The BP Chairman, Carl-Henric Svanberg, apparently channeling the departed Leona Helmsley, told reporters in front of the White House that his company really, really did "care" about the "small people" whose livelihoods have been disrupted by BP's malfeasance. NYT Some may remember Leona, who managed to marry into a great deal of money. One of her famous sayings, made before being convicted of federal income tax evasion, was "only little people pay taxes".
1. M3 Money Supply Shrinkage: I read a story in the Telegraph, a British newspaper, that the M3 money supply in the U.S. contracted for the 3 months ending in April at an annualized rate of 9.6%, a rate of decline, similar to the average declines seen in 1929 to 1933. The Fed no longer publishes M3 data, viewing the information as too erratic to be meaningful. The author of this article makes the case that this broadest measure of money supply has been useful in predicting major problems in the U.S. economy. M3 is a measure of money supply that inclused M2 plus large time deposits, repos with a greater than one day maturity, and institutional money market accounts. M2 includes M1 plus savings deposits, non-institutional money market accounts, and overnight repos. M1 consists of all coins, currency, checking accounts, travelers checks and credit union balances.
2. Housing Starts: I am surprised only by the market's reaction to the housing starts number. What exactly would a rational person expect after the expiration of the homebuyer tax credit? The housing market and the American people will have to adjust to making decisions without government bribes. The Commerce Department reported that housing starts fell in May to a seasonally adjusted annual rate of 593,000 units. Analysts were expecting 650,000 units. www.census.gov New building permits dropped to a 574,000 annual unit rate, the lowest rate in a year. Given the number of foreclosed homes on the market, I am almost surprised by any positive number for new home starts.
3. Industrial Production: The Federal Reserve reported yesterday that industrial production rose 1.2% in May. Factories increased production by .9%. Industrial Production and Capacity Utilization Industrial production was up 7.9% from a year ago.
4. Ideology and Investing: The interview with Jason Trennert on CNBC is noteworthy for his information bias.
It is fairly typical to listen to an interview on CNBC and know a person's political affiliation even when the conversation is about the economy or the stock market. Their outlook on the market is in part determined by their political bias.
As an example, Trennert mentioned that he viewed Obama's speech about the oil spill on Tuesday night and did not find anything in that speech that was good for the market or market multiples. I am not sure what he was expecting the President to say about BP and the oil spill.
Maybe the President needed to say that he understood how mistakes could happen, all is forgiven, and lets continue to allow the oil companies to corrupt the Minerals Management Service (MMS) with hookers and cocaine. NYT The particular information bias shown by Trennerg in that interview and in other interviews is what I would call standard GOP group think. In this anti-regulation ideology, it is believed with religious fervor that any regulation is bad for business and the economy. This ideology acts to distort information about what is actually happening in the economy and in Washington and to render its adherent unable to reach unbiased judgments about the markets. A more hysterical version of information bias, and I do not mean hysterical in a comical sense, is the rant by Jim Cramer at the start of his Mad Money show on Tuesday. CNBC
It is fairly typical to listen to an interview on CNBC and know a person's political affiliation even when the conversation is about the economy or the stock market. Their outlook on the market is in part determined by their political bias.
As an example, Trennert mentioned that he viewed Obama's speech about the oil spill on Tuesday night and did not find anything in that speech that was good for the market or market multiples. I am not sure what he was expecting the President to say about BP and the oil spill.
Maybe the President needed to say that he understood how mistakes could happen, all is forgiven, and lets continue to allow the oil companies to corrupt the Minerals Management Service (MMS) with hookers and cocaine. NYT The particular information bias shown by Trennerg in that interview and in other interviews is what I would call standard GOP group think. In this anti-regulation ideology, it is believed with religious fervor that any regulation is bad for business and the economy. This ideology acts to distort information about what is actually happening in the economy and in Washington and to render its adherent unable to reach unbiased judgments about the markets. A more hysterical version of information bias, and I do not mean hysterical in a comical sense, is the rant by Jim Cramer at the start of his Mad Money show on Tuesday. CNBC
5. Bought 100 BSCH at 20.13 (see Disclaimer): In two prior posts, I discuss the new term corporate bond ETFs from Claymore. Bought 100 BSCE; Items 1 & 7 Claymore Introduces Term Corporate Bond ETFs My rational for buying relatively minor positions in these ETFs are discussed in the foregoing linked posts.
BSCH is the term bond ETF that liquidates in 2017, and I bought 100 shares in my main taxable account. I will not be reinvesting the dividends on this one, but will use the dividends to buy additional shares in the two purchased in retirement accounts.
6. Bought 50 HopFed Bancorp (HFBC) at $9.10 (Regional Bank Stocks BASKET STRATEGY) (see Disclaimer): This small bank with branches in middle Tennessee and southern Kentucky was on my monitor list for a possible add to the regional bank strategy. I had noticed a SEC filing of the bank's intent to raise 30 million by selling stock and was waiting for the bank to initiate that transaction before buying shares. The bank priced 3,333,334 shares at $9 per share, which caused the share price to sink almost 8% yesterday. HopFed Bancorp, Inc. Announces Pricing of Public Offering of Common Stock I went ahead and bought some shares after that decline. The $9 share price is close to the five year low reached in March-April 2009: HopFed Bancorp, Inc. Share Price Chart | HFBC
Without taking into account the new equity, the bank has a market cap of just 32.5 million. This offering almost doubles the market capitalization of this small bank.
The Board recently declared its regular 12 cent dividend per share. Press Release
In the first quarter of 2010, the bank earned 45 cents, compared to 28 cents in the year ago quarter. (page 5 Form 10-Q). The capital ratios are above the minimums for well capitalized banks (page 31). As of 3/31/2010, non-performing assets as a percentage of total assets was at 1.29%. The bank did participate in TARP and has outstanding about 18.4 million dollars worth of preferred stock issued to the government (see balance sheet at page 3: Form 10-Q) The agreement with the government appears to be the standard form: Exhibit 3.1
The location of the banks branches can be found at page 7 of this investor presentation: Filing with SEC
The banks has no plans to use the funds raised in the stock offering to redeem the government's preferred stock. The proposed uses of the funds raised by the offering are summarized by the bank in the following manner:
"We intend to use the net proceeds of this offering (i) for general corporate purposes, including contributing additional capital to the Bank; (ii) to support our ongoing and future anticipated growth, which may include opportunistic acquisitions of all or parts of other financial institutions; and (iii) to position us for eventual redemption of our Series A Preferred Stock issued to the Treasury under the Capital Purchase Program, or CPP. We currently expect to contribute approximately $10.0 million of the net proceeds to the Bank. We do not have any agreements or commitments with respect to any current transactions, and we currently have no plans to redeem our Series A Preferred Stock. Pending allocation of the net proceeds to specific uses, we intend to invest the proceeds in short-term interest-bearing investment grade securities." (page 7 AMENDMENT #2)
Apparently this bank is content to pay the government 5% for the use of that 18.4 million.
The bank entered into an informal memorandum of understanding with the Office of Thrift Supervision on April 30th. The terms of that MOU are described by the bank as follows:
" Under the Bank MOU, among other things, the Bank has agreed to the following: (1) the Bank will not declare or pay any dividends or make other capital distributions, or commit to pay dividends or make other capital distributions, without prior OTS approval; (2) the Bank will adopt a concentration risk reduction plan to reduce the outstanding balance of commercial real estate loans relative to core capital and the allowance for loan losses; and (3) the Bank will not increase brokered deposits without prior OTS approval.
In addition, the MOUs identify actions, policies and procedures to be taken and adopted by the Board of Directors and management of the Company and the Bank, as appropriate, to ensure maintenance of adequate liquidity, monitor and report compliance with the MOUs and certain applicable regulations, reduce the level of classified assets, and correct certain deficiencies and weaknesses identified by the OTS.
The MOUs will remain in effect until modified or terminated by the OTS. The Company and the Bank do not expect the actions and limitations required by the MOUs to change their business strategy in any material respect." (page 21: Form 10-Q)
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