Monday, September 21, 2009

Bought VZ/Sold EBAY/AMAT Downgrade/Regional Banks/Barron's on PG/Double Shorts Tracking Issues-Monitoring Daily/

1. Applied Materials Downgrade: The analyst from Caris downgraded AMAT from buy to neutral, and cut the price target from $16 to $14 yesterday, based on the perception that recent management changes indicate potential problems in AMAT's semiconductor equipment business. A 8-K filing with the SEC summarizes these management changes: Form 8-K Press Release This kind of shake up may very well be a response to a lack of market share gain in both the etch and inspection products.

A Goldman analyst claims that customers are skeptical of AMAT's SunFab lines of thin-film for the solar market. Goldman removed AMAT from its Conviction Buy list but kept AMAT as a buy. AMAT claimed that its SunFab lines are are the road to profitability in 2010. Reuters A summary of the speech given by Dr. Mark Pinto, chief technology officer and manager of AMAT's Energy and Environmental Solutions Group is summarized in this press release from AMAT: Applied Materials Some of these developments are discussed in Eric Savitz's blog at

2. Credit Suisse Comments on Regional Bank Earnings Estimates after a Recent Conference: has a summary of Credit Suisse's opinion about several regional banks, in which I own common or preferred shares and/or bonds, including Suntrust (equity preferred); Zions (equity preferred and bond); Keycorp (common) and Regions (bond and stock). Of those four, CS was the most negative on Zions.

3. Conference Board-Leading Economic Indicators: The Conference Board said that the leading economic indicators rose .6% in August, following a .9% gain in July and a .8% rise in June: Conference

4. Barron's Goes Pooh on Citigroup's Upgrade of PG: Apparently, the note from Citigroup's analyst, Wendy Nicholson where she raised PG to a buy and increased her target price to $66, did not convince Tiernan Ray at Barrons who flat out says "it's likely best to keep" this stock out of your portfolio. Well, I have just added a 100 shares to mine, and it is up 10%. I am not thinking short term like Tiernan, otherwise I would have not bought the shares back after selling them. Apparently Tiernan does not see any value in buying PG at a 13 or so P/E, a historically low P/E based on the assumption that this company will solve its recent setbacks in growing revenues. Still, when I sold PG in July at $56.89 after buying shares at $47.59 in March, Sold PG, I did emphasize some of the same problems as Barrons, but the price of $52.85 just overwhelmed those concerns. BOUGHT 100 PG AT $52.85 / Proctor Update

5. Afghanistan: General McChrystal, the U.S. and Nato commander in Afghanistan, is stating that, without more forces, the U.S. effort "will likely result in failure" This is a link to his assessment in PDF format that the Washington Post has on its web site. .pdf This war is starting to look like Vietnam in some ways without the jungle. The regime appears to be corrupt; the situation has gone downhill gradually over the past few years; the enemy has a sanctuary in a neighboring country; the terrain is inhospitable and provides cover to the enemy; friends or non-combatants are hard to distinguish from the enemy; and the strategy has been inept since the effort was started on the cheap and has now escalated into a good sized, open ended conflict. I would seriously doubt that much headway can be made without ending widespread corruption and depriving the enemy of sanctuary in the tribal areas of Pakistan. More troops would stabilize the situation but would not provide any long term solution.

6. Double Short ETFs: I do not monitor how well double shorts track an index unless I own one of them, then I will monitor daily. When I have a position, I will check at least once a day to compare the double short ETF with either the index and an ETF for the index. For example, the symbol for the Russell 2000 index is RUT, ^RUT: Summary for RUSSELL 2000 INDEX which closed down .31% yesterday. IWM is the symbol for the ETF for the Russell 2000 and it closed down .27% IWM: Summary for ISHARE RUS 2000 INDX TWM is the double short for the Russell 2000 so it should have been up yesterday, and it was by .40%. TWM: Summary for ULTRASHORT RUSSELL20 - The NAV was $27.59 as of yesterday's close but the market price was slightly lower at $27.55. ProShares ETFs – Funds - Overview So, taking into account the expense ratio of TWM, and the discount to NAV as of the close, that is fairly close for that one day. Once I buy one of these products, I do monitor daily as suggested by the sponsor's web site for tracking errors. ProShares ETFs – UltraShort Russell2000 – TWM – Overview And would jettison the position if the error started to become too large, allowing more leeway in the event it is swinging more to the upside than warranted by the index going down in value or when the overall purpose of the double short is continuing to be realized in substantial measure.

7. ING: Moody's has placed ING debt on review for a possible downgrade due to the EC investigation of the Dutch government's back up facility for the 27 billion in Euros of U.S. originated ALT-A mortgages. MarketWatch Only the EC can explain why an Alt-A mortgage, originated in the U.S. and owned by U.S. financial institutions operating in North America impacts competition for financial services in Europe.

8. Asian GDP Growth: The Asia Development Bank increased its 2009 forecast for growth in China, India and developing Asian countries. Resilient Asia Poised to Lead Recovery from Global Slowdown, Says ADB NYT Part of the reason for the increase has to do with those countries stimulating domestic demand.

9. Marc Faber: Yahoo's Tech Ticker has a long video interview with Marc Faber, one of the bearish Barron's Roundtable panelists, where Faber expresses opinions that makes Alan Abelson look positively giddy with optimism. Faber is predicting the collapse of the U.S. capitalist system and runaway inflation. I do agree with him that a host of problems will start to crop up when the short rates move up and the U.S. has to refinance its debt at ever increasing interest rates. The U.S. faces long term structural budget deficits and has shown no inclination to come to grips with those problems. Instead, as shown by the willingness to pile new social programs on top of the unfunded ones that we are have, the tendency is to aggravate a serious multi-decade fiscal problem rather than to solve it.

10. Hertz (own Bond only): Hertz was able to successfully execute a 2.14 billion fleet refinancing covering the "majority" of its U.S. fleet debt in need of refinancing through the end of 2010. Hertz I own just 50 shares of DKR, a Trust Certificate containing a senior bond maturing in 2012, that was bought last October for $6.45 with a $25 par value Hertz Bond Information in One Post. I sold the other 50 shares on a pop and am currently playing with the house's money on the remaining 50 shares which are generating a current yield of close to 27% per annum at my cost, plus close to another 400% in June 2012 assuming Hertz survives to pay off the bond at maturity. DKR is currently trading at over $20. DKR: Summary for MS SATURNS HERTZ 7% At a total cost of $20, the current yield would fall to 8.75% plus a 20% profit on the shares in June 2012 if Hertz survives. So there is something to be said about buying some shares even in the darkest moments. Volume in this security is light, and the bid/ask spread is normally large.

11. Bought 100 Verizon at $29.37 (see Disclaimer): I have low expectations from VZ. I would be satisfied with a dividend payment and a $2 gain in the share price, back to where I sold my last shares at $31.64. Sold All Verizon Stock/ S & P does have a $35 target on the shares. I decided to buy again because the dividend is too tempting for me, given the alternative of .1% in a money market account, and I clearly have too much cash earning nothing now. I commented to a reader the other day that the abnormally low federal funds rate, and the money creation by the central bank, were two important reasons for the market's advance along with the improving outlook for the economy. I know all about that feeling of seeking a higher yield for cash, as the Fed continues to punish savers with its monetary policy.

12. Ebay Sold at $24.21 (see Disclaimer) I flipped the magic coin again on EBAY. This process requires a coin to be shaken repeatedly in a cupped hand, flipped within two feet of the ceiling, the coin must land on a hard floor, and heads means keep the shares and tails requires a sell. The coin came up heads again, Headknocker then declared from now on heads must mean sell and tails hold. The coin had changed its meaning, though it continued to be correct in its forecasting abilities, saith Headknocker. This may sound arbitrary to some, but LB said Headknocker is the GL after all.
Maybe I worry too much sometimes, but I experienced both a giggle and and a momentary bout of anxiety when I read the story that the FDIC was seeking a bailout from the banks it insures. That has to be a joke.


  1. "...the Dutch government's back up facility for the 27 billion in Euros of U.S. originated ALT-A mortgages. Only the EC can explain why an Alt-A mortgage, originated in the U.S. and owned by U.S. financial institutions operating in North America impacts competition for financial services in Europe."

    OK, I will take a wild stab at it.

    Correct me if I'm wrong, but isn't ING's "facility" a back-up line of credit from the Dutch gov't. that could be drawn upon to pay claims by U.S. financial institutions stemming from losses on U.S. Alt-A mortgages?

    Couldn't the EC be concerned that by having the backup facility from the Dutch gov't, ING is "tying up" government money? If ING didn't have this line of credit, that pool of money could theoretically be freed up for other EU financial services companies who might need it?

  2. Cathie: I am not on the same wave length at the EC so your explanation may be on target. In fact, I am not on the same wavelength as a lot of people. I read last night that the mortgage industry believed "no document" and "stated income" loans were "financial innovations". And, here I thought those practices were just an invitation to widespread fraud and grease for young 30 year mortgage brokers to make a million a year.

    If I had to guess, I would speculate the EC believes that the parent company would have to salvage ING DIRECT and ING North America out of its own capital or pay more for the guarantee. By giving ING a sweet heart deal on the guarantee, ING frees up capital to improve its competitive posture in Europe.

    The EC is also looking at other banks with similar deals, like RBS and Lloyds, and the EC has to be cautious in treating all of them the same so it may have an incentive to overlook the guarantee applies to assets owned by U.S. institutions.

    The Dutch government hired a firm called Dynamic Credit to value the Alt-A mortgages.