1. Roubeni and Rosenberg: USATODAY.com 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 CNBC.com. (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: www.sec.gov/ 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. WSJ.com 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.