Wednesday, November 19, 2008


If the market is now giving us an accurate signal of what lies ahead, then it is predicting a long severe recession. I am now seeing major companies selling for prices prevalent 12 to 25 years ago, and I am not referring to the hapless GM and Ford.  Macy's, which I do not own, is now trading at less than $5.5.  I just looked at its long term chart and this price has not been this low since 1992. In March 2007, the stock was over 45 a share. Lincoln National, which I fortunately did not buy yesterday, has fallen over 35% today, down to a low today of $6.9, a 1990 price. Other insurance companies are likewise being smashed and thrashed, such as Hartford Financial (HIG), down over 25% to $7.25  at around noon today.  Hartford had not traded below 20 before this year-ever.  General Electric is now below 15 again, a 1996 price.  Citigroup is around $7.25, also back to its 1996 price.  I am seeing hundreds of examples similar to these companies. Assuming this action is not just forced liquidation and panic,  an over-reaction to an upcoming bad year, then a Dow 7000 may be our next stop. As I have argued, and this is just my opinion, the fall in the market has already  gone to far unless you are forecasting as virtually a done deal a multi-year severe recession, notwithstanding all of the liquidity pumped into the markets by the worlds' governments.  A  Dow 7000 would take us back to April 1997.  Some major stocks have already retreated to levels last seen when the Dow was at 5500 in early 1996, such as GE, Dupont, Bank of America, Alcoa, Intel and Citigroup, which are already back to their 1995 to 1996 prices and many others like Lincoln National are back to 1990 when the Dow was at 2500. At a minimum, this devastation of stock prices of a large number of American companies is starting to heighten my concerns about the future. I AM STARTING TO WONDER WHETHER THE 2002 LOWS WILL HOLD.

I am still convinced that a large number of REITS are being adversely impacted by leveraged closed end companies being forced to sell.  Two of these companies, SRO and NRO, are now barely above a buck, the high degree of leverage plus the fall in prices for the securities owned is just sinking these funds into the crapper.  I will just a highlight one example of a REIT that may be falling to lower prices due primarily to its heavy ownership by these funds. I am talking about Glimcher Realty (GRT).  GRT is now trading at $1.67 down about 29% today and it was at $27 in mid 2007. Glimcher is a much smaller version of CB & L, a owner of retail malls.  It recently cut its common stock dividend and it is currently yielding over 50% after the dividend cut. Yes, S & P recently cut its debt further into junk but noted its malls were "well occupied" Reuters Now, look at the company's major holders, GRT: Major Holders, more than half of them are leveraged closed end investment companies. I may buy myself 50 shares of GRT in a what the heck buy later today.

What happens to these leveraged funds when prices plummet but the debt remains constant. This is shown by the recent release of NCV, a closed end fund that invests in convertible securities. It is forced to reduced leverage, sell stock and postpone its dividend.  And NCV has not been hit anywhere near as hard as the REIT closed end leveraged funds. 

Even if I buy 50 of GRT, I am still doing it out of my November cash flow from dividends and interest.  I am not willing to risk any of the 20% set aside in cash, which has been in cash for over a year now.   GRT has 2 cumulative preferred issues, GRTPRG and GRTPRF. The later one has a 8.75% coupon and is currently selling for around $4.5.  At that price, based on its par value of $25, the yield would be about 48% just below the yield of the common.  Given its cumulative nature and the fact that it can not be cut as long as GRT pays a common dividend, it is a tad safer than the common in that respect.  The market may be saying that GRT is going down the same path as General Growth, GGP, and that is the risk which goes without saying. You do not ever get a 48% yield without a huge degree of risk attached to it.   

  I am not a financial advisor but an individual investor trying to navigate my way through a mind field. 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.    

This is a link to GRT's last earnings call transcript. Seeking Alpha

GRT will announce its dividends, common and preferred, for the fourth quarter in a few weeks, and  I may elect to see what happens then before committing even a small amount of cash to this one, which is riskier than CB & L according to how the market is currently pricing both the common and preferred of these two mall REITS. 

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