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.


  1. Goldman Sachs has already had a peek at the the GDP numbers:

    "As the economy teeters on the verge of recovery, Goldman Sachs on Wednesday lowered its GDP forecast to 2.7 percent from 3.0 percent."

  2. Cathie: Maybe GS provided the number. It appears to me that a number of recent economic reports as well as statements by companies are pointing to a weakening or slowing starting in September.