I receive little comfort from Moody's saying that the U.S. government's financial position is deteriorating but it is "most certain" to pay its obligations. MarketWatch It is clear that the financial position of our government is deteriorating but it is uncertain where the accelerating rate of decline will take us in the upcoming years. The interest rate that the government has to pay to finance a rapidly expanding deficit and to redeem existing debt as it matures will certainly have to rise in the coming years. Consequently, it would not be surprising that a combination of more debt in need of financing at significantly higher rates would lead to a trillion dollar a year debt service cost in a few years.
Based on today's reports, it appears that the Obama administration is moving away from the bad bank and insurance concepts as centerpieces on dealing with the banking fiasco.WSJ.com
One of the new approaches is to do more capital injections on tougher terms, taking convertible stock rather than preferred, with mandatory conversion features in seven years. The other would be to expand the Feds existing lending facility that would empowered it to buy up some distressed assets.
The results released yesterday from Murdoch's News Corp continue the bleak earnings releases from media companies. News Corporation Reports Second Quarter Adjusted Operating Income of $818 Million on Revenue of $7.9 Billion: Financial News - Yahoo! Finance
This is the link to the FINRA page containing quotes for the underlying bond in the TCs JZE and JZJ. FINRA - Investor Information - Market Data - Bonds - Bond DetailThe underlying bond has a higher coupon than the TCs as explained in my prior posts. I have already classified JZE and JZJ as long term holds even though I have a very good short term profit in my positions with JZE almost doubling from my buy at $12.5 with one semi-annual interest payment received since purchase. It is impossible to explain the pricing discrepancies between the underlying bond price and the TC prices in my opinion. One or the other is just way out of whack.
Marketwatch has an article than answers a question from yesterday about BAC. The low reached yesterday at $3.77 was last reached in 1984. MarketWatch Dick Bove was quoted in that article as saying that investors had to believe that the bank was about to fail or be nationalized by knocking the price down to the current levels. I do not know one way or the other whether BAC will survive, and neither does anyone else at this juncture. I suspect that it will survive but it may take a decade to recover from what happened in 2008. I would just say for now that BAC is certainly a train wreck. In fact, I would characterize the entire banking industry as a slow moving massive train wreck of epic proportions, rolling from one crash to the next for almost a year now. It is just mind boggling that many of the executives that caused these crashes not only still have their jobs, but are still being rewarded for their many failures.
Pitney Bowes, a small position, reported adjusted earnings of 78 cents versus 72 cents in the year earlier quarter.
PBI had 40 cents in restructuring and asset impairment charges and a positive 7 cent tax adjustment bringing the GAAP number down to 45 cents for continuing operations and 36 cents after adjusting that number down by 9 cents for discontinued operations. The company expects 2009 earnings in the adjusted range of $2.55 to $2.75. GAAP 2009 estimate is $2.49 to $2.75. Both figures are below estimates for $2.8 to $2.88. Reuters Analysts were expecting adjusted earnings of 73 cents for the last quarter MarketWatch PBI did raise its dividend to 36 cents from 35. This kind of report would not cause me to add to my small position or to sell what I have.
I reviewed the earnings release from AON this morning which was good relatively speaking. Reuters I do not have a position in the common stock. I monitor the company due to my significant exposure to its junior debt contained in the TCs KTN and KVW. Since I have more confidence in AON than I do any bank or in Unum, my weight in its junior debt is larger than my total exposure to all bank Trust Preferred issues, which consists of PYV, a TC containing a J P Morgan junior debt issue maturing in 2014.
This is a link to the results of one of the small caps on my monitor list. I am going to study it some more today. The problem, as usual, is the guidance for 2009. The company sees earnings of just 2 to 6 cents in the next quarter, much lower than the expectations of 14 cents on lower revenue than anticipated. The downside guidance continues for the entire fiscal year where the analysts anticipated 64 cents and the company is now forecasting 39 to 55 cents. The guidance is contained in the earning release. I am not go to rule out an investment because I generally like the company, and the cash position is good to weather out the storm, with about 73 million in cash or about 1/2 of the existing market cap. The company makes software for disaster recovery.
I can not explain the recent move in Ariad which has jumped over 50% in the last few days. I had some negative points about its corporate governance, but still hold 100 shares. More on Ariad I mentioned in that last post that I was staying with it, in spite of my reservations, because Merck apparently still had faith in Ariad's lead drug candidate. I of course have no ability to assess the potential success or lack thereof of that drug.
But given my recent success with small cap biotech I decided to add another one. Maybe, I would just be better off quitting while I am still ahead. I would readily admit to having no expertise whatsoever in this area but I can read and sometimes a productive thought takes root in my head. Since I know my limitations in this area, I simply limit my exposure to a small sum of money and will generally try to trade the position until I am in the gambler's paradise. I have one that I will discuss now. As is my custom with small speculative issues, I will make my bear case first.
The name of the company is Sucampo Pharmaceuticals (SCMP). I bought 50 shares at 5.34 this morning. It is a thinly traded issue. Normally, I might place a limit order below the market to see if it gets filled. Since I believe that I have already spent more time fooling with SCMP for the small amount of money that I was willing to invest in it, I just placed a market order and moved on to bigger fish this morning. Unlike some of the others that I have discussed, it has an approved drug which is currently being sold in partnership with Takeda, a large Japanese drug company, called Ametiza. Amitiza.com
This drug was approved for chronic constipation in 2006. In 2008, approval was received for the treatment of irritable bowel syndrome. Novartis had a drug called Zelnorm for this same condition which had to be withdrawn for the market for safety reasons. The stock rallied big on this approval, rising $1.98 to $13.98 in April 2008. Forbes.com It is now struggling in the $5 range. So, what happened? The drug does not appear to be getting any traction in sales and that is the problem. I reviewed the last three earnings reports at the SEC and the company is still losing money. The company recognized product royalty revenue of 7.718 million for the 3rd quarter of 2008 for Ametiza compared to 6.998 million for the 3 month period ending 9/30/2007. The company is receiving good money from Takeda for hitting milestones on this drug, including 30 million in 2007 when it submitted an application for approval to use the drug as a treatment for irritable bowel syndrome and another 50 million when it was approved for such use by the FDA. Additional milestones may be reached in the future. The company has a lot of cash on the balance sheet, around 124 million and got some of tied up in auction rate securities but it has resolved most of that problem according to its last SEC filing. e10vq
(balance sheet link at Yahoo Finance: SCMP: Balance Sheet for Sucampo Pharmaceuticals, Inc. - Yahoo! Finance) The market cap of the company is just 220 million SCMP: Summary for Sucampo Pharmaceuticals, Inc. - Yahoo! Finance This indicates that the market is apparently not optimistic about Ametiza's prospects)
SCMP is starting a Phase 3 trial of using Ametiza to treat another problem. Sucampo Completes Enrollment in Phase 3 Pivotal Studies of Oral Lubiprostone to Treat Opioid-Induced Bowel Dysfunction: Financial News - Yahoo! Finance
It has another drug, Cobiprostone, in phase 2 trials for the treatment of ulcers in arthritis patients treated with NSAIDs. Sucampo Completes Enrollment in Its Phase 2 Trial of Cobiprostone for the Prevention of NSAID-Induced Ulcers: Financial News - Yahoo! Finance
This drug is being tested in 3 phase 2 clinical trials and in 2 phase 1 trials. Both of these drugs are in a new class of compounds called prostones. Sucampo Pharmaceuticals - Our Research
It has another drug currently in a phase 1 trial for peripheral artery disease. Sucampo Initiates Phase 1 Study of SPL-017 for Peripheral Arterial Disease: Financial News - Yahoo! Finance
This is a link to the companies discussion of its pipeline: Sucampo Pharmaceuticals - Our Research
It goes without saying that if this main drug ran into safety problems down the road, the shares would be smashed in a big way. I was not familiar with the company until I ran a screen at the Magic Formula web site and the name popped up. That site requires you to register in order to use it. Magic Formula Investing
The Senate passed a bill that would give car buyers a tax deduction for interest payments on a car and sales taxes. Senate Backs Tax Breaks for Car Buyers in Stimulus - WSJ.com
Along with other measures, this could provided a much needed to boost to auto sales. My only position in anything connected with the auto industry is 100 shares of FCZ, a bond issue from Ford Motor Credit.
Hartford ( HIG) had an ugly reportThe Hartford Announces Fourth Quarter And Full Year 2008 Results - MarketWatch HIG cut its dividend too, a big cut from 32 cents to 5 cents. UPDATE 2-Hartford posts Q4 loss, to cut dividend | Markets | Markets News | Reuters Someone may want to compare this ugliness with the upbeat Barron's column in last week's magazine-oops!The Hartford: Hedged Against Disaster - Barrons.com I am avoiding the common but I do have a Hartford bond maturing in about 3 years.
The tendency of humans is to seek out information that only confirms pre-existing beliefs and to ignore or dismiss any inconsistent information. For investors, it is important to recognize that this is a natural process and to make every effort to destroy that tendency whenever it appears. I heard many "conservatives", for instance, who only listen to radio talk shows, or to Fox, who were claiming throughout 2008 that the mortgage problem was no big deal and was primarily limited to problems originating from lending money to minorities who could not afford to pay it back. They believed Paulson and Bernanke when they maintained the problem was containable. Needless to say, they made no adjustment in their portfolios and lost a great deal of money. Even today, because no effort is made to learn the actual state of affairs other than to listen to Rush or Sean Hannity or to read blogs at Newsbusters, they have yet to grasp the full scope and depth of the current economic crisis, treating it now, after months of denying the mere existence of a recession, as just another recession that will last a few months and cure itself. Just give the corporations more tax breaks if you have to do anything.
Information was available to anyone looking for it with an open mind as early as February 2007 about the developing crisis. It was just not information about the subprime problems which was certainly present at that time. A great deal of information was available about the terms of easy mortgage credit, the volume of it, the parabolic rises in home prices far in excess of rises in income, the lack of accountability for those issuing and financing the mortgages that were later packaged into mortgage pools and sold to investors who had no connection with the initial assessment of the risks, and a myriad of other factors. While hundreds of millions may wallow in their pre-conceptions, a prudent investor can never afford the luxury of viewing information through ideological prisms and refusing to even access information inconsistent with previously formed opinions, being perpetually lazy and ignorant is not an option. Besides, it is also important to recognize that most people form opinions without regard to accurate factual information and are easy prey to cliches and talking points that are designed to manipulate their known perceptions and views of the world. And, it must be recognized that even years of widely disseminated inconsistent information will not cause most to change an opinion because the source of any information inconsistent with cherished opinions will be ignored or discarded as unreliable. Why, and this is circular, because the source provided inconsistent information even though the facts were in fact reliable and accurate.
Another question that I always ask myself is the training of those who voice their opinions in radio talk shows or as "journalists". Frequently, for example, financial journalists have no real training in business. Bloviators generally have no training or experience of any kind other than a lifetime spent engaged in bloviation. What exactly are their qualifications to even offer an opinion on any matter of substance. It is not simply a matter of education although that is certainly important. Spending six years to barely make it through an undemanding series of colleges is not too impressive. It is also a matter of practical experience, a willingness to learn, and an active effort spanning decades to assimilate information. If a journalist is trained only in journalism, then how does that prepare them to discuss anything? In areas where I have expertise, the shortcomings of a journalist discussing a topic that I know a great deal about is readily apparent. So, in any article that I read, I try to separate out an opinion from the facts and to assess the reliability of the factual information and the possible bias of the writer.
So I wonder if those who frequent newsbusters, and listen to Rush and Sean as their source of information, will be able to absorb and assess the jobs report released this morning. In January, 598,000 jobs were lost, the most since 1974. Employers slash 598K jobs in Jan., most since `74 - Yahoo! Finance The unemployment rate increased to 7.6% from 7.2% in December.
The number of unemployed workers grew to 11.6 million.
DISCLAIMER:
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities. All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.
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