CPI/Earnings: Edgen Murray, Sunstone Hotel/Added 100 of the Stock CEF EOI at 10.27

The WSJ claims that the trailing P/E on the Russell 2000 index is over 47.  WSJ

The market took a nose dive yesterday after Fitch released a report highlighting the possible contagion effect of the European sovereign debt crisis on U.S. financial institutions.  CNBC  WSJ   CNBC Video Fast Money  This was hardly new news.

Moody's downgraded the credit ratings of 10 German banks yesterday.

As noted in a WSJ article, ten year bonds from the Netherlands, France, Austria and Finland have increased their spreads compared to German 10 years, suggesting that the contagion effect is spreading to more fiscally sound nations.

I will periodically pull up a long term chart of the Nikkei 225 and wonder how that fits into Professor Jeremy Siegel's thesis. NIKKEI 225 Index Chart The index is currently below where it was in 1984, which seems like a long time ago. Japan is after all the world's second largest economy. While no one can predict the future, I suspect the S & P 500 will be hovering at 1998 levels again, at some point before 2014.  To Professor Siegel: Time for a Re-Think The Roller Coaster Ride of the Long Term Secular Bear Market

Reuters also reported yesterday afternoon that the Super Committee is in a stalemate. A failure to reach an agreement on what is a relatively small reduction in budget deficits would emphatically confirm the inability of Congress to deal with the U.S. fiscal crisis.

The ECB seems to be in a losing battle to keep bond rates from rising on Italy's sovereign debt.  (see discussion on yesterday's events in the WSJ.com). Even with aggressive buying by the ECB, the Italian 10 year bond rose slightly in yield. IT 10Y Govt Bond Benchmark The ECB was also reportedly buying Spain's debt yesterday and the 10YR_ESP Bond also rose slightly in yield notwithstanding that intervention.

The Supreme Court has agreed to hear an important privacy case involving the use of a GPS device, attached surreptitiously to a vehicle, to track the movements of an individual. In the case before the court, a warrant was secured initially to track the vehicle but it expired before police placed the device on the suspect's car. Washington Post The suspect was a drug dealer who was later convicted based partly on evidence secured by that warrantless tracking. His conviction was overturned by the U.S. Court of Appeals for the District of Columbia, who held that the extended use of such a device required a warrant. Other appellate courts had held that no warrant was required, relying on the Supreme Court's 1983 decision in United States v. Knotts, where the Court held that individuals had no reasonable expectation of privacy while traveling in their vehicles on public roads. In the Knotts case, a beeper had been placed in a can that allowed the police to track a vehicle.  

The case was recently argued before the Supreme Court:  supremecourt.gov/ argument_transcripts/10-1259.pdf

GDP increased by .2% in the both the 17 and 27 nation Euro areas in the third quarter, compared to the second quarter. epp.eurostat.ec.europa.eu .PDF I view this data with some suspicion. Spain, for example, is shown as having positive GDP numbers. I suspect Europe will be in a recession by the first quarter of 2012, notwithstanding any contrary data reported by the European statistical agency.  (see comments by economist in this Reuters article).

The Z.E.W. institute reported that its economic sentiment indicator for Germany declined for the ninth straight month, falling 6.9 points to a negative 55.2 points. The average reading is a plus 25 for this index.  ZEW Press Release.

CPI fell .1% in October on a seasonally adjusted basis. Core CPI was up .1%.  Over the past year, CPI increased 3.5% before seasonal adjustment. Consumer Price Index Summary

I attempted to double down again yesterday on a triple stock short ETF but I narrowly missed my limit price during a market rally. I have recently bought 1 triple short and two double short stock ETFs as hedges. Due to the tracking problems inherent with these securities, I will generally not hold them for long and will sell them before the end of 2011.

1. Edgen Murray (own 1 bond: FINRA): Edgen Murray, a private company, filed a SEC Form 10-Q for the third quarter earlier this week. The company reported a net loss of 4.429 million on revenues of $244.838 million. Depreciation and amortization expense for the quarter was $5.296 million. Net interest expense was $15.051 million. I own one 2015 senior secured note (see page 9 for a description of long term debt)  Sales backlog at the end of the last quarter was $412 million, up from $168 million as of 9/30/2010. (see page 26).

2. Sunstone Hotel (own equity preferred SHOPRA and SHOPRD only): Sunstone reported a loss of 24 million or 20 cents per share on $212.3 million in revenues for the third quarter. SEC Filed Press Release Comparable hotel RevPar increased 8.6% to $129.07 million. Adjusted Funds From Operations increased 67.6% to $23.7 million. The SEC Form 10-Q for the Q/E 9/30/11 shows $159.974 million in cash and $63.767 million in restricted cash. Long term debt totaled $1.342 billion. Total assets were listed at $3.209556 billion. This report is discussed at the Motley Fool. An earnings call Earnings Call Transcript is available for review at Seeking Alpha. 

3. Added 100 EOI at $10.266 Last Tuesday (see Disclaimer): I have been attempting to dig myself out of a hole on this stock CEF, but have so far only dug a deeper hole. There is some truth to the cliche that one needs to quit digging under such circumstances.  One problem with EOI is that the discount to net asset value has been expanding some since my last purchase at $12.78. Bought 100 of the CEF EOI at $12.78 That purchase was made in September 2010 when this CEF was selling at near its net asset value. The fund closed at discount to net asset value of 15.25% on 11/15/11. I mentioned in that post that I was attempting to dig myself out of a small hole and succeeded in making the hole deeper with that purchase.

Since that purchase in September 2010, the fund cut its monthly dividend from $.1164 per share to $.0919. Eaton Vance Closed-End Enhanced Equity Income Funds Declare Monthly Distributions. That may account for some of the expansion in the discount. Since the dividend has been supported by a return of capital, viewed as a negative, it would not be surprising to see another reduction, unless the fund can start generating capital gains sufficient to cover the current payout.

The return of capital information can be found at Morningstar, which assigns an unsatisfactory two star rating on this fund. Morningstar refers to the fund's managers as unimpressive and characterizes the return of capital as destructive. The portfolio as of 6/30/11 does not look inspired but it is not incompetent in my opinion either. (see holdings at Eaton Vance Enhanced Equity Income Fund) The total cost at that time was $448+ million and the value was over $538 million.

Sponsor's webpage: Enhanced Equity Income Fund | Eaton Vance
Closed-End Fund Association page on EOI.

This is an article from Wells Fargo Advisors on the return of capital issue: www.closed-endfunds.com .pdf

The fund uses a buy-write strategy. The Eaton Vance CEFs that use the buy-write option strategy have had disappointing results. This has led to the wide discounts to net asset value, as investors dump the shares. One columnist argues that this creates opportunities for new investors. Forbes (mentioning EXG at page 2) Maybe he will be proved right, but I suspect that the managers of these EV funds will need to prove themselves first or maybe EV will find new managers.

This is not an important or material position for me. I decided to stay with it and change my distribution option from cash to reinvestment for a year or two, provided the discount to net asset value stays over 10%.  

This purchase was made with cash flow received last Tuesday. I now own 414.411 shares of EOI.  I changed the distribution option to reinvestment for the 314.411 share position held in a taxable account.

EOI closed at $10.27 yesterday, down 6 cents for the day. 

Sold 200 of the Bond CEF NPT at $12.92/Earnings: AGY Holdings, Solo Cup, Dillard's/BAC Selling More CCB Shares/

The yield of the Italian 10 year bond rose to over 7% yesterday. IT 10Y Govt Bond Benchmark, 10YR_ITA Bond Quote - (ICAPSD)

I did receive my semi-annual interest payment yesterday on EK's 2013 senior bond.

For very good reasons, the EU leaders do not trust Greek politicians. Before dispensing the next 8 billion Euros to Greece, the EU has requested that the Greek politicians sign a pledge in writing that they would honor the austerity demands. I mentioned earlier that the leader of the New Democracy party, Antonis Samaras, refused to sign such a pledge. Samaras and his party have opposed virtually all austerity measures taken to date.  Members of the New Democracy party have also refused to sign that pledge. In addition, 101 members of the Socialist party signed a letter opposing cooperation with the the New Democracy party. Reuters I am not sure why the market believes that the appointment of a technocrat as the Greek P.M. for a short period solves anything. Martin Feldstein called the Greek situation "impossible" in a recent interview. Bloomberg

Using Census data, a study by Stanford found that 44% of families live in middle income neighborhoods in 2007, down from 65% in 1970. In short, the middle class is shrinking.  NYT (copy of report:  RussellSageIncomeSegregationreport.pdf)

It is no secret that the GOP wants to abolish the Environmental Protection Agency, or severely cut its budget and curtail its rulemaking authority under the Clean Air Act. The EPA currently has about 18,000 employees and a budget of $8.7 billion. A large number of inaccurate and false statements are made to justify their positions. A recent example comes from the TB Allen West who claimed that the EPA wanted to hire 230,000 workers at a cost of $21 billion, a claim rated as false by PolitiFact. Earlier this year, the House GOP members overwhelmingly voted to cut the EPA's budget by one-third. USATODAY.com There is a continuing effort by the GOP to block EPA regulations impacting the discharge of arsenic and mercury into the air. MiamiHerald.com Times Union latimes.com The general idea is to permit more pollution by certain industries that are big donors to GOP politicians.

Environmentalists lose support among many mainstream Americans by successfully stopping needed projects based on dubious reasons. Remember the snail darter and the delay in the construction of the Tellico Dam, as just one of many examples?

The Beanpole recently postponed a decision on the construction of a pipeline that would bring Canadian oil production from the oil sands region to Texas and Oklahoma refineries based on the vehement opposition of environmental groups and Nebraska. NYT The concern was that the proposed pipeline route crossed the Ogallala Aquifer, viewed as a critical source of drinking water in the Great Plains. The concern would be that an oil spill would contaminate that Aquifer. Keystone XL Pipeline This appears to be a legitimate environmental concern, and there are alternative routes available to TransCanada (TRP), the Canadian company trying to build the pipeline.    MarketWatch

The pipeline construction would create a number of jobs and reduce U.S. dependence on oil from less friendly nations. While those are important considerations, the environmental concerns are also important and need to be addressed in a more sensible manner. The pipeline route was opposed by officials in Nebraska, including the republican governor Dave Heineman who can not be  labelled a left wing environmental nutcase even by the TBs. The problem for the environmental cause will come on this issue when the pipeline is rerouted and environmental organizations still try to block it for reasons that lack any real substance.  

After the Administration delayed its approval, TransCanada announced that it would reroute the pipeline to avoid the environmentally sensitive Nebraska Sandhills region. That rerouting will require only a 30 to 40 additional miles of pipe and one more pumping station. So the only reason to cross the Aquifer was to save a few bucks for the company.

The N.Y. Federal Reserve reported that is Empire manufacturing index for November rose 9 points to .6. The last five readings were negative. New orders were down to -2.1. Empire State Manufacturing Survey

I sold my Solo Cup bond several months ago, but I will still review briefly the quarterly earnings report for the purpose of determining whether or not to buy it back.  Sold 1 Solo Cup Senior Sub Bond Maturing in 2014 at 92.5 The company reported a loss of $16.61 million on $416.323 million in sales for the Q/E 9/25/2011.  SOLO-10Q-9.25.11 I have no interest in buying that bond back anywhere near its current price. I would add that Solo cups have been available at half price at both Harris Teeter and Krogers located near HQ recently. I bought a package at that discount from Harris Teeter this week and received a $1 coupon from Solo off any purchase at HT, reducing my cost further to around 50 cents for the package of cups.  

1. Dillards (own 1 bond: FINRA): Dillard's reported net income of $26.6 million or $.5 per share on revenues of $1.4165 billion for its third fiscal quarter. Same store sales increased 5%. In the year ago quarter, the company earned 22 cents per share.   

I have bought and sold a Dillards TP (DDT: www.sec.gov). Trust Preferred Securities: Links in One Post I prefer the senior bonds with shorter maturities. During the Near Depression period, I bought 50 shares at $5.82 and was nervous about it.  (see also: Bought 50 DDT at 18.42 Sold 50 DDT at 22). This TP matures on 8/1/2038 and has a 7.5% coupon. It is now selling close to its $25 par value: Dillard's Capital Trust I 7.5% 

The senior bond has a 7.75% coupon and matures on 5/15/2027. It is of course senior in priority to the junior bond owned by Dillard's Capital Trust I. Prior to a bankruptcy, the main difference in priority is that the distributions can be deferred on the junior bond, whereas that is not an option on a senior bond. When a retailer fails, I would not expect any recovery for a junior bond and the senior bond owners would likely take a big hit. 

The bonds maturing in the 2020s are trading below their $1000 par values. FINRA

2. Sold 200 NPT at $12.92 Last Friday (see Disclaimer): NPT is a leveraged municipal bond fund that pays monthly dividends. I am circumspect about holding for very long leveraged bond funds with long durations. I bought these shares last August at at $12.2.

Nuveen Premium Income Municipal Fund 4 closed at $12.96 yesterday.

3. Bank of America (own TPs, equity preferred and common): BAC announced on Monday that it was selling the "bulk" of its remaining stake in China Construction Bank for a pre-tax gain of approximately $2.9 billion. The transaction is anticipated to result in an after-tax gain of $1.8 billion.   SEC Filed Press Release This is the second large sale of CCB stock by Bank of America, as it attempts to build up its Tier 1 equity capital position.  In the earlier transaction, SEC Filed Press Release, BAC sold CCB shares for $8.3 billion and anticipated then an after-tax gain of approximately $3.3 billion.

4. AGY Holdings (own 1 bond: FINRA)(Junk Bond Ladder Strategy): A few weeks ago, I mentioned that the 2014 AGY bond had plummeted in price to the mid 20s on no publicly available information that I could find.  AGY HOLDING 2014 BOND PLUNGE IN PRICE Since then the bond has recovered to trade in the 70s on light volume.

It is not possible for me to view the earnings report for the third quarter in a positive light. SEC Filed Press Release The company reported a loss of $7.56 million dollars on just $46.602 million in revenues. Revenues declined 6.8% from the second quarter of 2011. I also thought that this language contained in the press release was important:

Due to the continued disappointing earnings reports, and the apparent need to borrow some money on its credit facility to make the  interest payment on the 2014 bond paid yesterday, I am raising the risk rating on this bond to 10 from 9+. I did receive the semi-annual interest payment from AGY on 11/15.

Personal Risk Ratings For Junk Bonds

I was hoping that the market would rally strongly into the close and hit my day limit order to double down on a triple stock short ETF. Instead, the market reversed course and declined into the close.  

BOUGHT 50 of the Stock CEF IDE at $17.18/Obamacare/Cisco, Ashland, Momentive Specialty Chemicals

I am coasting for the remainder of 2011. I have already booked a large amount of short and long term capital gains this year.  LB is doing its part to help our destitute Uncle Sam in his hour of need.  To further hedge my remaining stock positions, I bought a triple short stock ETF yesterday. If that hedge and others go down in value later this year, I will simply sell them for a loss which will be smothered by my realized gains. Of the ones currently held, I am at break-even, with one up and another down slightly, and one unchanged, which is fine so far given their limited purpose. I have realized gains already on my hedges this year of close to a $1000. The stock hedges are permitted under the current trading rules of an Unstable Vix Pattern, notwithstanding the VIX trading well over 20. Mark Hulbert and the Use of the VIX as a Timing Model/Modification # 1 To Vix Asset Model Approved re: Hedging The VIX rose 1.09 yesterday to close at 31.13.

It would be far more beneficial for me to have a market melt-up than a meltdown before the end of this year, so I would hope to lose on these hedges. If the market tanks, I will at least cushion the blow a tad. I may add to the triple short purchased yesterday on a spurt in the S & P 500 above 1260. The S&P 500 fell 12.07 yesterday to close at 1,251.78.  While I have no technical training whatsoever, I believe the market will start to run into resistance in the 1250 to 1300 area.

Italy auctioned €3 billion in five year notes yesterday to yield 6.29%, the highest yield since 1997. The last auction of this maturity was in October, when the yield was 5.3%. One year ago, the yield was 3.13%. Mario Monti, an economist, was appointed Italy's new prime minister.

Spain's ten year note rose to over a 6% yield yesterday. ES 10Y Govt Bond Benchmark, 10YR_ESP Bond Quote - (ICAPSD) The 30 year bond rose to 6.72%, the highest yield since Bloomberg started to keep records in 1998.

This video of Herman Cain answering questions about Libya is instructive. His supporters will not watch it. In it Herman makes Rick Perry look like an international statesmen: YouTube

The TBs would not watch Sarah's interview with Katie either. I have yet to find a Palin supporter who admits watching those Couric interviews. (e.g. Sarah Palin Discusses Russia With Katie Couric - YouTube; Tina Fey Quotes Sarah Palin Word For Word - YouTube)

If allowed to keep only one of the ten Bill of Rights, TBs would of course choose the second amendment. As they would say, we can do without the other rights as long as we have a bevy of automatic weapons.

The TBs have made it easier for felons and those with serious mental health problems to acquire guns, as documented in this NYT article.

One of the most important issues to the Tennessee GOP was to pass legislation permitting guns to be carried into bars.

The current push is for Congress to allow anyone with a gun permit in one state to carry a concealed weapon throughout the country.  In many states, securing a permit to carry a concealed weapon is far easier than acquiring a driver's license. Bloomberg

The Supreme Court is going to decide the constitutionality of Obamacare. The key issue involves the power of the federal government to fine citizens for not buying something. The issue will be framed as to whether the government can compel through monetary fines the purchase of health insurance.  I suspect that this issue will be a close one.

If the individual mandate is found unconstitutional, it will require the reversal of the Supreme Court's 1942 decision Wickard v. Filburn. Many of the Bush appointees would like to place limits on federal power, and the outcome could have a far reaching impact on other congressional legislation by restricting the power of Congress to pass laws based on an expansive application of the Commerce Clause permitted by Wickard and its progeny. (see discussion in  Forbes by a self-styled conservative)

It is possible that the Supremes will dodge the issue on the merits altogether by holding that the 1867 Tax Anti-injunction Act prohibits a challenge to a tax law until the tax is paid. (26 United States Code U.S.C. §7421) It is my understanding that the tax would not be due until 2015. The U.S. Court of Appeals for the Fourth Circuit dismissed a challenge to the individual mandate on this basis: Liberty University v. Geitner.pdf I personally found this decision persuasive but the pressure to decide the case on the merits may cause the Supreme Court to sidestep the application of this 1867 statute.

A good discussion of the legal issues can be found at HFMA.org.

1. Cisco (owned): Cisco reported adjusted E.P.S. of 43 cents on $11.26 billion in revenues for its first fiscal quarter. SEC Filed Press Release The consensus estimate was for an adjusted E.P.S. number of 40 cents. For the current quarter, Cisco estimates an adjusted E.P.S. number of 42 to 44 cents on a 7%-8% increase in revenues compared to the year ago quarter. Cisco is benefiting from cloud services, where its data switching segment has about a 80% market share. During the first fiscal quarter, the company generated $2.3 billion in cash flow and $2.1 billion in free cash flow. Cisco ended the quarter with $44.4 billion in cash after buying back $1.5 billion in stock at an average cost of $15.37 per share. Cisco returned 90% of its free cash flow to investors in the form of share buybacks and dividends ($322 million). After subtracting debt, the net cash at the end of the quarter was $28 billion or $5 per share. Headcount fell to 63,465 from 71,825.  

This earnings report is discussed in articles at  Bloomberg and MarketWatch.

2. Ashland (own 1 bond: FINRA ): Excluding items, Ashland reported an adjusted E.P.S. of $1.01 on revenues of $1.846 billion for its fiscal 4th quarter. SEC Filed Press Release The estimate was for 93 cents per share. In August 2011, Ashland completed the acquisition of International Specialty Products for $3.2 billion in cash. Cash flow from continuing operations was $154 million. Free cash flow was reported at $35 million.

3. Borden Chemical (now part of Momentive Specialty Chemicals)(own 1 bond: FINRA): Momentive reported net income of $39 million on $1.3 billion in revenues for the 2011 third quarter.  The company reported net income of $116 million on $1.2 billion in revenue for the 2010 third quarter.  SEC Filed Press Release Q3 2011 This company is debt heavy with $3.428 billion in long term debt and $171 million in cash as of 9/30/11. The firm is controlled by funds affiliated with the private equity firm Apollo Management. Ownership by a private equity firm will generally tell the potential bond investor that the company would be loaded with debt.  

4. Bought 50 of the Stock CEF IDE at $17.18 Last Thursday (See Disclaimer): ING Infrastructure Industrial & Material Fund is a stock CEF that uses a buy-write strategy. 

This is a link to the last SEC filed shareholder report for the period ending 8/31/11:   ING Infrastructure, Industrials and Materials Fund Semi-Annual Report

As of 11/09/11, the day before my purchase, the fund had a net asset value per share $18.10 and closed that day at $17.24, creating a discount to net asset value of -4.75%.  Daily prices and net asset values can be found at the sponsor's website:   ING Funds - Daily Prices

This is a link to the sponsor's webpage for this fund: ING Infrastructure, Industrials and Materials Fund - Fund Profile - Overview

Dividends are paid quarterly. Currently, the quarterly dividend is $.45 per share. Distributions Assuming a continuation of that rate, the yield at a total cost of $17.18 is around 10.48%. The only way to support this dividend rate would be to harvest capital gains from trading shares. (see data at Morningstar).

I have bought and sold this CEF:  Sold 100 of the Stock CEF IDE at 20.3 (March 2011); Bought 50 of the Stock CEF IDE at 19.57 (1/6/11);  Sold 50 IDE at 18.7 (September 2010); Added 50 IDE at $16.85 (August 2010); Bought 50 of the CEF IDE at 17.4 (August 2010).

I have realized gains from the shares of $276.33:

2011 IDE +227.25

2010 IDE 50 Shares +49.08

ING Infrastructure Industrial & Material Fund closed at $16.93 yesterday. 

Romney and Cain/The GOPs Urge to Attack IRAN/Averaged Down by Buying 1 Cenveo 7.875% Senior Subordinated Maturing 12/1/2013 at 81.5/Added 50 of the TC PJA at $24.6/Earnings: Cenveo (CVO), Reddy Ice (FRZ), Travelport, Macy's (M), Wendys (WEN),

The market reacted favorably to news that Italy and Greece had turned over their governments to technocrats. Italy did make some progress in moving legislation forward that would reduce its borrowing needs over time.  Reuters NYT Possibly, both nations will actually carry through on austerity, but for how long?

All of this news about sovereign debt overshadows and detracts investor attention away from the consequences of austerity. With less borrowed money supporting demand, for both individuals and governments, Europe has been moving toward a recession for months now and has probably already slipped into one, at least in the Mediterranean countries.

The audience at a recent republican presidential debate booed the question and questioner who dared to ask Cain about the sexual harassment charges.  


FactCheck.org has an article on the evasion and misdirection of Herman Cain. His new libel lawyer, Lin Wood, tried to downplay his implied threat against any woman making sexual harassment claims against Herman. (see story in Reuters)  The threat of a libel lawsuit will have the desired effect of keeping many accusations in the closet. Those with money and power can threaten to bring litigation against those without money, power and most importantly insurance, and chill the exercise of first amendment rights by merely threatening litigation.  


The latest poll from CBS shows Cain leading the pack for the GOP presidential nomination. CBS News A recent poll conducted by Vanderbilt shows Cain leading the pack in Tennessee. (Q.10B: www.vanderbilt.edu/Poll.pdf) Cain would also beat Obama in the general election in Tennessee. (Q.38A). It was not surprising to see that 11% of Tennesseans believed the press is the most responsible for the U.S. being on the wrong track. (Q.49) Those individuals are easily manipulated to believe almost anything. By press, the TBs are referring to what is derisively called the "mainstream" media.

In the most recent republican debate, Cain stated that he would reinstate waterboarding as an interrogation technique and would remove civilian oversight of those kind of "enhanced" interrogation techniques. latimes.com Perry said he would defend the use of waterboarding until he died, which drew sustained applause from the crowd at the last debate.

Waterboarding was used by the Khmer Rouge and by Japan on U.S. prisoners during WWII. Continued use of waterboarding is a popular position to take among most republicans. In the most recent poll, 70% of republicans believe waterboarding is justified (page 5: CBS News polls: 11/11/11 - CBS News) As noted by Senator McCain, the U.S. hanged Japanese for waterboarding American prisoners of war (CBS News), including one of the airmen that participated in the 1942 Doolittle's raid, Chase J. Nielsen, who was captured by the Japanese. Waterboarding

During the last debate, Romney and other republican candidates for President made it clear that they would support military action against Iran to stop that nation from developing nuclear weapons. CBS News USA Today

In the latest CBS poll, referenced above, 59% of republicans believe that removing Saddam Hussein was worth the cost (page 4). And that opinion is held after the loss of well over 100,000 lives (Casualties of the Iraq War - Wikipedia), the maiming for life of countless others, the absence of any weapons of mass destruction or an ongoing nuclear weapon's program (Iraq War), the increased influence of Iran in Iraq due to Saddam's removal, and the expenditure of a trillion dollars of borrowed money which unquestionably damages the long term fiscal health of the country. Support for the Iraq invasion was close to 100% among republicans before the invasion and for a long time thereafter. It has now dwindled to close to 60% after the consequences of this war have become known. (see also:  U.S. Military Presence in Iraq and the GOP (10/26/11 Post); Accurate Information is Not a Side to an Issue/ Lying Works In Politics (12/21/2008 Post); Going to War Decisions: Conservative or Liberal vs. Competent or Incompetent? (12/25/2008 Post);  Conservative: Each to his Own Definition (1/2/2009 Post);  Fail to Remember or Refuse to Learn? (3/16/2009 Post).

The WSJ published a detailed article showing how Mitt Romney changed his views on social issues as he transitioned from the Governor of Massachusetts to a candidate for the GOP presidential nomination. This is one series of facts that have penetrated the usual mental fog surrounding the TBs. He is the candidate for many GOP voters who are not obsessed with those issues. If he wins the nomination, however, I would anticipate that a large number of GOP voters will decline to vote for him on election day, due in part to his flip flops on those social issues and his support for the forerunner of Obamacare when he was Governor of Massachusetts. Many of those voters will be states that are already heavily republican anyway, particularly in the south. It remains to be seen whether he can survive the republican primaries with that baggage in tow.

An article in the NYT examines Romney's career in"private equity", a misnomer that does not describe the true role these leeches play in American capitalism. There is little in the way of equity invested by these Masters of Disaster when they acquire a company. Instead, the unfortunate target is loaded up with debt, employees are fired by the boatload, and the new owners drain the company of cash. A historical example is discussed in this article, involving Dade International, where Romney fired 1700 workers, loaded the company up with excessive debt that ultimately led to its bankruptcy, and Romney's company drained $100 million from Dade's coffers in fees for their good deeds in helping the company. When an investor starts to invest in junk bonds, that pattern of activity is seen frequently.


1. Added 1 Cenveo 7.875% Senior Subordinated Maturing on 12/1/2013 at 81.5 Last Thursday (CVO)(Junk Bond Ladder Strategy)(see Disclaimer): Cenveo reported third quarter net income of 26 cents per share from continuing operations on a 10% increase in revenues to $550.6 million. (GAAP E.P.S. of 4 cents after restructuring, impairment and integration charges). The consensus estimate was for 12 cents.  Only two analysts contributed to that estimate.  

A few days ago,  Cenveo amended its senior credit facility to allow the company to buy up to $30 million of its bonds. Those bonds have recently been selling at significant discounts which have narrowed some after that announcement. FINRA -2013 Bond;  FINRA -2018 Bond

I decided to average down by buying another 2013 CVO bond. The order was filled at 81.5 last Thursday. This 2013 is a senior subordinated bond, with a 7.875% coupon, maturing on 12/1/2013. FINRA

Prospectus: www.sec.gov

I have a 5- risk rating on this one: Personal Risk Ratings For Junk Bonds. Given CVO's debt level, which is viewed as high, that rating is probably too optimistic. The debt is discussed in the most recently filed form 10-Q at page 12: cenveo10q

Bought 1 Cenveo 7.875% Senior Sub Bond Maturing 12/1/2013

My confirmation states that the current yield at my cost is 9.568% and the YTM is 18.689%. The confirmation also states that this bond is rated currently at Caa2 by Moody's and CCC+ by S & P.

2. Reddy Ice (FRZ) (own 1 bond: FINRA): Reddy Ice stock plummeted when the company released its earnings report for the third quarter, and deservedly so. FRZ fell 48.36% on the day of the earnings release (11/9/11) to close at 67 cents per share. The total market capitalization of the company at that price is around 15.23 million, while the long term debt is close to $439 million. Of that amount, $300 million is a first lien note with a 11.25% coupon maturing on 3/15/2015. I own the second lien note, issued in the original principal amount of nearly $140 million, and maturing on 10/1/2015.  SEC Form 10 Q at pages 14-17. If Reddy files for bankruptcy, it would be questionable whether a second lien will be worth anything. I made the same point in the post ascribing this buy to the RB: "A legitimate question could be asked whether the second lien note is secured by anything, sort of like a lot of second mortgages on homes throughout America now." Bought 1 Reddy ICE Second Lien Senior Bond at 88.875 I did recently receive the semi-annual interest payment.

This company needs to make a lot of money during the summer to offset losses during the cold weather months. The company reported net income of $4.892 million or 21 cents per share, down from $8.99 million or $.39 cents per share in the 2010 third quarter. SEC Press Release The company claimed that its adjusted EBITDA number for the quarter was $34.5 million. The CEO wanted to focus on the revenue increase when discussing this report. I do not anticipate recovering par value at maturity. My risk rating is 10+, the highest capable of being given. Personal Risk Ratings For Junk Bonds This company needs to cease using its cash to make acquisitions. I have no interest in the common even as a Lottery Ticket. 

3. Macy's (M)(own 1 bond: FINRA): Macy's reported net income of $139 million or 32 cents for its Q/E 10/29/11. This beat estimates by 16 cents. The company also raised its full year E.P.S. forecast to a range between $2.7 to $2.75. Macy's expects same store sales to rise between 4% to 4.5% during the holiday quarter. For the 4th quarter, Macy's estimates in earnings in a range of $1.52 to $1.57, and the consensus estimate was $1.66. SEC Filed Press Release

I have bought and sold a trust certificate containing a May Department store senior bond. May was acquired by Macy's. Trust Certificates: New Gateway Post  I no longer own that TC, DKQ.  

4. Travelport (own 3 bonds): I am way over exposed to Travelport and now view the decision to buy any of its bonds as a mistake.

Travelport reported a loss of $26 million on revenues of $509 million for the 2011 third quarter, compared to net income of $25 million for the 2010 third quarter on $488 million. The company claimed to have $118 million in adjusted EBITDA, down from $135 million in the year ago quarter "primarily due to the re-introduction of the management incentive plan in 2011". The press release release references Travelport's bailout of its parent, controlled by "private equity", by issuing a new second term lien loan that would be senior in priority to the unsecured bonds. The use of Travelport's assets did allow its parent to restructure a PIK note about to become due.  Travelport Update on Secured Credit Facility; Item # 3 Update on Travelport. This is a highly undesirable development which occurred after I purchased the bonds.

The bonds sank in response to this report. I expect to take a loss on my 3 Travelport bonds, the only questions being how much and when.  I have no desire to average down. 

5. Wendys (WEN)(own 1 bond: FINRA):  The company reported income from continuing operations of $2.5 million on a 1.8% increase in revenues to $611.4 million, compared to a $.8 million loss in the 2010 third quarter. TWC_WR 10Q Q3 2011 Operating margin increased to 5.3% from 3.4%. Same store sales in North America rose .8% and 1.8% for company owned stores. 

As of 10/2/2011, the company had $488.817 million in cash and $1.348707 billion in debt. 

6. Added 50 PJA at $24.6 Last Wednesday (see Disclaimer): This brings me up to 200 shares of this TC with a 8% coupon on a $25 par value. My initial purchase was at $19.45 December 2009. I subsequently added to that position in two fifty share lots: Bought 50 PJA at 24.65 December 2010 Bought 50 of the TC PJA at 25.06 April 2011

I discuss trust certificates in this Gateway Post: Stocks, Bonds & Politics: Trust Certificates: New Gateway Post

The underlying security in PJA is a Qwest Capital senior bond maturing on 2/15/2031. The coupon on that bond is lower at 7.75%: FINRA As shown on that page, this bond is rated Baa3 by Moody's, BB by S & P and BBB- by Fitch. I am more inclined to go with the S & P rating on this one. These phone companies are losing a lot of landline customers, have large capital expenditure and pay too much to the common shareholders in dividends. The dividend yield on CTL's common shares is close to 7.9% at a $36.75 price. CenturyLink

TC Prospectus: www.sec.gov

Qwest was acquired by CenturyLink (CTL) on 4/1/11. SEC Form 8k 

For the third quarter of 2011, CTL reported net income of $140 million on $4.596 billion in revenues. Depreciation and amortization expense during the quarter was $1.225 billion. Interest expense was $324 million. CTL's consolidated long term debt was $21.142 billion as of 9/30/11. (see page 16:  www.sec.gov) The Qwest debt, which is included in that total, stood at  $11.598 billion on the acquisition date. 

I have sold my entire position in FJA, which has an Embarq bond as its underlying security. Embarq was later acquired by CTL also (see snapshots in TC Gateway Post referenced above)

I bought this last 50 shares when the market was melting down last Wednesday. I was able to put in a limit order at the ask price. By Friday, the security had recovered to close at $25.22. Merrill Lynch Depositor Inc. Preferred PLUS Cl A 8% TRUCs QWS-2 for Qwest Capital Funding Inc., PJA This security went ex interest for its semi-annual distribution on August 11, 2011. TCs of course trade flat, so the buyer does not have to pay accrued interest to the seller. Whoever owns the security on the ex interest date will receive the entire interest payment and the stock price is adjusted on the ex date to account for the amount of such payment. 

CEF TABLE AS OF 11/11/2011

With closed end funds, I attempt to achieve a world balanced portfolio. I will make small allocation shifts based on my perceptions about relative value and risk. A primary focus is income generation, particularly on a monthly basis. I will frequently trade bond CEFs, and have bought and sold many of the same ones this year.  The bond market has already enjoyed one of the longest bull markets of any asset class. The current long term secular bull market started in 1982. 

While the table has been updated, I have yet to discuss changes involving two CEFs, one of which is an elimination of the leveraged bond CEF NPT at $12.92 yesterday and the other is the addition late last week of 50 IDE shares.

Earnings: Ares Capital (ARCC), Appelton Papers/FNFG-HSBC Branches/Added 100 of the Stock CEF BCF at $11.95/Sold 100 KRBPRE at $25.13-ROTH IRA/Bought 1 MBNA Capital Series A 8.278% TP at 94.5 Maturing 12/1/2026

The EU estimates that France's debt as a percentage of its GDP will rise to almost 92% in 2013. Non-residents own 62.5% of France's debt and 44.4% of Italian government debt. (see statistical table 9 at page 72 of imf.org.pdf) The I.M.F. estimates that gross government debt in Germany will be 82.6% of GDP by the end of 2011. NYT

A doomsday scenario for Italian government debt is discussed in this Forbes article.

Investors were encouraged yesterday by Italy's auction of 1 year bills, raising €5 billion, at an interest rate of 6.09%. I don't get it. The last auction for one year notes, back in October, was at a 3.57% yield. The yield from yesterday was the highest rate paid by Italy on a one year bill since 1997, when the lira was still the national currency.  A five year note auctioned is scheduled for Monday.

First Niagara (owned) and the Justice Department have agreed that FNFG will divest 26 HSBC branches in the Erie, Niagara and Orleans counties in order to receive antitrust clearance on its proposed acquisition of HSBC branches.  First Niagara and Department of Justice Agree on HSBC Branch Divestitures  The market has not looked favorably on the potential dilution likely to result from this transaction. First Niagara Downgrade; Item # 2  FNFG

The WSJ published an article describing how quickly matters went downhill after the U.S. military turned over a base to Afgan soldiers.

Detroit's major, the former NBA star Dave Bing, projected a cash shortfall of close to $150 million by March 31, 2012.

Jefferson County Alabama filed a petition for bankruptcy. This will be the largest bankruptcy of a municipality in U.S. history. Jefferson County includes Birmingham, the largest city in Alabama.

Goldman Sachs reduced estimates some for Microsoft slightly due to component shortages from companies impacted by the flooding in Thailand.

During Wednesday's GOP debate, which is very hard to watch given the level of ignorance among some participants, Rick Perry, who struggled to make a "C" at Texas A & M (Rick Perry's Texas A&M Transcript), was asked to name the three federal agencies that he wanted to eliminate. His response was as follows: "The third agency of government I would do away with. Education. Commerce. And let's see. I can't. The third one I can't. Sorry. Oops". (see video imbedded at Daily Ticker)

Mitt Romney wants a Constitutional Amendment stating that life begins at conception.  (The New Yorker; at around 5:25 into the interview at YouTube) It is not clear whether that Amendment would prohibit the sale of birth control devices. The  legal predicate for the Supreme Court's decisions on abortion was the decision in Griswold v. Connecticut that overturned a Connecticut law that prohibited the use of contraceptives. I know that is hard to believe that Connecticut had such a law at one time. (copy of decision: Griswold v. Connecticut) Romney does have fluid beliefs on these wedge issues.

Herman Cain has started to attack the women who have come forward to accuse him of sexual harassment. Cain claims at his website that Ms. Bialek has had a "long and troubled history", apparently because she filed for bankruptcy, worked for several employers over the last 19 years, and was involved in several lawsuits according to Herman.  Cain denies ever meeting her, yet a Chicago reporter claims that she saw them talking just a few weeks ago. CNN.com. The Chicago Sun-Times has a picture of Cain and Bialek  together at that Tea-Party event.

Cain's lawyer, L. Lin Wood, said that any woman coming forward with similar accusations better "think twice".   NYT Rush Limbaugh, the titular head of the GOP, has leaped to Cain's defense calling the women whiners.

The charges made against Cain have led to a surge in campaign contributions to him.  USA Today

A few years ago, a black congressman from Memphis, Harold Ford, was in a tight race against Bob Corker for the U.S. Senate, and Ford actually had a slim lead in the polls. The GOP then ran an ad with a white party girl, dressed in a way suggesting that the word "no" was not in her vocabulary, who wanted Harold to call her to continue their partying started at the Playboy mansion. NYT (Harold call me!-YouTube; the actress did not know anything about Ford: Interview Johanna Goldsmith - YouTube) After running that ad over and over throughout Tennessee, Corker burst into the lead and narrowly defeated Ford. I personally prefer Corker over Ford, but I found that ad to be despicable on so many levels including the truthfulness of the allegations being made against Ford. Lying, misrepresentation, exaggerations, and distortions are the norms in American political discourse, since the acquisition and maintenance of power is far and away more important to politicians than being truthful, honest and accurate.

1. Sold 100 KRBPRE at $25.13 Last Monday-ROTH IRA (see Disclaimer): This security went ex interesst on 11/09. I sold it at near break-even ($.51 cent profit after commissions), plus several quarterly interest payments. Bought 50 KRBPRE at 24.62 in Roth IRA (June 2010); Added 50 of the TP KRBPRE at 25.19. I basically substituted, in part, the security described below.

After going ex interest for its quarterly interest payment on 11/9/11 MBNA Capital E 8.10% TOPrS Series E, (KRB.PE) closed at $24.62 yesterday. I will consider buying this security back on a dip below $23.50. 

2. Bought 1 MBNA Capital 8.278% Series "A" Maturing 12/1/2026 at 94.5 Last Monday (Junk Bond Ladder Strategy ) (see Disclaimer): This TP traded in the bond market, originally issued by MBNA which was later acquired by Bank of America, gives me a higher yield and a shorter maturity than the exchange traded KRBPRE. I sold KRBPRE at a small premium to its $25 par value. The KRBPRE coupon is slightly less at 8.1%, and matures more than 6 years later in February 2033. The 2026 MBNA Capital TP was bought at more than a 5% discount to its $1000 par value and has a slightly higher coupon than the exchange traded TP. However, I give up the liquidity of the exchange traded security by going with the higher yielding 2026 MBNA Capital TP. The exchange traded KRBPRE pays quarterly whereas the 2026 pays semi-annually. The liquidity issue is the primary reason that I bought only one MBNA Capital 2026 TP rather than two. Both securities currently have the same junk ratings: Ba1 by Moody's and BB+ by S & P. This would be the same junk rating for TPs originally issued by Bank of America. 

This is a link to the MBNA Capital Series "A" Prospectus: www.sec.gov This security is a typical trust preferred. The trust sells the TP to the public and then uses the proceeds to buy a junior bond from MBNA.  Interest payments can be deferred, provided there is no activation of the stopper clause, for up to five years, and any deferred amount will accrue interest at the coupon rate.  

FINRA Information on 2026 TP: FINRA 

Trust Preferred Securities: Links in One Post

MBNA was acquired by Bank of America in January 2006. MBNA Closing The 1996 Indenture for the underlying junior bond in the 2026 TP does require the acquiring company to assume MBNA's obligations. (page 14). I believe that this is the document whereby BAC expressly assumed MBNA's obligations under that Indenture: Third Supplemental Indenture dated as of December 21, 2005 In that document there is a reference to an agreement between MBNA and the Bank of New York as Trustee dated 12/18/1996 and that document can be found in this   SEC filing as an attachment. It is difficult to trace these historical documents for a company like BAC with a ton of SEC filings.

My confirmation states that the current yield at my cost is 8.686% and the YTM 8.847%.  The confirmation further states that the next callable is on 12/5/11 at 102.483. The early redemption premiums can be found at page S-15 of the prospectus.

3. Ares Capital (ARCC)(own): Ares is a business development company.  Ares Capital reported "core" E.P.S. of 43 cents per share and GAAP E.P.S. of 20 cents. The core number excludes professional fees and other costs related to the acquisition of Allied. Net asset value per share was reported at $15.13. The Board declared a 36 cent per share quarterly dividend. The core number beat the consensus estimate by 6 cents.

Ares closed at $15.19 yesterday, up 17 cents for the day.

4. Appleton Papers (own 1 bond: FINRA)(Junk Bond Ladder Strategy): Appleton, an employee owned company, reported net income of $18.026 million on $217.104 million in sales. The company ended the period with $11.691 million in cash and long term debt of $510.644 million, down from $540.131 million on 1/1/11.

5. Added 100 of the stock CEF BCF at $11.95 Last Tuesday (see Disclaimer): BCF is a closed end stock fund that invests primarily in natural resource stocks, broadly defined, to include companies involved in metals and mining, oil and natural gas, energy equipment and services, machinery (e.g. CAT), and chemicals.  

The fund does use a buy-write option strategy.

This is a link to the sponsor's webpage:  BCF : Fund Profile

The last filed Form N-Q, listing the fund's holdings as of 7/31/11, can be found at BlackRock Real Asset Equity Trust (BCF).

The fund has been paying a quarterly dividend of $.2718, BCF Distributions, which have been supported by a return of capital. Assuming a continuation of that rate, which is in no way assured, the yield at a total cost of $11.95 would be around 9.1%.  Given that distribution rate, the only viable ways for the fund to avoid a return of capital are to increase its capital gains from selling stocks or cut the dividend.

On 11/7/11, the fund closed at $11.92 and had a net asset value per share of $12.78, creating a discount to net asset value at that time of -6.7.

There are a few ETFs in this sector that will have a significant overlap in holdings with BCF, which I have owned in the past but do not currently have a positions:

iShares S&P North American Natural Resources Sector Index Fund (IGE): Overview - iShares
iShares S&P Global Materials Sector Index Fund (MXI): Overview - iShares

This brings me up to 536+ shares. I am no longer reinvesting the dividend.  

BCF closed at $11.63 yesterday.

Closed-End Fund Association page on BCF. 

Sold 100 BBN at $20.51-ROTH IRA/Earnings: R.R. Donnelley (RRD), Corelogic (CLGX), Ally, Cincinnati Bell (CBB), USG

I am growing more pessimistic as evidence by my posts this year.  Possibly my current mind set is at least partly due to my views about the human species, which I view as objective and unsentimental based on several centuries of historical evidence. It is fascinating how people fail to effectively deal with a potential crisis until it explodes in their faces. A corollary is that most humans do not learn anything from history and are unable to process information that clearly points to a really serious problem. Without question, the inhabitants of most developed countries have been living far beyond their means on borrowed time and money. This would be true for both the governments and their citizens.

The governments funnel increasing amounts of borrowed cash to their citizens, in a variety of ways, as  state debt clearly spirals to the point of unsustainability. Yet, the borrowing binge continues. And, what happens when the spigot is turned off, as in the case of Greece, or has started to drip in the case of Italy. The government and the citizens are still unable to deal with the problem. A very large number of Greek citizens still want their money from the government even after being told that there was no money.

The situation in Greece still appears to be chaotic, as noted in  article found at Bloomberg and  Reuters last night. It is fitting that the word "chaos" is derived from a Greek word.  And there were numerous articles yesterday about a potential crack up of the EU (see, e.g.  Reuters)

It is generally well understood that a high government debt to GDP ratio can lead to serious adverse consequences. Italian government debt as a percentage of GDP currently stands at close to 120%, a level above the 90% threshold that historically has caused problems. Reinhart and Rogoff - Bloomberg At a minimum, the need to refinance an extraordinarily high level of debt can subject a nation to untoward and ultimately unpredictable adverse economic developments, as several European countries have already experienced or soon will.

There was some evidence last night that the Italian Senate was making some progress in advancing "austerity" legislation for a vote, based on a story appearing in Bloomberg.

Does anyone really disagree that the U.S. is moving at a rapid clip in the same direction as the PIIGS? For now, investors view the U.S.D. as a safe haven, even though the U.S. government is increasing its budget deficit by well over a trillion dollars per year. The treasury auctioned $24 billion in ten years notes yesterday to yield 2.03% with the O.I.D. www.treasurydirect.gov.pdf

And does anyone really believe that the two U.S. political parties are capable of effectively dealing with either the existing or the looming fiscal crisis?

Basically, the GOP's answer is to give rich people more tax breaks and to lower the corporate tax rate. Another mildly ridiculous claim is that more jobs would be created with less regulation. Mostly, this has to do with the desire to increase the profits in a few industries by permitting more pollution. Oddly, less regulation would mean fewer net jobs since so many people are employed in our society to cope with regulations from governments at all levels.

Magically, and contrary to all credible evidence, the GOP still believes that giving more tax breaks to the rich will lead to a shrinking budget deficit and full employment. Bush Tax Cuts and Jobs "Blondes" and Fox "News"/Irresponsible Fools with Power/Taxes and the "Job Creators" Their real motive has been apparent for decades, and it has nothing to do with the financial well being of the middle class. I do admire their ability to convince middle class voters to vote for that agenda, though a lot of that success has to do with the successful exploitation of wedge issues like abortion and gay marriage. After all, nothing much is being done for the middle class, the wealth gap is increasing and most Americans are falling further behind. And, several proposals have been strongly endorsed by the GOP that would bankrupt the middle class in their golden years while increasing the tax breaks for their true constituents. GOP's Plan To Bankrupt the Middle Class  Even when the evidence is clear, as in the case of their near unanimous approval of a plan to change Medicare, which would double the premium cost to seniors foisted on to private insurance with government vouchers, their middle class supporters fail to recognize it, possibly due to their conditioning to avoid altogether most media outlets.

The Democrats, on the other hand, will continue to create programs to spend money that has to be borrowed, frequently underestimating the future cost of such programs. It would not be unreasonable to believe that costs are intentionally underestimated. If left alone, the Democrats will have the total, effective tax rate back up to 50% for the top 10% or so. {the health care reform package has a .9% increase Medicare surtax on wages in excess of $250,000 plus applying the medicare tax for the first time on investment income, Tax Changes, and those increased amounts would need to be added to the higher marginal rates and other changes being advocated by the Democrats to arrive at a total tax rate for the well off}.

It is no accident that the Democrats have proven unable to make any meaningful changes in social programs that would ensure their long term viability without excessive borrowing. The answer for them is to drain more money from the wealthy and to borrow the rest. Their wealth transfer gambit is reasonably well understood by the population. Their resemblance to the Greeks has not gone unnoticed here at HQ. At least some hard core Democrats are not entirely rigid in their thinking, open minded to a limited degree, and capable of learning a lesson or two from the past. I can not say the same about the core GOP voters.

Italian bond yields rose above 7% yesterday. The buyer of last resort, the European Central Bank, reportedly was buying Italian bonds aggressively according to traders interviewed by Reuters. I would doubt that "aggressive" is an accurate term to describe what the ECB was actually doing yesterday.

Bond buying by central banks does not solve the underlying problem which is simply an unwillingness to spend less borrowed money.

 I also suspect that money creation will eventually lead to significant currency debasement and inflation.  There is a reason why gold is selling over $1700 an ounce.

The EU finance ministers have apparently asked the leaders of Greece's new "unity" government to sign in writing their willingness to implement austerity measures. NYT What does that tell you? The leader of the "New Democracy" party declined, saying his word was good enough. Really? The rest of the EU already know for a fact that this party lied to them for years about the true state of Greece's finances. And that party has consistently opposed virtually all austerity measures demanded by the EU since the Socialist party came into power. Oddly, it was the Socialists who backed the austerity package, and what just happened to their leader?

For most of yesterday, the most dominant event to the Old Geezer was the constant and repetitive playing in his head of a song heard somewhere recently. The OG does not know the name of the group but the singer had a Robert Plant type voice. The lyrics were something like "trouble found you", "you look for trouble and I found you,"  and "i'll tell you to take my hand.".  It was better than having Neil Sedaka's song, "Breaking Up is Hard to Do" run on auto pilot. At least the OG remembered where he heard that one, as background music in an Allstate commercial.  Now, the OG needs an exorcism to get rid both of those songs out of his head.

The double short stock ETFs, recently purchased, did cushion the blow a tad yesterday. Those purchases were made in accordance with a recent modification of trading rules for the Unstable Vix Pattern. Mark Hulbert and the Use of the VIX as a Timing Model/Modification # 1 To Vix Asset Model Approved re: Hedging Possibly, if today is another down day, I will sell them. The  VIX had a really good day yesterday, rising almost 32%. The double short ETFs that are owned rose about 10% yesterday, sufficiently canceling out the depreciation of the securities listed next to them. So, that did not provide much in the way of solace.

Kenneth Rogoff argues in Retuers' column that the EURO needs to fail. He views the threat of a "profound crisis" in Europe as high. No one really knows. The OG wants to lay low until there is more clarity. The market is still pricing a favorable outcome based primarily on hope and wishful thinking.  Eventually, France and Germany will tire of dealing with the Mediterranean nations.

JZV was ex interest yesterday for its semi-annual interest payment. The underlying security in this TC is a senior CNA bond maturing in 2023. The TCs KCW and JZJ were also ex interest for its semi-annual interest payment yesterday. Trust Certificates: New Gateway Post

The two CPI floaters issued by SLM (Sallie Mae), OSM and ISM, were ex interest for their monthly distributions yesterday. The quotes from my broker show a $.1195 penny rate for OSM and $.1206 for ISM. I own 100 shares of each. Floaters: Links in One Post

My only purchase yesterday was a bond TC that I will hopefully discuss in next Monday's post, since I am likely to run way behind discussing my trades at least for several more days.

1. Corelogic (CLGX)(own 1 bond: FINRA): I have sold all of my shares in the trust certificate PJS, which has as its underlying bond a CLGX 2028 senior bond. My sole involvement is a direct buy of the 2028 bond in the bond market. The underlying bond and the TC PJS both have the same coupon. But the underlying bond is selling at a significant discount to its $1000 par value, while the TC is selling near its $25 par value.  Trust Certificates: New Gateway Post

The problem is that the underlying bond has almost no volume and it would be extremely difficult to trade a one bond lot.  The TC is infrequently traded but I could get out of it with relative ease by accepting the bid price. 

CoreLogic reported a third quarter loss from continuing operations of 3 cents per share. SEC Filed Press Release   The company increased its adjusted E.P.S. to $.75 to $.8. As of 9/30/11 CLGX had $138.7 million in cash and $911.1 million in debt. The debt is discussed in CLGX-9.30.11-10Q at page 15. The 2028 bond is the longest dated maturity. 

Junk Bond Ladder Strategy

FINRA Links to Bonds in Junk Bond Ladder Strategy

2. Ally Financial (own 3 GMAC bonds:  2017 2018 2019):  Ally Financial reported a net loss of $210 million for the third quarter, compared to a $269 million net income for the 2010 third quarter. The loss was largely due to a "$471 million pre-tax loss related to the negative impact of the mortgage servicing rights, net of hedge, resulting from a decline in interest rates and market volatility".  Excluding that change in MSR valuation, the company would have had pre-tax income of $573 million during the 2011 third quarter.  The global automotive services segment had net income of $747 million.

3. USG (USG) (own 1 bond: FINRA): USG's business continues to be negatively impacted by the aftershocks from the housing bubble. USG reported a loss of $1.09 per share on revenues of $792 for the third quarter.  SEC Filed Press Release  The operating loss, which excludes restructuring charges and non-cash impairment charges, was $17 million. The CEO noted that many of USG's markets continue to experience recessionary conditions. As of 9/30/11, USG had $356 million in cash and another $161 million in short term investments. Long term debt stood at $2.298 billion.

4. Cincinnati Bell (own 3 bonds: FINRA): I recently pared my CBB bond position, and currently own 3 "senior subordinated" bonds maturing in 2018. CBB reported GAAP net income of 7 cents per share on a 5% increase in revenues for the third quarter.   SEC Filed Press Release The earnings increase was driven primarily by CBB's IT services and hardware sales and its Data Centers operations. Wireline revenues decreased 1% and wireless revenues declined 6%, compared to the third quarter of 2010.

5. Sold 100 of the Bond CEF BBN at $20.5135 Last Monday-ROTH IRA (see Disclaimer): BBN is a closed end fund that invests in taxable municipal bonds issued under the Build America Bond program. This sale was primarily profit taking since I had bought the shares last July at $18.15. That is a good percentage gain for a bond fund over a short period of time. Another reason is that I am building up cash in the retirement accounts as I wait for better buying opportunities.

2011 ROTH IRA BBN 100 Shares +$224.76 

BlackRock Build America Bond Trust closed at $20.34 yesterday.

6. R.R. Donnelley (RRD)(own 2 bonds: 2017 and 2029): RRD reported third quarter GAAP net income of $158 million or 83 cents per share on net sales of $2.7 billion.  SEC FILED PRESS RELEASE The net income included a number of extraordinary numbers. Excluding those items, net income for the quarter was $51 million or 51 cents per share, up from 44 cents in the third quarter of 2010. The company ended the 2011 third quarter with $368.1 million in cash. Long term debt stood at $3.42 billion. The amounts and maturity schedules of the debt can be found in note 14, page 19, of the recently filed Form 10-Q.

I am looking for an opportunity to sell the 2017 near par value. Bought 1 R.R. Donnelley 6.125% Senior Bond Maturing 1/15/2017 at 89 This is the kind of junk rated bond that I have been selling on pops to or over par value.