Tuesday, March 3, 2009

First Industrial/Immelt's Letter/Double Top in the S & P 500?/Home Prices & Household Income/

I own shares in both cumulative preferred issues of First Industrial (FR).  This REIT reported earnings last night and declared its regular cash dividends for both FRPRJ and FRPRK.Yahoo! Finance  I also nibbled on 40 shares of the common in the $6 area and the news was not so good for the common shareholders.  FR will only declare a common dividend if necessary to maintain its status as a REIT. It did not declare a common dividend for the 1st quarter of 2009 and may not do so for the remainder of 2009.  If it has to declare a dividend to maintain its tax status as a REIT, it may pay it partly in shares which is the new fad among the REITS.  Simon Property was one of the first to start paying dividends partly in shares.   Yahoo! Finance  First Industrial has 150 million of debt maturing through the end of 2010 and 96% of the real estate is unencumbered by mortgages.  The company uses a lot of senior debt to finance itself, with something over a billion dollars outstanding. REITS: FIRST INDUSTRIAL AND COUSINS PROPERTIES In June 2009, a senior note in the amount of 125 million comes due and the Company expects to pay it off.  Occupancy was at 93% at year end.  I will read the earnings call transcript when it becomes available. The company did issue FFO guidance for 2009 slightly above estimates. For now, this looks like a hold to me.   Eventually, I intend to take the common share position up to 100 shares.  The common is now trading just above $2 with a market cap of just 93 million.  FR: Summary for FIRST IND RLTY INC - Yahoo! FinanceWith no common dividend being paid, my larger position in its cumulative preferred is in an enhanced danger of deferral.  These REIT cumulative preferred stocks are becoming more dangerous by the day.  For FR, payment of the preferred dividend is clearly not a sure thing after this next payment, and future payments will be a quarter to quarter decision.  This year will be a tough one for all of the industrial REITs including FR, Duke Realty (DRE) and ProLogis (PLD). 

Immelt said in his letter to shareholders that GE did expect the global crisis Reuters MarketWatch I was not comforted by that statement. I will vote against every recommendation of the Board and against every member of the Board. Immelt did say that he expected 2009 to be worse than 2008 which might be the first prediction that he has gotten right in a couple of years.  Credit default insurance on GE Capital's debt hit distressed levels yesterday, with the upfront costs rising 11%.  To insure 10 million for five years, the cost rose to 1.1 million upfront and $500,000 a year.  The quotes vary.  MarketWatch
The key point is that the costs to insure GE Capital debt has moved to an upfront payment in addition to annual premiums. 

Until the bank problem is solved, there is not going to be a recovery. Word was leaked to the WSJ containing some of the details about Obama's private-public effort to buy bad assets.WSJ.com 
The banks are heavily shorted and I suspect that a lot of new investors have just established short positions.  Given the carnage in the sector, with many banks trading at 20 or so year lows, it would be fairly easy to mount a strong counter trend, short covering rally in many of them.  

Kellner claims that the latest data on housing prices on a nationwide basis show that they are now at 2.9 times median household income which is what I would consider the upper end of the normal range. Has housing found a floor? - MarketWatch   Citigroup/Volcker/AIG Financial Products/Governor Pawlenty's Blather/   There was a story in USA Today about this kind of data from San Jose in California.  USATODAY.com  The median home price fell from $850,000 to $415,000.   At the latest median price, 50% of the households can afford a home compared to 16% during the heyday of the real estate bubble.  I saw some storied this morning that the median home price in Detroit had fallen to $7500.  (usnews.com)  Many could literally buy a home and put the cost on a credit card. 

Data from Transunion did show foreclosures up  53% during the 4th quarter of 2008 compared to the same quarter in 2007.  Yahoo! Finance

After less than a week living with my new trading restrictions, I am already bored.  I may keep the trading restrictions in my main account and start trading in the retirement accounts to stay busy.  I do not view the future as bleak as some of the predictions that I recounted in my post from yesterday. Part of Yamada's analysis was based on her assessment of a double top in the S & P 500 averages and a break below the low formed between those tops.  The double top that she is using occurred at a seven year interval, March 2000 and October 2007. The low in between was set in 2002 which was recently broken.  I would naturally be suspicious of a technical analysis based on a double top formation formed over a seven year interval, and this skepticism is shared by the Barron's technical analysis.   Barrons.com  But, as readers know, I quit buying common stocks with my cash flow after the 2002 low was broken so I am already giving Yamada's analysis some street cred for now.  At a  minimum it justifies a delay and a reassessment of the potential length of this bear market.    

This linked article in Seeking Alpha has charts of the four worst bear markets over the past 100 years drawn on the same graph.  Seeking Alpha We are more closely tracking the GD path but are fairly close to the bear in 1973 to 1974. 

Canada's central bank cut its benchmark rate by .5%. MarketWatch  I menitoned in earlier posts that the fall in short rates in the major currencies made the currency ETFs unattractive to me, and rendered the dollar as the less bad alternative. Asset Allocation Problems: foreign currencies, stocks and bonds  ASSET ALLOCATION/ CORPORATE BONDS & CURRENCIES/ JOBS I do expect that this view of the dollar will change, but probably not in 2009.   The Canadian currency may be my first new buy of a foreign currency in two years or so, but I see no reason to do it now.   The U.S. dollar is in a bull market and currency bull markets have a tendency to last 4 or 5 years.  The Canadian currency ETF, FXC, peaked at over 107 in October 2007 and is now down to 77 and change. FXC: Summary for CRRNCYSHRS CAN DL TR - Yahoo! Finance

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