Tuesday, January 13, 2009


I reduced my exposure to DKR by one-half by selling my higher cost 50 shares a few moments ago at 14.75, and will now keep the lowest cost shares purchased at around 6.45  and reduce my stop loss on those shares to 2.  HERTZ BONDS
This issued has doubled in price over the last week or so and I do not see any news that would cause me to reassess the risk from high to moderate. If  there is another fall to below 8 with no adverse news from Hertz, I would consider adding those shares back.  For now, it seemed prudent to reduce the total risk exposure by 1/2 given the recent surge in price and the fact that I just received last month the semi annual interest payment.  

The analyst from Barclays had some negative comments about General Electric today.   Yahoo! Finance
He believes the 4th quarter earnings will be at the low end of guidance and a substantial part of those earnings will come from a tax benefit of as much as 2 billion.  A very negative report could raise concerns again about a possible downgrade in the AAA rating which would be a very adverse event for GE.  I do own some shares. 

I do not own any bank preferred stocks except for a small position in BACPRE.  That issue is not what I call a Trust Preferred but a traditional or regular preferred issue treated as equity rather than debt on the balance sheet. I do not own any bank Trust Preferred issues which are described by accountants and lawyers as debt rather than equity. Regular Preferred and Trust Preferred  If the Summers' restrictions on access to new TARP funds is enacted, I would not be anxious to invest in any Trust Preferred stock of a bank accepting those terms.   I do monitor the prices of many bank Trust Preferred issues.  I would want to see a significant fall in price, and a rise in yield, for most of them before considering a buy due to my assessment of their current risk profile and liberal deferral rights for interest payments.   

I thought that I would make a comment on the rationality of pricing of two TCs containing Liberty Media bonds.  One, PKK, went ex interest yesterday and closed at 16.05, and is currently yielding 13.24% at that price.PKK Stock Quote - Preferred Plus Tr Stock Quote - PKK Quote - PKK Stock Price   The other one is PIS, which is still carrying its semi annual interest  closed at 14 (a higher coupon than PKK) and yields 15.63% at that price.  PIS Stock Quote - Preferred Plus Tr Stock Quote - PIS Quote - PIS Stock Price
The difference is price between functionally equivalent securities is not, in itself, a reason to buy.  It is relevant in my opinion only after a decision is made to buy for reasons unrelated to the disparity in pricing.  My opinion of the management of Liberty Media has been goning downhill so I am not in the market to buy now either one of its tracking stocks or a bond.  The price for PKK has fallen some today, making this differential less acute.   

It is difficult to find rational pricing behavior in the market.  While a company like Lincoln National certainly had to move lower from its September 2008 price of around 50, how does one explain the price of 6.45, my last entry point in late November? Time to Fire my Head Trader: He Bought LNC  Or the subsequent quick rise to over 20 with large fluctuations almost daily now in the price.  While uncertainty can create volatility, this kind of price movement suggests extreme irrational behavior to me. Lincoln National is a large well-established life insurance company and its value can not conceivably be changing with this kind of day to day variance in a rational market.  

Another example of the borrow and spend culture prevalent in the U.S. today is that many state's suffering from budget shortfalls are continuing to accelerate spending. USATODAY.com The general idea is to convince Washington to bail them out with more borrowed money rather than making any hard choices about cutting spending and/or raising taxes. 

For those interested in the mind set of the GOP in Tennessee, this is a useful article in today's Tennessean.   www.tennessean.com | The Tennessean
We all remember the ad with the white party girl that the GOP ran against Harold Ford. Chip Saltzman, the former TN GOP Chairman is one of their leading intellectuals.Knoxville News Sentinel
 In all fairness, it is hard to find anything to like in the Tennessee Legislature. See,e.g. Operation Tennessee Waltz - Wikipedia, the free encyclopedia
Disgusting is not a strong enough word to describe it. 

I heard Karen Finerman say yesterday on Fast Money that she was shorting Forest City. This would have been a good idea when it was over 30, or possibly over 20.  At its current price of 7 and change, I am neither a buyer or seller of the common stock.    FCE-A: Summary for FOREST CITY ENT CL A - Yahoo! Finance  She mentioned the troubled Brooklyn's Atlantic Yard projectThe New York Observer  Reuters  This is more of a problem in securing financing to proceed with a development. My concerns are more focused with the need to refinance its existing debt as it comes due and the funding of projects already in development.  My only involvement is the recent 50 share acquisition of a Forest City senior bond, FCY, which went ex interest today.  FCY: Odd lot limit order filled I am looking for an exit point recognizing the risk.

The dollar is showing renewed strength today.  The key rate of the European central bank is currently at 2.5% and widely expected to be lowered to 2% on Thursday. Euro skids as traders mull ECB rate cut; S&P Spain news weighs - MarketWatch   Australia and New Zealand, typical havens for higher yielding currencies, have also had their central bank's slash their key short rates, with Australia now at 4.5% a six year low. Bloomberg.com: Australia & New Zealand
Another 1/2 cut is expected by Australia's central bank when it meets on 2/3/09.  The Swiss central bank lowered its benchmark to .5%.   The United Kingdom central bank reduced its rate to 1.5%, the lowest since its founding in 1694.Bloomberg.com: U.K. & Ireland  The Canadian central bank cut its rate to 1.5%.Bloomberg.com: Canada The slashing of these short rates is just one of the factors favoring the dollar now as the world's reserve currency and perceived haven of security.  It is certainly one reason to hold my fire in buying any foreign currency now.

Con Ed is my largest utility holding in dollar terms.  Cramer believes that is has bottomed.  Seeking Alpha

I thought that I made a pretty good case yesterday against my 50 share buy of GPX. I do try to show the battle occurring in my mind on virtually every buy that I make, trying as best that I can to see the positive and negative while keeping in mind that there is also the unknown and the currently unknowable.

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