Tuesday, November 18, 2008

Notable News 11 18 08: MDT, AA, C, GS, GE, HD, HPQ, METPRA; Wall Street Bonuses

I did not make any trades yesterday. 

To answer my question more clearly from yesterday, whether buy and hold is dead, yes it is a stinking corpse in an advanced state of decay since 2000.  Somebody needs to bury it.  It will be resurrected in a few years to live again.  Its next life may last a decade or even two, at which point it will need to be buried again.   Ask someone about buy and hold who made no changes in their stock allocation prior to this year, and has ridden a fund like Fidelity Magellan down over 55% year to date.   What exactly is Magellan's ten year return now?  The 3 year total return is down about 40%.   You know, after I get through this latest meltdown, and I will survive, I will cease using mutual funds altogether as part of my market allocations period. Instead, I will substitute ETFs entirely for mutual funds, a process that I have already started, and will continue to base allocation decisions based on my ever developing models, a work in constant transition- for better or worse which remains to be seen.  It did accurately predict a bear market in October 2007 and the start of the last bull market, although it says nothing about the severity of the move up or down.   I will rely solely on my own judgment for stock picks.    The failures and disasters that I now see scattered throughout mutual fund land,stock and bond funds, with Fidelity Magellan being just one example among thousands,   has convinced me that these managers are just a bunch of highly compensated duds masquerading as experts. Why pay people more than the expenses associated with an ETF and earn less!  

Medtronic reported earnings for the last quarter at $.67, excluding a large charge connected with litigation, but this fell short of the consensus estimate of $.71. Yahoo! Finance Yahoo! Finance
I will need to study this report more closely to decide when and if to round up my starter position in MDT to 100 shares.  The stock is currently within my buy range of 35 to 37 as of yesterday's close.  Medtronic: Trying to Broaden My Horizon

Shares of Alcoa fell yesterday after a downgrade from UBS to neutral from buy.MarketWatch  Thanks, I already know that the market has beaten Alcoa to a pulp. The stock price is already down to a level last seen in 1994.  It achieved a similar price as its close yesterday as in 1989.   Does the world no longer need aluminum?   On 10/31, I bought 50 shares of Alcoa and explained why in this post.  Notable News 10 31 2008  This is one where I will add another 50, call it quits, and hold for the next commodity bull market in aluminum.  I will reinvest the dividends too.  My next 50 share purchase will be somewhere between 8.5 and 9.5 when I feel like it.  Yesterday, there was just too many bad vibes to do anything.

I noticed that the top seven executives at Goldman Sachs will forego their few hundred million in bonuses for 2008. WSJ - MarketWatch  Why should anyone in the financial service industry receive a bonus in 2008, let alone the top seven white guys?  Should the manager of the Fidelity Magellan fund be compensated for underperforming the S & P by around 20% in a bad year or should a bank like Citigroup which has lost almost 90% of its value since the middle of last year, cut its dividend twice this year , and who will soon fire  about 50,000 people who probably had nothing to do with its pathetic performance, award a single employee a bonus? Yahoo! Finance  
Some may say why penalize those who had nothing to do with the infectious diseases spread by Wall Street around the world causing a worldwide recession and devastating retirement and other savings by people who actually work, or once worked, for a living.  I know that seems unfair, but the paper pushers are already paid too much for what they do and there is something to be said about collective responsibility in an organization, something like we swim or sink together.  If everyone's bonus was tied to the success of the entire firm, at least in major part, some of this absurd risk taking might be minimized.   In addition, for these wild and crazy guys on the street, part of the bonus each year should contingent on future performance,  held in escrow, and forfeited in the event the next year or the year thereafter results in sub-optimal performance.  What gets me is that the people in AIG's 377 person London unit took almost 1/2 of the revenue for originating the credit default swaps that brought the company down and then the U.S. taxpayers, who did not participate in the outrageous compensation schemes, have to pony up 150 billion to save AIG from its own malfeasance.  AIG: ONE SICK PUPPY- Even More Government Money on its Way? The individuals will keep their compensation notwithstanding the total failure of their operation.  The compensation for this small unit range from 423 million to 616 million per year NYTimes.com This just burns me up.  I start to mumble to myself every time I think about it.   Maybe I should try to put it out of mind.

This is a link to an excellent article about GE,  Seeking Alpha
I have been very negative on GE since it did the deal with Warren.  See prior post: Time to Sober UP
 The referenced article from Seeking Alpha highlights issues about Jeff Immelt's credibility, including his statement on September 25th that GE needed no outside capital and then one week later doing the deal with Warren that smacked of desperation plus selling 12 billion of new shares to the public at $22.5 after buying back 3 billion during the first nine months of 2008 at 31.69 and 27 billion over the last three years at an average price of 36.46.  I do not believe that GE is a AAA credit anymore.  Maybe a BBB.  I am not as negative as the author of the Seeking Alpha article but I am negative enough that I did not buy any additional shares when I saw GE fall below 15. 

 At a minimum, Immelt has to be fired and this article gives all the reasons why.  Actually, credibility is an inappropriate  term to describe GE's management. It suggests that they are intentionally lying to the investing community which I do not believe for an instant is the case. Like Paulson, Immelt appears instead to be  in a constant state of disarray,  unable to come to grips with GE's businesses and the best way to manage them. 

The 3 month treasury bill is back down to near zero. WSJ.com Bonds Center - Bond quotes, news, screeners and education information.

Home Depot reported a 31% fall in earnings compared to a year ago, coming in at $.45 versus estimates at $.39.  Sales fell 6% and it forecasted a steeper fall in full-year sales than it previously forecastedYahoo! Finance

Paulson and Bernanke will testify before Congress today to explain what they are doing with the various bailouts. Yahoo! Finance
The constant change in course suggests disarray far more than competence.  Some say there is a crisis of confidence and that is true.  It is impossible to have any confidence in financial institutions and our leaders in Washington.  

Hewlett Packard bucked the trend in negative reports from big techs by pre-releasing its earnings which looked good. MarketWatch
The floating rate preferred that I own issue by Met Life, METPRA, declared its quarterly dividend at $.2528Dividends - Markets Data Center - WSJ.com (see Posts:LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK  MET LIFE FALL AFTER WARNING)
This indicates that the brief spike in the 3 month LIBOR rate did not come into play in the dividend calculation.  I believe that the computation for METPRA only looks at the LIBOR rate for the first day of the dividend period.  

 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.    

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