Wednesday, September 16, 2009

Bernanke: Recession Kaput/Glimcher Realty Finances/CPI/PEPCO Upgrade/EC: Beyond My Comprehension

1. THE RECESSION IS OVER-Now What?: The recession is kaput. Bernanke said as much in a speech yesterday: "Since we last met here, the world has been through the most severe financial crisis since the Great Depression. The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge." FRB: Speech--Bernanke, Reflections on a Year of Crisis--August 21, 2009 Bernanke also was more emphatic on that point when he said that technically "the recession is very likely over at this point".WSJ.com

2. Glimcher Realty (own common & preferred): GRTPRF has to be the largest percentage gainer than I have had in a one year time frame. And it is currently the best LT of all time. It traded over $17 yesterday before closing at $16.8. My purchase was at $2.9 last November, and it is providing me with a 75% annualized dividend yield. GRTPRF: A WALK ON THE WILD SIDE/ KTN add The common shares, which I also own as a Lottery Ticket, traded down on news that GRT planned to commence an offering of 80 million in its common share: Glimcher I previously mentioned that one of the open issues for this firm was a renewal of its credit line of 470 million. The preferred shares popped yesterday on news that this credit line was extended with modifications to December 2011. The company also announced the sale of one of its properties for 192 million which includes the assumption of 127.5 million in debt and net proceeds of about 60 million. Glimcher Update on Financing

3. CPI: August CPI increase .4% with the core up .1%. Consumer Price Index Summary This puts the decrease at 1.5% over the past 12 months. That kind of number, if you believe it, does lend support to bond prices.

4. Kroger (not owned): I have bought and sold Kroger twice so far this year and do not currently own it. I last sold it in early September and applied the proceeds to a purchase of 100 shares of Proctor & Gamble: BOUGHT 100 PG AT $52.85/SOLD 100 KROGER AT $21.9 Kroger released a disappointing earnngs report yesterday that was forewarned by an earlier warning from Safeway a few weeks back. Kroger reported earnings of 39 cents for the Q/E 8/15/2009, which was worse than the 43 cents consensus estimate. Kroger also cut its forecast for the full year to a range of $1.9 to $2, down from its earlier forecast of $2 to $2.05. Excluding fuel sales, revenues did rise 3.5%. It appears that price competition has heated up with Wal Mart referred to as a "sudden deflation in a highly competitive market" by the CEO during the conference call. Seeking Alpha This is a sufficiently bad report for me to stay away unless I can purchase the shares back at a lower price, probably somewhere south of $20.

5. New York Manufacturing Index: The New York Federal Reserve released yesterday its survey of manufacturers located in New York state, and it showed the highest reading since late in 2007: Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York The new orders component has now moved from a -40 or so in March to about +20 looking at these charts: ny.frb.org

6. CREDIT SUISSE Upgrades Pepco (POM)(owned): Pepco is one of me electric utility holdings that has had a rough year. CS upgraded POM yesterday to outperform from neutral and raised its price target to $16 from $13. CNBC.com One reason was the strong dividend, and that is the only reason why I still own it after several disappointing earnings reports recently.

7. Buying Hybrids at a Discount Part of Burden Sharing to the EC?: I am simply not on the same wavelength as the EC. For one, I have yet to comprehend how deferring coupon payments on debt securities relates to competition in the common market or promotes fair competition. And, I fail to understand how providing state aid to guarantee securities owned by a U.S. banking subsidiary of ING, operating exclusively in the U.S., impacts competition for banking and financial services in the European common market. Nor, can I comprehend how buying back a 6.2% coupon, perpetual security at 70% of its par value fulfills a burden sharing policy. Think about it for a second. It is okay to spend almost 2 billion Euros of state aid to buy back the hybrids at a 30% discount to par value, though in excess of the value just prior to the offer, but it is not okay to pay a few million Euros in quarterly cumulative dividends on those same hybrids. And, the EC would have to know that many of the owners bought those securities when they had plummeted in value and will receive a profit by selling them back to KBC. So it is hardly a burden to such purchasers, possibly most of those bonds are now owned by those who have an unrealized profit. So, is that burden sharing? I noted an article in Forbes last night where the firm CreditSights was quoted as saying it suspects the EC views purchasing at a discount to meet its burden sharing goals. Forbes.com And that is just incredible if true.

Simon Adamson from CreditSights mentioned yesterday that he believe ING will be one of the banks asked by the EC to defer non-mandatory coupons. He expects many of the banks who will be asked to defer payment on their hybrids will do a tender offer for those securities: Reuters This suspicion may have provided some support to the ING hybrids yesterday, a day that the news would have probably caused a decline.

I am continuing to look for an opportune moment to reduce my holdings in ING hybrids. I may include the two bought at low single digit prices in my IRA. So far, my only recent sell was 50 shares of INZ: Sold 1/2 INZ (see disclaimer)/ING Paid the Dutch State in May 2009 ING's common stock is recovering some today, up over 3% in early trading, reclaiming the losses from yesterday after the announcement about the EC investigation of its mortgage guarantee deal with the EC.

The KBC offer expires in 10 days after it was made. And, I have not seen any objections to it by the EC yet. So, one of my readers may be right about this offer satisfying the EC, whereas paying the quarterly coupons on those securities is not okay with the EC, which is bizarre to me and that is a charitable description of my opinion of the EC's approach. We will know in just a few days. But, this does not mean that ING wants to do the same, or even has the capability of launching a large scale tender for its hybrids. If I was doing a restructuring, the last thing that I would do is use scarce capital to buy a perpetual bond with a 6.2% coupon that regulators viewed as part of equity capital.

This is a link to a story saying the EC was gathering data on Lloyds and RBS deals to offload debts. It mentions that the UK government is worried that the EC may demand a break up "as a condition for allowing them to transfer problem investments to the state." Scotsman.com More details about this issue is provided in Reuters story from the U.K.

8. Dollar Continues Down Move This Morning: The symbol for the Dollar Index at MarketWatch is DKY, and it was hugging 76 earlier today. DXY Index Quote - US Dollar Index Future I will use the interactive charts at Marketwatch and then move the cursor to see the price movement better. The Dollar Index hit a yearly high of 89.3 on March 3, 2009, close to the U.S. stock market lows, which shows to me that many investors viewed the dollar as a safe haven. With an improvement in the market, and a willingness to assume more risk in other currencies and assets priced in those currencies, the dollar has fallen against most of its rivals since early March.

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