I mentioned in my Wednesday post, which now seems ages ago, that the bursts in the ^VIX since 4/27/2010 "will often signal that there is something serious which is troubling the market which should not be dismissed, even if I disagree strongly. In short, these bursts are frequently warnings about a change in the market's direction." VIX/SOLD 50 EWBC at $19.04/ Greece-Citizens in Aggressive Denial/ADM EMR MRK PFE DUK/Sold LT GY at $6.4
Well, what can I say, that was an understatement. The market is still in an Unstable VIX Pattern, a dangerous market for an individual investor. Vix Asset Allocation Model Explained Simply
Reports today suggested that the 1000 point downdraft in the DJIA (998.50 points to be exact) was in major part due to human error. Attention has focused on an order placed for E-Minis on the CBOE. The waterfall in the averages occurred quickly, starting around 2:26 P.M. E.D.T., just looking at the DJIA daily chart: Dow Jones Industrial Average Index Chart
The intra-day point plunge set a new record high. P & G traded down to $39 and change. I saw that Accenture (ACN) had a one penny print before closing at $41.12. CTL traded down to $10.16 and closed at $33.48. An Ishares ETF for the Russell 1000 Index (IWN) fell from $60 to 7.5 cents. Exelon, one of the largest electric utility companies in the U.S., fell to less than 1 cent. This appears to be the work of the Masters of Disaster as their black box trading programs kicked into high gear causing an acceleration of the decline. Worse than VERMIN!, was the only comment RB could add to this discussion, Worthless Parasites!!!, the RB just added for good measure.
These kind of problems will likely lead more individuals to conclude that the stock market is not a conservative place to invest funds, that this particular game is rigged against them and it has just gotten worse with the Quants taking over trading. It is a game, and the Masters of Disaster make it much more difficult for the individual to win due to their manipulation, high frequency program trading, and assorted "innovations" cooked up by them to transfer wealth to themselves at the expense of their clients and mankind in general.
I attempted to access my account at Fidelity late today, and was unable to do so after repeated attempts. I wanted to buy some bonds that had fallen over 10% in price. No matter, sometimes it is best to wait and see what happens next.
I am starting to lose confidence in the exchanges. The Nasdaq said it would cancel trades that were greater than or less than 60% away from the print at 2:40. MarketWatch What a travesty!
The VIX spiked intra-day to 40.7 before closing at 32.8, a gain of 31.67% for the day. This kind of move will result in me shedding one stock mutual fund when and if there is a recovery back to the low 20s. I have completely sold out of stock mutual funds in the retirement accounts earlier in the year: Bought 100 MKN at 9.85
I noticed some dysfunctional pricing in the Trust Certificate market this afternoon. I will be focusing some attention in that niche market in the upcoming weeks, comparing the yields of the TCs with the underlying bonds. Some GTC limit orders way below the market would have been hit today in some of them.
1. Pinnacle West (owned): Pinnacle West reported a loss of 6 million of 6 cents per share for the 1st quarter. Adjusted for the results of restructuring its real estate segment, PNW reported a non-GAAP number of 7 cents a share, an improvement over the loss of 25 cents per share in the year ago quarter. The company maintained its guidance for 2010 at between $2.95 to $3.1 per share. The consensus estimate was for a loss of 1 cent per share on revenues of 674.6 million.
2. Winstream (WIN) (own): Windstream reported an E.P.S. of 17 cents per share, compared to 20 cents in the year ago quarter. WIN generated 216 million in free cash flow and "a dividend payout ratio of 51 percent". This payout ratio is not calculated on net income but on free cash flow. Total revenues were 848 million under GAAP. The GAAP earnings number included 3 cents in charges relating to after-tax merger and integration costs. I own Winstream as a yield play. WIN declared its regular quarterly dividend of 25 cents yesterday. My last shares were purchased at $6.36 on 3/3/09. Winstream At a total cost of $11, the dividend yield is around 9%.
3. Greece: An article in USATODAY pointed out that Greece has one of the most generous pensions for civil servants. About 51% of the government's budget goes toward civil service pay and benefits (NYT), including those pensions. Greek civil servants receive 14 monthly paychecks per year. They are paid for showing up on time and for being able to use a computer. Reuters As mentioned in a prior post, the civil service in Greece has over 500,000 people compared to a total population of just 11 million. Bloomberg.com It is easy for any sensible and rational person to see the source of the problem: the Greek people. Reading the story in USATODAY.com this morning, it is apparent that large segments of the Greek population are unable to connect the dots. Several protestors were quoted as saying that the people should not pay for austerity but the politicians and "thieves" who took the money. It is obvious who took the money, those in the streets protesting the austerity program.
If I was a citizen of Germany or the Netherlands, I would really resent bailing these people out, particularly when there is a total lack of gratitude for the assistance being provided to them. At a minimum, I would want the beneficiary of the bailout to refrain from slapping my hand and spitting in my face.
Spain sold € 2.3 billion in five year bonds today to yield 3.58%, up from 2.8% at the last sale in March. NYT
The market turned worse today after El-Erian stoked some of the fears about European sovereign debt: CNBC.com The market was down about 90 points when he interview started.
4. HRPT PROPERTIES (HRP)(own common & senior bond): This REIT, which owns office buildings, reported funds from operations of 26 cents in line with estimates. HRPT Properties reported that 86.6% of its total square feet was leased on 3/31/2010, down from 87.4% as of 12/31/2009. Needless to say, this is moving in the wrong direction. This REIT has started to acquire office complexes in the U.S. and has agreed to acquire an Australian property trust that owns 10 industrial properties.
5. Merck (own via PPH): Barrons had a summary of Goldman's downgrade of Merck to neutral and Credit Suisse's defense of its buy recommendation. The GS analyst lowered her price target to $42, whereas CS raised her target to $47. Given Merck's dividend, currently over 4% based a $35 price, I would be pleased with either a $42 or a $47 price. Part of the optimism of CS is based on Vorapaxar, one of Merck's drugs in the pipeline, for the treatment of patients with heart attacks or strokes.
6. GDO (owned): This CEF that invests in global corporate bonds has been sliding over the past few days. Part of the reason is that this CEF has some exposure to European corporate bonds. The primary reason may be individual investor panic, which is causing the discount to NAV to expand. In other words, the expanding of the discount is responsible for most of the fall in the price. Today, I changed my distribution option for the 300 shares owned in the taxable account from payment in cash to purchase of additional shares. I will continue to take cash payments for the shares held in the IRA accounts. The NAV information is updated every business day at the WSJ.com. The discount expanded to 9.23 today.
7. ADDED 200 of the CEF ACG at $ 7.98 (see Disclaimer): Individuals were selling this CEF today even though the underlying assets had to be rising in price. This made no sense to the LB, so it stepped in to add 400 shares to HK's position. An extensive discussion of the advantages and disadvantages of this fund can be found in an earlier post: Bought 200 ACG at $8.12 in Roth The NAV information is updated every trading day at the WSJ.com. When I bought shares a few days ago, ACG was selling at a 5.79% discount to NAV. This had expanded to a 6.64% discount, as of 5/5, after the recent monthly ex dividend.
The WSJ did not have the closing NAV for 5/6, but I found it at CEFA - Closed-End Fund Association site. Based on yesterday's closing price of $7.87, the NAV was $8.56 and the discount expanded to 8.06%.
8. SOLD 100 EPV AT $26.32 AND 50 EUO AT 23.4 (see Disclaimer) LB does not understand the fear that is feeding on itself now and believes that the European debt fears are overblown. LB suggests that investors need to breathe into a paper bag and spend a day at the beach. I exited my modest double short position in both the European stock market and their currency today. The EPV position was bought in two small lots. The second lot of 60 shares was purchased at 21.11 in early April and the smaller lot of 40 shares was bought at 24.35 in February. I just bought the double short on the EURO, EUO, at 21.73. Headknocker just said that he may need to bring back RB as Head Trader, at least the RB understands irrational behavior. EPV closed at $27.9. RB just helpfully added that the NERD needs to work on the stinking rules about timing its trades a little more. RB would not have sold EPV until it crossed $28. The NERD is just too cautious.
All of the foregoing trades were made before the collapse today. I was intending to use the proceeds to buy bonds late in the day, but could not access my account at Fidelity.
I still have some double short ETFs in place which I will sell on further downdrafts. I was selecting them based on what I believed to be the most vulnerable indexes in a significant downdraft and/or the indexes which would have the highest beta on the downside. One of those is a double short on emerging markets, and I have some on sectors too.
9. Hanover Insurance (THG) (own bonds only): The Hanover Insurance Group reported net income of 41.8 million dollars or 87 cents per share, up from 50 cents in the year ago quarter.
10 Kraft Foods (owned): Kraft Foods reported operating earnings of 49 cents for its 1st quarter on 11.3 billion in revenues. The consensus estimates were for earnings on that basis to be 43 cents on revenues of 10.98 billion. Kraft expects operating earnings of at least $2 in 2010.
11. BCB Bancorp (BCBP)(regional bank strategy): BCB Bancorp reported earnings of 15 cents for the quarter, down from 29 cents earned in the year ago period. Net interest margin decreased to just 3.06%. This small bank experienced about $200,000 in expenses during the quarter relating to its pending acquisition of Pamrapo Bancorp which it hopes to conclude by the end of the second quarter.
Re #3 Greece: As a Dutch citizen I do not oppose the loan to Greece (our parliament approved the 4.8 bn euro today, as the Germans did their 28 bn). This is not because I have pity for the Greek people but because the alternative will mean serious writedowns for our banks. In particular ING has 3 bn in Greek (souvereign) bonds. (It seems ING had a fine hand in selecting risky investments, compare the US Alt-A mortgages.) I do have to mention that most of the Greek population does understand the austerity measures. Those riots yesterday were only by a few, and the strikes on Wednesday were mostly trade union people, a minority who cannot face reality just yet. (As one of the last countries in the world they still have a Communist Party!) Also, I can understand a simple Greek nurse or teacher being cut some 20% whereas the real culprits, those civil servants who do not even show up for work, seem to escape cuts. E.g. a committee supervising for a nice fee a lake which reportedly has been without water for many years. If only Greece would clamp down on fiscal fraud, that would bring them some 20 bn in GDP and corresponding less debt.
ReplyDeletePS: Although I haven't commented quite a while, I have been reading your posts every day with much interest. I am especially impressed by your unbiased views, doing your 'independent' name proud.
DutchPerplex: I understand that Greece has a large number of Commissions that apparently are used for patronage. The annual cost is important but nowhere near what Greece needs, even if they eliminated all of them. I believe that all of them take up around 200 to 300 million EUROs per year. If you have a different number, please leave me a note. Greece's problem is a 100+ billion euro problem.
ReplyDeleteAccording to the new Socialist government, the prior government created 470 commissions, and "most of them" were useless. http://www.usatoday.com/news/world/2009-10-18-Greek-socialists-win_N.htm
The most recent poll that I have seen says that 51% of the Greeks do not want to accept any austerity measures: http://www.bloomberg.com/bb/n/ai35iM38zN08
Unfortunately the Greeks are living far beyond the means and the credit markets are closed to them. Without the bailout Greece would default. If that were to happen, the transmission mechanism for the contagion would be through European financial institutions, particularly those in Germany and France, that own a great deal of Greek sovereign debt. The credit markets would seize up for Portugal, probably Spain and even Italy, and credit might not be available for European institutions in need of rolling over their maturities. It would be similar to what happened after Lehman failed, but maybe not as bad.
So, I would agree that the Europeans have no choice about Greece. The market is saying that is not enough in my opinion. Europe needs to do more, a shock and awe kind of rescue package. I would resent it if I was in your shoes, but I would vote for it, in the same way that I would have voted for the 700 billion bailout of our banks. I view it as the least undesirable alternative though I personally find it to be disgusting.
The trade union, as I understand, represents over 500,000 Greeks. That is a lot of people in a nation of 11 million, particularly after excluding children and retired people, those in jail or unemployable.
I am not throwing stones at Greece. The U.S. makes them look like pikers. Who is going to bail out the U.S. when confidence seizes up?