Friday, December 18, 2009

Bought 100 Viterra at 9.68 Canadian/Agricultural ETFs/What is the Real Cash Inflation Number?/OCFC/Cramer on Bernanke

The Infamous Stringdusters will release their third album in a few weeks. Andy, whose last solo album won the IBMA instrumental album of the year, recently released a five song mini-CD with four instrumental tracks titled "Aquafier" which is available at CD Baby: Andy Hall | CD Baby

It is not easy being the RB in this operation. Let's have sympathy for the poor oppressed RB. The RB, who saved the day in March 2009, has been a prisoner against its will for at least fifty years. And this is no ordinary bondage of the RB by a dominant LB. RB has had to contend with a highly developed LB, one who has been working towards total dominion 24/7 for what seems like an eternity. But the RB has persevered against the LB's continuous onslaught to snuff it out, shred it into oblivion, and is starting to feel its oats again. One day, the RB will reign supreme here at HQ, in charge of all of the capital. That will be the day. Bring in some girls and throw lots of parties, spend that moola like there is no tomorrow. Get down and bogey like that French minister who was upset about a video showing her dancing like some fool RB. NYT RB watched that video, sure the minister may be a little tipsy but boy can she bogey: YouTube RB wanted to know where was the "public insult" in that video, RB wanted to get down and bogey with that French minister.

Sure, the Old Geezer is not a really, really bad LB, like that Headknocker, but he is still a dominant LB prone to an occasional bout of spirituality. Maybe the RB will keep the OG around when it engineers the takeover of HQ. After all, time is running out to acquire Canada, all of it, maybe RB needs to whip that OG into shape, not exactly a prime specimen of the male gender anymore. At the current pace, RB will need more time to acquire both Canada and Switzerland and to have some fun in the process, so the OG needs a trainer. It is good to have goals, the RB added before turning the meeting over to the LB for preparation of HQ's minutes.

What a fruitcake was the only comment that the LB could make. LB made one last plea to the HK before starting to write the minutes: "HK, can't you shut that RB space cadet up" and HK replied, "I don't know, it is starting to interject itself almost at will. Maybe it has a treasonous ally here at HQ."

1. Comments by Brian Westbury on CPI: A reader sent me Brian Westbury's comments about the government's latest CPI report. Westbury is the the Chief Economist for First Trust, an investment firm that sponsors a number of ETFs, CEFs and unit investment trusts. His comments can be found at First Trust's web site, and this is a link to the one that I am about to discuss: One of the mushy type numbers used by the government to calculate CPI is an estimate of what a homeowner would charge himself in rent ("homeowners equivalent rent"). This is an attempt to assign a number to housing inflation and does not reflect an actual transaction. As you would expect, that hypothetical number is restraining the reported number. Westbury points out that cash inflation, which excludes this hypothetical number, was up .6% in November and rising at an annualized rate of 5.6% over the past six months.

In an earlier post, I mentioned this graph showing the rise in inflation since 1945, referred to it as a little scary, but neglected to provide a link: St. Louis Fed: Series: CPIAUCSL, Consumer Price Index For All Urban Consumers: All Items

2. Cramer on Bernanke & Parallels to the the 1930s: I was listening to Cramer praise Bernanke the other day during his Mad Money show. While I agree with many of his comments, I do not accept the parallel with 1937, when the Fed tightened credit and the economy slipped back into recessionary conditions. CNBC The Fed had kept quantitative easing in force for close to four years before tightening in 1937. This time is different. The FED may have needed to maintain easy credit conditions for considerably longer than 4 years in the 1930s because so much damage had already occurred in the real economy between 1929 to 1933, due in large part to the Fed's own actions after the 1929 crash. While Bernanke was late in taking the extraordinary actions necessary to save the U.S. from a Depression, he was early compared to the 1929 Federal Reserve who continued with the wrong policy response for four years before shifting into the right gear. My assessment is that Cramer and others are wrong about the need now to keep abnormally low rates in effect for an "extended period" to avoid a relapse, similar to what happened in 1937. I commented in a prior post that this was a dangerous comparison to draw: Item # 4 Gold Prices & Quantitative Easing/ISM/Sour Predictions from John Hussman/More On Parallels with the 1930s/ The problem now is not deflation, or the threat of a significant relapse in the economy, but the possibility of a 1970s inflation emerging from the current fiscal and monetary stimulus combined with huge budget deficits, with some of the same economic forces that generated that inflationary period started to repeat themselves again.

When it comes to these big picture macroeconomic issues, there are numerous unknown and unknowable variables, and even the most brilliant and knowledgeable economists can fail to grasp what is happening now in the U.S. economy, let alone what is soon to occur. The best that I can do as an investor is to plan now for possible and probable future outcomes. For some inflation protection, I started back in October buying securities that pay the greater of a fixed coupon or a percentage over some short term rates like 3 month Libor. Those type of securities provide a measure of low inflation/deflation and inflation protection in the same security, particularly when bought at a large discount to par value. I agree with Cramer that bond funds are very risky now. CNBC I have opted for owning mostly individual bonds with maturity dates rather than bond funds, and have discussed some of the unique risks of bond funds repeatedly which become even more acute after a long sustained rise in bond prices and concomitant fall in yields. For BND: Is it Safe is not the Right Question. Instead Ask What are the Risks & Rewards/Assume Lost of Principal Possible

When I start to see inflation becoming a more serious issue, I will sell some of the long term fixed coupon bonds to lessen the exposure to an asset class that will fair poorly in a rising inflation and interest rate environment. I may be late or early in trimming those holdings. It is a timing issue. I want to keep some of these securities as long as possible, given their yields being generally more than 8% over what I receive for short term cash in a money market now. But that advantage can dissipate quickly, as short term rates start to rise again, and the value of those long bonds fall. The ones that will be sold first are those bought near par value or even at slight premiums, as I have discussed in previous blogs, while I am more likely to keep those bought at large discounts to par value that provide a good source of income for many years to come. This is at best an imperfect balancing act, with the central question being For How Long Will Cash Be Trash?

3. OceanFirst (OCFC)(owned): OceanFirst stock jumped yesterday based on the announcement that OCFC would not be acquiring Central Jersey Bancorp without penalty. Reuters The reason given was lack of regulatory approval. The merger agreement apparently required regulatory approval before the end of this year. While it is impossible for me to know, sitting far away from New Jersey, I would say where there is a will a way will be found, such as a mutual agreement to extend the deadline of regulatory approval which would be a routine matter if both parties wanted to proceed with the merger. There is no reason for me to speculate since I do not own Central Jersey.

4. Leading Economic Indicators: The Conference Board reported yesterday that its index of leading indicators rose .9% in November, continuing its improvement over the past six months.

5. Bought 100 Viterra at 9.68 Canadian on the Toronto Exchange( VT.TO): Viterra is Canada's leading agribusiness.

It costs me a little more for me to buy a stock on the Canadian exchange than in the U.S. The Commission cost is 19 Canadian dollars. When I place a trade, I will try to compensate for the difference in the brokerage commissions by placing a limit order about 7 Canadian dollars below the bid price at the time of a buy order, and the same amount above the ask price for a sell order. This is the Old Geezer talking, the one who will stoop to pick up a penny off the sidewalk as long as he is able to bend over. The LB said that those days of picking those pennies up are numbered, one of these days, possibly sometime soon, the Old Goat will bend over to pick up that penny, the weight in his mid section will no longer defy gravity and pull the entire balding overweight structure to the ground, break a hip, and incur a huge medical bill for the HK.

OG pointed out that there was medical insurance covering the HK, with a 5 thousand dollar deductible, and the OG was going to keep picking up those pennies to help pay for that deductible and he only had another 499,965 pennies to pick up to achieve that objective. By the way, on the topic of inflation, I have never had a claim on my medical insurance policy other than the annual physical, and the cost of that high deductible policy will rise about 10% in 2010 compared to this year.

Some of these disputes among staff just have to be aired when they erupt. Back to Viterra, I use Canadian dollars to purchase the shares in Viterra since I have them available in my brokerage account and I am earning nothing on them. Also, the value of those dollars has started to go down some, so I figured that this was a good time to start buying more Canadian stocks using those dollars now. If the Canadian dollar falls another 10 to 15%, I might buy a Canadian stock using U.S. dollars, and settle the trade in Canadian dollars, at the then existing exchange rate.

Viterra can also be purchased on the pink sheet exchange: Viterra, Inc. - VTRAF I did not check the exchange rate of those shares for those available on the Canadian exchange, but they appear at a first glance to be on a one for one basis. The shares available in the U.S. closed at $9.12, and a U.S. dollar would buy about 1.07 Canadian at yesterday's close on the respective stock exchanges. USDCAD=X: Summary for USD/CAD

Third quarter earnings decline to 120.7 million or 51 cents compared to 71 cents in the third quarter of 2008. Viterra - Investors - NewsroomViterra recently acquired a ABB Grain, an Australian company.

This is a link to its annual report:

This is a link to the last quarterly report for the quarter ending in July 2009 www.viterra.ca08-09Rpts/Q3/.pdf

Viterra is a new name for me. I saw it as a recommendation made in the current issue of a magazine that I read on Tuesday, and OG forgot which one and has no desire to find it again. I do recall that it was a recommendation by the manager of Third Avenue's International Value fund. TAVIX - Fund Top 25 holdings, I spent some time on Tuesday night reading the annual report, and it looked interesting enough to buy 100 shares.

6. ETFs for Agricultural Stocks: Before placing the order to buy Viterra, I was thinking of buying one of the two ETFs that contain agricultural stocks, MOO or PAGG, but decided to wait, hoping for a five to ten percent decline before tip toeing into one of them. MOO has a slightly lower expense ratio at .59%, capped until 5/2011: MOO PAGG is an ETF from Powershares, and has an expense ratio of .75% Global Agriculture Portfolio - PAGG There is a lot of overlap in the positions held by these two ETFs, so I would only buy one of them. There are some slight differences in the percentage weight given to the holdings. This is a link to the current holdings for PAGG: PAGG Holdings This kind of ETF fills a void in my portfolio. Viterra is the only stock contained in either of these two ETFs that I currently own. The ETF gives me instant exposure to the major names in this sector with one buy. I am generally positive on the agricultural sector in the years to come. Both of these ETFS, however, have had a good run off the March lows. Some of the reasons for this optimism is reflected in this interview from June with Jim Rogers: The Economic Times A few more of the articles recently read by me on this subject include: The Agricultural Boom

I have already bought an ETN that owns agricultural commodities (RJA): Added RJA I then added more shares to my RJA position with the intention of trimming my holding in an ETN that owns metals, RJZ: Bought RJA I later sold 100 RJZ, the ETN which owns metals like gold, silver, copper, etc., at at $9 keeping 100 shares which I still own. My larger position is in RJI which was initially bought at $5.97: bought rji (see generally: COMMODITIES AS AN ASSET CLASS Instability & Volatility in Asset Correlations)

With the Old Geezer at the helm of the trading desk, there will not be any bold moves. There may be some tax loss selling however. The OG has been hammered by the Headknocker for making all of the potential charitable contributions to our destitute Uncle Sam by selling securities for short term gains, and possibly OG needs to reduce that charitable contribution some before the end of the year to mollify HK some.


  1. OCFC: Since your post about OCFC, I've had it on watch. The action in this stock was interesting as the day before the end of the merger was announced, OCFC dropped 7% intraday on heavy volume (140k vs avg 86k). I picked some up at 10.04 (yield at 7.96%) not understanding why the precipitous drop on no news...lo' and behold, the next day the news drops and I see Central Jersey Bancorp drop 30%and OCFC rise on this news. At any rate, I don't know how to feel about this as the action makes me think a few folks were trading the news the day before it was announced and had information not yet available to the public. Having said that, Central Jeresey didn't drop precipitously the day before or seem to have too much unusual action.

  2. Luther: I noted the slide in OCFC too, and pick some up for my brother, a highly developed and proud RB, at 10.05 the same day. His blog is a great deal different than mine, not exactly a money oriented person : I would say that the trading volume was not that unusual the day before the parties announced the end of the deal, and Central Jersey did not fall until after the public announcement. If they really wanted to do the deal, both parties could have extended the deadline, so there may be something other than the announced reason for terminating the merger in my opinion. It may be the regulators were objecting to it as too much concentration in a relatively small geographic area, or possibly something turned up. Or, maybe one of the parties was objecting to amending the contract deadline for regulatory approval.

    Today, I noted that Central Jersey is trading over 10 times its normal volume and has at least temporarily stabilized at around 3.75 after plunging on December 17th. I mentioned that I am not concerned about why the parties abandoned the merger, since the market sent OCFC up on the news and I do not own Central Jersey, nor do I have any plans or desire to buy it. Oceanfirst is continuing to move up on much higher than normal volume today.

  3. OCFC: Volume was high and price dropped off at the end of the day. I too purchased a few days ago at 10.38. I have been adding a few of these regional banks since selling my isg. I purchased the ing hybrid last year and found this great blog after searching for more information on it. I have been getting out of my preferred stocks and am trying to keep some income and seeking capital appreciation. I have greatly appreciated the humor and insight of this blog. My RB wants to set up a new dictatorship in Mexico and is willing to let your RB run Canada.

  4. addie4: We have no interest in acquiring Mexico, though recently we tried to recall some of the Mexican lingo learned many years ago as shown at the end of a blog from 12/16:

    The RB can not run anything, it just likes the idea of buying Canada for reasons that can not be explained in any rational manner. We are making headway in that regard, buying 100 of Viterra and another 100 of Enerplus this week. I doubt that the Canadians know that we are moving in on them from the SUV Capital yet, the pace is a little slow for the RB, but as a consequence we are sure to catch them by surprise.

    Most of the preferred stocks that I own are floating rate equity preferred stocks. I intend to keep most of those securities, since they provide a measure of inflation and deflation protection in the same security. They pay qualified dividends. I also own several European hybrids (but not ISG) and trust preferred stocks, which are in reality junior bonds. I will keep most of those for the income generation. A central part of the way that I approach investing is to generate a constant flow of income via dividends and interest and then to invest those funds. Another part of my approach is to move to a different sector when something is played out, and the opportunities to buy equity preferred stocks at prices that I consider to be favorable no longer exists, at least from my perspective. A few opportunities remain in TPs but they are mostly in the higher risk ones. So when a sector is played out, I will just start buying something else, and I will buy just about anything that is traded on an exchange anywhere in the world.