Friday, January 23, 2009

Louis Yamada/ Lewis Made 120 billion in Acquisitions since 2001 and BAC is Worth 28 billion: Good or Bad?/GE & FII results/More on WFR/No on Geithner

The is a picture of Big E and his number 1 right brain son from October 1946 (left brain on the left side of this picture and the right brain to the right as usual). In our family, it does not take long for someone to identify the ones with the dominant left or right side, because the dominant side is really dominant one way or the other.

It is going to take a long time to repair the damage done to world's economies by the titans of Wall Street. I previously estimated that it would take five years to return to 2007 levels. Louis Yamada sees the possibility of a repeat of the difficult period between 1938 to 1942, a whipsaw trading range, with no lasting upside progress.
So far at least we are seeing fast movement between the November lows and then up to about 9000 on the Dow and then back again.

The Barron's columnist Steven Sears noted in an article that recent option activity for GE had a bearish tone, anticipating a decline to $10 on its earnings release.

GE did report this morning, meeting reduced expectations, earning a mere $.37 from continuing operations on a 5% decline in revenues from a year agoGE 4Q profit falls 46 pct, adjusted net meets view: Financial News - Yahoo! Finance. Management did say it is committed to maintaining the dividend in

For the fiscal year ending 12/26/08, Merrill Lynch paid out 15 billion in compensation and had a net loss of 27.08 billion. Now, what would the financial wizards be worth if they lost 54.16 billion rather than a mere 27.08 billion? I guess you would double their compensation if the loss doubled. BAC did say that Merrill was doing great the first two weeks of 2009
And BAC said that some of those really stinky assets, that came with Ken's "deal" for Merrill "could" recover some of their value.

Since 2001, Ken Lewis has done 120 billion in acquisitions.
Bank of America is now worth about 28.65 billion. BAC: Summary for Bank of America Corp. - Yahoo! Finance
Maybe he needs more rewards and he could widen that gap even further.

Compared to the other asset management companies, Federated Investor's 4th quarter earnings looked good relatively speaking. Earnings came in at $.54 versus $.52 a year ago but the recent quarter included a 3 cent benefit for a lower deferred tax expense. MarketWatch Besides the dividend yield, one reason mentioned earlier for buying this company rather than Janus was Federated's focus on money market funds. Those assets increased 50% during 2008.Federated Investors, Inc. Reports Fourth Quarter and Year-End 2008 Earnings; Total Managed Assets Increase to Record $407 Billion: Financial News - Yahoo! Finance The Board also declared its regular quarterly dividend of $.24. If any company that I own increased the dividend, I might have a heart attack.

I would have to say that I could not vote to confirm Geithner as treasury secretary. After the IRS caught him for failing to report income for a couple of years, with the IRS waiving penalties, he did not go back and correct the same "mistake" himself outside of the IRS audit period. Real Time Economics : TARP, Taxes, Citi and More: Geithner Responds to Questions

Geithner had to know that he had failed to report the same income in 2001 and 2002, and he just thought that he was getting away with something until Obama wanted to appoint him treasury secretary and he was forced to come clean. He probably thought that the statute of limitations had expired no doubt. His willful failure could be legitimately attacked in a criminal prosecution for fraud, and possibly would have been except for his position in the Federal Reserve. I believe fraud is an exception to the statute of limitations. Geithner, Obama, Audacity (defined?) | The Big Picture This entire series of events smacks of prevarication and is unacceptable for any public servant, let alone for the boss of the Treasury and the IRS. He should even be removed from his current position as head of the New York Fed. Besides, I am not sure why anyone characterizes his job over the past year to be stellar.

The MEMC Electronic Materials earnings was slightly better than the forecasted earnings excluding items but still represented a substantial decline from a year ago. This is a good object lesson in the cyclicality of tech company earnings. An even more significant problem is that the company forecasts as much as a 50% sequential decline in revenue for the next quarter, far below the 11% decline forecasted by the analysts. Yahoo! Finance The company has as of 12/31/08 1.136 billion in cash and short term investments. MEMC is an interesting company to me in that is supplies silicon wafers used to fabricate chips. It is in the top three companies in that industry with about 10 players. It does appear that the expansion of wafer production capacity coupled with the slowdown in the semiconductor and solar industries will likely have adverse effects on the company for at least several months, possibly a few years, so I have decided to pass on it for now. I am making a note to reconsider in the event the price slides below 5. I would be more inclined to take a gander if production capacity was not expanding into an economic decline.

The SEC is just getting around to issuing subpoenas to Madoff's employees, trying, among other things, to gain access to their And who said that the SEC was incompetent? And it is important for the reporters to keep saying "alleged" Ponzi scheme even though Madoff has already confessed. I did read some legal discussion that one plaintiff's securities lawyer wanted to go after the firms recommending Bernie under state fiduciary laws claiming that the federal statute makes them hard to tag with liability.(see page 3: MSN Money)
The firms that fed Bernie a constant supply of new clients, and they will probably want to keep their exorbitant fees charged based on the fictitious returns reported by Bernie too.

I see that Wyeth would have been a good add to my short term trading book.

Miscellaneous earnings:

Xerox reported break-even results after charges for staff cuts and other one time items. Excluding items it earned $.30 versus an expectation of $.34 on a 10% decline in revenue. Xerox forecasted lower than anticipated earnings for the first quarter. Yahoo! Finance I would assume that most analysts are too high on their estimates for 2009 for most companies.

Harley Davidson is cutting 1,100 jobs over the next two years, closing some facilities and consolidating others. This is a trend. It may also mean that many of these companies will come out of this recession leaner and capable of earning more money due to "rationalization" of their businesses. HOG's earnings were reduced to $.34 from $.78 a year ago on a 6.8% decline in revenues. Analysts expected $.57. Yahoo! Finance
I have never bought HOG but I see that it has been smashed and is going to be smashed some more today so I am going to put it on my mid cap monitor list.

One stock that I have owned and sold at over twice its current level, not that long ago, is Schlumberger (SLB). SLB reported earnings after items at $1.03 and with items at $ .95, down from a $1.12 a year ago As you would expect, the company predicted a tough year for 2009.Schlumberger Announces Fourth-Quarter and Full-Year 2008 Results: Financial News - Yahoo! Finance
It is my opinion that it is too early to buy shares in this company. However, unless this downturn lasts much longer than I currently anticipate, SLB is the kind of stock that could probably be bought at the current level and held for the long term, as long as the buyer could not be shaken out of the position by a continued flow of bad news. Then, at some point in the future, possibly five years into the future, it could be sold for a nice long term capital gain, far exceeding the return on the five year treasury. For me, I will just try to time my re-entry into this stock at lower prices.

Sallie Mae reported a loss of $.52.WSJ.comMy only interest is a small position in its debt issue OSM. This loss included a mark-to-market unrealized loss of 574 billion for hedges and securitizations. Excluding that unrealized loss Sallie had a 8 cent profit, the forecast by analysts was for a core profit of $.17. I have zero interest in buying the common stock or even a regular debt issue. OSM filled a hole in my bond portfolio being a floater tied to CPI, with a very large discount to its par value and a maturity in 2017. Inflation or Deflation: Bond Alternatives/

I mentioned in a prior post one of the my main concerns about ETNs. Parallels Between VXN 2001-2002 and VIX 9/08 to__ ?/Commodity ETFs Unlike regular ETFs, the ETNs are really debt issues of the sponsor so you can only get paid back if the sponsor remains solvent. One reason that I have not bought the ETN for platinum yet is that I have three worries. The IRS is looking into their tax status, the one that I am considering is a senior debt issue of UBS, and then I am concerned about whether platinum prices have hit bottom. The exact nature of the UBS ETNs is explained at the opening page of its web site. The concerns about the solvency of the ETN sponsors has become more acute over the past year.E-TRACS - Exchange Traded Notes (ETNs) from UBS I could buy the physical platinum but that means hassles in both buying and selling it. This is a link to the commodity ETFs and ETNs: Seeking Alpha
The platinum funds are ETNs.

The WSJ has a story this morning about one such sponsor of ETNs- Without a doubt, if I had a choice between an ETF and a ETN on a particular category, I would stay away from the ETN.

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