Friday, June 12, 2009

Morning Notes 6 12 2009/Cramer Nuts about BAC/Novartis & Swine Flu Vaccine/Volcker Speech on Inflation & Recovery/DKK

1.  Cramer Goes Nuts over Bank of America:  Cramer was more than his usual excitable self yesterday, maybe the producer of Mad Money will want to think twice before allowing the old man to have a ax to swing around. I sure that I had never seen, before yesterday, someone swing an ax at a stack of oreo cookies.  The object of his affection was Bank of America, which he has been buying most every day for his charitable trust, and the earnings upgrade BAC received yesterday from the Morgan Stanley analyst.  TheStreet.com Some of BAC's recent price movement may have some relevance to those who have to decide whether to convert their equity preferred shares into common. I have sold my BAC preferred shares. According to the BAC press release, the number of common shares issuable for each of the preferred stocks will be equal to the consideration amount for each of the depositary shares as set forth in BAC's offer divided by the "daily per share volume-weighted average price of Bank of America common stock for each of the five consecutive trading days ending on and including June 22, 2009"Bank of America Announces Exchange Offer For Certain Series of Preferred Stock - May 28, 2009   So the price for those 5 trading days will impact how many shares an investor will receive in a conversion.  

If I had wanted to acquire more BAC shares than I already own by exchanging preferred shares, then the recent increase in the BAC common share price, coupled with might happen to the preferred share prices after the offer expires, would create a quandary.  It is not a quandary for me however. I have already sold the two equity floating rate preferred stocks that were included in the offer at a good profit since I had no interest in acquiring more BAC shares. Besides I did not own enough of the preferred to bother with a tender anyway.  Though for those interested in the exchange, anything causing the common to rise more now, or to continue rising for those five days, would mean less shares in the conversion for anyone tendering.  

BAC was trading up more than 4% in early trading today at around $13.5.

2. FED May Not Increase Significantly Purchase of Securities-WSJ:  There was an important story in the WSJ this morning that the FED was unlikely to decide at its next meeting later in June to significantly increase its purchases of treasuries and mortgage backed securities.    WSJ.com  The Fed has already bought 555.9 billion of the 1.25 trillion of mortgage backed securities, currently scheduled to be completed by the end of this year or early next year.  The FED has also purchased 156.5 billion of the planned 300 billion of treasuries, with the that program scheduled to end at the end of August. 

3. Volcker Speech in China:  Paul Volcker asserted in a speech in China that inflationary pressures are not likely for some time to come.  He also said that it was reasonable to expect some growth to start later this year in the U.S. but that a strong recovery was not likely to occur, and would instead be a long slog with continuing high levels of unemployment. HeraldNet  WSJ

4.  Europe's Recovery Likely to Lag the U.S.:  Industrial production in the Euro zone slumped 1.9% in April, greater than the 1% estimate.  The general thrust of the recent economic reports is that the U.S. is stabilizing, even improving, while the news from Europe remains grim.  This is the topic of a story in the NYT this morning.   NYTimes.com  This does make me wonder about the recent strength of the Euro against the dollar. 

5. Novartis & Swine Flu Vaccine:  I did not add NVS a few weeks ago based on its vaccine business. BOUGHT NVS AND SOLD GJO NVS has produced the first batch of an experimental vaccine  for the new swine flue strain and expects to be able to ramp up production using a new manufacturing using cell-based production rather than the standard egg-based production technique.   This news gave NVS about a 3% pop in early trading this morning. NVS

6.  How Far Have We Come Exactly:  I have heard a number of talking heads claim that a pullback in stock prices is likely to occur based on how far the averages have risen since early March.  The S & P 500 is up 39.6% from its low. d.com  Some, like Sam Stovall, say that we have to go back to the 800 level on the S & P 500.  If you are going to start to predict the future, predict often to improve your chances of being right now and again which will cause the mass media to pin the label of financial guru on you, then write a book, and do the interview circuit like that Professor Roubini.  Maybe they will be proven right.  But I just looked at the daily closing prices for SPY, the ETF for the S & P 500, for 2009 and it doesn't appear to me that a purchaser of SPY would have noticed much change, with SPY starting the year at $92.96 and is now trading around $94.4 this morning.  So if you had kept your eyes closed from 1/1/09 to now, it would not look like we have come very far at all.   Personally, I am having one of my best years ever, so far at least.   The bogeyman may just be waiting around that corner.

7.  DKK:  DKK, one of the four Trust Certificates that contain the same Aon junior bond, went ex interest today.  It goes ex interest earlier than KVW and KTN, which I also own.   The next ex date for those TCs is around 6/26/09.

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