Friday, February 13, 2009

Reduced Exposure to BAC debt/PEP & Origins of Frito Lay/Rendition to Somalia

After checking my main account this morning, I saw that a limit order to sell 5 $1000 Bank of America bonds maturing in late 2011 was filled, with about a $200 loss, and that cuts my short term bond exposure to BAC by 1/2.   The note was purchased in 2006, which is my excuse for owning it.  I intend to re-deploy those proceeds, about $4,800, into higher yielding non-bank senior debt and possibly some of the proceeds into high yielding non-bank equity preferred issues.   

Pepsico's earnings came in at 88 cents before charges, meeting expectations, on just a 3% rise in revenues. Yahoo! Finance  Foreign exchange adversely impacted net revenue by 5.5% and core E.P.S. by five cents. PepsiCo Delivers Fourth-Quarter and Full-Year Core EPS In-Line With Previous Guidance: Financial News - Yahoo! Finance  Frito-Lay, which has its origins in Nashville (the Lay part), had net revenue growth of 7% in North America.  Pepsi is going to make a 1 billion dollar discretionary contribution to its pension fund (640 million after-tax impact)  All of these firms with pension plans need to make contributions due to the market crash.  PEP does intend to buy back its stock in 2009 and may spend up to 2.5 billion as circumstances warrant.  

There is an interesting story about Frito Lay's connection with Nashville.  The guy who started the business, Herman Lay, did not have enough money for gas during the depression.  He approached Ed and Bernice Johnson, owners of a mom and pop gas station near Belmont University, for credit to buy gasoline to keep his trucks on the road.   After the WWII, Lay was thankful and offered the Johnson's an opportunity to invest $8,000 by buying stock.   The mom was dead set against it, since that was close to the couple's entire life savings,  but Ed won the day somehow. And guess what happened?  Pepsico comes into the picture and buys Frito Lay in 1965,  and the owner of that gas station  ended up with tens of millions of dollars in Pepsi stock for their 8 grand and generous extensions of credit to a struggling businessman.    Herman Lay's business merged with the Frito company in 1961.   Belmont University received 18 million from the Johnsons' estates. News and Media: Belmont Receives $10 Million Donation from Johnson Estate   Herman Warden Lay   Belmont gets $10 million from Johnson estate - Nashville Business Journal:

The S & P 500 average came very close to finishing the day below 815 yesterday, which is the number that requires a suspension in my common stock buying. 

The chatter about banks failing and nationalization continues unabated, with scores of articles appearing daily in a variety of publications, and it does cause one to wonder whether some of the big ones have any equity left. CNBC.com   NYTimes.comThe market is saying that there is not much left for the shareholders in Bank of America and Citigroup at the moment, and who really knows if it will get better or worse. 

I watched David Faber's one hour program, House of Cards, on CNBC last night CNBC.com There was discussion about the central role played by the rating agencies, Moody's and  S & P, in creating the current financial crisis.  Without their willingness to place AAA ratings on toxic trash, the problem would not have evolved into the monster that devoured the world.  I have discussed that central and critical role played by these two firms in our economic crisis in numerous prior posts. 
Some may have noticed that criminal charges and investigations of malfeasance by the wizards of financial alchemy are not exactly a top priority of the federal government.  Sure, they had to do something with Bernie after he "allegedly" confessed and all.   And the SEC did just nail those Haitians in a Ponzi scheme. Nonetheless, it is apparently hard to jump start the Fed's interest in prosecuting white collar crime, so maybe the new Administration could focus all of their attention on any alleged wrongdoing at the rating agencies who were after all the enablers of the financial crisis. I am not saying suspend habeas corpus, trial by jury and all of those liberal Anglo Saxon whimp laws that W and the Angler hated so much, and then do a rendition of the top 100 individuals in both Moody's and S & P to Somalia's worst penal institutions for the remainder of their natural lives.    Or, if that sounds cruel, let Saudi Arabia have them and allow them to serve their life sentences with a sign hanging around their head that says in Arabic "I Love George Bush".    But that thought did creep into my mind in a moment of intellectual weakness while watching Faber's program last night.   

Business is tough for hotel operators, as shown in the earnings release and forecast from Wyndham Worldwide (WYN). Reuters   MarketWatchThe stock was over 35 in mid 2007 and is now struggling to keep its head above 5.   I am going to place it on a monitor list since I like to find potential turnarounds at distressed prices.    

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