The household debt of the nation's top 1% increased more than 3 times between 1989 to 2007, growing at a faster rate than their incomes. Their debt stood at $600 billion by 2007. WSJ
The market woke up yesterday with the realization that it is hardly certain that anything meaningful will occur in Europe today. Bickering among European leaders was the subject of several news stories. Reuters Bloomberg
The Case Shiller index for home prices in 20 metropolitan areas showed a greater than expected 3.8% decline in August over the prior year. One-half of those cities showed an increase in home prices compared to July 2011.
The Fed did not approve MetLife's proposal to increase its common share dividend and to buyback stock.
In his column, Jim Jubak discusses a confidential report about Greece prepared by the IMF, ECB, and the EU that highlights the obvious. Greece is hopeless. MSN Money A recession in Europe could require as much as $600 billion to bail out the Greeks. Under a more optimistic scenario, it is estimated that the bailout of the wildly irresponsible Greeks will encompass 350 billion dollars and take the remainder of the decade. The Greeks will not stand for austerity for another year, let alone for the remainder of the decade.
Several American liberals claim that some austerity is destroying Greece. According to James Galbraith, for example, services are being cut to the point that healthcare, education and public services are no longer functional. Daily Ticker Really? This is liberal hyperbole. In a nation with just 12 million people (including children, the disabled, and retirees), the government employs almost 800,000. That bloat is not paid for by the Greeks, where tax evasion is rampant, but by money received by the Greek government from negligent foreign creditors. Greece never had the ability to service the kind of debt necessary to finance their patronage state. Apparently, Galbraith believes that no layoffs can be made without causing a breakdown in the provision of all government services, but such a claim is frivolous on its face. And, it is my understanding that Greece has yet to start those cuts. Sure, the retirement age for civil servants has been increased to a less ridiculous age, and possibly some citizens are no longer receiving paychecks for the infamous 13th month in a year. Some 30,000 "civil servants" will be placed in a reserve at 60% of their wages but that law was just passed by the Greek Parliament. Greece-Entitlement Society Run Amok Greece-Citizens in Aggressive Denial
Michael Lewis discussed the crux of the problem in Greece in his article published last year in Vanity Fair. In one example given by Lewis, the Greek government forms a unit to digitize photos of Greek public lands. The unit paid 270 employees to perform this task, but none of them knew anything about digital photography. They were hairdressers. Hundreds of committees have been performed with no apparent duties. One committee was employed to manage a Lake Kopias, which dried up in the 1930s, just one ridiculous example of a patronage state at work. Reuters
The market woke up yesterday with the realization that it is hardly certain that anything meaningful will occur in Europe today. Bickering among European leaders was the subject of several news stories. Reuters Bloomberg
The Case Shiller index for home prices in 20 metropolitan areas showed a greater than expected 3.8% decline in August over the prior year. One-half of those cities showed an increase in home prices compared to July 2011.
The Fed did not approve MetLife's proposal to increase its common share dividend and to buyback stock.
In his column, Jim Jubak discusses a confidential report about Greece prepared by the IMF, ECB, and the EU that highlights the obvious. Greece is hopeless. MSN Money A recession in Europe could require as much as $600 billion to bail out the Greeks. Under a more optimistic scenario, it is estimated that the bailout of the wildly irresponsible Greeks will encompass 350 billion dollars and take the remainder of the decade. The Greeks will not stand for austerity for another year, let alone for the remainder of the decade.
Several American liberals claim that some austerity is destroying Greece. According to James Galbraith, for example, services are being cut to the point that healthcare, education and public services are no longer functional. Daily Ticker Really? This is liberal hyperbole. In a nation with just 12 million people (including children, the disabled, and retirees), the government employs almost 800,000. That bloat is not paid for by the Greeks, where tax evasion is rampant, but by money received by the Greek government from negligent foreign creditors. Greece never had the ability to service the kind of debt necessary to finance their patronage state. Apparently, Galbraith believes that no layoffs can be made without causing a breakdown in the provision of all government services, but such a claim is frivolous on its face. And, it is my understanding that Greece has yet to start those cuts. Sure, the retirement age for civil servants has been increased to a less ridiculous age, and possibly some citizens are no longer receiving paychecks for the infamous 13th month in a year. Some 30,000 "civil servants" will be placed in a reserve at 60% of their wages but that law was just passed by the Greek Parliament. Greece-Entitlement Society Run Amok Greece-Citizens in Aggressive Denial
Michael Lewis discussed the crux of the problem in Greece in his article published last year in Vanity Fair. In one example given by Lewis, the Greek government forms a unit to digitize photos of Greek public lands. The unit paid 270 employees to perform this task, but none of them knew anything about digital photography. They were hairdressers. Hundreds of committees have been performed with no apparent duties. One committee was employed to manage a Lake Kopias, which dried up in the 1930s, just one ridiculous example of a patronage state at work. Reuters
The Heritage Foundation, a "conservative think tank", claims that there are no poor people in the U.S. since most people have air conditioners, washing machines and coffee machines. Heritage Foundation Article That article was the subject of a Jon Stewart Comedy Central segment (about 4 1/2 minutes into that segment). Stewart's take was that the U.S. needed to just take all of the assets of the bottom 50%, referred to as the moocher class by the "conservative intellectuals at Fox", rather than increase the marginal tax rates of the Job Creators for a couple of years.
PolitiFact rated Rick Perry's statement that Romneycare was the model for Obamacare as true.
Romney, Huntsman and Bachmann sharply criticized Obama's decision to withdraw all troops from Iraq by 12/31/11, suggesting that the President's decision was purely political. Washington Post The deadline was set by President Bush. U.S.–Iraq Status of Forces Agreement Since the Iraqi government would not grant U.S. troops immunity after 12/31/11 (NYT), the President had no choice in the matter, as the WSJ made clear.
The IRAQ war started in March 2003. Through November 2010, the U.S. has spent about $900 billion on this war. The U.S. has lost already close to 4500 troops, with over 32,000 wounded, 20% of whom received serious brain and spinal injuries. Iraqi deaths totaled over 100,000. Casualties of the Iraq War George Bush started this war by invading Iraq for the false reason that Iraq was involved in the development of weapons of mass destruction. The best evidence, known to the administration at that time, was that there was no justifiable reason for making that assertion. Accurate Information is Not a Side to an Issue/ Lying Works In Politics: ABC News: Forged Iraq Documents Were Full of Flaws; Niger uranium forgeries; Downing Street memo; 2003 Article published by Washington Post (highlighting that the administrations best evidence on the aluminum tubes issue did not support the representations being made in public); Bob Woodward's book State of Denial; Leading To War (a film); 2003 story published by USATODAY.com; 2006 Washington Post story; "Curve Ball" 60 Minutes (Curveball was the name given to this informant by the Germans, and the U.S. never interviewed him,
The GOP now wants the U.S. to remain in Iraq to counteract the influence of Iran, notwithstanding the lack of immunity from Iraq's government. The natural result of regime change was to increase the influence of Iran in Iraq, and having a military presence in that country for another ten years will not change that result. Saddam was the counterweight to Iraq in the Middle East, which is why Reagan administration provided Saddam substantial assistance in the Iran–Iraq war.
1. United Bancorp (UBCP)(own: Regional Bank Stocks Basket Strategy): United Bancorp, a small bank headquartered in Ohio, reported third quarter net income of $801,056 or 16 cents per share, up from 15 cents in the year ago quarter. As of 9/30/11, the net interest margin was 4.25%; NPLs to total loans stood at 1.53%; and the allowance for loan losses to NPLs was at 71.82%. REGIONAL BANK BASKET STRATEGY GATEWAY POST
2. Washington Trust (WASH)(own: Regional Bank Stocks Basket Strategy): Washington Trust reported net income of $7.6 million or 46 cents for the third quarter. The consensus estimate was for 46 cents. As of 9/30/11, the net interest margin was 3.22%; NPAs to total assets stood at .82%; the total risk-based capital ratio was at 12.99%; the Tier 1 risk-based capital ratio was 11.72%; the tangible equity to tangible assets ratio was at 7.58%; and the allowance for loan losses to NPLs was at 137.29%.
3. First Interstate Bancsystem (FIBK)(own: Regional Bank Stocks Basket Strategy): First Interstate BancSystem reported net income of $11.1 million or 26 cents for the third quarter. The consensus estimate was for 23 cents. This bank has an unacceptable NPL to total loan ratio of 6.14%. As of 9/30/11, the allowance for loan losses to total loans was at 45.82%; the capital ratios are good with the total risk-based ratio at 16.26%; tangible book value per share was $12.25; and the interest rate margin was 3.84%. I bought 50 shares based on a Cramer recommendation and view that purchase as my mistake. Bought 50 FIBK at 15.64 Since my exposure was small, and the bank had some desirable characteristics, I have decided to keep those shares, but my patience with the loan loss numbers is running very thin.
4. Bought 50 Metalico (MEA) at $4.36-LT Last Monday (LOTTERY TICKET strategy)(see Disclaimer): RB, the Head Honcho for this strategy, has been gravitating toward small and micro cap cyclical stocks. MEA is such a company. In addition, the stock meets certain statistical criteria used for LT selections. The current consensus earnings estimate is for an E.P.S. of 53 in 2011 and 70 cents in 2012, giving the stock a relatively low P/E. Price to book is around 1.08 and price to sales is .32. The forward five year estimated P.E.G. ratio is .82. MEA Key Statistics
Metalico is involved in scrap metal recycling and lead fabricating. Its operating facilities include 20 scrap metal recycling facilities, six platinum and minor recycling facilities, and four lead product manufacturing and fabricating plants.
Link to 2010 Annual Report: Form 10-K
For the Q/E 6/2011, the company reported a net income of $6.645 million or 14 cents per share, up from 10 cents in the second quarter of 2010. Form 10-Q I am not really comfortable with the debt or the features of a convertible notes that have a 7% coupon and are putable back to the company. (see page 10)
This is a link to MEA's website that contains more information about the company: Metalico
Profile at Reuters
Key Developments at Reuters
Lottery Ticket Strategy: New Gateway Post
5. SOLD 50 of 100 FNLC at $14.25 Last Monday (Regional Bank Stocks Basket Strategy)(see Disclaimer): In the regional bank stock strategy, I will sell higher cost lots for a profit when I averaged down with a lower cost lot. I recently bought 50 shares of FNLC at $12.79. I sold the first 50 share lot on Monday, using FIFO accounting, and those shares were bought at a higher price. Bought 50 FNLC at 13.6 This kind of trade lowers my average cost while booking a profit.
6. SOLD 200 of the Leveraged Municipal Bond CEF MUE at $13.54 Last Monday (see Disclaimer): I am in a trading mode for leveraged bonds funds that own longer term bonds. I have several concerns about those funds that causes me to move in and out of them now.
First, the long term bull market in bonds started in 1982 and has already had an unusually long life for a long term secular bull market in any asset class. The worm will turn, and the only question is when. I know that it hard to believe, but there is such a phenomenon has a long term bear market in bonds. When one of those start, longer term bonds will decline in value, resembling on the downside what bond investors have grown use to for almost 40 years now. The most likely causes would be greater than expected rates of inflation and longer term structural problems with the major currencies of most developed nations including the U.S. and most of Europe which causes many investors to sell bonds denominated in those currencies. Inflation is already running a troublesome rates.
Second, the other major potential problem is that leverage works both ways. As rates rise, the fund is required to pay more for borrowed funds and the value of the long term bonds bought with those borrowed funds go down in value. A related issue is that the discount to net asset value may expand in that scenario, resulting in a triple whammy for the owners of a leveraged long term bond CEF that has a long duration.
I bought those 200 shares in September. Bought Municipal Bond CEFs: 200 NMO at 13.03, 200 MUE at $12.89 and 100 BAF at $13.89 (realized gain on 200 shares= $114.04).
The IRAQ war started in March 2003. Through November 2010, the U.S. has spent about $900 billion on this war. The U.S. has lost already close to 4500 troops, with over 32,000 wounded, 20% of whom received serious brain and spinal injuries. Iraqi deaths totaled over 100,000. Casualties of the Iraq War George Bush started this war by invading Iraq for the false reason that Iraq was involved in the development of weapons of mass destruction. The best evidence, known to the administration at that time, was that there was no justifiable reason for making that assertion. Accurate Information is Not a Side to an Issue/ Lying Works In Politics: ABC News: Forged Iraq Documents Were Full of Flaws; Niger uranium forgeries; Downing Street memo; 2003 Article published by Washington Post (highlighting that the administrations best evidence on the aluminum tubes issue did not support the representations being made in public); Bob Woodward's book State of Denial; Leading To War (a film); 2003 story published by USATODAY.com; 2006 Washington Post story; "Curve Ball" 60 Minutes (Curveball was the name given to this informant by the Germans, and the U.S. never interviewed him,
The GOP now wants the U.S. to remain in Iraq to counteract the influence of Iran, notwithstanding the lack of immunity from Iraq's government. The natural result of regime change was to increase the influence of Iran in Iraq, and having a military presence in that country for another ten years will not change that result. Saddam was the counterweight to Iraq in the Middle East, which is why Reagan administration provided Saddam substantial assistance in the Iran–Iraq war.
In Rhode Island ten cents of every tax dollar goes to retired workers and that number will soon rise to 20 cents. CNBC
1. United Bancorp (UBCP)(own: Regional Bank Stocks Basket Strategy): United Bancorp, a small bank headquartered in Ohio, reported third quarter net income of $801,056 or 16 cents per share, up from 15 cents in the year ago quarter. As of 9/30/11, the net interest margin was 4.25%; NPLs to total loans stood at 1.53%; and the allowance for loan losses to NPLs was at 71.82%. REGIONAL BANK BASKET STRATEGY GATEWAY POST
2. Washington Trust (WASH)(own: Regional Bank Stocks Basket Strategy): Washington Trust reported net income of $7.6 million or 46 cents for the third quarter. The consensus estimate was for 46 cents. As of 9/30/11, the net interest margin was 3.22%; NPAs to total assets stood at .82%; the total risk-based capital ratio was at 12.99%; the Tier 1 risk-based capital ratio was 11.72%; the tangible equity to tangible assets ratio was at 7.58%; and the allowance for loan losses to NPLs was at 137.29%.
3. First Interstate Bancsystem (FIBK)(own: Regional Bank Stocks Basket Strategy): First Interstate BancSystem reported net income of $11.1 million or 26 cents for the third quarter. The consensus estimate was for 23 cents. This bank has an unacceptable NPL to total loan ratio of 6.14%. As of 9/30/11, the allowance for loan losses to total loans was at 45.82%; the capital ratios are good with the total risk-based ratio at 16.26%; tangible book value per share was $12.25; and the interest rate margin was 3.84%. I bought 50 shares based on a Cramer recommendation and view that purchase as my mistake. Bought 50 FIBK at 15.64 Since my exposure was small, and the bank had some desirable characteristics, I have decided to keep those shares, but my patience with the loan loss numbers is running very thin.
4. Bought 50 Metalico (MEA) at $4.36-LT Last Monday (LOTTERY TICKET strategy)(see Disclaimer): RB, the Head Honcho for this strategy, has been gravitating toward small and micro cap cyclical stocks. MEA is such a company. In addition, the stock meets certain statistical criteria used for LT selections. The current consensus earnings estimate is for an E.P.S. of 53 in 2011 and 70 cents in 2012, giving the stock a relatively low P/E. Price to book is around 1.08 and price to sales is .32. The forward five year estimated P.E.G. ratio is .82. MEA Key Statistics
Metalico is involved in scrap metal recycling and lead fabricating. Its operating facilities include 20 scrap metal recycling facilities, six platinum and minor recycling facilities, and four lead product manufacturing and fabricating plants.
Link to 2010 Annual Report: Form 10-K
For the Q/E 6/2011, the company reported a net income of $6.645 million or 14 cents per share, up from 10 cents in the second quarter of 2010. Form 10-Q I am not really comfortable with the debt or the features of a convertible notes that have a 7% coupon and are putable back to the company. (see page 10)
This is a link to MEA's website that contains more information about the company: Metalico
Profile at Reuters
Key Developments at Reuters
Lottery Ticket Strategy: New Gateway Post
5. SOLD 50 of 100 FNLC at $14.25 Last Monday (Regional Bank Stocks Basket Strategy)(see Disclaimer): In the regional bank stock strategy, I will sell higher cost lots for a profit when I averaged down with a lower cost lot. I recently bought 50 shares of FNLC at $12.79. I sold the first 50 share lot on Monday, using FIFO accounting, and those shares were bought at a higher price. Bought 50 FNLC at 13.6 This kind of trade lowers my average cost while booking a profit.
6. SOLD 200 of the Leveraged Municipal Bond CEF MUE at $13.54 Last Monday (see Disclaimer): I am in a trading mode for leveraged bonds funds that own longer term bonds. I have several concerns about those funds that causes me to move in and out of them now.
First, the long term bull market in bonds started in 1982 and has already had an unusually long life for a long term secular bull market in any asset class. The worm will turn, and the only question is when. I know that it hard to believe, but there is such a phenomenon has a long term bear market in bonds. When one of those start, longer term bonds will decline in value, resembling on the downside what bond investors have grown use to for almost 40 years now. The most likely causes would be greater than expected rates of inflation and longer term structural problems with the major currencies of most developed nations including the U.S. and most of Europe which causes many investors to sell bonds denominated in those currencies. Inflation is already running a troublesome rates.
Second, the other major potential problem is that leverage works both ways. As rates rise, the fund is required to pay more for borrowed funds and the value of the long term bonds bought with those borrowed funds go down in value. A related issue is that the discount to net asset value may expand in that scenario, resulting in a triple whammy for the owners of a leveraged long term bond CEF that has a long duration.
I bought those 200 shares in September. Bought Municipal Bond CEFs: 200 NMO at 13.03, 200 MUE at $12.89 and 100 BAF at $13.89 (realized gain on 200 shares= $114.04).
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