1. ISM NEW MANUFACTURING ORDERS AT 51.1 IN MAY: The new order component of the ISM survey is a good indicator of a start of an economic recovery.
Inventories also remained below 50. ISM
2. Substituted 100 XLK for first Lot of CPB bought: I bought my position in Campbell Soup in two lots with the slightly higher cost one purchased at $25.8 Buys of CPB LQD SYY XKK/Regressive Taxation-Cap & Trade/. I sold that lot at $ 28.34 today and will keep the lower cost second lot bought at $25.35. Sold 50 MSFT & Bought CPB/ UCBH & WL earnings I used those proceeds to buy 100 shares of the ETF SPDR for Technology (XLK) at $18.14, which contains the technology components of the S& P 500.
The purchase of XLK is just a quick way for me to gain exposure to the technology sector at a low cost. This ETF has an expense ratio of .21%.Technology Select Sector SPDR Fund
Besides the usual suspects like IBM, Cisco, Microsoft, Oracle, Apple, Qualcomm, Google, Intel, HP, EMC, Yahoo etc., Verizon, AT & T and ADP are also included in XLK. Admittedly, I am not much of a tech investor which was bad in 1999 and very good in 2000-2002 since I did not own any then. I am more comfortable buying this ETF than individual names although I currently own several of the individual names including Google, Intel, EMC, Verizon, AT & T and Microsoft. Another factor that led to me to purchase a tech ETF was the trend down in the Nasdaq Volatility Index, ^VXN which I viewed as both unusual at this stage in a bear market, almost keeping pace with The ^VIX movement down, and that is encouraging, at least to me. Sunday Evening Potpourri May 31 2009
I have also written several posts about how cheap many of the big cap tech names have become during this bear market, priced as if the good times will never roll again. The top gun mutual fund managers could not get enough of Cisco at 150 times non-GAAP earnings in 1999, and thumb their noses at it now when this soon to be addition to the DJIA sells at less than 15 times earnings estimates for 2010. Cisco Barrons\- Yahoo! Finance
The Semiconductor industry reported better than expected April chip sales increase of 6.4%.
3. Added 50 FRPRJ at $10.40 in Regular IRA/A DICEY & SPECULATIVE TRADE ESPECIALLY WITHOUT ANY NEWS ABOUT THE REFINANCING OF THE JUNE SENIOR NOTE MATURITY: First Industrial (FR) is one of the REITs that ran into some trouble during the current economic downturn, and it eliminated its common stock dividend earlier in the year. Once that common dividend is eliminated, the company could legally defer its preferred dividend. This is what I call being in an enhanced danger of a deferral. With that danger, there is generally a higher yield on the security than a comparable issue from a similarly situated REIT such as Duke Realty (DRE preferred issues yield about 5% less than FRPRJ, see, e.g. DREPRL: MarketWatch.com Quote) First Industrial is still paying its cumulative preferred dividends on schedule, and will soon announce whether or not it will pay the next quarterly installment for the June quarter.
I placed this security in my regular IRA for a couple of reasons. If FR does defer the dividend, then I would expect FRPRJ to fall in value and I will then simply include it in my next Roth conversion which has been a very beneficial tactic over the past 6 or 7 months (for tax purposes, the value is calculated at the time the conversion is made so it is helpful to select securities that have fallen a lot in value, which I started to do in October of last year and those issues subsequently recovered after the conversion date while in the Roth IRA). The second reason has to do with tax issues related to a deferred dividend. Also, unlike other equity preferred dividends, most if not all of the preferred dividend would probably not qualify as a qualified dividend, though sometimes part of it may be treated as a capital gain when the REIT sells property at a profit during the relevant tax year.
FRPRJ is a cumulative preferred issue with a $25 par value and a 7.25% coupon. At a total cost of $10.5, the effective yield would be 17.26%. The prospectus link: 424b2
This is a link to the Quantumonline page with the data on this security: Traditional Preferred Stocks Table - QuantumOnline.com
Fitch has this preferred issue rated B with a negative outlook, which is a junk rating, one tier below BBB for Fitch which is the lowest investment grade rating, or so I understand. Fitch Corporate
A good discussion of the reason for Fitch's rating is contained in this linked article:StreetInsider.com
On the bright side, the maturity schedule of FR's debt appears manageable for 2009 and 2010 which gives it some breathing room. First Industrial
Morningstar disagrees with that assessment and is far more concerned about the debt maturing in 2009. The key is the maturity in June of 2009 which was listed as 119 million in FR's last earnings release. At that time, FR said it was making progress in refinancing that debt, but I have not seen anything new since that statement was made on 4/30/09.
It is dicey to jump in now without knowing anything about the refinancing of that debt. Most of FR's property is unencumbered, see p. 3 of last earnings call transcript: Seeking Alpha.
But, if FR solves the issue of its senior debt maturity in June 2009, and declares its regular preferred dividends, then I may not be able to secure close to a 18% yield anymore too. So there are always risks with these higher yielding securities, usually an abundance of risks.
Besides the obvious negative impact of the economic downturn on all REIT's with industrial type properties (bulk warehouses and light industrial), First Industrial's model since around 2006 until recently was to build and to sell property to support a very high dividend.
Having said all of the foregoing, it would probably have been better to just wait to see what happens later this month. But, LB was feeling a little frisky today and was being egged on by RB who wanted to go all in.
4. BOUGHT 50 VERIZON (VZ) & SOLD 100 PHO: This is an old geezer kind of trade. I just bought PHO at $13.6 on 5/14/09, an ETF containing water utilities and water infrastructure stocks.Sold Kroger/ Bought 100 PHO at $13.6/ FJA: Underlying Bond TRADES I sold those shares today at $14.86, and used the proceeds to buy 50 Verizon (VZ) at $29.34. Verizon pays me a good dividend of over 6%, while PHO pays me almost nothing, which is why this is an old geezer type of switch.
Both Verizon and AT & T have been struggling since J P Morgan downgraded both of them based on concerns about growth in their respective wireless businesses. Bought More AT & T For years now, I have been hearing analysts make a prediction about wireless growth coming to a screeching halt, and some day this will no doubt happen. The S & P analyst, Todd Rosenbluth, expects organic wireless growth of 9%. VZ had a 12% rise in revenue during the last quarter.
Verizon's wireline business is for sure in a state of decline. The WSJ recently had an article suggesting that VZ could not maintain its dividend over the long term due to the wireline decline, the cost of building its FIOS network (estimated currently at about 2 billion a year excluding the cost of home connections), and Verizon's partial ownership of Verizon Wireless (55%). WSJ.com That article has probably hurt the stock too, and it raises some important issues about Verizon being able to maintain the current dividend. For me, it is just too early to form an opinion on that issue given all of the macro variables. An improving economy in 2010 may be the more important factor than the ones mentioned in the WSJ article.
There was a story in Barron's late today, summarizing a report out of Bernstein, that Apple could double its iPhone sales by signing a non-exclusive deal with A T & T after the expiration of the existing contract, believed to be in 2010, and then signing a deal with Verizon whose customers are untapped of course for the iPhone. That made sense to me, but what do I know about it. I have a cell phone that Verizon had trouble giving away for free with no features. Tech Trader Daily - Barron’s Online
5. Citigroup and GM out of the DJIA: Isn't it interesting that Citigroup will forever be grouped in the same breath with the bankrupt and misbegotten GM, with both hapless and clueless companies being kicked out of the DJIA on the same day and deservedly so. They will be replaced by Travelers and Cisco effective June 8th. For all practical purposes, Citi has been bankrupt for months now, bailed out of its misadventures and poor decisions by its ever generous Uncle Sam. NYT; Corporate Bonds, Citigroup & Robert Rubin, DKR; Citigroup Bailout: Where is the Outrage?
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