Friday, February 6, 2009

Take A Short Term Profit vs. Hold as a Part of an Asset Allocation Plan/ J P Morgan: Extreme Negativity on GE/ Liesman and Lewis/Buys: GRT & GIVN

The  J P Morgan analyst for GE, Stephen Tusa, cut its forecast for GE in 2010 to 70 cents.  The analyst expects a dividend cut as the next rational step and further anticipates as virtually a foregone conclusion a lowering in GE's credit rating.  Stocks To Watch Today : Pressure On GE Mounts, JPM Says  Yahoo! FinanceI just log this kind of information in my blog to refer back to it in a couple of years.  It is easy to be negative when negative is mainstream.  I would think that the current price already adjusts for a downgrade in the debt and a slow down in GE's industrial business.  The GE Board did declare its next quarterly dividend. MarketWatch
My view of the wording of the Board's statement, apparently under Immelt's signature, is that it is more tentative about keeping the current dividend in place throughout 2009 than the prior statements of Immelt, in my opinion. 

I heard Steve Liesman, the CNBC economist, say that the credit markets improved in December.  Liesman then added that he has yet to hear Ken Lewis explain what exactly went wrong in early December, after the shareholder vote, to cause a dramatic markdown in Merrill's assets from November.  BAC did say today that it planned to pay the government back in three years and "categorically" does not need anymore help. MarketWatch  Fitch cut BAC's preferred stock rating to BB from BBB. Yahoo! Finance  WSJ.comI believe BB is a junk rating used by both Fitch and S & P, maybe a couple of notches into junk. 

 Lewis said that he still believes in Merrill long term.  Possibly, Lewis may be right about Merrill if you look out a decade and your measuring stick does not account for several years of virtually no dividends or the loss in value associated with the 2008 events.   But, the fact remains that Lewis has just about destroyed the value of Bank of America and he still has his job.   Now, Stan O'Neal did a worse job at Merrill.  Stan apparently pushed anyone  out the door who opposed irresponsible risk taking, including  the 2006 dismissals of risk managers like Jeffrey Kronthal & Harry Lengsfield who opposed Merrill's expansion of the CDO book, which was taken by Stan and his boys from around 4 billion to over 60 billion, causing the firm's destruction in a mere two years.   New York Times New York Post
As I said, if you stood in the way, you would have been shown the door. 

Sometimes there is a tension between a desire to take profits on a position that has risen a lot in value and an asset allocation objective.  An example is my decision to hold onto shares of JZE and JZJ for the long term and to forego taking any short term profits on those positions.  When I made several investments in investment grade corporate bonds during the 4th quarter of 2008, I received prices that juiced the yields for the purchased securities well into double digits. Part of any asset allocation has to be bond positions.  Since I need to have bonds, I might as well keep those that I bought during that period that will give me the most bang for the buck, and the bang lasts for twenty or more years.  

 The TCs bought containing junior debt obligations of Unum have a maturity in 2038, and that is as far out as I want to go.  I recognize, as discussed in these posts, that inflation is the main enemy of the long bond and the credit condition has to be continually monitored as long as I hold onto the security.  I started to hedge the long corporate bond position with TBT, recognizing the potential inflation risk, but that security has risen too much for me to continue adding to my existing use of it as a hedge.  I pointed out that the both the hedge and the long corporate bond position could both work, at least for a time, as the price of the long treasury fell in value and corporate bonds rose in value as a possible outcome, therby narrowing what had been a historically high spread between the two.  Admittedly,  I do not exactly look forward to monitoring Unum for the next 30 years, or a First American (FAF) for 20 years, but I have to constantly and continually evaluate their credit positions for as long as I hold KCC, KSA and/or PJS (built PJS to a 200 share position: Some Nibbles Got Filled: JZE, PJS, INZ and FAX).   The same is of course true for the others including XFL, JZH, XKK, JZV, FCZ, KTN, KVW, PIS, PFX & DKQ.   Sometimes, just doing the work required for a bond position will lead me to buy the common stock and vice versa, or I might decide to jettison a firm's common stock and then later buy one of its bonds which I have done several times when I see added risk in the stock but a possible opportunity in the bond.  

Moody's downgraded the long term senior debt of Harford (HIG) to Baa1 with a negative outlook.   I may at some point be tempted to buy the common, but I have not reached that point yet.  

I saw that UBS downgraded Strategic Hotels (BEE) to a sell.  The common is trading a little over a buck.  I took a speculative gander in one of its cumulative preferred stocks and I recognize the danger.  The danger was heightened when BEE eliminated its common stock dividend, which is the main protection afforded to a preferred shareholder for the payment of the preferred dividend. Conspicuous consumption at expensive resorts is not the "in" thing to do anymore.  So I am skating on very thin ice on this one.  But I am way ahead in my REIT cumulative preferred trading and can afford to take a few gambles.  I am also gambling on Glimcher and CB & L.  In all of these cases, I am being richly compensated for the gambles provided the preferred dividends are not deferred by those REITs which is not an entirely reasonable assumption for me to be making now.   

I did add 50 shares of GRT at 1.61 late today as a long shot on a recovery in retail, sort of like a lottery ticket.  I also bought 40 shares of Given Imaging (GIVN) at 8.08 which is all that I was willing to risk on that company.  The only analyst report that I have on it is from Morningstar which gives GIVN five stars.  It makes that little miniature camera that takes pictures of your colon.  Given recently received reimbursement approval in France.  Yahoo! Finance The company had about 108 million in cash & securities ( including 4 million in AIG bonds) as of 9/30/08 and reported a small profit for that quarter. Given Imaging Reports Third Quarter 2008 Results: Financial News - Yahoo! Finance
The market cap is around 240 million. GIVN: Summary for Given Imaging Ltd. - Yahoo! Finance The company did lower its outlook for the 4th quarter.  Yahoo! Finance
The company has taken steps to improve its distribution in Japan. Yahoo! Finance
Olympus has entered the market with a similar product. 

Debate in Washington is just a lot of political theatre full of hackneyed cliches.

Was Cramer right about the Techs? This is what he said about them a few days ago on 2/2:


  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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