The Fed's Love Letter on St. Valentine's Day, and Parking at American Capital Strategies (ACAS).

The Fed Chair spoke to congress today, with Hank the Tank Paulson. All agreed, times are hard, but maybe not as hard as the time ahead. Credit markets are looking the set of a John Ford Western, and home owners are starting to look like Carrie just after the bucket of blood dropped in Brian DePalma's classic tale of love lost, and super natural powers on par with any Fed Chairman, which brings us to "The Bo Diddley Put":

I walked 47 miles of barbed wire,

Used a cobra snake for a neck tie.

Got a brand new house on the roadside,

Made out of rattlesnake hide.

I got a brand new chimney made on top,

Made out of human skulls.

Now come on darling let's take a little walk, tell me,

Who do you love,

Who do you love,

Who do you love,

Who do you love.

Maybe it's the question securities traders should be asking today, thousand of years after St. Valentine declared that love is in the air, rather than what to buy, or sell, hold when the sky is falling, has fallen, may fall further, or my rebound back after May 1, when the labor department cooks up another bull story, according to John Credele in yesterday's nypost.com (today he is uncovering an international plunge protection team).

Nevertheless, there's a company yielding more than 11 percent in a powerful niche, from a variety of businesses, and it could be a good place to park all the loose changed you might have handing around after losing thousands these last two months.

American Capital Strategies, ACAS, has paid out 1.9 billion dollars in dividends since its 1997 IPO, which is something its website tells us. What it won't tell you is that ACAS's almost TGTBT yield tops 11% today, as the stock trades below 35.

Most of the time, ACAS makes money helping management buy their public companies out and taking them private, where management thinks it makes sense doing so. The "fair value" of it's portfolio of investments grew 35% from 2006 to 2007, as measured by an outside appraiser (Houlihan, Loeky, or what I like to call a "Houlihan job"). Nevertheless, there seems to be no, repeat no, growing problem at ACAS. It's portfolio includes some farmilar brand names, including The New England Confectonary Company, owners of Necco, "fine candy since 1847", and makers of those remarkable and trademarked Sweethearts Candies, NECCO Wafer cookies; the Clark Bars, and Mary Janes, as well as newer products, such as the storied Squirrel Nuts Zippers, which was recently highjacked in a buyout from Cambridge, MA, by a family of Texans, only to be sold back to this last man standing in the Massachuesttes sweets business.

There will be more than 8 billion Sweethearts made this year, by the way.

Doing the low carb thing? What about the Rug Doctor, those steam cleaners you can rent down at the Home Depot for 20 dollars per day to "get the rugs ready for the holidays," as aunt Bell might say, if you had an aunt Bell? No good for you? What about junk mail, via the Money Mailer, those big packs of coupons you may get for, let's see, rug cleaning, among other things. Money mailer is like a proxy for the national Pizza market too (maybe timber too for all those coupons). No, how about The New Piper Aircraft company, makers of light aircraft they use in drug lifts?

Here's a list of ACAS portfolio of underlying companies which range from a medical device packaging company to a flight simulator school. Seventeen percent in healthcare related and food companies, twenty five in financial services and six percent in real estate, but their chart does a better job of breaking it down (see, here).

The company has 42% insitutional ownership, or it did as of the last report to Microsoft's Money website. These institutional reports are notoriously behind the times, but it shows a good level of insitutional understand about the ACAS story. Can I use "institutional" in this paragraph one more time? I can: Institutional support may be showing up in the options market, since ACAS has one of the most active put volumes today, which protects owners in the event of further decline in the ACAS stock price.

The trade, which occured to us as we saw the active put options on ACAS. What if you bought a truck load of this stuff, and to lock in the yield, you bought a put to cover each 100 shares? If ACAS sees any more down days ahead, your put option would offset any loss there. "Any loss"? Well, there is the delicate matter of the options math there.

Deeper in the money puts would protect a threat of losing all the put price in the even ACAS ramped back up after the Federal Reserve's love letter. But would it pay to place all the capital to work, gaining no yield? Maybe the out of the money protection with tight stops are a better bet.... frankly, I'm transfixed by ACAS shares with the near month puts options trade.

Options may just the blood you could use from the stone that the credit markets have become. If the Federal Reserve's love letter turns out to be like Dennis Hopper's in the creepy, psychotic tale of love and life lost, Blue Velvet, it would offset stock decline, and lock in that yield on ACAS, effectively hedging your bet on American Capital Stratocasters' business model in our sour patch climate.