Thursday, February 26, 2009

SNTA BLOWUP/ Bought WR/Obama Screws Sallie Mae & Health Care Companies/Hyperventilating on Taxes/

There goes all of my profit on SNTA as it had to abandon its late stage cancer drug on safety concerns.   Yahoo! Finance
As I said, if this drug failed, SNTA would be a $1 stock and that is why I tried to be careful with it.  Completed Additions Long Bond with minor GTC limit orders in place/LOOMIS SAYLES/SNTAUnfortunately I did not sell the fifty shares when it crossed 9 a few days ago which would have limited my downside, so I was caught with 100.ROK/Balancing Risk & Reward on SNTA/Buy 100 NSSC at $1.02/Electronic Medical Records & the Stimulus Bill/M & DKQ  And my unrealized loss will eat up my realized gains. I do not recall seeing any data about safety concerns, particularly concerns about the drug causing death, and this was a big surprise.   I really do not see much hope for this one so I may just sell it tomorrow and take my medicine.  But this is a good lesson for anyone venturing into this area, for it is all or nothing with these small biotechs and the failure rate is very high.  That is why I limit my total exposure to them, and try to trade them as I successfully did with SNTA to the point where I am playing with the house's money so a failure of their lead drug candidate means that I just lost whatever I had won to date which will be the case with SNTA.   I should have suspected something was amiss with the 30%+ fall in the past few days.  

Fannie Mae is insolvent.  It lost 59 billion dollars last year and needs another 15 billion or so to stay afloat.  Yahoo! Finance

The budget deficit is expected to grow to 1.75 trillion for fiscal 2009, a stunning number, and the highest deficit as a percentage of GDP since 1942 when the U.S. was ramping up for WWII.

Early this morning , I bought 30 shares of Westar (WR) at 16.9 in an IRA account, which is not under the trading restrictions that apply only to taxable accounts.   I thought that I would invest in WR because the company just raised its dividend, making it unique in corporate America today. MarketWatch  I have never owned shares in the company.  It is the largest electric utility in Kansas.  I did read analyst reports from both Morningstar and Value Line before buying.  The analyst at Morningstar gives it five stars and a $27 price target whereas VL is far more subdued.  This electric utility is embarked on a large scale expansion in generating and transmission capacity for its size, but has received support so far from the state commission to raise electric rates to support those capital expenditures.   For purposes of determining asset allocation in the retirement accounts only, I will add WR to my bond percentages.   The current yield at my price is around 7.1% at the new dividend rate.  Some of the recent weakness in electric utility stocks today may be due to concerns about the cost of the Beanpole's cap and trade emissions proposals. U.S.
WR fell some in the afternoon after my purchase. 

RBC Capital Markets initiated Stryker with an underperform.  Quotes for SYK - Yahoo! Finance
Medtronic is cutting executive pay and freezing wages for the working stiffs.  Reuters  MDT has not cut its dividend.  As more investors ponder the impacts of Obama's budget proposals as they relate to health care,  it will be hard for many of this stocks to gain any upside traction. 

How many Bernie Madoffs are out there?  The SEC charged two money managers for allegedly misappropriating at least 553 million, mostly from institutional investors.

Sallie Mae (SLM) was trashed today as word spread that Obama's budget called for elimination of government backed student loans from private lenders. Starting in 2010 fiscal year, the government's involvement would be limited to its direct lending program. Yahoo! FinanceReutersI own a Sallie Mae bond with a little over a $1000 in it, which took a hit today, OSM.  I would not call the Beanpole's efforts to substitute government for private lending to be a fait accompli, and his proposal is more consistent with communism than mere liberalism.  It did cause the wholesale dumping of Sallie bonds and pressure on them will likely continue until the measure is defeated and put to rest.  If it passes, then my investment in OSM, small as it is, will end up being a mistake in hindsight, but Sallie may survive in some form as a preferred servicer of government financed student loans.  It will also be able to run off its existing loans.  I would not add to OSM under these circumstances but it is too early to take my medicine on it.  

Another sector being hurt by Obama's budget plan is the HMOs, like UNH and HUM.  I am just avoiding all of these kind of stocks for several reasons, and the Democrats coming to power in Washington is just one very good reason.  The others include the crunch caused when rising medical costs and claims start to occur in an economic environment where corporations are increasingly unwilling to pay more in premiums, plus there is is revenue lost from less employees covered by the HMO plans due to layoffs.    

In the budget, Obama does let the Bush tax cuts expire for those families making more than $250,000.  This would in effect mean a tax increase in 2011 for those families and for single filers making over $200,000  WSJ.comThe expirations of those tax cuts at those income levels is as close to a sure thing as you can have in politics.  The Democrats are not going to pass a tax bill extending the Bush tax cuts for families making over $250,000.      The expiration of those tax cuts which basically restores the code back to the Clinton years is certainly a method of wealth re-distribution, and I do view it as part of the Democrat's strategy to partly fund health care insurance for the uninsured.  Yahoo! Finance   I would simply disagree with the characterizations of this tax policy, or even Obama's health care plan, as socialism. Socialism - Wikipedia, the free encyclopedia   

The Obama tax increase is not a massive wealth distribution policy, as the critics try to maintain.  I read a host of comments to the articles in the WSJ and Marketwatch by those who claim that they operate a small business and will have to engage in mass firings to make ends ends meet.  While I am not an advocate for using the tax code to re-distribute wealth, I do not wish to overstate the case against Obama's tax proposals which is the norm for his critics.  A modest 2 or 4% increase in marginal tax rates on high income earners is not going to have the impact claimed by the critics. Most small businesses do not have net income in excess of $250,000 (less than 2% are over that levelPolitiFact  and possibly some of the critics are like Joe the Plumber who confused gross with net taxable income.  It would actually be more likely that most small businesses will receive a tax cut particularly when you figure in the new tax credits and other provisions in the recently passed stimulus bill.  How much would that small businessman have to earn -NET INCOME- before a 2 or 3% rise in marginal rates would cause him to fire an employee making $30,000 say to recoup the extra taxes paid,  when that employee expense is deductible from gross income to arrive at taxable income.   So when I hear those people say the world is coming to an end, I just do the math in my head and conclude that they are either hyperventilating or confused or just attempting to mislead others about the consequences.  Since the actual impact is easy to ascertain, I have to assume the later is the most likely explanation.   If I have to breathe into a paper bag, I would hope that it is only after contemplating the budget deficit rather than the tax increase. 

My primary problem with Obama's tax policy is that additional tax revenue is not used for deficit reduction.  Instead, the increase in tax revenue is really being used as justification for starting a new federal social program involving health care benefits, and only part of the costs for this new social program is  being financed with the tax increases.  The new health insurance program will also end up costing more than the administration now claims.  This will end up only adding to our already enormous fiscal problems. It is simply irresponsible for the government to vastly increase its costs for non-medicare healthcare by creating new obligations, when it has yet to deal effectively, in any manner, with the future funding gaps for medicare spending in the years and decades to come.   The Democrats will never admit that this is irresponsible however, but it is without a doubt extremely irresponsible.    

The Rocky Mountain News, the oldest paper in Colorado, will cease publication on Friday. MarketWatch   While I hate to see closures of newspapers, I do wonder whether the failures of many papers might strengthen some of the remaining ones.  But I suspect that would have to be hundreds of such failures before a publication like USA Today would see a significant benefit.   

Dell is just another disaster avoided as far as I am concerned.  Dell's earnings report was not encouraging. Yahoo! Finance  MarketWatch     Yahoo! Finance

I do not expect to avoid all disasters but I have avoided the big ones other than BAC.  Where I have been caught, it has been with relatively small amounts of money except for my unfortunate common stock position in Bank of America, still my worst mistake in the past two years.  The mistake was not in buying it when I did, but refusing to sell it when I knew that it had to go and then keeping it throughout 2008 to this very day.    SNTA was not a mistake except in my failure to do what I said that I would do, sell 50 at over 9 to reduce my risk further.    


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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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