Friday, November 6, 2009

Jobs Report/ Echo Bubbles/Louis Yamada/Sold UTIW & TimberWest/

1. Jobs: The Labor Department reported a greater than expected 190,000 jobs lost. The unemployment rate rose to 10.2%, the highest rate since April 1983. Average work week hours remained unchanged at 33 hours. I would expect that the hours worked would start to increase before employers would start to hire again. Employers would naturally ask their existing workers to work longer before hiring new workers. Employment Situation Summary

The September number was revised to show less job losses, originally reported at -263,000 to -219,000, and August was revised from -201,000 to -154,000.

Paul Krugman is probably correct in noting that it will a long time to restore the jobs lost during the near Depression. NYTimes However, I would doubt that it will take a decade to return to full employment which is what he suggests in the preceding linked column. Tony Crescenzi of PIMCO believes that it could take four or five years to restore the jobs lost during the recession.

2. Arguments on Echo Bubbles: There is an article in this week's Newsweek , the one with Tennessee's former favorite son Al on the cover (who would have been President had he carried Tennessee), that makes the argument that the stock market is currently in an echo bubble that will burst and send the DJIA back down to the 7 to 8 thousand level. While I do not agree with the author, Rana Foroohar, there is a possibility that conditions are ripe for an echo bubble. Ms. Foroohar is Newsweek's senior editor in charge of business and economic coverage for that magazines international editions. Rana Foroohar | Some may pooh the fact that she did not attend one of the prestigious business schools, nor was she apparently ever a Master of Disaster in training. Instead, Rana graduated from Columbia with a B.A. in English Literature, which makes her over qualified in my book to talk about business and economic matters.

3. Louise Yamada Interview: While I am on the gloom and doom topic, I heard Louise Yamada say on Fast Money yesterday that we are still tracking the 1937 to 1938 scenario, where the market declined a lot in 1937 and then had a 60% rebound in 1938. And, then the market continued the secular bear pattern for several more years to 1942. However, she did not sound to me as bearish as she has appeared to be in past interviews. This is a link to her interview yesterday: Chartology - This topic about comparing the current period to the 1930s is discussed in several prior posts: Louise Yamada/U.S. Dollar Louis Yamada
She does manage to scare the Old Geezer a bit every time she voices an opinion. The LB just said bring in it on, it is ready to rock and roll some more and wants more challenges so that it can work on its rule book for a long term secular bear market in real time.

4. More Information on the TC GJX: I did not reference the prospectus for the underlying security in GJX. This prospectus contains information that would become relevant if and when Burlington Northern ever deferred interest on this cumulative security. Final Prospectus Supplement One question that I have is how a Mandatory Trigger Event might occur after the acquisition of Burlington Northern by Berkshire. It would be clear cut now what would trigger such an event. The typical type of stopper provision is set forth at pp. S-27 to S-28. I am not going to bust a brain cell trying to figure it out after the Berkshire acquisition, until a deferral actually takes place and I still own GJX.

I have been asked how the TC GJX pays 7% whereas the underlying securities pay only 6.613%. The Grantor Trust was formed by Wachovia, now part of Wells Fargo, who sold to the Trustee, the U.S. Bank Trust National Association, 33 million in face amount of the underlying securities that pay 6.613%. To pay Wachovia, 31,047,000 in face amount of Trust Certificates were sold to the public. The interest on the notes would generate per year $2,182.290 in interest. Divide that number by $31,047,000 and the sum is 7.0028988%, and the Trustee is paid a nominal amount each period to collect and disburse the payments. So, when I see that the TC pays more than the underlying security, I can do this computation and see how the additional amount is funded, by placing more bonds into the Trust than the face value of the trust certificates sold to the public. These bonds are usually bought by the brokerage firm in the market, possibly at a time when the value had drifted down from their par value.

5. Theragenics (owned-Lottery Ticket category): This LT was bought at $1.28.Buy of 100 TGX at $1.28-Speculative Lottery Ticket/ Fortunately, for this LT, the Old Geezer is still at the helm here at the trading desk. The OG, unlike the other traders here at HQ, has a high tolerance for mediocrity, mistakes, and uninspiring results, partly due to his age and experience which has proven to him over the years that investments do not always work in a linear upward fashion. Theragenics reported results for the third quarter yesterday, and the company did report a profit of 2 cents per share. The results did highlight the importance of buying NeedleTech for this small company, as the brachytherapy seed segment continued its decline by falling 10% compared to the third quarter from last year.

6. Sold LT TimberWest (see Disclaimer): Timberwest was bought at $3.24 in a retirement account. It was sold at a small profit after reviewing its earnings report for the third quarter. Quotes, Company Info, Filings, News, Short Interest - TimberWest Forest Corp. - TMWEF Possibly, it will be repurchased if and when there is a significant pickup in its lumber business. For now, this business is continuing its decline:

7. Obama Expected to Sign Tax Credit Bill for Home Purchases Today: The House passed this bill 403-12 that will give a 10% tax credit of the purchase price of a primary residence, capped at $8,000 for first time homebuyers and $6,500 for those who already own homes and have lived in their current homes for at least five years. The purchase agreement must be signed by 4/30/2010 and closed by 6/30/2010. The credit does not apply to homes purchased for over $800,000. USATODAY

8. SOLD 50 UTIW Worldwide (see Disclaimer): Since the exceedingly cautious OG is at the helm still, the 50 shares of UTIW, a freight forwarder, was sold at $13.8 as a response to the jobs report. Those shares were recently bought at $12.7: Burden Sharing: Idiotic, Counter-Productive and Potentially Harmful to Member States/Bought 50 UTIW at $12.7

9. General Electric (own common): GE shares rose in early trading this morning based on an upgrade by Bernstein to outperform, though the price target was only raised from $18 to $19. Reuters

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