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.

1 comment:

  1. How about "appropriate legal action" against the EC, as well?