Thursday, February 5, 2009

Notable News 2/5/2009: DUK, UN, SE, Bank of England/ Death of Buy and Hold?

Bank of America fell this morning to below its lows in 1987 and 1990, now trading at 4 bucks a share. 
The rate cut by the Bank of England to 1% is part of the trend of the world's central banks to imitate the BOJ's twenty year experiment to revive the Japanese economy from slumber.  I am not sure that these efforts will be sufficient to stimulate demand and they will penalize savers around the world.  Nonetheless, I am hopeful that the monetary stimulus coupled with fiscal stimulus by the world's governments will gradually restore confidence and jump start a worldwide return of demand.  In the meantime, these cuts continue to make major foreign currency ETFs unattractive to me, and I am not willing now to speculate on the Russian Rubles (XRU), Mexican Pesos (FXM), Indian Rupee (ICN) or the Brazilian Real (BZF).    

Another nail in the coffin of consumer staples being a refuge came from Unilever this morning.  Volume in the fourth quarter slipped 1.6% and the company refused to give guidance for 2009 and abandoned its targets for 2010.  MarketWatch   Excluding items, operating profit grew by 1% at the current exchange rates.Unilever Announces Final Results: Financial News - Yahoo! Finance  Before the opening today Unilever was hovering near a 52 week lowUN: Summary for UNILEVER N V N Y - Yahoo! Finance  The share price was falling about 6% in London trading this morning.   Kellogg earnings were more positive beating the estimate by 3 cents after excluding charges relating to its peanut butter recall    Yahoo! Finance

Duke Energy (DUK), one of the electric utilities that I own, reported earnings of 27 cents before items and 26 cents after items,  better than expectations. Yahoo! Finance
 I believe that is 2 cents better than the First Call consensus even though the AP report claims it is just 1 cent better. DUK: Analyst Estimates for DUKE ENERGY CP HL CO - Yahoo! Finance The company has a target of $1.2 for the year as an employee incentive target.  Duke Energy Reports Full-Year and Fourth-Quarter 2008 Results: Financial News - Yahoo! Finance

On the darker side, my recently added position in Spectra Energy had a negative report.  MarketWatch
Earnings came in at 32 cents, and SE lowered its 2009 forecast to $1.15 with the consensus at $1.34. Spectra Energy Reports Year-End and Fourth Quarter 2008 Results, Announces 2009 Outlook: Financial News - Yahoo! Finance
After reviewing this report, I have no problem continuing to hold this one.  The company maintained its outlook to pay a 1 buck dividend for 2009.  Most likely, I may change my default distribution for dividends, which is payment in cash and select reinvestment into more SE shares for at least a year.  

I will give Uncle Warren the benefit of the doubt, but I am not so sure about his investment in Swiss Re announced today.  Now, Warren is not my uncle of course, but he looks like an Everyman's uncle to me so I will keep calling him Uncle Warren.  Buffett is investing in a high yield convertible debt issue that can be converted into shares in three years which would give him a 20% stake in that Swiss insurer.     Yahoo! Finance

One of the small caps on my monitor list, Opnext, had a negative earnings report and forecast, and I will not consider buying it for at least several more months after reviewing this news.  Reuters  It is just a bad environment for small tech companies. 

This a link to another article regarding the ongoing debate on whether buy-and-hold is dead.  Seeking Alpha
When I read this article, I wondered if the writer had been recommending a buy and hold strategy for the past ten years and is now merely just continuing to repeat the recommendation.  Or did he recommend a trading posture for the past ten years and is now changing it to buy-and-hold.   We have certainly lost ten years of appreciation in the stock market and there is no clear end in sight of the current bear market.  There is no guarantee that 10 years will be the end of the flat to down period.  The period from 1929 to 1955 was longer as the author points out and some would measure the 1970s stagnation as starting as early as 1967 and lasting of course to 1982.   So history does not provide the answer that ten years is enough.   Some of my thoughts on the subject:
I would add some caveats.  If you holding period can be at a minimum five years, preferably as long as ten years, then I would be reasonably confident that the returns over those periods would beat investments in treasuries.  I would even venture a guess that the returns from holding the S & P 500 for a decade, starting from today, would beat any other major asset class. And, I would postulate that it would be impossible to predict when the current flat to down secular bear market will end. But, unlike some,  all of those points, which I accept, is not enough for me to move all-in at this time.   So is buy and hold dead? Yes it is dead right now and it has been deceased for 10 years without a doubt.  Will it be resurrected to live again for a decade or two?  Most probably so, but maybe not for a few more years.  I am using my VIX asset allocation model to assist me when to become serious about increasing my allocation to stocks. 
Since I recognize that now may end up being a good time to invest long term again, and partly just to keep myself active in the market and to keep my brain from turning into mush, I am investing my cash flow into common stocks with certain restrictions and I will do some trading as long as the total amount allocated to stocks stays about the same.  My current allocation still has about 30% in cash.  It goes without saying that I am becoming increasingly displeased with the returns on my cash.  I did lock in some CD rates when it became apparent to me that the FED was going to drive down rates ( Trust Certificates PJL and XFL: Verizon Bond   &   CD rates falling), but I still have a lot of money in variable rate short term money market type yields which continue plummeting toward zero.  

I really do not see how Ira Sorkin can be defending Bernie and be one of the clients that Bernie allegedly defrauded. Yahoo! Finance

According to news reports, Obama is going to unveil a new bank aid proposal next Monday, which would be smaller than expected, and would include both the bad bank and insurance approaches.

Claims for new jobless benefits jumped to the highest level since 1982.  Yahoo! Finance

Glimcher Realty, one of my small speculative positions in both common and preferred issues,  announced a new refinancing, a 25 million dollar mortgage on its Grand Central Mall located in Vienna, West Virginia.  GRT also announced that it sold a  parcel of land for 5 million and expects to close a 24 million dollar financing of a recently completed addition to the  Polaris Fashion Place in Columbus, Ohio.  The referenced 25 million dollar mortgage is 50% recourse and can be extended to as much as 47 million at 3.5% above 3 month LIBOR with a 5.5% minimum.  Yahoo! FinanceThe minimum would be operative right now with the LIBOR rate near 1%.   I suppose that the ability to secure any financing for this REIT is positive news.  You would prefer of course that any mortgage be entirely non-recourse, but that would not be reasonable to expect now for this company. 

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