Friday, March 6, 2009

Jobs Report/Hunkering Down Discretionary Spending/Citigroup: Is it Worth A Buck a Share?/POM: Pepco Hits 1984 Lows/Robert Barro

"Abandon hope all ye who enter here" from Dante's Divine Comedy describing either the entrance to Hell or the U.S. stock market, one or the other and I am not sure which one anymore.  The DJIA closed at 6,594.28, its worst close since April 15, 1997.  This price is also getting near to a few of the closing prices from December 1996.  The close for 12/31/1996 was 6448.27, so another 150 points or so will wipe out the gains since 1997.  This has the feel of a full blown, out- of- control panic.        

The jobless rate rose to 8.1% in February which is the highest since 1983. Yahoo! Finance
Nonfarm payrolls dropped by 651,000. MarketWatch 
These numbers are subject to revision, and the future change is most likely down.  The government revised the last two months prior to February to increase job losses by 161,000. The revised number for December now stands at 681,000, the largest decline since 1949.  I do not know yet whether Cramer and Rush will blame Obama for the December 2008 job losses. I may check later today to see if the writers at newsbusters are blaming the liberal media for hyping the downturn.  

As expected, Wells Fargo slashed its common stock dividend.  WFC is being generous compared to many banks allowing the common shareholders to earn 5 cents a quarter down from 34 cents. MarketWatch
I did not see anything in the release about management taking a pay cut.  Yahoo! Finance WFC called the dividend a very difficult decision.  It will return to "a more normalized dividend level as soon as practical."   The only very difficult decision for management and the Board would be to cut their pay and perks.  I do not own the common.  Instead, expecting the cut, I elected to nibble on the trust preferred obligations of Wells Fargo.  Dividends on bank TPs that I own from Wells Fargo have to be paid in full as long as any common dividend is paid and are cumulative.  I now own two of them, KTV and JWF.  Wells did say that operating results for the first two months were strong and the merger integration of Wachovia is on track.   Anyone considering buying a WFC TP obligation, a junior debt security, or owns one now, needs to read the WFC press release that is linked above in its entirety.  This is what I mean by staying informed about positions held or considered for purchase. 

When I said it is time to hunker down Time to Hunker Down,  I was referring more than going into a stock investing cocoon.  The statement also encompassed a slowdown in discretionary spending which I have been doing since September 2008. Charges on my credit card consist entirely of discretionary spending with debit cards used for non-discretionary, required purchases like gas and groceries.  Last month, my credit card charges came to $17 which was my total debt outstanding until I paid it in full.  The reason for the personal cuts in personal spending has to do with the realization that I simply do not know, nor does anyone else, how bad this is going to get before it is over. It's Time to Sell and Walk Away

I am curious about my electric bill from Nashville Electric Service, a municipally owned electric utility that buys its power from TVA.  I keep receiving bills with significant fuel surcharges allegedly to help TVA pay for the additional costs of fuel.  Maybe I have missed something but  I thought that coal and natural gas prices have been plummeting in price for over 6 months now.  Then, I read a story in the Tennessean that may explain better why I am paying those surcharges.| || | The Tennessean

A new report shows that 12% of Americans are now behind on their mortgage payments.Yahoo! Finance

Citigroup fell to less than a buck yesterday before recovering to keep its head above $1 closing at $1.02. CNBC.comThe market cap is now around 5 billion.  If the message of the market is correct, then C is toast despite of the government's efforts to salvage it.  Is it possible for the market to be this wrong about a major company like Citigroup? The price of Bank of America is not far behind.  MarketWatch For those who argue for the seizure of Citigroup and Bank of America, and then have the FDIC pay off the depositors, do you know how much money the FDIC has and the amount of the total deposits at Citigroup and BAC combined-forget about the smaller banks failing ever week now? 
 I would nonetheless hope that the folks at the FDIC have some contingency plans already in place for such a calamity.  To highlight the issue of FDIC funding, Senator Dodd wants to pass legislation giving the FDIC a 500 billion dollar line of credit with the Treasury.

Barclay's downgraded Pepco (POM) to equal weight.   Yahoo! Finance  I just added this electric utility.  You have to go back to around 1984 to find prices similar to now.  I looked at the long term chart at Marketwatch to confirm that the company had lost 25 years of its stock appreciation.  The dividend yield has increased to over 9% after this recent plunge.    I did change today my distribution option from cash to reinvestment in shares.   

Soleil downgraded Hertz (HTZ) to sell. 

GE said its financial unit will be profitable in the first quarter. -

The panic has already settled in,  found a cozy home, and has its own dynamic now.  Maybe everyone needs to breath into a paper bag all day today and then take a deep breath, look outside, and just see that the world is still there. 

Wal Mart increased same store sales in February by 5.1%.  Macy's fell over 8%. Yahoo! Finance  WMT also increased its dividend.  Yahoo! Finance

O'Shaughnessy sees the possibility of a huge rally and good returns in the market from current levels for the next ten years.   Yahoo! Finance  It would take nerves of steel to follow his recommendation now.   I am giving Louise Yamada street cred for the moment.  

GP Strategies had account receivables from GM at 14.4 million as of 12/31/08. (p. 9 :

After 180 billion or so, senators want to know who is being made whole by the AIG bailout.  One result for the credit default insurance written by AIG was to encourage irresponsible risk taking by the purchasers of that insurance, as acknowledged yesterday by Fed Vice Chairman Donald Kohn.

A Harvard professor, Robert Barro, looked at 251 market crashes since the late 1800s and estimated the likelihood that the current crash would turn into a Depression.  Based on the fall so far in the U.S. market, he predicts that there is a 30% probability of a depression.
This is up from 20% after he wrote an article for the WSJ just recently.

More owners of insurance policies are starting to be concerned about solvency.  Yahoo! Finance

Obama has certainly smashed the value of HMOs and Sallie Mae common and bonds.  I anticipated that Obama would cause carnage in health care stocks but I did not know that he wanted to destroy private enterprise as it relates to student loans.   I am not so sure that the downward spiral in electric utilities can be laid entirely at his doorstep since I have noticed several utilities which would benefit from the cap and trade program have gone down in tandem with those that would be penalized.  If Duke's President is right about how cap and trade will impact electric utility bills in Ohio and Indiana, by raising them 40% due to their reliance on coal for electric generation, then Obama can forget about carrying both of them in 2012 and that could cost him the next election, with Ohio always being a key state now. 

It looks now that the 50 billion dollar figure that Madoff gave investigators may have included the fictitious profits that he reported to his clients. Yahoo! Finance

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