Saturday, January 31, 2009

More on the Stimulus Plans and Impact on GDP

This is a link to a Reuters article that summarizes some economists' opinions on how the stimulus bill will impact GDP.  Reuters
I can only say that that more bang could be had for the buck and the House bill is in need of serious revision on the spending side.  There are questions about whether the stimulus can work fast enough to avoid economic disasters that many, including me, believe are lurking in our future. csmonitor.com  We are dealing now with something other than an average recession, a far more ominous series of events have already occurred, including but not limited to the failure and near failure of a bevy of major financial firms, the seizing up of the credit markets, the funding problems being experienced even by major corporations like General Electric, and the loss of confidence.   The non-partisan TAX POLICY Center analysis of the stimulus plans  is worth a read by the politicians.  There is still time for improvement.  TPC Tax Topics | Stimulus Report Card

The GOP is Limbaugh and Limbaugh is the GOP

Ann Coulter, Sean Hannity and Rush Limbaugh are the heart and soul of the Republican Party.  No GOP representative could say even the slightest critical word about any of these individuals without having to assume a subservient position.CBS News
The FixRepresentative Phil Gingrey of Georgia recently learned this obvious fact after saying that it was easy for talk show hosts to stand back and throw bricks.  The outrage at his audacity was so palpable from Gingrey's fellow tribe members that the poor republican had to appear on four talk shows including Rush's to apologize profusely for aiming even a slight critique at such eminences and pillars of what passes for conservative thought in our society.  This is a link to the congressman's sensible comments:  Politico.com  And this is a link of the congressman groveling to his true masters:Politico.com
Since I am a conservative, I would just like to say to Representative Gingrey that there was no need for you to apologize to me but I understand your need to grovel to Limbaugh and other extremists that dominate the ranks of your party.  They are certainly a boisterous group, full of vinegar and venom, usually profane, proud of being inarticulate, rarely possessing a question or a doubt, lacking in curiosity and a fervent disdain for knowledge, intellegence or information acquired outside of accepted and approved channels, unable to see issues in any degree of complexity, and capable of thinking only in cliches.   I do believe more people are coming to the view that the GOP is in fact a party dominated by extremists and wingnuts of every know flavor and variety, and there is no longer a real conservative party to act as a counterweight to the extravagances of the Democratic party.  

AT & T and VZ/Limbaugh, the Titular Head of the GOP, on How to Save the Economy/ Dems Go Wild in Stimulus Package/GOP and the Lochner Era

I heard Bob Pisani say yesterday that this January was the worst decline on record for the Dow, S & P 500, and the Russell 2000.  After I heard him say that, I said to myself, hey Bob, it could have been worse.  The papers had some of the details this morning.  The Dow fell 8.4% which was the worst decline for a January in the Dow's 113 year history, beating the 8.64% decline from 1916. Dow Closes at 8000 - WSJ.com

On the bright side, the Russell 2000 also had its worst month but suffered a larger decline of 11.2% for the month. WSJ.com

I have added some small caps recently, trying to focus on those with low correlations to the economy, such as SNTA, ISIS, CXW, DK and USPH.  Of those I had a good pop to the upside in ISIS and SNTA from my December 2008 purchases.  SNTA was bought at 5.5 on December 31st and it closed January at 8.80. SNTA 

ISIS was bought at around 10.45 and 1/2 sold quickly on a pop to over 14. Microsoft Buy/ISIS sold in IRA 

USPH is slightly profitable,  U.S. PHYSICAL THERAPY (USPH) BUY 

Delek was sold after a good percentage pop, with the last of two sales at 7.28 in late January with those shares purchased at 4.61  Sold Delek Some of the other micro caps, like SLTM and NADX, are close to break even as are CBR and GPX. Given the heightened level of risk and uncertainty, I am being extremely cautious, limiting my exposure by being selective on each stock purchase and by limiting my exposure to any one issue to a meager amount of money. I would conclude by saying that I am  net positive for the month of January on my small caps and will continue doing what I have been doing notwithstanding the doom and gloom being so thick now that an industrial chain saw could barely make a nick in it. 

I thought that the current issue of Barron's made a good case for owning Verizon. Barrons.com

I have a small position in both Verizon's common and a senior bond. I almost bought 100 of AT & T last week when it dipped below 25 but postponed making a decision until this next week. My last sale of AT & T common consisted of shares held in an IRA at over 38 on 2/4/08, and I have currently a sizable position in its senior bonds in TC form, JZE and JZJ, spread over my main and retirement accounts.   Most likely, I will add some shares of Verizon and/or AT & T in the coming weeks, partly for the reasons mentioned in this Barron's article but also for the dividend yields at their current prices.  


The inventory build up added 1.3% to the GDP for the last quarter.  This is not good news. MarketWatch

The titular head of the GOP, Rush Limbaugh, wants to scrap the middle class tax cuts in the current stimulus package and instead cut the corporate tax rate in half and eliminate the capital gains tax for one year. WSJ.com He also misrepresents Representative Cantor's exchange with Obama. (Compare Rush's statement about the exchange in his WSJ with the exchange shown on video and reported by reputable news organizations Political Punch:

A one year elimination of the capital gains tax would help anyone desiring to sell their business. Possibly, Rush has something that he wants to sell and avoid even the small tax liability, currently 15% on long term capital gains.  No one with an ounce of sanity would create or expand a business based on a one year tax holiday for capital gains.  

Such a proposal does nothing to address the core problem, a massive fall off in demand and sales. While cutting the corporate tax in half might lead to greater bonuses and compensation for the already highly compensated corporate managers, a tax cut of that magnitude would do nothing to create demand for the corporations' products. Products are already being reduced in price.  Rush's proposals are at least consistent with trickle down economics and the GOP policy of making the rich richer.  Most importantly for them, it is consistent with the results of their policies in expanding the gap between the very rich and everyone else in our society.   

One of the fascinating aspects of Rush's approach, and this is consistent with GOP tax policy, is that only a few scraps are thrown to the vast majority of voters. Yet,  if you listen only to their rhetoric- and ignore the reality of the GOP tax policies - then the rhetoric has been successful in convincing millions that the GOP is actually interested in providing meaningful tax relief to the middle class.  I would also add that few corporations actually pay the top tax rate that Rush complains about, which is 35%.  The tax code already provides them with numerous avenues of relief. And, it is almost humorous to hear someone complain about the "death tax" who has just a few million less than what is needed to pay any estate tax. 

There is not a material difference in the highest marginal U.S.  corporate tax rate and the tax rate of other developed countries.  However, when you add the state taxes, the rate does grow to about a four or so percentage difference. The Tax Foundation - Comparing International Corporate Tax Rates: U.S. Corporate Tax Rate Increasingly Out of Line by Various Measures

This last linked article from a "conservative" advocacy group explains a lot about how other countries finance a lower corporate tax rate than the U.S..  In footnote 6, it concedes the lower corporate rate is financed by the VAT. What the heck is a VAT? It is a consumption tax on the value added to a product as it moves through production and at final sale. Value-Added Tax (VAT) 

It is just another tax. I do not profess to be an expert on the U.S. tax code, let alone the tax codes of European nations, but I do understand that those who wish to lower the U.S. corporate tax rate using the same argument as Rush rarely disclose the full picture about the other nations' tax codes,  including their use of the VAT. Besides, how does Rush explain that those countries with a lower marginal rate already have a higher unemployment rate than the U.S.? Shouldn't it be lower if you believe that cutting the corporate tax rate will lead to prosperity? Spain's jobless rate just hit 13.9%. BBC NEWS

The German unemployment rate just hit 8.3% Forbes.com

For the entire Eurozone, the one with the VAT and slightly lower corporate tax rates, the unemployment rate was 8% in December and rising. Eurozone unemployment rises to 8.0% in December; Netherlands at 2.7%; Spain 14.4% and Ireland 8.2%

The U.S. is currently at 7.2%.  So, oddly, even though we entered the recession first, we are doing better on the jobs front than the countries with a slightly different tax structure allegedly more favorable to corporations. 

California,  continuing its inability to deal with its budget in a responsible manner, will delay tax refunds, welfare checks and student loans.  WSJ.com

California is just one of many states that refuse to make necessary budget cuts. Part of the stimulus package that the Democrats have crafted go to the states to help them avoid tough decisions on their respective budgets.

You can see the publicity being generated by this one aspect of the stimulus plan by simply googling "stimulus schools".

The Democrats do not help their cause in convincing more Americans to support a stimulus bill by some of the expenditures contained in the House version. In fact, the critics have convinced many Americans that the entire bill is just a bunch of pork by simply cherry picking a few provisions that have no business in a stimulus bill. Some of those are discussed in a front page article in the Tennessean this morning.  

If the Democrats believe that some of those expenditures have merit, they could be voted on and passed in a general appropriations bill. Substituting more tax cuts for these provisions would be more consistent with the stimulus aims of this legislation. I have no quarrel with the GOP advocacy of more tax cuts and less spending, except in degree. It does not help to hear Speaker Pelosi attempt to defend the 400 million expenditure for what amounts to sex education by saying that jobs need to be created for people other than construction workers.     

But, the majority of the spending proposals contained in the stimulus package could be justified as achieving the stated goals of providing a much needed jolt to the economy. Those who oppose virtually any spending  lack even a cursory understanding of the extremely serious and precarious condition of the financial system and the potential catastrophic consequences of inaction that have been hanging over us since September of last year. This would include my representative Marsha Blackburn who demonstrates her ignorance on the subject whenever she opens her mouth.  

This also includes almost all members of the GOP and those who do not identify with the GOP because they are not "conservative" enough for them.

They would prefer to do nothing, and just let events unfold without making any meaningful attempt to change the course.

You get a sense of that attitude in the first part of Rush's WSJ opinion column where he simply equates the current downturn to past recessions. They are the direct descendants of Herbert Hoover's mentality, and there are tens of millions of them in this country. You can read some of the comments to the Tennessean article to understand them some more, particularly the ones calling the AP a democratic and liberal news outlet.  

For me, I would have to save that I would prosper during a Great Depression II. So, my financial interest would be to advocate the same policies as the GOP, letting all of the major financial institutions implode, let the card fall as they may so to speak, let the market decide everyone's fate, and so what if the unemployment rate skyrockets to 20% in a massive deflationary out-of-control spiral. People with money and no debt will prosper under those circumstances and large fortunes could be made by those who can buy assets marked down substantially in price. 

Another interesting article in the Tennessean is about the Sheriff of Davidson County speaking  at what the Tennessean calls a white supremacist dinner.

The ones who call themselves conservative just refer to the Tennessean as a "liberal" paper. The organization was called "Council of Conservative Citizens".  Please note that their very name has the name tag "conservative." What are their conservative beliefs?  For one, they want to prevent interracial dating and  they want to preserve the nation's "cultural and racial integrity". We all know what that means without having to spell it out.  These people really do believe that they are conservative.  

I thought that I would link their statement of principles and anyone can reach they own opinion about this organization's so-called conservative values: Council of Conservative Citizens » Statement of Principles

I do know that any of their members would just be irate if anyone questioned their conservative credentials. 

I would have to say that the word conservative is used to describe many beliefs today in our society and most of them have no relationship whatsoever to conservative ideology. My personal estimate, just based on my admittedly limited first hand observations, is that less than 5% of the GOP tribe members are in fact true conservatives. The rest are something else that does not sound as soothing to the ears as conservative.   

In law, the reactionaries who call themselves conservative have formed a society, innocently named as the Federalist Society. You know, as in the Federalist Papers. Some of the Supreme Court judges appointed by Republicans, including Chief Justice Roberts, Scalia, Thomas and Alito, share many of the beliefs of the Federalist Society and desire to advance this societies agenda in my opinion.  One core belief of the Federalist Society is to turn the Supreme Court back to what is called the Lochner era. 

Another is to eviscerate regulations based on the Commerce Clause, as shown by the successful invalidation in a recent Supreme Court decision of a law that forbade children from bringing firearms into the classroom. (pp 81 to 85 of Toobin's book discussing the Lopez case. United States v. Lopez - Wikipedia) This is ably discussed by Jeffrey Toobin in his book "The Nine: Inside the Secret World of the Supreme Court" In that Supreme Court decision from 1905, the Court invalidated a state law mandating the maximum hours a baker could work as violating the baker's freedom of contract. The gist of the decision would invalidate virtually all government regulations (health, safety, minimum wage, and any other piece of progressive legislation passed by either the state or federal government for the past 100 years). This is what is called a legal conservative. I would beg to differ. At best, they are the intellectual versions of the reactionary forces so prevalent in our society. 

Some of this struggle for control of the Supreme Court between the dark forces and the rest is summarized in the NPR review of Toobin's book: NPR



Justice Roberts was a member of the Federalist's societies steering committee. 

For those unfamiliar with this debate, Toobin's book and the above referenced articles provide a start. There was a great deal at stake in the recent election that went far, far beyond the abortion issue. The Supreme Court was rapidly turning under the GOP into a Lochner court and thereby potentially undermining any piece of progressive legislation found to interfere with whatever their main benefactors want to do with labor, the environment, health and safety or anything else that most people take for granted now. 

Remember Tom Delay. He joined the GOP because he objected to the regulations on the use of chemicals in the exterminating business. That is exactly where they are coming from. 

Friday, January 30, 2009

More On Gannett & P & G/Hertz and Leveraged Buyouts/GOLD

Well, January was a bummer. My first thought about a 2009 investment strategy, and probably the first substantive thought on the subject for the new year, was to sell everything after the first few days of January and just leave on a trip around the world, returning in the fall. Buy of PGN/Was there really a Black Swan Event?/ Alcoa Sometimes the first thought that creeps into my brain is the best one that I am likely to have.  I do take some comfort in owning more bonds than I have every owned in my life.  In fact, I think that I have had more bonds in my portfolio for the last two years than I have had for my first four decades as an investor even after combining all of them and multiplying the sum by two. 

Goldman added Caterpillar to its conviction sell list. CNBC.com   Caterpillar is one of the many industrial stocks that I will consider adding under one of two circumstances.  I will need to see either a significant fall in the share price or a ray of sunshine providing firm evidence to me of an economic recovery in progress.   Neither of those events has yet to happen.

Proctor & Gamble did have a sour note about the next quarter, its fiscal third quarter. PG predicted earnings between 78 to 86 cents versus the consensus estimate of 85 cents, with revenues falling 2 to 7%. Yahoo! Finance    WSJ.com
This kind of company is only recession resistant.  P & G  is not immune to a downturn.   I do not view it as a refuge in a downturn.  The stock will fall and nothing that goes down is a refuge.  P & G will simply not fall as much as cyclical companies.   I view it and other consumer stables, including Pepsico,  to be the last major positions to jettison.  My last sale of PEP was in an IRA on 9/9/08 at over 70.8.  I am not under any illusion that the consumer staple stocks will hold their value during a recession, let alone a deep one.  PEP has declined almost 30% since September.   

At some point, when investors realize P & G will suffer some declines, and this realization is just starting to sink in, an opportunity will come again to buy this quality company for the long term at a lower price.  The entry price for me is yet to be determined but I am inclined to wait and see whether it can hold above 50.  I am confident that I will end up owning P & G and Pepsico before this crash is over.  Maybe this is just a slower motion crash than the one starting in 1929. 

Gannett did say that the Board would consider reducing or eliminating the dividend at the next meeting.  Based on the recent price action of the stock, I would have to conclude that the market believes the dividend will be eliminated or substantially reduced. Yahoo! FinanceMarketWatch
At the current rate the dividend costs 365 million annually. 

It is difficult to read the chart at Marketwatch that contains all of the Gannett data.  It appears to me that you would have to go back to 1978 to 1980 to find a 5 and change price.  Eliminating the dividend will just make it worse, not better, as every dividend oriented fund must then dump the shares and others will just throw in the towel as most investors no doubt have already done. Many will view the money saved by eliminating the dividend as likely to fall down some rat hole, or likely to be used to help fund another failed acquisition.   

Gannett also announced that it could take an impairment charge of up to 5.2 billion.  MarketWatch
This is a non-cash charge. The pension plan is underfunded due to the market crash by about 575 to 595 million which deficit can be made up over the next 7 years according to GCI.   No funding is required this year.

Gannett may recover some when the economy picks up, but their management and Board appear to be operating in a clueless manner and without any vigorous pursuit of alternatives.   I had a low target for my shares, say 15 bucks, and was hoping for a decent return with the dividend. If the dividend is eliminated, then I would view the situation as close to hopeless and my investment to be a mistake.  On the other hand, if the Board continues the dividend during this downturn and the company could fund it with cash flow, then it may turn out in a couple of years to be okay.  

The rental car industry is lobbying Congress for access to TARP to assist them in financing new vehicle purchases.  WSJ.com  I do not own common stock in Hertz and I recently sold 1/2 of my position in its senior bond contained in the TC DKR when it popped to over 14.75. SOLD 1/2 POSITION DKR/GE FUNK/ I DO NOT OWN ANY BANK TRUST PREFERRED issues/CURRENCY INTEREST RATE DIFFERENTIALS/FOREST CITY
I would just add this caveat to the request made by Hertz to Congress.  This company is just loaded with debt.  Hertz was taken private a few years back by a private equity firm.  I believe that a lot of debt was added to Hertz to finance this acquisition and more was added to pay the private firms special dividends before the company went public again.    This is summarized in pages 4 to 6 of this filed annual report of Hertz:
These kind of transactions severely weakened Hertz's ability to withstand an economic downturn in order to enrich a few people.  The only effective way to stop that kind of transaction would be for all investors to simply boycott the exit strategy and thus refuse to buy a single share when the private firms seek to sell shares back to the public.  Just make them eat their own cooking.  But, this will never happen because as W.C. Fields once said, never give a sucker an even break and the suckers were the ones that bought shares in the IPO.

Ishares has also recently introduced some international government bond funds similar to BWZ and BWX. TheStreet.com
The expense ratios for those funds are .35%. 

It appears to me that gold is almost taking on the form of an alternate reserve currency.GLD: Summary for SPDR GOLD SHARES - Yahoo! Finance  Sure, the dollar is gaining value against most foreign currencies other than the YEN, but gold is also rising.  Normally, I would expect gold to fall when the dollar is rallying like it did today.   This suggests that the rise in the dollar has more to do with all currencies major currencies other than the YEN simply being viewed as bad, with the dollar being lumped into the bad category but simply perceived to be better than the other bad alternatives.  In that scenario, gold would be an alternate reserve currency to the dollar, or at least perceived as such by many as holding its value in a period of heightened uncertainty.  I do maintain a sizable and constant allocation to gold.  

The Chicago purchasing manager's index fell to its lowest reading in 26 years.   MarketWatch

 
One of the few actions taken by me today was to change the distribution option for most of my closed end funds from reinvestment into additional shares to payment in cash.  I decided that I would prefer to have the cash now, and I have just grown weary of reinvesting dividends at ever lower prices.  This will significantly add to my cash flow on a monthly basis and I will then decide how to re-allocate those additional funds into other securities.  

 

Notable News 1 30 09: GCI PG HON XON GDP GHM/TWO PRONG APPROACH FOR BANK TOXIC WASTE

Today's image is of a dominant right brainer hard at work.  I understand that some skeptics would question whether this activity is work.  Au contraire,  for in a couple of hours, the young prodigy would awake and say I have an idea.  

The request by life insurance companies to relax the rules relating to the amount of capital that has to be set aside for investment losses and to pay claims was denied yesterday by the National Association of Insurance Commissioners executive committee.  This caused the life insurers to fall yesterday. Yahoo! Finance

Contrary to its previously announced intention, First Industrial will not pay a special dividend to its common shareholders. The company also announced the tax treatment of its common and preferred dividends.  The preferred dividend components always intrigue a nerd like me, with some portion of the preferred dividends classified as capital gains, a part falls under "qualified dividend", some is classified as unrecaptured section 1250 capital gain and a small amount as ordinary dividends.  Yahoo! Finance  I am just making a note to see if the capital gain is long term which will make this a somewhat tax advantage preferred stock dividend.  

Honeywell's earnings surprised me some.  Yahoo! Finance
Earnings per share actually increased from a year ago to $ .97 versus $.91 but revenues did decline to 8.7 billion from 9.3 billion. 

Another company hitting the analysts' consensus earnings estimate was Proctor & Gamble, although sales were a tad light.  Yahoo! Finance
Unfavorable currency exchange rates impacted sales negatively by 5%.  A stronger dollar will have a negative impact on these American multinationals.   MarketWatch

In case anyone was wondering, it does appear that Exxon will survive this downturn   Yahoo! Finance   Yahoo! Finance WSJ.com

Apparently, the Obama administration is moving toward a two prong approach to save the American banking system. First, in the bad bank model, the government would buy the toxic assets that have already been marked down a great deal in value by the banks.  Second, the government would cover other troubled assets by selling  insurance to the banks. WSJ.com

GDP fell only 3.8% in the 4th quarter of 2008, less than expected.  MarketWatchThis is just the first estimate by the government.   The government counts the undesired buildup of inventory as growth.  But, when inventory builds up, manufacturing output will be cut to reduce supply. 

Unemployment in the euro zone climbed to 8%.  Yahoo! Finance

It is not surprising to me that the BAC board has backed Ken Lewis.    Just look at the Board.   

Gannett reported preliminary earnings. Gannett Co., Inc. Reports Preliminary Fourth Quarter
Revenues declined over 8% from a year ago and the company did report earnings of $.69 per share after items.    Before items, the company reported $.85 a share.  Items included severance expenses and facility consolidations.   Analysts had estimated earnings at $.81 on revenues of 1.79 billion.  GCI: Analyst Estimates for GANNETT CO INC - Yahoo! Finance  Revenues came in light at 1.735 billion.  In a purely contrarian move, I have built up a small Gannett position, slightly more than 100 shares and I am reinvesting the dividends, with the dividend yield now exceeding 20% at the current price. LATE DAY TRADES: GCI, CBL, FR, SLG, NYT, NWSA
This has been done knowing that the newspaper industry is clearly in a secular decline which has been exacerbated by the current severe slowdown. I will check the earnings call to see if management intends to keep the dividend.  At first glance, it appears to me that cash flow is sufficient to cover the dividend payout.  

This is a link to the earnings release of one of the small caps that I am monitoring.  Graham Corporation Reports 19.8% Increase in Sales for the Third Quarter of Fiscal 2009: Financial News - Yahoo! Finance

Thursday, January 29, 2009

RYN vs. IP/Morgan & Madoff/Asset Managers/ Dell & Textron Doldrums/Option Arm Mortgages Were Not Black Swans



I thought that I would add a picture after posting. This picture depicts a left brain doing his best imitation of what he understands to be the persona of a dominant right brainer including the spaced out look. 

This is a link to an interesting article that J P Morgan may have sniffed out some problems with Madoff shortly before the "alleged" Ponzi scheme was exposed by Bernie's admission to his two sons. CNBC.com  The bank sold a product to European investors that allowed them to leverage their exposure to a Fairfield fund, one of Bernie's reliable feeder funds.   The Morgan note basically created a return 3 times the return of this Fairfield fund.  To protect itself, Morgan invested 250 million of its own money in the fund but then managed to pull its money out just before the blowup.  

Obama's characterized the  18.4 billion in Wall Street bonuses paid in 2008 as shameful  and irresponsible.  With many of those institutions  teetering on the precipice of insolvency-being propped up and kept afloat by the federal government, and further taking into full account that Wall Street is responsible for the worst financial crisis since the Great Depression, who could disagree with Obama other than Jim Cramer?  CNBC.com I know that those who received those bonuses believe that they are well deserved but they are just about the only ones who believe it. 

This is a good analysis of how Rep. Cantor, House GOP Whip,  misused the CBO analysis of the stimulus package. PolitiFact 
There is a fair amount of misrepresentation occurring about the CBO analysis. This is a summary found at U.S. News & World Report.  US News and World Report
When you add the tax part of the stimulus to the spending proposals, a majority of the money would enter into the economy by 2010. The recent CDO reports calculates that 64% would enter the economy by 2010.  I would just suggest that this number needs to move up to at least 75%.   The most recent CDO report can be accessed at the above linked article in U.S. News.  It is probably too much for the reactionaries to actually read the report that they comment on in such an authoritative fashion.  There are those who much prefer to misrepresent what the CDO says so I do not pay much attention to what Sean, Rush and their ilk say about it.  I just read it for myself. 

The powerful reactionary forces in American society feed off misinformation and misrepresentation.   


Unlike my representative Marsha Blackburn, who would have done nothing meaningful in September 2008 or now to avert a financial meltdown, I have been convinced that the world was on the precipice of a second Great Depression in September 2008.  If a free fall into an economic calamity of epic proportions would teach  Marsha and and her soulmates in the GOP a valuable lesson, then the Great Depression II would at least have some benefit.  But the problem is that she and her fellow travelers would learn nothing from it,  and everyone would pay the price for their lack of understanding.  Even today, as she said in September, Marsha says there is no hurry to do anything.  www.tennessean.com | The Tennessean
Marsha is now, and will always be, brain dead.    I view myself as a conservative.  Marsha says she is a conservative.  So how can this be?  Admittedly, I am not the kind of conservative that Marsha thinks of when she incorrectly labels herself as a conservative.   Suffice it to say, there is an incentive for the reactionary forces in our society, who have nothing in common with true conservative values, to pass themselves off as conservative. 

It is hard to be optimistic about the prospects of asset managers like T. Rowe Price in 2009. Investors have been pulling their money out of stock mutual funds and the asset values that fees are based upon have taken a huge hit due to the stock market crash.T. Rowe Price profit plummets - MarketWatch MarketBeat : T. Rowe Sees Outflows, Both From Funds and Its Shares  Many investors have given up on stocks altogether and liquidated all of their mutual funds to buy fixed income annuities.  It is hard to have and to keep the faith.  I am just adverse to buying one of the asset managers during the first half of this year, making a small exception for Federated based on its primary reliance on money market and bond funds. 

Dell, like Pfizer, is another stock that I gave up on year's ago.  I have no interest in it now.   MarketWatch   At a much lower price, say 7 to 8, I will just look at Dell again for a possible nibble. 

International Paper ( IP) is continuing its imitation of GM by losing 452 million in the 4th quarter, mostly on goodwill impairments. International Paper reports big loss on asset write-down - MarketWatch   Yahoo! FinanceThe stock is trading near $10 a share reaching new decade lows by the week.   The current price has fallen to levels prevalent in 1986.  I have never owned it.  Personally, I would have kept the timber and sold most of the paper operations. Rayonier, a REIT owned and sold before 2008, owns timber and has some operations, including real estate sales and making performance fibers, and it had a better report than IP. Rayonier Reports Solid 2008 Results: Financial News - Yahoo! Finance  I am just monitoring RYN at the present.  RYN did predict a down year for 2009 but said it expected its cash flow to exceed its 2 buck a share annual dividend for 2009. 

I do not own shares in Duke Realty (DRE), an industrial REIT similar to First Industrial, but I do monitor its earnings releases since I am considering adding one of its cumulative preferred issues.  Duke Realty Corporation Reports Fourth Quarter Results: Financial News - Yahoo! Finance  The common dividend has already been reduced which will save 150 million in cash and the development program has been cut back.  Like office and industrial REITs, severe headwinds are likely in 2009.    The company also revealed that it bought some of its own preferred stock in the fourth quarter which is a good move in my opinion, since it has a positive impact on fixed-charge ratios.  I would assume most of those buys were at less than 1/2 of par value and reduced the amount of dividends payable in connection with its preferred issues.   The Board declared its regular preferred dividends which is set forth in the above linked earnings release.   
There are several Duke Realty preferred issues to choose from and I have just linked the ones scheduled to pay their dividends in February.  I do not yet have a position, and I am currently trying to compare the prospects of Duke Realty and First Industrial.  I can capture a lot more yield with FR's cumulative preferred than with Duke Realty.
This is a link to DREPRL prospectus:
This is a link to DREPRJ prospectus:
This is a link to DREPRK prospectus:

Textron hit a low last seen in 1992 after a dismal report. Its Cessna unit had 23 cancellations and an unprecedented number of deferrals. MarketWatch
Cessana announced 2000 more job cutsYahoo! Finance  The company guided 2009 revenues and earnings below consensus. Textron Reports Fourth Quarter and Full-Year Financial Results: Financial News - Yahoo! Finance  The company has experienced problems with it finance unit and has taken steps to exit all non-captive financing. A number of charges were taken in the 4th quarter to reflect that exit.   I have no position in TXT, but I am monitoring it for a possible nibble sometime this year.   Textron took a big hit today and has been smashed after reaching a 52 week of 65.52 in the spring of 2008. TXT: Summary for TEXTRON INC - Yahoo! Finance

One benefit to having a few decades of age and experience is that I have developed a powerful respect for the power of a bear in a china shop.  I also remember the late 1970s and early 1980s, and how that period demolished the values of long bonds.  I do not assume that inflation is dead, nor do I believe that the long term secular bull market in bonds will continue for much longer.  While I do agree that all of the stops need to pulled out by the government and the Federal Reserve to avoid slipping into the Great Depression II, it is not hard to see that the repercussions of their unprecedented actions will likely be inflationary provided they work.  If they do not work, then there will be other things more serious to worry about in the coming months.  Being heavily in debt or just being a saver with short term instruments like T Bills or a savings account are not advantageous positions in a deflationary spiral but the saver will at least survive to fight another day.  

Barclays has added a short term international government bond fund to its ETF lineup.  Yahoo! Finance  The symbol is BWZ. BWZ: Summary for SPDR BARCLAY TSY BD - Yahoo! Finance  This kind of instrument is coming pretty close to a currency play against the U.S. dollar. This is a link to the site:
SPDR Barclays Capital Short Term International Treasury Bond ETF The expense ratio is .35%. This site is very unfriendly to safari browser users. 

Another Brentwood financial advisor was accused of fraud. | www.tennessean.com | The Tennessean

Japanese industrial output fell 9.6% in December compared to November. MarketWatch  The countries that are particularly tied to providing products to the American consumer are sliding deeper into a recession.  This is truly a global problem which is accelerating. 

I do have a higher opinion of Chubb than other insurers.  It reported a decent quarter after the close.  MarketWatch I do not have a position in CB. 

I see that Blagojevich was impeached, maybe he could move to Tennessee and run as a Democrat of course for a State Senate seat.  

Option arms are soaring in defaults. WSJ.com  According this WSJ article, about 750 million in Option Arms were made between 2004 to 2007 and are concentrated in the hyper-inflated, now deflating California and Florida markets.   This mortgage product allowed the borrower to decide how much to pay every month, including an option that permitted payment of less monthly interest than otherwise due.  So less interest and no principal payment was a payment option, and then the monthly short payment would be added to the amount due on the loan.  This is called negative amortization. Then to insure a disaster, peddle the loan primarily in California and Florida to mostly upper income folks living way beyond their means, where houses have risen in a parabolic manner far in excess of income growth.  Then when the whole thing comes tumbling down, just say who knew, or this is a black swan event that could not have been forecasted, or that the originators of the mortgage could say that they were brought down by the worse housing market since the 1930s, or a borrower could claim that he was taken advantage of by an unscrupulous mortgage lender. Poppycock!  Option arms had to fail.  They could not have succeeded.  There was no black swan event. This was a predictable meltdown. Options Arms were just one facet of a clearly crazed easy credit cycle.  This is not a matter of looking in retrospect but what could have easily been modeled at the time by risk analysts doing their job rather than appeasing their masters. 

SOLD 100 JBI AT PAR VALUE

The TC containing a long term senior bond of Spectra Energy, JBI, was sold at its par value of $25. (actually $25.025) There are several reasons for the sale.

First, at par value, I no longer have the discount to capture. When I first talked about this TC, it was trading at around 17. TRUST CERTIFICATES JBI DUKE

Second, the semi-annual interest payment is coming up in February and I have to pay a 6% state tax on that interest but there is no Tennessee income tax on the sale of securities or on earned income. The tax is only levied on certain categories of interest and dividend income.

Third, I do not view this one as having much upside on price at $25 and another opportunity may arise to buy it back at much lower prices at some point after the interest payment. Individuals have a tendency to sell these TCs after receiving a 6 month interest payment and to buy a few days before they go ex interest which just creates a tax event. Sometimes, based on market events unrelated to the TC, there might be a precipitous fall shortly before the ex interest date and this may actually present a buying opportunity. A rise to par value shortly before the ex interest date is another matter entirely. For someone like me, there are always options and alternatives.   

Fourth, it does not look like I am going to come anywhere close in completing my hedge with TBT. Chris Cox: Medal of Freedom?/Massive Dividends for Proshares ETFs/TBT add TBT vs. PST: Hedging Corporate Bond BOND ALLOCATION: MANY MOVING PARTS IN 4TH QUARTER Since I am over exposed to long term corporate bonds, I need to pare the position back some until TBT comes way down in price or at least pick up securities that will compensate me more for the unhedged inflation risk of the long bonds. 

DISCLAIMER:
  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Stimulus Bill/Ciber, MMM/ Bank Dividends/ Is RCL in Danger?/PYV a Hold?

Every single GOP member of the House voted against the stimulus bill. MarketWatch   The GOP is still following the Herbert Hoover playbook since that is the only playbook that they have written during the past 100 years.   Obama said he did not look like Herbert Hoover but that there are members of the House who think like Hoover  CNBC.com
The House stimulus bill does have a variety of tax breaks for businesses. WSJ.com
The signature piece of the individual cuts is a credit for individuals of $500 for individuals and $1,000 for couples.NYTimes.com
One criticism of that tax cut is that it in effect gives a tax rebate to some lower income workers who may not pay federal income taxes. I understand that criticism but would point out that putting money in their pocket will have a greater stimulus impact since they will have to spend it.  The same is true for an extension of unemployment benefits and a slight increase in food stamps.  A more cynical person than me would say the Democrats are just rewarding those who voted them into power. 


Revenue declined about 11% for MMM in the latest quarter.  MMM also lowered its forecast for 2009 to a range of $4.3 to $4.7.  Ex-items, MMM earned $.97, 4 cents better than estimates but down from $1.17 in the year earlier period.3M Reports Fourth-Quarter and Full-Year 2008 Results: Financial News - Yahoo! Finance

Ciber, a recently added small cap buy, had worse than expected earnings. CIBER Reports Preliminary 2008 Results: Financial News - Yahoo! Finance
 Apparently, some of Ciber's clients declared bankruptcy and Ciber suffered more than expected due to currency exchange rates.  I will hold my 50 shares. 

This article details  some of the provisions included in the package:MarketWatch

Many of the GOP faithful complain that their hard earn tax dollars are going to pay for this stimulus package.  They object to using their hard earned tax dollars to support building and repairing schools as one common complaint that I have seen many times in their posts.   Of course, with a budget deficit already estimated at a trillion dollars for the fiscal year ending September 2009 before the stimulus bill, it would not be fair to say that any tax dollars are going to fund this package.  Instead, the bill has tax cuts for those complaining about using their tax dollars to build schools and infrastructure projects.   But, it is always mind boggling to read comments from the currently powerless, though still powerful, reactionary forces in America.   With job cuts accelerating, and jobless claims at a record highAmericans receiving jobless benefits hit record - Yahoo! Finance, it is hard to see how a continuation of GOP economic policies will protect the jobs that people currently have, let alone jump start the creation of new jobs.  It is a waste of time to try to appease the GOP.  

Chrysler and GM have ended their controversial "job bank" programs with the UAW's support.  NYTimes.com

The bailout has now been extended to credit unions.  WSJ.com

The recently declared Con Ed dividend constituted a small increase from .585 to .59. 

Comerica (CMA) and East West (EWBC) became the latest banks to reduce their dividends with CMA going to 5 cents from 33 cents and EWBC to 2 cents from 10.  On the bright side, Wells Fargo did declare its regular dividend.   One analyst predicted that Regions Financial (RF) will have to reduce its dividend this year to a penny.  Reuters
I would agree with that forecast.  Regions made a lot of poor loan decisions particularly in the Florida real estate market.  

New Zealand, typically a haven for higher short rates,  slashed its equivalent to the federal funds rate to an all time low of 3.5% from 5%.   Reuters  I have never owned that currency.  I am only aware of one currency ETF for the New Zealand dollar. WisdomTree - WisdomTree Dreyfus New Zealand Dollar Fund (BNZ)BNZ: Summary for WISDOMTREE DREYFUS - Yahoo! Finance  This is a chart of global 1 month money market rates as of mid December:WisdomTree - Currency Income ETFs  Of the countries shown on that chart, Brazil is the highest at 12%. 

I saw where Barclays lowered the price target for Royal Carribean to $1 from $20, noting the precipitous decline in cruise bookings. Reuters  The analyst thought the company would make it but come perilously close to facing liquidity issues. I have no interest in the common but I am monitoring a senior bond issue which I have never bought due to my concerns about RCL's debt levels, with long term debt of over 5.5 billion as of 9/30/08.   RCL: Balance Sheet for ROYAL CARIBBEAN CR - Yahoo! Finance  The company recently eliminated its common stock dividend which will save 130 million a year. MarketWatch   On p. 28 of its 3rd quarter 10-q, the company details that it has another 6 billion in ship purchase obligations (seven ships) plus other obligations of 653 million and 473 million of capital lease obligations. Form 10-Q  There is not much room here for a protracted downturn in consumer discretionary spending.  Page F-15 of the last annual report has the maturity schedules for the debt. 
FINRA bond information for RCL: Search Results
RCL reported this morning, saying its earned 1 cent and expects more challenges in 2009.  - MarketWatch
The Barclays analyst had predicted a 10 cent share loss. RCL still expects earnings in 2009, estimating $1.4 below the $1.64 analyst expectations.Royal Caribbean Reports Fourth Quarter Earnings and Provides an Update on the 'Wave' Period: Financial News - Yahoo! Finance
The Barclays analyst is predicting a 92 cent a share loss.  The recent balance sheet disclosure shows total long term has increased to 6.539 billion.  As of 12/31/08, the company says it has liquidity of 1 billion which includes its cash of about 403 million and the remaining unused balance of it bank credit line.  But, based on its current ship orders, it has 2.1 billion in capital expenditures for 2009 and 2.2 billion for 2010. 

 I would place its senior bond a tad above the very speculative Ford Motor Credit senior bond that I own.  So, I am doing a fair amount of work on a company where I have no position and where at most I am considering a small investment in a senior bond.  There is a great deal of risk to a senior bond from this type of issuer but the current yields are also tempting.  I have not yet made up my mind on this one.  A purchase of a RCL senior bond would be a bet, not an investment and I am not inclined to bet more than $500 on this one.  I would also want better than a 20% current yield from a RCL senior bond to compensate for the added risk on this one.

  
Provided my opinion of CNA Financial does not materially deteriorate, I would add another 50 of the TC JZV at any time during the next four months, prior to the next ex interest date but only at a price at or below 10.50.  I entered a market order to buy 50 yesterday even though the bid/ask spread was about 20 cents since I am okay buying it at 1/2 of its par value.   

The German unemployment rate shot up to 8.3%Yahoo! Finance

New home sales fell to the lowest rate on record in December.  MarketWatch

This is just an amazing number.  Wall Street bonuses in 2008 totaled 18.4 billion.  MarketWatch
Paying a great deal of money for mediocrity and failure will never change. 

I was asked about whether I intend to keep the TC containing the junior debenture issued by  J P Morgan (PYV) until maturity in March 2014.   Buys of a First Mortgage Bond EMO and a JPM TC PYV
PYV is my only position in what I would label bank debt preferred.  There are two reasons why I made an exception for PYV. First, it has a short maturity date, about five years, and pays me close to 12% annualized at my $18.5 cost, when the annualized spread amortization is added to the current yield.  I can not find 5 year paper paying me at that rate now with a similar credit rating.  Second, I currently have more confidence in J P Morgan than any other big bank.  This may change, but for now I see no reason to worry much, as in reasonable worries, about being paid in full at maturity. If my opinion changes on that central and critical point, I will dump PYV immediately. 

Fortune Brands missed expectations by a wide mark and guided 2009 below consensus. Fortune Brands Announces Fourth Quarter and Full-Year 2008 Results: Financial News - Yahoo! Finance

The utility stocks that I own, which includes GXP, ED, POM, PGN, PNW, SE, were mostly down yesterday and up today.  This would indicate to me that they are a source of funds during the temporary period of euphoria and buys, at least for now, when despair and gloom return.  A psychologist might characterize that kind of behavior as consistent with manic depression. 

Wednesday, January 28, 2009

GOP & the Stimulus Plan/More on Thain/ING debt downgrade/Solta Medical earnings/SBUX

It is not surprising that the House GOP members will oppose Obama's stimulus plan in lock step. If they had been in control of the House back in September 2008, the world would now be a full-fledged depression, and there is no doubt in my mind about that opinion.  Their answer to the current crisis is the same as their answer to anything and everything-more tax cuts. Of course, tax cuts have not kept us out of the current pickle and maybe the GOP needs to explain why before offering more of the same.- washingtonpost.com  Their intellectual and titular leader, Rush Limbaugh, has already given them their marching orders-do whatever they can to cause Obama to fail.   CNN Political Ticker: 
It is also hard for them to explain in a convincing fashion why they will be voting against tax cuts for the middle class and businesses (about 275 billion dollars)  contained in the plan to be voted on tonight. Bloomberg.com: WorldwideYahoo! CNBC.comI do believe that the majority of the American people sensed the inability of the GOP to adjust their standard ideology to forge a resolution of the current crisis, or even alleviate it, and voted accordingly in the last election.   They have been intent since the summer of 2008 to repeat the same mistakes as Herbert Hoover.  On the other hand, the Democrats can not pass a spending bill of this magnitude without including in it a lot of wasteful spending or spending that is far from the best bang for the buck in a stimulus package.   I see no reason for example to include money for student loans in a stimulus package. 

I do think John Thain would have been McCain's choice for Secretary of the Treasury. NYTimes.com

One question that Thain has not answered is why was it necessary to distribute the Merrill bonuses in December when the regularly scheduled time period would have been in January after the completion of the merger.NYTimes.com  Another question is how does any company justify paying one dollar in a bonus when the company was for all practical purposes bankrupt at the end of 2008?  The only source of money for the bonuses, after subtracting Merrill's losses for the year, had to be the taxpayer handout.  And, lastly, Thain says the bonuses were needed to keep the talent from bolting to other firms.  Does this mean that Merrill's talent would leave to join AIG, Lehman, Bear Stearns, or Citigroup, or who exactly is hiring these wunderkinds these days?  Besides the real worth of the so-called talent who might have left without a big bonus is probably in  need of a sober and independent evaluation and a recognition of the new realities. FT.com / UK - A leaner future for Wall Street bankers  They were paid early only because the Merrill brass feared that Bank of America would have hacked any big bonus payments after 1/1/09. 

Starbucks plans to cut more workers-7,000 for this round- and to close another 300 underperforming stores.  ReutersRevenues for the last quarter fell 6% and the SBUX earned $.09 versus 28 cents a year ago.  Its non-GAAP number, which excludes restructuring costs, as $.15. Starbucks Reports First Quarter Fiscal 2009 Results: Financial News - Yahoo! Finance I currently have no interest in SBUX.  But, at a much lower price than $9.6, my interest might receive a small jolt of enthusiasm. 

Allstate had a negative report.MarketWatch

It is hard to see much to like in Qualcomm's release. MarketWatch

Moody's downgraded the debt of ING Group and ING Bank. MarketWatch 

Fitch also downgraded ING securities today.  Fitch Corporate
For my purposes the Fitch rating of the preferred stock is the most relevant and the preference shares were downgraded to BBB- with a negative outlook.

The CNA senior bond maturing in 2023 is rated by Fitch at BBB with a negative outlook. Fitch Corporate
This is the underlying bond contained in the TC JZV.   The FINRA link to the underlying bond in JZV is:FINRA - Investor Information - Market Data - Bonds - Bond Detail

Linn Energy (LINE), a position owned but not discussed yet, announced its dividend of 63 cents for the 1st quarter.  Yahoo! Finance

I thought the Barron's discussion of  Compass Diversified Financial (CODI) was worth a read. I just put the stock on my small cap monitor list. Barrons.com

I think the S & P is likely to finish the month over 815 so I will restart my investment of cash flow into common stocks.  I have about a thousand in cash flow received this month which has yet to be utilized. 

One of the small caps recently purchased, Solta Medical, reported preliminary results after the close. Solta Medical, Inc. Announces Preliminary Financial Results for the Fourth Quarter of 2008: Financial News - Yahoo! Finance
This is apparently not an earnings release but preliminary numbers for the 4th quarter. Results were poor particularly on the revenue side.  A loss of 3.1 million is expected for the quarter before charges connected with the recent Reliant acquisition, stock based compensation and other costs.  I would not have even bought the 100 shares at $1.35 given this information.  Possibly I would consider it now if I had a do over at less than 1.  This is one reason why I spread my money around when buying these micro caps.  But I will stay with Solta for a day short of a 1 year holding period to see what happens. 

Bought back 1/2 of JZV Position at 12.50/Buy 50 FVL in IRA

Rush Limbaugh has jumped to the defense of the 1.2 million dollar redecoration of Thain's Merrill office. (usnews.com)
 Thain was just compelled to spend the 1.2 million because Stan's office was so very different in decor from the surrounding offices. Los Angeles Times
This new PR version of the Thain's kingly aspirations does not sound convincing.  Now, if he wants to say that Stan was a bad decorator, I am okay with that claim. 

The WSJ reported that about 6.9% of prime jumbo loans, averaging $750,000, were delinquent by 90 days or more. WSJ.com

I bought back 50 shares of the TC JZV at 12.5, having recently sold 100 at 16.25 in early January. SOLD JZV WITH GTC LIMIT ORDER AT 16.25 I am sure that I am playing with the house's money on this one.  This TC contains a senior bond issue by CNA Financial, and I do not have a high opinion of this company. TRUST CERTIFICATE CNA BOND JZV
The underlying bond does mature in 2023.  Par is at $25 with a 7% coupon.  So a buy at 12.5, which is slightly less than my previous buy, would give me an effective current yield based on my cost of double the coupon or 14%.   
I have bought and sold this one many times.  The last sale generated over a$400  profit in less than 3 months, including both the profit on the 100 shares and the one semi-annual interest payment.  If I ever decide to hold it until maturity in November 2023, which is doubtful for this security because CNA makes me uneasy,  the return would be 100% on the shares provided CNA pays off the underlying bond at its par value, plus the 14% annual interest payments (i.e., 14% current interest based on a $12.5 cost +  an additional 6.66% annualized arrived at by amortizing the spread between par and cost to create an annualized return, both assuming payment in full at maturity and payment of all semi-annual interest payments, for a total return of 20.66% annualized with those assumptions)   So this is another addition to the long bond portfolio but this one is almost intermediate term with less than 15 years to maturity. 

The Fed is still predicting a second half recover.

I added 50 shares of FVL in my IRA at 9.14.  It is an ETF that contains the top 100 rated stocks in the Value Line rating system. First Trust - www.FTPortfolios.com For an ETF, the expense ratio is high at .7%, and the VL momentum model has faired poorly during this bear market.  If it continues to slide, I will just include it in my next Roth conversion.  Some individual securities were recently sold in this account for a profit.  With the 100 of FVL added in the main account, my total exposure is 150 but I am only likely to trade the 50 in the IRA. 

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

Sometimes: Better to Say No More than Yes/ SLG, T, NVS, WFC/BAD BANK Model/

Sometimes it just pays to say no and walk away.  If this had been done a million or so times over the past five years, we would not be in such a pickle now. GE Finance recently foreclosed on a two year 148 million dollar bridge loan to fund the acquisition of some apartments in Alabama at a 95% loan to value ratio.  When asked why such a high loan to value, GE said that it was a competitive market. WSJ.com A better answer in the future would be to just say no. 

This is a link to the S L Green earnings call transcript. SL Green Realty Corp. Earnings Call Transcript -- Seeking Alpha
I have to admit that I do not know beans about NY real estate, but this company appears to be well managed to me after reading this transcript.  This is not to say that I have never been in NYC.  In 1964, while in the city with my family,  my father and I took the subway to Shea stadium to watch a Mets game while everyone else went to see a Shakespeare play starring Elizabeth Taylor and Richard Burton.  The Mets were just awful. I did fly into NYC on my way to Ireland in 1981.   The aerial view of NYC made an impression on me, as did my final and last visit which consisted of a bus ride from Binghamton to Yankee stadium.  I do not think that SLG owns any properties in the South Bronx, which left an indelible imprint on my southern brain, with Yankee stadium rising like an oasis out of the rubble.   So, as you can see, these three trips does not qualify me as an expert on Manhattan real estate.  I may work my position in S L Green from owning a few bricks to a window. 

I do believe that it is important for the government to keep trying new approaches to solve the banking crisis until it stumbles on a plan that actually works.   Paulson's showering the banks with 5% money may have averted the Great Depression Part Deux, and provided the necessary funds to pay bonuses to every doofus in a suit for 2008.   Obama may now be moving to approving the bad bank model, which might actually work.  MarketWatch But to restore confidence, we need a new generation of leaders in our financial institutions.  One fact that has come through loud and clear, more than anything else, is that most of our major financial institutions were not being led by competent individuals.   Greedy, highly compensated, rewarded for failure and for taking outlandish and irresponsible risks, lacking in judgment, incompetent, and totally devoid of an ounce of common sense, would all be fair characterizations of them. 

I do not own common stock in AT & T but I do have a significant position in its senior bonds. This will cause me to monitor the progress of this company as if I owned common shares. The report this morning from T was satisfactory with the company earnings 64 cents excluding items, one cent shy of the consensus estimate. MarketWatch
AT & T is paying a price for its IPhone subsidy.  TheStreet.com

Wells Fargo reported a 4th quarter loss of 2.55 billion due to credit write-downs and losses.  WFC just acquired control of Wachovia, a deeply troubled large bank, which had a 11.2 billion 4th quarter loss.  Importantly, WFC said it had no plans to seek additional TARP money.   MarketWatch  I do not have a position, although I do consider from time to time taking a position in one of its debt preferred issues. 

I do not own ConocoPhillips, but I was nonetheless stunned by the 25.55 billion loss resulting form an impairment charge of all of its exploration and production segment goodwill and a 7.410 billion charge connected with its LUKOIL investment. Yahoo! Finance

The NYT did report earnings of 19 cents after items and 36 cents before items, beating the forecasts of 27 cents. Yahoo! Finance  The company also put its 17.75% interest in New England Sports Venture up for sale, and that venture owns the Red Sox, their home field and some real estate.  Carlos Slim recently acquired a stake.   Seeking AlphaWhile newspapers are in a decline, part of the problem is associated with the funk in the economy rather than the secular decline of the newspaper industry caused primarily by the advent of the internet and the overall pronounced trend of more people preferring to be enlightened by the bloviators.   I know many people who refer to themselves as "conservatives" who have refused to ever read a single article from the NYT or the WP believing that all "mainstream" and "liberal" news organizations are involved in some kind of vast conspiracy to mislead them, so Rush and Sean are their alternatives.  Sarah is the personification of a perfect candidate for them, and they are most pleased that she has started fundraising for a possible 2012 quest to be President.   When you talk to them, and it generally takes no more than a minute or two, conservative is not an appropriate descriptive term for them, far from it.  What little information, which they do possess, can best be described as incorrect and/or incomplete, usually consisting of two or three word cliches strung together as a belief pattern with any substantive and real factual information studiously disregarded to the point where an active effort is made to avoid all contact with facts.    I do view myself as a conservative.  Maybe I will buy 25 shares of the NYT as a show of support for a good newspaper. 

The economist Nouriel Roubini must enjoy hearing himself talk, continuing a dire set of forecasts that would make Alan Abelson look chipper.  He upped his forecast of bank losses to 3.6 trillion and predicted 1% growth in the economy in 2010. Tech Ticker, Yahoo! Finance
I just wanted to make a note for future reference in 2011.  Sometimes, it is probably best to just shout up while your reputation as a guru is still in tact. 

Sales growth at Novartis rose only 1.5% but this was shaved by 7% due to currency swings.  Operating profit rose 25% but missed estimates. The dividend was raised MarketWatch
The company expects record earnings in 2009.  One of its main drugs, Diovan, loses patent protection in 2012.
NVS looks like it will fall today and I am going to look at it closer for a possible add.  

I like the negativity expressed in this article since I do not currently own NVS and would like to nibble on it at lower prices: Forbes.com

Other recent articles about NVS of interest to me:
(news potentially impacting NVS drug Foradil)

Cramer says he does not trust ING's 26% dividend yield.  CNBC.com  That is a good call, Jim, since the common stock dividend was eliminated last year.  You may want to stay in touch before opining.  Now, contrary to a few days ago, he does not like Dryships. 

Tuesday, January 27, 2009

Ponzi Schemes Galore/BMY, AVY, VZ, SYK, SLG/ GE review by Moody's/ Stop Making Acquisitions NADX/ADD 50 MSFT/Sold Delek



Tonight's picture is of a youngster who is either a dominant left or right brain, and I think that his look is a dead giveaway. 

A woman gave birth to octuplets in California.  It was just the second time that woman gave birth to 8 babies in the U.S.  Reuters

1. Ponzi schemes gone wild:
 Arthur Nadel surrendered to authorities in Tampa. Yahoo! FinanceNadel allegedly had less than a million left from what he claimed to be over 300 million invested with him.FOXBusiness.comYahoo! Finance  


A money manager from Gatlinburg, Tennessee is still missing.  www.tennessean.com | The Tennessean

A financial advisor located in Brentwood, Tennessee was recently charged with operating a Ponzi scheme allegedly bilking clients out of 9 million. Nashville Business Journal:

Another famous Tennessee Ponzi case has a connection to Bill Monroe's madolin. Shelbyville Times-

A Buffalo investment manager was arrested earlier this month in connection with an alleged Ponzi scheme.The Buffalo News

According to TIME MAGAZINE, other recent SEC actions include shutting down CRE Capital in Atlanta for allegedly bilking investors out of 25 million and a manager in Broomall, PA. for allegedly scamming investors out of 80 million.   That manager reported consistent annual returns of 18 to 37% to his 80 investors  and claimed to have 150 million when the actual value of the funds left was about $147,000.   The attorney for CRE Capital said his clients acted in good faith.  TIME
See also,  NYTimes.com

As incredible as it may sound, the SEC is maintaining that it did a good job investigating Madoff in the past. Yahoo! Finance

A doofus rarely admits to being a doofus. 

 Does anyone expect an admission of making a mistake from one of the Masters of the Universe, let alone an apology?

It is difficult for me to keep track of all of the earnings just on the positions that I already own, let alone on stocks that I am considering to add.

One of the more difficult asset allocation decisions that will have to be made in 2009 is what to do with the proceeds of maturing short term bonds.  I have several coming due this year starting in May.  My current inclination is to put all of it into stocks irrespective of my VIX indicator. 

2. Bristol Myers (BMY): Bristol-Myers, which is owned, had a solid report.Reuters   MarketWatch Excluding items which were a net positive, earnings came in at 46 cents versus estimates at 40 cents.  The company had a 582 million after tax gain from the sale of its Imclone shares, which are excluded from that 46 cents. My main concern is that Plavix will face generic challenges in November 2011.  A new heptitis B drug, Baraclude, did have sales rise 55% to 153 million; a 31% increase in Abilify to 606 million; Sustiva franchise up 15% to 300 million; a 72% increase in Orencia ( for rheumatoid arthritis) to 129 million; and a 54% increase in Sprycel to 86 million (all 3 month figures versus 4th quarter 2007). Yahoo! Finance  Plavix sales for the quarter increased 7% to 1.469 billion with Enfamil, Reyataz, Erbitux and Avapro down in sales slightly by a few per cent.  Ablify's recently added depression indication may be spurring growth in sales of that drug.  Add-on Depression Treatment| Bipolar and Schizophrenia Treatment | ABILIFY® (aripiprazole)Cash and marketable securities are now over 8 billion with the proceeds from the Imclone stock sale.  Goldman Sachs added BMY to its conviction buy list. Reuters

I saw where Fuld, the former Lehman Brothers CEO, sold his 13 million dollar Florida estate to his wife for $100.   Reuters
 
3.  Avery Denison: Avery Denison, a previously owned position, is one of the cyclical companies that I will try to avoid during an economic downturn.  It forecasted today that earnings for 2009 might be just a buck if the 4th quarter 2008 revenue trends continue throughout 2009.  This would increase to only 2 bucks if  fiscal year 2008 continues for 2009. The company is laying off 10% of its workforce and 120 million in restructuring charges.   Revenue for the 4th quarter fell 12%.  As some have said, down 10% in revenue is the new flat.  The earnings before items did come in ahead of estimates at 65 cents versus expectations of 43 cents.Avery Dennison Reports Fourth Quarter and Year-End 2008 Results: Financial News - Yahoo! Finance  But those expectations had been reduced several times as the economy accelerated its downturn late last year. The company did previously declare it regular first quarter dividend of 41 cents payable in March.  A dividend cut later in 2009 is certainly a possibility.  The stock has returned to mid 1990 levels.  The price has been cut in half since 9/08/08.  Notwithstanding AVY's sensitivity to the economic cycle, I may start nibbling on further price erosion. 

4.  EMC:  EMC, where I have a small starter position, reported a  5% rise in 4th quarter revenues to 4.02 billion from 3.83 billion a year ago.  The company earned 14 cents after charges and 32 cents before charges. MarketWatch   TheStreet.comEMC is not giving guidance for 2009.  EMC Reports Fourth-Quarter and Full-Year 2008 Financial Results: Financial News - Yahoo! Finance

5.  Bought 50 Microsoft at $17.79:  In a continuation of adding positions gradually in the Tech titans, I bought 50 Microsoft at 17.79.   Again, I am using the proceeds from the Kraft sale to fund the transaction which leaves about $700.  However, by the time I complete the re-deployment of that cash, I will probably have wished that I had just kept the Kraft shares. Time to Start Building Positions in TECH Titans? BAC: Hey WE Took a Look at the Books in Mid December & Said Wow We Need to talk to Uncle Ben
(this buy brings me to 100 shares total, with a goal of 200)

6.  Sold Delek: I sold the remaining 50 shares of Delek after reading Valero's report today.  The order was filled at 7.28 and these shares were the ones purchased at 4.61 last November. Yes, I am Chicken Now, and Proud of IT
Those proceeds will be used to buy another small cap. 

7.  Verizon Pension Hit: Verizon did say that it would take a hit of 9 to 11 cents in 2009 due to pension and other retirement expenses. Reuters  I believe that this would be widely expected for companies with pension plans that suffered a substantial loss in value due to the stock market crash last year, and it was a crash. 

8: National Dentex:  I would hope that the management of National Dentex (NADX) has finally seen the light.  Growth by acquisitions is counter-productive now.  It makes no sense to add 7 million in revenues at a cost of 10 million.  The focus has to be on improving profitability from existing operations.  I would assume that anyone, including the CEO of this small company, is capable of seeing the light when the cost of the last small acquisition in Lansing Michigan equalled about 1/2 of  NADX's market capitalization a few days ago.   

9. GE: Moody's has placed GE under review for a possible downgrade.- Yahoo! Finance MarketWatch

10  Stryker: Stryker reported earnings after the close.  Revenues rose 3.6% with earnings at $.69 vs. $.66 in the year earlier period.  Adjusted earnings from continuing operations came in at $.74.Stryker Operating Results for Quarter Ended December 31, 2008: Financial News - Yahoo! Finance
SYK projected diluted net earnings for 2009 to be in the range of $3.12 to $3.22 which would constitute a 10 to 14% increase over adjusted diluted net earnings per share  of $2.83 for 2008.
This is the same as previous guidance by the company.MarketWatch
SYK  rose over 4% in after hours trading.  This stock was a short recommendation by one of the bears in a recent Barron's issue. Cure for a Lush: A limitless supply of alcohol?/SYK a short?/WaMu: Just another example Socializing risk and Privatizing rewards

SL Green stood by its previous forecast of 2009 FFO of $5.25 to $5.5 Reuters

11. Yahoo: Yahoo reported a decline in revenues and a net loss of 303 million.  MarketWatch
If you want to use the NON-GAAP number, then Yahoo had net income of  $.17 which beat estimates.  That number excludes a number of items including depreciation, amortization, stock based compensation, a 108 million restructuring charge for severance, facilities and other restructuring costs, a 488 million impairment to its international operations  and miscellaneous costs associated with keeping Microsoft from buying it at over 30 a share.  Yahoo's first quarter operating income forecast was well below forecasts. UPDATE 3-Yahoo posts higher profit but outlook weak | Markets | Markets News | Reuters
I have no interest in Yahoo at all above $10 and de minimis interest in the 8 to 10 range.


12 Phoenix Insurance Bond: I have noted a great deal of volatility in the senior bond issue of Phoenix Insurance (PFX).  The only recent news noted is that A.M. Best revised its outlook to negative.  A.M. Best Revises Outlook to Negative for The Phoenix Companies, Inc. and Its Core Subsidiaries: Financial News - Yahoo! Finance


DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me.