Tuesday, November 25, 2008

Paulson NBR Interview, Zuckerman editorial, LNC INZ, DKR, XFL AND DD

The NYT had a review of the book Alex and Me that I just finished about the African Grey Parrot whose obituary in a British paper read that he was smarter than the average U.S. President.  NYTimes.com

Those with a short memory span, which must include just about everyone based on my casual observations, may not remember Paulson's assurance last week that he had stabilized the American financial system.  Thank God for that, right! This is what he said in an interview:  "I believe the banking system has been stabilized. No one is asking themselves anymore, is there some major institution that might fail, and that we would not be able to do anything about it. So I think that is a positive."Los Angeles Times NPR
A few days later he is negotiating to save the American financial system from an implosion caused by the failure of Citigroup.  Does this sound like someone who has anything under control or does he appear to be one of those chickens suffering from attention deficit syndrome and running around with its head cut off.

I thought the editorial written by Mort Zuckerman in US NEWS was an excellent summary of how financial institutions in the United States created the meltdown of the worlds' economies. US News and World Report  I share the view that the primary cause was an overall lack of accountability, with financial rewards given to those who created financial transactions like mortgage originations, regardless of the underlying merit of the transaction or the borrowers ability to pay, and then passed on the risk of default to investors around the world in securitized packages.   The ratings agencies facilitated and enabled this process by rating these toxic pools  as AAA.  Nobody would get paid unless the transactions got done.  While the ratings agencies could have contained this process, the only way to avoid it in the future may be to require the originators of loans to keep a certain percentage of them by class (ALT-A, subprime, etc) on their own books and then they would be allowed to syndicate the rest.   I would think that it would be some time, however, before any kind of loan will be syndicated easily.  The treasury is planning a new facility to loan money to investors to buy syndicated consumer loans such as car, credit card and student loans.WSJ.com

 One reason that REITs have been hammered is that they are in constant need of debt refinancings and rollovers, and the assumption being made is that credit will not be available when the next maturity comes due.  Part of that problem has to with the issues discussed by Zuckerman in his editorial.  The banks, once dominated by incredibly lax lending standards, are now afraid to take any risk.  The old adage that a banker will give you an umbrella when the sun is shining and want it back when it is raining is well grounded in reality. So, two years ago, all you needed was a pulse to get a loan, now an income generating property may not be sufficient.   It is hard for me to figure out why Glimcher (GRT) fell under a buck last Friday unless the correct assumption is that credit will not be made available to it even if the loan is secured by a first mortgage on real estate generating positive cash flow. But I am just looking at the situation from a distance and do not profess to know all of the fine points and particulars of every situation.  Someone like Zuckerman, who is a founder and Chairman of Boston Properties (BXP) speaks with more insight and knowledge as to how lenders are currently treating credit worthy borrowers. BXP: Profile for BOSTON PPTYS INC - Yahoo! Finance Mortimer Zuckerman - Wikipedia, the free encyclopediaI understand him to be saying that anyone wanting credit is being treated badly now.   Everything that I have read is consistent, the large financial institutions receiving bailout funds from TARP are tightening credit and making fewer loans.   

Morningstar has put the life insurance companies including Lincoln National under review over concerns that they may need to raise capital to strengthen their balance sheets.  LNC did say it had no "current"  plans to raise capital by issuing stock, MarketWatch 
If the equity market does not stabilize, and the life insurance companies are denied TARP funds, then I suspect a dilutive stock issuance at very depressed prices may have to be made. I also mentioned earlier that it did not help that Goldman Sachs reduced LNC and other life insurance companies other than Met Life to sell from neutral  Reuters  
This was a new analyst who took over from someone who had rated these companies as neutral.

INZ and IND, two perpetual preferreds that I own, both issued by ING, will go ex dividend tomorrow. Dividends - Markets Data Center - WSJ.comING PREFERRED SHARES ARE RALLYING/ RULES of 72/114/144 
At the current prices, the yield is over 16%.  

I have not seen an announcement of an ex interest date for the Hertz TC that I own, DKR, but I did note an SEC filing saying the next payment date on the semi-annual interest payment is December 1st. Unassociated Document  (a requirement set forth in the prospectus: http://www.sec.gov/Archives/edgar/data/1071246/000090342304000164/sat_2003-8.txt)
The only way that this could be done is for the ex interest date to be at least 3 business days earlier.  I do know that a companion to this Hertz TC,  HJA, went ex interest last Friday (this is the B series and DKR is the A serieshttp://www.sec.gov/Archives/edgar/data/1071246/000090342304000155/sat_2003-15.txt).  So, if anyone was wondering, I suspect DKR went ex interest last Friday which would be consistent with the daily chart and will pay the semi-annual interest payment into my account next Monday, 12/1/2008.  

An analyst downgraded Dupont to underperform yesterday lowering his 2009 estimate from $2.97 to $2.19, based on Detroit's woes.  Yahoo! Finance  
 I would simply point out that, even after the last two days of rallies, DuPont is still selling at about the same price as in 1993, so a lot of disappointments are already baked into the current price.  Part of the reason for the downgrade is that Dupont scheduled a conference call next week to discuss 2009.  Dupont is the leading provider of paint to the auto industry. 

XFL, the TC containing a senior Verizon bond that I own, goes ex interest today.  I sold my PJL position at a profit, another TC containing the same bond.  

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