Laura Tyson Gives Fuel to the Bears/Sold HTGC/ VIMC, Intel/Goldman Sachs 2033 Bond in Trust Certificates/ISM June Non-Manufacturing Report

The talk from an official in the Obama administration, Laura Tyson about the need for a second stimulus package, which calls into question an economic recovery starting in the 2nd half of this year, is likely to cause more harm than help to both the market and the economy. Ms. Tyson was quoted as saying the first 787 billion was "a bit too small"

Joe Biden said over the weekend that the administration misjudged the economy. Tyson also asserted that the economy is worst that the administration forecasted when it went ahead with the 787 billion dollar plan.

She referred to the economy as a "sicker patient." She also claimed that the Federal Reserve will not allow the U.S. to inflate its way out of its increasing debt burden. 

Okay, the administration may have misjudged the economy, but the "stimulus" plan was not "a bit too small" at 787 billion, but ill-conceived by politicians who were more concerned about matters other than job creation and giving the economy a much needed jolt. 

There can not be a serious debate that the first 787 billion "stimulus" program was conceived without an overriding concern for creating jobs this year, or even in early 2010, as opposed to just spending large sums of money for pork, transfer payments to Democratic constituents, and sundry other items unrelated to a true economic stimulus program. I view this kind of talk from the administration to be tantamount to an admission of failure in structuring the first 787 billion "stimulus" plan, and that the Obama administration just blew the opportunity they had early in his term. 

1.  Lottery Ticket Vimicro (VIMC) Earnings Report: VIMC is a small micro cap Chinese semiconductor company. I bought 100 shares at $1.97 and would not even consider the possibility of investing more than $200 in it. Lottery Ticket Purchase 100 of VIMC: EXTREMELY SPECULATIVE  

It reported losses for the 4th quarter of 2008 and the first quarter of 2009. The revenue forecast for the 2nd quarter of 2009 was estimated to be between 18 million and 19 million. Analysts were expecting 18 million. 

A loss for 2009 is expected by the consensus forecast.  

The latest report shows cash at 76.896 million, 62.903 million in short term time deposits and 2.088 million in securities held for sale.  The total cash is 141.877 million. Shareholder equity is listed at 168.173 million. Yahoo Finance lists the market cap at 78 million at a $2.2 price.

This is a link to Reuter's profile on Vimicro International Corporation (VIMC).

2. Intel (an owned position): I view the Merrill upgrade for the semiconductor industry and Intel this morning to have more significance to the green shoot/yellow weed controversy currently being waged than to my ownership of 100+ Intel shares. The important part of the Merrill upgrade is its observation that definite signs of a turn in end demand has emerged from recently released data.  Merrill Lynch upgrade Intel to buy from neutral. Merrill raised its price target to $19. My average cost of my Intel shares is around $15. I am reinvesting the dividend which is generous for a tech company. My only plan for these shares now is to continue reinvesting the dividend until the share price establishes a trading range of above $20, and then I will start taking the dividend in cash. I have no opinion yet of a potential price target, preferring to just wait and see what happens.  I suspect that I would sell all of my shares somewhere in the $25 to $30 range. 

3. ISM Non-Manufacturing Report for June 2009: This report released yesterday showed continued contraction in the service sector but the reading for June improved to 47 from 44 in May. The new orders component improved to 48.6 from 44.4. The Non-Manufacturing Business Activity Index increased 7.4 percentage points to 49.8. A reading over 50 indicates expansion, below 50 indicates contraction.

I view this report as a positive. 

4. Goldman Sachs Debenture Maturing 2/15/2033 with a 6.125% coupon: In a prior post, I mention a GS junior bond maturing in 2034 that was the underlying bond in 9 Trust Certificates; 6 are fixed coupon TCs and 3 are synthetic floaters paying the greater of a guarantee or a percentage over 3 month LIBOR, a floater created out of a fixed coupon security by virtue of a swap agreement. Goldman Sachs 6.345% Junior Debenture Maturing on 2/15/2034  

Another bond which appears to be a senior bond (not confirmed) matures in February 2033 and is the underlying security in six Trust Certificates, five of which are fixed coupon bonds and one is a synthetic floater with no guarantee (GJS). The five fixed coupon TCs are DKW, DKP, PJI, JZS and HJG.  

For those five securities, all have the same underlying GS bond, and have the same maturity. That is what I mean by functional equivalence. The only meaningful difference is the yield based on an investor's cost at the time a purchase is made.  While DKW has the lowest coupon at 5.63% compared to the 6% coupons of DKP and PJI, this is not the relevant issue.  

The only important point is what is the yield at your possible purchase cost.  Today, I was surprised to see that all of these securities are trading at close to the same yield, fairly close to a 8% to  8.15% range, which is very tight compared to what I was used to seeing last year, but only one (PJI) is actively traded today with a  bid/ask of 10 cents or less. 

The floater, GJS, is  just different and has to be evaluated separately in my opinion. It has no guaranteed rate and pays interest rate calculated at .9% above the applicable 3 month Treasury Bill rate:http://www.sec.gov I owned and subsequently sold GJS. 

The other prospectuses can be found at the quantum site:Third Party Trust Preferred Securities Table - QuantumOnline.com

The underlying bond information at the FINRA site: FINRA - Investor Information - Market Data - Bonds - Bond Detail The underlying bond was trading close to 70 during the troubles last Fall, and has since recovered to prices generally in the 90 to 95 range.  It is actively traded in large blocks by institutions. 

I am classifying this underlying bond as senior debt subject to further check.  I could not find at Fitch a single junior bond with the same maturity date, but there was one senior bond issued in Canadian dollars with the same coupon and maturity, rated A+ by Fitch. Also, the description of the security in the TC prospectuses is consistent with the general terms of a senior bond, i.e., a failure to pay interest within a very short time period after the due date is a default, whereas a junior bond has liberal deferral of interest provisions. 

5. Eliminated HTGC-the BDC Hercules Technology Growth Capital: I declared victory on my 165+ share of HTGC by selling the 150 bought in three 50 share increments plus 15+ bought with reinvested dividends at $8.67. This was close to a 20+% gain on the shares plus the dividends, with the last two fifty share bought in the taxable account  at around $7.28 on 11/07/08 and at $4.98 on 2/13/2008. I may have only mentioned the buy in November 2008 in this post. Yes, I am Chicken Now, and Proud of IT I do not not mention a lot of what I do.  But I have discussed Hercules some in prior posts.  As a general rule, I do not favor Business Development companies for the reasons discussed in the above linked post. 

2009 HTGC 165+ SHARES +$228.52

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