Adding Alpha - Stock options - Buy/Write

020314 Who is afraid of the BIG BAD MELTDOWN?

2014-02-23T12:29:00.001-05:00

I once had a salesman who said, "Economists are like a broken clock, they are right twice a day." My digital ones are right at noon and midnight. That old blinking "12". The call for a market meltdown seems to be the fall back when all else fails.However, investors now have the fewest choices as to where to place their money in the past few decades. At least that is how they are behaving. The search for yield, income and growth has been reduced to the equity markets. Fixed income has the Sword of Damocles and the fancy hybrid securities have been shunned since the CDO/CBO/EI, EI,O.... markets blew up.

There is a dedicated investment group that invest in the equity markets like clock work. The place their new cash and earnings into the stock market on a bi-weekly basis. The superannuation or ERISA type retirement funds are a major player in the investment markets. Their growth has been phenomenal and their influence has grown dramatically. Unlike pension funds, however, there is no single controlling investment agency. No "Boss Hog" or Union Representative to control the placement of the money. Every two weeks employee paychecks are reduced by the "401k Contribution" Plan (or equivalent such as 403b for public employees, etc) . Every month, the earnings from the Plan are reinvested and the snowball grows and grows.

According to the Vanguard How America Saves 2013 Annual Report, "Defined contribution (DC) retirement plans are the centerpiece of the private-sector retirement system in the United States. More than 80 million Americans are covered by DC plans, with assets now in excess of $4 trillion."

The role of automatic enrollment is also a contributing factor. From Vanguard, "The adoption of automatic enrollment has more than doubled since year-end 2007. At year-end 2012, 32% of Vanguard plans had adopted automatic enrollment, up 3 percentage points from 2011. In 2012, more than 50% of large plans had an automatic enrollment feature, compared with about 40% in 2007. More than half of all contributing participants in 2012 were in plans with automatic enrollment, although the automatic enrollment feature was applied only to new plan entrants in 8 of 10 plans. Seven in10 automatic enrollment plans have implemented
automatic annual deferral rate increases. Almost all plans with automatic enrollment (97%) default articipants into a balanced investment strategy—with 9 in 10 choosing a target-date fund as the default." If we assume Vanguard represents the norm in investing, this may not be a bad assumption, the monthly implications are huge.


S&P 500 P/E Ratio	from Fisher Investments

This post lacked all the research I wanted but it is important none the less.
Stocks represemt value.

I had not been able to complete all the research for this post, however, the information provided should be sufficient to support my argument on a qualitative basis. Needless to say I would prefer a quantitative basis to support my theory. However, time and other demands do not allow. Look for a more through report in the next year with better data.

01/24/14 - 52 stocks the market wants to sell cheaply and pay us to own

2014-02-23T12:22:00.001-05:00

We did trade on this list and the results on first look, without any analysis appear to have been good. The environment was not welcoming to say the least. The "Nattering nabobs of negativism" to quote a former vice president (above) were out in force.

Seems some people just want to focus on the negative. Premiums were rich as the VIX spiked up and remained

Volatility climbed as the S&P sank and value was abundant.

To me sure this was a calculated move.

We began by analyzing the existing positions and making sure were had established hedges (ie: we had covered the long positions by selling calls/taking in premium). Next we evaluated opportunity. The absolute market level is not too important. The value of a transaction and stand still return (SSR) is vital. Our days earnings were healthy and we did not establish positions with the idea of gaining on the upside, rather as we constantly write about, taking what the market is generous enough to give us.

Also note that these stocks, for the most part, all had dividend payment dated within 45 days of valuation.

January 24, 2014

The list is below with the group rankings and then individual stock data sheets following in ticker symbol order.

Symbol	Name
ABB	ABB Ltd
ACN.	Accenture plc.
ADI	Analog Devices, Inc
ADM	Archer-Daniels-Midland Company
ADT	The ADT Corporation
AEP	American Electric Power
APL	Atlas Pipeline Partners LP
AUY	Yamana Gold
BAX	Baxter International Inc
BDX	Becton, Dickinson and Company
BGG	Briggs & Stratton
BHP	BHP Biliton Limited
BRO	Brown & Brown, Inc
BWP	Boardwalk Pipeline Partners LP
CAG	ConAgra Foods, Inc
CLX	The Clorox Company
CMS	CMS Energy
CNP	CenterPoint Energy Inc
COL	Rockwell Collins, Inc
COP	ConocoPhillips
CTAS	Cintas Corporation
DCI	Donaldson Company, Inc.
DE	Deere & Company
DOV	Dover Corporation common Stock
FTR	Frontier Communications Co
GPC	Genuine Parts Company
HI	Hillenbrand Inc Common Stock
HPQ	Hewlett-Packard Company
HRB	H&R Block, Inc.
JPM	JP Morgan Chase & Co
KMB	Kimberly-Clark Corp Common
LECO	Lincoln Electric Holdings, Inc
LEG	Leggety & Platt Inc
LLTC	Linear Technology Corporation
MRK	Merck & Co, Inc
MT	Arcelor Mittal
PAA	Plains All American Pipeline, L.P.
POM	Pepco Holdings Inc
QCOM	Qualcomm Inc
RAI	Reynolds American Inc
RBC	Regal-Beloit Corporation
RIG	Transocean Ltd Co
SFL	Ship Finance International
SID	Companhia Sidrurgica Nacional
SMG	The Scotts Miracle-Gro Company
SO	The Southern Company
STWD	Starwood Property Trust, Inc
SYY	Sysco Corporation Common Stock
T	AT&T
VAL	The Valspar Corporation
WOR	Worthington Industries, Inc
XOM	Exxon Mobil Corp

12/02/13 Into the year end

2013-12-02T10:33:00.004-05:00

UPDATE Not really sure why I have not been able to get all the individual stock data loaned. I know it has to do with a revised method of uploading the information. I seem to be struggling as a blog/web master and for that I apologize..:

However, I am excited about some of the stocks and their ranking.

For those of you who follow volatility, it is on the rise and that is helpful.

Of the stocks listed most of the top listed stocks on the ranking sheets (those other than the Alpha Sort) are quality investments and they have strong valuation as buy/writes.

Let me know via messaging if you need anything that has not posted.

For the week ending Thanksgiving we present our most recent analysis

List of this weeks current analysis in alphabetic order, reports below:

Symbol	Name	Dividend	Pay Date
ADI	Analog Devices, Inc	2.70%	11/28/13
ADP	Automatic Data Processing, Inc.	2.40%	12/11/13
AEE	Ameren Corporation	4.40%	12/09/13
AEO	American Eagle Outfitters, Inc	3.10%	12/30/13
AGU	Agrium, Inc	3.40%	12/26/13
ALB	Albemarie Corporation	1.40%	12/11/13
APD	Air Products & Chemicals Inc.	2.60%	12/30/13
ARG	Airgas	1.70%	12/10/13
AUY	Yamana Gold	2.90%	12/27/13
AXS	Axis Holdings Limited	2.00%	12/27/13
BANF	BancFirst Corporation – no options	2.20%	12/26/13
BAX	Baxter International Inc	2.09%	12/04/13
BDX	Becton, Dickinson and Company	1.80%	12/05/13
BEN	Franklin Resources, Inc	0.70%	12/26/13
BXS	BancorpSouth, Inc	0.80%	12/11/13
CAH	Cardinal Health, Inc	1.90%	12/30/13
CB	The Chubb Corporation	1.80%	12/19/12
*CBU*	Community Bank System, Inc	4.00%	12/18/13
CCJ	Cameco Corporation Common	1.90%	12/26/13
CIM	Chimera Investment Group	12.00%	12/31/13
CNI	Canadian National Railway Company	0.70%	12/06/13
EAT	Brinker International, Inc.	2.00%	12/04/13
ECL	Ecolab Inc	0.90%	12/13/13
EIX	Edison International	2.90%	12/26/13
FGP	Ferrellgas Partners LP	8.40%	12/04/13
FTR	Frontier Communications Co	8.50%	12/05/13
GPC	Genuine Parts Company	2.60%	12/04/13
HI	Hillenbrand Inc Common Stock	2.70%	12/12/13
HPQ	Hewlett-Packard Company	2.30%	12/09/13
HRB	H&R Block, Inc.	2.80%	12/05/13
KMB	Kimberly-Clark Corp Common	3.00%	12/04/13
KO	The Coca-Cola Company Common	2.80%	11/27/13
LEG	Leggety & Platt Inc	4.00%	12/11/13
MKC	McCormick & Company	2.00%	01/03/14
MLR	Miller Industries, Inc. Common * thin/illiquid options	3.00%	12/05/13
MO	Altria Group Inc.	5.20%	12/12/13
MOS	Mosaic Company	2.10%	12/03/13
MRK	Merck & Co, Inc	3.50%	12/12/13
NUE	Nuroc Corporation	3.90%	09/28/11
RAI	Reynolds American Inc	5.00%	12/06/13
RBC	Regal-Beloit Corporation	1.10%	12/24/13
RCI	Rogers Communicatoins, Inc	3.70%	12/11/13
SCG	SCANA Corp	4.30%	12/06/13
SDRL	Seadrill Limited ORD	8.00%	12/05/13
STLD	Steel Dynamics	2.40%	12/26/13
SYK	Stryker Corporation Common	1.40%	12/26/13
TM	Toyota Motor Corp.	2.00%	12/26/13
VAL	The Valspar Corporation	1.40%	11/27/13
WMT	Wal-Mart Stores, Inc	2.30%	12/04/13
WOR	Worthington Industries, Inc	1.50%	12/11/13

11/28/13 Where have all the good times gone?

2013-12-02T10:16:00.002-05:00

WOW - The last post of August produced a great result. However, since then most of what we have been doing is working to keep our positions covered. Not much in the way of analysis and therefore no need to post. Posting nonsense on the internet does not require much skill and we like to think we offer skillful and worthwhile advice.

The market has been a climbing and we have worked to keep the delicate balance of chasing return as opposed to earning income. We have written extensively about this polemic in the past and will refer you to those older posts. This is a philosophical discussion but based in the service we offer our clients. Chasing return is not our mandate and we provide a covered call service only because income is so hard to find.

With this in mind, I recall my rebuffed by an investment professional last year because I used a covered call strategy. He managed a boutique investment house with a respectable AUM that serviced HNW individuals. We were discussing the need to capture income and various strategies. In his mind he could not separate income from capital gains. After all, if you owned stocks the only reason was to earn capital gain. As a former bond manager I understood his argument, however, he could not see the income component of covered call writing. Do not misunderstand me, as the boutique manager seems to have, I am not and never have believed covered call writing is anything more than a transient strategy to generate "income" in an interest rate environment such as we have been in for the past several years. This is a strategy to meet a need and is a direct result of the current market conditions.

Previously, portfolio managers could rely on corporate bonds, preferred stocks, etc. These asset classes are few and far between these days. My research of more than a decade ago demonstrated a strong correlation between corporate equity and fixed-income with the junction where preferred and convertible securities meet. Needless to say must companies never offered this spectrum within their capital structure. These days, the nature of financing has changed as capital markets are adjusting to the demands of fiscal, monetary and taxation policy.

Anyway, to return to my boutique manager, he is old enough to remember the glory days of coupon bonds and respectable opportunities to create income for clients. He just could not come to terms with covered calls on high yielding stocks. Synthetic income does not work. I understand but refuse to wear a scarlet A or rather I (for income).

08/02/13 - It is summer and the living is easy

2013-08-02T12:39:00.002-04:00

George Gershwin did have a way with words. Where have the simpler times gone?

There was a time when we did not worry about the market, there was no CNN and the internet had not been invented. That is not the time we now live in no matter how hard I try. In the past few months most of the trading we have done was to hedge, write calls against, existing positions. The market has continued its gravity defying climb ever higher.
As we have previously written, we have no comfort in chasing the market. Our goal is to add income not principle value. The past 6 months have been challenging as we do not want to get whipped-sawed (buying high just to participate then selling low because we get stopped out at a loss).
Corporate cash continues to accumulate.

There are two main reasons why firms find it beneficial to hold cash: precautionary motive and repatriation taxes.The FRB St. Louis January 2013 publication, they had an article entitles, "Why Are Corporations Holding So Much Cash? by Juan M. Sánchez and Emircan Yurdagul. Their data indicated corporations are cash rich (see below).

Source: Compustat

Ratio of Cash to Net Assets

Source: Compustat

The Ratio chart seems to be most indicative although both charts demonstrate that cash holdings are high for the past decade. This is important information and a clear reason for the strength of the market. The article authors determine that, "There are two main reasons why firms find it beneficial to hold cash: precautionary motive and repatriation taxes." Precautionary motive...... fear of the future. The business and political environment globally is unstable at best. Corporations are risk taking and adventurous organizations. They profit from taking risks. When they curtail their activities the economy suffers. If cash is truly the grease that lubricated the rails of the economy, then hording cash is a sign of coming problems, as if there are not enough problems now. The tax issue is a constant. The primary goals of any corporation is to make money and avoid paying taxes on the profits. When both are done legally investors cheer, when done illegally government investigators and prosecutors cheer (job security).
Why have stock prices risen with corporate cash holdings? Investors buy stocks for appreciation, income and ownership. There are any number of theories as to how stock prices are arrived at and what constitutes the value of a stock at any given moment. Present value of future earnings, discount dividend, and my personal favorite the equilibrium between buyers and sellers. Cash can easily be disgorged by managers in the form of investment, wages, bonuses and dividends. Investment can be in the form of buying property plant and equipment or another firm. The 1980's saw diversification as a means of growth. This had mixed results. Integration can be good as ling as it is within the confines of the existing business. There is one aviation company that owns a guitar maker, but that is the exception. Tyco did a good job of adding annuity based service companies while RJR didn't do such a good job adding businesses to its portfolio. GE remains to be seen, our group is split on that one. However, with stock prices so high, it is logical to assume valuations are too high as well. If so buying a company may be too expensive. Paying higher wages and bonuses will be frowned upon, however, providing better benefits or funding pension obligations will be more acceptable. Paying of dividends, special dividends especially, is a time honored tradition that income investors really, really like. Although we are not betting on a tsunami of special dividends, we have seen some and would welcome more. If the choice were greater taxation of corporate cash or rewarding shareholders, we would like the latter. Note that there is a tax payment necessary for every dividend at the corporate level (remember the triple taxation arugement on dividends?). Certainly, acquiring businesses' is a good idea, valuations and an uncertain economy may leave managers little choice but to provide special dividends.

063013 Tempting

2013-08-02T12:39:00.001-04:00

The market moves have been exciting. However as previously written they are not for us. The restriction to income and limitation to buy-write strategies can be frustrating. However, the off-set is the rise in bond yields. Note in the chart below, 1-month yields are up and 1 year yields show a pivoting yield curve. That pivot is at the 2-year - kudos to Ibbotson and Sinquefield.

United States Government Bonds

US Treasury Yields

Tenor	Coupon	Price	Last	1 Month	1 Year
3 Month	0.0000	0.0300	0.03%	+1	-5
6 Month	0.0000	0.0900	0.09%	+3	-6
12 Month	0.0000	0.1400	0.14%	+2	-6
2 Year	0.3750	100-00½	0.37%	+6	+5
5 Year	1.3750	99-25¾	1.41%	+38	+68
10 Year	1.7500	93-12½	2.51%	+37	+85
30 Year	2.8750	88-06	3.52%	+22	+75

Change shown in basis point source: Bloomberg

042913 - Knock me over with a feather

2013-04-29T11:37:00.003-04:00

042913 - Knock me over with a feather

Public Debt Overhangs: Advanced-Economy Episodes Since 1900
Carman M. Reinhart, Vincent R. Reinhart, and Kenneth S. Rogoff

Journal of Economic Perspectives - Volume 26, Number 3 - Summer 2012 - Pages 69-86

When I read this article a few months ago I was not floored by their results. Actually, I was rather disappointed that the conclusions were not more dramatic. It seems intuitive that high public debt would impede core economic growth. The same that high debt could be "evaporated" with high inflation. Either way high debt has never been considered a healthy contribution to economic growth especially when the debt has been non productive. After I read the article I took time to pause and think about its importance. Glad I did, the contents of the article are not as impressive as the life lesson now in play.

This article was honestly, long, detailed and boring. What else to expect from such noted and accomplished authors. Nearly 1/4 of the first page of the article is dedicated to providing the accomplishments of these distinguished individuals. The article is also flawed according to some folks who claim there was a math error in the spreadsheet used to calculate the results. Heresy? Perhaps, especially with the aggressiveness of the accusations and responses. I am not one to judge. Certainly, I keep my HP-12c's close at hand and have been the victim of a flawed calculation once or twice (I know to double and triple check results thanks to my old boss Ed Z.). No excuses especially when the accuracy of the data can be tested with the infallable 12c.

I found the article too exhaustive in the data contained. The results are expected, as a small percentage change can have a huge result even if that result if 5.0%. If memory serves me correct, or my spreadsheet is on target, it was about 5.0% of mortgages that went into default that caused the mortgage crisis. This precipitated a greater crisis and here we are today. Some times the common result belies the magnitude of the result or as we have seen so ofter the outlier of the statistical analysis.

Yet we believe flaws in the data we see daily without argument. Those "nut jobs" that should be wearing tin foil hats claiming that the government data is wrong! (Secret: There is a lot of merit to their arguments and they may be right). Is this the stuff of conspiracy theorists or could there be merit in their argument? Perhaps the bigger question is: does this even matter?

How many angels can fit on the head of a pin? An often repeated question presented by my graduate professor of statistics: i.e.: does it really matter? Certainly, getting the correct answer is important especially when you are a distinguished professor or highly paid representative making money off your analysis and publication. However, it would seem that a consistent flaw in the data may also serve to support the data. The theory is this: if the method has a flaw and the flaw is consistent but the overall result is indicative of of what the correctly calculated result would be, why care? Example, if the number of unemployed is always wrong, but consistently wrong throughout the historic data series. Then the unemployment rate would be consistently wrong as well. If the error amount were 5.0% across the board. Population: 300,000,000 +/- 5.0% /+/-15,000,000. Number of eligible working: 35-40% of population = 105-120,000,000 people. number of unemployed: 5.0%-5.5% = in millions either 5.3, 5.8, 6.0 or 6.6. The difference from 5.3 million to 6.6 million people is 1.3 million people or 0.5% to 0.4% difference. Think about the revisions of the previous numbers that are made with the release of each new data point. Few people pay attention to the revisions because that is old news. I cannot remember a data set that was not revised, re-based or changed that caused an uproar.

OK so I tortured this with math. The bottom line is that if the calculation error is consistent across the data set the error is lost in the magnitude of the numbers. Either way it is an estimate. and should not detract from the overall message.

Bring out one of my favorite quotes, attributed to old 19th-century British Prime Minister Benjamin Disraeli (1804–1881): Lies, Damned Lies and Statistics. Think about that most often cited statistical measure called correlation coefficient. People get really excited about this number when they hear it. I happen to like to see it in a graph. Truth is something that tracks or doesn't track another thing may be truly meaningless. It something has a .95 correlation coefficient over a period of x can have a .50 correlation coefficient over a period of x+y. The statistical result is correct, the implication of its significance may be deceptive.

As a quick aside, when I was trading on a desk, I developed computer based models to value various securities. Australian options come to mind as one that had a day count that was different than the average traded option. We used the model for analysis, to check pricing and verify the quoted price at the time of trade. A young and eager trader was thrilled when they reported they had done a trade in this option. I asked if they used the model and they declared they had used the model that was on the common industry data provider. Needless to say the big name data provide used the wrong day count for their calculation. However, since the seller and the buyer used the same flawed calculation the difference was negligible. Blind squirrels finding acorns, angels on the head of a pin or dumb luck, the error existed the result was negligible.

Not that I support erroneous research, and I have a bone to pick because I wanted to write about their research, the overall result looks to be unimportant. Let the titans of economics fight this one out. I will be sitting aside and suffering how to make returns, avoid duration risk and make money as defined by my mandate in this whorl wind market period.

Nonsense part deux

2013-02-25T00:43:00.001-05:00

NOTE: The original posting was released early to facilitate the sharing of some of the charts with a client. I have completed the posting and included additional observations on the market. Basically, I believe there is value in the equity market based on the date I present below.
Some of the value is in the supply/demand function, other is relayed in risk premium.
The equity markets receive automatic investments based on superannuation plan investment, reinvestment and asset allocation schemes. This is not an insignificant number. It is one I have calculated in the past but currently do not have the time or resources at hand to calculate. Secondly, the risks in the fined interest markets are astronomical. The value of a basis point is about the highest it has ever been. Each sell off costs debt holders more than ever before. Credit is deteriorating and cash is a being horded. If the US Fed abandons its buy back programs you can be assured yields will rise, eventually. The BoJ buy back kept yields low and my guess is that the Fed is aware of the catastrophic impact of artificially supporting a market against the will of investors. Certainly this is the playground of Schwartz György (aka George Soros) and his type, I prefer investing over gambling and speculating. The each their own.

Nonsense

I have been looking for the answer to the divergence risk to equity market movements. Readers will remember how much we look at the VIX and value it as a took to manage risk and an indicator of investor pricing of risk. However, the VIX has been declining for quite a while.

30 day VIX graph

90 day VIX graph

Note the "Fiscal Cliff" spike at the end of December and subsequent collapse or the index that represents risk.

1,825 day/5 year VIX graph

The above 5 year graph shows a pattern of lower highs and stable lows until this months collapse. Seems like a technical traders dream.

So I downloaded some data and took a closer look at it.

The above chart is the closing price of the S&P 500 charted against the closing price of the VIX for the past 5 years. The correlation coefficient for this period is -74, not an insignificant number. The inference I took from this was that as the market moved, the risk premium followed in the opposite direction. There did not appear to be any indication of one data set leading the other.

The S&P is up for the past few weeks - want to know why.... read on:

The S&P is up for the past several years - want to know why.... read on:

I do not remember what this chart represents but it is darn impressive.
Perhaps it is the VIX?

Despite turmoil and the Fiscal Cliff the S&P is up..... want to know why? Read on....

WOW the reason appears to be related to the above two charts - well at least in part to this date.
Savings and corporate cash retention are up whole consumption and corporate spending is down.
Any way you look at it, those with cash are hording. They are not spending and my guess is that they are investing their money in the market. Why take risks in a uncertain environment when you can place your bets on the existing companies who already exist?

This is one clear indication of uncertainty. When people with money feel uncertain they hold their cards close and limit their bets. ie: they don't take risk and rely on others to keep things going, ie: they don't spend and invest that money in proven winners.

01/28/13 ABB, ALV, APC, APL, ATR, AVP, AWK, AZN, BA, BG, BHP, BKH, BMI, BMS, BPL, BWP, CF, CMS, CNP, COL, CSL, CTAS, CVX & DBD

2013-01-28T11:45:00.002-05:00

ABB, ALV, APC, APL, ATR, AVP, AWK, AZN, BA, BG, BHP, BKH, BMI, BMS, BPL, BWP, CF, CMS, CNP, COL, CSL, CTAS, CVX & DBD

How do you eat an elephant?

One bite at a time......

As opposed to doing one elephant of a list we limited the list to a few dozen names and will continue to add posts for February throughout the next few days.

We took positions or traded in those underlined below.

ABB ABB Ltd - Feb 21's are at 55-60¢ not $1.10 - even at 1/2 the premium the trade is attractive.

ALV Autoliv, Inc

APC Anadarko Petroleum Corp

APL Atlas Pipeline Partners LP

ATR AptarGroup, Inc

AVP Avon Products, Inc

AWK American Water Works Company, Inc.

AZN AstraZenica PLC

BA Boeing Company

BG Bunge Limited

BHP BHP Biliton Limited

BKH Black Hills Corporation

BMI Badger Meter, Inc-

BMS Bemis Company, Inc

BPL Buckeye Partners L.P.

BWP Boardwalk Pipeline Partners LP

CF CF Industries Holdings, Inc - as much as we would enjoy a 70% dividend when the typo was corrected to 0.70% the rank changed to 5th Overall, 6th SSR and 5th Days earning. We still like the stock at 0.70%.

CMS CMS Energy

CNP CenterPoint Energy Inc

COL Rockwell Collins, Inc

CSL Carlisle Companies Incorporated

CTAS Cintas Corporation

CVX Chevron Corp.

DBD Diebold, Inc - top 5 overall - we like this stock

Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

Nonsense - why the market is rallying and risk is evaporating

2013-01-24T13:16:00.001-05:00

NOTE: This is a partial posting. Due to the need to share this information with a client over the web, I released the incomplete posting to allow for sharing of information. When this note is gone, the final posting will be completed with a conclusion. Thank you for your understanding.

Nonsense

I have been looking for the answer to the divergence is risk to equity market movements. Readers will remember how much we look at the VIX and value it as a took to manage risk and an indicator of investor pricing of risk. However, the VIX has been declining for quite a while.

30 day VIX graph

90 day VIX graph

Note the "Fiscal Cliff" spike at the end of December and subsequent collapse or the index that represents risk.

1,825 day/5 year VIX graph

The above 5 year graph shows a pattern of lower highs and stable lows until this months collapse. Seems like a technical traders dream.

So I downloaded some data and took a closer look at it.

01/08/13 - Why go long now?

2013-01-08T22:07:00.000-05:00

Why go long stocks now?

We discussed this very question today as we began to execute the BIG list on the last post. The following chart looks awful but is a great technical justification for buying.

The scale for the two indices is awful. But it is a quick and dirty chart that shows as the VIX declines the S&P500 increases. Statistical analysis aside, it serves to support a buy posture. Certainly we have written how emotions and beliefs cannot guide us. We are professional investors. Although the daily news seems awful and causes us to doubt investing, quantitative analysis helps keep us on track.

The VIX is an indication of risk or fear of risk. As risk fears decline the premium on the index declines. Thus market volatility or price uncertainty and "sketchy" behavior should decline. This is in no way a certain indicator of the future market direction. We did not need to do extensive statistical analysis to determine market direction. We have little interest in a market that increases or decreased in value. We make our money on capturing dividends and premium. The best market for us is a sideways or static market. No doubt we would like an upward trending market, but it does little for except make the overall market investors feel good. It is nice to feel good, but only as a confidence booster. Our responsibility is to keep our eye on the prize and work hard to meet our clients expectations.

Other reasons to own stocks:

Earnings are near historic highs! Now I do believe there is inflation out there, however, we are in a massive recession and earnings are outrageously high. Seems like some politician will want to smack corporations with more taxes. Too bad dividends are paid after corporate taxes are calculated then the precipitant if they are subject to dividend tax also pay tax on their income. Thus the old double taxation argument..

01/07/13 - Big List - AA, ADM, AEP, AFL, AOS,APL, ATO, ATR, AVP, AWK, AZN, BA, BG, BHP, BKH, BMI, BMS, BOH, BPL, BWP, CAT, CCE, CHK, CINF, CL, CMC, CMS, CNP, COL, COP, CSL, CTAS, CVX, D, DBD, DCI, DD, DE, DOV, DUK, ED, EMR, EPB, EPD, ETN, ETR, EXC, FAST, FCX, FE, FII, GE, GLW, GWW, HAS, HCN, HEP, HON, HRL, HSC, HSH, IBM, INTC, JNJ, K, KLAC, KMP, LINE, LLY, LMT, LO, MCD, MCHP, MHP, MMM, MSA, MXIM, NEE, NS, NVS, OLN, PAA, PAYX, PBI, PEP, PFE, PH, PM, POT, PPG, PRE, QCOM, R, RES, ROL, RRD, SE, SMG, SO, SON, STM, STRA, TAP, TEG, TX, TYC, UMBF, UTX, X & XOM

2013-01-08T10:50:00.002-05:00

AA, ADM, AEP, AFL, AOS,APL, ATO, ATR, AVP, AWK, AZN, BA, BG, BHP, BKH, BMI, BMS, BOH, BPL, BWP, CAT, CCE, CHK, CINF, CL, CMC, CMS, CNP, COL, COP, CSL, CTAS, CVX, D, DBD, DCI, DD, DE, DOV, DUK, ED, EMR, EPB, EPD, ETN, ETR, EXC, FAST, FCX, FE, FII, GE, GLW, GWW, HAS, HCN, HEP, HON, HRL, HSC, HSH, IBM, INTC, JNJ, K, KLAC, KMP, LINE, LLY, LMT, LO, MCD, MCHP, MHP, MMM, MSA, MXIM, NEE, NS, NVS, OLN, PAA, PAYX, PBI, PEP, PFE, PH, PM, POT, PPG, PRE, QCOM, R, RES, ROL, RRD, SE, SMG, SO, SON, STM, STRA, TAP, TEG, TX, TYC, UMBF, UTX, X & XOM

This list is way too big, 110 stocks in total, to comment on each individual stock. We have highlighted the stocks we traded in today. All but two of these stocks were new to our portfolio. We allowed our equity position to decline to 30% keeping fixed income and money markets at 70% for year end. Preliminary numbers for the year look to be as expected, between fixed income and equities. Thus we have once again achieved our income and management goals. For the most part we kept the positions added today smaller than usual. There remains much market uncertainty due to a number of factors. One specific factor is earnings fears. Our goal was to keep with energy/utility, commodity, Industrial (parts and machinery), agriculture and consumer staple companies.

Our process involved reducing the total list based on eliminating out liners that had poor liquidity, P/E's that could not be justified, high RVI's and low SSR's or Day's earnings. The reduced list is then compared to current holdings to eliminate current positions. Next we review the stock one name at a time and evaluate each stock on a fundamental and technical basis. Finally, we vote buy or pass.

Symbol Name
AA Alcoa Inc
ADM Archer-Daniels-Midland Company
AEP American Electric Power
AFL AFLAC Incorporated Common
AOS A.O. Smith
APL Atlas Pipeline Partners LP
ATO Atmos Energy Corporation
ATR AptarGroup, Inc
AVP Avon Products, Inc
AWK American Water Works Company, Inc.
AZN AstraZenica PLC
BA Boeing Company
BG Bunge Limited
BHP BHP Biliton Limited
BKH Black Hills Corporation
BMI Badger Meter, Inc
BMS Bemis Company, Inc
BOH Bank of Hawaii Coproration
BPL Buckeye Partners L.P.
BWP Boardwalk Pipeline Partners LP
CAT Caterpillar Inc.
CCE Coca-Cola Enterprises Inc
CHK Chesapeake Energy Corp
CINF Cincinnati Financial CORP
CL Colgate-Palmolive Company
CMC Commercial Metals Company
CMS CMS Energy
CNP CenterPoint Energy Inc
COL Rockwell Collins, Inc
COP ConocoPhillips
CSL Carlisle Companies Incorporated
CTAS Cintas Corporation
CVX Chevron Corp.
D Dominion Resources, Inc
DBD Diebold, Inc
DCI Donaldson Company, Inc.
DD E.I. Du Pont de Nemours
DE Deere & Company
DOV Dover Corporation common Stock
DUK Duke Energy
ED Consolidated Edison, Inc
EMR Emerson Electric Co.
EPB El Paso Pipeline Partners, LP
EPD Enterprise Products Partners LP
ETN Eaton Corporation
ETR Entergy Corporation
EXC Exelon Corporation
FAST Fastenal
FCX Freeport McMoRan
FE FirstEnergy Corp
FII Federated Investors, Inc
GE General Electric
GLW Corning Incorporated
GWW W.W. Granger, Inc.
HAS Hasbro, Inc
HCN Health Care REIT Inc
HEP Holly Energy Partners, LP
HON Honeywell
HRL Hormel Foods Corporation
HSC Harsco Corporation
HSH Hillshire Brands (SLE)
IBM International Business Machines
INTC Intel Corporation
JNJ Johnson & Johnson K Kellogg Company
KLAC KLA-Tencor Corporation
KMP Kinder Morgan Pipeline
LINE Linn Energy, LLC
LLY Eli Lilly and Co
LMT Lockheed Martin Corporation
LO Lorillard Inc
MCD McDonald's Corp
MCHP Microchip Technology Inc.
MHP The McGraw-Hill Companies, Inc.
MMM 3M Company
MSA Mine Safety Appliances Company
MXIM Maxim Integrated Products Inc.
NEE NextEra Energy Inc
NS Nustar Energy Lp
NVS Novartis AG
OLN Olin Corp
PAA Plains All American Pipeline, L.P.
PAYX Paychex, Inc.
PBI Pitney Bowes Inc
PEP Pepsico, Inc
PFE Pfizer, Inc
PH Parker-Hannifon Corp
PM Phillip Morris
POT Potash Corporation of Saskatchewan, Inc
PPG PPG Industries, Inc
PRE PartnerRe Ltd
QCOM Qualcomm Inc
R Ryder Systems, Inc
RES RPC, Inc
ROL Rollins, Inc
RRD RR Donnelley & Sons Co
SE Spectrs Energy Corp
SMG The Scotts Miracle-Gro Company
SO The Southern Company
SON Sonoco Products Co.
STM STMicroelectronics N.V.
STRA Strayer Education, Inc
TAP Molson Coors Brewing Company
TEG Integrys Energy Group, Inc
TX Ternium S.A.

TYC Tyco International Ltd.
UMBF UMB Financial Corporation
UTX United Technologies Corp
X United States Steel Copr
XOM Exxon Mobil Corp

A question and debate arose in today's committee meeting regarding which stocks on the list we should buy. One of the members voiced their opposition to the paper and print industry, specifically : MHP, PBI, and RRD. Dieing businesses versus opportunity in deaths clothing? Argument against owning looks to photo, computer hardware and the auto sectors. They correctly argue that a failure to properly evolve in a dynamic industry is terminal. The argument for owning these stocks looks to radio, entertainment,book seller/retail and printer manufacturers. All these industries were declared dead only to come back to life in re-engineered forms.

We didn't buy any of these stocks so the cowards won, I was on the contra side (ie: losing side) of the argument. Bottom line - discretion is the better part of valor.

Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

01/03/13 - Happy New Year........

2013-01-03T23:45:00.001-05:00

I am angry and am writing only to take my frustration out on those folks in Washington and what they have done to our economy. Doesn't matter who or when it started, in the end it is the tax paying inhabitants of the US that will have to pay the bill. Just a matter of time. By then our "leaders" will be of enjoying their tax payer funded, self appointed Gucci retirements. My anger has to do with the fact that I complied analysis on more than 20 individual stocks this weekend only to have the January 2, market rally make my work useless. Problem is that the folks in Washington only kicked the can down the road but made it seem like the recreated the world. They were rewarded by a rally that was unjustified. The US is beginning to look a lot like a BBB rated country. Read on...... All good things must end one way or another, except the mess in Washington. Seems the "Fiscal Cliff" was just barely a speed bump on the path to kicking the can down the road. The US balance sheet is not too attractive and if not for the power of fiat and taxation as an investment should be somewhere in the non-investment grade sphere. Debt to top line income is more than 100% with Q3 GDP at $13.7T and debt as of 9/28/2012 16,066,241,407,385.89 (Debt held by the public 11,269,585,800,039.32 Intergovernmental holdings 4,796,655,607,346.57). That seems to be a 118% debt/GDP. What is concerning is the GDP number. Our GDP is not too good when you look closely at the numbers. 3rd Quarter GDP was a dead cat bounce - from the BEA: "The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a downturn in imports, an upturn in state and local government spending, and an acceleration in residential fixed investment that were partly offset by a downturn in nonresidential fixed investment and a deceleration in exports." The Federal Gov't expenditures were up 23% to $1.5 T or nearly 10% of GDP. Total Gov't spending was up 23.7% to 2.5T or 16% of GDP.

OUCH! It doesn't get much better when we looked at global debt to GDP ratios: What is a country to do?
The table below may not appear too easy to read so I ave included the links to the table: debt to GDP link: http://www.oecd-ilibrary.org/economics/government-debt-2012-2_gov-debt-table-2012-2-en
The US is now # 7 in this list only behind: Greece, Iceland, Ireland, Italy, Japan and Portugal.

It seems that the US is gaining in the category of highest debt to GDP. Perhaps not an event as prestigious as the decathlon but competitive none the less. Anyway, my conclusion is that we are headed for inflation in a big way to solve the debt problem. Inflation is a tried and true method of repaying debts, remember the 1980's? However, we are constrained to investing in the US for the most part as our liabilities are all domestic and diversification as great as it is does not help us out. But this rant does make me feel better although I will need to update all that work to enter into the markets for the benefit of my clients.

This was cathartic for me and I hope helpful for you as well.

POSTSCRIPT:

Two things I want to write about, a sort of "pick me up" after the events of the 2nd.

1) Der Spiegel wrote a thoughtful article on Japanese Debt/GDP - clearly after taking the lead from our post above, and
2) We had one victory to begin the New Year.

1) Der Spiegel Article - well worth a read

(Link to Article in English: http://www.spiegel.de/international/world/massive-japanese-sovereign-debt-could-become-global-problem-a-875641.html )

Excerpts: "...In recent decades, Japanese governments have piled up debts worth some €11 trillion ($14.6 trillion). This corresponds to 230 percent of annual gross domestic product, a debt level that is far higher than Greece's 165 percent." One key difference of the Japaneses situation to the others in the over 100% club is that the Japanese debt is mostly held by domestic investors, banks and individuals. The claim, ans we agree, is these debt holders are very unlikely to sell. For the others in the 100+ club the same is not true.
The US in our opinion benefits from its "gold standard" status, however, keep in mind at AAA it has fallen a notch and is under a negative outlook. Should world tensions ease and others in the 100+ club begin to move in decidedly responsible directions the desire to hold US debt may wane very quickly. The second threat is that the economic basket cases of the previous 30 years are beginning to demonstrate fiscal and monetary discipline. South and Latin America have either make credible reforms (I think so) or look so good on a comparative basis to the rest of the crowd, those folks like the US who lectured them for decades about being responsible but failed to take their own advice.

2) New Year's Victory:
We had some solace in knowing that we did cover some of our open or "naked" holdings at a VIX of around 15. Keep in mind that the VIX closed on 12/31 at 18. The index opened on the 2nd at 15.24 before closing at 14.68. Fortunately for us there was a blip to nearly 16, where we sold calls to cover.

Small victories are to be celebrated where there are none to be found.........

HAPPY NEW YEARS!

07/20/12 Where have all the good trades been

2012-12-16T09:03:00.001-05:00

It seems there is some truth in the old adage, "Sell in May and go away."

10/05/12 ABT, ACN., AOS, ATR, BCR, BMY, CAG, CAT, CHK, CL, CLX, CMC, COP, CSCO, CTAS, EPB, EPD, ETP, FAST, FCX, GIS, HAS, HCSG, HRL, HSC, JPM, KMP, MDT, Mon, NS & ORCL

2012-12-16T09:03:00.000-05:00

10/05/12 ABT, ACN., AOS, ATR, BCR, BMY, CAG, CAT, CHK, CL, CLX, CMC, COP, CSCO, CTAS, EPB, EPD, ETP, FAST, FCX, GIS, HAS, HCSG, HRL, HSC, JPM, KMP, MDT, Mon, NS & ORCL

Symbol	Name
ABT	Abbott Laboratories
ACN.	Accenture plc.
AOS	A.O. Smith
ATR	AptarGroup, Inc
BCR	C.R. Bard, Inc
BMY	Bristol-Myers Squibb Company
CAG	ConAgra Foods, Inc
CAT	Caterpillar Inc.
CHK	Chesapeake Energy Corp
CL	Colgate-Palmolive Company
CLX	The Clorox Company
CMC	Commercial Metals Company
COP	ConocoPhillips
CSCO	Cisco Systems, Inc
CTAS	Cintas Corporation
EPB	El Paso Pipeline Partners, LP
EPD	Enterprise Products Partners LP
ETP	Energy Transfer Partners L.P.
FAST	Fastenal
FCX	Freeport McMoRan
GIS	General Mills, Inc
HAS	Hasbro, Inc
HCSG	Health Care Services Group Inc
HRL	Hormel Foods Corporation
HSC	Harsco Corporation
JPM	JP Morgan Chase & Co
KMP	Kinder Morgan Pipeline
MDT	Medtronic Inc.
Mon	Monsanto Company
NS	Nustar Energy Lp
ORCL	Oracle Corp

12/04/12 - ADP, AEE, AEO, AGU, ALB, APD, ARG, AUY, BANF, BXS, CAG, CAH, CB, CBU, CIM, CTL, DE, ECL, EIX, FITB, FNF, FRT, GES, HI, HNZ, HPQ

2012-12-16T08:51:00.003-05:00

ADP, AEE, AEO, AGU, APD, ARG, BXS, CAG, CAH, CB, CBU, CIM, CTL, DE, ECL, EIX, FITB, FNF, FRT, GES, HI, HNZ, HPQ The focus of this and the next few posts will be attempts to gain dividend income before the new year. The stocks below are just those from A-H that pay dividends from 12/04 to 12/31. ADP - We like this stock and their business model. RVI's are 60-70 but with the near term SSR's so low .35 and .97% the reward is low. AEE - Very low RVI's is the best comment we have AEO - Ranked #1 overall - SSR ranked #3 - #4 days earnings - AEO and GES are the two pure retailers in this group. We like both of these stocks. AEO is rich on a RVI and most other indicator basis. AGU - Ranked #2 overall - #1 days earnings - Overall profile is good but RVI's are in the 80+ range indicating the high end of the price range. APD - We like this stock. However, the rewards are low but the RVI's are also low. ARG - Ranked # 5 overall - #5 days earnings - We like this stock a lot and the RVI's are mid range while the days earnings and SSR provide good reward. BXS - The low rewards do not justify the risk of a buy/write basis. CAG - We like this stock and sector. SSR's are attractive but the stock is at the 90-100 RVI range of price. CAH - Not much to like on an analytic basis. CB - OK profile - fundamentals should be looked at carefully with all the storm related P&C risks lurking out there in the world. CBU - Analytic profile is a mess, perhaps a data error, the buy/write rewards are not attractive. CIM - SSR ranked #1 - Real Estate REIT so the options are not well priced. The dividend looks great at 13.1% - did I mention this is a REIT? CTL - #3 days earnings - We like the profile of CTL. The rewards are rich and the RVI's are mid range. DE - this has been one of our favorite stocks and sectors in this economy. The RVI's are mid high and the stock has done well. Not so attractive on a analytic basis but fundamentally may be worth owning. ECL - At 100 on a RVI basis and not much reward elsewhere. EIX - Doesn't offer much on an analytic basis. FITB - Ranked #3 overall - #4 SSR - However, the data inputs are suspect and the options market is not what the pricing makes it appear to be. FNF - FRT - MISTAKE - ignore this one it has too many data errors to be correct. GES #2 days earnings - Like AEO we like this stock. The Dec option rewards well and the RVI's are very low. HI Ranked #4 overall - #5 SSR - This is a stock we like and a sector we like. The rewards however are low for the buy/write strategies. HNZ - the analytic profile is attractive. However, the RVI's are 95-115. HPQ - SSR ranked #2 - MISTAKE - too many data input errors to be correct. Also based on the management and operating problems in the company we would not be likely to buy HPQ until there is some resolution to these matters. Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

Been such a long time

2012-11-28T10:17:00.001-05:00

We have not posted as we have been rolling off previously established positions. In the past few months we have just basically written calls against long positions. The fear is the tax regime post 12/31. Our strategy requires lost of income and short term capital gains. The tax implications are important but nothing like we are facing in 2013.
In recent history the US has taxed incomes and left wealth out of the picture. Savers could invest with modest taxation on dividends and gains. This was a substantial change from the post 1986 era. We have gotten spoiled in the past decade. What to do if rates surpass 40% on Jan. 1?

To be honest we are concerned. Politics aside we do not believe a government can tax itself into prosperity. We are not fond of the double taxation on dividends to begin with and are troubled that wealth accumulation will be reserved for only those who chase risk or legal shelters. Europe long ago, specifically Switzerland taxed wealth. The tax was in the form of low to negative interest rates. The US policies are confusing and the uncertainty is frustrating.
To add to the problems is the lack of movement by the VIX. It seems for such an uncertain time a level near 15 is too low. Confusion abounds.

We will continue to write against existing positions for the near term, meaning December, with the hope some relief will be evident.

08/29/12 - 09/05/12 - AA, BGG, DD, DE, FCX, GPC, INTC, MON, POT, RBC, SFL & TYC

2012-09-05T09:58:00.000-04:00

AA, BGG, DD, DE, FCX, GPC, INTC, MON, POT, RBC, SFL & TYC

We executed these trades on the 29th and are posting them today.
These trades were driven by what we perceived as value.
Our outlook on the market remains negative.
The cash position had grown and we were compelled to seek out value and put money to work.
You will notice that these stocks are not rock stars but solid fundamental investments.
With the exception of BGG, these stocks are all familiar names.
Rather than post the individual stock analysis page we have put the profile of the actual trade next to the stock name.

As is demonstrated, the sale of the calls have offset the volatility of the market.
Since the trades were executed the market is down 0.28%.
That being said, it is pretty much silly to look at performance over a period of a few days.
These trades are done to be evaluated over the full period to expiration or call of the option.

AA Alcoa Inc - spot $8.50 sold 9/22 $8.00 strike @ 0.55¢ - SSR 0.96% days earning 0.04% - updated 09/05 open $8.42

BGG Briggs & Stratton - spot $17.15 sold 10/20 $17.50 strike @0.60¢ - SSR 3.50% days earning 0.67% - updated 09/05 open $17.45

DD E.I. Du Pont de Nemours - spot $49.80 sold 08/22 $50.00 strike @ 0.73¢ - SSR 2.29% days earning 0.095% - updated 09/05 open $48.79

DE Deere & Company - spot $73.78 sold 09/22 $75.00 strike @ $1.05 - SSR 1.42% days earning 0.059% - updated 09/05 open $74.12

FCX Freeport McMoRan - spot $35.29 sold 10/20 $36.00 strike @ $1.39 - SSR 4.59% days earning 0.088% - updated 09/05 open $35.62

INTC Intel Corporation - spot $24.70 sold 08/22 $25.00 strike @ 0.41¢ - SSR 1.66% days earning 0.069% - updated 09/05 open $24.42

Mon Monsanto Company - spot $86.95 sold 10/20 $87.50 strike @ $2.90 - SSR 3.74% days earning 0.072% - updated 09/05 open $86.62

POT Potash Corporation of Saskatchewan, Inc - spot $40.63 sold 10/10 $40.00 strike @ $1.47 - SSR 3.78% days earning 0.73% - updated 09/05 open $40.64

SFL Ship Finance International - spot $16.13 sold 10/20 $17.50 strike @ 0.10¢ - SSR 2.95% days earning 0.57% - updated 09/05 open $16.90

TYC Tyco International Ltd. - spot $56.02 sold 10/10 $57.50 strike @ $1.25 - SSR 2.73% days earning 0.53% - updated 09/05 open $56.08

Trades that failed to cover due to inability to sell calls:

GPC Genuine Parts - spot $63.39 - updated 09/05 open $61.98

RBC Regal-Beloit Corporation - spot $68.32 - updated 09/05 open $68.44

072312 Where have all the good trades been

2012-07-24T01:07:00.000-04:00

It seems there is some truth in the old adage, "Sell in May and go away."

Honestly, I was a little surprised to see that our last published data was in May.

Since May we have not added positions and basically have been writing calls on existing positions and accumulating cash.

At this point we are bout 40% in cash and have yet to see anything to compel us to invest in any market.

Volatility as measured by the VIX is not inspiring. We believe that there are too many risks to count. Markets seem unable to find stability and is searching for a bottom that seems far, far away.

It is hard to be clever and witty when there are no rewards. Running investment models that do not return inspiring results is not fun.

The VIX did turn up today with a 14+% rise.

We can only hope that August will provide us with greater rewards than July.

05/10/12 ABB, AFL, BG, BMS, BOH, CINF, CNP, CSL, DUK, ETR, EXC, FAST, FE, FII, GXP, HAS, HD, LEG, LM, NEU, NKE, NLY, PBI, PRE, PSA, RAI, SAP, SCG, SE, SFL, SID, TEF, TOT, TX & WR

2012-05-11T10:10:00.068-04:00

ABB, AFL, BG, BMS, BOH, CINF, CNP, CSL, DUK, ETR, EXC, FAST, FE, FII, GXP, HAS, HD, LEG, LM, NEU, NKE, NLY, PBI, PRE, PSA, RAI, SAP, SCG, SE, SFL, SID, TEF, TOT, TX & WR

The markets are in a bit of turmoil as we did this research. Last week we did quite a few trades that were not posted. Mostly, cover for positions that had expired options. The news concerning Greece should not have been a surprise. The biggest concern we had was investor's reaction to the news. After all, Greece is less than 2.0% of the eurozone on a GDP basis. We saw the sell off as an excuse for traders to take profits or reduce exposure. Talk of a second recession has also been an issue for us.
We do not see a vibrant economy in the US. The unemployment claims appear to be skewed by the "drop off" of claimants earners who have reached the end of their ability to claim benefits. The productivity news was also an issue as has been the recent and dramatic decline in the price of oil. The latest news of the $2 billion "whale" loss at JP Morgan just shows that no matter how much oversight and regulation there is, you cannot outlaw greed and stupidity.

With all this said, value appears in the market for us in a number of ways. Lower stock prices and higher volatility as represented by the VIX. Both are now available and we have decided to move some money from cash to invested. Below is our current research.

Symbol Name

ABB ABB Ltd

AFL AFLAC Incorporated Common - Overall #1 - Not only do we like the stock, the goose is ok too. RVI's are at 50 and all other indicators look good.

BG Bunge Limited - Not the strongest of the group but a stock we like. The sector is a favorite and the valuations are attractive with low P/E, RVI and strong Days Earnings. Plus we have a group member who loves to say the company name.......

BMS Bemis Company, Inc - #4 overall of this group - low RVI, good P/E and paying a dividend mid month.

BOH Bank of Hawaii Corporation - thinly traded options

CINF Cincinnati Financial CORP - the stock looks attractive at first look, however, the RVI's are neat 100. the P/E's are over 30 and the options are not well traded.

CNP CenterPoint Energy Inc - #6 overall of this group and in a sector we like. RVI's are above mid but the P/E is very low and the dividend is high as are the SSR and Day's earnings.

CSL Carlisle Companies Incorporated - This stock has some attractive elements, but the RVI is too high and the dividend too low to be attractive to us.

DUK Duke Energy - The actual without dividend number is 0.13%, RVI's are neay max and the P/E is near 20. too expensive for us.

ETR Entergy Corporation - ETR is attractive on a number of levels, the P/E's are low, the RVI's are mid and the dividend is over 5%, plus it is #5 overall on this list.

EXC Exelon Corporation - Missed the dividend, overall the data look good, but the options do not offer much value.

FAST Fastenal - Attractive on a number of levels but the P/E's are nearly 25.

FE FirstEnergy Corp - RVI's are rich and P/E's are high.

FII Federated Investors, Inc - Missed the dividend. However, P/Es' are low and the RVI's are mid. The Days earning is low too as there is not too much volatility in the options pricing.

GXP Great Plains Energy Incorporated - Not too much excitement here. The valuations are ok, but with a late May dividend date of more than 4% selling the OTM call and earning a little premium and more than 1% on the dividend is not a bad thing.

HAS Hasbro, Inc - The data looks good here but just could not bring ourselves to buy the stock. Do not like the sector and the low RVI's looks to go lower.

HD Home Depot, Inc - Ranked #9 of this group. The early June payout is ok at 2.3%, however, the options pricing is attractive. RVI's and P/E's are high.

LEG Leggety & Platt Inc - RVI's are low, P/E's a bit high and dividend is paid in mid June.

LM Legg Mason - RVI's are really low as is the dividend. P/E is ok, but overall the option's volatility is high and Day's earning's are at 0.134%.

NEU NewMarket Corp - Got option's pricing? The liquidity in the traded market is just too weak.

NKE Nike, Inc - Too expensive.

NLY Annaly Capital Management, Inc - This REIT is attractive on many levels. But is is still a REIT. The big dividend is tempting as is the mid RVI. P/E's are wacky at 30 and 8, but then again it is a REIT.

PBI Pitney Bowes Inc - Personally I want to like this stock. It could not get past committee. It also paid its dividend earlier in the month.

PRE PartnerRe Ltd - Not too attractive.

PSA Public Storage - Although RVI's and P/E's are high, we like the options pricing.

RAI Reynolds American Inc - #10 of this group. We continue to like this sector and specifically RAI. Stock valuations are a bit high and the options pricing is not too aggressive. However, the fundamentals look good to us and we are not ashamed to own RAI.

SAP SAP AG ADS - #13 overall of this group. RVI's are a mid range as options volatility pricing is generous. Late May dividend with aa 0.13% Day's earning and a 1.0$ SSR - what's not to like?

SCG SCANA Corp - RVI's are around 100% and the dividend was missed, next.....

SE Spectrs Energy Corp - Missed the dividend, next .....

SFL Ship Finance International - #2 overall - RVI's are mid, P/E is low and options volatility pricing is high, there is a lot to float your boat at SFL....... ;-)

SID Companhia Sidrurgica Nacional - Pricing overall looks good but we missed the dividend, pass..

TEF Telefonica SA Common - Missed the dividend. RVI's are extremely low as is the P/E.

TOT Total S.A. - Mid June payment of nearly 6%. RVI's are low as is the P/E. Day's earning is .15 bps/day to May expri and .12 bps/day to June.

TX Ternium S.A. - #2 overall..Missed the dividend.

WR Westar Energy, Inc - Not too mush to get excited about or interested in the stock.

Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

04/13/12 ABB, AOS, BG, BMS, CHK, CL, CLX, CNP, CSCO, CTAS, DUK, ETR, EXC, FE, FII, GXP, HRL, HSC, IBM, JPM, Mon, NKE, NLY, PBI, SAP, SCG, SID, T, TEF, TOT, VALE, VZ & XOM

2012-04-16T10:12:00.001-04:00

ABB, AOS, BG, BMS, CHK, CL, CLX, CNP, CSCO, CTAS, DUK, ETR, EXC, FE, FII, GXP, HRL, HSC, IBM, JPM, Mon, NKE, NLY, PBI, SAP, SCG, SID, T, TEF, TOT, VALE, VZ & XOM

Some of the pages below have "w/o div" notes - ignore them.
They are old and we haven't updated those numbers for this series.

Also, MON is on the group pages but not the individual.
It was missed in the detailed analysis and when we realized we missed it and looked at the profile in depth we did not like it at all.

ABB ABB Ltd
AOS A.O. Smith
BG Bunge Limited
BMS Bemis Company, Inc
CHK Chesapeake Energy Corp
CL Colgate-Palmolive Company
CLX The Clorox Company
CNP CenterPoint Energy Inc
CSCO Cisco Systems, Inc
CTAS Cintas Corporation
DUK Duke Energy
ETR Entergy Corporation
EXC Exelon Corporation
FE FirstEnergy Corp
FII Federated Investors, Inc
GXP Great Plains Energy Incorporated
HRL Hormel Foods Corporation
HSC Harsco Corporation
IBM International Business Machines
JPM JP Morgan Chase & Co
Mon Monsanto Company
MOS Mosaic Company
NKE Nike, Inc
NLY Annaly Capital Management, Inc
PBI Pitney Bowes Inc
SAP SAP AG ADS
SCG SCANA Corp
SID Companhia Sidrurgica Nacional
T AT&T
TEF Telefonica SA Common
TOT Total S.A.
VALE VALE S.A. American Depository
VZ Verizon Communications Inc
XOM Exxon Mobil Corp

Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

03/04/12 EAT, ECL, EIX, GE, GLW, GPC, GWW, HI, HNZ, HPQ, HRB, KFT, KMB, KO, MCD, MCHP, MHP, MLR, MOLX, NEE, NVS, PCG, PEG, PEP, PFE, PPG, PPL, QCOM & R

2012-03-06T14:40:00.000-05:00

03/04/12 EAT, ECL, EIX, GE, GLW, GPC, GWW, HI, HNZ, HPQ, HRB, KFT, KMB, KO, MCD, MCHP, MHP, MLR, MOLX, NEE, NVS, PCG, PEG, PEP, PFE, PPG, PPL, QCOM & R

EAT Brinker International, Inc.
ECL Ecolab Inc
EIX Edison International
GE General Electric
GLW Corning Incorporated
GPC Genuine Parts Company
GWW W.W. Granger, Inc.
HI Hillenbrand Inc Common Stock
HNZ H.J. Heinz Company
HPQ Hewlett-Packard Company
HRB H&R Block, Inc.
KFT Kraft Foods Inc.
KMB Kimberly-Clark Corp Common
KO The Coca-Cola Company Common
MCD McDonald's Corp
MCHP Microchip Technology Inc.
MHP The McGraw-Hill Companies, Inc.
MLR Miller Industries, Inc. Common * thin/illiquid options
MOLX Molex Incorporated
NEE NextEra Energy Inc
NVS Novartis AG
PCG PG & E Corp
PEG Public Service Enterprise Group
PEP Pepsico, Inc
PFE Pfizer, Inc
PPG PPG Industries, Inc
PPL PP&L Industries
QCOM Qualcomm Inc
R Ryder Systems, Inc

Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

02/28/12 ADI, ADP, AEE, AEO, AOS, APD, AXS, BAX, BDX, BHP, CAH, CHK, CHRW, CL, CLX, COL, CPO, CTL, CTWS, D, DCI & DE

2012-03-01T12:33:00.000-05:00

Note: the tables shown are embedded .jpg files. This means that you can: 1) double left click them with your mouse to enlarge them, or 2) right click them with your mouse and choose to open them in a new window or tab, print, save, etc.As with everything we post, we may or may not have the stock and/or strategy in place in any one of our portfolios or may add it at any time. We do not make any buy or sell recommendations. We provide basic analytical research, some short commentary of the results and encourage you to do your own thorough due diligence prior to any purchase or sale.

ADI, ADP, AEE, AEO, AOS, APD, AXS, BAX, BDX, BHP, CAH, CHK, CHRW, CL, CLX, COL, CPO, CTL, CTWS, D, DCI & DE

Symbol	Name
ADI	Analog Devices, Inc
ADP	Automatic Data Processing, Inc.
AEE	Ameren Corporation
AEO	American Eagle Outfitters, Inc
AOS	A.O. Smith
APD	Air Products & Chemicals Inc.
AXS	Axis Holdings Limited
BAX	Baxter International Inc
BDX	Becton, Dickinson and Company
BHP	BHP Biliton Limited
CAH	Cardinal Health, Inc
CHK	Chesapeake Energy Corp
CHRW	C.H. Robinson Worldwide, Inc
CL	Colgate-Palmolive Company
CLX	The Clorox Company
COL	Rockwell Collins, Inc
CPO	Corn Products International Inc.
CTL	CenturyLink, Inc
CTWS	Connecticut Water Service Inc.
D	Dominion Resources, Inc
DCI	Donaldson Company, Inc.
DE	Deere & Company

01/31/12 ARG, INTC, LINE, LMT, LO, MLR, MMM, MO, MT, PAA, PH, PM, RTN, SCCO, SMG, TYC & UTX

2012-02-01T10:11:00.000-05:00

01/31/12 ARG, INTC, LINE, LMT, LO, MLR, MMM, MO, MT, PAA, PH, PM, RTN, SCCO, SMG, TYC & UTX

This analysis was performed based on close of market pricing for January 31, 2012
The close for the S&P 500 1,312.41
The close for the VIX 19.40

ARG Airgas - P/E's are high as RVI's. Like the sector but this stock is not offering much in this analysis.

INTC Intel Corporation - Not sure where the volatility went with this one. RVI's are high as the dividend. Don't like the scenarios we are showing. Repricing it with the market open I do like the Feb 27's with spot at $26.72.

LINE Linn Energy, LLC - Nice dividend and mid RVI's. The options do not offer much, but do enhance the return. Sell ATM's and look to roll into March OTM's if possible to capture div.

LMT Lockheed Martin Corporation - High RVIs' and low P/E's. If we took a position with would be the Feb scenario.

LO Lorillard Inc - RVIs' mid 70's, good P/E's. Would stick to Feb 110's.

MLR Miller Industries, Inc. Common * thin/illiquid options - we need to eliminate this from our database. The options pricing/market is at best weak for MLR.

MMM 3M Company - RVI's in mid 60's, low P/E's. Sell Feb just ATM or OTM's and roll into March to capture the dividend.

MO Altria Group Inc. - RVI's are mid high, March div, would sell Feb ATM and roll into the March Div.

MT Arcelor Mittal - ranked #4 overall of this group - RVI's are low as are the P/E's. Div pay date is off on our analysis, it should be May payment not Feb.

PAA Plains All American Pipeline, L.P. -Ranked #1 overall in this group - a 5.4% dividend with an 18.6 P/E, RVI's are at the top, div date looks to be before Feb expri, would look to sell March at or above market strike

PH Parker-Hannifon Corp - Mid RVI's and low P/E's. The dividend is ok but pays in Feb. Sell the Feb 80's.

PM Phillip Morris - RVI's are mid high, Feb div, would sell March OTM's/$75..

RTN Raytheon Co. - RVI's are mid 60's and P/E's are low. Look to sell just OTM's in March.

SCCO Southern Copper Corp - #2 ranked overall stock of this group - Mid-range RVI's, low P/E's, nice dividend.

SMG The Scotts Miracle-Gro Company - RVI's are low to mid, SSR is ok. Would sell March just OTM's/50's.

TYC Tyco International Ltd.- Ranked #3 overall of this group - Mid high RVI's, P/E's are good

UTX United Technologies Corp - mid placed in this group but it has mid RVI's and low P/E.s The overall profile is attractive. We would sell March 80's.

01/26/12 ABB, ADM, ADP, APD, APL, BA, BWP, DBD, DD, DE, EMR, FGP, GLW, GPC, HI, HON, HSC, K, KFT & KMB

2012-01-27T08:47:00.030-05:00

01/26/12 ABB, ADM, ADP, APD, APL, BA, BWP, DBD, DD, DE, EMR, FGP, GLW, GPC, HI, HON, HSC, K, KFT & KMB

The market close pricing on the market and volatility at the time of the analysis was:

S&P 500 1,318

VIX 18.57

Apologies for the odd order of the stocks, not sure why the program scrambled the individual stock sheets. Also there are several errors due to stale data that mostly effects DE and any w/o div notes.

We remain cautious in this market and have a significant portion of our portfolio in cash. January's option expiration resulted in most of our covered positions being called. Therefore, our income potential has been brought to near zero. The result is a need to buy "income". We are doing this by establishing new positions in select stocks that have what we believe to have the highest dividend yields with stable profiles. The risk is market beta. In order to manage this risk we are buying stocks that are near their dividend pay dates. This creates the need for additional risk/reward analysis. We must analyze and determine the break even between selling in the money calls to the dividend earned. This additional step is necessary to determine the best way to capture the dividend versus a large premium that may not compensate us enough if the stock is called prior to ex-date.

ABB ABB Ltd - Mid RSI's, nice profile overall

ADM Archer-Daniels-Midland Company - #1 overall in group(the w/o div number is wrong) - mid RSI's, div date mid Feb, look to sell the March 30's expecting to get called for the 17¢ div

ADP Automatic Data Processing, Inc. -High RVI's and P/E's. Not attractive.

APD Air Products & Chemicals Inc. - RVI's are mid high, P/E's are ok

APL Atlas Pipeline Partners LP - #3 overall of the group - Pays dividend early Feb., sell May 37's look to get called.

BA Boeing Company - #5 overall of this group - early Feb div, mid to very high RVI;s, sell May look to get called.

BWP Boardwalk Pipeline Partners LP - mid RVI's, Feb div, sell near dated calls. The options pricing and selection are very thin, however, rolling the calls (selling near periods after each expiration) will add significant additional income to an already high dividend paying stock. The P/E's are astronomical as are most pipeline companies paying high dividends.

DBD Diebold, Inc - Feb pay stock, with nice dividend. Sell May in the money and look to get called.

DD E.I. Du Pont de Nemours - Sell the April 50's and look to get called.

DE Deere Company - THE DATA FOR THIS STOCK ARE WRONG FOR THE COLLECTIVE DATA (stock groupings immediately below ie: alpha sort/SSR sort, etc) But is correct on the individual stock page. RVI's are mid high, sell Feb 87.5's and look to roll.

EMR Emerson Electric Co. - w/o div info on stock page may not be correct - #4 overall of the group - Feb pay stock, ok P/E'a and mid RVI;s. Sell March 52.50's

FGP Ferrellgas Partners LP - #5 overall of this group - RVI's are mid range. Options are not very attractive because of liquidity. Nice dividind but high P/E.

GLW Corning Incorporated - low RVI's and P/E's. - this is a case where the analytic's are good but the fundamentals may be an issue. Earnings were down but beat estimates (read the news wires). If we only looked at the profile below we would say buy, however, an investor must also consider the fundamental data as well with this stock and all the stocks up for consideration.

GPC Genuine Parts Company - expensive all around

HI Hillenbrand Inc Common Stock - expensive - Top range RVI's and low options volatility.

HON Honeywell - #2 overall of this group - high RVI's good P/E's, Feb div - Sell March in the money calls.

HSC Harsco Corporation - ok profile, next div is in April, low RVI's very high P/E's

K Kellogg Company - low RVI's , good P/E's. Sell Feb at the money and look to roll - pays late Feb.

KFT Kraft Foods Inc. - Really high RVI's low options volatility - pass

KMB Kimberly-Clark Corp Common - Really high RVI's low options volatility - pass

	ADP
	Automatic Data Processing, Inc.

Date:	01/26/12

21.72	Price Earnings
18.48	Forward P/E

2.80%	Dividend
03/07/12	Ex-Div Date
03/07/12	Next Date

$55.82	Spot	$55.82	$55.82

02/17/12	Options expiration	05/18/12	08/17/12
****

$55.00	Strike	$55.00	$55.00
$1.30	Premium	$2.50	$3.20
0.00%	Dividend paid	0.70%	0.70%


$0.48	Net	$1.69	$2.39
0.86%	SSR	3.72%	4.98%
22	Days	113	204
0.23	Ratio	4.33
0.039%	Days earning	0.033%	0.024%

$54.52	Break even	$53.32	$52.62
-2.33%	Downside %	-4.48%	-5.73%

$57.12	Call Spot	$58.32	$59.02
0.9%	Return if called	3.2%	4.5%

	RVI
89.66%	Spot	89.66%	89.66%
83.04%	Strike	83.04%	83.04%
100.16%	Call	109.85%	115.51%



$44.72	Min	$44.72	$44.72
$57.10	Max	$57.10	$57.10
$12.38	Range	$12.38	$12.38
$50.91	Average	$50.91	$50.91

	APD
	Air Products & Chemicals Inc.

Date:	01/26/12

15.66	Price Earnings
12.95	Forward P/E

2.60%	Dividend
03/29/12	Ex-Div Date
03/29/12	Next Date

$88.16	Spot	$88.16	$88.16

02/17/12	Options expiration	03/16/12	06/15/12
****

$90.00	Strike	$90.00	$90.00
$0.75	Premium	$1.65	$3.60
0.00%	Dividend paid	0.00%	0.65%


$0.75	Net	$1.65	$3.60
0.85%	SSR	1.87%	4.73%
22	Days	50	141
0.45	Ratio	2.2
0.039%	Days earning	0.037%	0.034%

$87.41	Break even	$86.51	$84.56
-0.85%	Downside %	-1.87%	-4.08%

$88.91	Call Spot	$89.81	$91.76
3.0%	Return if called	4.0%	6.4%

	RVI
61.77%	Spot	61.77%	61.77%
68.92%	Strike	68.92%	68.92%
64.69%	Call	68.18%	75.76%



$72.26	Min	$72.26	$72.26
$98.00	Max	$98.00	$98.00
$25.74	Range	$25.74	$25.74
$85.13	Average	$85.13	$85.13

	GPC
	Genuine Parts Company

Date:	01/26/12

18.63	Price Earnings
16.27	Forward P/E

2.80%	Dividend
03/07/12	Ex-Div Date
03/07/12	Next Date

$64.66	Spot	$64.66	$64.66

02/17/12	Options expiration	05/18/12	08/17/12
****

$65.00	Strike	$65.00	$65.00
$0.90	Premium	$2.35	$3.30
0.00%	Dividend paid	0.70%	0.70%


$0.90	Net	$2.35	$3.30
1.39%	SSR	4.33%	5.80%
22	Days	113	204
0.32	Ratio	3.11
0.063%	Days earning	0.038%	0.028%

$63.76	Break even	$62.31	$61.36
-1.39%	Downside %	-3.63%	-5.10%

$65.56	Call Spot	$67.01	$67.96
1.9%	Return if called	4.3%	5.9%

	RVI
96.27%	Spot	96.27%	96.27%
98.03%	Strike	98.03%	98.03%
100.93%	Call	108.45%	113.38%



$46.10	Min	$46.10	$46.10
$65.38	Max	$65.38	$65.38
$19.28	Range	$19.28	$19.28
$55.74	Average	$55.74	$55.74