Thursday, January 29, 2009

Stimulus Bill/Ciber, MMM/ Bank Dividends/ Is RCL in Danger?/PYV a Hold?

Every single GOP member of the House voted against the stimulus bill. MarketWatch   The GOP is still following the Herbert Hoover playbook since that is the only playbook that they have written during the past 100 years.   Obama said he did not look like Herbert Hoover but that there are members of the House who think like Hoover
The House stimulus bill does have a variety of tax breaks for businesses.
The signature piece of the individual cuts is a credit for individuals of $500 for individuals and $1,000 for
One criticism of that tax cut is that it in effect gives a tax rebate to some lower income workers who may not pay federal income taxes. I understand that criticism but would point out that putting money in their pocket will have a greater stimulus impact since they will have to spend it.  The same is true for an extension of unemployment benefits and a slight increase in food stamps.  A more cynical person than me would say the Democrats are just rewarding those who voted them into power. 

Revenue declined about 11% for MMM in the latest quarter.  MMM also lowered its forecast for 2009 to a range of $4.3 to $4.7.  Ex-items, MMM earned $.97, 4 cents better than estimates but down from $1.17 in the year earlier period.3M Reports Fourth-Quarter and Full-Year 2008 Results: Financial News - Yahoo! Finance

Ciber, a recently added small cap buy, had worse than expected earnings. CIBER Reports Preliminary 2008 Results: Financial News - Yahoo! Finance
 Apparently, some of Ciber's clients declared bankruptcy and Ciber suffered more than expected due to currency exchange rates.  I will hold my 50 shares. 

This article details  some of the provisions included in the package:MarketWatch

Many of the GOP faithful complain that their hard earn tax dollars are going to pay for this stimulus package.  They object to using their hard earned tax dollars to support building and repairing schools as one common complaint that I have seen many times in their posts.   Of course, with a budget deficit already estimated at a trillion dollars for the fiscal year ending September 2009 before the stimulus bill, it would not be fair to say that any tax dollars are going to fund this package.  Instead, the bill has tax cuts for those complaining about using their tax dollars to build schools and infrastructure projects.   But, it is always mind boggling to read comments from the currently powerless, though still powerful, reactionary forces in America.   With job cuts accelerating, and jobless claims at a record highAmericans receiving jobless benefits hit record - Yahoo! Finance, it is hard to see how a continuation of GOP economic policies will protect the jobs that people currently have, let alone jump start the creation of new jobs.  It is a waste of time to try to appease the GOP.  

Chrysler and GM have ended their controversial "job bank" programs with the UAW's support.

The bailout has now been extended to credit unions.

The recently declared Con Ed dividend constituted a small increase from .585 to .59. 

Comerica (CMA) and East West (EWBC) became the latest banks to reduce their dividends with CMA going to 5 cents from 33 cents and EWBC to 2 cents from 10.  On the bright side, Wells Fargo did declare its regular dividend.   One analyst predicted that Regions Financial (RF) will have to reduce its dividend this year to a penny.  Reuters
I would agree with that forecast.  Regions made a lot of poor loan decisions particularly in the Florida real estate market.  

New Zealand, typically a haven for higher short rates,  slashed its equivalent to the federal funds rate to an all time low of 3.5% from 5%.   Reuters  I have never owned that currency.  I am only aware of one currency ETF for the New Zealand dollar. WisdomTree - WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)BNZ: Summary for WISDOMTREE DREYFUS - Yahoo! Finance  This is a chart of global 1 month money market rates as of mid December:WisdomTree - Currency Income ETFs  Of the countries shown on that chart, Brazil is the highest at 12%. 

I saw where Barclays lowered the price target for Royal Carribean to $1 from $20, noting the precipitous decline in cruise bookings. Reuters  The analyst thought the company would make it but come perilously close to facing liquidity issues. I have no interest in the common but I am monitoring a senior bond issue which I have never bought due to my concerns about RCL's debt levels, with long term debt of over 5.5 billion as of 9/30/08.   RCL: Balance Sheet for ROYAL CARIBBEAN CR - Yahoo! Finance  The company recently eliminated its common stock dividend which will save 130 million a year. MarketWatch   On p. 28 of its 3rd quarter 10-q, the company details that it has another 6 billion in ship purchase obligations (seven ships) plus other obligations of 653 million and 473 million of capital lease obligations. Form 10-Q  There is not much room here for a protracted downturn in consumer discretionary spending.  Page F-15 of the last annual report has the maturity schedules for the debt. 
FINRA bond information for RCL: Search Results
RCL reported this morning, saying its earned 1 cent and expects more challenges in 2009.  - MarketWatch
The Barclays analyst had predicted a 10 cent share loss. RCL still expects earnings in 2009, estimating $1.4 below the $1.64 analyst expectations.Royal Caribbean Reports Fourth Quarter Earnings and Provides an Update on the 'Wave' Period: Financial News - Yahoo! Finance
The Barclays analyst is predicting a 92 cent a share loss.  The recent balance sheet disclosure shows total long term has increased to 6.539 billion.  As of 12/31/08, the company says it has liquidity of 1 billion which includes its cash of about 403 million and the remaining unused balance of it bank credit line.  But, based on its current ship orders, it has 2.1 billion in capital expenditures for 2009 and 2.2 billion for 2010. 

 I would place its senior bond a tad above the very speculative Ford Motor Credit senior bond that I own.  So, I am doing a fair amount of work on a company where I have no position and where at most I am considering a small investment in a senior bond.  There is a great deal of risk to a senior bond from this type of issuer but the current yields are also tempting.  I have not yet made up my mind on this one.  A purchase of a RCL senior bond would be a bet, not an investment and I am not inclined to bet more than $500 on this one.  I would also want better than a 20% current yield from a RCL senior bond to compensate for the added risk on this one.

Provided my opinion of CNA Financial does not materially deteriorate, I would add another 50 of the TC JZV at any time during the next four months, prior to the next ex interest date but only at a price at or below 10.50.  I entered a market order to buy 50 yesterday even though the bid/ask spread was about 20 cents since I am okay buying it at 1/2 of its par value.   

The German unemployment rate shot up to 8.3%Yahoo! Finance

New home sales fell to the lowest rate on record in December.  MarketWatch

This is just an amazing number.  Wall Street bonuses in 2008 totaled 18.4 billion.  MarketWatch
Paying a great deal of money for mediocrity and failure will never change. 

I was asked about whether I intend to keep the TC containing the junior debenture issued by  J P Morgan (PYV) until maturity in March 2014.   Buys of a First Mortgage Bond EMO and a JPM TC PYV
PYV is my only position in what I would label bank debt preferred.  There are two reasons why I made an exception for PYV. First, it has a short maturity date, about five years, and pays me close to 12% annualized at my $18.5 cost, when the annualized spread amortization is added to the current yield.  I can not find 5 year paper paying me at that rate now with a similar credit rating.  Second, I currently have more confidence in J P Morgan than any other big bank.  This may change, but for now I see no reason to worry much, as in reasonable worries, about being paid in full at maturity. If my opinion changes on that central and critical point, I will dump PYV immediately. 

Fortune Brands missed expectations by a wide mark and guided 2009 below consensus. Fortune Brands Announces Fourth Quarter and Full-Year 2008 Results: Financial News - Yahoo! Finance

The utility stocks that I own, which includes GXP, ED, POM, PGN, PNW, SE, were mostly down yesterday and up today.  This would indicate to me that they are a source of funds during the temporary period of euphoria and buys, at least for now, when despair and gloom return.  A psychologist might characterize that kind of behavior as consistent with manic depression. 

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