Even the NYT has finally realized that the nation is on an unsustainable path of deficit spending, and there is no room for major spending initiatives. The deficit problem started with Reagan, when the national debt more than tripled under the Reagan Presidency, moving from 900 billion to 2.8 trillion dollars.Reaganomics - Wikipedia (during those years, job growth was average at 2.1%, average productivity was slower than normal, and the unemployment rate was higher than the average rate at 6.75-the Reagan glory years according to GOP apparatchiks). As the NYT pointed out, the members of the GOP tribe have once again become deficit hawks, after sitting silently around with a few exceptions as Bush increased the the nation's debt from 5.674 trillion as of 9/30/2000 (the start of the first fiscal year after W became President) to 10.024 trillion as of 9/31/2008 (the end of the last fiscal year he was President). Debt to the Penny (Daily History Search Application) The mess that the Beanpole inherited after the Lost Decade will increase the deficit by more than a trillion per year for several years. And possibly the Democrats have been stopped from adding to the fiscal problems with costly new programs that the nation can not afford, though I doubt that any of them have realized yet that adding taxes and costs to small businesses actually retards job creation and growth.
Economists view deficits greater than 3% of GDP to be unsustainable. We are soon headed for 11%. It is nothing more or less than sheer lunacy. Sometimes I try to decide whether the Republicans or the Democrats are worse, maybe I will let my magic coin decide since it is so close. I would be content today if one of the GOP tribe members actually acknowledged that their core ideology was responsible for the Near Depression. Revisions to top Twelve Causes of the Not So Great Depression But isn't it odd that the deficits piled up under Bush and Reagan constitute must of the total debt of the U.S. since the founding of the country, and now it is just accelerating to clearly out of control levels.
1. ISM Manufacturing Index: U.S. manufacturing has been the sector leading the way out of the recession. ISM manufacturing index for January was 58.4%, up from a 54.9 in December. Any number above 50 indicates expansion. The new order component, which gave a correct signal of a pending recovery in the spring of 2009, also increased in January to a reading of 65.9. Importantly, the employment component increased to 53.2. I discussed the importance of the new order component in April and May 2009: ISM Index of New Order Some Signs of Light at the End of the Tunnel: End of the Recession? This component will frequently signal the end of a recession a few months after it hits bottom and starts to turn back up. The new order component of the ISM index hit its low number for the recession in December 2008 at 22.7. ISM By April 2009, it had risen to 47.2, up from 41.2 in March 2009, ISM, and 33.1 in February 2009. ISM
2. Sold 25 S L Green at $47.5 (SLG)(see Disclaimer): I would use this one as an illustration that it is possible to make a significant sum without investing much. I bought my 50 share position in SLG in two 25 share lots. The first lot was bought at $23.35 and sold at $37.25 in September 2009: item # 4 /Sold 1/2 S L Green at $37.25 The second 25 share lot, sold yesterday at $47.5 was bought at around $15 in January 2009. Added 25 SLG I mentioned that I would sell those shares and invest the proceeds into a higher yielding security. So that last trade used up about $375 in capital and yielded around a $800 long term capital gain.
3. Bought 50 First Niagara Financial (FNFG) at $13.7 (See Disclaimer): This one will be put in Category 2 of the Regional Bank Stocks stratagem. The shares of FNFG are a partial replacement for the shares of Wilmington Trust that was sold after its earnings report. Modification of Regional Bank Strategy: Sold 100 Wilmington Trust (WL) at $14.13
This is one of Cramer's five picks in his regional bank strategy, at least as of the time his book "Getting Back to Even" was written by him. He discusses it at pages 154-156. Cramer focuses on what he considered to be a good deal for FNFG, the purchase of 57 former branches of National City in Western Pennsylvania for 54 million. Form 8-K Those branches had to be sold when National City was acquired by the Pennsylvania based PNC. According to Cramer, those branches had 4.2 billion in deposits and 839 million in "solid" loans.
Cramer also mentions First Niagara's expansion into eastern Pennsylvania with its acquisition of Harleysville National, recently approved by the Harleysville shareholders. Harleysville National Corporation (HNBC) recently reported 4th quarter earnings of 2.8 million or seven cents per share, down from 3.8 million in the 4th quarter of 2008. Harleysville has about 83 branches in the Philadelphia area.
This is the link to the last 10-Q filed by First Niagara with the SEC, for the Q/E 9/09. Form 10-Q The bank earned just 7 cents down from 22 cents in the 3rd quarter of 2008. That is the reason the bank was way down my list for potential buys. The net interest margin was 3.66% as of 9/30/09. The total risk based capital ratio was just 11.96% (10% is regarded as well capitalized). The tier one risk based capital was 10.92% (6% is well capitalized). The total nonaccruing loans as a percentage of total loans was .93%. The allowance for credit losses as to nonaccruing loans was 124%. All figures were as of 9/30/09.
This is the link to FNFG's press release announcing 4th quarter results for 2009: First Niagara Produces Record Operating Earnings in 2009 The E.P.S. number was 16 cents (operating income of 17 cents per share). The total risk based capital ratio improved to 13.73% from 11.96%, and the Tier one risk based capital ratio increased to 12.63% from 10.92%. Book value per share was 12.84 as if 12/31/2009 and tangible book at 7.78. Total nonperforming loans to total loans only increased a tad from the prior quarter to .94%. The E.P.S. number for the 4th quarter was in line with the consensus estimate: Reuters The shares have lost about a $1 since this earnings report on 1/21: FNFG
The payout ratio for 2009 on the dividend was over 100%. At my cost the yield is close to 4% at 14 cents per quarter. The bank just declared its quarterly dividend: First Niagara Financial Group, Inc. Declares Quarterly Dividend The current consensus estimate is for 87 cents in 2010 and $1.12 in 2011. The bank did say on the last conference call that it was comfortable with the 2010 estimates: (p.5 Transcript -- Seeking Alpha)
The bank did participate in TARP to the tune of 184 million: Filed First Niagara was one of the first banks to redeem those preferred shares: Exhibit 99.1
First Niagara sold 38.31 million shares at $12 raising approximately 441.5 million in September 2009: Exhibit 99.1 The bank also raised 380 million in April 2009 ( Exhibit 99.1) and 115 million in October 2008.
If I had not sold WL I would probably not have bought FNFG. At the current price of around $13.7, this would be a 15.75 times the 87 cent 2010 estimate. So this one will need to put up better than expected earnings this year to appreciate around 10% before the end of the year, possibly closer to $1 rather than the current estimate of 87 cents, and even then the analysts will need to raise their 2011 estimates to $1.2 from $1.12. In other words, I did not buy this one when I read Cramer's book because it was near what I would call the upper end of its currently reasonable price range. However, it is possible that this one will look good in five years which explains why it was added now.
4. Bought 50 VNOD in the Roth at $24.86 (see Disclaimer): This one will likely be sold when I start to become concerned about interest rate risk for long term bonds. This bond from the REIT Vornado matures in 2039. I am more concerned about interest rate risk rather than credit risk on this one, though I have some issues about credit risk given the size of Vornado's debt. VNO: Balance Sheet for VORNADO REALTY TRUST
Vornado is one complex REIT. Vornado Realty Trust To gain some knowledge about what it owns and its debt, I would just refer anyone interested to pages 16-18 and 20-22 of the most recently filed 10-q.
Quantum says VNOD is rated BBB by S & P. I did not verify that claim except to look at Vornado web site. Par value is $25 with a 7.875% coupon. The coupon would be close to my current yield. Interest is paid quarterly.
This is a link to the prospectus: e424b5 This is a recent issue. At the time of its issuance, the prospectus says that Vornado Realty L.P. has 3.688815 billion of debt that would rank equal to VNOD. The VNOD note is senior debt. The subsidiaries of Vornado have another 8.833 billion which in effect would rank senior to VNOD and substantially all of that is secured anyway. And, another 3 billion of debt is owed by partially owned entities substantially all of which is non-recourse to Vornado.
The last quarterly report of Vornado Realty lists the carrying value of its tangible assets at 15.671 billion after depreciation plus another 2.56 billion in cash. Then, there are assets like stakes in other companies like Alexanders and Toys R' Us. The total value of all of the assets as of 9/30/09 is listed at 22.35 billion. (page 3: www.sec.gov) So, what can you say? Vornado has a lot of assets, valued on the balance sheet at substantially more than the debt.
5. Bought 100 FPO in Roth IRA at 13.81 (see Disclaimer): I have been moving the ownership of both the common and preferred shares of REITs to retirement accounts. The dividends paid by the REITs are not qualified dividends, possibly some insignificant portion from a few of them so qualify occasionally. Also, they are a burden to hold in the taxable account. Over the years, I have had to account for dividends that constitute a return of capital paid by them, frequent late changes to my 1099 based on reclassifications of the tax treatment for portions of their dividends, and a host of other issues. And, during the meltdown phases, I was concerned about deferral of cumulative preferred stock dividends, and the tax issues connected with that problem. Thus, I in effect transferred my holdings in REIT cumulative preferred shares to the retirement accounts, including FRPRK, SLGPRC and LXPPRD, all bought in the retirement accounts at less than 1/2 of their current values after selling shares in the taxable account. I am now adding some common stock purchases in the retirement accounts.
Yesterday, I bought 100 shares of FIRST POTOMAC Realty (FPO) in the Roth. The current dividend yield at my cost is close to 5.9%. A twenty cent quarterly dividend was just declared: First Potomac Realty Trust Declares Fourth Quarter Dividend This REIT focuses on owning industrial parks and industrial parks in the metropolitan D.C. area and the southern mid-Atlantic area in Virginia and Maryland: Reuters.com Occupancy in the REIT's 166 buildings was at 86.5% as of 9/30/09: (page 36: e10vq) The REIT recently entered into a new 175 million credit facility expiring in 2013. e8vk
I remembered that this REIT cut the dividend last year, which is not unusual, from 34 cents to 20 cents. In its summary of the 2009 dividend FPO said that none of it was a qualified dividend. First Potomac Realty Trust Announces Tax Reporting Information for 2009 Common Share Distributions If and when this REIT works its way back to that $1.36 annual dividend, this would increased my dividend yield based on my cost to almost 10%, one of the favorable aspects of owning the common shares rather than a fixed coupon preferred stock.
6. Porter Bancorp (PBIB)(owned-Category 2 Regional Bank Strategy) This was a recent edition.Bought 50 PBIB at 14.1 Porter was rightfully downgraded to market perform from outperform by Keefe Bruyette based on Porter's 4th quarter results released after the market closed on Friday. A summary of the rationale for the downgrade can be found atStreetInsider. Possibly the management of this small bank sandbagged investors by waiting until Friday afternoon to release this earnings report which recognizes losses that possibly needed to be acknowledged sooner. (The nonperforming loans increased 58.6 million in the quarter to 84.9 million.) This is a quote from the earnings release giving the CEO's song and dance routine explaining the tremendous jump in nonperforming loans in the last quarter: "We took a more aggressive stance in reviewing our loan portfolio at year-end in light of the heightened regulatory scrutiny in the current environment and the prolonged weakness in the economy coupled with our concentration of real estate loans and the economy’s impact on real estate values." The 3 cent loss was a huge miss from the 44 cents expected by the analysts . Reuters.com Due to my concerns about management's credibility at this time, which is currently nil, Porter is a candidate for the chopping block (the "Wilmington Exception" to the Regional Bank Strategy), but I will wait to see if there is a dividend cut before making a decision.
7. Tidbits:
Dividends and Interest: Intel, First Potomac Realty (bought yesterday), Alcoa and New York Community Bank are among the stocks that I own which go ex dividend on Wednesday, 2/3/2010.
SCBT Financial rose 16.5% yesterday based on the FDIC assisted acquisition of Community Bank and Trust, which was seized last Friday.
The Reaves Utility Fund (UTG), the closed end utility fund recommended by Bill Gross, rose $1.75 yesterday to close at $19.07. I view that type of action as incomprehensible. It will never make any sense to the LB. That rise means that UTG closed Monday at a 6.54% PREMIUM to its net asset value. While this is not as nutty as the 47.67% premium of the Gabelli Utility Trust (GUT) to its NAV, which is way beyond nutty and goofy even for space cadets, UTG can not be viewed here at HQ as a viable investment option for the reasons mentioned in yesterday's post. Item # 2 Bill Gross and Utility Funds The NAVs of the CEFs can be found daily at the WSJ, and this is a link to the specialized CEFs: WSJ.com Vanguard has an ETF which is very low cost (.25% expense ratio) that includes U.S. utility companies which sells at or near NAV: Vanguard - Vanguard Utilities ETF Overview I have previously discussed another ETF, XLU, which is also low cost: Snapshot - Select Sector SPDRs The expense ratio on that one is .21%: .sectorspdr.com /FactSheet_XLU.pdf Ishares has a global utility ETF with a .48% expense ratio: iShares S&P Global Utilities Sector Index Fund (JXI): Overview None of those ETFs employ leverage.
Marathon (MRO) (owned) announced a 5.1 billion dollar capital budget for 2010, which represents a 17% decline from 2009. This is due to the completion of the expansion at the Garyville refinery, so the downstream budget will fall 53% in 2010 compared to 2009. The upstream budget is increasing with Marathon planning to spend 24% more on worldwide exploration and production. MRO also declared its regular 24 cent quarterly dividend. I will be reinvesting the dividend to buy additional shares, probably for as long as MRO remains below $40 per share.
The annualized return of the S & P 500, adjusted for inflation with dividends reinvested, is .44% annualized from 1/1/1998 to 12/31/2009: Annualized Returns of the S&P 500 You have to plug in the dates at that site, and check the box to adjust for inflation.
Just ignoring who's better or worse it always angers me to see Republicans claim that the Democrats love deficit spending and that the Republicans are the only way to go if you want fiscal responsibility. But in the meantime they turn a budget surplus (end of Clinton) into a huge deficit. How can they, without shame, claim that they're all about fiscal responsibility? And why doesn't the American mainstream media say anything about this? Even the pro-Democratic MSNBC says little about this.
ReplyDeletePoliticians of both tribes have no shame. It is all about telling a story that will be believed by many who never bother to check out the facts for themselves. The purpose of such stories is to maintain power, or to recapture it once it is lost.
ReplyDeleteThe deficit history of the U.S. can be easily located by anyone interested in the facts. I am not familiar with a single member of the GOP tribe who has the facts straight on this issue. But that is not important to them and never will be. Most people are not receptive to facts inconsistent with their cherished beliefs, and will never seek out those facts or believe them even when confronted with accurate information. And members of the GOP view all information through a narrow prism, screening out everything inconsistent with their core beliefs.
TV journalists are chosen for their looks, or willingness to toe the party line, rather than knowledge about matters that are subjects of their reporting. Many of them would look foolish being cross-examined on TV by a knowledgeable person. And, even one who has graduated from Journalism school, may have little or no background or knowledge on any particular subject other than journalism. There are a few exceptions.
On the fiscal side, Clinton did benefit from the lack of any wars during his presidency, whereas the U.S. is currently mired in two which are being financed with borrowed funds mostly from the Chinese government. Clinton also raised taxes some and benefited from large capital gains taxes paid on stock sales during the waning years of his second term, based on what turned out to be a bubble move in the U.S. stock market. I would view Clinton as more fiscally responsible than his GOP critics.