpetual pessimism of Alan Abelson. I suspect that Alan confuses being perpetually negative with being a contrarian.

Back to DuPont. DuPont beat estimates by 24 cents and raised its forecast. DuPont reported earnings of $1.26, or $1.17 excluding items, on a 26% increase in sales. DD increased its 2010 outlook to a range of $2.90 to $3.05 from $2.5 to $2.7. Before this release, the consensus estimate was for an E.P.S. of $2.64 in 2010.

Dupont rose 3.57% or $1.39 to close at $40.38 yesterday, but came off its intra-day high of $41.14.

7. Sold 50 NYB in Regular IRA at $17.51 and Bought 100 of the CEF JSN at 12.80 Tuesday (see Disclaimer): 

2010 NYB 50 Shares +$331.03

The profit on the NYB shares purchased in the regular IRA was too large to ignore. Item # 4 Added 50 NYB at $10.57  I previously sold a 50 share lot for a smaller profit. Added 50 NYB at $10.9 Given the conservative management strategy for the retirement accounts, and the size of the profit realized well within one year, I decided to take the profit rather than to continue to risk it. I will risk the profit on 100 shares of NYB in a taxable account bought at slightly higher prices. Bought 50 NYB at $11.3 50 NYB at $11 NYB was scheduled to release 2nd quarter earnings later this morning.

In its place, I bought 100 of the Nuveen CEF JSN at $12.80. I own 109.415 shares of JSN in the Roth with an average cost of $9.04. I quit taking the distributions in cash due to the narrowing of the discount to NAV. In the event the newly acquired shares fall significantly, I will include them in the next ROTH conversion.

JSN was selling at a negligible discount to its NAV before falling about 10 cents in price yesterday. JSN - Nuveen Equity Premium Opportunity Fund This CEF attempts to replicate the performance of a 75% weighting in the S & P 500 and a 25% weighting in the Nasdaq 100. "The fund also uses an index option strategy of selling S&P 500 and NASDAQ index call options in seeking to moderate the volatility of returns relative to an all equity portfolio." The current yield is around 10.43%. Dividends are paid quarterly. This is a link to the SEC filed quarterly report for the Q/E 3/31/2010.

NAV information can be found at the above referenced page at the Nuveen web site or at the CEFA - Closed-End Fund Association Total expenses are listed at .71%. JSN - Nuveen Equity Premium Opportunity Fund As of 5/28/2010, this CEF had 256 holdings

Pared PNW at 39.25/Bought 100 of the ETF DTN at 42.45/Added 50 HFBC at 9.26/2011 Dividend Tax Limbo/STL PBIB NWBI WSBC/Bought 50 UNB at 18

A resident of Bell, California wanted to know how much the small town's chief administrative officer and city counsel members were paid and was told by the city clerk that the administrator made $185,736 and the council members $8,076. Well, as you might suspect, those number were not entirely accurate. When benefits are added to the numbers, the administrative officer of this small town was making almost $800,000 per year with an estimated pension of $600,000 a year. The assistant city manager was making around $376,000. And the part time city council members, some of them were pulling in close to $100,000. LA Times

The Old Geezer worked too hard yesterday, and had to take a nap after the market closed. Maybe the OG will wake up in time to assume HT duties later today. The OG is more adventuresome than the super cautious LB, at least until the OG gets the shakes which happens with some frequency.

There was some shift yesterday morning out of bond funds and bonds into stocks. Since the OG needs a rest, and LB is already working 24/7, about five trades made on Monday will need to be discussed in the next post.

The S & P 500 did manage to close above its 200 day moving average yesterday. S&P 500 INDEX,RTH Index Chart

At some point yesterday afternoon, before dozing off, the OG realized that the Regional Bank Basket Strategy had become material, defined to mean by the OG as any strategy whose collapse would cause the OG to have a bad case of indigestion and a flare up of the nerve issue. "Steady, OG, Steady", the RB muttered.

1. 2011 Tax Rates-Still in Limbo: I last discussed this issue in a April post. Dividend Tax Rate in 2011? If Congress fails to act, a large number of tax cuts will expire at the end of this year, and a summary of the major ones can be found at The Tax Foundation. Two of those provisions are the 15% tax rate for long term capital gains and qualified dividends.

The Democrats may have hit on a politically appealing plan to extend the Bush tax cuts, set to expire at the end of this year, to about 95% of the population. The general idea is to dare the republicans to block an extension of those tax cuts for 95% of the taxpayers to defend tax cuts for the "wealthy", in the terminology of the NYT. There are a few kinks in the plan that are developing. Some of Senate Democrats want to extend the Bush tax cuts for everybody for at least a year due to still shaky economic recovery. One of those senator, Evan Bayh of Indiana, is retiring at the end of his current term. Another Democrat senator voicing the same concerns, Ben Nelson of Nebraska, has voted just recently with the republicans on one of their now routine filibusters in the Senate. Obama is against extending the Bush tax cuts for the "wealthy", generally defined by the Democrats as a couple earning over $250,000 per year or an individual making more than $200,000. Those individuals are mostly part of the republican constituency and are generally not supportive of the Democrats' plans to redistribute money earned by them to the Democrat constituency. Obama's positions are described in the "multimedia" pop up, which has to be clicked at page two of the aforementioned NYT article.

On the issue of qualified dividends, which are now subject to a top tax rate of 15%, Obama would extend that rate for those deemed not "wealthy" by the Democrats, and would raise the rate to 20% for couples making over $250,000 and singles over $200,000. Everyone would pay 20% on capital gains, up from the current 15%. Those considered well off would also have their marginal tax rates revert back to pre-Bush tax cut levels of 36% and 39.6%.

2. Porter Bancorp (own-Regional Bank Stocks basket strategy): For the second time, Porter released an awful earnings report after the market closed on Friday. I sold my initial stake at 14.7 after Porter released its 2009 4th quarter report. In that earlier report, released on a Friday, the bank reported a 3 cent loss, compared to the consensus profit of 44 cents, based on increasing NPLs by 58.6 million in the quarter to 84.9 million. Item # 6 PBIB My initial reaction was probably the right one. Instead of just staying away, I was encouraged by the 1st quarter report and the bank's continuation of a 20 cent per quarter dividend. I therefore bought the 50 share position back at $14.1o and later rounded the lot to 100 shares with a purchase at 13.27 after noting some encouraging remarks by the CEO about loan losses.

As I said Porter did it again. Late Friday, Porter Bancorp reported a net loss of 15 cents per share due to substantial increases in the provision for loan losses. NPLs as a percentage of total loans is 3.64%. NPAs to total assets is a way too high 6.66%. The allowance for loan losses to total NPLs is 55.11%, suggesting the possibility of further surprises down the road. After a recent capital raise (Form 8-K), and the continued presence of TARP money on the balance sheet, the capital ratios are okay.

Porter's CEO, Maria L. Bouvette, claims that the bank's core operations remained solid during the quarter. Net interest margin increased 58 basis points year-over-year to 3.71%. Ms. Bouvette and Charles Porter control about 54.5% of the common stock. PBIB: Major Holders for Porter Bancorp, Inc Porter's life history is summarized in this article in Business First of Louisville. I decided to keep PBIB for the time being, though I may sell 50 of the 100 shares at some point.

The market must have anticipated the dismal report since the stock rose 9 cents in trading yesterday.

Another small bank, based in Louisville, does not appear infected with the same infestation of problems, Republic Bancorp (RBCAA).

3. HFBC: HopFed Bancorp, Inc.- Added 50 at $9.26 (owned-Regional Bank Stocks basket strategy)(see Disclaimer): HopeFed is a small bank headquartered in Hopkinsville, Kentucky. The one analyst following this bank estimated earnings for the 2nd quarter of 2010 at 35 cents per share. HopFed Bancorp reported net income for the 2nd quarter of 1.814 million or 46 cents per share. This bank recently completed a share offering at $9 per share raising 28.2 million in net proceeds. It injected 10 million of those funds into Heritage Bank, HFBC's wholly owned thrift subsidiary, to raise its capital ratios. NPLs as a percent of total loans was 1.83% of total loans. On a consolidated basis, the total risk based capital ratio increased to 18.03% on 6/30 from 13.75% on 12/31/2009. The bank is paying a quarterly dividend at a current rate of 12 cents, which results in a dividend yield of over 5%. Tangible book value is $13.6 per share.

HopeFed did receive 18.4 million in TARP funds. (page 3 Form 10-K) The last earnings report did not contain a balance sheet. I believe this amount is still outstanding and was shown on the balance sheet contained in the 1st quarter 10-Q filed with the SEC. After injecting 10 million into its bank subsidiary, HFBC would have had 18.2 million in net proceeds from the stock offering.

The bank owns the real estate for all of its branch locations except for one (page 31 Form 10-K)

I thought that the report was good enough to round up my lot to 100 shares by buying 50 yesterday at $9.26. I now have two satellite brokerage accounts, one that use to be a savings account and another that was primarily a money market mutual fund account with some bond and conservative stock funds. In both of those accounts, whose primary objective is capital preservation, I have opened cash stock brokerage accounts and have purchased stocks with relatively high yielding dividends. One account now has close to 25 names in it and I added HopFed to another which now has 6 individual stocks in the account. For both of those accounts, I view almost all of the individual stock selections as disposable when and if short term rates rise to an acceptable level. Currently, the savings account rate is a tad above 1% and the low cost money fund is hugging zero per cent. This is a modest shift away from my cash allocation, which was near 30% since 2007 until recently. The shift is due entirely to the Federal Reserve's two year Jihad against savers that is expected to last almost another year.

4. Sterling Bancorp (STL)(own common: Regional Bank Stocks basket strategy; also own TP STLPRA): Sterling Bancorp, based in NYC, reported net income of 2.3 million or 9 cents per share, one cent better than the consensus estimate. Allowance for loan losses to non-accrual loans was 109.76%. NPAs to total assets was .85%.

Bought 50 STL at 6.58/Added 50 STLPRA at 8.69 Bought 100 STLPRA at 8.87 Bought 50 of the TP STLPRA at $8.99 Sold 100 of the TP STLPRA at 10.25

STL rose 7.64% or 73 cents to close at $10.28 on Monday.

5. Pared PNW at $39.22 Monday (see Disclaimer): I sold my highest cost PNW shares using FIFO accounting at $39.22. I am keeping my lower cost shares bought in two separate lots with the last purchase made at $31.9 last October. Pinnacle West Capital is an electric utility serving Arizona. It is not a core electric utility holding and is owned primarily for the dividend. I will therefore trade it to capture small share profits and to lower my overall average cost in the shares. The proceeds were used to buy the ETF DTN which gives me a broader exposure to dividend paying large cap stocks.

6. Bought 100 of the ETF DTN at $42.45 Monday (Large Cap Valuation Strategy)(see Disclaimer): This ETF is consistent with the large cap valuation strategy and secondarily to the dividend growth strategy. It is consistent with the dividend growth strategy particularly in its exclusion of large cap financial stocks altogether, who were notorious for cutting their dividends during the Near Depression period which will disqualify them from my dividend growth strategy most likely for the remainder of my life. { Item #3 Large Cap Valuation Strategy-A New Long Term Strategy and in Item # 1 Large Cap Valuations; Item # 6 Common Stock Dividend Growth vs. Long Term Investment Grade Bonds}

DTN is the WisdomTree Dividend ex-Financials Fund. The dividend yield is close to 4%. WisdomTree Dividend Top 100 Fund, DTN Fund Quote This ETF does not include any financials. Dividends are paid quarterly. The expense ratio is .38%. The heavist weight sector is utilities at 16.66% followed by consumer staples at 15.65% and industrials at 10.81%. This ETF attempts to track the Wisdomtree Dividend ex-financials index which measures the performance of "high dividend-yielding" U.S. stocks outside the financial sector. About 72% of the index is large cap stocks with market caps greater than 10 billion with the remainder in mid caps with market caps between 2 billion to 10 billion. WisdomTree Dividend ex-Financials Index

7. Northwest Bancshares (NWBI)(own-regional bank strategy): Northwest Bancshares reported a net income of 16.1 million for the 2nd quarter or 15 cents per share. The consensus estimate from 4 analysts was 13 cents. NPAs as a percentage of total assets was 1.87%. Allowance for loan losses to NPLs was 57.87%. Net interest margin was 3.47%. Compared to the other banks, the reaction of NWBI's stock to its earnings report was far more subdued, with the stock rising 22 cents or 1.86% to close at $12.02.

8. CNB Financial (CCNE)(own-Regional Bank Stocks basket strategy): CNB Financial reported net income of 3.1 million or 34 cents per share, up 25.6% from the 2nd quarter of 2009. The estimate from 3 analysts was 23 cents per share. Net interest margin was 3.67%. The capital ratios are good. NPAs to total assets was 1.77%. This is a decrease from 2.11% as of 3/31/2010. This bank was a recent acquisition. Bought 50 CCNE at 11.06

CCNE rose 7.03% or 78 cents to close Monday at $11.88.

9. Bought 50 Union Bankshares (UNB)(category 2-regional bank basket strategy)(see Disclaimer): This is a very thinly traded stock. I placed a limit order to buy 50 shares at the asking price of $18. Union Bankshares Inc (UNB) is a small bank operating in northern Vermont and northeastern New Hampshire. The bank opened two new branches in St. Albans and Danville, Vermont in July and October 2008 respectively. St. Albans is north of Burlington, near the border with Canada. Danville appears to be in a rural area. danville vt - Google Maps I counted 14 branches at the bank's web site: Welcome to Union Bank, Vermont's community bank. Only one of those is in NH, a town called Littleton.

UNB pays a good dividend, as many of these small banks do, and the yield is around 5.55% at a total cost of $18. Union Bankshares Inc, UNB Stock Quote The rate is 25 cents per quarter. It goes ex on 7/28, but that is not important.

The bank does not provide much in the way of details in its press releases announcing quarterly results. The SEC filed press release for the 2nd quarter reported net income of 1.53 million or 34 cents per share, up from 28 in the linked quarter from 2009. I will have to wait for the 10-Q to look at more details. The last SEC filed 10-Q for the March quarter showed good capital ratios. As of 3/31/2010, the total capital to risk weighted assets ratio was 15.3; the tier 1 capital to average assets was 9.9% (see page 44); the Net interest margin was 4.41% and the NPAs to total assets was 1.12%. In short a conservatively run small bank.

I do not expect much from this particular buy. The stock is not down much from the 2006-07 trading range of mostly in the $20 to $24 range: Union Bankshares, Inc. Share Price Chart | UNB If I collect a few years of dividends and then sell for $22, I would be pleased.

The Morningstar data does show a small dividend cut in 2009 from a $1.12 annual rate per share. The current rate is $1 annually per share. The dividend was increased in every year from 2001 to 2007, moving from 71 cents to $1.12 in 2007.

10. Wesbanco (WSBC) (own- Regional Bank Stocks basket strategy): WSBC reported after the close yesterday. The consensus estimate from 7 analysts was 28 cents. WesBanco reported earnings of 31 cents, up from 18 cents in the 2nd quarter of 2009. As of 6/30/2010, net interest margin was 3.56%; tangible book value was $11.95 per share; book value was $22.74 per share; NPLs to total loans was 2.78%; and the allowance for loan losses as a percentage of NPLs was .69. The stock rose 47 cents or 2.93% before the report's release in trading yesterday.

Bought 50 WSBC at 13.3

The regional bank basket has too many names in it for me to capture all of them with a snapshot, as I have been doing periodically. The current unrealized appreciation is close to $4,070, down from over 6 thousand at the end of April. There is close to a 2 thousand dollar realized gain so far, mostly in a few names such as EWBC. There was a $706 increase in the basket yesterday. LB hopes that the OG and the RB are near the end of adding names to this basket because LB is sick and tired of looking at these earnings reports.

11. Dividends and Interest: On Wednesday, 7/28, the following securities go ex dividend or interest. The TC with a XEROX TP, KTX, goes ex interest for its semi-annual payment. Added 50 KTX at 25 Union Bankshares goes ex for its quarterly dividend payment. GJN, a synthetic floater, goes ex interest for its monthly payment. BUY 50 GJN AT $12. The Prudential CPI floater, PFK, goes ex interest for its monthly payment. Both the junior and senior exchange traded bonds, DFP and DFY, go ex interest for their quarterly interest payments. Brookfield Asset Management (BAM) goes ex dividend for its quarterly dividend. Santander (STD) goes ex for its quarterly dividend.