1. Dividends and Interest (all of the securities mentioned in this section, a frequent topic category highlighted in orange, are owned): The trust preferred stock from Zions Bancorp, ZBPRB, is ex dividend today, as is the floating rate synthetic security, which has a guarantee, and contains as its underlying security a JPM junior bond in TP form, GJN. GJN Stock Quote - Strats Tr Jpmorgan Cap Xvii STRATS 05-2 BUY 50 GJN The first mortgage bond from Entergy Mississippi (EMO) is ex interest today for its quarterly payment. Great Plains Energy (GXP), an electric utility, is also ex dividend. The bond from Ameriprise Financial, AMPPRA, is also ex interest with its quarterly payment: Bought 100 AMPPRA at $24.75 Atlantic Power is ex dividend today for its monthly dividend payment /Bought 100 ATP:TO at 11.97 CAD/ PZB, the TC with a senior Limited bond, is ex interest today for its semi-annual payment. The floating rate equity preferred METPRA from Met Life, which has a 4% guarantee, is ex dividend for its quarterly payment. The applicable rate now is the guarantee given the low 3 month Libor rates. And, lastly, PMK Capital (PMK) is ex interest for its monthly payment.
Several Aegon and ING hybrids go ex dividend tomorrow, 2/25/2010 with their quarterly payments, including AEH, AEB, AEF, IND, INZ and IGK.
Other securities which go ex dividend on Thursday include GE, MI, STIPRA (a floating rate equity preferred with a guarantee from SunTrust), ZBPRA ( a floating rate equity preferred with a guarantee from Zions), ZBPRC ( a fixed coupon equity preferred from Zions), and PFK (CPI floater from Prudential).
2. Negative Equity in Homes: First American Core Logic reported an increase in homes with negative equity in the 4th quarter of 2009. This firms estimates that 11.3 homes had negative equity at the end of 2009. This would be about 24% of all of the homes with mortgages. Another 2.3 million homes were approaching negative equity at the end of 2009. In Las Vegas, seventy percent of the homes with mortgages have negative equity, 48% in Florida and 51% in Arizona. www.loanperformance.com Q4_2009_Negative_Equity_Final.pdf
3. Inflation or Deflation Ahead?: This is one of the big picture issues that is hard to predict, though I believe that inflation will gradually increase to become a serious problem in a few years, similar to the slow build up which started to occur in the the late 1960s and hit a crescendo in the late 1970s and early 1980s. Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis :
1963 | 30.6 | 1.3 |
1964 | 31.0 | 1.3 |
1965 | 31.5 | 1.6 |
1966 | 32.4 | 2.9 |
1967 | 33.4 | 3.1 |
1968 | 34.8 | 4.2 |
1969 | 36.7 | 5.5 |
1970 | 38.8 | 5.7 |
1971 | 40.5 | 4.4 |
1972 | 41.8 | 3.2 |
1973 | 44.4 | 6.2 |
1974 | 49.3 | 11.0 |
1975 | 53.8 | 9.1 |
1976 | 56.9 | 5.8 |
1977 | 60.6 | 6.5 |
1978 | 65.2 | 7.6 |
1979 | 72.6 | 11.3 |
1980 | 82.4 | 13.5 |
1981 | 90.9 | 10.3 |
1982 | 96.5 | 6.2 |
The number on the right hand side of the box is the annual percentage change (i.e. the rate of inflation). As shown in this chart, inflation began to pick up as the nation started to spend money like crazy on guns and butter. The Vietnam war spending started to pick up during LBJ's administration and federal spending on social programs accelerated at the same time.
This is a link to an interactive story from Bloomberg that makes the case for low levels of inflation. The high unemployment rate will place pressure on wage gains, and higher employment costs can be one factor feeding into an inflationary spiral. The excess production capacity and the deflation in home prices also support the low inflation thesis, along with the possibility of tax hikes in the near future as the budgetary problems become worse.
Bernanke and other Fed members are in the low inflation camp for years to come, as Bernanke made clear in his testimony today:
"Consistent with moderate economic growth, participants expect the unemployment rate to decline only slowly, to a range of roughly 6-1/2 to 7-1/2 percent by the end of 2012, still well above their estimate of the long-run sustainable rate of about 5 percent. Inflation is expected to remain subdued, with consumer prices rising at rates between 1 and 2 percent in 2010 through 2012. In the longer term, inflation is expected to be between 1-3/4 and 2 percent, the range that most FOMC participants judge to be consistent with the Federal Reserve's dual mandate of price stability and maximum employment."
FRB: Testimony--Bernanke, Semiannual Monetary Policy Report to the Congress--February 24, 2010 I suspect that forecast will end up being wrong, but the Fed's forecast is both rational and reasonable under the lingering aftershocks of the Near Depression. For now, it gives me enough comfort to continue holding long bonds that I intend to jettison when I become concerned about inflation. See Item # 7 Bought 100 PBI at 21.9/Sold 50 CVBF at 9.65/ Added to CEF RMT/ AA & ASBC Earnings/GLW Upgrades The paring of some of those long bond positions can be done gradually when and if the CPI numbers start to turn hot. If Bernanke is right about inflation, I will be able to hold my long bonds longer than I currently expect. As mentioned in prior posts, the investment grade long bonds bought during the meltdown period at large discounts to par value and to yield greater than 10% per annum will likely be kept as long as I am comfortable with the credit risk of each company and do not have a rational concern about the advent of hyper inflation.
4. Bank Lending: Bank lending in 2009 declined had its largest decline in 67 years according to a report released by the FDIC. More than 5% of the loans outstanding were past due (5.37%, see page 2), which is the highest number in 27 years, and bank failures hit a 16 year high at 702 last year. The fall off in bank lending is caused by a lack of demand and tighter lending standards. /www2.fdic.gov/qbp/2009dec/qbp.pdf
5. New Home Sales: New home sales fell 11.2% in January below the revised December number, a greater than expected decline. http://www.census.gov/const/newressales.pdf The January number would be the lowest number at an annualized rate since the Commerce Department started to keep records in 1963. Compared to January last year, sales declined 6.1% and this is with the extension of the tax credit.
6. Bought 40 EPV at $24.35: Long Short Strategy (See Disclaimer): I mentioned in a post from yesterday that I will not discuss the purchase of double shorts for specific sectors or an individual foreign country. I did take a position this morning in the double short for Europe (EPV) by buying just 40 shares at $24.35. This is part of a hedging strategy that I have started to implement recently. As I have mentioned on several occasions these Proshares' product have a tendency to lose tracking after one day, and have to monitored daily for that reason. This particular fund seeks to move 200% to the inverse of the MSCI Europe Index: ProShares ETFs: UltraShort MSCI Europe – Overview Even though I have added several of these double shorts over the past several days, I am extremely long common stocks in this slowly developing long short strategy that I am trying out in a test run.
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