Thursday, March 5, 2009

Merrill Lynch Lost over 27 Billion in 2008 & Paid 10 People 209 Million/GE/Prudential Bonds/USPH/Aegon & ING Preferred Meltdowns

 Moody's said it may downgrade the debt of Wells Fargo and Bank of America Reuters  Moody's is saying that the amount of capital Wells Fargo raised in connection with its acquisition of Wachovia was modest compared to the size and quality of assets acquired from Wachovia.  This is the kind of news that has an exponential impact on anxiety levels.  

The worldwide effort to penalize savers in an effort to jump start economies continued this morning with the European and British central banks cutting their benchmark rates.  Yahoo! Finance

Cramer, in his best imitation of Boss Hogg, says that  Obama is one of the greatest wealth destroyers of all time.
I do not attribute any of the current fall in the market to any politician. Neither Bush nor Obama are on my top twelve causes of the Not-So-Great Depression.  Life Insurance Companies in the Toilet/ TOP TWELVE CAUSES OF THE NOT SO GREAT DEPRESSION/POM
But, then I at least make an effort to ground my opinions in facts and try to avoid knee-jerk, simplistic, ideologically based perceptions of complicated events.  Events that have caused this economic meltdown were well in place before the election season even commenced as Cramer undoubtedly already knows. If I am not mistaken the DJIA was over 14,000 in October 2007 and had declined to around 8000 at the time of Obama's inauguration.  By the time of the Beanpole's inauguration,  interest rates on my savings had already plunged.  The value of my house had already declined.    The ability to earn money from savings in virtually any relatively safe investment like a bank certificate of deposit had been crushed, not by a politician, but by the worldwide actions of the central banks to lower short rates. Wealth destruction had already taken place due to events wholly unrelated to the election.  Since Obama assumed office, the decisions made by several financial institutions during W's second term accelerated to the downside even more, requiring additional financial assistance from the federal government which explains the drop over the past three weeks along with the worsening downward spiral of the world's economies.   I am starting to believe that Cramer is the Boss Hogg's long lost twin brother, and there is a resemblance in many personality traits and appearances.  Both Cramer and the Boss think  along the same lines with an identical degree of depth, rhetorical flourish and hyperbole.    It would be best for me to just to ignore all clowns. 

I am just curious why it took so long for the GM auditors to question the firm's viability as a going concern. Yahoo! Finance

S & P is reluctantly acknowledging that it had some problems when it rated toxic trash AAA.   The problem is that McGraw Hill would not get paid unless the deal got done and the deal was not going to fly unless crap was rated AAA.  The debt issuer pays for the rating.   I view the recommendations being made by S & P as an attempt to blunt meaningful reform of the rating agencies.  I rate their actions as the #3 most important cause of the Not-So-Great Depression. Life Insurance Companies in the Toilet/ TOP TWELVE CAUSES OF THE NOT SO GREAT DEPRESSION/POM

The Obama administration released detailed guidelines yesterday on how financial institutions may modify existing loans to make them more affordable.   Yahoo! Finance

The Supreme Court announced recently announced a decision of importance to medical device  manufacturers granting them a broad exemption for state suits for a medical device approved by the FDA.   Health Blog : Supremes Set Different Rules for Suing Device, Drug Makers
Wyeth lost a similar case, where it tried to press a claim of federal preemption of a state court lawsuit for damages, in another Supreme Court decision announced yesterday involving one of its drugs.  Reuters
You really have to be a major nerd to actually read these decisions.  But you can find them at Supreme Court of the United States
The issue is whether the federal regulatory scheme preempted a state court suit. 

This is a link to a very bearish evaluation of GE even at current prices.  Tech Ticker, Yahoo! Finance
The GE share price hit a low yesterday last seen in 1991, and the cost to insure GE's debt continued to soar.
Investors can whip themselves into a frenzy of fear at the drop of a hat now. Since January 2008, GE has lost over 300 billion in its market cap, and is currently struggling to stay above a mere 70 billion.  The stock traded down to $5.73 yesterday. See also,
The bonds are trading in line with a company rated BBB rather than AAA.  MarketWatch

The common stock prices of life insurance companies have suffered a steep fall this year.  Their senior debt is not fairing much better.  I noticed today that a senior bond that I own from Prudential which matures in just 3 1/3rd years in July 2012 has declined fairly precipitously in price recently to 72.   I unloaded one from Hartford recently which constituted a significant reduction in exposure to life insurance company bonds and this position in Prudential is just 2 bonds so I will keep it.   But I am at least going to consider buying more if I can acquire it at a few points below the current quote.  The yield is 5.6% payable monthly.  The current yield is not worth the risk now in my opinion.   What is starting to attract me is the spread between par value and cost at the current quote with a short maturity.  That is almost 16% annually for three years assuming payment at maturity.   

The Fed Beige Book, released yesterday, confirmed the downward spiral of the economy.MarketWatch 

The top ten earners at Merrill Lynch were paid 209 million in 2008 as the firm tottered on the edge of bankruptcy.  Merrill would have collapsed in 2008 but for the bailout by Bank of America.  This acquisition of Merrill has caused Bank of America's survival to be in question.  One executive, David Sobotka, was paid 13 billion and his division had negative net revenue of just 35.96 billion.  That is not a typo.  Andrea Orcel was paid 33.8 million. Peter Kraus was paid 29.4 million even though he was only employed for three months in 2008. Thomas Montag made 39.4 million after starting work in August 2008.  Mr. Kraus is currently CEO of Alliance Bernstein  after working for Merrill for 3 months.  Merrill lost 27.6 billion in 2008. 

Adobe (ADBE) lowered its revenue forecast for the 1st quarter but maintained it profit estimate. Yahoo! Finance

The PNC investment strategist recommended increasing bond exposure.  MarketWatch
After my recent sale of LQDS & P 500 Index CLosed Below 815/MDRX, SLF, AXP/ SOLD LQD & BOUGHT PST, which contains investment grade bonds at over 99, there has been has been a small 5% correction in this ETF which has shown very wide fluctuations over the past 6 months.  From the 81 area on a meltdown in October 2008, it thereafter rose to 102 in early January and has since fallen back to 93 and change.  This is incredible movement for an ETF containing investment grade bonds with a weighted average maturity of 12 years. iShares iBoxx $ Investment Grade Corporate Bond Fund (LQD): Overview Interest rates are not moving up and down by anywhere near those percentage moves in LQD.  The movement is almost entirely a reflection of the ebb and flow of investor anxiety.
The Dominion Resources CEO said on Cramer's program that his utility should do well under Obama's cap and trade program.

I thought this article in Barron's was a good discussion of cyclical trough valuations for the S & P

CB & L Properties managed to refinance a maturing loan on its Cary Towne Center in Cary, North Carolina for 74.1 million replacing a 82.1 million loan.  The good news is that the new loan is non-recourse and is for 8 years.  The bad news is that the interest rate is 8.5% up from 6.85%. Yahoo! Finance

About 8.31 million properties had negative equity at the end of 2008.  Reuters

US Physical Therapy missed forecasts by a penny due to winter storms closing its clinics and costs associated with closing marginal ones.  Yahoo! Finance  The company reported 19 cents down from 21 cent a year ago.   USPH issued 2009 guidance in the range of 84 to 90 cents.  This is below analysts' consensus forecast of 99 cents. USPH: Analyst Estimates for U.S. Physical Therapy, Inc. - Yahoo! Finance  I own 50 shares and intend to hold those shares.   If I allowed myself to buy common stocks now, I would not buy the other 50 in 2009.  The market has reacted negatively to the forecast driving the price down to 7  this morning. 

The Boss Hogg of the GOP is certainly enjoying his role as the leader of the opposition.  The head of the RNC, Michael Steele is just the latest GOP leader who had to apologize to Rush after calling him a mere entertainer with an incendiary talk show.  Steele, like any other member of the GOP who voices a criticism of Boss Hogg had to apologize within 24 hours or face exile and excommunication from the party.  Steele quickly got on his knees with a profuse apology and called Rush a leader of the conservatives. G
Since the Dems have made it easy for anyone who criticizes the Boss to apologize, this entire process can now be expedited to a few minutes from 24 hours.I'm Sorry Rush - Democratic Congressional Campaign Committee

The recent pricing of the Aegon and ING preferred indicates that the market is questioning their survival rather than a mere deferral of preferred dividends for a few quarters.  It is now difficult to distinguish between accurate forecasts generated by market prices and the palpable fears and anxieties that are such dominant forces in investors behavior and decision making processes now.  All securities of life insurance companies are tanking, from the common shares to their senior debt.  Time will tell how accurate the forecasts reflected in pricing decisions made now prove to be.  The price of AEB fell to 3.28 early this morning.   That price has to assume a high degree of certainty of Aegon's collapse to make sense.  I did notice that UBS upgraded Aegon yesterday from sell to neutral.  newratings.comThe ones that I own just went ex dividend.  

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