1. Kraft (owned): Kraft was one of the buys made by the RB during its March frolic and detour. BOUGHT Kraft & NESTLE/ Bought Lottery Ticket in CBG at 2.39 The purchase was made at $22.26. At that price the current dividend yield was 5.2%. I viewed the dividend as reasonably solid, as those things go now, and most likely subject to annual raises. My attitude is too keep those shares for as long as Kraft continues to raise the dividend each year, or until I turn very negative on the firm's prospects. A dividend cut will result in an immediate sell, without hesitation, which is what happened to my position in Avery Denison a few days ago. My yield on those Kraft shares is greater than any yield on treasury debt, and the Kraft dividend is subject to the more favorable qualified dividend tax rate for a U.S. taxpayer, unlike the interest payments on debt instruments. Unlike fixed coupon debt, my yield on common stock shares will increase every time the firm raises the dividend. So I am not a prospective seller based on the earnings report released by Kraft after the market closed yesterday.
Kraft Foods beat the consensus forecast by 2 cents, with earnings rising 11% to 56 cents per share from 49 cents a share in the year earlier period. Kraft was helped by a tax rate of 32% that was 5% lower than a year ago. Organic revenue, which excludes divestitures, currency exchange and acquisitions, grew 2.9%. Kraft raised its full year estimate to "at least" $1.93 from its previous forecast of $1.88. Discretionary cash flow for the first six months was approximately 1.4 billion, double the amount in the first 6 months of 2008. Earnings were also hurt by .02 from incremental pension costs and by still unfavorable currency exchange rates.
2. 15% of the Stimulus Money Spent: So far, only about 15% of the 787 billion in stimulus money has been spent. Possibly, as much as 25% of the total will be used by the end of this year. Once the massive aid showered on the financial system kept it from imploding, and causing another Great Depression, then the economy would recover in time. A well designed stimulus would have jump started the economy sooner and relieved the suffering of many individuals without jobs. The stimulus would have done the most good in the last quarter or during the current quarter. The question is whether it will simply add fuel onto a potential inflation fire when it finally hits an already recovering economy in a major way in 2010. I am currently in the camp that the danger is that the stimulus, along with other fiscal and monetary stimulus and the de facto devaluation of the U.S. dollar, will lead to serious inflation problems in about a year. Liberal economists like Paul Krugman and Joseph Stiglitz want more government stimulus to stimulate aggregate demand that they see as stagnating unless the government substitutes its spending for that of the U.S. consumer. Stiglitz was interviewed by Aaron Task yesterday. When you listen closely to economists, firmly in one camp or the other, it is easy to spot how their ideology influences their economic views. No one is completely free from having their perception of reality distorted by their ideology, except for LB of course.
3. The St. Joe Company (owned): This was an inspired purchase by RB at $15.69 on 3/18/09: Nibbled at ST JOE/. It closed up $1.62 to $30.94 yesterday on above average volume after reporting earnings. This is one that I have no clear answers on my next move. The company is asset rich, but still losing money. The new airport at Panama City is expected to open in May 2010, and this is an aerial view of construction at the site: Project updates on construction of the new Panama City-Bay County International Airport — The New PFN St Joe owns land around this airport and is accelerating pre-development activity on approximately 1000 acres adjacent to the airport according to its earnings release. I previously said that I would sell my shares once the price crossed $30. JOE owns 580,000 acres primarily in NW Florida, and 400,000 of those acres are within 15 miles of the Gulf of Mexico coast.
I am more inclined to hold my shares, at least for now, even though they have doubled in price in less than 5 months.
4. 40 to 50 Million Uninsured- Is that Accurate or Deliberately Misleading?: One of the most common pieces of misinformation used to justify the Democrats' health insurance plan is the claim that there are 40 to 50 million uninsured people. Jeremy Siegel pointed out that over 1/2 of the uninsured make over 50 thousand per year and could afford to buy health insurance. I have known over the years many successful people, mostly single, that have chosen to self-insure. Also, contrary to what some argue, the alternative for many young people between ages of 18 to 34, accounting for 40% of the uninsured, is not a comprehensive medical plan with a small deductible but a HSA with a high deductible and a much lower overall cost.
Siegel also pointed out that millions of those uninsured individuals are illegal aliens. Others are eligible for existing programs like medicaid but have not signed up. The National Institute for Health Management Foundation estimates that those individuals, eligible for existing programs like medicaid, account for 26% of the uninsured. nihcm.org/pdf
Some estimates have the number of illegal aliens as 1/3 rd of the much bandied about 40 to 50 million number. This is admittedly a hard number to pin down within a reasonable range (see discussion at FactCheck.org: The 'Real' Uninsured) Without saying so in clear terms, Obama is using figures from the Census Bureau that include illegal immigrants and other non-U.S. citizens in his effort to pass the legislation by bloating the size of the uninsured population. It is also interesting that the Democrats recently beat back an amendment that would have made it more difficult for U.S. taxpayers to subsidize medical care for illegal immigrants by allowing health agencies the opportunity to verify citizenship citizenship. The Democrats will be successful in attracting more illegal immigrants by making it harder to confirm U.S. citizenship before providing valuable benefits.
Once the true cost of providing health services is divorced from the obligation to pay that cost, two events will naturally occur. Individuals will take less responsibility for themselves, including diet and exercise, and will demand more services and products that they do not need. Millions will become convinced that the small amount paid by them for insurance actually pays for what they receive, and will become enraged if an effort is made later to reign in costs by increasing their obligations even in insignificant amounts. When the nation is already running toward a 1.8 trillion dollar budget deficit for this fiscal year, with medicare going broke faster than expected, millions of inhabitants in the "I want something without paying for it Nation" are accelerating their quest to receive more, and then some more, and then some more, without even first recognizing any obligation to pay for what has already been promised and not paid for.
5. Proctor & Gamble ( P&G Fiscal Year and Fourth Quarter EPS) : I recently sold my shares of PG based on just two factors. First, the price had spurted over a short period of time from my purchase price of $47.59 to my sales price of $56.89. Sold PG/Pared PGN/Bought 50 of the CEF IAE-Averaging Down Second, the near and intermediate term sales and earnings picture for PG looked uninspiring to me. While PG beat the consensus forecast by 2 cents, earnings were still down 18%, and revenues declined 11%, from the year ago quarter. The revenues of 18.66 billion also missed the forecast of 19.27 billion. I will just monitor the PG price over the next several weeks, and look for a possible re-entry point near or even below $50. Otherwise, I will just let it go.
6. CBL & Associates Properties (owned-Lottery Ticket): CBL, a REIT that owns malls, reported after the close yesterday. FFO increased by 2% and occupancy remained flat at 89%. CBL did recently raise 382 million in equity by issuing 66.63 million shares. I paid the most attention to the part of the release that dealt with the firm's financing and lines of credit extensions.
7. Linn Energy (LINE-OWNED): I last discussed this firm when I purchased additional shares at $15.21. Added to LINE. That add was in April after I spent so much time preparing my return with Linn's K-1 information. I concluded that I needed to own more shares just to make the time filling out forms during tax season worthwhile. Linn went ex dividend today with its quarterly payment of 63 cents per share.
8. Sold ETW and SWZ in Roth (see Disclaimer): 100 shares of the CEF Swiss Helvetia (SWZ) was sold at $10.75 late yesterday, and 100+ shares of the CEF ETW was sold this morning at $13. Both transactions were in the Roth IRA. I own close to 500 shares of ETW and 200 shares of SWZ in a taxable account, which I intend to keep. The ETW shares sold this morning in the Roth had a total cost basis of just $8.43 from 3/4/09 and two dividends received since that time. That is just too much, too soon to ignore. SWZ was a recent purchase in the ROTH at $10.23. I recently received a dividend of about 37 dollars but still the total return was much smaller than the ETW trade.
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