Wednesday, October 22, 2008

Japan's Stock Market

1. Japan's Stock Market: Just watching the baseball game and the Japanese market. The Nikkei 225 is currently down 6.61% to 8,101. It hit a low in March 2003 at 7972. It will probably crash below that low soon, and it will be interesting to see if the selling continues thereafter. My chart of this average only goes back to 1984 and the low back then was 10,000. If the Nikkei breaks below 7972, it would be headed to a low going back more than 24 years. Part of the problem is that the Yen is rising steadily against the U.S. dollar, as shown by the currency ETF, FXY, for the Japanese Yen. . FXY: Summary for CRNCYSHRS JPN YEN TR - Yahoo! Finance Yen Shines Through The Gloom -
Japan is an export driven economy so the slowdown in the U.S. and Europe will adversely impact their companies without more. ReutersWith the dramatic rise in the Yen, the export driven companies are hurt even more since the price of their products are rising in U.S. dollars and the repatriation of dollars back to Yen will buy less Yen.Reuters

2. The Japanese Yen and the International Bond ETF BWX: One of the bond ETFs would be favorably impacted by a rise in the Yen, the SPDR International Government Bond fund (BWX), which has about a 25% weighting in Japanese government bonds. It has fallen some recently, however, due to the dollar's rise against all other currencies including the Euro, the Australian and Canadian dollars, and the emerging market currencies- as shown in the chart for the currency ETFs for the Brazilian Real and the Indian Rupee.ICN: Summary for WISDOMTREE DREYFUS - Yahoo! FinanceBZF: Summary for WISDOMTREE DREYFUS - Yahoo! Finance The recent rapid rise in the dollar against currencies other than the Yen hurts bonds priced in those depreciating currencies for a U.S. investor in an ETF like BWX. It will also adversely impact U.S. exports to those countries by raising the prices of products made in the U.S. when priced in the weakened local currencies, and will also decrease the profitability of U.S. sales when those sales are converted back from a weak currency into U.S. Dollars.

3. VIX: The VIX shot up 31% today to 69.65.^VIX: Summary for CBOE VOLATILITY INDEX - Yahoo! Finance The fear is just off the charts. In my view, you can not even start a sustainable rally until this indicator calms down. Way way down.

4. REITS: I noted that REITs continue to be pummeled in a big way. Many of you have heard the saying that it was sometimes cheaper to drill for oil on Wall Street than in the field. The same is true for commercial real estate now. Part of the problem is from forced liquidation from players that are leveraged. There are several closed end funds, for example, that invest in REITs and keep leverage at about 1/3 of the stock holdings' value. As the values plummet, I would expect them to reduce their leverage and consequently the holdings purchased with borrowed money. Several REITs that own retail malls are having a lot of trouble, connected to the problems at General Growth Properties (GGP) that fell another 37% today to 3.05, having hit earlier a 52 week high of 54.53. GGP: Summary for GEN GROWTH PROP INC - Yahoo! Finance That company has 1.2 billion in debt coming due next month and another 3 billion in 2009, and refinancing is still up in the air.Reuters While General Growth has been hit the hardest, other REITs owning retail properties have almost fared as bad MarketWatch One that owns malls in middle Tennessee, including the one in Cool Springs and Rivergate, has been taken a 2/3rds hair cut in price over the last month, now trading at levels last seen in 1994, and it has done its new financings for 2008. Yahoo! Finance Of the ones mentioned, I have a small interest only in CB & L. But the whole sector is undeniably in a crack up, where fear of a lack of credit or credit on reasonable terms is just crushing all of the stocks.

I also noticed today that a hotel REIT, Lasalle Hotel Properties (LHO), cut its common stock dividend in half. LaSalle Hotel Properties Reports Third Quarter Results: Financial News - Yahoo! Finance I mentioned when I bought the preferred of another hotel REIT, Strategic Hotel (BEE), that I expected a common stock dividend cut for that company, and still do, and that is why I bought the cumulative preferred issue. I may take a gander at the Lasalle preferred stock issues later this week or next.

At some point during this meltdown, I am going to be drawn to a stock like S. L. Green (SLG) down over 16% today to 34.71, and it had a 52 week high of 122.45.SLG: Summary for SL GREEN REALTY CP - Yahoo! Finance This REIT concentrates its ownership in Manhatten and the greater New York area. It recently said it had no trouble refinancing two properties generating 160 million in capitaYahoo! Finance I am not going to commit to it this month and I will start with small positions gradually building in two or three installments a 100 share position. S L Green also has 2 $25 cumulative preferred issues that have likewise been hit hard recently, SLGPRC and SLGPRD.SLGPRD Stock Quote - Sl Green Rlty Corp Stock Quote - SLGPRD Quote - SLGPRD Stock Price I have bought 100 shares of SLGPRD.

5. Trust Certificates Containing A Senior AT & T Bond: I have been asked what I intend to do with the two Trust Certificates that I bought recently containing senior AT & T bonds, JZE and JZJ. I do not want or need any more short term gains this year, having already built up a large amount from sales earlier in the year. I am going to hold both of those securities for at least one year. If my best guess holds true, however, that AT & T will call the underlying bond within the next month or within the next six months (due to the high rate of the underlying bond and its unfavorable yield enhancement features), then I will have to take the $25 and recognize a short term gain. Hopefully if that is done, AT & T will wait until 2009. I have had a number of Trust Certificates called and the brokerage company handles it without commission. Here are links to the SEC filings:
Based on what I believe to be the CUSIP for the underlying bond, 001957ND0, which you can check for yourself, it traded several large lots today between 91 to 92, about a 8 to 9% discount to par.

In these posts, I am acting as an unpaid financial journalist and an occasional ornery political commentator. This is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the blog. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.

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