Wednesday, September 30, 2009

Sold LT Sunopta at $4.06/Bought 50 LT SNV at $3.73/Wolseley & Landec Earnings/Repeat of the 1970s Inflation?

1. Coca-Cola (owned): The buy of my remaining shares of KO was at $38.72. Buy of KO at 38.72/Newt Gingrich & GOP Ideology on Financial Regulations Yesterday, Citigroup initiated coverage of KO with a buy and $61 target.

2. KBC Belgium (nothing owned): KBC announced that 72% of the outstanding hybrids were repurchased in response to its tender offer, for a total of 834 million Euros. So, apparently the European Commission is okay with using state aid to repurchase the hybrids, even when it had previously asked KBC to defer paying the coupon on the hybrids. That is just beyond my comprehension. Item # 7: EC: Beyond My Comprehension It simply does not compute.

3. Wolseley (OWNED-LOTTERY TICKET): This LT was recently purchased knowing that patience and long term were the two operative words. The company reported better than expected operating profit before charges of 447 million pounds for the year ending in July 2009. More importantly from my perspective Wolseley reduced its debt to 959 million pounds from 2.47 billion pounds a year ago. FinancialReport This firm trades on the Pink Sheet electronic exchange in the U.S. Wolseley plc - WOSCY At some point, I may splurge, go crazy, and buy another 50 shares of this one, to round up my odd lot to an even 100 big ones.

4. Sold 100 Sunopta (STKL)-Lottery Ticket (See Disclaimer): STKL was sold yesterday at $4.06, a good percentage gain from its purchase at $1.65 in 12/08. Buy of Sunopta: Highly Speculative This is just pure profit taking. STKL is selling at a high multiple of its estimated 2010 earnings of .24. STKL

5. Huntington Bank (HBAN) (owned Lottery Ticket): I really do not have much confidence in most of the bank lottery tickets purchased over the past few months. RB is responsible for this shotgun approach to picking up some of these regional bank stocks in the low single digits, and hoping that a few may return to prosperity 5 to 10 years down the road. This approach would have worked just fine in 1990-1991, the last time the banks blew themselves up with bad real estate loans. Huntington was upgraded by FBR yesterday to outperform with the price target raised to $5 from $4, apparently based on the recent capital raise of 400 million as being sufficient to weather the current downturn. I have no idea whether or not that is the case. All of these large capital raises at prices prevalent back in the early 1990s are just dilutive from my perspective to long term shareholders, but I am a shareholder of very recent origin buying well after the banks blew themselves up. I just bought 50 shares, which shows my overall lack of confidence, at $4.27: Proctor Upgrade/Bought 50 Huntington Bank as Lottery Ticket/Sold 50 ISF at $14.65 and Bought 50 AEF at $16.82/ Pared JZH by Selling 50 at $20.2

6. Bought 50 Synovus Financial at $3.73 (SNV)-Lottery Ticket (see Disclaimer): The RB is continuing its frolic in demolished regional banks. SNV has been smashed, and rightly so, ringing up gigantic losses in its real estate loans so far this year. The second quarter report was horrible. It is almost impossible to conceive of any group of people being able to rack up such losses even intentionally. Synovus Reports Results for Second Quarter 2009 The bank also recently diluted the heck out of long term shareholders by selling 150 million shares at $4, Synovus , a price prevalent back in the early 1990s SNV Stock Charts . In March 2007, SNV closed over $32. Synovus was downgraded yesterday by FBR based on expected losses yet to come in its real estate portfolio with a price target lowered from $3 to $2.5. Okay, I know that it is really bad already. But I did read a Reuters story that a few analysts were less negative than FBR: Reuters The second quarter loss was pretty bad though: Synovus On the positive side, and it is hard to find a positive here, I believe that this bank has a concentration of real estate loans in the Atlanta area and the Case Shiller index released yesterday shows an increase in home prices in Atlanta of 2.3% in July compared to June, and a 1.5% increase in June compared to May. /pdf/index/CSHomePrice S & P has a sell rating, two stars with a $3 target. The 52 week low was around $2.3 in early March. I do expect some failures in my LT purchases, and the bank LTs are certainly no exception.

The success that I have had this year with the LTs, not likely to be repeated, gives me some leeway to venture into disasters like Synovus, and to hold for the long term without even risking my profit realized from the Sunopta sell yesterday, even if SYN goes to zero. So, that is sort of how I look at it, investing the profit in Sunopta by buying 50 shares of Synovus.

7. Landec (owned-Lottery Ticket): While Landec's earnings for its first quarter of fiscal 2010 beat the consensus estimate by a penny, income fell to 8 cents, down from 11 cents in the year ago quarter, on a 15% fall in revenue year over year. The 2010 fiscal first quarter did have one less week however. The company ended the quarter with 69.5 million in cash and marketable securities and no debt. Market capitalization at the current price of $6.33 is around 167 million. Price to sales is hovering around .75 with a 5 year P.E.G. of less than 1 according to YF. LNDC: Key Statistics for Landec Corporation This is a hold for me. It is possible with some positive news, and/or a price handle below $6, that I will take Landec out of the LT category and round up the 50 share lot to 100 shares. Bought 50 LNDC at $6.2-Lottery Ticket/SLM/Impact of Any Payment to Dutch State in May

8. CIT: According to the, CIT is preparing to exchange up to 30 to 40% of its 30 billion in debt for new debt secured by assets along with most of the equity in the firm. A similar story is from Reuters this morning. Another story is at

9. Philadelphia Federal Reserve President Charles Plosser: Plosser is concerned about a repeat of the 1970s inflation cycle that developed after the severe recession in 1973, due at least in part to easy Fed monetary policy, and further believes that economic slack may not be a good predictor of future inflation:

"While I see little risk of inflation in the near term, I do see greater risk of higher inflation in the intermediate to long term for several reasons. First, monetary policy is extremely accommodative. We have expanded the Fed's balance sheet to an unprecedented degree since last fall and have kept interest rates at historically low levels. Second, I put less weight than many other economists do on the idea that economic slack or low resource utilization is a reliable predictor of inflation....
It is particularly hard to measure slack near the turning points in business cycles, so making policy decisions based on measures of such slack becomes problematic....
Our current circumstances pose an eerily similar set of conditions to those in the mid-1970s. The nation had experienced a severe recession, in part due to a large oil-price shock. Many economists and Fed policymakers believed that a large amount of slack existed and it would help slow inflation and keep it low, even as the Fed undertook a rapid monetary expansion to spur economic growth and lower the unemployment rate.
Unfortunately, slack was poorly measured and turned out to be not as significant as first estimated. Thus, the Fed's monetary expansion led to rising inflation for the balance of the 1970s. One lesson learned during this episode is that inflation expectations can matter a great deal, and if they become unanchored — that is, if the public comes to believe that the Fed will not do what is necessary to preserve price stability — then inflation can rise quickly regardless of the amount of so-called slack in the economy. The price we paid to regain control of inflation and the Fed's credibility to do so came in the form of the 1981-82 recession and was a steep one."

I too have been drawing parallels with the 1970s recently: 1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? More on 1982 or 1974 I previously mentioned a study by the staff of the San Francisco Fed that suggested the output gap in the U.S. economy may not be as large as many believe, Item # 3 What is the Output Gap/ If the output gap was as large as currently estimated, then core inflation should have fallen a lot more during the recession. And, some of what may be considered production capacity, which is currently idled, may be permanently mothballed capacity.

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