Monday, March 15, 2010

Michael Lewis Interview/Bought 50 VLY at $15.06/ EHL Redemption/ Wall Street Wizards: Worse than Worthless?/MDT HQS

1. Bought 50 VLY at $15.06 (Regional Bank Strategy-category 2) (See Disclaimer): In implementing the Regional Bank Stocks' strategy, I am interested in banks that are growing their asset and customer base via FDIC assisted acquisitions of failed banks. Within the past week Valley National has concluded deals with the FDIC to take over deposits and certain assets of The Park Avenue Bank and LibertyPoint Bank. Valley National Bank: Valley In The News The former President of the Park Avenue Bank was arrested today. Reuters Prior to these recent acquisitions, Valley had about 206 branches in 14 counties in northern and central New Jersey and NYC.

I first came across Valley National after reading this article in TheStreet.com. I found that article in the YF news section of an existing portfolio since the article also discussed New York Community Bank, one of my holdings that I quickly took to the $2000 maximum permitted in the Regional Bank Strategy. Valley is also favorably discussed in this TheStreet.com article and an article published last February at MarketWatch.

The current dividend yield at my cost is close to 5%. Valley National Bancorp, VLY

As of 12/31/2009, the Tier 1 capital ratio was 10.64% and the total capital ratio was 12.54%: Page 25 Form 10-K for period ending 12/31/2009 The bank earned 19 cents per share in the 4th quarter of 2009 and 67 cents for 2009. VLY earned 67 cents in 2008, so it has remained profitable during the Near Depression period. In December 2009, the bank did raise around 63.7 million in net proceeds by selling 5 million shares of its stock to institutional investors at $13. Form 8-K Valley repurchased the government's 300 million in preferred stock during 2009: Page 137 Form 10-K Nonperforming assets were just 1.04% of its 14.3 billion dollar balance sheet.

The stock was trading mostly in a $20 to $25 channel for several years prior to 7/2007: Valley National Bancorp Common Share Price Chart The consensus estimate is currently 72 cents for 2010 and 89 cents next year.

2. Sterling Bank (STL)(own TP and common): STL fell 8.09% today after it announced its intent to offer approximately 5.1 million shares (with 750,000 as an over-allotment). I suspect that the bank intends to use the funds to pay back TARP. Sterling received 42 million in TARP funds. EX-99.1 8-K

3. Michael Lewis Interview on 60 Minutes: For those unfamiliar with the role played by the Wall Street wizards in bringing the world to its knees, the interview with Michael Lewis is a good starting point. CBS News This has been a major topic in my blog since I started writing it back in October 2008. He did mention in his interview a Howie Hubler, a wizard employed by Morgan Stanley who managed to lose 7 to 12 billion in a few months according to Lewis. Of course, this guy was rewarded for that result. Some of Hubler's achievements are also discussed in the article in the New York Magazine from April 2008 (pp. 6-7)

Lewis mentioned a hedge fund manager, Michael Burry, who has received little press until recently. Burry was the first person, or close to it, to figure out how to profit from the disaster being engineered by Wall Street at great profit to themselves. Burry was the focus of an article published in this month's Vanity Fair which is an excerpt from Michael Lewis' upcoming book. Burry is a 32 year physician who worked for a time at St. Thomas Hospital in Nashville. With one glass eye and also suffering from asperger's syndrome, he left the medical profession to become a hedge fund manager. At least on this matter, he was outlier and at least capable of seeing the inevitable outcome, and how to profit from it. I found interesting his description of how difficult it was to contact the wizards when it became clear that his bets against the subprime market were turning in his favor. (page 8 of vanity fair article) The wizards would claim system failure or some other lame excuse for refusing to get back to him. And then, amazingly, for the first time in two years at the end of one month, Goldman Sachs did not mark down Burry's trades against him. Why? GS was buying into the same trade, and consequently was moving in Burry's words the marks accurately for the first time.

A few things are clear. The Wall Street wizards can not be trusted by anyone doing business with them. They are not very competent, certainly more greedy than competent without question. Greed and ego are their dominant personality characteristics. Common sense would be an exceedingly rare trait. And, they are paid a great deal of money for nothing special and are rewarded with vast sums of money for colossal failures. In short, as a group, the wizards are worse than worthless. Can there be any serious dispute concerning that assertion?

4. Medtronic (owned)(dividend growth strategy): MDT rose 4.26% today after Boston Scientific announced that is was suspending sales of its implantable heart defibrillator. I discussed my target price for MDT when I made my last add at $37.58, an average up from an early March 2009 buy south of $26: Item # 6 Added to Medtronic

5. HQ Sustainable Maritime (HQS) (Lottery Ticket Category-owned): The two analysts covering HQS had a 31 cent consensus estimate for the 4th quarter on 23.85 million in revenues. After the close today, HQS reported a disappointing net income of just 12 cents per share on revenues of 23.3 million. The company attempted to explain the shortfall by noting that it had provisioned 2.9 million in the quarter for doubtful accounts and increased advertising expense by 1.8 million in the quarter. The company ended the quarter with cash of about 37 million. MarketWatch I view my position as a hold: Bought 50 HQS at 7.04-LT/ The stock traded down significantly in after hours trading. The company also filed its annual report today: Form 10-K

6. Industrial Production and NY Fed Index of Manufacturing Activity: The consensus estimate was that industrial production would fall in February. The Fed reported today that industrial production rose for the 8th consecutive month by .1%. Industrial Production and Capacity Utilization The NY Fed reported its manufacturing survey for March: Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York The general conditions component was 22.9, near its February level, but the new orders rose sharply, rising 17 points to 25.4.

7. Market Downdraft This Morning: After Moody's made a statement about U.S. government debt earlier today, the market turned decidedly negative. Moody's was reported to have said that the U.S. and the U.K. are more likely to face an "embarrassing" downgrade of their debt than France or Germany. While the U.S. is not in an "immediate" danger of having its debt downgraded from AAA, debt affordability is "most stretched". I am sure that Moody's might still have credibility in some quarters. Notwithstanding issues relating to the ratings agencies and their reliability, it is clear to me that the U.S. is on an unsustainable path, and our government's debt will be downgraded in my lifetime unless there is a major reversal in course soon.

8. Redemption of EHL-First Mortgage Bond ( Owned): Par value of this bond is $25 and it matures in 2032. The coupon is 7.6% with interest payments made quarterly: www.sec.gov The next ex interest date is later this month with a payment date of April 1. EHL had usual volume today and fell 49 cents to $25.65. Entergy Louisiana sold today 150 million in a First Mortgage bond with a lower coupon of 6% and a longer maturity than EHL. Reuters The prospectus for this bond states that the net proceeds realized will be used along with other funds to redeem the outstanding EHL bonds. (page S-3: www.sec.gov/). This will cause me to sell my shares of EHL tomorrow assuming the price is close to the close today, otherwise I will just hold it until it is taken away at the $25 par value plus accrued interest. It would be better for me to receive slightly more of a long term capital gain than one more interest payment. My purchase price was at $22.75 in October 2008:

I made some other transactions on Monday that I will try and remember to discuss in the next post.

After watching Cramer on Mad Money early this evening, he has turned negative again and is hyper-ventilating about ObamaCare, which he thinks will pass this week in the House.

No comments:

Post a Comment