Wednesday, March 25, 2009

BUY 50 GJN/Japan Sinks Deeper into the Mire/PSEC/CBG Upgrades/Law Enforcement On Vacation for Mortgage Fraud/New Home Sales Up

Japan's exports fell 49.4% in February from the year year period, the sharpest decline on record.  Imports fell 43%.    One of the problems that Japan has faced for the past twenty years is to have an economy dependent on exports.  This places Japan in dire straits during a global slowdown as now but also makes them increasingly vulnerable to other countries gaining share, such as China and Korea, in products sold to the debt crazed Americans and others.  The European President basically said that we were debt crazed today, referring to the budget deficits resulting from Obama's spending plans.    Yahoo! Finance

Economists expected a 2% decline in durable good orders for February. Instead, for the first time in six months durable goods increased.  While order were up 3.4%, it was led by a 32% surge in military orders.  Yahoo! Finance

Newell Rubbermaid cut its dividend for the second time this year, reducing it to 5 cents a share. Newell has 750 million in debt coming due later this year.  Newell is offering 250 million in convertible notes to repay a portion of this maturing debt.  Reuters
I do not own it and have no intention of buying it.  I have other concerns other than NWL's debt but the debt is just too big a hurdle for me to overcome. 

The Mortgage Banker's Association increased its mortgage origination estimate to 2.78 trillion from 1.98 trillion.  If this happens it could be positive for title insurers, such as First American (FAF), Stewart Information Services (STC)  and Investors Title (ITIC). Article -  My sole interest is a senior bond that I own in First American in TC form,  PJS.   I will start looking to buy common shares in a title insurance firm when I start to develop more confidence in an upturn in housing sales. 

New home sales rose 4.7% in February but the median sales price fell.Yahoo! Finance

 Home prices did fall about 2.4 trillion in 2008 and around 8.31 homeowners have negative equity. Reuters
Seven states have 62% of the properties under water.  One lesson that needs to be learned, though it will soon be forgotten by many, is to avoid if possible buying a house in a real estate market undergoing a parabolic rise in prices.  
Some real estate markets are particularly susceptible to parabolic increases in prices and many of them also seem to generate the birth of lenders more than willing to do whatever is necessary to feed the frenzy. California is a prime example in need of state regulation of mortgage originations and a vigorous law enforcement effort to prosecute violations of those standards.  Those who committed criminal acts apparently have nothing to fear from authorities, certainly not from the FBI. Adding Failures of Law Enforcement to my Top 12 Causes
I previously mentioned that the FBI opened just 734 investigations of mortgage fraud in 2008.  Those investigations include far more than just homeowners lying about their income. Mostly, it would be cases involving corporate or large scale facilitators of mortgage fraud.  At best, and I am being charitable in my characterization of this lazy effort, law enforcement made a token effort to tamp down, just a tad, on the problem which helped to facilitate it.   

Prospect Capital (PSEC), a BDC, raised its dividend.  Yahoo! Finance  The company projected net investment income of 38 to 41 cents for the March quarter.  This is below the consensus forecast of 44 cents.  PSEC: Analyst Estimates for Prospect Capital Corporation - Yahoo! Finance  The company had previously forecasted 40 to 45 cents. Prospect Capital projects fiscal 3Q profit - Yahoo! Finance
The company estimated that its net asset value to be $14.43 as of 12/31/2008.  

In case anyone missed it the low for the S & P 500 index in this down cycle was 666.  One technical analyst, Robin Griffiths,  asserts that the current rally is a bear market rally that may extend to 950.  He views that it is important to stay above 770 to 775. 
The 25 to 40% bear market rally predicted by this technician is consistent with the latest prediction that I saw from perma bear Felix Zulauf.Buy of 50 MJH at $7.51/ Pop in My Animal Spirits Balloon/Japan/ Zulauf/CNBC/Meet the Press
Perma bears, to avoid looking riduculous at times, need to allow for rallies.  Alan Abelson for example might say the rally in the DJIA from 850 to 14,279 was just an extended version of a bear market rally which has come home to roost since October 2007.  I prefer the Byrds' version of Pete Seeger's song Turn,Turn, Turn (To Everything There is A Season).  Yes the seasons do change: Ecclesiastes #3.1

Whenever a company has a not so favorable 4th quarter, the press release announcing the results will invariably begin with a long discussion about their yearly results, possibly hoping the reader may tire and move on to another subject before reaching the discussion about the quarter's results.  Whenever that happens, I am forewarned to expect poor results.  One of my lottery tickets, Taseko (TGB) reported earnings today.  Taseko Announces Record Quarterly Production and 2008 Year End Results - Yahoo! Finance
Can you find the quarterly results?

C B Richard Ellis was upgraded by J P Morgan and JMP Securities to overweight and market outperform respectively.  This follows yesterday's announcement by CBG of amendments to its credit agreement. C Yahoo! Finance
I bought CBG in the lottery ticket category at  $2.39 last Friday.  SOLD NADX IN IRA/BOUGHT Kraft & NESTLE/ Bought Lottery Ticket in CBG at 2.39/ Drags: TALF, AXP and GE

This is a link to a very negative article on St Joe.  St. Joe

I bought this morning 50 shares of another floater, GJN at 12 and I am trying to buy more with a limit order in my Roth.  I do not like to buy too many shares with a market order when the spread between bid and ask is 20 cents as now with GJN. I will go up to 250 shares on this one.  GJN Quote - GJN Stock Quote - Synthetic Fixed-Income Securities Inc. Fltg. Rate STRATS Ser. 2005-2 for JPMorgan Chase Capital XVII Secs Stock Quote - GJN Stock Price  The underlying security is a Trust Preferred issue of J P Morgan, J P Morgan Capital XVII, with a coupon of 5.85% which matures on 8/1/2035. The floater is created by a swap agreement.   In the event the swap agreement terminates, the owner will receive the fixed rate of the underlying security.  There is a 3% minimum in the float provision.  The maximum rate is 8%.  The float is the 3 month treasury bill rate plus 1% per annum which is a good float provision.  Interest is paid monthly.  The typical terms applicable to a deferral of interest in a bank Trust Preferred is applicable to this TC (see P. S-2 & S-5). 
This is a link to the prospectus:
At a cost of $12, the 3% guarantee results in a yield of 6.25%, nowhere near as good as some of my other floaters with a guaranteed minimum such as AEB.   

At a 6% 3 month Treasury bill the yield would be 15.12% based on an average cost of $11.50 which is where I hope to end up  (.07 x $25=$1.75 divided by cost of $11.5=15.12%). At the maximum 8%, the yield to me would be 17.39% on an average cost of $11.5 and 16.66% at an average cost of $12. .   Assuming J P Morgan survives until maturity in 2035, about 26 years from now give or take a few months, there would be a profit on 100 shares bought at 12 of $1,300.  Amortizing that figure straight line for 26 years gives me $50 per year or an additional 4.16%.  The percentages would stay the same for a 50 share purchase.  I suspect this one will have a higher average yield over the life of the bond than GJR bought recently due to the better float provision and the guarantee.  My guess is an average annual return of 13.25% over 26 years assuming payment of the par value at maturity, consisting of an average of 9.09% on the current yield plus the 4.16% on the share profit.  A nine  percent yield would be reached based on my $12 cost with a 3 month average Treasury bill  rate of  3.3% during that 26 period, which does not appear to be an outlandish forecast (.033% +1%= .043% x $25=$1.0825 dividend by $12=9.02%)   

It seems to me that this kind of security is being priced based primarily on its here and now yield and secondarily on the usual concerns about credit risks of  bank Trust Preferred issues including deferral issues. Once I make an assumption of J P Morgan's survival which is reasonable, and looked at the yield in terms of years rather than focusing just on what is being paid this month, then I concluded that it had a place in my portfolio.  

It is interesting to me that Bernie was able to hook people with promises of 10 to 12% consistent returns, in both up and downs markets, something that I would view as impossible year after year.   Yet a security like this floater has a realistic chance of doing better than what Bernie promised once one focuses on the possible average return over the 26 life of the security rather than the results over a particular year or small grouping of years.  For it to do better, two conditions have to occur:  J P Morgan has to survive until 2035 to pay par value and the average annual yield of 3 month Treasury bill has to be over 3%.   Of course, since this is just one security with credit risk issues, I would not risk more than $2500 in it being a cautious sort.  Theoretically, it would have been possible to put my entire net worth in National Dentex at $1.27 and then sold it a week or so later at $4, and then take that trip around the world.  Even the wild and crazy Mr. Right Brain would classify that kind of risk taking to be  foolish and would have signed the papers for the appointment of a conservator and a voluntary commitment. 


  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.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. 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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