Added 5/31/09: This is a link to a newer post discussing the impact of quantitative easing on the U.S. dollar and interest rates:Will Quantitative Easing Hurt the Dollar/More On Managing the Risk of Lost Opportunity
see, also: item #2 :Potpourri This Sunday Afternoon:
There was a major struggle for control over the keyboard after the Fed's announcement today. For four weeks, LB has had to listen to the incessant rant "All In", "Go All In", from RB even after LB was so considerate to bankroll RB's buying binge in early March. New phrases, and unpleasant versions of prior ones, started to ring out from RB like "Send that old Geezer to the Old Folks home where It can listen to Frank Sinatra all day long and develop those stinking rules." It became so bad by late afternoon that LB had to call a physician to determine the feasibility of injecting a cup or maybe a quart of Valium intravenously just in the right lobe leaving LB alert to further the operations here at the trading desk in a practical, responsible, logical and reasonable manner. LB was told by the Doc that this was the first time anyone had made such a request, and the Doc was unaware of any clinical studies supporting LB's solution to its noise problem.
The Fed was less gloomy in its announcement today. The Fed announced that it would continue buying Treasuries and mortgage-backed securities in its quantitative easing, having purchased 74 billion of the 300 billion planned by September . The Fed noted that household spending has showed signs of stabilizing and business inventories had been cut. The Fed views inflation as a remote risk. It anticipates economic weakness to persist "for a time". Okay, that was pretty good. It tells me that the quantitative easing needs to be measured in months not years. It may even end by October, though I am not making a prediction. It is hard for me to agree with their inflation forecast unless the time period is less than a year.
I have been transitioning my synthetic floaters to the retirement account as previously discussed and I just put a stop to it. The one with the Proctor & Gamble underlying bond (GJR) was sold in the taxable account at a small profit and bought in the regular IRA after the recent fund raise in that account. Bought GJR/ Walgreens/Did Right Brain Call the Bottom? I have decided to keep the few remaining synthetic floaters in the taxable account, including PYV and GJN, until I am ready to look at the tax issue again later in the year after I man up to do it again. The synthetic floaters have a unique provision about tax rules applicable to them that is caused by the swap agreement which creates the floater. Any new synthetic floaters will be bought in the retirement accounts. GJN was already transitioned with a purchase in the Roth, so it is now owned in both accounts. BUY 50 GJN/Japan Sinks Deeper into the Mire/CBG Upgrades/Law Enforcement On Vacation for Mortgage Fraud/New Home Sales Up
One of the reasons that I decided to man up and face the tax issue again is that I screwed up the transition of GJT, the synthetic floater tied to an Allstate bond that I sold for a profit but then the security jumped on me almost a couple of bucks before it could be replaced in the Roth. So I lost it for now. BOUGHT VEU AND GJT/ MIKE MAYO BEARISH ON BANKS: A SURPRISE?/
So rather than screwing up another one, I just put a halt to it. These are thinly traded securities, with frequent large bid/ask spreads, and the ones without a guarantee look good only at a low price. GJT, for example, had a $25 par value and was bought at $8.35. When short rates rise, these will start to look better than they do now. I interpret the Fed announcement as a signal that the quantitative easing will likely end in months and short rates will then start to rise so I want to keep the floaters that I now have irrespective of the host account. Floaters tied to a percentage over short rates will rise in yield when the Fed abandons its easing, and I have done several calculations in these posts to show how purchasing at a deep discount to par value increases the potential yield when the short rates return to 3% to 3.5%. I view the floaters tied to the 3 month LIBOR rate to be better than the ones tied to the 3 month treasury, with both at the same percentage. That is why I have a high opinion of the METPRA floater which pays the greater of 4% or 1% over 3 month Libor with no cap.
I read the updated S & P report on Bristol Myers and agreed with their assessment. S & P downgraded BMY to hold after the recent earnings announcement and the FDA decision to extend the review of Onglyza. BMY needs to get that drug and some others approved before the patent expires on Plavix. I also saw that Goldman Sachs downgraded BMY from buy to neutral. TheStreet.com LB nixed any further buying of BMY and will keep the very small position currently owned primarily for the dividend and the lack of seriously bad news yet.
C B Richard Ellis, a lottery ticket purchase, reported a net loss of 3 cents on a Non-GAAP basis. This was below the expectation of a 2 cent profit. In the current context of a recession, I view that miss as irrelevant. Revenues fell 27% to 890 million from 1.2 billion in the year ago quarter. Yahoo! Finance
I expect nothing but negative revenue and earnings comparisons for at least two more quarters, that is not the issue. My purchase was based on the price and a view that the sun will shine again.Duality of Long Term Risks/Stocks Under $5: Per Se Lottery Tickets/
That last purchase of CBG was made in the Roth at $2.39 and replaced a similar sized lottery ticket purchase in National Dentex that had spiked from 1 to 4. SOLD NADX IN IRA/BOUGHT Kraft & NESTLE/ Bought Lottery Ticket in CBG at 2.39/ Drags: TALF, AXP and GE
(RB wants to say something now. The picture in that last link was at a time when it still had the power to make a few decisions and the look shows it.) I still own 50 of NADX after selling 50. These really are lottery tickets masquerading as stock certificates.
Under the circumstances and relatively speaking, Brandywine Realty had an okay report. I own the cumulative preferred, BDNPRC. It beat by 3 cents on FFO and beat on the revenues, and maintained guidance for the year. They also appear to be getting their finances in better shape. Yahoo! Finance
I still have a security blanket on that one since BDN is still paying a common dividend.
A correction to an earlier post (Tracking News on Security Positions/Novartis and Flu Vaccines/VIX Asset Allocation Models), the correct name of the company mentioned in this Yahoo article (Yahoo! Finance) relating to recommendations by a columnist at RealMoney is not Prospect Energy but Prospect Capital (PSEC). The symbol is correct in the article but the name is given incorrectly. I own 150 shares of this BDC. PSEC: Summary for Prospect Capital Corporation - Yahoo! Finance I believe that I am under water on that one some but the dividend will offset the unrealized stock loss unless the stock falls more. BUY 50 GJN/Japan Sinks Deeper into the Mire/CBG Upgrades/Law Enforcement On Vacation for Mortgage Fraud/New Home Sales Up