Monday, October 27, 2008

Nikkei Hits 26 Year Low: A Long Term Hold?

Given the recent events, the strategists that recommend holding stocks for the long term will have difficulty explaining their theory to a Japanese investor who went long the Nikkei 225 index in 1982, using as John Bogle would advise a low cost index fund.Vanguard Founder Advises Riding Out The Storm : NPR  After 26 years of staying the course, the Japanese investor would now be back to his original starting point.   Last night, the Nikkei 225 fell 6.4% to 7,162.9, the lowest level since October 1982.  Yahoo! Finance Since many Japanese companies pay either no or small dividends, the total return would be only slightly better than nothing after 26 years.   

The U.S. stock market has already lost an entire decade.  The S & P 500 index closed Friday, 10/24/2008,  at 876.77.  In April 1997, it was at 885.   I mentioned that I was going into a cocoon if the main averages broke through their 2002 lows after the 2000-2002 bear market.  For the S & P 500, the number I am going to use is 815.  If that level is broken, I will stop nibbling on U.S. common stocks until the VIX stabilizes by returning to a level below 20. 

Since I own Verizon bonds in TC form, I reviewed a summary of their earnings report this morning and the report was reassuring for a holder of Verizon's senior debt. V Yahoo! Finance

Humana, the large HMO, reported a 39% fall in earnings which included 40 cents a share in investment losses.    MarketWatch   Humana did forecast a strong 2009. U Reuters For now, I am staying away from this entire sector.  I would expect the ability to raise premiums to be restrained in the current environment while medical costs continue to rise.  In addition, enrollment may shrink next year.  (UnitedHealth Group Inc. (UNH), (US91324P)) at SmartMoney.comLong-Term Prognosis Remains in Question -

Since I own 100 shares of JZV, a Trust Certificate containing a CNA Financial senior bond (see TRUST CERTIFICATE CNA BOND JZV )  I reviewed the earnings report from CNA this morning which was not good.   Net operating income for the September quarter was $.31, $.17 worse than expected.  The net loss was $331 million due to non-temporary losses in its investment portfolio.  Apparently, as a result of these investment losses, Loews Corporation (L)(not the home improvement company), which owns a majority of CNA's stock, will buy 1.25 billion of cumulative preferred stock paying 10% for the first five years.  CNA's common stock dividend was suspended.  As usual with a preferred stock issue, no dividends can be declared on the common shares until the preferred issue dividends are paid in full. CNA Financial Announces 3rd Quarter 2008 Results and Capital Actions: Financial News - Yahoo! Finance  Loews (L) also swung to a quarterly lossMarketWatch   I believe my senior bond has preference rights over this new preferred issue but I will check into it later when and if an SEC filing is made.  One billion of the 1.25 billion will be used by CNA to bolster the statutory surplus of its insurance subsidiary, Continental Casualty, so it is being removed from the holding company level and it is the holding company that is responsible for paying the senior debt and the preferred stock dividends as I understand it.  I would view the later point to be an overall negative for me as a bond holder.  I have never owned the common stock so I would be in favor of elimination of the common stock dividend since it will mean more cash at the holding company level to pay me.

Since it is hard mentally for me to pay taxes on my net realized capital gains in a year like this one, I may continue my tax loss selling to reduce those gains to near zero and then plow the proceeds into a bond ETF.  I reduced those gains about 50% during my most recent foray into tax loss selling described in my earlier post.  TAX LOSS SELLING TODAY

I am not a financial advisor. In these posts, I am acting as an unpaid financial journalist and an occasional ornery political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles-sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  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 post.  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, and all others by me, 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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