Friday, October 30, 2009

VIX Spikes to Over 30/ Bought 100 of the TC JBI at $25.1/ Utility Earnings: POM, DUK, GXP, PGN/Glimcher/Income Growth/

The action on Friday in the VIX is a characteristic of the Unstable Vix Pattern, Phase 1. The VIX closed Friday up almost 24% to 30.69. In this pattern, the VIX will engage in whipsaw movement from the low 20s, or even below 20, to the low or mid 30s. Any movement below 20 is short lived. During the last Phase 1 of the Unstable VIX pattern, which lasted from August 2007 to the end of September 2008, when it was replaced with the catastrophic Phase 2 of the Unstable Vix Pattern, the general idea would have been to pare stocks when the VIX approached or fell below 20 and then to buy some stock when the VIX spiked into the low 30s. Buying a double short ETF when the VIX falls to the low 20s or preferably below 18, would also be a potential trade historically speaking. This would be possible as long as the Phase 1 pattern held, and did not resolve itself into a Stable VIX Pattern of more than 3 months below 20 or fall into the catastrophic Phase 2 of the Unstable Vix which happened last October. Vix Asset Allocation Model Explained Simply With as Few Words as Possible Stocks & Politics: VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern

To see how this works, I would suggest looking at VIX historical data from August 2007 thru September 2008, and look for duration of the spikes in the 30s and what was happening to the S & 500 prior to and during that spike, and then compare the S & P 500 average when volatility simmers down and returns to the low 20s or even below for a brief period. ^VIX: Historical Prices for CBOE VOLATILITY INDEX - Yahoo! Finance Anyone interested can go back to prior periods manifesting the Unstable Vix Pattern and check out the same type of numbers. There was a one day spike, for example on 1/22/08 from 27.18 to 31.01 but that was the only reading over 30 for awhile. The VIX did however stay elevated in the 25 to 30 level after that spike. A two day spike occurred in March 2008 followed by a less extended period in the 25 to 30 range before the VIX fell to below 20 on May 2008, which it can do in the Unstable Pattern. It just will not stay below 20 for very long. During this brief period below 20, and as long as the pattern continues to persist, I would pare stocks and possibly buy a double short. I am reluctant to buy the double short stock ETFs now due to the length of the Unstable VIX Pattern now being in excess of two years. On May 1, 2008, the S & P 500 closed at 1409.34. ^GSPC: Historical Prices for S&P 500 INDEX,RTH - Yahoo! FinanceWhen the Phase 2 pattern clearly formed in late September and early October, the S & P was 500 points lower: ^GSPC: Historical Prices for S&P 500 INDEX,RTH - Yahoo! Finance I would seriously doubt that the current spike will elevate to a Phase 2 which requires a decisive break above 40 in the VIX.

Part of the problem today was a WSJ report that CIT may have to file for bankruptcy this weekend, as sources apparently told the WSJ reporters that the tender offer would likely fail. This sort of raised a spectre of events from last September.

1. Progress Energy (own stock & junior bond): Progress Energy beat the consensus estimate by 3 cents reporting GAAP earnings of $.88 per share and earnings from ongoing operations at $1.22. The utility reaffirmed 2009 guidance of $2.95 to $3.15 for continuing operations.

2. NYSE Euronext (own stock): The buy was at $14.76 in March (Buy NYX) and I have been debating with myself what to do with the shares. While NYSE Euronext beat the consensus estimate by 7 cents, earnings will still down 28% from a year ago. My inclination is too put this one in the keeper category as long as NYX maintains its dividend. At my cost, the dividend yield is close to 10%, similar to the Dupont purchase made on 3/7, at about the same time as NYX. It is not that I am enamored with either DD or NYX, but the yield at my cost turns these common stocks into bonds in my mind's eye.

3. Duke (own common): DUK is classified as a core electric utility holding, which means that I will give it a lot of slack and will reinvest the dividends to buy additional shares. And, I will add shares on weakness. Duke Energy beat the consensus estimate by 2 cents and reaffirmed FY 2009 guidance of $1.2 excluding items. Excluding item Duke earned 40 cents per share. Duke said in its press release that industrial sales continued to show signs of stabilization and improved about 11% over the 2nd quarter number.

4. Great Plains Energy (own common): GXP is a non-core utility holding. Great Plains Energy continued with its unimpressive performance reporting earnings of 58 cents per share. It narrowed the full year guidance to $1.1 to $1.18 from $1.1 to $1.4. Weather was mild in its region. This one is on the chopping block for a possible year end disposal.

5. Pepco (POM)(own common): Pepco is a non core electric utility holding which is being held on a short leash tied to the maintenance of its dividend. Unlike other non core holdings, however, the dividend is being used to buy more shares. Pepco Holdings reported earnings of 44 cents excluding items in the third quarter or 56 cents with items. POM earned 59 cents in the 3rd quarter of 2008, so another decline year over year. Revenue declined to 2.54 billion from 3.06 billion.

6. Glimcher Realty (LT category: own preferred and common): Glimcher reported a modest loss per share and FFO at 40 cents for the 3rd quarter compared to 46 cents in the year ago quarter. Occupancy rates at the core malls declined to 91.9% from 93.1%. The GRTPRF has been the most successful lottery ticket over the past year. The purchase was made at $2.9 and has been generating a 75% annualized dividend at that cost since my purchase late last year. It is currently trading near $17.

7. Personal Income and Spending: Personal income and disposable personal income for September were basically flat with August. News Release: Personal Income and Outlays, September 2009 I regard the failure of these numbers to increase over CPI to be a core structural type problem for the U.S. Source of Problems: No Real Wage Growth Spending decreased .5% as the cash for clunkers program expired. Some economists attribute the 3.5% gain in GDP to be fueled by these special items and consequently expect a significant decline in the 4th quarter GDP compared to the third quarter.

8. Chicago PMI: This manufacturing index rose to 54.2% in October from 46.1% in September. .pdf

9. Bought 100 of the TC JBI at $25.1 on Friday (see Disclaimer): I mentioned in a post a few days ago that I would be revisiting some bonds sold at or near par value in my current pursuit for some yield. I sold JBI at $25.02 earlier in the year, viewing that it had little upside, which is still my view. SOLD 100 JBI AT PAR VALUE I bought this TC back for the yield which is close to 7.8% at my cost. When I started to discuss JBI, it was selling for around $17. TRUST CERTIFICATES JBI DUKE

The underlying securing is a senior bond from Duke Capital, which used to be part of Duke Energy (DUK). As a result of a spin-off Duke Capital is now part of Spectra Energy (SE), which is still rated investment grade. The underlying bond has a 6.75% coupon, and this is a link to the FINRA data and trading information for it. FINRA - Investor Information - Market Data - Bonds - Bond Detail The TC has a coupon of 7.875%. The underlying bond is trading at a slightly greater premium to par value during Friday's trading than the TC. So the TC was a better buy at $25.10. The underlying bond matures in 2032. So, as with all long term bonds, there is a lot of interest rate risk and a long time to monitor the credit risk.

The TC was originally a Lehman ABS issue and this will scare some people since Lehman ABS is bankrupt. This may be due to a lack of understanding about these TCs. Lehman ABS purchased the underlying securities in the market and deposited the underlying securities into a Grantor Trust administered by an independent trustee, who then collects the interest paid by Duke Capital and distributes the interest to the owners of JBI. JBI is a Trust Certificate which indicates a beneficial ownership in the assets of the trust, i.e., the underlying senior bonds from Duke Capital. The Trust owns the securities. Upon maturity, and assuming Duke Capital is still around and able to pay the notes off, then the Trustee will collect the par value of the notes and distribute the proceeds to the TC owners. This legal structure allows the bond to be divided into $25 par value units rather than $1000 par value units, and then permits the security to be sold on the stock exchange exchange. The underlying security may be bought in the bond market in $1,000 increments (1 bond =$1,000).

This is some language from the prospectus that describes the ownership issue:

"The Class A-1 Certificates, along with the Class A-2 Certificates, represent in the aggregate the entire beneficial ownership interest in the Trust. The property of the Trust will consist of (i) the Underlying Securities and (ii) all payments on or collections in respect of the Underlying Securities received on or after the Original Issue Date. The property of the Trust will be held for the benefit of the holders of the Certificates by the Trustee." Page S-15  

"A separate trust will be created for each series of trust certificates. Lehman ABS will assign the Deposited Assets for each series of certificates to the trustee named in the applicable prospectus supplement, in its capacity as trustee, for the benefit of the certificateholders of such series. See "Description of the Trust Agreement--Assignment of Deposited Assets." The trustee named in the applicable prospectus supplement will administer the Deposited Assets pursuant to the trust agreement and will receive a fee for these services."
(PAGE 7)

Since the Lehman bankruptcy, the trustee has been collecting interest payments from Duke and distributing those payments to the owners of JBI:

But I understand why many would prefer to steer clear of any security that has LEHMAN ABS in its name, to each his or her own. Everyone has to make their own judgments.

JBI pays semi annual interest payments, with the last one going ex in August so the next ex date will be in mid February 2010.

I believe this is the link to the original prospectus of the underlying security, which I always try to find and examine:

I would be content with one or two interest payments and a $5 profit on the shares, so expectations are very low. Basically, I am trying to net a 8% annualized return by a combination of interest payments and share appreciation in whatever combination.

Added to PNW at $31.9/ Bought 50 FPCPRA at $24.95/Roubeni & Rosenberg/Bought Norwegian Krone/CBG/Added 50 NYB at $11/Sold LT NSSC at $1.96

1. Roubeni and Rosenberg: had an article featuring Roubeni and Rosenberg on the first page of its business section yesterday. While both sounded alarms prior to the credit crisis, I simply viewed their warnings as obvious at the time, or at least obvious to anyone looking at the mounting evidence of problems. The writing was on the wall, clear as it could be, in February 2007 when HSBC warned that its bad debt losses would be 20% higher than the 8.8 billion anticipated by the analysts. Times Online This is a link to an article in MarketWatch dated 2/7/07 discussing some of the issues. On the same day as the HSBC announcement, New Century, now bankrupt, announced that it would report a loss and have to restate the prior three quarters of results since it had not set aside enough money to buy back the subprime loans that had gone bad. Countrywide would soon say that 19% of its nonprime loans were delinquent. Forbes On 2/27/07, Freddie Mac announced tougher standards for subprime loans. Freddie Mac Announces Tougher Subprime Lending Standards to Help Reduce the Risk of Future Borrower Default. - News Archive - Freddie Mac The soon to be developed VIX Asset Allocation model flashed an important Alert in February: First Alert in VIX Model in 2007: Clearly Tied to Mortgage Problem

Then you had skyrocketing debt as a percentage of disposable income and the increases in homes prices far outstripping rises in incomes, along with other time tested and traditional criteria for predicting problems in mortgage defaults flashing a five alarm fire. The funky mortgage products were well known. In other words, it was just obvious. Subprime mortgage crisis - Wikipedia, That last linked article from Wikipedia is a good summary. So it is always important to clear one's head of ideology and other predispositions that filter and distort information, and then make an effort to determine the reliable and material facts and how that information impacts the investment process.

Rosenberg's views are a frequent topic of discussion, and it never ceases to amaze me how journalists fail to mention his numerous erroneous predictions when hyping his one good call. The following are links to my discussions of his most recent wrong way predictions:

I would however highlight that David was predicting only a fractionally positive GDP report for the third quarter: Barrons's & David Rosenberg This interview can be played by starting the embedded video at (see interview after 2 minutes) I do not believe a 3.5% growth rate in GDP for the 3rd quarter can be properly classified as "fractional". He was predicting 1 to 2% GDP growth for 2010.

I am just making notes to myself about what he saying now. Rosenberg is quoted in the article as saying the "smart money", meaning anyone following his advice and who missed out on the 60% advance in the S & P 500 since March, are not likely to buy stocks until the S & P 500 falls to 750 to 800. He also compares the U.S. situation currently to the Japanese experience since 1989, noting that Japan suffered a bursting of its credit bubbles in 1989. This is the theory that excessive credit availability leads to robust and ultimately unsustainable appreciation in equity and real estate prices. I actually believe excessive credit availability is one cause for the bubble in real estate prices. Rosenberg sees no reason why the U.S. experience will not be similar to the Japanese experience, where there were multiple 40% rallies after the bubbles popped and all of them failed to hold. The Nikkei closed Thursday at 9891 after hitting a high of close to 40,000 in late 1989.

I personally would not draw any parallels with the Japanese experience for the reasons mentioned in prior posts, and view such comparisons to be misleading. the Japanese Experience with Deflation/Debasement of the U.S. Currency The Japanese experience is instructive on the necessity of dealing with a credit crisis immediately.

Roubini believes that the current rally is being driven by excess liquidity. He expects that the economy will disappoint and the market will suffer a nasty correction. If you want to take a gander at some of his recent calls and opinions, then a mere perusal of the topic headlines at this site (The Business Insider) will show that maybe Roubini needs to quit opining so much before the vast majority of people start to question his prescience or even his judgment.

2. Added 50 NYB at $11 Yesterday (see Disclaimer) : This brings me to 150 shares of this bank. The 50 shares bought yesterday were added to the 50 bought in the taxable account at a higher price. Bought 50 NYB at $11.3 The 50 shares recently bought in the regular IRA were also bought at $11. Added 50 NYB I was satisfied with NYB's recent earnings report and the declaration of its regular dividend which gives me over a 9% yield at my cost. NYB Earnings

3. Pinnacle West (PNW)(owned-Added to position at $31.9 Yesterday)(see Disclaimer): Pinnacle West reported earnings of $1.84 for the 3rd quarter on revenues of 1.143 billion, both better than the consensus forecast. The consensus forecast was for an EPS of $1.75 on 1.07 billion in revenues. PNW intends to sell a "substantial majority" of its real estate properties which had a net loss of 12.4 million during the quarter. Excluding this segment, PNW would have had earnings of $1.96 per share from its core utility operations. PNW expects that an EPS of $2.3 excluding the real estate segment (SunCor) would be reasonable for 2009 and 3 bucks for 2010 on the same basis. The current consensus is for $2.3 in 2009 and $2.91 in 2010. A few days ago PNW declared its regular quarterly dividend of $.525 per share. Pinnacle West

The 3d quarter was helped by warmer than normal weather. Importantly, sales declined on a weather adjusted basis. I remember a few years ago flying into the Phoenix airport and was struck by witnessing on descent what appeared to be a man standing in his front lawn with a rake, rearranging what appeared to be gravel or dirt in his yard. There was little grass to be seen.

I added to my position in PNW yesterday by buying shares at $31.9. (see Disclaimer).

4. Bought 100 CEF JPC at $6.85 in Regular IRA (see Disclaimer): I bought this Nuveen closed end fund in the regular IRA. It was selling near a 17% discount to NAV and has a yield of over 9% at my cost. JPC - Nuveen Multi-Strategy Income and Growth Fund When I receive reports from Nuveen for JQC which is held in the taxable account, JPC is included in that report which can be reviewed at the SEC's web site: Both funds use leverage which can be a disadvantage during a bear market, or when the borrowing costs exceed the potential returns from the securities purchased with those borrowed funds. Both funds are similar to one another. I bought JPC since it had a slightly higher yield at my cost, and the discount to NAV was probably slightly higher too. If you exclude interest costs associated with the leverage, the expense ratio is around .85% on a total fund basis. JQC - Nuveen Multi-Strategy Income and Growth Fund 2 I checked this morning and the NAV for JPC as of yesterday's close was $8.26. So a $6.85 price would have been at a 17.07% discount to NAV and at a current yield of 9.05%.

5. Sold 100 NSSC Lottery Ticket at $1.96 (see Disclaimer): This LT was purchased at $1.02 in February. /Buy 100 NSSC at $1.02/ I was not impressed with the last earnings report. Napco

6. CBG (owned): C B Richard Ellis has been one of the more successful LT purchases over the past year. LOTTERY TICKET PURCHASES: LINKS IN ONE POST I bought 50 shares at $2.39 in the Roth and sold those shares at $9.73: SOLD 1/2 CBG I still own 50 shares bought in December at $3.77 in the taxable account. CB Richard Ellis I was tempted to sell those shares yesterday but held off. The earnings release for the third quarter was not stellar. CB Richard Ellis Excluding items, CBG reported just 8 cents in earnings. And then the CEO made this far from reassuring statement in the press release: "We are beginning to see signs that market conditions in some business segments... are starting to stabilize" What a bunch of mush! The magic coin may decide the fate of the remaining 50 shares later today.

7. BOUGHT 16,776.24 NORWEGIAN KRONE (SEE DISCLAIMER): I signed up for the new international trading service provided by Fidelity in my taxable account that allows me to buy securities on fourteen foreign exchanges using eight different currencies. One of those currencies is the KRONE. I just wanted to own some KRONE. I noticed that the brokerage commission to buy securities on the Norway exchange was 160 Krone, and I may use those Krone later to buy something on the Oslo exchange. As I mentioned in an earlier post, Norway has already started to raise its rates and plans to keep raising them gradually. Key policy rate increased to 1.50 per cent The Norwegians also appear to me to be responsible, compared to some other governments. I checked the public debt as a percentage of GDP and saw that it was less than 50% GDC which is better than most of the other western European countries. Also the yearly rate of change was shown as just 13.2%. I briefly viewed the Norges Bank's monetary policy report, where it was noted that developments in the Norwegian economy had been better than the central bank expected when it rendered its report in March. (Pages 10-12: www.norges-bank/monetarypolicyreport_3_09.pdf) I am not aware of any currency ETF for the Krone.

I am not eager to use my lowly U.S. dollars to buy any significant amount of securities priced in stronger foreign currencies. But I intend to buy a few stocks traded overseas nonetheless, at least where there are no ADRs traded in the U.S. I will do a lot more buying when and if the U.S. dollar gains a lot in value versus the Euro, Aussie Dollar and Canadian Dollar.

Until I set this particular account up for international trading, I did not see a column "currency exchange" on the left hand side. The downside is that the commissions are higher for trading on the foreign exchanges than in the U.S., and there is also a fee also for the currency exchange. So once I convert my U.S. dollars into a foreign currency to buy a stock, I will be reluctant to exchange the funds back into dollars, unless there is at least 10% to be made on the currency exchange net of fees. And, at least for now, my holdings in a foreign currency do not earn anything. But, for all practical purposes, cash in money markets is yielding zero anyway now so that factor is no big deal until short term cash rates start to move back up. A currency ETF will earn some interest in the higher yielding currencies like the Aussie Dollar but there is an expense ratio. When I convert into Aussie dollars, rather than buying FXA, I pay a fee but there is no ongoing expense ratio which I would continually incur as a owner of a currency ETF. CurrencyShares :: CurrencyShares Australian Dollar Trust Fund Data But I would have to hold those Australian dollars for a long time, over 2 years I believe, to equalize the initial fee charged in the conversion with the expense ratio of a currency ETF like FXA which is .4%.

16000+ Norwegian Krone, or whatever the number was, sounds like a lot and the same amount bought in Japanese Yen would sound like I was really rich, as in 273,855 Yen which makes me feel rich just saying it. Currency Converter - Yahoo! Finance. But the reality is that I spent 3 grand buying those 16000+ Krone.

8. Bought 50 FPCPRA at $24.95 (See Disclaimer): I previously bought 50 of this junior bond in the Roth. Yesterday's buy was in the taxable account, where there is way too much cash earning nothing now, which is the reason why some of it was used to buy this security. I have already explained this one in detail: Bought 50 Shares of FPCPRA & PGN/Sold Some AUY-Bought 30 ZBPRC/Pared BWX for the Third Time/Sold 1 of 2 CIT bonds

9. AZM (Allianz junior bond-not owned): I sold my few shares in AZM after I started to sour on European hybrids in general. Sold AZM at $24.71-Reducing Exposure to European Hybrids Subsequent to that transaction, Allianz decided to delist both its common shares and AZM from the NYSE. I was curious about trading in that security now, since it is no longer capable of being traded on the NYSE. This is a link to the page at Allianz discussing this matter. Allianz - Bonds That page referred me to the FINRA web site which contains daily trading information: FINRA - Investor Information - Market Data - Bonds - Bond Detail The bond symbol for AZM is AZ.GA. The trading history can be checked by entering the relevant time period at the bottom of the page. The common stock is being traded on the pink sheet exchange under the symbol AZSEY: Quotes, Company Info, Filings, News, Short Interest - Allianz SE - AZSEY I will have to be desperate for yield to even try to buy this Allianz bond now.

10. WILMINTON TRUST (WL): I am taking WL out of the Lottery Ticket category which allows the LB to buy more shares. I currently own 30 shares due to the $300 limit on LT buys.

Thursday, October 29, 2009

Sold FCZ at 18.37/GDP/Delphi, PG/Aegon/ Jobs/New Housing Sales Slump/Delphi Financial/ING and EC as Dracula/Norway Raises Key Rate/

1. GDP: I am just glad that Goldman Sachs was wrong on this one. Yesterday, GS lowered its GDP forecast from 3% to 2.7% ( CNBC), and that may have contributed to the decline in the market averages. The government reported the preliminary GDP numbers for the Third Quarter this morning, and the real GDP increased 3.5% up from a decrease of .7% in the 2nd quarter. News Release: Gross Domestic Product

 A detailed report with charts can be found at These numbers are subject to later revision. The housing component saw its first increase since 2005 with residential fixed investment increasing 23.4%. Exports rose 14.7%. Federal government spending continues to rise at a good clip, increasing 7.9%. The actual GDP was better than the consensus forecast of 3.2%.

2. Sold 100 FCZ Yesterday at $18.37 (see Disclaimer): I mentioned back in December, when this senior bond from Ford Motor Credit was trading at $7 and change, that I had to be off my rocker to buy 200 shares. /FCZ Ideology and Facts: Coexistence Not Allowed/ F & FCZ/ All is well that ends well. I was looking for any excuse to sell it. The UAW members will do what they can to send Ford down the same path as GM and Chrysler and the NYT story yesterday about the union members rejecting the latest contract modifications is just the first new step in that direction. Item # 7 /Ford UAW Contract/ While the RB's foray into junk rated securities has turned out well, it is best to keep a tight leash on this kind of activity. On the downside, I am generating even more cash earning nothing in a money market fund.

3. New Home Sales: The Commerce Department reported that new home sales declined for the first time since March, falling a seasonally adjusted 3.6% in September. The median sales price, however, did increase 2.5% from August.

4. Goodyear Tire (own Senior Bond only in TC form-XKK): GT common took a hit yesterday, falling 17%, after the firm reported better than expected results for the third quarter but forecasted that its North American operations will have lower income in the 4th quarter compared to the 3rd. Goodyear This kind of report does at least raise a question about the recovery encompassing most sectors of the economy. Still, just looking at the Goodyear report and its forecast for the 4th quarter, I am fine with it since I only own senior bonds.

5. S L Green (own common and preferred): My little piece of Manhattan was upgraded to buy by Stifel Nicolaus.

6. Delphi Financial (own only DFP, a junior bond): Once I own a bond, I will review the firm's earnings reports for the limited purpose of making a judgment on financial viability. Delphi Financial appears to be doing fine to me. Operating earnings for the third quarter were 53.6 million or $1 per share. Book value hit an all time high at $23.99. DFP was ex interest for its quarterly interest payment yesterday. It is an exchange traded bond. /Bought 100 DFP at $17.1/

7. ING: Both the Aegon and ING hybrids took hits yesterday. I noted an article where analysts from BNP Paribas thought it was likely ING would pay the coupons on its hybrids. But BNP also mentioned that the European firms had to discuss these matters with the EC now. ING The EC recently sent out a press release making it clear that it expected to be consulted. In another article, ING was quoted that it did not "expect" to be subjected to mandatory deferral by the EC but would consult the EC prior to making any payments on its Tier 1 and Tier 2 capital, which would include the hybrids. BusinessWeek In the event ING buys back those Junior Securities from the Dutch government, and makes a payment on those securities, and if the EC nonetheless attempts to force a deferral under those circumstances, I would hope that institutional investors would respond immediately with the appropriate legal action against ING.

The draconian measures undertaken by the EC are unrelated to its purported objectives on competition and state aid. Instead, the European Commission's actions are best viewed as based on political considerations, a desire for punitive actions, and an expansive view of its power that results in government having close to dictatorial powers in Boardroom decisions.

8. Jeremy Grantham: Forsyth mentioned in his Barrons column that Grantham believes fair value for the S & P 500 is around 860 and that large U.S. stocks are overvalued by about 25%. Michael Kahn points out in his Barrons "Getting Technical" column a number of bearish technical factors including the double top formation in the transportation average.

9. Norwegian Central Bank: The Norges Bank raised its key policy rate to 1.5% from 1.25% yesterday. Norwegian unemployment for August came in at 3.2%. The Norges Bank sees the key rate fluctuating in the 1.25% to 2.25% ban until March 2010, with small raises thereafter.

10. Proctor & Gamble (owned): P&G reported better than expected results for the third quarter. EPS was $1.06, above the firm's guidance of $.95 to $1 and the consensus estimate of $.99. Net sales also beat PG's guidance with an organic rise of 2% in sales and revenues of 19.8 billion. Operating margin increased 160 basis points. Free cash flow was 4 billion, an all time high for the company. Proctor expects the next quarter to yield core earnings between 91 cents a buck. For its fiscal 2010 earnings, core earnings are now expected to fall in the $3.47 to $3.59 range. It expects to complete the sale of its pharmaceutical division by the end of October.

After trading PG shares earlier in the year, playing a spike from my entry in March at $47.49 and selling at $56.89 in July, I decided to re-enter the position by buying a 100 shares at $52.85. BOUGHT 100 PG AT $52.85 While this last earnings report showed improvement in key metrics like organic sales growth, I am still underwhelmed by the results.

11. Continuing Jobless Claims: Another positive number released this morning by the government was the significant decline in continuing jobless claims which fell about 148,000 to 5.797 million. ETA Press Release: Unemployment Insurance Weekly Claims Report Continuing claims peaked at 6.77 million in June.

12. Aegon: AEG issued a press release this morning stating that it had secured the approval of the Dutch Central Bank to repay 1/3rd of the 3 billion Euros received from the Dutch state. Aegon said that the repayment will be made on 11/30/2009 with accrued interest from 5/22/09. AEGON It is my understanding that this repayment will have to be made by repurchasing securities issued to its majority shareholder who then will use those funds to pay back a loan from the Dutch government. As discussed in several prior posts, those securities are Junior Securities to the Aegon hybrids. It is my view that the repurchase of those Junior Securities would trigger four quarterly mandatory payments on the hybrids subsequent to the payment on 11/30. This would mean the quarterly hybrid payments due in December 2009 and for the first 3 quarters in 2010. My reasoning is discussed in prior posts:

I did not see anything in the press release commenting on the need to secure EC approval or whether or not the EC has signed off on this transaction.

Wednesday, October 28, 2009

NYB Earnings/More on ING/Anika/Ford UAW Contract/Gross-Almost All Risk Assets Overvalued/

1. New York Community Bancorp (NYB)(owned): I thought that NYB's earnings report for the 3rd quarter was a good one. The Board also declared the regular quarterly dividend of 25 cents per share, payable on 11/16 to shareholders of record on November 6th. Operating EPS was 26 cents per diluted share ($.28 GAAP). The Net Interest Margin (NIM) rose 49 basis points year over year to 3.17%. Non-performing assets totaled 1.45% of total loans. The bank increased its loan loss provision by 15 million during the quarter. There was just 6.4 million in net charge-offs during the quarter. Book value at the end of the quarter was $12.21.

2. Durable Goods: Orders for durable goods rose 1% in September and increased .9% ex-transportation. Inventories continued to fall for the ninth straight month.

3. Almost All Assets Overvalued on a Long Term Basis-Bill Gross: I do read the monthly investment outlook written by Bill Gross and published at the PIMCO web site: PIMCO I would wholeheartedly agree with his statement that growth in the U.S. and other G-7 economies has been generated by increasing use of leverage and artificial asset appreciation rather than the production of goods and services. What Will Produce Growth after the Age of Leverage? I would disagree with his time frame for that trend as being in the decades, preferring to use about 15 years. I would also agree with his use of the word fallacy to describe Jeremy Siegel's stocks for the long run thesis. WSJ Exposes Jeremy Siegel/ To Professor Siegel: Time for a Re-Think I would disagree with his assertion that the Fed will require 12 to 18 months of 4%+ nominal GDP growth before raising federal funds above its 0% benchmark. I would anticipate that any such policy would likely create more bubbles in riskier asset prices, including bond and stock prices. Keeping short rates at zero for the next 12 to 18 more months would result in even more artificial demand for bonds which will serves to compress yield. He also believes the six month rally in risk assets is at its pinnacle, but I do not see how that would hold true in the real world awash in liquidity and low yields for an extended period.

An interesting factoid is that 1 out of every 13 dollars paid to workers in the U.S. went to those working in finance.

4. The EC Guts ING: The common shares of ING were halted on the Euronext exchange yesterday as volume spiked, with shares trading sharply down, in the market's negative reaction to the deal announced with the EC. Reuters The rights issue will be dilutive to existing shareholders, and the requirements on divestitures demanded by the EC will render ING a relatively insignificant financial institution over the long term, not really anything other than primarily a regional bank for the Benelux countries with some operations in Eastern Europe and Turkey In short, the EC has gutted ING for no good reason. I understand the pressure ING was under to reach a deal. It had apparently worked a modification of its agreement with the Dutch state that would permit ING to pay back 1/2 of the 10 billion Euros without incurring the 50% penalty ("premium"), maybe for as little as a 333 million Euro premium plus interest which is a lot better than 2.5 billion plus the 5 billion in principal amount. To finalize the transaction, ING apparently needed the EC's blessing on everything, including the guarantee on the Alt-A mortgages, and that is what led to all of the mischief and undesired consequences. If the rights offering is successful, it will be bad for common shareholders but I would still view it as positive for the hybrid owners. The problem for the hybrid owner is not gone however, but merely postponed into the future. I suspect that the weakness yesterday and today in the ING hybrids has more to do with the long term credit issues. Moody's did downgrade ING debt yesterday. (ING) MSN Money

When I mentioned yesterday that the common might be bought at some point as a short term trade, I would be looking for a substantial discount to the breakup value of ING and ING is breaking up.

5. Norfolk Southern: NSC reported after the close and its report is a continuation of the less than stellar earnings releases from transportation firms. Norfolk Southern reported net income of 81 cents compared to a $1.37 a year ago on a 29 percent decline in revenues and a 20% reduction in freight volume from the third quarter of 2008 when the U.S. was already in a recession.

6. GMAC: Maybe the third bailout for GMAC will work like a charm, or maybe not. The government is apparently in talks to infuse another 2.8 billion to 5.6 billion into GMAC. And the FDIC is reported to have told GMAC that it will guarantee another 2.9 billion of its debt. The government apparently draws a distinction between the importance of GMAC and CIT to the rejuvenation of the economy. I do not own any GMAC bonds directly, never have, but one of GMAC's bonds is one of the 15 corporate bonds contained in the TC IPB which I do own: Bought 100 of the TC IPB at $16.99 /IPB/ Calculations On How to Recreate Trust Certificate IPB This is a link to the FINRA information on that bond: FINRA - Investor Information - Market Data - Bonds - Bond Detail

7. UAW Locals Rejecting Concessions to Ford: The NYT is reporting that early voting from UAW locals is trending heavily to rejecting further concessions to Ford which were approved for GM and Chrysler. Ultimately, the UAW will do whatever they can to force Ford into the same fate as GM and Chrysler. But it is fairly clear, at least to a casual observer sitting at a desk in the SUV Capital of the World, that Ford is doing better than the other 2 American auto companies at least for now.

8. Anika Therapeutics (ANIK)(owned-Lottery Ticket): Anika Therapeutics , a recently added LT, is up about 15% this morning after reporting growth in net income of 37% on a 17% increase in revenue. The firm grew joint health revenue by 31%. Anika earned 13 cents per share in the 3rd quarter compared to 10 cents in the year ago quarter. The firm ended the quarter with over 38 million in cash. As mentioned earlier, Anika launched MONOVISC (MONOVISC) in Canada in the 3rd quarter (Reuters), a single injection osteoarthritis product. This product is designed to replace the body's natural hyalurionic acid which is typically in lower concentrations among people who have osteoarthritis.

9. Volatility: The DJIA Volatility Index, VXD, stayed below 20 only for a few days. The recent market action over the past three trading days has caused the VXD to surge back over 20 and the trading is now over 22. The VIX has turned back up too trading earlier today over 25. This type of action is consistent with the Unstable Vix Pattern, Phase 1.

Tuesday, October 27, 2009

Added 50 NYB/IBM & Intel/Sold FXA/More Ruminations on Privatizing Rewards-Benefits While Socializing the Consequences/Risks

1. IBM & INTEL (owned): IBM gave the market a lift earlier in the morning after announcing that it would increase its ongoing stock buy back by 5 billion. Intel's CEO said that he believed that there was "a very good chance corporate spending on PCs will improve significantly in 2010".

2. Added 50 NYB at $10.90 (see disclaimer): New York Community Bank is one of the few publicly traded banks that refused to accept TARP funds. And, while it is almost impossible to believe, NYB has not cut its dividend either. That is a twofer in my book. I recently bought 50 shares in a taxable account at a higher price (Bought 50 NYB at $11.3), and I have added 50 shares at $10.9 in the regular IRA. At a total cost of $11 per share, the current dividend, which some analysts believe will be cut, results in a yield of around 9%: NYB Stock I have no idea whether or not the dividend will be cut. If it stays in place, it will not take much price appreciation in the stock to give me a 10% annualized yield which is all that I want from this investment. Earnings will be released tomorrow morning.

NYB did apply for 596 million in TARP funds and then withdrew its request: N Y Business

3. SOLD 30 FXA at $91.62 (see Disclaimer): I had a good profit in FXA and decided to harvest it. The Australian currency has risen fast and far against the U.S. dollar since early March. I do not profess to know much if anything about currency trading. I would note that I successfully traded these currency ETFs in 2008, and I kept the 30 FXA to reflect my gains. I am now moving into yield hog status.

FXA 30 SHARES +$349.82
2007 FXA 145 Shares +$347.75

This means -unfortunately- that I am likely to revisit some TCs sold as they approached par value even though they may be selling at a slight premium to par now. I hate saying that. I Never Buy Bonds at More than Par Value or CEFs at Premiums to Net Asset Value/ That last linked post was written in August. I am changing my tune as I suffer more months as punishment for being a frugal and responsible person who actually saves money. It is unfortunate that the responsible ones in our society are required to pick up the tab for the reckless and irresponsible ones. I am of course willing to pay for my own mistakes, as a firm believer in personal responsibility, but I am growing weary of paying to clean up the mistakes of others, particularly when they profited from creating the mess. Privatize the rewards and socialize the consequences is the new mantra. . Freedom From Responsibility More Discussion on Black Swan and Taleb's book If the ones who are ultimately responsible for the currently low rates, including all those Wunderkind and Masters of Disaster (who have proven themselves to be doofuses of the highest order) had to pay back all of their undeserved gains from blowing up the world's financial system, maybe I would be more tolerable of what is happening now. Judging from the current bonus pool at Goldman Sachs, the Masters are back at their old game as if nothing has happened. That pool has increased to almost 17 billion dollars for the first nine months.

Worrisome Action in the Transports/ S L Green/CASE SHILLER/CONSUMER CONFIDENCE

1. SL Green Realty Corp. (own common and cumulative preferred): My remaining common shares were bought at less than $15, and I own shares in SLGPRC bought in two lots in retirement accounts at $10.5 and $11.89. This owner of Manhattan offices is suffering some from the downturn in commercial real estate. FFO for the third quarter was 98 cents, in line with expectations, but declined from $1.37 in the third quarter of 2008. The Manhattan occupancy rate at the end of the quarter was 95.7%. I am in a long term holding pattern with my tiny slice of this Manhattan brick.

2. Cramer Changes Tune: Cramer became decidedly more bearish during his Mad Money show last night. It is hard to be reassured by constant refrain that business had stabilized at low levels, repeated over and over again. I noted this refrain from Union Pacific who added the modifier "very" to the constant refrain of "low levels". Continued Weakness in Freight Volumes The Dow Transportation Average did break its trendline, and some view that as a trouble signal for the overall stock market. Rosenberg believes that he has found a "classic" double top formation in the transportation average. Dave I would just add that Rosenberg sees whatever confirms his pre-existing beliefs and the Dow Transport average is still trending above its 200 day moving average. ^DJT: Technical Analysis for Dow Jones Transportation I have previously noted that the Baltic Fright Index had declined from 4291 in June to below 2200 in September, and that this was a matter of concern to me. Since my last discussion of this Index in September, the Baltic Dry Index has started to trend back up closing yesterday over 3000: Bloomberg Still, the weakness in freight traffic does tell me to proceed with caution at this juncture.

3. 5 Year TIP Auction: The five year TIP was auctioned yesterday, actually a reopening of a prior auction with 4 years and 6 months remaining until maturity. .pdf The coupon rate (real yield) on the original issue was 1.25%. Since this one was sold yesterday at a premium to par value the yield was reduced to .769%. This is just completely uninteresting to me. The break-even on these notes was about 1.5% at the time of the auction. Before I participate in another auction, and I am limiting my activity to just the ten year auctions, I am going to want a real yield closer to 2 1/2%.

4. CASE- SHILLER INDEX: This index for home prices in 20 large metropolitan areas improved for the third straight month, rising 1% in August. CSHomePrice102706.pdf Compared to July, 17 cities had increases in home prices and 3 had declines. Las Vegas continues to be one of the 20 in decline. The highest percentage gains from July were in Minneapolis and San Francisco. For the 20 city index, prices are about where they were in the autumn of 2003.

I have been thinking about the exponential growth of fraud in the U.S. and my concern that fraud may be the fastest growing "business" in the U.S. I was confident that it was our fastest growing sector and Wall Street successfully securitized it in the form of CDOs and the even more ingenious CDO Cubed and squared, thereby facilitating the spread of this business worldwide. But when I was engaged in those ruminations about fraud in yesterday's post, I forgot about government spending as another one of our growth "businesses". So that is at least two areas of growth and maybe they go hand in hand.

I may flip my magic coin to determine whether it has any confidence in the management of Synovus Financial, meaning enough confidence to add 50 shares as a LT when the price falls below $2.

It is really scary to learn about the competence of those in charge of our financial institutions. Maybe some inventive hollywood type could explore that topic creatively in the horror genre.

The Conference Board reported a decline in consumer confidence to 47.7 in October from an upwardly revised 53.4 in September. The market gave up the early gains after the release of this worst than expected number.

Monday, October 26, 2009

More on ING/Sold GSPRA at $21.9/Dollar Finds A Bid/

1. A Dollar Rally?: Early in today's trading, the U.S. Dollar finally found some upside traction, and the stock market caught the bubonic plague in response. This is the kind of knee jerk response that can be expected whenever traders are dominating the buying at the margin. The upward swing was small, nothing more or less than background noise, but apparently enough movement to cause selling by those who makes investment decisions based on the most fleeting of phenomenon. The Dollar Index touched 75.3 at around 9:15 a.m. E.S.T, then mounted a quick rally to 75.94 within three hours, which move coincided with the sharp sell off in the equity market. A number of other trades, which have been keying off the weakness in the dollar, such as oil and gold, followed the equity markets lower. GLD for instance hit $104.7 shortly after DXY hit its intraday low and then proceeded to decline as DXY rose in value.

2. ING: I mentioned in a prior post that I intended to sell 100 of the 200 ING hybrid, IND, currently owned before year end. Added 50 AEF at $18.38 /ING News I already bought an Aegon hybrid, AEF, to replace those 100 shares of IND. With the news today, which I view as positive for the ING hybrids over the short and intermediate terms, defined to mean the next one to three years, I will continue holding all of my ING hybrids so I will not pare IND now. If Aegon escapes the clutches of the EC without too much damage, I will transition to owning more of its hybrids when I decide to reduce the ING hybrids further. I view today's announcement to constitute a settlement with the EC on outstanding issues and consequently takes the deferral of the hybrid coupon payments off the table once the rights issue is completed successfully. In addition the payments to the Dutch state would trigger four mandatory payment events subsequent to any such payment even if the EC remained in the mix somehow.

ING did amend its agreement with the Dutch state to permit this early purchase of the government's shares without paying the 50% premium to the original 10 EURO price. This may become relevant when and if I ever decide to buy back my common shares sold near 40 some time ago. Since the EC is basically requiring ING to shrink to a regional bank for the Benulux countries, and a little more by 2013, I doubt that I will ever buy the common other than as a short term trade or hold onto the hybrids for more than three more years. The EC has shown that it is capable of causing long term damage to its financial institutions, and this deal with ING may be just the harbinger of more mischief to come.

In the revised deal with the Dutch state, and just for the government's shares repurchased before the end of January 2010, the amendment requires ING to pay the 10 Euros plus accrued interest at a 8.5% rate plus a premium based on ING's share price with a minimum of 333 million Euros and a 691 maximum, using a 11.6 Euro share price as the base at the time of the payment to determine the percentage if any increase to the minimum. ING to separate banking and insurance operations - ING (same document filed with SEC: fwp) ING "intends to use this window of opportunity to repurchase EUR 5 billion of Core Tier 1 securities in December 2009, financed by an underwritten rights issue." The Core Tier 1 securities are those junior securities to the hybrids issued to the Dutch state late last year in the amount of 10 billion Euros.

For those interested in the deferral issue, I did find this statement contained in another document at ING's web site:
"ING will not to be forced by the EC to defer coupon payments on
hybrids pending a successful rights issue"

(Page 22 of 39 of Analyst Presentation dated 10/26/2009 "ING Groep Accelerating the Journey Back to Basics") This document can be accessed by following this link and then clicking the appropriate entry: ING Or, I found the same document at the SEC web site: fwp I suppose that means that a non-successful rights issue would lead to a forced deferral but I do not see why that would happen.

3. Sold 100 GSPRA at $21.9 (see Disclaimer): When I did my analysis of the Goldman Sachs floaters, this security came in last place based on the then existing price. Analysis of Prior Question about Goldman Sach's Floaters
GOLDMAN SACHS FLOATERS My analysis in those posts is very price sensitive. Since GSPRA is an equity preferred, senior only to common, and has rallied a great deal since the days when Financial Armageddon was on the tip of everyone's tongue, I decided to sell it and plow the proceeds into another GS floater at some point. GSPRA traded down to 9 in early March. This leaves me with the Synthetic Floaters tied to Goldman bonds: JBK (no longer a floater), GJS, GYB and PYT, all recent acquisitions over the past several months: Bought GYB/ Bought 50 PYT/ Bought 50 PYT GJS VS. PYT NOW

I hope that fraud is not the only growth industry left in the U.S.

ING to Partly Pay Back Dutch State with Share Issuance/VZ/ Fraud is Too Easy In America/Bonds vs. Stocks/

1. ING Partly Paying Back Dutch State: ING has a reached an accommodation with the European Commission. It will separate its insurance and banking operations. ING to separate banking and insurance operations - ING It will then sell or divest its insurance operation within four years. It will also sell its U.S. banking operation, ING Direct, before the end of 2013. ING made it clear in its press release that the divestment of ING Direct in the U.S. was a precondition to securing EC approval of the restructuring plan. ING will launch a common share rights offering for 7.5 billion Euros to pay back one-half of the funds owed to the Dutch state (original amount plus accrued interest and the premium) ING also agreed to settle the EC investigation of its guarantee deal with the Dutch state by paying an additional 1.3 billion Euros to the government for that guarantee, partly financed with the proceeds from the rights issue. The guarantee deal was linked primarily to Alt-A mortgages from the U.S. (called Liar Loans) acquired by ING Direct and ING Americas. I would agree with the comment by an analyst quoted in Bloomberg that this settlement is not favorable to ING common shareholders, though it is a very good deal for the Dutch state and taxpayers. I do not own the common stock, but I do own three hybrids, IND, IGK and INZ. I would view this deal with the EC as a positive for the hybrid owners over the short and intermediate terms by removing the deferral issue. At a minimum, there are two mandatory payment events raised by these transactions, the payment of interest on the Junior Securities owned by the Dutch state and the purchase of those securities. Over the longer term for the hybrid owners, there will be less of ING backing the payments to the hybrid owners.

ING also reported preliminary results for the third quarter, estimating a profit of 750 million Euros, excluding items and divestments.

Some of my prior discussions on mandatory payment events involving the ING hybrids include the following:

2. The Fraudsters Are Back-Of Course They Never Left: A report by the Treasury Inspector General for Tax Administration has found widespread fraud in claims for the first time home buyer tax credit. So far, the auditors have found 19,350 taxpayers claiming a credit who have yet to buy a house. Another 70000 taxpayers claimed almost 500 million even though there was evidence of prior home ownership, such as claiming on prior tax returns a mortgage interest deduction. About 600 people claiming the tax deduction were less than eighteen years old with the youngest being a four year old girl. / .pdf There was almost no serious effort to charge those committing fraud in their mortgage applications during the housing bubble. The IRS, unlike the somnolent FBI who made at best token efforts to investigate the widespread fraud leading up to the near collapse of the financial system, has pledged to go after the criminals. The FBI depended on the mortgage bankers association to forward leads about possible criminal activity. FBI Receives a Generous Grade of F- for Investigating Mortgage Fraud Adding Failures of Law Enforcement to my Top 12 Causes for the Near Depresssion. Recently, the prison population in the U.S. exceeded 1 in 100 adults in the population for the first time. ADD of Corrections Corp of America (CXW) with cash flow Maybe we need to move closer to 1 in 75.

Sixty minutes ran a story about the massive fraud prevalent in the medicare system. CBS News The estimated take by the fraudsters is sixty billion a year. Very little has been done or will be done. Politicians only make occasional perfunctory claims about addressing fraud and waste. The problem is ultimately due to a failure of law enforcement and the politicians unwillingness to devote the resources needed to investigate and prosecute the fraudsters. Maybe we need to take it to 1 in 50.

3. Bonds versus Stocks: A column in the NYT pointed out that the S & P 500 has loss .2% annualized over the ten year period ending in September. Long term corporate bond had an annualized gain of 7.8% over that same period. Bonds have outperformed stocks over the past twenty years too. Prior to the rally in stocks off the March lows, the twenty year treasury bond had outperformed stocks since around 1968. I previously noted a study that showed the 20 year treasury bond outperformed the S & P 500 from 1968 through February 2009: Duality of Long Term Risks Also, as Barton Biggs recently pointed out in a column in Newsweek, the purchasing power of stocks has been cut almost in half during the past ten years when there has been no nominal gain in the averages, so the average investor is actually much worse off than indicated by just the non-inflation adjusted numbers. And to highlight more misery, individuals were investing during the period when the Nasdaq was approaching 5000 and during the most recent period when the DJIA moved from 10,000 to 14,000, so that makes it even worse.

Since my formative years as an investor occurred in the 1970s, part of another extended period where stocks failed as an asset class, I sort of expect fifteen good years, give or take a few, to be followed by about 15 years of going nowhere, at least for the buy and hold investor. LONG TERM SECULAR BULL PATTERN 1950 TO 1966/ Long Term Secular Bear Pattern from The Great Depression 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/ Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets This framework has- so far -saved me a lot of money and has provided invaluable assistance in asset allocation decisions.

I do believe that we will, at some point between now and a few years from now, enter into a long term secular bear market for bonds. The last prolonged bear period for bonds started after World War II, according to Roger Gibson, and lasted until around 1982. Asset Allocation: Balancing ... - Google Books During that period, inflation increased at a 4.7% compounded rate. Even if I am wrong about a return of inflation, it is hard to conceive how bonds can continue to fall in yield, and rise in price, much from the current levels. This would suggest that at best the bond buyer now will receive the coupon payments with insignificant or no price appreciation. I would anticipate that it would be easy for stocks to surpass an annualized return over the next 10 years exceeding a 10 year treasury yielding 3.3%. To Professor Siegel: Time for a Re-Think

When the next bull cycle in stocks starts to come to an end, a great deal of attention needs to be focused on what asset classes will likely succeed during the long term bear cycle in stocks. The first consideration has to be whether or not to increase the weighting in bonds, regardless of age or tolerance for risk. But this is not a given. It would have been a mistake in the late 1960s to go into bonds as a reaction to the nifty-fifty froth in the stock market back then. The decision on whether to re-allocate to bonds has to made based on an evaluation of whether inflation has become a systemic problem. A judgment could have been made no later than the late 1960s that the inflation risk was too high for bonds. This chart from the Minneapolis Federal Reserve Bank has the inflation numbers since 1913. Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis The kind of inflation numbers seen starting tin 1966 through 1982 are not friendly to the fixed coupon bond owner. I view the period from the mid-1960s to 1982 as marking the simultaneous failure of both major asset classes.

Treasury Inflation Protected Securities as a Non-Correlated Asset Examples of Dynamic Asset Allocation over the Past Two Years More on International Bonds as a Non-correlated Asset Government bonds from developed foreign countries may end up being a correlated asset with U.S. bonds during the next long term bear market for bonds, for much the same reasons. But this is not to say that all types of bonds would fail. It is possible that inflation protected bonds and floating rate bonds will hold up during a long period of high inflation, though that is not certain.

4. GDP Report on Thursday: I am going to key off this report. If it is lame, say less than 2%, I will sell at least one stock ETF bought earlier in the year, and will possibly buy one of the double short ETFs. A number between 2 to 3.5% would translate into business as usual here at HQ. A number higher than 3.5% will produce some stock buys. Ultimately, the sustainability of an economic recovery, sufficient to sustain another long term secular bull market, will depend on the growth of consumer demand in emerging markets. It may be too early for this to happen with any kind of longevity.

5. Verizon (own common and bonds): Excluding items, Verizon earned 60 cents per share in the third quarter, a penny above expectations, on revenue of 27.265 billion slightly better than expectations. VZ added 1.2 million wireless net customers during the quarter bringing the total to 89 million. VZ added a less than expected 191,000 television customers. And it added 198,000 net new FIOS internet customers.