Bought 50 ZBPRB at 25.05/Sold 50 ISCA @ 23.66-Bought 50 TRK @ 14.55/Bought: 100 KMP:CA @ 10.17 CAD & 100 ZCM:CA @ 15.3 CAD

The Fed released yesterday the minutes of its meeting held earlier in November. FRB: FOMC Minutes, November 2-3, 2010 The members "noted a number of factors that were restraining growth, including low levels of household and business confidence, concerns about the durability of the economic recovery, continuing uncertainty about the future tax and regulatory environment, still-weak financial conditions of some households and small businesses, the depressed housing market, and waning fiscal stimulus." They also noted that the housing sector "remained depressed" and the foreclosures were continuing to place downward pressure on home prices. The members were disappointed in the slow pace of job creation. There was also disagreements on whether QE2 would work and whether the potential benefits were greater than potential risks. 


It was not surprising that the FED downgraded its growth forecasts for both 2010 and 2011. The new forecast for 2010 is for growth of 2.5%, down from the previous 3% to 3.5%.  The forecast for 2011 is now 3% to 3.6%, a reduction from the prior estimate of between 3.5% to 4.2%. I doubt that many would be surprised by further reductions in the 2011 estimate during the course of next year. 


The 3rd quarter GDP estimate was revised up to 2.5% from the earlier estimate of 2%. News Release: Gross Domestic Product The firing of some artillery shells by the incorrigible North Korea, along with the continuing sovereign debt problems in Europe which refuse to go away, were viewed as far more important than that GDP revision for traders yesterday.

Allied Irish Banks, whose ADRs closed 89 cents per share on the NYSE, reported last Friday that it had lost 18 billion dollars or 17% of its deposits since June.


1. BOUGHT 50 ZBPRB at $25.05 on Monday (see Disclaimer): This TP is deservedly rated as junk, and I view it as too risky to own in an IRA. Based on the information at QuantumOnline.com, Moody's rates this security at Caa1, while S & P has it at "B".

I would prefer to own a bank TP in a retirement account, primarily due to their distributions being taxable as interest rather than as qualified dividends. And, if I am unfortunate enough to get caught holding one that defers its interest payments, I avoid the unfavorable tax consequences associated with such a deferral when the security is held in a taxable account. With a bank like Zions, deferral of interest payments is certainly within the realm of possibilities.  

I have an extremely negative view of Zions Bancorporation, whose managers dug a very big hole for Zion's shareholders by fueling an obvious real estate bubble in Nevada and Arizona and suffering the natural and inevitable consequences of that imprudence.  The impact can be seen in the massive losses experienced by the bank in 2008-2010. (net loss in 2009=$9.92 per share, Form 10-K) Horrendous does not adequately describe it. The last quarter was just another loser: Form 10-Q

But, I have a problem.  Notwithstanding my extremely negative view of Zions' management, bonds in all of my accounts are being called now virtually every week. Given the Jihad by the Federal Reserve against responsible Americans, and the strong desire of those in power to make responsible Americans pay for the sins of the Masters of Disaster and the millions who participated in the creation of the real estate bubble,  I have run out of acceptable individual bonds to buy which is why I have come back to the ZBPRB, previously bought and sold at lower levels. Bought 50 ZBPRB in Roth at $19.9 Sold 50 ZBPRB at 24.38 If ZBPRB tanks on me, I am going to send a bill to the Fed or maybe a real estate appraiser.  

As previously discussed, ZBPRB is a typical trust preferred security. Zions creates a Delaware Trust, called Zions Capital Trust B, who then sells preferred stock in that trust in a public offering and uses the proceeds to buy a junior bond issued by Zions. The "preferred stock" represents an undivided beneficial interest in those bonds owned by the trust. This bond matures on 9/1/2032. In effect, ZBPRB is a junior bond that makes quarterly interest payments. Those payments can be deferred for up to five years.  Any payments deferred accumulate and earn interest at the 8% coupon rate.

I discuss in prior posts that this security is senior in priority to ZBPRA, ZBPRC and the governments' cumulative preferred stock still on Zion's balance sheet. This is viewed by me as an important point.  Zions would have to eliminate the dividends currently being paid to its common shareholders, and to the owners of both ZBPRA and ZBPRC which includes me, and defer payments to the U.S. government, before it could defer paying the owners of ZBPRB.  Several banks have eliminated their common and equity preferred dividends and deferred paying the government, so this can happen. It would be a big step for Zions to do it. I would regard such an action as an admission of serious trouble.  SEE Discussion at ITEM # 7 Bought 50 ZBPRB in Roth at $19.9

Trust Preferred Securities: Links in One Post
Regular Preferred and Trust Preferred

Trust Preferred Securities & Financial Reform

I also currently own 100 shares of the floating rate equity preferred stock with a guarantee, ZBPRA, bought  at $7.8. I also made three chicken buys of the fixed rate equity preferred stock, ZBPRC, which has a $25 par value and a 9.5% coupon. (Buys at $18.4, 23.75 and recently at 25.28) 

Before adding even 50 shares of ZBPRB on Monday, I made the following calculations to be sure that I was not exceeding my comfort level by too much on this basket of deservedly junk rated securities. I added up all of the dividends received from these 3 issues as well as the profits already realized from trading them, and came up with $652.5. I then added up my total cost exposure to ZBPRA and ZBPRC, which was $2300 for the "C" shares and $788 for the "A" preferred shares. After subtracting realized gains and distributions previously received from that total, I calculated that I had a net exposure of $2435.5 after realized profits and distributions. My comfort level, as previously noted, is $3000 for this junk. By adding 50 ZBPRB at $25.05, I have gone over my comfort level by about $690, but that is not by enough to cause the Old Geezer to hide under the sheets.

And, all of these securities go ex later this month which will bring me a tad closer to that $3000 number. I mention all of the foregoing to show how closely I will monitor my exposure to a known risky issue, and will hopefully arrive at a point where I am playing with the house's money on this grouping of three securities. Part of the process of moving toward that goal involves occasionally exceeding my comfort level, then pulling back by selling some hopefully at a profit. I have a good unrealized long term capital gain in the 100 ZBPRA shares bought at $7.8, now trading at close to $19, and I successfully exited a smaller position in that security in the regular IRA. Bought 50 ZBPRA at 12.5 in IRA  SOLD 50  ZBPRA at $ 16.85.

See also: Analysis of Prior Question: ZBPRA vs. ZBPRC OR ZBPRB
Item # 2  More on Zion's Debt and My Limited Exposure to Junk Rated Issues

ZBPRB closed at its par value of $25 on Monday, down 19 cents. It was unchanged on Tuesday. I do notice it when securities hold their value or rise during periods of market turbulence and/or when the stock averages decline by significant amounts, as was the case yesterday. The next ex interest date is 11/26.

2. Medtronic (owned): Medtronic reported a Non-GAAP earnings per share of 82 cents, in line with the consensus estimate, on a 6% increase in revenue on a constant currency basis. Emerging market revenue grew 19% on a constant currency basis. The company lowered slightly its range forecast for F/Y 2011 E.P.S. to between $3.38 to $3.44 including 5 cents in dilution from its recent acquisitions of ATS Medical and Invatec but excludes dilution from its recently announced acquisition of Ardian.  Medtronic closed at $34.18 yesterday, down 52 cents. I was not impressed by the report.

3. SOLD 50 ISCA at 23.66  on Monday and Added 50 TRK at $14.55 on Tuesday (see Disclaimer): On Monday, I noted that Speedway Motorsports was sliding, while International Speedway (ISCA) shares were holding up.  I bought 50 shares of TRK and ISCA at the same time as a contrarian play. Bought:  50 TRK @ 15.77, 50 ISCA @ 23 Due to the decline in TRK, which accelerated some on Tuesday, I decided to go with that company as my contrarian play on U.S. motorsports and consequently averaged down by adding 50 shares at $14.55. TRK's price to book is less than 1. I had a limit order on Monday to buy TRK at a higher price, but it was not filled, saving me a few bucks.

4.  Bought 100  KILLAM PROPERTIES (KMP:CA) at $10.17 CAD and 100 of the Canadian bond ETF  BMO Mid Corporate Bond Index (ZCM:CA) at 15.3 CAD (see disclaimer): For both of these purchases, I did not use my existing stash of Canadian dollars to settle the purchases. Instead, as a result of the decline in the CAD against the USD yesterday, I settled the trades using USDs which Fidelity converted into CADs. Both of these securities have declined enough in price over the past few days to almost pay for my 19 Canadian dollar commission.

I mentioned the bond ETF from the Canadian brokerage firm BMO in connection with my 200 share purchase last Friday of another Canadian corporate bond ETF, the Claymore 1-5 Year Laddered Corporate Bond. Item 1: Added 200 CBO:CA @ 20.58 CAD The BMO ETF invests in investment grade Canadian corporate bonds with a maturity between 5 and 10 years. BMO Mid Corporate Bond Index ETF - Fixed Income The expense ratio is .3% and dividends are paid quarterly.  As with all of my Canadian holdings, I will take the dividends in CADs. This is a link to the list of holdings: Holdings.

Killam properties is my fifth recently added Canadian real estate company and my first non-REIT. Like the others, KMP pays monthly dividends, currently at a $.0467 rate, paid in Canadian currency. This results in around a 5.45% yield, the lowest among the REITs that I own, which is one reason for buying just 100 shares. Killiam does add some diversity. The company owns and operates 9524 apartment units primarily in the larger cities along the Atlantic coast of Canada. killamproperties August_2010.pdf Killam also owns Manufacture Home sites that are leased at levels close to 99% according to the previously linked fact sheet.  In those communities, the customer owns the home, and Killam leases the land. This is a link to the firm's web page for investors: Investors | Killam Properties

The remaining trades from Tuesday will be discussed in the next post.  

DKK-Called by Owner of Call Warrant/Bought 100 CUF-UN.TO @ 21.68 CAD/ADDED 50 KRH @ 24.3/HNZ FRD SUTR

The London P.M. fix for the price of gold on 11/18, the end date for MOL's first annual period, was  $1350.25.  That number will also be the starting value for the second annual period.  MOL, a "principal protected note" issued by Citigroup Funding and guaranteed by Citigroup, suffered a reversion during its 1st annual period to its 2% guarantee when the afternoon London fix hit $1395.50 on 11/5/2010.  MOL The maximum level for the second period is computed by multiplying $1350.25 x 1.19 which equals $1606.79 (rounded).  If the afternoon London P. M. gold fix exceeds $1609.79 on any day between 11/18/2010 to 11/17/2011, then the annual interest payment would revert to the 2% guarantee irrespective of the price of gold on the closing date for the second period. (see Bought 200 MOL at 9.95  Sold 100 MOL @ 10.3)  MOL was ex-dividend yesterday, paying its guarantee of 2% on the $10 par value or 20 cents per share.


I do not understand why the market last week perceived a bailout of Ireland to be a positive development.  The fact that hundreds of billions have to be used to keep several European governments afloat at this stage is not heartening, nor is it a positive that the Federal Reserve believes that another round of quantitative easing was necessary to jump start the anemic U.S. economy, a recipient already of an unprecedented amount of fiscal and monetary stimulus over the past two years.   I added a couple of sector double shorts near the close yesterday as the market rallied toward the close.   Hopefully, those two securities will continue to fall in value, in which case I will sell them, along with two recently purchased index double shorts, for a loss before year end, offsetting in very small part the ton of short term gains already realized this year. I will outperform the S & P 500 this year with a balanced portfolio including cash even if the market rallies into year end.  So, I am mostly trying to preserve what I have already gained in 2010.   Why did I say hopefully lose money on those 4 double shorts?  The best way to hedge a stock portfolio in my view is to sell stocks,  which was my approach in 2007, and I have already pared my stock positions as much as I want to do over the past few weeks.  This leaves me with using the double shorts to create a temporary, small hedge for a sizable core stock position.     


1. DKK-CALLED (owned-100 shares in the Roth IRA): The owner of the call warrant for the trust certificate DKK has notified the trustee of its intent to acquire all of the bonds in the trust by paying the owners of DKK the $25 par value of each certificate plus accrued interest (note: semi-annual interest is normally paid in December for DKK).   Structured Asset Trust Unit Repackagings (SATURNS) Series 2003-3 Trust Receipt of Notice of Intent to Exercise Call Options in Full  The settlement date is scheduled for 12/6/2010.   I own DKK, KTN and KVW, all containing the same AON junior bond.  That bond is trading above its par value, FINRA, so it is profitable for the owner of the call warrant to exercise it, pay off the owners of the TCs, take possession of the bonds, and then to sell them for a profit in the bond market. 


The TC KTN is unusual in that there is no call warrant attached to that TC, and it is trading near $29 most days now, even though it has a $25 par value.  TRUST CERTIFICATE AON BOND KTN ORDER FILLED AT 13.10   KTN add at less than $14 Sold 50 of 150 KTN at 28.17 (see also item # 5   Sold 50 of 150 DKK at $24.87 Sold 100 of 200 KVW at 24.75 (remaining shares bought at $16.08 on 9/30/2008 before starting this blog).   I have bought and sold the four TCs containing this same bond based in part on their potential returns compared to each other:  Functional Equivalence in Bond Trading  Managing Risk in an IRA: KTN and KVW


See generally:  Trust Certificates: Links in One Post
More on the Call Warrant in TCs
Call Warrants and Trust Certificates
Call Warrant Exercised on JZE and JZJ
Alert on TC DKW-Exercise of Call Warrant/SOLD 50 OF 150 DKW @ 25.20


DKK originates from Morgan Stanley, who most likely still owns the call warrant.  MS has been far more aggressive than the other brokerage firms in exercising these warrants.


2. Bought 100  COMINAR Real Estate Investment Trust at 21.68 CAD (see Disclaimer):  The symbol is CUF_UN:CA at Fidelity.  Cominar is the 4th Canadian REIT that I have bought on the Toronto exchange, along with 200 shares of an ETF that invests in Canadian REITs.   Bought:  200 XRE:CA @ 13.78 CAD (ETF), Bought: 100 CAR-UN.TO @ 17.35 Bought 200 AX-UN.TO @ 13.41 CAD  Bought: 200 SRQ-UN.TO @7.53 CAD  All of these securities pay monthly dividends.  I take the dividends paid by all of my Canadian securities in Canadian dollars.


Normally I would not be looking for REITs to buy in Canada or anywhere outside the U.S. for that matter, but the search for yield has taken me to many places where I ordinarily do not go as investor.  Coping with the Federal Reserve's Jihad Against Savers  I also view the Canadian REITs favorably in terms of their occupancy rates, the dividend yields and their monthly distributions.  I really needed a pretty big push, however, from everyone's Uncle Ben to start scrounging around in Canada for higher yielding REITS.   Besides, I have to invest my CADs to earn a return. The alternative is to earn nothing at all on that position which is significant for me.      

Cominar is the largest commercial real estate owner in the Quebec province. It owns 254 properties.  Of those, 47 are office properties which were 94.7% leased as of 9/30/2010.  Cominar Properties - Overview The company also has 51 retail properties with a 95.3% lease rate and 156 industrial and mixed use properties at a 92.8% occupancy rate.   One reason for adding Cominar was to give me more exposure to industrial properties in Canada.

This is a link to the firm's distribution history: Investor Relations - Distribution History  The current rate is 12 Canadian cents per month or $1.44 CAD annually, or about 6.65% before the Canadian withholding tax and at a total cost of $21.68 CAD. Cominar Real Estate Investment Trust, CUF.UN Stock Quote

3.  Friedman Industries Inc and Added 50 to  Sutor Technology Group Limited at $2  (LOTTERY TICKET strategy)(see disclaimer): Both Friedman and Sutor are two micro cap companies in the steel industry.  FRD is headquartered in Texas while Sutor is a Chinese company.   Yet, they have some common characteristics that make them suitable in the Lottery Ticket category.

When I purchased 50 shares of FRD at $5.76, I noted that the company was selling at below its liquidation value.   It had earned $2.01 per share for its F/Y ending in March 2009, but then the recession took its toll.   I then noted in a post from last September that FRD had turned profitable again, reporting an E.P.S. of 21 cents for the Q/E 6/2010 and doubled its dividend to 8 cents per quarter. Item # 5    FRD  The stock had risen to $6.69 at the time of that post. Still, the stock was selling at a price to book of .79 and a price to sales of .56.  

Given my number of holdings, I am not focused on my LTs, and I just periodically look at an earnings report and some news items.  I noticed over the weekend that FRD had risen another dollar in price since my September post, and the company had reported another profitable quarter.  For the Q/E 9/2010, the company reported earnings of 26 cents on revenues of 29.353 million dollars, much improved over the the 3 cent loss in the year ago quarter on 16 million in sales. 10Q  Price to sales and price to book remain below 1: FRD Key Statistics | Friedman Industries  There are no analyst estimates.  The current market cap is around 53 million. 

I bought 50 shares of Sutor at $2.81 last March and added 50 shares at $2 last week.  Like many of the Chinese small cap companies, this one has not fared well in price this year.   But, I decided to add to the position based on the last quarterly report and the stock's low valuation.  Price to sales is .18 and price to book is listed at .46.  The company is reporting earnings.  So all of those characteristics are relevant in an LT selection when combined with a low stock price and P/E.   The 2 analysts providing earnings estimate predict 35 cents per share for the F/Y ending in 6/2011 and 43 cents in F/Y 2012.  If that proves accurate, and who knows about the future, the forward P/E is less than 5.  

Sutor does file reports with the SEC, and this is a link to its last filed  Form 10 Q. For the Q/E 9/2010, the firm earned 8 cents per share, up from 1 cent in the year ago quarter.  Needless to say, I would not risk any significant amount of money on a Chinese small cap for a host of obvious reasons, and this firm was consequently assigned to the LT category which limits my exposure to a maximum of $300 with certain exceptions not applicable to SUTR. 

Most of the LTs have been sold, and I am finding few suitable replacements.


4. Heinz (own- Buy of HNZ at 31.67 March 2009):  Heinz reported earnings last week for its second fiscal quarter of 78 cents per share, beating the consensus estimate of 76 cents, on 2.61 billion in revenues which was less than the estimate of 2.67 billion.    Revenues in its U.S. Foodservice unit fell 2.9% to 362 million on a 4.6% decline in volume.  North American food products sales increased by 1.4% to 803 million.  European sales fell 5.2%, due to currency exchange, while volumes increased only by .7%.  Growth is occurring in emerging markets, however, where Heinz posted 10.2% organic sales growth.  Global ketchup sales grew 3.3% during the quarter on an organic basis and the top 15 brands had organic growth of 2.7%.


5. Added 50 KRH at 24.3 in the Roth IRA (see Disclaimer):  I am starting to receive what feels like a barrage of bond redemptions, and two of those calls in the past week  involve securities held in the Roth IRA.   Last week, notice was given by Delphi Financial of its intent to call its senior bond DFY, and I own 150 shares of DFY in that account.  As noted above, the owner of the call warrant for DKK has indicated its intent to redeem my 100 shares held in that retirement account.  Since I had some cash, recently raised from the sale of the ETF BSCE, I decided to look around for another bond that still had a half way decent yield from my perspective.  That process bought me to the trust certificate KRH, which has a 7.75% coupon on its $25 par value.  That equates to a 7.97% yield at a total cost of $24.3.


The underlying security in both KRH and PKM is a junior bond issue from Hanover Insurance company, whose common stock trades under the symbol THG. Hanover recently reported net income for the 3rd quarter of 52.3 million, up from 49.7 million in the 3rd quarter of 2009, beating estimates. The consensus E.P.S. estimate for 2010 is $2.77 and $4.12 for 2011, THG Analyst Estimates | Hanover Insurance Group Hanover also pays a common stock dividend which would have to be eliminated before it could defer the interest payments on its junior bond.  

The FINRA site shows that this bond is rated BB- by S & P and BB+ by Fitch. I would just view as a higher quality junk bond. A Hanover senior bond, with a 2025 maturity, is rated at BBB- by S & P, FINRA. The only material difference between KRH and PKM is the coupon. While the underlying bond has a 8.207% coupon, the TC PKM has a 8% coupon and KRH is at 7.75%.

KRH Prospectus: www.sec.gov

PKM Prospectus: www.sec.gov

The underlying junior bond and the TCs mature in 2027. Interest payments are made in August and February. 

I am already over my comfort level in exposure to the junk rated bond that is the underlying security in both KRH and PKM.  One way to relieve that anxiety is to take a chill pill and forget about it.  Unfortunately, I do not have any chill pills.    And LB does not need any, just to be clear on that point.  The other way is to sell some of the shares of either PKM or KRH bought over a year ago in a taxable account, at much lower prices, to lock in a long term capital gain, and then keep the PKM and KRH shares in the retirement accounts.  I have bought KRH as low as $19 and still own those shares in a taxable account.  PKM was bought at an even more favorable price and it has a 8% coupon:  Bought 150 TC PKM (100 at $17.8 in taxable account & 50 in IRA at $17.6  I still own 100 of those PKM shares.  


I will discuss one more of the trades from Monday in the next post, omitting any further discussion of the specifics of my hedging activity.   

Added 200 CBO:CA @ 20.58 CAD, 50 JQC @ 8.8/Bought 100 MSW @ 6.6 & 100 PSY at 10.25 in Roth /Sold GYC at 22.3 in regular IRA

CLOSED END FUNDS 11 19 2010

The preceding table is my closed end fund mini-portfolio, which has expanded in terms of holdings and has shifted some to bonds, compared to the last table that I posted in early October: Sold 100 ERC at 16.27.  Several new bond CEFs were recently added, including 6 municipal bond CEFs (BKK, NPF, NQS, NPM, MNP, & the taxable municipal BAB CEF fund NBB), a foreign bond CEF (FAM), as well as a new  U.S. corporate bond fund ( BDF).

Additions were made to other bond CEFs (MMT, PSY). Several stock funds were eliminated (TY, NFJ, MSF, NIE, GGN) or reduced (CSQ, GDV). There was also a small reduction in GDO. Prior to those municipal bond CEF adds, I had never owned one other than NBB which is a taxable municipal bond fund.

Over the past two weeks, the municipal bond market was in a sharp correction as previously discussed in several posts from last week. The leveraged municipal bond CEFs magnified that correction as one would expect.

In his Barrons.com column this weekend, Randall  Forsyth noted the hysteria, apparently caused by easily spooked individual investors redeeming 3 billion from tax-exempt bond funds.

Andrew Bary devoted a column to the latest municipal bond sell-off in his Barrons column, arguing that their low prices now, relative to taxable bonds, "offer bargains" for selective shoppers who focus on bonds backed by essential services, like water, sewer and power.  

The Baltic Dry index continues to look anemic: BDIY: BALTIC DRY INDEX Summary - Bloomberg

1. Added 200 shares of the Canadian bond ETF Claymore 1-5 Year Laddered  Corporate Bond at 20.58 CAD on Friday (see Disclaimer):  This brings me up 300 shares of this Canadian corporate bond ETF that pays monthly dividends. I bought those shares on the Toronto exchange and my dividends will be paid in  Canadian dollars. I also own 400 shares of the Canadian  Claymore 1-5 Yr Ladderred Government Bond.

Both positions are viewed as part of my long term position in Canadian dollars. These purchases are part of my ongoing effort to achieve some yield on my Canadian dollar position. I am willing to accept the currency risks inherent in owning securities denominated in Canadian dollars, realizing that there will be many times when an adverse currency exchange will wipe out the value of the dividends paid by securities whose distributions are paid to me in the Canadian currency, until that change reverses. The Canadian dollar and the U.S. dollar are near parity now. Since I am a long term holder of Canadian dollars, I am not personally concerned about changes in the exchange rates, which will cause significant fluctuations of the securities owed by me and priced in Canadian dollars. I am more interested in just earning a return on my Canadian dollar position, which led me to the purchases of several ETFs traded on the Toronto exchange, a few high yielding commons stocks and three Canadian REITs.    

The symbol for the Claymore 1 to 5 year laddered corporate bond ETF at Fidelity is CBO:CA.

This is a link to the sponsor's web site: Claymore 1-5 Yr Laddered Corporate Bond ETF ( CBO)  As of 6/30, the expense ratio was .27%. The current distribution yield is around 4.6%. The fund owns investment grade Canadian corporate bonds using an equal weighted ladder strategy, buying bonds maturing in 1 to 6 years. As the bonds with maturities between 5 years to 5.99 years mature, the proceeds are rolled in the one year part of the ladder.  This kind of strategy reduces interest rate risk.

A list of this ETF's holdings can be found at CBO Holdings 

The shares of this ETF can be bought in the Grey Market in the U.S., but that market lacks any transparency.

I considered buying another Canadian ETF that is offered by BMO: BMO Mid Corporate Bond Index ETF - Fixed Income - BMO Exchange Traded Funds (ETFs)  I decided to add to the Claymore product instead based on a number of considerations.  I liked the roll and ladder aspects of the Claymore fund which is not present in the one offered by BMO.  Also, I prefer to be paid monthly dividends, and the BMO fund pays quarterly. The Claymore ETF is more actively traded and generally has a lower bid/ask spread.

2. Bought 100 MSW at 6.6 in Roth IRA on Friday (see Disclaimer):  Mission West Properties, Inc is a REIT that owns controlling general partnership interests "of 24.44%, 21.86%, 16.32% and 12.52% in Mission West Properties, L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II and Mission West Properties, L.P. III, respectively, which represents a 20.83% general partnership interest in the operating partnerships, taken as a whole, on a consolidated weighted average basis."  (page 4 10q).  Through those operating partnerships, the company owns interests in 112 R & D/office properties in the Silicon Valley region in California.

I view this REIT to be both speculative, given the current over-capacity of buildings in this area, and a decent income generator provided no cuts in the current distribution.   The current quarterly dividend is 15 cents per quarter which results in over a 9% yield at a total cost of $6.6. The main problem, other than the ownership structure and some litigation, from my point of view is the vacancy rates in the Silicon Valley, discussed at page 14 of the 10-Q.

The occupancy rate for the properties owned by the operating partnerships is a really low 67.8% as of 9/30/2010.  So, this one is viewed as risky but a potential turnaround too. However, that turnaround may take years due to the large vacancy rates in this area. 

3. ADDED 50 to JQC at $8.8 on Friday (see Disclaimer):  I will periodically add shares to the balanced CEF.   It has been some time since I last added shares to my position.  I added 50 shares at $6.97 in November 2009, 100 shares at $6.31 in July 2009, and 50 shares at $4.83 in October 2008, shortly after starting this blog.  I started to reinvest the dividends again in the 3rd quarter of 2009. This last purchase 50 share purchase brings me to over 500 shares. 

On 11/18, JQC closed at $8.85 and had a net asset value then of $10.14 per share, creating a discount to net asset value of -12.72. On 11/19, the shares closed at $8.79 and the NAV increased 1 cent to $10.15 which expanded the discount some to -13.4.   The current distribution rate at that market price is 7.91%, paid in quarterly installments.  The current quarterly distribution is 17.5 cents per share.  The fund does use leverage.  The current allocation as of 9/30 is close to 60% debt/40% equity including convertibles.  

The debt is mostly investment grade with some junk (14.9% BB, 11.7% B, 2.4% CCC, 01% CC and 1.7% not rated).  Most of the investment grade is in the BBB category (at 40.4%). The fund had 965 holdings as of 9/30. 

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

4. Sold 40 of the Synthetic Floater GYC at $22.3 in regular IRA on Friday (see Disclaimer): Most of the securities in my regular IRA were transferred to the Roth IRA, starting in October 2008, and all of those transfers worked out extremely well on a timing basis.  

Generally, when I have some money to invest in the regular IRA now, I only have sufficient funds to buy a small odd lot of an income security, like the 40 shares of GYC which were bought at $21 last September. I still own 50 shares of GYC in the Roth bought at  $15.5 in May 2009. GYC is a synthetic floater tied to a senior AT & T bond that pays the greater of 3.25% or .65% above the 3 month Libor with a maximum rate of 8%. Par value is $25.  www.sec.gov The underlying bond matures in 2034. I simply do not find this security very attractive at the current price. I will have some more funds to invest in the regular IRA when I receive the proceeds from Delphi's redemption of its senior bond DFY in late December.

Synthetic Floaters
Trust Certificates: Links in One Post Duplicate Post

5.  Bought 100 PSY in the Roth IRA at 10.25 on Friday (See Disclaimer):  I also own PSY in a taxable account and recently added to that position at a slightly higher price. ITEM # 6 Bought  100 PSY @ 10.53  I have nothing to add to that discussion about this bond CEF.  On Friday, PSY closed at $10.25 and had a net asset value then of $11.39 per share, creating a discount of -10.01 to NAV.  WSJ.com

Bought 100 CBLPRC @ 24.36, 50 NXYPRB @ 25.15, 50 CIZN @ 18.7, 50 AF @ 12.08, 50 CSCO @ 19.55, 50 PSEC @ 9.97 in IRA

The forgoing table contains the latest version of the stocks in my Regional Bank Stocks's basket strategy, including those purchases discussed in today's blog.  The realized gains so far in 2010 are summarized in Item # 3 2010 Realized Gains Regional Bank Stock.

Where I purchase the security in more than one lot, I am using my average cost.  The dividend yield is at yesterday's closing price.  In many cases, my dividend yield is much higher based on my cost.   I have given this basket a small makeover, dumping some more speculative names and emphasizing current dividend yield more.

Another one of my income securities has been called by its issuer. RenaissanceRe has called for full redemption RNRPRB at its $25 par value plus accrued and unpaid dividends to the redemption date of 12/20/10.  My last purchase of this security was bought solely for its after tax income generation. Bought 50 RNRPRB at 24.24 

Prior to that purchase, I had been buying and selling RenaissanceRe equity preferred stocks based on my assessment of their total return potential compared to each other.  Sold 50 RNRPRD at 22.05 & Bought 50 REPRB AT 20.78  Bought 50 RNRPRD AT 19.58 Needless to say, the pickings are for all practical purposes non-existent in bond land. So finding replacement securities for those being redeemed requires me to lower my standards more than I care to do. The replacement for RNRPRB is discussed below in Item # 5.

1. Bought 100 CBLPRC at $24.36 (see disclaimer):  In a prior post, I mentioned that I would consider buying back CBLPRC after selling my 170 shares of the common stock, when the opportunity arose. Sold: 170 CBL @ 18.04 The opportunity that I envisioned then was at a much lower price than $24.36.  But, due to my high cash levels now, I am looking for yield again.  CBLPRC, with its $25 par value and 7.75% coupon, has a yield of around 7.95% at a total cost of $24.36.

I have discussed this REIT cumulative equity preferred stock in the past, as I have bought and sold it at lower levels.  One of the sells was triggered by a decision to add to the common shares as a lottery ticket.  When I first started to buy this security, it was trading near $10 during the Dark Period. Buy CBLPRC

RB wants to know why HK no longer owns those shares, adding as a hypothetical question, is it better to buy CBLPRC at $10 or at $24.36?  And, as always, if anyone flunks one of RB's pop quizzes, then for sure a conservator needs to be appointed to manage their assets.   

REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

2. Bought 50  Citizens Holding Company (CIZN) at $18.7 on Wednesday (Regional Bank Stocks' basket strategy) (see Disclaimer) This bank is headquartered in Philadelphia, Mississippi, a name well known to historians of the Civil Rights struggles in the South.   It has 23 full service banking centers in 10 counties in eastern Mississippi, and has recently opened one in Hattiesburg.  This is a link to the map of those banking centers:    LocationsMap .pdf  This bank was added primarily for its dividend yield, its ability to remain profitable during the Near Depression, and its generally strong capital ratios.  CIZN has not yet jump started earnings growth over 2009 levels however, and that is its most important drawback. The bank earned 37 cents in the 3rd quarter of 2010, up from 36 cents in the comparable quarter in 2009.  For the first nine months in 2010,  the E.P.S. number is $1.12 on a diluted share basis, up 1 cent from the first nine months of 2009. (page 2:  Form 10-Q Looking at that in a positive light, at least the bank was earning money in 2008 and 2009 (2009 Annual Report to Shareholders at p. 5), an achievement compared to many of their compatriots in the industry.    The current dividend rate is 21 cents per share, up from 20 cents in 2009, and the current rate of 84 cents annually would result in a yield of 4.49% at a total cost of $18.7.

As of 9/30/2010, its capital levels, found at page 19 of the Form 10-Q, were well in excess of levels considered well capitalized, with the total capital ratio at 15.88%; the Tier 1 Capital to risk-weighted assets at 14.64%; and Tier 1 capital to average assets at 8.84%.  The net interest margin was then at 3.96%.  The efficiency ratio was at 68.3%. And those numbers are without any government preferred stock on the balance sheet.  The bank did not participate in TARP, which is viewed positively.   Press Release I did not see either any trust preferred securities being used as equity capital, and those TPs are viewed as bonds here at HQ rather than equity capital.

This stock usually has a wide bid/ask spread and is thinly traded.   The total market cap is around 92 million at the current price.

3. Added 50 to ASTORIA FINANCIAL (AF) at $12.08 on Wednesday (Regional Bank Stocks' basket strategy)(see disclaimer):  This was a quick average down, and the LB was severely admonished by Headknocker for violating his cardinal rule of trading, i.e., buy only stocks that go up after the purchase.  I just bought 100 shares of AF at 13.08.  While the bank went ex dividend for its quarterly payment after that purchase (13 cents), the decline over the past few days was about 6.72% at the average down price of $12.08.  RB wanted to buy a 1000 but LB is too cautious to buy more after such a sharp decline on no news.  The dividend yield does improve to around 4.25% at a total cost of $12.08.

4.  Bought Back 50 Cisco (CSCO) at $19.55 on Wednesday (see disclaimer):  Fortunately, the LB- sensing trouble-unloaded the 50 shares of Cisco at 24.42 on 11/08,  before the disastrous earnings and revenue forecasts for the current quarter and fiscal year were hurled at unsuspecting investors by John Chambers. I have had a series of fairly successful small odd lot trades on Cisco, usually holding the shares only for a short period of time. The shares sold at $24.42 were bought, for example, at 20.39 in early September 2010.

Of course, the LB is a  Scaredy Cat, a wimpish girlie man, RB interjected, who frequently acts out of the belief that the Masters of Disaster and assorted other evildoers are ought to get it.  LB responded that this constant movement in and out of positions makes HQ harder to hit, as Cassius Clay a/k/a Muhammad Ali once said, float like a butterfly and sting like a bee. 

Cisco has been punished enough, though I would not expect any significant spurts in price for the remainder of 2010.  The forward P/E based on the current price and the consensus estimate for FY ending 7/12 is just 10.66.  Total cash per share is close to $7. The book value is around $8 per share. Chambers apologized to shareholders on Thursday for surprising them, and named Huawei as Cisco's biggest competitor. Reuters

5. Bought 50 NXYPRB at $25.15 (see Disclaimer):  My main problem  with NXYPRB is that I did not want to pay a penny over a par value, and would feel more comfortable buying shares at below $23. I also had previously resisted buying any bond with a maturity after 2039, due to my age. But, given the JIHAD by the Federal Reserve against savers, now well into its third year, all that I can say is "beggars cannot be choosy".

NXYPRB is an exchange traded junior bond issued by Nexen (NXY), a Canadian energy company.  The coupon is 7.35% on a $25 par value.  The bond matures in 2043, and I have problems with such a long maturity.  On the positive side, interest payments are made quarterly in U.S. dollars.

This is a link to the prospectus: Prospectus Supplement

I do not own Nexen's common shares but I am familiar with the company.  The current consensus estimate made by 9 analysts is for earnings of $1.6 in 2010 and $2.14 in 2011. The 2011 revenue estimate is 7.29B. NXY Analyst Estimates | Nexen, Inc

Nexen does file reports with the SEC and this is a link to its last filed form10q.

I do not plan to buy more of NXYPRB unless there is a substantial fall in price unaccompanied by negative news.

6. Bought 50 PSEC @ 9.97 in regular IRA (see Disclaimer): Prospect Capital Corporation is a business development corporation. Those corporations, like REITs, have to pay out at least 90% of their income to shareholders.  These companies will generally lend money to private companies, and may take an equity stake in those companies.  

As with REITs, the requirement to distribute such a large amount of taxable income can create a high level of dividend income. The downside is that the private companies frequently come to these business development companies for capital because they are new companies lacking a satisfactory track record for significant loans from banks or have run into some operational difficulties.  

A number of the loans will have to be written off, and I view these companies as more risky than REITs. And, during the Near Depression period and for months thereafter, several of these BDCs include Prospect cut their dividends and raised capital by selling stock at historically depressed levels.    

I previously bought 50 PSEC in the regular IRA account at $10.48 and thereafter sold those shares  at $12.16 in March 2010.   My last purchase in a taxable account was in July at 9.5.

I have also discussed this company in several prior posts. (see e.g.,  Item # 5  PSEC; Item # 3 Federal Reserve)

PSEC switched from paying quarterly dividends to monthly dividends when it reduced its dividend level. The monthly penny rate has been increasing slightly since that cut. The upcoming dividend payments for the months of November, December and January will be $.100875, $.101, and $.101125 respectively.  Prospect Capital Declares the 28th, 29th and 30th Consecutive Cash Distributions of the Company I guess that you call that dividend raises with almost a straight face. For ease of calculating a yield I will just call it 10 cents a month which gives me a 12% yield at a total cost of $9.97, slightly more with you add up the fractional cents and assume a continuation of those kind of monthly dividend raises.

Prospect has filed a  Form 10-Q for the Q/E 9/2010. Starting on page 7 of that filing it lists its investments in those private companies, and they are not exactly household names. I recognize a few companies. The net asset value of those investments is listed at $10.24. The hope is that these companies will become better investments as the economy improves, so that I have a chance for capital appreciation in the shares along with collecting dividend payments.

I own 200 shares in a taxable account and have not traded those shares. Instead, I have opted to add to the position periodically in small increments. I will trade the 50 shares purchased yesterday in the regular IRA since I view PSEC as being too risky for a long term hold in my retirement accounts.   So for those shares, I would be pleased to make a $100 on the shares plus a few dividends.

I added to a LT as my only other trade on Thursday,  and I may discuss it in the next post. 

Sold: 100 BSCE @ 20.85, 50 PYS @ 24/Bought: 50 NBB @ 18.4, 50 BDF @ 17.73, 100 MMT @ 6.67

The Adams Express Company (ADX), one of my larger stock CEF positions, went ex dividend yesterday for its year end distribution of 36 cents (27 cents LT capital gains).

I look at the  WSJ.com dividend page every night.  I noticed that the Aegon and ING hybrids, which I own, declared their regular quarterly distributions (own AEH, AEF, AEB, and INZ). Aegon Hybrids: Gateway Post A few of the trust certificates that I own declared their regular interest payments (KTV, FJA). OSM, a senior note whose monthly interest payments are tied to a calculation based on CPI, (www.sec.gov), declared a $.0647 payment for December.  This payment has been trending down as expected.  The payment in July was at $.0886 per share.   (to see how the penny rate is calculated, one of the more recent posts explaining it is in Item # 9,  Bought 50 OSM at 15.74).  When I first started talking about this security, shares were available at less than $10. Item # 3  CPI FLOATER: OSM (12/2008).

CPI increased .2% on a seasonally adjusted basis in October.  The increase over the past 12 months was 1.2% without seasonal adjustment.   Excluding food and energy, the index was unchanged in October.  Consumer Price Index Summary  The bond market seemed to like these numbers initially, but the 30 year treasury bond sold off later in the day.

Most of the American electorate believes in meaningful spending cuts by the federal government only in theory. The average republican is no exception. A campaign commercial, where the candidate professes to be a conservative and a staunch believer of fiscal responsibility and balance budgets, can help that candidate win based on those generic statements, without delving into any details about how to do it.  This of course requires the listener to be quite gullible, which is unfortunately often the case, or just plain ignorant, more frequently the case.  It is all of those budget details, after all, which would lose those candidate votes, and cost them an election, when and if anything was actually done to pare spending to levels necessary to restore some semblance of fiscal responsibility.   It was hardly surprising to see GOP political commercials during the last election attacking Democrats who voted for legislation that attempted just to reduce future increases in medicare spending.  And, a recent poll showed that a significant majority of Americans have no stomach for the initial recommendations made by the National Commission on Fiscal Responsibility.  The republican respondents were even more negative on those recommendations than the Democrats.   WSJ   The recently newly elected GOP representatives know that their supporters will respond to cliches and talking points about fiscal responsibility, but would abandon them in a heartbeat once the representative actually supported the necessary cuts to restore fiscal responsibility.   It is really easy to be a hypocrite, and ignorance is a form of bliss.   

1. Sold 100+ of BSCE at $20.85 in the Roth IRA on Tuesday (see Disclaimer): There are just too many alternatives for more income emerging by the day, so I eliminated this ETF with a 2014 that was paying close to 2%.  This shares were bought at 20.16 in June and I had been reinvesting the dividend.

2. Sold 50 of the Trust Certificate PYS at $24 on Tuesday (See Disclaimer):  This trust certificate contains a R.R. Donnelley bond as its underlying security.  It was bought   at 19.59 last June.  Its coupon is 6.3% on a $25 par value. www.sec.gov I would not buy this bond at $24 and would characterize the yield at that price to be unattractive. Consequently, I decided to take my profit. I certainly would consider buying it back somewhere south of $20.  This TC went ex interest for its semi-annual payment in October:  PPLUS TRUST SERIES RRD-1, PYS

3. Bought 50 of the bond CEF BDF at $17.73 on Tuesday (see disclaimer):  On Tuesday, this unleveraged bond CEF closed with a net asset value of $19.95 per share and at a -11.18 discount to that NAV.  BDF is classified as an investment grade bond ETF.  It recently completed the acquisition of another closed end investment grade bond fund (Hartford Income Fund-last filed sec report).   The holdings for BDF for the period ending in June 2010 can be found at www.sec.gov.  Those holdings would not include those acquired by virtue of the merger with Hartford.

The last SEC filed shareholder report is for the period ending in March 2010.  The expense ratio for the year ending in March 2010 was shown at page 13 as .85%.  This is the link to the CEFA and Morningstar pages on BDF. Dividends are paid quarterly, and the current rate is $.2875 per share.  At a total cost of $17.73, that equates to a yield of 6.48%.

A non-leveraged investment grade fund will have a lower payout now than a similar leveraged fund, since the leveraged fund is currently earning a good spread between its cost for borrowed funds and the yield paid by the bonds bought with those borrowed funds.  The non-leveraged fund, on the other hand, does not have the interest rate risk of the leveraged fund linked to several factors: increases in borrowing costs due to a rise in interest rates, a decline in bonds bought with those borrowed funds due to a rise in rates, and the increased volatility (and concomitant discount expansion) for the leveraged fund compared to the non-leveraged one caused by a change in perception about interest rate risk

4. Added 100 MMT at $6.67 in regular IRA on Tuesday (see Disclaimer):  I made an exception to the 50 share adds on bond CEFs for MMT given its single digit price. MMT is another  closed end bond fund that closed on Tuesday at $6.69 with a $7.73 net asset value, creating a discount of -8.73.  MFS Multimarket Income Trust  As previously discussed, the current monthly distribution rate is $.045, which equates to a 8.1% yield at a total cost of $6.67.  I discussed this CEF in more detail when I bought 300 shares in a taxable account   at 6.95 last October. (item # 1).  The fall in price (adjusted for dividends) since that purchase was due to an increase in the discount, a common phenomenon for the past week or so in bond CEFs.

5. Added 50 NBB @ 18.4 in the regular IRA On Wednesday (see Disclaimer):  I mentioned a few days ago, after buying this bond CEF at 19 last Friday, that I was not going to buy anymore.  Well, that was then, and LB pulled the trigger yesterday morning on another 50 at $18.4.  LB noticed that the ETF for Build America Bonds, BAB, which is also owned here at HQ, was rising in value at the time this trade was made by the Nerd.  The municipal bond ETFs, like MUB and TFI, were also rising.  So, the LB reasoned that the decline in NBB, which raised its yield to over 7.5% with monthly distributions, looked more attractive at $18.4 than it did a few days ago at $19, and who could argue with that line of reasoning.  Besides, if it continues to decline, I put it in the regular IRA and there is always the option of including those shares in a Roth conversion when and if there is a significant decline in value. I adopted that Roth conversion strategy in October 2008, with considerable success given the rise in values after the conversion, and consequently  moved most of the funds out of the regular IRA into the ROTH IRA at depressed prices.    

The monthly distribution rate is currently $.117.  This fund is leveraged. Even though NBB owns municipal bonds, it is okay to put it in a retirement account since those bonds are taxable municipal bonds.  I would of course never buy any security that pays tax free interest or dividends in a retirement account.   NBB is in effect an investment grade taxable bond alternative to a corporate bond CEF.  I did note the closing NAV information for 11/16 before placing the trade.  The NAV was at that time $18.99 per share which created a discount of -1.9 at the closing price of $18.63 on Tuesday.  WSJ.com

The Build America Bond program is set to expire at the end of this year.  If it is not extended, which is possible,  NBB will be liquidated in 2020 provided there are no BABS or similar U.S. treasury subsidized taxable bond sold for any 24 month period prior to 12/31/2014. NBB - Nuveen Build America Bond Fund So, it is possible that NBB may turn into a term bond CEF, which is preferable from my point of view. 

NBB closed at $18.43 on Wednesday, down 20 cents or 1.07%.  The ETF BAB rose 21 cents or .83%.  MUB, a national ETF for TF municipal bonds, rose 21 cents, and sold off its high of $101.25 to close at $100.61.  An article in WSJ pointed out that MUB has recently been closing at a discount to the value of bonds owned by this ETF.   The NAV can be checked daily at the sponsor's web site: iShares S&P National AMT-Free Municipal Bond Fund (MUB): Overview - iShares  The discount mentioned in that WSJ article narrowed some on 11/17, as the NAV fell $1.05 to $101.26 and the shares closed that day at $100.54.  Part of the recent weakness is probably due to a surge in supply this week: Bloomberg David Rosenberg has given his two cents worth in his Breakfast with Dave column for 11/16/10, calling the fear of default risk overblown (see page 2).

There has been a considerable amount of negative commentary about municipals by those who view themselves as pundits.  Most of that negativity centers around credit concerns, as local and state governments in many areas of the country are still feeling the sting of the recession and have never really brought their spending in line with the lower revenues.  A typical negative opinion was expressed by Chris Whalen, who opined  in an interview at Tech Ticker that California will default on its obligations.

  After rising in early trading yesterday, the long treasury bond fell 9/32 in another volatile day of trading, closing with a yield at 4.289%  Possibly, the decline into the close was a delayed reaction to Robert Rubin's comment that quantitative easing and the U.S. budget deficit were placing the U.S. in "terribly dangerous territory", and the government was risking an implosion in the bond market.  This could be accelerated- by those who believe that the Bush tax cuts were proven to be the magic elixir for job creation between 2003-2010 and their Tea Party allies- refusing to increase the nation's debt limit.

The remaining trades from Wednesday will be discussed in the next post. 

Sold: 50 PFS @ 14.4, 100 GGN @18.13, 50 DKQ @ 23, 100 MLPI @ 29.93, 200 SFH @ 10.85/Bought 50 IGI at 20.05 & 100 @ 19.85, Bought 50 HPF @ 17.55 and at 17.76

Walmart same store sales in the U.S. declined for the sixth straight quarter, as the company met expectations for its Q/E 10/2010 with an E.P.S. of 90 cents.  I do not own WMT shares, and view the foregoing as important only in what it says about the U.S. consumer.   

The decline in municipal bond ETFs and CEFs has the flavor of manipulation to me, as if some hedge funds were trying to induce a selling panic which has already been successful.  The bond CEFs which will generally have relatively low share volumes are more susceptible to price manipulation than the ETFs. 

With my recent capital raises, coming primarily from a shift out of stocks into cash, I have elected to continue buying the bond CEFs, corporate and municipal, leveraged and unleveraged, as they plummet in value.  However, I have decided to change my purchases from 100 share nibbles to 50 shares and to space the buys out more in time.   I will also change my distribution options on some of them, less than 1/2, to reinvestment into additional shares. 

An important part of investment strategy is the shift in asset allocations based on a dynamic, as distinguished from a static,  process.  Instability & Volatility in Asset Correlations  Static v. Dynamic Asset Allocation More on Failures of Standard Asset Allocation Models and Target Funds/Use of Volatility in an Asset Class to Make Adjustments to an Asset Allocation  

This process also requires a continuous assessment of the relative value of assets in real time.  Back in October 2008, when I started to write this blog, that process led me to a niche type of investment, called trust certificates, that represented an undivided interest in the bonds owned by the trust, as well as floating rate equity preferred stocks with guarantees like METPRA, REIT preferred stocks, Synthetic Floaters, European hybrids and exchange traded baby bonds. Trust Certificates; AEgon Hybrids ING Hybrids; Advantages and Disadvantages of Equity Preferred Floating Rate Securities Floaters 


When I first discussed AEB for example, it was selling at $7 per share, LIBOR AND THE AEGON FLOATING RATE PREFERRED STOCK (Oct 2008).  In retrospect, this proved to be an excellent price to initiate a position. 

However, in the ensuing months, the price of this security fell to $3.  The moral of that story is that I may ultimately be proven right about the asset class being undervalued and rewarded for my assessment, but it may look like that I made a mistake for weeks or even months.

I was rewarded quite soon for the shift out of short term bonds into stocks in March 2009 (see posts staring in early March 2009).  These  kinds of asset allocation shifts are absolutely necessary during a long term secular bear market in one or more major asset classes, and needs to be accelerated in periods where the volatility indexes are in what I call an Unstable VIX Pattern. Vix Asset Allocation Model Explained Simply  VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern Current Status of The Vix Asset Allocation Model Signal (August 2010 post) The alternative is go nowhere  for fifteen years or so, and to lose ground to inflation. Buy and Hold or Dynamic Asset Allocation/Trading: Long Term Secular Bull and Bear Markets 

While security selection is certainly important,  asset allocation is the key. I mentioned in a comment to the an earlier post that I will underperform the market for the remainder of the year in the event stocks rally into year end. I outperformed in 2008 due to the shift out of stocks into short term bonds and cash. Buy High & Sell Low /Retrospective on the Good & Bad (October 2008) If stocks had continued to move up in 2008, I would have significantly underperformed my benchmark of the S & P 500. As mentioned in that comment and in prior posts, my goal every year is to beat the S & P 500 with a balanced portfolio,  hopefully designing a portfolio that is less volatile and risky than that market average while ultimately performing better. And do that successfully, I have to be mostly right in my asset allocations even if my timing is off some.   

Over the past several weeks, it is apparent to anyone reading this blog daily that I have shifted money out of stocks into cash. I see some value in the closed end bond funds, whose yields and discounts to net asset value are increasing by significant amounts daily. Market pricing of those securities has become irrational in relation to the price movements of the securities owned by those funds, and the precipitous declines in those funds suggest to me price manipulation. So I am adding some shares to those funds each trading day now, and will continue to do so if and when they decline further in their market prices. Based on the price action in the bond CEFs yesterday, you would not have known there was a robust rally in the treasuries as well as a recovery in LQD, the ETF for investment grade corporates.  The thirty year treasury rose 2 12/32, while the 10 year advanced by 1 1/32. TLT jumped $2.33 or 2.48%. VCLT, a Vanguard ETF for long term corporate bonds, rose $1.26 to $77.77. 

The  ^VIX shot up 2.38 to close at 22.58 yesterday, spending only seven days below 20.  So far, the swing trade, which involves selling stocks when the VIX falls below 20, and buying them back on spikes to the high 20s or above, continues to work, which is a characteristic of the whipsaw movement of a Phase 1 Unstable Vix Pattern.  

1. SOLD 100 GGN at $18.13 on Monday in the Roth IRA (see Disclaimer):  I simply can not maintain a bullish stance on the price of gold at current levels. I bought 100 shares of GGN, a CEF that invests in gold mining and other natural resource stocks at 17.41 in October and will collect one monthly dividend. I may buy this one back when and if there is a substantial correction in gold mining stocks.  GGN closed at $18.14 on Monday, and had then a net asset value of $17.57 per share.  I almost bought these shares back on Tuesday in a taxable account.  

2. Sold 50 DKQ at $23 on Monday (see Disclaimer): DKQ is a trust certificate containing a senior bond, originally issued by May Department stores, now part of Macy's.  The TC has a lower coupon at 6.25% than the underlying bond.  www.sec.gov  At the $23 price the yield is around 6.79%.  Fitch and Moody's rate the underlying bond in the junk category.  I bought those shares over a year ago at $15.95.  I have bought and sold this TC, and no longer have a position in it.  When I first started to discuss it, it was trading at around $10.  TRUST CERTIFICATE MACY'S BOND DKQ

3. Sold 100 of the ETF MLPI at $29.93 for a ST Capital Gain in a taxable account on Monday (see Disclaimer):  The purchase of those MLPI shares was made  at 25.9 in July.  This is pure profit taking and a further indication of my increased caution. 

4. Sold SFH at $10.85 on Monday (See Disclaimer):  This is one of those sort of "principal protected notes". Bought 200 SFH at 10.18  When I sold the shares, I was assuming that Bank of America was highly likely to pay off the note, shortly after the first "observation" date on 11/29, at $10.955 per share.  After thinking about it for a few seconds, I did not see any reason to hang around for a few more bucks, particularly when the LB has an itchy trigger finger. 

5. Sold 50 of 100 PFS at $14.4 on Tuesday (Regional Bank Stocks' basket strategy)(see Disclaimer):  I pared this position by selling my higher cost shares, using FIFO accounting, which were bought at 12.74 last August. I am keeping the shares bought shortly after the first odd lot at 11.68.  PFS popped over 5% on Tuesday on news that it would be added soon to the S & P 600 small cap index. I view that kind of pop as artificial and usually temporary, and will generally pare a position whenever it occurs.  

Profit Snapshot: +$67.08

I am keeping track of the realized gains in the regional bank basket in Item # 3 2010 Realized Gains Regional Bank Stock  The unrealized gains have slipped some over the past few days, now standing at $4017.  As I would expect in a large basket, most of the unrealized gains are concentrated in a few issues.  As of yesterday's closing prices, these include the following:

50 WBS at + $ 627
100 NYB at  + $557
100 WASH at + $526
50 UBSI at + $520
100 CZNC at + $433
100 NHTB at + $359
100 FFIC at + $206
50 WSBC at  + $198.5  50 RNST at +$188    50 CCNE at + $179   50 MBVT at + $170   50 STL at + $138 50 TRMK at +$136 and 50 PFS at $107.5  (13 in the green below a $100 and 10 losers with an unrealized loss of $1051 led by PBIB at  -$317 and VLY at  -$242)


6.  Bought 50 of the investment grade term corporate bond CEF IGI at $20.05 in the Roth IRA and 100 shares at $19.85 in a taxable account, both on Tuesday (see Disclaimer):  Before buying this CEF again, I checked on the price of LQD, an ETF which also contains U.S. investment grade corporate bonds.  At the time of my trade, LQD was up 37 cents.    IGI, an investment grade bond CEF, which is unleveraged, had fallen 77 cents or over 4% when I made this purchase.  This was occurring at a time when I believed the value of the underlying bonds had increased in value during the trading day, up to that time.   Later, I noticed a small loss in LQD at around 10:30 and then bought 100 IGI at $19.85, down $1.05 per share at that point.   It was at that time that I decided to spread out my orders more in time and to reduce the size to only 50 share odd lots.


I have previously discussed this unleveraged bond CEF in detail. Bought 100 CEF IGI at $19.89 Sold 100 IGI at 21.26 Bought 100 IGI @ 21.04


As of the close on 11/15, IGI had a net asset value of $21.43 per share.  Legg Mason - IGI - Western Asset Investment Grade Defined Opportunity Trust Inc.  Dividends are paid monthly. A list of the current holdings can be found at the sponsor's web site: IGI Holdings


At a total cost of $19.85, the yield based on the current monthly dividend rate of $.1045 would be about 6.32%.  The dividend will be a tad higher in December due to some capital gains realized by this fund.    www.leggmason.com /press_release/ -IGI_Dividend_November_2010.pdf


IGI closed yesterday at $20.34, down 46 cents or 2.21%, and traded as low as $19.83.


The net asset value rose on Tuesday to $21.49 from $21.43.  The discount expanded to -5.35.   

IGI is ex dividend today.

7.  Bought 50 shares of the leveraged corporate bond CEF HPF at $17.55 in the Roth IRA and at 17.76 in a taxable account (see disclaimer):  I strongly suspect that this CEF, along with many others, has been subject to price manipulation to the downside, at least during the past several trading days.   When I added 50 shares on Tuesday at $17.55, this CEF, with mostly investment grade bonds, had declined from yesterday's close of $18.68 to $17.55, a $1.13 decline or 6%.   PGX, an ETF with similar holdings, was down less than 1% when I placed that trade.  At a $17.55 price, the yield on HPF at its monthly current distribution rate of $.124 per share is around 8.48%.   


I thought that the pricing in HPF yesterday, as well as most other bond CEFs, was most likely due to market manipulation by one or more funds, deliberating driving the price down.  Given the relatively low volume in these securities, and their heavy concentration in ownership among individuals, the nefarious lot can work a lot of mischief with a couple of million dollars, or even less.      

During the day, HPF fell as low as  $17.51 from its Monday close at $18.68 (a 6.26% decline intra-day).  The net value was at $20.36 on 11/15, with the discount then at -8.25.  There was a small decline in NAV on 11/16 to $20.22, a 14 cent drop from Monday's number (.00687% actual decline in NAV vs. market price decline of .0626% intra-day). Based on the closing price on 11/16, the discount to net asset value expanded to -9.05. 


The remaining trades from Tuesday will be discussed in the next post.    This kind of volatility will cause me to do more trading, selling some positions for gains and re-allocating capital to new positions viewed as potentially more rewarding.