The Old Geezer felt like taking a long nap yesterday, and wished there was some way to give the market a chill pill. Or maybe the hedge fund wizards need to take some speed to expedite the unwinding of their carry trades using the U.S. Dollar and the Yen as funding sources, thereby shortening the agony period for us common folk investors.
While it would be reasonable to say that investors are overreacting to the sovereign debt problems of Greece and Portugal, reasonable was not the emotion du jour yesterday, more like panic and another heavy dose of fear as the VIX shot up again rising almost 20%. Yes, apparently many believe that the travails of Greece, with a 2.5% share of the euro area GDP ( NYT), will take the entire world into a financial abyss, ignoring the remarks of the European Central Bank President Trichet that the socialist government in Greece is at least taking encouraging steps now to deal with its crisis. Reuters There are rumblings however in both Greece and Portugal that segments of the population, government employees and unions mostly, would not accept any austerity proposal that included civil service pay freezes and an increase in the retirement age. I thought this article was an excellent synopsis of the political problems in Greece, Spain and Portugal that might hinder those nations coming to grips with their debt problems. The Source - WSJ
Besides widespread corruption and cronyism, Greece's government has credibility problems as its government acknowledged last October that it had massaged its numbers to make its debt situation look less dire. In October, the new finance minister from the Socialist Party, George Papaconstantinou, said the 2009 budget deficit would hit 12.5% of GDP, more than twice what his predecessor claimed. USATODAY.com Unbelievable! I believe elections were held in early October. The prior government, controlled by the conservative party, had driven Greece's sovereign debt to 300 billion from 160 billion in five years, created 700 new state agencies and 470 commissions, most of them useless according to the Socialist Prime Minister George Papandreou. (Socialists as the fiscally responsible party?) In retrospect it was a mistake to admit Greece into the European Union in 2001. The cost to insure 10 million € of Greek government debt for five years continues to rise, hitting €423,000 on Thursday. WSJ. That is a lot of money for insurance on sovereign debt. But then again, maybe the CDS market is being manipulated to make it look more dire than it really is.
Maybe it would be cheaper for investors around the world to leave their homes now, as in no later than this weekend, to tour the ruins of the Parthenon and then stop in Lisbon on the way home to drop some moola on some R & R in Portugal. Maybe learn some Portuguese which might come in handy when traveling to RIO for the carnival next year. This could solve the most current sovereign debt crisis, provided all investors with significant skin in the game follow this game plan. RB just said to pack the bags, it was ready for a European vacation particularly when the Euro was headed to zero against the dollar or so it seems listening to the talking heads on TV recently. RB also said that Headknocker needs to quit thinking about how the Masters of Disaster were compensated in the billions for bringing the financial system to its knees, just thinking about it raises the HK's blood pressure by 20 points.
1. Jobs: The Labor department reported a 20 thousand job loss in January. www.bls.gov .pdf This was worse than the expectations of a small job increase. The unemployment rate was 9.7%. The average work week increased to 33.3 from 33.2, and earnings per hour increased by .3% from .2% in December. Service jobs increased by 40 thousand. Temporary help added 52 thousand. Construction jobs declined by 75 thousand. The Labor department used payroll data to determine the 20 thousand job loss number. The reason why the unemployment rate declined to 9.7% was the separate household survey which is used to calculate the unemployment rate. This survey would pick up small businesses. This survey showed an increase of 511,000 in employment. And, the broader gauge of unemployment which includes discouraged workers and those who are forced to work part time also fell from 17.3% in December to 16.5% in January. In the Labor Department's annual revision, job losses since the start of the recession were increased to 8.4 million, in line with expectations.
2. Husky Energy (owned): Husky Energy reported a 4th quarter E.P.S. of $.38, with cash flow from operations of 657 million. Revenues net of royalties declined from 4.7 billion in the 4th quarter of 2008 to 3.61 billion in the last quarter of 2009. Husky declared its regular quarterly dividend of 30 cents Canadian.
3. Unilever (UL)(owned): I currently own UL shares bought at $18 last March. Added to UL at 18 I took profits on some slightly higher cost shares bought at $18.22, Buy of UL , by selling those shares at $23.38 Pared Unilever. I have no intention of selling the remaining shares as long as Unilever maintains its dividend. Unilever PLC posted a sales increase of 1.8% for the quarter after adjusting for currency movements. That 1.8% increase consisted of a better than forecast 5% increase in volume offset in part by a 3.1% decline in prices. The adjusted operating margin increased by 1%. A discussion of Unilever's results can be found at Seeking Alpha.
4. Pitney Bowes (owned): Pitney Bowes increased its quarterly dividend to 36.5 cents per share from 36 cents. Since the dividend yield at my cost was a main reason for purchasing the stock, this declaration is viewed as important. Bought 100 PBI at 21.9 After the close, Pitney Bowes reported that it had a 4th quarter E.P.S. of 64 cents, excluding items and 47 cents on a GAPP basis. The company reaffirmed its guidance for 2010, with earnings expected to be in a range of $2.3 to $2.5 on an adjusted basis. The analyst consensus estimate was for an E.P.S. of 61 cents which I would assume is before extraordinary items, mostly dealing with PBI's ongoing restructuring efforts.
5. Actions Semiconductor (ACTS)(own-LT Category): This small Chinese semiconductor reported lackluster results for the 4th quarter. Actions Semiconductor had a 2 cent loss per ADS based on revenue of just 7.9 million, a decline from 16.1 million in the 4th quarter of 2008. Marketable securities and cash (restricted and unrestricted) totaled 252 million at year end. (page 1 Seeking Alpha) Patricia Chou later agreed with a statement in the conference call as being "pretty much right" that ACTS had $3.35 in cash and no debt ( at p. 9). The stock is selling at a substantial discount to that level. The breakdown of that cash is explained at page 3. Gross margins did improve sequentially in the last quarter to 34.9% from 30.8%. Overall the problem is the decline in revenues, which will hopefully improve in the later half of this year, and the lack of earnings. Still, the company does not appear to be eating into its cash pile much after adjusting for its stock buybacks.
6. Macy's (own DKQ-senior bond in TC form only): Macy's same store sales increased by 3.4% in January. The company also raised its guidance for its 4th quarter to $1.35 to $1.37, excluding restructuring costs, from its prior estimate of $1.14 to $1.18.
7. Verizon (VZ) (own senior bond in TC form only-XFL and PJL): Credit Suisse downgraded VZ to neutral yesterday, stating the belief that it no longer expected AT & T to lose exclusivity on the IPhone in 2010. Also, there are concerns about growth and competitive pressures. A summary of this CS report can be found at Barrons.com.
8. FACTORY ORDERS & Retail Sales: Factory orders increased 1% last month, exceeding the .5% estimate. This data is compiled by the Census Bureau: www.census.gov/manufacturing .pdf This marked eight out of nine months in increases. CNBC
January same store sales for 29 publicly traded retailers rose 3.3% in January greater than the expectation of a 2.5% rise.
9. Amerprise Financial (AMP) (own senior bond only AMP-PA): Ameriprise Financial reported net income of 237 million for the 4th quarter or 90 cents per share. The estimate was for 76 cents. As a bond holder, this is more than satisfactory. I bought 100 AMPPRA at $24.75 last October. Although the symbol suggests that this security is a preferred stock, it is actually an exchange traded senior note: www.sec.gov/.
10. Sold 50 NADX at $8.12 (see Disclaimer): I noted yesterday afternoon that this LT had been held long enough for a long term capital gain, so I sold the remaining shares bought at $4 for close to a 100% gain. Buy of 50 National Dentex (NADX)
11. Opnext (own LT category): Opnext reported a loss of 14 cents on a non-GAAP basis with a 6.1% sequential decline in revenue. Cash decreased by 8.7 million to 146.3 million. This is a quote from the earnings release about the firm's forecast for 2010: “Looking ahead to our fourth fiscal quarter ending March 2010, we expect 10G and below revenues to increase modestly, in spite of first calendar quarter price reductions. In addition, we are anticipating moderate growth in the 40G and above business driven by further growth in 40G modules, new 40G subsystems deployments, and the emergence of 100G. Finally, we anticipate that the recovery of our industrial and commercial business revenues will continue . . . “Based on these factors, we expect our revenues to be between $78 million and $83 million for the fourth fiscal quarter ending March 31, 2010.”
I view my recent LT purchase of 100 OPXT at 1.89 to be a weak hold after reviewing this report. I did receive a nice pop from my prior purchase at $1.91 to $3.1, when I sold: Item # 4: Sold LT Opnext I do not see that happening again anytime soon.
Thanks for the "JOBS" post as I wasn't aware that the 17.3 rate that includes discouraged and under-employed decreased to 16.5.
ReplyDeleteThe global fiscal stimulus is being reigned-in. You don't see positive reaction to some of these companies strong earnings reports due to the discounting of year-on-year and sequential earnings comparisons going forward. If there is very slow growth ahead (or, gasp, a double-dip), those comparisons won't look so good and current valuations may indeed be fair or even overvalued in some cases.
I own some CEF's in the emerging markets fixed-income space, and those NAV's are being repriced heavily, likely due in part to re-pricing risk in sovereign debt in countries like Greece, Spain, Portugal. Those stocks took a beating to the tune of 10-15% this week.
I nibbled on a couple of the companies you mentioned in the past couple weeks including the BDC TAXI and the Canadian Atlantic Power.
I also nibbled on a company called Power Integrations (POWI) after listening to their conference call yesterday and watching them for awhile. They're growing revs around 10% sequentially and raised their quarterly dividend from .025 to .05. They make energy-efficient power adapters (the leaner ones for electronics like laptops and cell-phones that replace those bigger, clunkier ones that would take up two sockets when plugged-in). At any rate, I don't own that many shares and am not trying to pump it in any way, but since I get some ideas from your blog, I thought I'd throw one your way.
Since you have some interest in technology, there is a BDC which I have owned called Hercules Technology Growth Capital (HTGC) that is currently paying over 11%. Like most BDCs, TAXI is the exception, it invests in private companies, mostly in debt with some kicker's in warrants and equity. I sold my shares a little to early, as summarized in this post from July 2009: http://tennesseeindependent.blogspot.com/2009/07/laura-tyson-gives-fuel-to-bearssold.html
ReplyDeleteYou might want to take a look at that one and let me know what you think.
There is one thing to always keep in mind about the BDC, which is also applicable to REITs. To maintain their tax status, they have to pay out 90% of their income, which is nice. That is how you get a high dividend. One that I still own, PSEC, pays out over 15%. The problem is that leaves the company with little capital cushion. For BDCs like HTGC, PSEC, AINV (also owned) and ARCC, if some of their investments in these private companies go bad then they end up taping the market. Recently several of them sold more shares at below their net asset value, which is find if you do not then own any shares. And, generally speaking there is a significant amount of leverage which raises an issue of refinancing during tough times, which may have been the reason PCAP jumped into the arms of PSEC.
And also there is a consolidation going on in the space. PSEC recently acquired PCAP. And PSCE has gone done in price about 3 bucks since mid January after it launched a hostile takeover attempt of Allied Capital, another BDC, which had agreed to be acquired by Ares Capital.
I am currently focusing almost entirely on higher dividend paying stocks or bonds now. And I am still buying regional bank stocks, buying another one today called Renasant (RNST) at 14.14, which I will discuss tomorrow. I will stop at 30 names in that strategy.