1. Transitioned PYT to Retirement Account: I am moving gradually the synthetic floating rate securities from my taxable account to either the Roth or the regular IRA. I previously had bought PYT in the retirement account in anticipation of selling my shares in the taxable account. I sold the shares at $11.94 that were purchased at $11.2 in the taxable account. Bought 50 PYT/ Abbott Lowers Sales Estimates for Humira/NY Fed Manufacturing Index/ Beige Book/JPM As previously stated, the reasons for making these transitions have to do with the tax issues, which I will try to figure out next year, and the fact that distributions are taxable as interest, so I view a retirement account to be a better place for them for me- even without the tax issue.
2. Fed Lowers Forecast for 2009 GDP: The FED minutes from the last meeting on April 28-29 were released yesterday. The FED now anticipates the economy to shrink between 1.3% to 2% in 2009, up from its prior forecast of .05 to 1.3%. The FED expects the economy to grow 2 to 3% next year and to pick up a good head of steam by 2011. The FED still expects unemployment to be high in 2010, estimating a range of 9 to 9.5%. I am most concerned about that forecast, and hope that it is too pessimistic. I do expect the unemployment rate to peak at over 10% in the 1st quarter of 2010, but would add the caveat that I have never taken a course in economics or read an economic textbook. The FED is expecting only nominal inflation for both 2010 and 2011. (this forecast will be a topic for discussion at the end of 2011) The FED expects to keep its target rate for federal funds at 0% to .25% for an "extended period" federalreserve.gov .pdf
Some FED members apparently maintained that the FED may need to expand its program of purchasing treasuries and agency securities. While I am just an individual investor trying to cope, that sounds to me like it would be bad for the dollar, just flooding the world with more U.S. dollars.WSJ.com The previous total of potential Fed purchases (i.e. quantitative easing) was up to 1.45 trillion of mortgage related securities and up to 300 billion in treasuries. The Fed appears determined to keep interest rates low, and to weaken the dollar in my view.
3. Hard to Believe In an Efficient Market Here at HQ: I am curious about the efficient market theory. Is this another one of those quaint economic theories that postulates how rational human beings are when making economic decisions. Sure, the market may eventually find a rational price, witness what ultimately happened to the dot-bombs after a year or so of insane pricing by investors.
What about the recent fall to DJIA 6547 on 3/09/09. It is almost like some drunk waking up from an all night bender and saying what the heck, how did I get here.
Then you have literally hundreds of examples of securities being priced as if everyone in the world was on a cocktail of hallucinogenic drugs. ISF, a cumulative preferred issue from ING, closed at $2.65 on 3/9/2009 to yield over 60%. ISF: Historical Prices Yesterday it closed at $14.51. How can both prices be rational?
I received my SmartMoney magazine yesterday and read the interview with Jeremy Grantham. He thinks that this efficient market thesis is a hoot too.
All that I can do is pick my spots where I suspect that the market has priced a security irrationally, try to manage the risk by using the volatility to my advantage, and then wait for an opportunity for more rational pricing to emerge. For a security like ISF purchased at $4.6, my return is about 300%, which is a tempting amount to harvest, but then it is more tempting to keep a security paying me 34% annually until ING goes bankrupt, which I see no reason now to predict, or ING calls the security at $25, even more unlikely. At 34% my investment doubles in the IRA every 2.7 years. Estimate Compound Interest
4. One of the Nation's More Pressing Issues: The Right to Carry Guns into National Parks: As part of the recently approved reform bill impacting the credit card industry, on its way to the Beanpole's desk, there is a provision repealing the ban on carrying firearms into national parks. NYT CBS News The Tennessee legislature has passed a bill permitting weapons to be carried into bars provided the individual has a permit and does not drink. There are about 220,000 vocal permit holders in the state. ‘Guns in bars’ bill Chattanooga Times My comment was why is the person in a bar in the first place if they do not want to drink. This is one of the three major issues in Tennessee.
5. Linn Energy: The CEO of Linn Energy (LINE) was on Cramer's show yesterday. TheStreet.com I recently added to my position in the company. I had just finished preparing my own tax return, and the entries connected with Linn had required at least thirty minutes of my time. Added to LINE/March Unemployment at 8.5%/ Sold Adobe/Allscripts/ USO and Contango/CXW DIS BMY/Since I wanted to keep the stock, I figured that I needed more of it just to make that expenditure of time worth the effort. Cramer did mention at the start that this was a master limited partnership that paid out most of its earnings in distributions, and to consult with your tax advisor about how to account for what was being paid. LB, a magnet for all kinds of esoteric tax issues, has to come to grips with these kind of issues since Headknocker is too cheap to hire an accountant. TurboTax is a blessing. Whatever, the current yield on Linn's shares is around 15%. The CEO maintained that it could maintain that payout since Linn had hedged its production at high prices.
6. Japan & Singapore 1st Quarter GDP: The first quarter GDP numbers from these countries were sobering. Japan sank at a 15.2% annual pace. Singapore fell at a 14.6% annual pace.
7. Commodities/SOLD GSG: Commodities have enjoyed a nice rally. Is that rally consistent with the economic forecast given by the Fed yesterday, along with the contraction currently being seen in Europe and Asia? (The ETN Oil closed at 15.75 on 3/2 and at $22.26 yesterday.) I suspect that there will be tension developing between the recent run in commodity prices and the still bleak current economic statistics from around the world. I was thinking of using RJI rather than GSG as a means to gain exposure to commodities in my asset allocation. I now have small positions in both of those securities.
I am not much of a commodity investor. Having read Jim Rogers book "Hot Commodities", I decided to stay with this sub-asset class as part of my allocation, even though I am more uncomfortable investing in commodities than in tech stocks. After tossing a coin, I decided to sell GSG in the main taxable account, with a market order filled at 27.91 (bought at $24.89 4/1/09), and will simply wait for an opportunity to deploy those proceeds to buy more of RJI. I may also use some of the remaining cash in the Roth to buy RJI. I raised some funds this morning with a short swing bond trade in the traditional IRA, so I have some funds in that account to invest in another bond. That account is almost entirely filled with bonds now, except for a 100+ share position in a closed end investment company, IRR, and 100 shares of SBGI bought at $1, which is what happens when LB just goes wild.
8. Capital Raises: Hertz & Regions Financial: It is encouraging that investors are stepping up to the plate some by participating in the latest round of capital raises, particularly by the banks in need of more funds to comply with the results of the stress test.
Hertz (HTZ) raised 949 million from its common share and convertible security offerings.The convertible issue matures in 2014, after the maturity date for DKR, which is important. I own 50 shares of DKR which goes ex interest tomorrow. I am inclined to keep it for now. Par value of that TC is $25 payable in June 2012, and I bought those shares late last year at $6.45, receiving one interest payment so far. The price of the underlying bond has rallied recently. FINRA
I checked the FINRA site this morning for other Hertz bonds.
It looks like a 100 million dollar issue matures on 11/1/2009; a 600 million issue matures in June 2010; and a 500 million dollar one in March 2011. Then the bond which is the underlying security in DKR matures. This is a listing just of the senior debt maturities. Hertz has a lot more debt than just senior notes, including a ton of secured financing on its fleet. ( see pp. 16-19: www.sec.gov )
The secured debt has priority over the senior debt. One question that I have had from the beginning is how much would be left for the senior debt holders in the event of a bankruptcy. When a company has a considerable amount of secured debt, a potential buyer of the senior debt has to ask these kind of questions, and frequently there is not a clear answer. I am not sure an investor would arrive at a convincing answer to that question after employing a herd of financial analysts to pour over the balance sheet and other public documents. In the last analyst, it is now out of Hertz's hands and its fate may be decided by events largely beyond its control, namely the timing and strength of an economic recovery in the U.S. All that can be said now from my perspective is that the recent capital raise is a positive development for the bondholders.
Regions Financial (RF), a lottery ticket, needs to raise 2.5 billion to meet the Fed's stress test. As of yesterday's close the bank only had a market cap of 3.4 billion, so this is not going to be a snap for RF. This bank had a disastrous foray into financing real estate developments in Florida.
The company priced common and convertible this morning to raise 1.25 billion. RF sold 400 million shares at $4. Those transaction are around 26% dilutive to existing shareholders according to Barclays. RF also announced that it would exchange common shares for the 700 million of its 6.625% Trust Preferred. This still leaves about 550 million, which may be raised by additional conversions of debt into equity. The only good news about this disaster here at HQ is that RF's float of common shares was priced above our lottery ticket purchase price. Buys of DKF, AA and a Lottery Ticket in 50 shares of RF/Heinz & its Boston Market Line/ But, the dilutive share issuances are just one piece of bad news for any long term holder of this stock who bought at any price prevalent between January 1991 to mid 2008. I am just curious whether the Masters of Disaster at this bank still have their jobs, and have they suffered any diminution in pay.
The company priced common and convertible this morning to raise 1.25 billion. RF sold 400 million shares at $4. Those transaction are around 26% dilutive to existing shareholders according to Barclays. RF also announced that it would exchange common shares for the 700 million of its 6.625% Trust Preferred. This still leaves about 550 million, which may be raised by additional conversions of debt into equity. The only good news about this disaster here at HQ is that RF's float of common shares was priced above our lottery ticket purchase price. Buys of DKF, AA and a Lottery Ticket in 50 shares of RF/Heinz & its Boston Market Line/ But, the dilutive share issuances are just one piece of bad news for any long term holder of this stock who bought at any price prevalent between January 1991 to mid 2008. I am just curious whether the Masters of Disaster at this bank still have their jobs, and have they suffered any diminution in pay.
DISCLAIMER
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 readers of these posts 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. It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments NOT A RESEARCH SERVICE/Add of PWE Last Week 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. Anyone interested in a topic may want to review all discussions contained in the blog about it by using a relevant search term in the box at the top. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.
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