Tuesday, October 28, 2008

Hard to Get Excited/FRPRJ AT $8

Another day and another 900 point move, up this time, is nothing to get excited about anymore. Remember October 13th,  the Dow average climbed about 900 points to 9311 and gave it all back by October 24th.  The VIX did have a significant fall during the rally today which was encouraging.  The VIX closed down 16.36% to 66.96, still a super elevated fear level that suggests to me no stability to these dramatic up moves occurring on no news. 

I failed to mention earlier the good earnings report from Valero this morning.  It turns out that my thesis of the favorable impact from falling oil prices on its refining margins was the accurate one rather than the WSJ's constant negativity. Excluding the gain from selling the Krotz refinery to Alon, Valero earned $1.86 compared to the estimate of $1.39. The better than expected result was due to the decline in oil prices favorably impacting refining margins. MarketWatch This was my thesis in a prior post. Refiners: ALJ and VLO 

In subsequent posts, I discussed two articles appearing in the WSJ that disagreed with my underlying thesis that the fall in oil prices would improve margins, which ultimately caused me to pull back from adding to the Valero and Alon positions. (see WSJ, Heard on the Street - WSJ.com and the latest one WSJ.com)  

Valero's outlook was cautious and it did cut its spending plans for 2009 by 800 million. (Valero Energy Corp. (VLO), (US91913Y)) at SmartMoney.com  S & P raised its 2009 earnings estimate to 4.02 from 3.50. I will review the earnings transcript tomorrow to decide when and if to add to my existing small position. Seeking Alpha

I read a Morningstar article that still supports the Loomis Sayles Retail Bond fund after that bond (LSBRX)  fund has lost 28% this year. LSBRX: Summary for LOOMIS SAYLES FDS BOND FD RETAI - Yahoo! Finance It reminds me of that mutual fund manager from Oakmark that stayed heavily weighted in Washington Mutual to the bitter end, convinced he was right and the market was wrong.  It does not pay to be pigheaded in this business. The saying pigs get slaughtered applies to more than those who get too greedy,  but in my expansion of this old saying it applies equally to  those who cling to pigheaded opinions. I have jotted the guys name from Morningstar down for future reference and will pay him no heed from now on. Pigheaded boneheads get short shrift from me. A bond fund that loses 28% in a market like the one this year has simply failed in its primary mission and will be fired, permanently. It is not like the manager is going to make it up to me compared to the less than 1% loss from the idiot Vanguard Total Bond Market Index fund. Maybe he will just keeping losing me more. 


I decided to add FRPRJ at 8 this morning rather than add another 50 to my FRPRK position. Both preferred issues have a 7.25% coupon and are cumulative with $25 par values. At that price, my yield is 22.65% annually paid in quarterly installments.  I have decided to add several thousand dollars worth of several different REIT preferred issues, to diversify my risk. The historically high yields and concomitant low prices are just too tempting to ignore.  

The newspaper industry continues its long secular decline.  Gannett announced more layoffs, with a 10% reduction in staff at its local newspapers. USA Today whose circulation has remained steady will not be affected.  

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