For those with any faith remaining in the rating agencies, the seventy-six page comment by a former Moody's Senior Vice President, filed with the SEC, may disabuse you from relying on their ratings again. www.sec.gov/comments .pdf
V. N. Katsenelson wrote a spot on critique of HP's CEO and Board in his MSN Money column.
Given the obvious idiocy and incompetence of HPQ's CEO and Board, the only way out for existing shareholders is for HPQ to be acquired, possibly in a joint bid by Oracle and private equity firms interested in different parts of Hewlett. That prospect, which may be HPQ's shareholders only viable option now to recover some of the destroyed share value, is discussed in this Bloomberg article. HPQ's share price has fallen 42% since Leo Apotheker became CEO.
Goldman Sachs Group (GS) fell $5.25 to close at $106.51 yesterday, hitting a new 52 week low of $105.1 intraday. There was a report that Goldman's CEO and other executives have lawyered up. Reuters CNBC.com Credit defaults on GS debt increased in price. Bloomberg I previously mentioned the headline risk as one reason for keeping my exposure to GS bonds small. Item # 4 Cash Allocation At Highest Level Since Spring of 2009 (5/23/2011 Post); Item # 3 Sold 100 GYB at 19.7 in Roth IRA-Reducing Exposure to GS Bonds to Zero (May 24 2011 Post). I currently own only 50 GYB, 50 GJS and 50 GSPRA, all recently bought after corrections in price reduced some of the concerns about the headline risk.
Buffett pointed out in an opinion column last week (NYT) that his tax rate was lower than anyone else working in his office including his secretary.
Scott Black is telling individual investors to stay out of this market. The risk premium to holding equities is "way high now". He appears to be more than a bit flustered with both the Democrats and Republicans. Money video I would agree with those sentiments, except individual investors with deep pockets and/or a zen like approach to volatility may start to dip their toes back into selective names. Part of my rationale for that suggestion is my belief the current long term bear market is relatively close to an end, possibly another two or three years, and it will be impossible to time with any precision the onset of the next long term bull market.
The market is not being irrational now. The recession fears are legitimate. If one develops, there is no way to know how deep it will be and fear of the unknown will in itself cause more selling.
This is a statement that I made in a post from 6/13/2011: "The OG says things are getting worse not better, and there are a number of possible, even probable scenarios, that could send the stock markets around the world into another major cyclical bear market. The OG believes that one more significant cyclical bear cycle is in the offing, and that short term down move will take the S & P 500 to below 1000 by 2013... The OG wants to keep the stock allocation modest through 2012... The OG is filled with anxiety about what may soon happen". Stocks & Politics This was in the context of a debate among staff members here at HQ, ultimately won by the OG as the stock allocation was slashed further through the end of July.
One way to deal with the re-entry conundrum is to do some mechanical trading. For example, I sold 103 shares of the stock ETF OEF on July 25th at $59.98, having bought those shares at $49.11. I am okay with holding this kind of security long term, even though I have now bought and sold it twice. OEF closed at $51.10 yesterday, so I would clearly be ahead by just buying those shares back now. Instead of doing that however, I could set up a mechanical trade to buy 50 shares soon and another 50 on a dip below $50, trying to reproduce my $49.11 share price from the previous round trip. Another transaction was a 100 share buy at $49.61 (June 2010), sold more quickly at $54.94 (December 2010).
Total Realized Gains OEF December 2010 to July 25, 2011= $1,613.12.
Rallies are being sold. Risk is being sold. Uncertainty prevails. The ^VIX closed at 42.44 yesterday, indicating a heightened level of fear and volatility. I continue to expect more volatility with large moves up and down with an overall downside bias.
I would not anticipate much from everyone's Uncle Ben later this week. There is nothing that the FED can do now that would cure the problem. Some might find solace in the Fed making a commitment to buy longer term treasuries with the proceeds received by it from maturing or redeemed securities in its huge portfolio. I would not view that positively. Long term rates are already low enough. If there is a problem with interest rates, it is that they are too low. The FED is adding to the demand problem by taking away income from the saving class who are in a position to spend give their strong balance sheets and low or non-existent debt levels. The Real Cost of The Federal Reserve's Jihad against the Saver Class What Are the Reasons for a Continuation of the Fed's Jihad Against the Saver Class
I would not expect any productive action from the Congress either. The problems are not hard to see. There is a short to intermediate term demand problem and a long term fiscal problem for the government. The way to address those problems would be to launch a massive infrastructure build over the next five to seven years coupled with a viable plan to reduce other federal spending over the long term (incrementally over 40 years), including spending on entitlements, plus some tax increases and the closing of tax loopholes.. The infrastructure spending needs to be done anyway, and now is probably the best time to do it with interest rates at historic lows and the need so glaringly apparent. None of the foregoing is going to happen. Both political tribes are incompetent and negligent.
The Credit Suisse model for predicting the onset of recessions, which has had some historical success, currently estimates a 30% probability of a recession within the next six months. Barrons.com
Due to my view on the macro issues, I did not have any trades yesterday.
V. N. Katsenelson wrote a spot on critique of HP's CEO and Board in his MSN Money column.
Given the obvious idiocy and incompetence of HPQ's CEO and Board, the only way out for existing shareholders is for HPQ to be acquired, possibly in a joint bid by Oracle and private equity firms interested in different parts of Hewlett. That prospect, which may be HPQ's shareholders only viable option now to recover some of the destroyed share value, is discussed in this Bloomberg article. HPQ's share price has fallen 42% since Leo Apotheker became CEO.
Goldman Sachs Group (GS) fell $5.25 to close at $106.51 yesterday, hitting a new 52 week low of $105.1 intraday. There was a report that Goldman's CEO and other executives have lawyered up. Reuters CNBC.com Credit defaults on GS debt increased in price. Bloomberg I previously mentioned the headline risk as one reason for keeping my exposure to GS bonds small. Item # 4 Cash Allocation At Highest Level Since Spring of 2009 (5/23/2011 Post); Item # 3 Sold 100 GYB at 19.7 in Roth IRA-Reducing Exposure to GS Bonds to Zero (May 24 2011 Post). I currently own only 50 GYB, 50 GJS and 50 GSPRA, all recently bought after corrections in price reduced some of the concerns about the headline risk.
Buffett pointed out in an opinion column last week (NYT) that his tax rate was lower than anyone else working in his office including his secretary.
Scott Black is telling individual investors to stay out of this market. The risk premium to holding equities is "way high now". He appears to be more than a bit flustered with both the Democrats and Republicans. Money video I would agree with those sentiments, except individual investors with deep pockets and/or a zen like approach to volatility may start to dip their toes back into selective names. Part of my rationale for that suggestion is my belief the current long term bear market is relatively close to an end, possibly another two or three years, and it will be impossible to time with any precision the onset of the next long term bull market.
The market is not being irrational now. The recession fears are legitimate. If one develops, there is no way to know how deep it will be and fear of the unknown will in itself cause more selling.
This is a statement that I made in a post from 6/13/2011: "The OG says things are getting worse not better, and there are a number of possible, even probable scenarios, that could send the stock markets around the world into another major cyclical bear market. The OG believes that one more significant cyclical bear cycle is in the offing, and that short term down move will take the S & P 500 to below 1000 by 2013... The OG wants to keep the stock allocation modest through 2012... The OG is filled with anxiety about what may soon happen". Stocks & Politics This was in the context of a debate among staff members here at HQ, ultimately won by the OG as the stock allocation was slashed further through the end of July.
One way to deal with the re-entry conundrum is to do some mechanical trading. For example, I sold 103 shares of the stock ETF OEF on July 25th at $59.98, having bought those shares at $49.11. I am okay with holding this kind of security long term, even though I have now bought and sold it twice. OEF closed at $51.10 yesterday, so I would clearly be ahead by just buying those shares back now. Instead of doing that however, I could set up a mechanical trade to buy 50 shares soon and another 50 on a dip below $50, trying to reproduce my $49.11 share price from the previous round trip. Another transaction was a 100 share buy at $49.61 (June 2010), sold more quickly at $54.94 (December 2010).
 |
| 2011 OEF LT Realized Gain $1,083.4/ST Gain +13.32 |
 |
| 2010 OEF ST Realized Gain +516.40 |
Total Realized Gains OEF December 2010 to July 25, 2011= $1,613.12.
Rallies are being sold. Risk is being sold. Uncertainty prevails. The ^VIX closed at 42.44 yesterday, indicating a heightened level of fear and volatility. I continue to expect more volatility with large moves up and down with an overall downside bias.
I would not anticipate much from everyone's Uncle Ben later this week. There is nothing that the FED can do now that would cure the problem. Some might find solace in the Fed making a commitment to buy longer term treasuries with the proceeds received by it from maturing or redeemed securities in its huge portfolio. I would not view that positively. Long term rates are already low enough. If there is a problem with interest rates, it is that they are too low. The FED is adding to the demand problem by taking away income from the saving class who are in a position to spend give their strong balance sheets and low or non-existent debt levels. The Real Cost of The Federal Reserve's Jihad against the Saver Class What Are the Reasons for a Continuation of the Fed's Jihad Against the Saver Class
I would not expect any productive action from the Congress either. The problems are not hard to see. There is a short to intermediate term demand problem and a long term fiscal problem for the government. The way to address those problems would be to launch a massive infrastructure build over the next five to seven years coupled with a viable plan to reduce other federal spending over the long term (incrementally over 40 years), including spending on entitlements, plus some tax increases and the closing of tax loopholes.. The infrastructure spending needs to be done anyway, and now is probably the best time to do it with interest rates at historic lows and the need so glaringly apparent. None of the foregoing is going to happen. Both political tribes are incompetent and negligent.
The Credit Suisse model for predicting the onset of recessions, which has had some historical success, currently estimates a 30% probability of a recession within the next six months. Barrons.com
Due to my view on the macro issues, I did not have any trades yesterday.
1. Sold 100 of the BMO MID CORPORATE BOND INDEX ETF (ZCM:CA) at 15.85 CADs Last Week (see Disclaimer): This ETF, bought on the Toronto exchange, was sold for a small $49.18 profit, according to my broker. Bought:100 ZCM:CA @ 15.3 CAD (the broker calculates profit by converting both the purchase cost and the sales price from CADs into USDs) This ETF owns intermediate term Canadian corporate bonds. My intent is to use the proceeds to buy more of the CLAYMORE 1-5 Year Laddered Canadian Government Bond ETF (CLF:CA). The yields are about the same and I am more comfortable with the government bonds. Canadian Dollar (CAD) Strategy I currently own 400 shares of CLF:CA. BOUGHT 200 CLF:TO AT 20.20 CAD Added 100 CLF:TO-Sold 100 CPD:TO Sold HSE:TO at 30.48 CAD/Bought 100 of ETF CLF:TO at 20.10 CAD Both ZCM:CA and CLF:CA pay dividends monthly in Canadian currency after the 15% Canadian withholding tax.
BMO Mid Corporate Bond Index ETF closed at 15.83 CADs on the Toronto exchange yesterday.
Canadian Dollar (CAD) Strategy
2. Averaged Down: Bought 40 VLY at $10.58, 50 TRST at $4.01 and 30 FMER at $11.35 Last Friday (Regional Bank Stocks' basket strategy)(see Disclaimer): I added to my positions in Valley National (VLY), Trustco (TRST) and First Merit (FMER) last Friday. The position in VLY is now 250 shares, 370+ in TRST, and 131+ in FMER. I am taking the VLY dividends in cash and reinvesting FMER's and TRST's dividends to buy additional shares. All of these stocks have been hammered over the past few weeks. If they can continue paying their dividends, then I would expect to come out ahead over the long term, meaning five to ten years.
At a total cost of $10.58, VLY shares yield around 6.52%, based on the current quarterly dividend of 17.25 cents per share. In addition to the cash dividend, the bank has declared a 5% share dividend. Valley National Bank The bank recently declared its regular dividend: Valley National Bancorp Sets Record and Payment Date for Common Stock Cash Dividend
This is a link to the last filed SEC Form 10-Q for VLY. The bank earned 22 cents for the Q/E 6/2011, up from 20 cents in the year earlier quarter. As of 6/30/11, NPLs to total loans was at 1.19%; the allowance for loan losses as a percent of non-accruals was at 105.41; the total risk-based capital ratio was 13.1% at the holding company and 12.5% at the bank; and the net interest margin was at 3.67%.
Valley National Bancorp closed at $10.61 yesterday, up six cents.
Valley National Bancorp closed at $10.61 yesterday, up six cents.
I discussed First Merit's last earnings report at Item # 1 FMER.
The current quarterly dividend is 16 cents per share: FirstMerit Corporation Announces Quarterly Cash Dividend of $0.16 Per Share At a total cost of $11.35, the yield at that rate is about 5.64%.
While it is impossible to know when the market will cease shellacking regional banks, the dividend yield will provide support in the current low rate environment provided there are no reductions. The market seems to have taken these stocks to the woodshed by assuming that all kinds of bad events will certainly happen, including dividend cuts, before there is any concrete reasons to support such a forecast. I believe their current prices already reflect a mild recession, some acceleration of problem loans and some additional compression in the net interest margin.
FMER's share price has returned to 1995 levels (see maximum chart at FMER Interactive Chart) VLY has returned to 1997 price levels: (see maximum chart at VLY Interactive Chart)
FirstMerit Corp. closed at $11.43 yesterday, up seven cents.
The current dividend yield on Trustco shares, bought at a total cost of $4.01, is around 6.54%, which is the main reason for adding shares. The current quarterly rate is $.0656, with the next ex dividend date on 8/31/2011. MarketWatch The $4 share price was last seen in 1994-1995 time period. I discussed the last earnings report in Item # 2 TRST.
Trustco Bank Corp. closed at $3.98 yesterday.
Stifel Nicholaus upgraded TRST yesterday to Buy from Hold with a $5.5 price target.
The purchases discussed in this section are what I call shotgun scatter buys, a fairly typical buying pattern when I view that there are significant potential downside risks, while recognizing that I may be wrong about the macro view. When the macro view is negative, the compromise is to keep buying, but only in small and insignificant amounts for me, and to scatter those buys, both in terms of time, number and variety of securities. I will generally buy only on down days when in this trading pattern unless the securities being bought are down in value during that up day. Anything bought may have to be held for months or even years.
My investment approach is very much driven by my big picture, macro views.
FirstMerit Corp. closed at $11.43 yesterday, up seven cents.
The current dividend yield on Trustco shares, bought at a total cost of $4.01, is around 6.54%, which is the main reason for adding shares. The current quarterly rate is $.0656, with the next ex dividend date on 8/31/2011. MarketWatch The $4 share price was last seen in 1994-1995 time period. I discussed the last earnings report in Item # 2 TRST.
Trustco Bank Corp. closed at $3.98 yesterday.
Stifel Nicholaus upgraded TRST yesterday to Buy from Hold with a $5.5 price target.
The purchases discussed in this section are what I call shotgun scatter buys, a fairly typical buying pattern when I view that there are significant potential downside risks, while recognizing that I may be wrong about the macro view. When the macro view is negative, the compromise is to keep buying, but only in small and insignificant amounts for me, and to scatter those buys, both in terms of time, number and variety of securities. I will generally buy only on down days when in this trading pattern unless the securities being bought are down in value during that up day. Anything bought may have to be held for months or even years.
My investment approach is very much driven by my big picture, macro views.
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