Thursday, October 15, 2009

Bought 50 NYB at $11.3/ C & GS Earnings/India/CPI/Foreclosures

The DJIA first crossed the 10,000 mark on March 29, 1999. ^DJI: Historical Prices At first, that seemed like a long time ago, and it was also hard to rub off the sense or odor of déjà vu. Then I heard someone say that Hugo Chavez became President of Venezuela back in February 1999, and that only seemed like yesterday. Hugo could have a bright future as a radio personality, sort of a socialist version of Rush Limbaugh, though with a tan. Maybe Fox could devote an hour "news" show hosted by Hugo and Rush. I would watch that show, not to further my knowledge, but too watch two great comedians plying their trade.

1. India: My most direct exposure to India is through the Matthews India fund, MINDX - Mutual Fund, rated just 2 stars by Morningstar, and I have limited exposure to Indian companies via four other mutual and closed end funds focused on Asia. The Matthews India fund had an awful 2008, as the India's stock market tanked, but has roared back this year: MINDX - Fund returns - MSN Money NAV for this fund started 2009 at $8.37 and closed yesterday at $15.84. This emerging market is to say the least volatile and not for the faint of heart. The NYT had an article yesterday that highlighted that foreign money is flowing into India and that may lead to faster than expected growth in 2010. I previously mentioned the ETF for India from Wisdomtree, EPI, and I just sold it (see disclaimer). WisdomTree India Earnings Fund (EPI) Bought 50 Currency ETF for Emerging Markets-CEW/ Bought GYC: Synthetic Floating Rate Bond/EPI-India ETF

2. Bought 50 New York Community Bank at $11.3 Yesterday (NYB) (see Disclaimer): This is a non-Lottery Ticket Lottery Ticket. The purchase yesterday of 50 shares of NYB can not be a LT since Headknocker has very strict rules limiting LT purchases to less than $300, which sum can only be increased by prior trading profits in the same security. To avoid a violation of one of the ten thousand or so sacred trading rules, the RB bought 50 of NYB yesterday and classified that holding in a new category called non-Lottery Ticket Lottery Ticket and the RB noted that there were no stinking rules-yet-for that new asset class. This purchase joins the large number of bank LTs. LOTTERY TICKET PURCHASES: LINKS IN ONE POST

NYB has a rich dividend of 25 cents per quarter, and there is some doubt whether or not it can or will be maintained. At a total cost of $11.3, the dividend yield is 8.85%. NYB Stock Quote I read an excerpt of an interview with a Raymond James analyst, Chris Nolan, who has a sell rating on NYB based on his concern that losses in NYB's loans on rent controlled multifamily housing will increase and the bank has only established a loan loss reserve of 43 basis points. He also questions whether the dividend can be sustained. Part of that interview is currently available at YF: Raymond James S & P is far more upbeat with a five star rating and a $14 twelve month price target. The S & P analyst believes that the loans on multi-family properties hold up well during recessionary conditions.

Admittedly, I do not know squat about NYC real estate. That did not stop me from buying S L Green at less than $15, although I am not likely to rival Donald Trump in my Manhattan holding with 25 shares of SLG: Add 25 SLG And, there is no way to know whether management will maintain the dividend if loan losses continue to increase or accelerate to the level suggested by Chris Nolan or to know whether or not his fears are on target or overblown.

I noted that NYB was one of the few publicly traded banks that did not take TARP money: BailoutSleuth The bank is still earning money, though the provision for loan losses did increase to 12 million in the Q/E 6/30: Form 10Q The bank had assets of 32.9 billion on 6/30/09. (page 33) It is the 24th largest bank holding company in the U.S and the 5th largest headquartered in NY.

3. SCEDN (owned): I have been watching this fixed to floating rate equity preferred from Southern California Edison for weeks, and there was a grand total of 200 shares traded during that entire period. Yesterday, the volume hit 27,600 shares. I guess someone besides me was waiting for some shares to become available. I like the float provision on this security, paying 1.45% above the highest of the 3 month Libor, 10 or 30 U.S. Treasury effective 4/30/2010. BOUGHT 50 SCEDN AT $84 There is nothing like it that is exchange traded to my knowledge. The only security that comes close is HBAPRD from HSBC USA: That security pays the greater of 4 1/2% or 81% of the highest of the 3 month treasury bill, the 10 or 30 year treasury, with a 10 1/2% cap. SCEDN pays 1.45% over the highest of 3 month LIBOR, 10 year treasury or 30 year treasury. Historically, it would also be better to have the spread over 3 month Libor compared to the 3 month treasury bill.

4. Federal Reserve Minutes of the September Meeting:

I would just highlight a few remarks:

"Overall, the economy was projected to expand over the remainder of 2009 and during 2010, but at a pace that was unlikely to reduce the unemployment rate appreciably...

Nonetheless, most participants anticipated that slack in both labor and product markets would be substantial over the next few years, leading to subdued and potentially declining wage and price inflation. Some participants were skeptical of the usefulness of measures of resource utilization in gauging inflation pressures, partly because of the difficulty of measuring slack, especially in real time. ...

Overall, many participants viewed the risks to their inflation outlook over the next few quarters as being roughly balanced. A few continued to see some risk of substantial further disinflation, but that risk had eased somewhat further over the intermeeting period. Over a longer horizon, a few felt the risks were tilted to the upside. . . .

Consumer spending had picked up more than expected over the intermeeting period, but participants saw that
increase as partly reflecting special factors like the cashfor-clunkers program. Recent increases in house prices
and equity prices were positives, but participants generally expected no more than moderate growth in consumer spending over the near term. Households still faced considerable headwinds, including tight credit, high levels of debt, uncertain job prospects, and wealth levels that remained relatively low despite the recent rise in equity prices and stabilization in house prices. . ."

5. Citigroup & Goldman Sachs Earnings: Citigroup reported net income of 101 million before items, but a $.27 cents loss for the quarter. Income available to common shareholders was a negative 3.055 billion. The results include 8 billion in net credit losses. I just want to make a few notes to myself. As of 9/30, there were 22.9 billion common shares outstanding as a result of several exchange offers. Those exchange offers resulted in an additional 64 billion of Tier 1 Common and 60 billion of Tangible Common Equity. The earnings impact of the exchange offer, which involves some complex accounting concepts, was a loss of 18 cents. Citigroup has incurred over 100 billion in credit losses and writedowns since the start of the credit crisis. Pathetic would be an apt description.

I no longer own Goldman common stock. I do own several TCs which contain GS bonds and one floating rate equity preferred issue. Goldman reported earnings of 3.19 billion or $5.25 for the third quarter, beating the consensus estimate of $4.24. Revenues increased 105% to 12.37 billion, exceeding estimates of around 11 billion. The Tier 1 Capital ratio rose to 14.5%. Book value increased 4% during the quarter to $110.75.

6. Foreclosures: Foreclosure filings in the 3rd quarter were reported for 937,840 properties, and increase of close to 23% over the third quarter of 2008.

7. CPI: The Labor Department reported that CPI rose .2% on a seasonally adjusted basis in September. The core index rose .2%. CPI has fallen 1.3% over the last 12 months on an unadjusted basis. Consumer Price Index Summary If CPI continues to rise some during the 4th quarter of 2009, it will have a significant impact on the year over year numbers, since CPI was -.8% in October 2008, -1.7 for November, and -.8% in December 2008. Bureau of Labor Statistics Data Eventually, as the CPI monthly numbers turn up, this will have a positive impact on the currently low penny rates for the CPI floaters that I own.

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