Monday, March 9, 2009

Buy of 50 MJH at $7.51/ Pop in My Animal Spirits Balloon/Japan/ Zulauf/CNBC/Meet the Press

An article that I read in the Sunday NYT threw cold water on the brief re-emergence of my animal spirits.  The author of the article interviewed veteran investors who were self-described optimists.  Barton Biggs said that he was optimistic but advised arming yourself with a shotgun for the social unrest that may emerge. I will stay with my Louisville Slugger signed by Frank Robinson. Peter Lynch said that he too was an optimist because he was always an optimist. Lynch advised individuals to invest now only if you can afford to lose 50%. Even at my advanced age, I can still divide DJIA 6600 by 2. Well, I would prefer not to lose 50% was my silent response to Peter. Then, Byron Wein said that he was an optimist like the others but said stay away from stocks and buy corporate bonds and gold. NYT 

If the possibility of the DJIA falling to 3300 is the optimistic forecast, then the pessimist is probably saying the low from 1932 is due for a retest. Maybe it would be better to go back into a cocoon and wait until the 4th quarter before I start being brave again. But, I am a contrarian by nature and some say that I am just contrary.  

Just to prove that I can be brave, stick my neck out so to speak, I bought 50 shares of MJH at $7.51 this morning.  Some may say that is not too brave and I would not quibble with that assessment.  It may be stupid however.  This is a TC containing a TP as its underlying bond. The bond is an issue from Bank of America that matures in 2026. The coupon for the TC is 7.25% on a $25 par value. Interest is payable quarterly and the next ex interest date is March 11. At my price the yield is close to 24%.  It had a better yield and a maturity date (i.e. shorter) than other BAC TPs that I was thinking about buying today. The prospectus can be found at:

The underlying security is a typical bank TP.  In this case, the underlying security is a TP issued by BankAmerica Institutional Capital A and guaranteed by Bank of America with a 8.07% coupon. The CUSIP on the underlying security might be 06605HAA6.  I believe that it is a 144A security. Needless to say, a BAC junior debt issue is very speculative now which explains limiting my exposure to less than $400.  I am also reinvesting a very small part of the proceeds from a recent sale of a short term BAC bond that did not yield 1/4th of this longer dated MJH. When you add the potential gain at maturity to the current yield, I thought that it might be stupid or smart to buy 50 shares, and a good case could be made for both descriptions of this purchase. I figured the annual amortization of the spread between cost and par value in 2026 to be an additional 13.7%, with just one assumption, survival of BAC to pay par value in 2026. 

Japan did close today at a 26 year low.

Sentiment is awful and confidence is just gone. 

I expect doom and gloom from gurus interviewed in Barron's every week.  I previously discussed the interview with Levy, one of the doomsters featured this week.The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology No Doom, Just Gloom - In addition to Levy, Barron's also featured one of the magazine's favorite perma bears, Felix Zulauf, who basically reiterated his negative predictions contained in this year's Roundtable discussion. 

Zulauf expects a strong bear market rally at anytime which could boost the S & P 25 to 40%. That sounds pretty good.  He then expects another powerful down move taking the S & P 500 index to the 400s.  He further expects earnings for the S & P 500 companies to range between zero to 40 in both 2009 and in 2010.   Zulauf has a 40 point range in the earnings prediction.  I will try my hand at making that kind of prediction, so maybe Barron's will elevate me to guru status. I predict 20 to 60 for 2009 and 30 to 70 for 2010. There, if both of those predictions prove correct, then I want to replace Zulauf in the the 2011 Roundtable since my status as a guru would be cemented I suppose. 

The S & P 500 has fallen 56% since October 2007. 

When I read that the recently approved spending bill had 1.7 million for pig odor research, I thought that this had to be the sine qua non of pork spending. Senator Harkin of Iowa, a Democrat, inserted this earmark but apparently farmers in his home state are outraged that critics are calling this funding pork.   

Hypocrisy is always interesting. Political hypocrisy is the most routine and predictable form of hypocrisy.  The GOP rails against pork in the spending bill but 40% of the pork spending comes from its members. Pork is a delicacy savored by both parties.   

The companies in the S & P 500 cut their dividends a record 40.61 billion in 2008. That record has now been exceeded already in 2009 with 40.78 billion in cuts with the Wells Fargo cut last week. It is becoming harder to find a decent source of income these days.  You can not depend on companies paying dividends. Bank certificates of deposit and treasuries pay next to nothing after inflation and taxes. 

Capital One reduced its dividend to 5 cents from 37.5 cents a quarter.
Capital One does have at least one TP, COFPB, that has a 7.5% coupon maturing in 2066. I do not own it.

I did mention in an earlier post that the dividends paid to owners of equity preferred issues were classified as qualified dividends subject to the maximum 15% rate for dividends.

I double checked my 1099 and saw that the dividends from IND and INZ, for example were classified as qualified dividends.   Payments from a trust preferred  was classified as interest subject to the higher marginal rates.   

Jon Stewart put together clips of Cramer and Kudlow making fools of themselves.  MarketWatch

They were both skewered in Frank Rich's column on Sunday. NYT

Barron's recently did an analysis of how poorly Cramer's picks had done, underperforming the market by most measures.

I was watching Meet the Press when Newt Ginrich, Erin Burnett and Mort Zuckerman were in a panel discussion about the economy. I always value Zuckerman's opinion.  

Along with the WSJ editiorial page and Fox, Newt is one of the principal revisionist historians who is a poster boy for one of Santayana's memorial quotes. The Most Abused Word: Reform/Buys of IR & DD/Santayana: An Inability to Remember History or Just Creating Your Own Reality to Fit an Ideology As you would expect, he was blaming Obama's "war" on successful people for the economic downturn referring to the 2011 budget which contained a plan to raise marginal tax rates on families making over $250,000. His proof was that Newt had talked to some people who were not going to make investments due to this war and were going to put their money in a mattress. Newt, being an astute historian himself, said the war on rich people was analogous to the Smoot-Hawley Tariff passed at the onset of the Great Depression. Say What, does that line work on even the brain dead? I just wanted to say that there is no crying in business, as in baseball as Tom Hanks said in a League of Their Own,  and I just wanted to get those alleged people a hanky for their sob stories.   

My initial reaction to Merck's proposed acquisition of Schering Plough is that it makes more sense to me than Pfizer's plan merger with Wyeth. Yahoo! Finance  Pfizer: Wyeth acquisition as more proof of Pfizer's failures/CAT/Mexico's Drug Cartels/ ING news  The only drug company that I own is Bristol Myers which was the subject of a favorable article in Barron's this week. I am a little under water on that one. I am concerned about what the Democrats will do to virtually all health care companies, including HMOs, drug and medical device companies.    

The NYT sold its headquarters building for 225 million and will start paying 2 million a month in rent. It has the option of buying it back for 250 million.  

  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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