Thursday, December 4, 2008

Jobs /DD/ TCs with AT & T BONDS

One reason for buying only 50 shares of Isis yesterday is that I am currently limiting common stock purchases to cash flow received from dividends and interest. Without that limitation I would have bought 100 shares.  Generally, my main account is set up to receive interest and dividends periodically, with most payments, including all interest payments, made on the 1st, 15th and 31st, with some dividends spaced out at other intervals. While ISIS has been cut in half since August, its future has no connection to economic activity, good or bad. At this stage of a bear market, I will mostly focus on small caps whose success or failure is unconnected to the economy and Isis certainly falls into that category as does SNTA. I do not see the selling in Isis over the past several months to be due to Isis suffering as a result of the economic downturn, for it will not, but due solely to risk aversion to stocks in general and to riskier stocks like Isis and Synta in particular. 

Synta is discussed in a prior post. OLD GAMER HATCHES A PLAN AROUND 1 P.M TODAY Its success or failure depends on a drug in late stage clinical trials for the treatment of metastatic melanoma and analysts disagree on the likely success of these late stage trials.  

Many drugs have previously failed in trials trying to treat this disease. If a small company like Synta suffers a setback on its lead drug candidate, you will find out quickly why I call this a speculative position.  

I discovered recently a new health concern for an elderly person who has COPD, which the doctors do not mention until after it happens. Lung disease places a patient at increased risk of a pneumothorax event. Pneumothorax - Wikipedia An air sac in the lung bursts, creating a hole in the lung. The lung deflates and causes air to disperse into the chest cavity, placing pressure on the heart.  It becomes extremely difficult to breath. Needless to say this is extremely serious and life threatening.  The first symptom may be severe back pain, followed by shortness of breath and other symptoms discussed in the Wikipedia article. If you know nothing about this issue, you may not seek hospitalization until it becomes to late, since I was told yesterday that some individuals can go for days with the problem.  Some will die soon after the event occurs. Apparently, it has to do with the seriousness of the leakage but the lung deflates-collapses- when the hole is made like sticking a pin into a ballon.  One remedy is to surgically insert a tube into the patient's side to vent the air until the lung heals itself.  

I own 30 shares of DuPont, bought in late October, to start my re-entry into a position previously sold,  which was premature, but I intend to hold onto the shares recently purchased for the long term.

I will not buy more to take my position to a normal limit of 100 until I see the white of an economic recoveries eyes. The chemical companies will generally see a burst of buying interest coming out of a recession.  DD warned this morning of a loss for the 4th quarter of 20 to 30 cents per share compared to its last forecast of a profit of 20 to 25 cents. It also will cut 2500 jobs The 4th quarter is certainly shaping up to be a bad one and next year will most likely be difficult. But DuPont's share price has already been more than cut in half before today, and is currently at 23.5, a price last seen in 1991.

An investor has to expect an acceleration of job cuts and bad earnings reports now. AT & T announced 12000 job cut through the end of 2009. 

For those who purchase Trust Certificates representing an interest in bonds, price discrepancy issues appear in many forms. \ The most prevalent form is the difference in the yield between the TC traded on the stock exchange  and the underlying bond traded in the bond market. Another form is the difference in price between two TCs containing the very same bond. The only difference is that the name of the original creator of the Trust which is not material. The largest price discrepancy of this kind right now involves two TCs containing the same AT & T senior bond, maturing in 2031. I have discussed this point earlier but it needs highlighting now to emphasize the inefficiencies in this market. Relationships: Trust Certificates for the Same ATT Bond In that post, I mentioned that the TCs GJF and JZE were in all material respects identical. Yesterday GJF closed at 24.2 whereas JZE rallied to close at 18.07. I have seen large price discrepancies before in the obscure TC market but this is just ridiculous. I would also repeat that this market is thinly traded and subject to wide swings in price on very low volume. An order for 1000 shares could send a TC soaring or plummeting. Ultimately, some rationality will assert itself because ultimately these securities are bonds trading on the stock exchange whose underlying bonds are valued in the bond market. 

Credit Suisse also announced 5,300 job cuts after a 2.5 billion loss. MarketWatch I have never owned the stock and I barely have a couple of their bonds on my radar screen. Article in this Week's Forbes on Trust Certificates/Trust the Government? I currently have no position in CS stock or bonds and never have had a position. I do own share in the closed end fund Swiss Helvetia (SWZ) which owns some CS.

U.S. factory orders fell 5.1% in October, the largest decline since 2000. MarketWatch  

The VIX at 61.06 is still at extreme levels but it has barely budged from yesterday's close. While money can be made by buying stocks when the VIX is in an unstable pattern at high levels, the buy has to be for either a quick trade or a very long term hold for me. I do not anticipate the return of a stable VIX pattern for at least a year. It is my theory that only a stable VIX pattern of below 20 is consistent with an investable bull market. Investors have to feel comfort, secure, confident and not subject to wild mood swings as a precondition for sustaining a secular bull market. A VIX at 61 indicates to me the existence of danger, wild movement, fear, lack of confidence and insecurity, and at a minimum a reading at such elevated levels warns me to tread carefully and to hold onto my cash raised in 2007.

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