Buy of 50 KEY Lottery Ticket/PEP Upgrade/Baltic Dry Index/Chinese Press-Concerns about Quantitative Easing and the Value of the Dollar/Janet Tavakoli/

Added 11:58 A.M. 6/2/09: I noticed that KeyCorp successfully floated 1 billion in its common share offering, referenced in #6 below by selling  205.439 million shares at an average cost of $4.87. So far, it has also raised 154 million in converting its series A convertible preferred and another 127 million by selling securities and other assets.  It expects to hit the 1.8 billion required by the stress test results by further exchange by holders of the convertible preferred and trust preferred into common stock.   Ya Fin

1.  Propping Up the Walking Dead with Hundreds of Billions of Dollars: GM, Citigroup and AIG: The government is going to lend GM 30 billion to keep it alive during bankruptcy on top of the 20 billion of funds used to prop up this failed company prior to bankruptcy.  The UAW and the U.S. government will own most of GM, with a slice given to the  owners of the senior unsecured debt.   It is hard to see the UAW and the U.S. government managing GM back to robust profits, though I certainly hope that this new duo of owners will enjoy enough success during the next economic upturn so the U.S. can recover most of its 50 billion.   There is something to be said for just allowing a company like GM to fail, forcing it to move immediately into a Chapter 7 liquidation, as the only just reward for failure.  Then, again, the government has propped up companies like AIG and Citigroup who are even less deserving from a moral and equitable viewpoint and who would be just as dead as GM without massive government assistance.

2. Chinese Press Expressing Concern About the Impact of Quantitative Easing on the Dollar: There is a chorus of concern being expressed in the Chinese media that the FED's quantitative easing will devalue the dollar.   Geithner  In that linked article from the China Daily, quoting from an article in the China Business News, the author maintains that the quantitative easing was the direct result of the need to fund the massive budget deficits with the issuance of more treasury paper.  The author links the dollar's fall to the quantitative easing.   Further, the author maintains that a devaluation of the dollar will cause investors to lose confidence.   I wonder if anyone is really listening in Washington. 

3. Janet Tavakoli:  I received an email from Janet Tavokoli yesterday relating to my post about Nassim Taleb.  Morning Notes June 1 2009:   Being from the financial hinterland, I did not know anything about her, but her email suggested that I needed to take the time to find out.  She is without a doubt a very well informed and intelligent person, whose views about the origins of our current economic predicament are mostly shared by me.  For anyone with a lot of time on their hands, which includes me, I would recommend viewing her interview broadcast on CPAN, currently available on YouTube:  YTub   While I am relunctant to add yet another book to my reading list, I am going to order her most recent one "Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street".  Amazon.com:  Though, I think that I will skip reading her book "Structured Finance & Collateralized Debt Obligations".  Some of my earlier posts on the same subject matter include the following: 

 Items ## 1 and 2: LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK

UNFIT IN SO MANY WAYS

Banks: Forget About Long Term Holds/Simulus as Transformational/More Discussion on Black Swan and Taleb's book/Bankruptcy of Ideas in the GOP

Paulson NBR Interview, Zuckerman editiorial, LNC INZ, DKR, XFL AND DD

Idealogues on A Mission: Revisionism Already Well Under Way to Explain the Origins of the Mortgage Crisis

Notable News 10 23 2008: We Drank the Kool Aid

Continuation of Prior Post from Last Night: 2004 SEC Rule Change

Life Insurance Companies in the Toilet/ TOP TWELVE CAUSES OF THE NOT SO GREAT DEPRESSION/POM

If I had not witnessed the history of how the credit crisis was engineered by the Masters of Disaster, and just viewed Jan's discussion without any background on the subject matter, my only response to her description of what actually happened would be: "Is that a joke?"  

4. Baltic Dry Index: Another sign of green shoots sprouting up around the world is the rising Baltic Dry Index which is currently sitting above its 50 day moving average.  BloomThis index tracks global shipping prices for various dry bulk cargos.  It closed yesterday at 3733 and started the year at 773.  see also:   Daily Markets (article maintains that there is no long term relationship correlation between the Baltic Dry Index and the stock market)  &  SeekAl (maintaining a link between the rise in the Baltic Dry index and commodity inflation)   I just view the rise in the Baltic Dry Index primarily as a sign that the world is in the process of recovering from the global recession.  

5.  Webster Financial (WBS) Exchange Offer:  One of my lottery tickets, Webster Financial Buy of 50 WBS: Lottery Ticket,  is offering to exchange its series A convertible stock for common shares plus cash, and a Trust Preferred issue for common stock, in an effort to boost its capital structure and to improve its Tier 1 common and tangible equity ratios.  YaFin  Virtually any effort being made by the banks now to shore up their capital base will be dilutive to existing common shareholders.   My purchase of just 50 shares at less than $5 was made knowing something dilutive would happen later but my purchase price already reflected a lot of bad news.  

6. KeyCorp Exchange Offer:  Keycorp (KEY), another bank experiencing a lot of problems, is also commencing a similar exchange offer of common stock for Trust Preferred.   YaFin It is my understanding that KEY has registered 106.6 million shares to complete this exchange.   I currently believe that this offer is separate from a one billion dollar capital raise from the sell of common shares that is reflected in this recently filed document with the SEC. FORM 424B2 Key was the smallest of the 19 financial institutions to participate in the first round of the stress tests.  The result of that test was that Key needed to raise 1.8 billion in new equity capital. 

I am unable to say anything positive about the management of that bank. I did recently review the analyst reports from S & P and Morningstar.  The current price is hovering near $4.5, a price last seen in 1988.  While every bank would suffer during an economic downturn, the ones that have suffered the most are those with  poor leadership at the top.   I would never assume that someone who rises to a top position in a company has good judgment, a measurable degree of common sense, or insight of any depth beyond superficality. 

 I am going to let my wise coin make the decision whether to buy 50 shares of Key as a lottery ticket.   The coin flip was made, with heads always being a buy, and it came up heads, which made LB wonder whether RB had loaded the magic coin. The shares were bought at $4.6.  LB thought it best to put those shares in the regular IRA, and include them later in a Roth conversion if and when the price slips below $3. RB is just hoping for a repeat of what happened after the last near death experience that the banks had back in 1990 -1991. It may turn out unfortunate that RB currently has an affinity for banks that have been deservedly trashed by the market.  The holding period on this one will have to be long, say at least five years and probably longer.  It will require far more patience that I can usually muster.   I would not even consider the possibility now of buying more than 50 shares as a lottery ticket.  

7.  Pending Home Sales:  The National Association of Realtors reported a 6.7% rise in pending home sales for April.  This was much higher than the expected increase of .5% 

8.  UBS Upgrades Pepsi:  UBS increased its target price for Pepsi to $62    Street  This was a recent add at less than $50 on 5/6.  Pepsico Buy/ DJIA volatility index below 30  I had jettisoned my shares in Pepsi in September 2008 at over $70 with the intent of buying them back as soon the VIX settled down. Volatility, Catastrophic Event Formation, Asset Allocation Decision for Pepsi September 2008  LB gives green light on repurchase of Pepsi sold in September 2008 This is an Unstable VIX Pattern: Good or Bad for Stocks?

9. Slide in the Dollar and Consumer Staples Stocks:  I have noticed over the past few trading days that the consumer staple stocks seem to be rallying.  This coincides with the recent slide in the dollar.  The ones that I own based in the U.S. do have large operations overseas  and would benefit from more favorable exchange rates.  Coca Cola is the one that would benefit the most.  It is up about $11 from my last purchase on 3/10/09 which is huge for KO. Buy of KO at 38.72/Newt Gingrich & GOP Ideology on Financial Regulations/UTX/ 

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.