Sunday, January 25, 2009

Pakistan As a Haven for the Taliban/No on NCV/Heinz/More on Ariad

This is a test.  If you had to pick one of these guys to be on your team, would you want the one who was not faking his game face, pictured on the left of course, or the young one pictured above who looks like he wanted to give his opponent some flowers and recite some poetry.  Both pictures are from around 1960 so both are older and one is wiser.   

Besides reading Barron's to put me in a dour mood, I read numerous articles in the Sunday papers and receive constant confirmations than progress in the world may be more the exception than the rule.  Unlike Sarah, if I was asked what papers I read, I would not be at a loss for words, dumfounded and flummoxed to come up with a single name.  Another paper, besides Barron's, that I read every day, which will frequently create a sense of dread, is the NYT.

It is not hard to find articles that reinforce a belief that Pakistan is a failed state that pays lip service to controlling the spread of violent radicalism in exchange for billions of U.S. aid.   The article on the front page of the Sunday's NYT shows once again that the militant, cruel, barbaric, and inhuman forces are gaining momentum in Pakistan, controlling broader swaths of this failed nuclear state, unchecked by the government and probably aided by forces within Pakistan's intelligence service. It is not difficult to see that Pakistan is a potential threat to U.S. national security and harbors large numbers of terrorists who will do whatever they can to cause death and destruction in the name of their religion.    I doubt that any of us will be surprised that the next attack on the U.S. originates from Pakistan. 
I would have to agree with Maureen Dowd that the Governor Paterson's appointment to fill Clinton's Senate seat was to further his own re-election chances.  Personally, I consider Ms. Gillinbrand to be a kindred spirit to the House Republicans and an odd choice for a Democrat governor in a liberal state.

Four states, including New York, are having to borrow money from the Feds to pay unemployment benefits and another 14 are in a major risk of running out of money in 2009.States Hobbled By Unemployment Bills, CBS Evening News: Four States' Jobless Benefit Funds Already Underwater; 14 More At Risk - CBS News

Of the Barron's Roundtable panelists, I found myself in the most agreement with Faber.  I would disagree, however, with his recommendation of the closed end fund Nicholas-Applegate Convertible and Income  fund (NCV). There are several reasons. For one, it is selling at a premium to its net asset value as of Friday's close.  The premium is 3.9% as of Friday and it is not difficult to find other similar closed end funds selling at a large discount to NAV.  Second, this fund is leveraged and had to recently postpone its dividend until it reduced its leverage.    Yahoo! Finance  After redeeming some of its auction rate preferred issues, the fund then was able to declare its dividend.  Yahoo! Finance 
I mentioned this problem in connection with this very fund in a post from 11/19/08MARKET OBSERVATIONS: LNC, M, GE, C, GRT, GRTPRF AND LEVERAGED CLOSED END FUNDS

Leveraged closed end funds have been smashed in this bear market for good reasons.  The leverage just causes more losses and further requires the elimination of some leverage due to the fall in security prices, usually at the worst possible time near the apex of the bear.   Buying more securities with borrowed money is a prescription for disaster in a bear market.    So leveraged funds are in my opinion an awful investment in a bear market.  The leverage can work to the investors' benefit in a bull market by increasing gains and income when the rate of interest paid for the leverage is low compared to the gains realized in the securities owned by the fund.  Some leverage closed end funds owning real estate companies have just been decimated.  Just look at the current asset value of SRO, from DWS, under specialized funds, with a current NAV of  77 cents or a Neuberger fund NRO at $1.79.  Barrons Free Tables Page 3 -  This is a link to a recent WSJ article that points out how leverage hurt the funds marketed as the so-called 130/30 funds.   Using money shorting stocks to increase your long position is likely to produce worse returns in a bear market unless the shorting is virtually perfect and the the long stock selections out perform the market index.  The article also points out that the leveraged closed end funds have to maintain a 3 to 1 equity to debt ratio and a 2 to 1 ratio for preferred shares, which was the recent problem for the Nicholas-Applegate leveraged fund NCV.  

I did like the article in Barron's on Heinz (HNZ).  I have owned that one in the past, long ago, way beyond my current capacity to remember details as the decades start to blend into each other.   So I might buy Heinz at some point. I did not realize the dividend was almost 5% and it had fallen down to $35, otherwise I would have already bought it.   However, I will never buy a stock within two weeks after it is mentioned in a national financial publication like Barron's or by someone who has a wide audience like Cramer. If the article perks my interest, I will do my research and then just wait for an opportunity in a few weeks or months with the glow wears off.  I have already reviewed some research reports from Morningstar, Value Line and S & P on Heinz. 

I spent some time trying to figure out why I bought Ariad Pharmaceuticals last summer.  The first matter that I found was a disconcerting article published by Seeking Alpha that discusses the resignation of the independent directors of the company.  Seeking Alpha  Ariad The Boston GlobeThis would be enough now to keep me from even buying 100 shares at 1.50.  The independent directors are respectable people and the grievances cited in their resignation letter would cause anyone to pause about investing in the company.  It is just impossible for anyone not involved in the controversy to take one side or the other.  But when there are many alternatives to even a small investment in Ariad, why take the chance on this small company that just had a directors' revolt?

I was able to determine why I bought 100 prior to this brouhaha .    Merck thought enough of the Ariad drug deforolimus to sign a collaboration agreement with Ariad on it. Collaborations - ARIAD  The drug was granted fast track status and orphan drug status by the FDA.  Enrollment in Phase 3 studies for metastatic sarcomas is underway. Research & Development - ARIAD  So I was encouraged to take a gander because Merck was staying with the drug in a late stage clinical trial after Phase 2 results were published.  Sarcoma - ARIAD  I have no ability to assess its prospects but Merck does have that capability.  But, as I said, the recent events about the independent directors would keep me from buying the stock now but is not yet sufficient to cause me to sell the 100 that I already own.  This would be an example of just not keeping abreast of developments in every stock position that I have.   Since I am constantly researching new potential buys, sometimes I do not monitor what I already own in the manner that I need to do regularly.   


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional 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.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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