1. Merger between Embarq and CenturyTel Completed:
CenturyTel (CTL) has completed its purchase of Embarq .
When I bought a Trust Certificate recently containing a senior bond issued by Embarq (FJA), I focused more on the credit rating and prices of comparable bonds from CenturyTel, which was in the process of acquiring Embarq at that time. BOUGHT 100 of the TC FJA
I found a CenturyTel bond maturing in 2028 with a 6.875% coupon which I compared to the TC coupon of 7.1% and a 2036 maturity. After making my evaluation of CenturyTel, I bought 100 share of FJA at $15.35 and another 50 shares at $14.2 in MayBought another 50 FJA, just before the semi annual ex interest date on 5/27, when the price of this TC was falling for no good reason, as far as I could tell. It closed yesterday at $17.4. Anyone involved in buying these Trust Certificates just has to get used to the volatility on low volume, and try to turn it to your advantage where possible.
2. Fidelity Claims Traditional Asset is Working Just Fine: Fidelity claims that asset allocation did not fail in 2008 but just worked to "a lesser degree". Is that a joke? Perhaps, Fidelity needs to write on the blackboard 1000 time the 10 year annualized returns through yesterday for all of the Fidelity Target funds.
An interesting article in the WSJ debunks the claim about the merits of standard asset allocation theory, formulated and applied without much if any regard for what is actually happening in the real world. People, including most financial advisors, want to reduce everything to a neat formula, applicable for all times and situations, something equivalent to a financial Ten Commandments, to avoid any real strain on a brain cell or two. There are no absolute and immutable correlations between asset classes. Correlations between asset classes are themselves volatile and subject to wide variations, sometimes two asset classes with be negatively correlated and then at other positively correlated. Instability & Volatility in Asset Correlations That is just one reason, among many, for the failure of target funds. More on Failures of Standard Asset Allocation Models and Target Funds/Use of Volatility in an Asset Class to Make Adjustments to an Asset Allocation
You can not assume that an asset class will be negatively correlated or provide diversification under all circumstances. The relationships among asset classes have to be constantly reassessed with the big picture in mind.
3. Buffett on 787 Billion "Stimulus" Bill: Uncle Warren had an appropriate description of the Democrat's 787 billion stimulus bill passed almost five months ago, with about 2 million jobs lost since that time. Buffet referred to the bill as a Viagra tablet that had been half filled with candy by Congress, with the other half of the bill being given the active ingredient. It is important to keep in mind that all of the 787 billion will be borrowed and will have to be continually financed for years, most likely for as long as the U.S. remains in existence. So, it is not just 787 billion dollars, with half of that sum having little if anything to do with "stimulus". It is the interest that has to be paid on that debt forever, for all practical purposes. Several reports that the trickle of money released so far by the government has gone overwhelmingly to counties that supported Obama in the presidential election, almost 2 to 1 in favor of those counties supporting Obama over McCain.
I have seen estimates that each 1 million dollars in federal spending creates 10.9 jobs or about $92,000 per job. The recipients of contracts funded under the stimulus plan must start reporting detail on 10/10 about the number of jobs created which information will be reported at FedReporting.gov.
Given the known delays in the procurement process, it was known prior to the passage of the stimulus plan about the delay in funding many projects so more emphasis needed to be made on shovel ready infrastructure projects. Cramer made the same distinction between China's stimulus program and ours, which I have made in prior posts. Alcoa pointed to the pick up in demand in China for its better than expected results, as it lays off workers in the U.S. and expands its operations in Brazil and Russia.
For the U.S. the amount allocated for infrastructure spending in 2009 will not even cause an increase in infrastructure spending compared to 2008, with such spending expected to decline in 2009 and 2010 even with the "stimulus" spending. One reason for the decline is that the amount allocated in the Democrat's spending bill for infrastructure pales in comparison to their non-job creation spending plans. Most estimates have the infrastructure spending at about 1/6 of the total and that is being liberal. The GOP maintains that the total is around 7%. It really needed to be about 50%. The Democrats have other priorities however.
More tax cuts also could have delivered a quicker jump start for 2009, spurring more demand for products which would assist private enterprise to create jobs at a far lower cost than the government. Moreover, more infrastructure spending was needed, with money shoveled out the door to the states for road, bridge and other projects.
I noted that the Democrat Governor of Pennsylvania told Congress that the bill was misnamed, not really a stimulus bill after all, but a relief bill with some stimulus in it.
With only about 10% of the money spent to date, mostly on relief rather than stimulus, the economy has yet to feel the impact of what will be spent later this year and most importantly in 2010. With the stabilization of the financial sector, which was the most critical part of the government's effort to date, the economy could easily gather some steam in 2010 without any fiscal stimulus. Adding more fiscal stimulus over and above what is already planned, along with the extraordinary monetary stimulus from the Fed, will likely increase the odds of a serious inflation problem down the road without providing much benefit, though it would increase the debt burden more which does not appear to be of any concern to most politicians, for it is far easier to just be irresponsible. Possibly, the Democrats want to see if they can juice the interest payable on the national debt closer to a trillion a year.
Now, this may seem overly critical of the Administration and the Democrat controlled Congress. I have been more critical of the republicans who will never draw the connection between what has happened and their core beliefs.Revisions to top Twelve Causes of the Not So Great Depression Idealogues on A Mission: Revisionism Already Well Under Way to Explain the Origins of the Mortgage Crisis
Items 1 & 2: LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK
It is also clear, at least to me, that the Republicans would have had the nation and the world mired in another Great Depression II if they had had the majority last year enjoyed by the Democrats now. I am sort of a fish out of water, an outlier, with no comfort level with either political tribe. It is best not to bend, create, and ignore facts to serve an ideology.
4. Treasury Auctions: The treasury finished its auctions this week, borrowing 73 billion altogether. The one auctioned yesterday was the 30 year treasury priced to yield 4.303%. The treasury plans to auction 62 billion in treasury bills on Monday. Demand was less than expected. Today, it was reported that import prices rose 3.2% in June, the largest increase since 2007.
5. CIT Debt: (SEE UPDATED POST 7/15/2009:CIT A GONER/Fed Minutes ) In better times prior to 2008, I bought 1 CIT bond maturing in December this year and 1 bond due in March 2010. I did not have much confidence in this company, even back then, which explains the small order. CIT is in trouble. It has not been granted yet access to the FDIC's Temporary Liquidity Guarantee Program (TLGP). It converted to a bank holding company in December 2008 to gain access to this government program. The government subsequently invested 2.3 billion in CIT by buying preferred stock.
In fact, Bloomberg was reporting this morning that CIT would not be granted access to this government liquidity program.
It is not able in my view to issue new unsecured debt at prices which CIT can afford to pay to repay debt coming due. It had to draw down its bank line of credit to finance itself, as did International Lease Finance, one of AIG's subsidiaries. The 2.1 billion dollar bank line of credit is due in the first quarter of 2010. Reuters and the WSJ were reporting today that Creditsights reduced its rating on CIT bonds to underweight. It is virtually impossible to sell in the bond market 1 bond, even when it is priced below the third party price shown in my account. So I am stuck. I do expect to be paid on the December maturity in full and the March maturity may be somewhat at risk.
Credit default insurance is reportedly costing 3.45 million upfront and $500,000 annually to insure 10 million in CIT bonds for five years. Fitch downgraded CIT debt two notches on Wednesday, further into junk, and warned it would downgrade further in the event CIT was denied access to TLGP.
The CIT common is trading down over 25% this morning to around $1.35.
6. Miscellaneous: I have noted that our trade gap has been improving over the past several months. The Census Bureau, which tracks exports and imports, has a handy chart that shows the narrowing of this gap. Chart: U.S. International Trade in Goods and Services Basically, what has happened since the summer of 2008 is a massive falloff in imports, due to the recession, whereas exports have not fallen as much.
I am surprised that GM has emerged so quickly from bankruptcy. If GM is not able to make a lot of money now, then it needs to be laid to rest.
It is difficult for consumers to stay upbeat in this economic climate, which explains why they are squirreling away any spare change rather than spending it. The consumer confidence number for July released today fell to 64.6 from 70.8 in June.
I am expecting now the S & P to go back down to test the 815 level, which has importance in my current trading rules. A fall below that level will cause a cease and desist order to stop all common stock buying even with cash flow until there is a monthly close above 815. S & P 500 Index CLosed Below 815 Trading rules in effect now
Since I wrote that last linked post, I have raised cash by selling a number of common stocks which could be re-deployed now without earning a demerit.
Charles Ortel wrote an extremely negative article about GE and GE Capital for the TheStreet.com.
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