Sold 50 FMER at $17.3/Sold 50 LXPPRD at $24.8/SOLD 50 MHNA at $25.75

Mark Zandi, the chief economist for Moody's Analytics, estimates that $7.4 trillion in U.S. homeowner's equity  has been lost since 2006. The author of a cover story in this week  Barrons claims that home prices will start to turn back up by the spring of 2013.

During 2011, the CEO of First Niagara, John Koelmel, received a 3.7% raise in his total compensation to $3.1 million. FNFG slashed its dividend by 50% last year.  First Niagara: Just Another Incompetent Bank Board of Directors First Niagara Dividend Slash The stock opened 2011 at $14.25 (closing price on 1/3/11) and ended the year at $8.63. FNFG Historical Prices Unadjusted for the recently slashed dividend payment, the stock declined 39.44%. First Niagara Financial Group (FNFG) has participated in the most recent robust regional bank stock rally, closing at $10.26 yesterday.

A Bernstein analyst lowered Sprint to a sell, noting there was a very legitimate risk of a bankruptcy. WSJ The common stock fell 13 cents or 4.5% in trading yesterday to close at $2.76.  S Stock Quote I have never owned the common shares. I have sold out of all of my positions in Sprint bonds. Most of those positions were in trust certificates containing as their underlying security a senior Sprint Capital bond. Trust Certificates  I did recently sell one Nextel bond based primarily on the belief that the yield was not worth the risk. SOLD 1 Nextel 7.375% Senior Bond at 98.75  That was my last position.

I will be busy on other matters for the remainder of this week and will not have much, if any, time to devote to this blog.

1. Sold 50 FMER at $17.3 Last Friday (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): I still own 84+ of FMER shares after selling 50. I had averaged down by buying 30 FMER shares at $11.35. Using FIFO accounting, I sold the highest cost shares bought at $16.96, realizing a small gain, and thereby reduced my average cost for the remaining shares. I am reinvesting the dividend.

I did make a mistake when averaging down. After buying the first lot at $16.96 on 5/6/11, the shares started to decline. I averaged down by buying another 50 share at $16.18 on 5/24/11. I need to wait longer and to have at least a 7.5% to 10% differential in price after the brokerage commission before buying more shares. This would have given me a target buy price range between $15.15 to $15.6 to buy another 50 shares.  By waiting until June 2011, I could have bought in that price range. The shares continued to decline into summer which gave me an opportunity to buy at $11.35. FMER Historical Prices

I do not believe that there were any material changes in FirstMerit's intrinsic value between the $11.35 buy on 8/19/11 and last Friday's sell at $17.3.

This is a snapshot of my remaining shares:

The foregoing table does not include the reinvested dividend received yesterday.

Even with a stock likely to be kept long term in a basket strategy, and FMER so qualifies, I will use the natural volatility of the share price to average down, lower my cost basis over time, and to harvest some profits where feasible by selling my highest cost shares using FIFO accounting.

If I am able to buy back the 50 shares sold at less than $15.65, I will likely to do so provided there is no material change in my opinion about this bank's prospects.

FirstMerit Corp (FMER) closed at $17.29. At a total cost of $17.29, the current dividend yield is about 3.7%.

2. Sold 50 LXPPRD at $24.8 Last Friday (See Disclaimer): I view REIT preferred stocks as a disfavored security. This does not disqualify me from owning them, but that classification will increase my trading activity and lower my exposure to them. I discuss their many disadvantages in REIT Preferred Stocks:  Advantages & Disadvantages.

I am not likely to hold one bought anywhere near their $25 par value for an extended period. In those cases, the purpose is solely to generate some income and to exit the positions hopefully at any profit.

During the Near Depression period, I bought this security as low as $6.6 and $7.  BOUGHT 50 LXPPRD at $6.60 November 2008 and Buy 50 LXPPRD at $7 in Roth IRA March 2009.

I sold the shares bought in the ROTH IRA at $23.46.

2010 50 Shares LXPPRD Roth IRA Realized Gain +$807.03

This REIT never did miss a dividend payment.

The shares sold last Friday were bought last September at $23.8.

2012 LXPPRD 50 Shares +$34.08

Lexington Realty Trust 7.75% Cum. Redeem. Pfd. Series D _(LXP.PD) closed at $24.81 yesterday. The next ex dividend date is 3/28/12.

3. Sold 50 MHNA at $25.75 Yesterday (see Disclaimer): The bond market has been in a long term secular bull market since 1982. Many investors are probably too young to remember the long term bear market which predated the bull move. Eventually, it will return and I hope to have minimum exposure to long term bonds when the worm turns. 

I am continuing to hold several Trust Certificates containing long term bonds bought at large discounts to their $25 par values. At this stage in the long term cycle, I am not likely to hold for very long any long term bond bought anywhere near par value.  Instead, I am content to harvest small profits after collecting one or more interest payments.

Some of the TCs purchased during the Near Depression, which are still owned,\include KTN (2027), JZV (2023) and JZJ (2031).

See, e.g. KTN currently owned shares:

KTN Unrealized Gain Taxable Account Average Total Cost Per Share =$13.26 

KTN Unrealized Gain Regular IRA Average Total Cost Per Share=$14.16 

Structured Products Corp. 8.205% Credit-Enhanced CorTS  (KTN) closed at $28.42 yesterday.

MHNA was bought at $24.9 (August 2011). Interest payments are made quarterly. The coupon is 8.25% on a $25 par value. The bond matures in 2041. Prospectus.

Maiden Holdings North America Ltd. 8.25% Notes due 2041 (MHNA) closed at $25.43 yesterday. 

Added 100 MSPRA at $18.9/Bought 35 CNO at $7.81 and 35 SEM at $8.37-Lottery Ticket Basket Strategy/

Both of the Lottery Tickets bought last Thursday were selected primarily based on P/E and P.E.G. ratios. 

1. Bought 35 of CNO Financial Group (CNO) at $7.81 Last Thursday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): If this company was paying a dividend with over a 2.5% yield at the $7.81 price, I would have bought a 100 shares. No dividend is being paid however.

CNO Financial Group, formerly known as Conseco, is an insurance company whose subsidiaries provide life insurance, annuities and supplemental health insurance. The operating subsidiaries include Banker's Life and Casualty, Colonial Penn Life Insurance Company and Washington National.

Company Website: CNO Financial Group
2011 Annual Report: CNO 12.31.2011 10-K
Profile page at Reuters.
SEC Filed Press Release on 2011 4th Quarter earnings

For the 4th quarter of 2011, net operating income per diluted share was 22 cents compared to 18 cents in the 4Q10.

The Annual Report shows at page 44 net income of $382.5 million in 2011 or $1.31 per diluted share, up from 99 cents in 2010 and .45 cents in 2009. However, on an operating basis, the net income for 2011 was 76 cents, up from 65 cents in 2010. CNO reported 47 cents per share in 2011 net income for a "valuation allowance for deferred tax assets", and 31 cents per share in 2010 for that same item. I would ignore that item and focus on the net operating income number. I would pay attention to net realized gains and losses from investments, but the primary focus has to be operating income.  

The following information comes from YF Key Statistics page on CNO:

Trailing P/E=5.96
Forward P/E=9.86
Five Year Estimated P.E.G.=1.23
Price to Sales=.45
Price to Book=.37 

CNO Financial Group rose 5 cents to close at $7.84 in trading last Friday.

2. Bought 35 SEM at $8.37 Last Thursday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): I own 1 Select Medical Holdings senior "subordinated" bond.  Bought 1 Select Medical 7.625% Senior Subordinated Bond Maturing 2/1/2015 at 98.21 (August 2011 Post).

Select Medical Holdings operates specialty rehabilitation clinics and hospitals.  Profile

SEM recently filed its 2011 Annual Report with the SEC. Form 10-K As of 12/31/2011, SEM operated 110 long term acute acute hospitals, 954 outpatient rehabilitation clinics, and 9 inpatient rehabilitation clinics. A list of the hospitals can be found starting at page 40 of the Annual Report. For 2011, the company reported revenues of 2.804 billion, up from 2.39 billion in 2010, and net income of $107.846 million or 71 cents per share. The 2010 E.P.S. number from 48 cents on a diluted basis.

I discussed SEM's 4th quarter earnings in Item 3 SEM (2/29/12 Post). I mentioned at that time that the common shares were under consideration for a LT purchase. I do not want to commit more funds due to the firm's leverage.

For the 4th quarter of 2011, Select Medical reported net income of 25 cents per share, six cents better than the consensus estimate, on $714.441 million in revenues. SEC Filed Press Release 

The current consensus for 2012 is for 89 cents per share, and 92 cents in 2013. I would like to see the 2013 number go over a buck but would be content with 89 cents this year.

The following data comes from YF Key Statistics page on SEM:

Forward P/E (2013)=9.09
Price to Sales=.43
Price to Book=1.48
Five year Estimated P.E.G.=.84

3. Added 100 MSPRA at $18.9 Last Thursday (see Disclaimer): This brings me up to 250 shares of this non-cumulative equity preferred stock issued by Morgan Stanley (MS). This security pays qualified dividends at the greater of 4% or .7% above the 3 month LIBOR rate on a $25 par value. Dividends are paid quarterly.  Prospectus 

The applicable coupon now is the 4% minimum. At a total cost of $18.9, the yield would be about 5.29%, currently taxable at a maximum 15% for a U.S. taxpayer. 

This security does have a measure of inflation protection due to the floating rate provision. With the Jihads being practiced by central banks against savers worldwide, short term rates are likely to remain low, irrespective of the inflation rate until the central banks start to raise their short term benchmark rates, with the U.S. Federal Reserve being the most important and the leading practitioner of financial repression. When and if central banks allow rates to rise, and assuming inflation has become a problem too, then this kind of security could  start to increase its coupon in response. For MSPRA, the 3 month LIBOR rate would have to rise above 3.3% during the applicable computation period to trigger a higher coupon than 4%. Historically, before the current extended period of financial repression, a 4% or 5% three month LIBOR rate was not uncommon. LIBOR Rates History (Historical)

I discuss the advantages and disadvantages of this kind of security in Advantages and Disadvantages of Equity Preferred Floating Rate Securities. Given the many disadvantages, I view non-cumulative equity preferred stocks issued by financial institutions with some disfavor. 

While these securities are classified as part of a firm's equity, I view their bond characteristics to be more dominant than their equity features. From an individual investor's viewpoint, the equity features of MSPRA include the qualified dividend, the non-cumulative feature, and the perpetual term of the security. Unlike common stock, however, the owner of MSPRA does not have an equity interest in the business and really only has the dividend. 

Non-cumulative equity preferred stocks issued by financial institutions are hyper-sensitive to perceptions about the firm's creditworthiness. During the Near Depression, it was common to see this type of security, with a $25 par value, sell at less than $10 per share. (e.g. Bought BMLprg at $8.8; Bought 100 ZBPRA at $7.8).

At its current price, I do view this security to be more attractive than several others issued by financial institutions, which are similar securities, including all of the ones that are Bank of America obligations and STIPRA. For example, BML-PL pays the greater of 4% or .5% above the 3 month LIBOR and closed last Friday at $20.53. STIPRA, issued by Suntrust Bank, closed at $20.79 last Friday, and pays the greater of 4% or .53% above 3 month LIBOR. According to QuantumOnline.com (free service, registration required, the BAC equity preferred stocks are rated Ba3 by Moody's and BB+ by S & P, and the MS equity preferred is rated Ba1 by Moody's and BB+ by S & P.

Morgan Stanley Non-Cumulative Pfd Stock Series A (MS.PA) closed at $18.93 last Friday.

My most successful round trip on MSPRA is captured in this snapshot:

2010 MSPRA 150 Shares +$962.97/100 Share Trade=+$839.29

Housing Bubble in Canada?/Eaton Vance CEF Dividend Reductions/Sold 100 GJS at $14.9 and Bought Back 100 of GYB at 17.2-Roth IRA

The Philly Fed's manufacturing index rose to 12.5 in March from 10.2 in February. Survey Results Suggest Continued Expansion in Manufacturing - Philadelphia Fed The new orders component fell to 3.3 from 11.7 in February. The employment component increased to 6.8 from 1.1.

Washington Trust (owned) increased its quarterly dividend to 23 cents from 22 cents. I still own 50 shares of the 100 shares bought at $15.26 (January 2010). This raise will give me about a 6% yield at my cost. Washington Trust Bancorp closed yesterday at $24.07, up 70 cents per share. I sold 50 of 100 WASH @ $22.44. (see snapshot at REGIONAL BANK BASKET STRATEGY GATEWAY POST)

New York Community Bancorp (own) broke above its 200 SMA and found some buyers yesterday. NYB Interactive Chart NYB rose 41 cents in trading yesterday to close at $13.55.

TICC Capital, a BDC, commenced a public offering of 4 million common shares, plus an over-allotment option for an additional 600,000. Stock offerings is one, among many, disadvantages to owning BDCs.

Dole Food Company (own as a LT) reported better than expected results for the 4th quarter last night.

S & P raised its credit rating on Dillard's senior debt to BB from BB-. TEXT I own the 7.75% senior bond maturing in 2027 (FINRA), having sold the exchange traded TP,  Dillard's Capital Trust I 7.5% Pfd., with its 7.5% coupon and a 2038 maturity, Prospectus.

1. Eaton Vance CEF Dividend Reductions: Several of the Eaton Vance closed end funds lowered their dividend payouts. Eaton Vance Equity Income Closed-End Funds Declare Distributions and Announce Distribution Changes  Among those funds, I own EOI, EXG and ETW. The largest cut was a 14.2% reduction in EXG's quarterly payout to $.244 per share. All of these funds have been supporting their payouts with returns of capital. Return of capital information is available to non-subscribers at the Morningstar site. As shown at that site, EXG has supported a large portion of its payout by returning its investors capital.  Morningstar refers to this practice as a "destructive return of capital", and I would not disagree with that characterization whenever the dividend is not substantially supported by earnings. 

Part of the problem for these funds is due simply to the catastrophic bear market from October 2007 to March 2009, which took away the option of supporting the dividend with realized capital gains. Given the use of tax loss carryforwards to offset future capital gains during the current bull run, this source of support will likely remain absent for awhile longer.  I would support a reduction in dividend payments in order to bring the amount paid more in line with earnings before application of the tax loss carryforwards. Other individuals will sell after a fund announces a dividend cut.  

The last shareholder report for EXG showed a total cost for its investments at $2.971 billion and a total value of $3.120 billion, as of 10/31/2011. (page 6: Eaton Vance Tax-Managed Global Diversified Equity). Even without using tax loss carryforwards, that kind of unrealized appreciation is not likely to provide much opportunities for consistent realized capital gains sufficient to support a large dividend payout. The market has improved since 10/31/2011, and the unrealized gain number is hopefully higher now. Still, I doubt that the current number would change my conclusion.  In note 1 D at page 14, the fund reveals that it has a capital loss carryforward of $1.141712317 billion. That kind of loss with just smother reasonably anticipated capital gains for an extended period.

Eaton Vance Tax-Managed Global Diversified Equity Income Fund (EXG) closed at $9.05 yesterday.

2. Housing Bubble In Canada?: I have read a number of articles recently relating to a possible housing bubble in Canada. Some of the statistics are worrisome. Housing prices have risen at a much faster rate than incomes. In developed economies, average wage increases are not going to be 10% to 20% per year, needless to say. When home prices are accelerating at a higher rate than wages, a decline in home prices becomes inevitable.

The Canadian consumer also has a worrisome level of household debt to disposable personal income. MarketWatch In 2011, the household debt to disposable income ratio was 153%, much higher than the highest level reached in the U.S. before the bursting of our housing bubble. (see also article at The Globe and Mail). This is a link to the table prepared by the Canadian government: National balance sheet accounts: Table 2 Household sector indicators – Not seasonally adjusted.

If I was running one of the large Canadian banks, and looked at those numbers, I would not dismiss them or try to explain them away. Instead,  I would substantially cut back on the origination of new mortgages. I would also hedge my existing portfolio as wells as sell down my mortgage position.

At its peak in the U.S., the household debt to disposable income ratio topped out close to 130%: Household Credit Market Debt Outstanding (CMDEBT)/Disposable Personal Income (DPI) This is a link to a chart at Bloomberg that contains a graph of this ratio for both the U.S. and Canada.

I would add that the savings rate is higher in Canada than the U.S. The U.S. personal  savings rate declined below 2.5% in the waning years of the housing bubble as consumer debt obligations exploded to the upside.

I do not own any of the Canadian financial institutions individually. I do own 300 shares of the BMO Dow Jones Canada Titans 60 Index, an ETF traded on the Toronto exchange, that is heavily weighted in those financial stocks. That is why I am monitoring the situation to some degree, though I would add that it is difficult enough to keep up with what is happening in the U.S. and it is obviously much harder to both comprehend and monitor developments in non-native lands. I have visited Canada once in my life and that was in 1968.

3. Pared Trade in ROTH IRA: Sold 100 GJS at $14.9 and Bought 100 GYB at $17.2 Last Wednesday (see Disclaimer): Both of these securities are Synthetic Floaters in the Trust Certificate form of ownership. The underlying security in both TCs is a Goldman Sachs bond. Both securities have $25 par values. That is where the similarities end.

The underlying security in GJS is a GS senior bond maturing in 2033.  Interest payments can not be deferred.

GYB contains a trust preferred from GS Capital, and that TP represents an undivided interest in a GS junior bond maturing in 2034. Interest payments can legally be deferred for up to five years, provided no activation of the stopper clause (e.g. by a dividend payment on the common stock or the GS equity preferred stocks). As a practical matter, I doubt that GS would ever defer an interest payment on its TPs, which would require the elimination of its common and non-cumulative equity preferred stock dividends, short of a bankruptcy filing. That kind of deferral and elimination to "preserve capital" would send clients to the exit by the droves.

Importantly for now, GJS has no minimum coupon and is currently paying monthly interest payments at .9% over the 3 month treasury bill rate. Prospectus That rate is of course hugging zero now. Consequently,  I have not received much income from this security, less than $2 per month for 100 shares, and will unlikely receive much of a rise for as long as the Fed continues its Jihad Against the Saving Class.

GYB pays quarterly at the greater of 3.25% or .85% over the 3 month LIBOR rate on a $25 par value.  Prospectus The minimum coupon is the applicable rate now. At a total cost of $17.2 and at the 3.25% coupon rate, the effective current yield would be about 4.72%, much better than the current yield of GJS. Moreover, over the long term, a .85% spread over a 3 month LIBOR rate would be better than a .9% spread over the three month treasury bill based on the historical spreads between those two rates. So part of the disadvantage of GYB's higher cost per share, in periods where the float provision becomes the applicable rate, would be negated by that slightly better float provision.

At a 6% 3 month Libor rate during a computation period, not likely to happen anytime of soon of course, the yield would be about  on an annualized basis. (.06% 3 month LIBOR + Spread of .0085%=.0685% x. $25 par value=$1.7125 divided by total cost of $17.2=.09956%)

Both securities have room to run to the upside, given their respective $25 par values, assuming no adverse GS credit event. I would not anticipate a substantial rise closer to the $25 par value unless short term interest rates were moving up during a well recognized period of FED tightening.

Long term GJS may be the better security given its greater discount to par value and a return to normal treasury bill rates.

The GJS shares were sold near break-even, achieved only after I averaged down by buying 50 shares at $13.25. I have previously exited the position at a profit.

I have had a successful trading history with GYB but most of the success was due to buying at much lower levels. (e.g.: Sold 100 GYB at 18.09-Bought at $10.95 in April 2009) Most of the more recent trades have been for slimmer profits.  (Sold 100 GYB @ 19.4-Bought at 17.97 and at 18.49; Bought 50 GYB at 18.63 in the Roth IRA and Bought 50 GYB @19.07-

Sold 100 GYB at 19.7 in Roth IRA;  Bought 50 GYB at 16.95 in Roth IRA and Added 50 of the Synthetic Floater GYB at $15.56: ROTH IRA-Sold 100 GYB at $17.07)

Corporate Asset Backed Corp. CABCO Series 2004-101 Trust Goldman Sachs Capital I Float. Rate Call Ctfs (GYB) rose 19 cents in trading yesterday to close at $17.37.

SVU/Bought Back 100 FTE at $14.82/Sold 200 WIW at $12.91/Bought 200 IMF at $17.7-ROTH IRA/Sold 100 GNT at $16.25

The Norwegian Krone, one of the favored currencies here at HQ, dived against the USD yesterday as Norway's central bank cut its key lending rate by .25% to 1.5%. MarketWatch The real purpose for lowering the rate is to weaken the currency. The reasons given by the Norges Bank can be found in this link. Key policy rate reduced by 0.25 percentage point to 1.50 per cent - Norges Bank

For currencies viewed as safe havens, a relatively high interest rate compared to the U.S. federal funds rate will attract more capital, making the currency even more attractive to investors seeking safe havens, and placing domestic companies at a competitive disadvantage. (see one day chart of NOK/USD which shows the immediate impact of that announcement at around 1 p.m. G.M.T.)  I view it as part of the ongoing saga of competitive devaluations.

UBS initiated coverage on Supervalu with a sell recommendation. Its report is summarized in this article at the StreetInsider. I own two long term Albertson bonds after selling three. I have mentioned that the main problem with SVU is the amount of its debt, and the UBS analyst is concerned about a potential violation of the fixed charge covenant. The company needs to eliminate its dividend now before it is forced to do so. I recently made that argument after selling the 7.5% senior SVU bond. Item # 2 Sold 1 SuperValu 7.5% Senior Bond Maturing 2014 at 101.75 (3/7/12 Post).

1. Bought 100 FTE at $14.82 Last Tuesday (see Disclaimer): I previously bought and sold shares of France Telecom ADS at higher levels.  Bought 50 FTE at $20.47 (Aug. 2010); Bought 50 FTE at 21.09 (August 2010); Sold: 50 FTE at 21.75 (September 2010);  Sold:  50 FTE @ 23.18 (October 2010); Bought: 50 FTE at 20.83 (December 2010); Sold 50 FTE AT 22.27 (Feb. 2011). 

2010 FTE Two 50 Lots +$136.66

2011 FTE 50 Shares +$56.57 

Fortunately, the LB sold the shares before the shares started to slide. A one year chart looks like one of those water slides at an amusement park. FTE Stock Chart The shares broke below the 200 day SMA at around $22 in June 2011 and have been on a downward trajectory since that time. The shareholders did receive two dividend payments in 2011, totaling $1.6411 per share which would cushion the share price decline.

Morningstar has a five star rating on the stock, with a fair value estimate of $28 and a consider to buy target of less than $19.6.

There are several reasons for the recent weakness. There is an ongoing economic downturn in Europe. FTE is the incumbent telephone carrier in France where it receives about 1/2 of its revenues. Spain accounts for about 8.5%; Poland 8.5%, and the remainder in miscellaneous geographic areas. FTE also recently announced what will amount to a dividend cut by limiting the payout to 40%-45% of free cash flow. Another issue is the recent entry of a new and aggressive competitor, known as Iliad, in France's market. Lastly, revenue growth in France is at best tepid. The wireless business in France grew just .8% year--over year in the last quarter. Overall revenues declined .5%. Lastly, while FTE is priced in USDs, its value will in part be determined by the exchange rate, and the EURO has declined in value against the USD since I last sold this stock on 2/23/11. The value yesterday was around 1.3, and 1.375 on 2/23/11. (see International Trading and Currency Risks)

While the dividend will be reduced this year, it will likely still result in a good dividend yield at the current price. After the share price decline, the trailing P/E is around 7.75; price to book is close to 1 and the forward P/E for 2012 is close to 7.  FTE Key Statistics

In other words, I believe the negatives are more than discounted in the current price.

France Telecom's Website: welcome to orange.com
SEC Filed Report Summarizing 2011 Results: France Telecom Form 6-K
Highlights for 2011 and Beyond:  France Telecom Form 6-K

France Telecom ADS shares fell 13 cents in trading yesterday to close at $14.72.

2. Sold 200 WIW at $12.91 in Taxable Account and Bought 200 IMF at $17.7 in Roth IRA Last Tuesday (see Disclaimer):  I have bought and sold both of these similar bond CEFs on numerous occasions, usually for small gains after collecting a few monthly dividends. Both IMF and WIW invest mostly in inflation protected U.S. treasuries, pay monthly dividends, and sell at significant discounts to their net asset values. The discount for WIW has tended to be slightly higher over the past several months even though it has a lower yield. WIW was ex dividend last Tuesday, so I will receive one more dividend payment. IMF goes ex dividend on 3/21/12 for its regular 5 cent per share dividend. Western Asset Inflation Management Fund Inc. (“IMF”) Announces Distributions for the Months of March, April and May 2012 The monthly dividend for WIW is currently $.0335 per share and went ex-dividend on March 13th, the day that I sold my shares. 

Both of these funds will provide more current yield than TIPs bought in the bond market. The five and ten TIPs now have a negative coupon. Bloomberg

I made the switch to IMF due to the higher yield. At at total cost of $17.7 for IMF shares, and a continuation of the current 5 cent monthly dividend, the yield is about 3.39%. At a $12.91 total cost for WIW, the yield is around 3.11%

More importantly, I also wanted to hold either IMF or WIW in the ROTH IRA, rather than a taxable account. Since distributions paid into the ROTH IRA are not taxable, I receive slightly more juice by holding this kind of low yielding security, which does not pay qualified dividends, in a retirement account. 

This is a link to the sponsor's website for IMF: Closed-End Funds Details

As of 12/31/11, 94.58% of the fund was in inflation linked securities and 95.66% of the assets were in "AAA" rated securities. IMF Portfolio Characteristics 

Most of the holdings are in U.S. TIPs. IMF Holding 

This is a link to the last SEC filed shareholder report for the period ending 12/31/2011: www.sec.gov 

CEFA Page on IMF

Morningstar Page on IMF

On 3/13/12, IMF closed at $17.67 and had at that time a net asset value per share of $19.64, creating a discount of -10.03.

I bought the 200 shares of WIW sold last Tuesday in a taxable account at $12.63. (Sept. 2011):  

2012 WIW 200 Shares +$40.05

Prior realized gains for this CEFs include the following:

2011 Realized Gains WIW +$212.45

2010 Realized Gains WIW +$266.07

2011 Realized Gains IMF +$146.82 

2010 Realized Gain IMF +$215.77

Discussions of prior trades of IMF can be found in the following posts: Sold 200 of the Bond CEF IMF at $17.78 (Dec 2011); Bought 200 IMF at $17.45 (Oct. 2011); Bought 300 CEF IMF at 16.5 May 2010; Sold: 300 IMF @ 17.23 October 2010; Bought 200 of the Bond CEF IMF at 16.64 February 2011 Sold at Few Days later; Sold 200 IMF at $17.15 February 2011

Western Asset Inflation Management Fund (IMF) closed at $17.72 in trading yesterday, up 5 cents. Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW) declined 8 cents per share to close at $12.83 yesterday.

3. Sold 100 GNT at $16.25 Last Tuesday-Satellite Brokerage Account (see Disclaimer): The object in this account is simply to generate some income and profits as an alternative to bank CDs. The dominant goal is still capital preservation. Prior to the onset of the Fed's Jihad against the Saving Class, all of the funds in this satellite brokerage account were in an affiliated bank and invested solely in bank certificates of deposit and a savings account. The brokerage account was opened when the CDs started to mature and I refused to roll them over. GNT was a recent purchase at $15.75, and I held the shares long enough to receive one monthly dividend.

This CEF also owns a number of gold mining stocks. Gold prices have been sliding recently, and that decline accelerated yesterday. April gold lost $56.6 yesterday, and this analyst claims that this decline caused near term technical damage. Kitco

While pundits will often ascribe reasons for the ebb and flow of gold prices, I have always found its price fluctuations to be enigmatic. Gold's value is based on what frequently irrational humans ascribe to it. After all, there is no earnings for a P/E ratio.

For an extended period of time, starting in 1980 and lasting until 2002, gold was in a bear market with the price going nowhere. In January 1981, the price was near $540 an ounce. By mid-1984, it had fallen to $340. Eight years late, the price was hovering between $275 to $325. And, gold does not pay interest, and physical bullion has storage costs for most investors. For over two decades, gold was a horrible investment, particularly after adjusting for inflation.

Between September 2002 and September 2011, gold moved from around $300 an ounce to over $1900, and that is when I sold some of my gold bullion. Recent Gold and Silver Sales I sold more earlier this year.

I suspect one reason for the decline since September 2011 simply involves profit taking by large holders, particularly hedge funds who were major contributors to the price rise. Another reason involves the recent strength of the USD as shown in this one year chart of the U.S. Dollar Index (DXY) Index. Since gold is viewed as an alternate currency by me and others, a rise in the USD signals less reliance being placed on gold as the reserve currency.

I would not be surprised now to see a significant retracement of the move since 9/2002, but price moves are entirely unpredictable from my viewpoint since they are ultimately based on human emotions and the ability of large investors to move (i.e. manipulate) the metals markets.

On 3/12/2012, this CEF closed at a 2.34% premium to its net asset value per share. That is another reasons to sell it. GAMCO Natural Resources Gold & Income Trust (GNT) declined 34 cents in trading yesterday to close at $15.84.  Notwithstanding that decline, the premium increased to 2.52%. 

Junk Bond Ladder Table/LT Table/CEF Portfolio Table as of 3-12-12/Sold 100 HUWHY at $20.72/Sold 1 Wendys 7% Senior Bond Maturing 2025 at 89.25/Bought 40 RSH at $6.89-LT CATEGORY/TICC

The VIX moved below 15 yesterday, falling .91 or 5.82% to close at 14.73. Continuous movement below 15 would be the most bullish signal in the Vix Asset Allocation Model. I would want to see 3 months of continuous movement below 20, permitting only minor and temporary movement above 20, before declaring the onset of a Stable Vix Pattern. VIX Historical Prices

As previously discussed, the VIX has been in an Unstable VIX Pattern since the Trigger event in August 2007. The prior Unstable VIX Pattern period lasted from October 1997 to March 2004. Mark Hulbert and the Use of the VIX as a Timing Model


This is a link to the historical VIX prices leading up to the Stable VIX Pattern Formation in March 2004 which lasted until August 2007.

This is a link to the  historical VIX prices leading up the the Stable VIX Pattern Formation in 1991 which lasted until October 1997.

Four large financial institutions did not pass the Fed's stress test. One of them was Citigroup. While I do not own the common shares, I do own several unsecured senior notes issued by Citigroup Funding and guaranteed by Citigroup, all of which mature in 2014. I am not concerned about Citigroup surviving to pay off those notes at the present time. Citi maintains that it did not "fail" the stress test.  WSJ


A NYT article in its Reckoning Series from 2008 provided some details on how the Masters of Disaster at Citi sank that bank. There is no doubt in my mind that Citigroup would have failed without massive government assistance in 2008-2009.

Ally Financial also failed the stress test, and I own two senior GMAC senior unsecured notes. I recently sold one GMAC note.

I currently have no positions in another bank that failed the tests, SunTrust (STI). This is a link to STI's 2011 Annual Report and to SunTrust's press release responding to the stress test results.

Lastly, MetLife did not pass using a different standard of total capital ratio. My only position in MET is in METPRA, and I am not concerned about it at the present time. I have been thinking of at least harvesting the profit of the 100 shares held in a taxable account where I have over a 100% unrealized  long term capital gain:

MetLife issued a press release after the close yesterday complaining about the stress test standards applied to it.   


More information about the institutions that failed the tests can be found at Bloomberg, Reuters, MarketWatch, the WSJ and the NYT.


Several banks that passed the stress test raised their dividends and announced share buybacks. 

Wells Fargo & Company increased its first quarter dividend from 12 to 22 cents by declaring an additional 10 cent per share dividend.

JPMorgan Chase increased its quarterly dividend to 30 cents per share, up five cents, and authorized a 15 billion dollar share repurchase program.

U.S. Bancorp increased its quarterly dividend by 56% to $.195 per share and authorized a new 100 million share repurchase program.

KeyCorp, owned, announced that it would evaluate a dividend increase, and its Board authorized the purchase of up to $344 million in stock. An analyst report from Guggenheim Securities, summarized at Barrons, mentions that KEY could be a buyout target for FifthThird.

While the hapless Bank of America passed, it did not announce an increase in its 1 cent per share quarterly dividend.

This is a link to the FED's report.


1. Sold 100 HUWHY at $20.72 Last Monday (see Disclaimer): This stock was sold simply to harvest a good percentage gain. The shares were bought in last January 2012 at $17.84. I had not been planning to sell the shares until I saw a 4.5% pop in the share price last Monday. HUWHY-OTCMarkets.com

2012 HUWHY 100 Shares + $272.06

2. TICC Capital (TICC)(own):  TICC, a BDC, reported net investment income for the 4th quarter of 25 cent  per share. SEC Filed Press Release There were no loans on non-accrual basis at the end of the 4th quarter. As of 12/31/2011, net asset value per share was $9.3. The Board approved a 27 cent per share first quarter dividend.

TICC Capital shares rose 20 cents in trading yesterday to close at $10.55. The next ex dividend date is 3/19/12 according to Marketwatch. 

3. BOUGHT 40 RSH at $6.89 Last Monday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): RSH common shares are now near prices prevailing in 1982 which is a good argument against being a long term investor in that company. After trading around $16 per share last May, the shares have been on a downtrend and spiked down in late January after the company warned about 4th quarter results. RSH Interactive Chart The stock plunged 30% on 1/31/12 after RSH announced that 4th quarter earnings would be between 11 to 13 cents per share versus the expectation of 36 cents. SEC Filed Press Release The poor quarter was due "in large part" to underperformance in the Sprint postpaid wireless business. 

Later in February, RSH announced  net income of $11.9 million or 12 cents per share for the 2011 4th quarter, down from 47 cents from continuing operations for the 2010 4th quarter. The company ended the quarter with $591.7 million in cash and cash equivalents. Long term debt stood at $670.6 million. Of that debt, $325 is a 6.75% senior note maturing in 2019 (FINRA), and another $375 is a 2.5% convertible note maturing on 8/1/2013. Annual Report Starting at page 50 The convertible is a busted convertible. RSH will most likely have to pay off the note when it matures just like any plain vanilla senior bond. The company currently has a $450 credit facility maturing in 2016. 

For 2011, the company had net income of $67.1 million from continuing operations or 65 cents per share on revenues of $4.378 billion. 

This article at the Motley Fool contains information about Radioshack's margins on the IPhone and Android devices. RSH's margin on IPhone sales are substantially lower than on the android devices which is a problem given the IPhone's popularity. 

Another problem in my opinion is the prevalence of stand alone phone company stores. There are at least five Verizon, AT & T and Sprint stores closer to HQ than a RSH store. 

The problems dictate a LT purchase rather than a serious position. With a LT purchase, I can wait forever, if need be, for RSH to improve its operations. If a modest turnaround  can be accomplished at anytime within the next five years, so that the price returns just to the May 2011 level, then this LT will be successful, but it does not matter given the small investment one way or the other. I discuss the debt situation since RSH appears to have enough cushion to give it time to improve earnings. 

RSH is paying a dividend. RadioShack Corporation-Dividends The company will pay a $.125 per share dividend later this month. In my opinion, the company paid out too much in dividends in starting in 2002 and way too much in 2011 when the payout was 50 cents per share.  

RadioShack shares rose 7 cents in trading yesterday to close at $6.93.

Lottery Ticket Basket Table as of 3/13/2012

Lottery Ticket Basket Strategy Table

            

4. Sold 1 Wendys International 7% Senior Bond Maturing in 2025 at 89.25 (Junk Bond Ladder Basket Strategy)(see Disclaimer): This bond was sold near break-even after collecting slightly more than one year of interest. Bought 1 Wendy's Int Senior Bond Maturing 2025 at 87.5 (2/22/11 Post)

5. Junk Bond Ladder Table: I have been selling some of the lower yielding bonds in this basket. I have reduced my exposure to this basket strategy by about $9,000 since mid-February 2012. 

5. CEF Table As of 3/12/2012: I sold two of the minor positions yesterday and bought a new one, and those changes are not yet reflected in the table. The purpose of this portfolio is achieve a stream of income with most of CEFs paying either monthly or quarterly dividends and to achieve a balanced world portfolio.

Several CEFs were ex dividend yesterday for their monthly dividends (BTZ, PSY, WIW) and their quarterly dividends (BCF, JSN, JQC, JLA)

GDV, GGN and GNP are ex dividend today for their monthly distributions. Several of the other CEFs, including ERC, FAM, CSQ, IGD, went ex dividend for their monthly distributions earlier this month, while GDO, EOI, IGR, SGL and ETO are about to go ex dividend for their monthly dividends.

The regional bank basket was up 2.53% in trading yesterday. 

Modification of Lottery Ticket Strategy/EXC/Sold 100 OSM at $23.34/Bought 30 ING at $8.79 as LT/Sold 30 MPEL at $13.12 and Bought 100 LMLP at $1.8-LT Category

Exelon (own) closed its acquisition of Constellation Energy yesterday. Investors responded positively to this news yesterday. Exelon rose 90 cents per share in trading yesterday to close at $39.81.

The Treasury Department reported yesterday that the U.S. budget deficit for February 2012 was $231.7 billion. fms.treas.gov/pdf The U.S. government's fiscal year ends at the end of September. The budge deficit for the current fiscal year is currently estimated at $1.08 trillion which will be the 4th consecutive year of budget deficits in excess of 1 trillion dollars. Prior to the first year of the Reagan Presidency, the entire debt of the U.S. government was less than $1 trillion dollars.

1. Sold 100 OSM at $23.34 Last Friday (see Disclaimer): These shares were sold by OG who did not want to risk his unrealized profit which could exceed the income generation produced by this bond until it matures in 2017. I bought the 100 shares in two fifty share lots. The total average cost for the 100 shares was $15.93:

2012 OSM 100 Shares LT Gain +$733.05

The first lot was purchased in August 2008, shortly before I started this blog, at a total cost of $15.96. The second lot was purchased in May 2010. Item # 9 Bought 50 OSM at 15.74 I have now sold out of this security but I still own 100 shares of a related bond, ISM, that was recently bought within the past year Bought 50 of the CPI Floater ISM at $20.62 (8/31/2011 Post); Bought 50 ISM at 19.5 (October 11, 2011 Post). 

Floaters: Links in One Post

OSM is a senior, unsecured bond issued by SLM, also know as Sallie Mae. Interest is paid monthly at a variable rate. The rate is linked to CPI. OSM pays a 2% spread over a CPI computation which uses a 12 month period with a 3 month lag. Prospectus The CPI data used in that computation is the non-seasonal CPI that can be found at the stlouisfed. 

I show how the interest rate is calculated in Item # 1 OSM.

SLM Corp. CPI-Linked Medium Term Notes Series A 2017 fell 4 cents yesterday to close at $23.2.

2. BOUGHT 30 ING at $8.79 Last Friday-LT Category (Lottery Ticket Basket Strategy)(see disclaimer): My last transaction regarding ING's common stock was to liquidate my position at $35.49. I was able to generate a profit with that trade made on 2/26/2008. As explained in my April 2009 Gateway Post on ING Hybrids, I transitioned to buying ING hybrids when their prices were crushed by the market. It is almost unbelievable now, but I was able to buy some of those $25 par value hybrids at single digit prices. (e.g. Bought 50 INZ at 6.52 February 2009 BUY OF ISF at $4.6 February 2009 Buy of 50 INZ at 7.82 February 2009)

ING lost a lot of money investing in U.S. mortgage securities pedaled by the Masters of Disaster. As a result, ING receive a €10 billion infusion from the Dutch state late in 2008.   ING to strengthen core capital by EUR 10 billion | ING To receive EC approval of the state aid received by it, ING had to agree to a restructuring program that required the company to become much smaller. 

ING has gradually repaid the aid received from the Dutch government. The Dutch government purchased preferred stock, and ING pays back the Dutch government by buying back those securities at a premium to their face value. The premium is 50%, a bad deal for ING shareholders to say the least. The last repurchase occurred in May 2011, and involved a €3 billion Euro payment to the Dutch state to repurchase €2 billion in those securities plus the 50% premium. ING pays EUR 3 billion to Dutch State for second tranche of core Tier 1 securities, including a 50% premium | ING  That is one reason to classify this purchase as a Lottery Ticket. The fact that ING had to receive such a large capital infusion is one huge negative factor, and the terms of repayment just make it worse from a common shareholder's perspective. 

ING also receive an Illiquid Assets Back-Up Facility from the Dutch government in January 2009. This assistance related to the Alt-A mortgages that an ING U.S. operation had unfortunately bought in large quantities. Transactions with Dutch State | ING

Recently, ING completed the sale of ING Direct to Capital One for approximately $6.9 billion in cash and 54 million shares of Capital One.  SEC Form 6-K

The 2011 4th quarter results were adversely impacted by a charge in ING's insurance operation relating to the U.S. annuity business:  Form 6-K  

This is primarily a statistical selection based on information found at the YF Key Statistics page for ING:

Trailing P/E=7.67

Forward P/E=5.89

Price to Book=.55

Five Year Estimated P.E.G.=.35

Morningstar has the common rated 3 stars.

As with all LT selections, ING's stock chart looks awful. ING Interactive Chart The stock topped out close to $45 per share in late 2007. The 52 week range is $5.8 to $13.41. 

ING eliminated its common share dividend in 2008. Eventually, I would expect a resumption of that dividend, but would not anticipate its resumption this year. 

I would add that Aegon, another Dutch financial institutions that received state aid, has repaid back the Dutch government in full and has resumed a common stock dividend. Aegon NV (AEG) Dividend History - Nasdaq.com; AEGON  I also own AEG as a LT.  

Throughout 2009-2010, when discussing the relative risks of Aegon and ING hybrids, I argued that AEG was in better financial condition to weather the storm than ING who digested too much cooking from American Masters of Disaster. 

ING Groep N.V. ADS fell 8 cents in trading yesterday to close at $8.69.

3. Bought 100 LMLP at $1.8 Yesterday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): LML Payment Systems is a micro cap company involved in payment processing and other activities. Its primary profitable activity has been patent litigation. Recently, it settled a patent case against JPM for $4.5 million. SEC Filed Press Release JPM was the last defendant in LMLP's patent case filed in the U.S. District Court for the Eastern District of Texas in 2008. As noted in that press release, the company has received in excess of $45 from settlements in its patent litigation. Just prior to the settlement with JPM, the company settled with Deutsche Bank Trust Company Americas for $450,000. SEC Filed Press Release I did not note any other settlements in 2012.

As of 12/31/11, the company had $23.928642 million in cash and cash equivalents and $3.211665 in short term investments.  SEC Filed Press Release: 4th quarter 2011 Earnings  The total cash was at that time roughly $27.15 million.  As of 12/31/11, the cash per share was .96. LMLP Key Statistics With the settlements with JPM and Deutsche in the 2012 first quarter, totaling $4.95 million in total, the balance would be higher now. Depending on the amount of taxes associated with those payments, I suspect the number is closer to 1.1 now. 

The fiscal 2011 3rd quarter, which ended 12/31/2011, had minimal revenue from patent settlements. The success or failure of this LT investment will depend mostly on the performance of LMLP's payment processing business, the TPP segment of its operations (see description at page 39 of SEC Form 10-Q) This segment reported revenues of $4.297 million, an increase of 21.7% from the 3rd quarter of 2010. Earnings were reported at just 1 cent per share. The stock reacted negatively to this earnings report. LMLP Interactive Chart The earnings were released Friday morning, 2/10/12. On 2/9/12, the stock closed at $3.17 per share and has been on a downhill ride since this release.  LMLP Historical Prices The announcement made on Tuesday, 3/6/12, about the $4.5 million settlement with JPM did not result in a gain that day. Instead, the stock declined 19 cents on 3/6 or 8.9%. 

Besides the TPP and patent litigation business segments, the company also has a unit, called the CP Segment, that generated $525,000 in revenues for the 3rd quarter, a 15% decrease from the fiscal 2010 3rd quarter. Apparently, this segment helps merchants collect on dishonored checks. I would not place a significant value of this business segment. And, the patent litigation business may be nearing an end. It remains to be seen whether the company can profitably grow its TPP business and/or successfully deploy its cash to expand its business.  

This company is headquartered in Canada. Its TPP business currently serves a merchant base of over 12,000 customers primarily in Canada.  

    

Profile page at Reuters

Key Developments page at Reuters

Based on 12/31/2011 Data:
Price to Book: 1.07
Price to Sales: 1.06

This company really just needs to be acquired by a larger firm in the payment processing industry. That would probably be the best way for its shareholders to receive fair value.

LML Payment Systems declined 3 cents in trading yesterday to close at $1.82.

4. SOLD 30 MPEL at $13.12 Last Friday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): This concludes my second round trip in MPEL as an LT. I bought these shares at $9.32. Bought 30 MPEL AT $9.32 as LT (1/3/2012).  

2012 MPEL 30 Shares +$98.09

Melco Crown Entertainment Ltd. ADS rose 14 cents in trading yesterday to close at $13.27.

The prior round trip consisted of a 40 share buy at $7.36 (Jan 2011), with those shares sold  at $11.46 (June 2011).

5. Modification of Lottery Ticket Basket Strategy: I am going to modify my Lottery Ticket Basket Strategy with a new wrinkle. The OG has started playing Blackjack at casinos. As part of the new strategy, a LT selection sold for a $100 or greater profit during 2012 will warrant the playing of one Blackjack hand with a black chip. Usually, the OG plays with the green chips since his hand starts to tremble playing with black chips. The $100 hand (s) will be the first hand (s) played during the session, usually five hours. If the hand is won, the two black chips will be placed in the OG's pocket. In the event of a double down or split for that hand, the money will be advanced from the profit of the next $100+ LT realized gain.   

While it is the subject of some debate, the OG has decided that any winnings at the end of 2012 will be used to play one session with only black chips. The RB voted with the OG with the LB casting the only "no" vote to that investment plan. Headknocker refuses to become involved in staff disputes unless the amount in question exceeds $5,000. 

As shown in the snapshots at the end of the Lottery Ticket Strategy Gateway Post, there is only one LT sold in 2012 for more than a $100 profit so far.