Saturday, February 28, 2009

Corporations Can Not Be Counted on for Dividends in Retirement/ Nocera on AIG Financial Products Unit/More on GE/Citi Preferred

Joe Nocera has an excellent article about the infamous AIG for anyone who wants to understand what actually went wrong. NYTimes.com There is no doubt in my mind that AIG bears a great deal of responsibility for the blowup in the world's financial system.   In fact, the actions undertaken by AIG's Financial Products unit in London are the most important cause, Number 1, of the top ten causes of the worldwide mini-depression.  It is not only the destruction of AIG that can be laid on their doorstep but the AIG Financial Products created the vessel that spread the credit bubble disease around the world, as Nocera explained in his article and I have done in several prior post. 

See, e.g.,

And how many people even know their names or could identify any of them in a line up?  As the government struggles to figure out how to save AIG for a few more weeks this weekend, so that the seeds sown by AIG Financial Products do not blow up the world's financial system even more than they already have, I have been thinking again that the governments around the world need to round up these clowns, suspending all of those liberal wimp laws like trial by jury, and just send them all to the worst prison in the Muslim world, or maybe to one in the tribal area of Pakistan, brand them on their foreheads with the phrase "I Love George Bush" and then bring the worlds' worse sex offenders to reside with them for the remainder of their miserable lives. I keep working on this idea and anyone is free to borrow and implement it. Normally, I am a stickler about the Bill of Rights but I am willing to make an exception for these individuals who reaped hundreds of millions for themselves.  This treatment would actually be more than they deserve, far too lenient for the damage they have wrought and continue to bring.     
  

I noticed on the WSJ dividend declaration page that CB & L Properties declared its regular 37 a share dividend and its full preferred share dividends. But, the cash part of the common share dividend can not exceed 40% of the total amount paid by CB & L. The preferred dividends are all cash. I own both the common and CBLPRC and will take whatever I am given on my common share position. The entire position is small.  The TC containing a senior Goodyear Tire bond, XKK, is scheduled to go ex interest on 3/11 with its semi-annual interest payment. My position in XKK is larger than the total exposure to CBL, though still negligible at 550 shares.  I also have positions in KSA and KCC, two TCs containing a junior debt obligation of Unum, and the WSJ page shows that they go ex interest also on 3/11. (Barron's had yet another negative article on Unum this weekend: Barrons.com) I am now just happy to receive scheduled payments without an elimination, cut, or deferral.  I am making a note of any company that honors its obligations and those that do not for future reference.  The ones that maintain executive pay and cut pay to the shareholders will be in my disfavor from now on. None of the securities mentioned in this paragraph are eligible for purchase under my existing trading restrictions, since they consist of  common and preferred stock, a junior investment grade bond and a senior junk rated bond. Only a senior investment grade bond is eligible for purchase now as an individual security. 

I noticed that the GE dividend cut was the first one in 71 years. WSJ.com Immelt declined a 12 million bonus for 2008 after the stock fell more than 50% from $37.01 on 12/31/2007 to $16.2 on 12/31/08.  WSJ.com My question is why would he be eligible for any bonus, let alone a 12 million dollar reward?  He obviously was paying scant attention to the growing fiasco within GE Capital.  

I am also still curious why GE would call a dividend reduced by 68% "competitive" and "attractive". GE Rub that salt in the wound is my response, because those terms are used to describe the dividend yield payable now at the 10 cent quarterly rate for a stock purchase made at $8 now- after an almost 80% decline in the stock price since 12/31/07.  After GE tried to make it sound like they were doing the shareholders a favor by a two thirds cut I decided that I would not forgive them after all. Tell me about the bonuses handed out to GE execs for their 2008 performances again. How much was gifted to the wizards at GE Capital? To say there is a huge disconnect between what executives believe they are worth and even entitled to receive like some welfare recipients, and what is actually deserved, is an understatement to say the least.  Executive compensation, frequently for pathetic or mediocre performance, is now at 400 times an average worker's pay, up from 40 times in 1980.  Does anyone really believe, other than the executives of course, that the shareholders are getting value for the increased costs? CBS NewsBUY OF 50 KSA IN IRA AT 16.31/BAC Management: Failure is to Kind a Word to Use/CB & L

It is time for individual shareholders to start voting against every proposal presented to them relating to executive compensation. I recognize that the mutual funds and other institutional investors will do nothing to change the system but that is no excuse for individual investors to continue supporting the status quo by not voting or by voting with the Boards recommendation. It is very easy to vote your shares online now. I am unaware of a single Board of Directors of an American company that is actually representing the interests of the shareholders, maybe that statement has a little hyperbole in it.  

Toyota has an appropriate model. While workers have been trimmed from 40 to 36 hours with no bonuses or overtime, and no lay offs in the U.S., top executives will see pay cuts of 30% while middle managers will also be cut 20%.  CBS News In that model, I would be okay with accepting a dividend cut. This is part of a collective responsibility or shared sacrifice ethos that American executives will not voluntarily accept, and it will simply have to be imposed on them by the shareholders.  

The main lesson to learn from GE's action is that those nearing retirement or in retirement can not rely on American corporations to pay dividends as part of their retirement strategy. No reliance can be placed whatsoever on any financial institution to continue paying a dividend, let alone maintaining or increasing it. A Citigroup shareholder is holding a near worthless piece of paper now that pays nothing. Most banks have substantially cut or eliminated their dividends. This realization is going to lead me to emphasize more senior bonds where management simply does not have the latitude to screw their investors while maintaining their oversized share of the corporation's funds.    In the coming years I will also take advantage of treasuries when they start to yield something worthwhile, which will happen, but not this year or even in 2010.   

Buffett's letter to his shareholders is available online and is worth a read.  He says the economy will be in shambles in 2009 and probably for well beyond. I did own at one time the baby Berkshire shares which have almost been cut in half from their 52 week high. BRK-B: Summary for BERKSHIRE HATH I do not remember my sales price but it was around $2000 bucks higher than the current price. I will just keep an eye on it. I am prohibited from buying it now but I am keeping a daily log of my cash flow that I will be able to invest when and if the S & P 500 has a monthly close above 815.   

I was interested in the long WSJ article about Raoul Wallenberg. WSJ.com I was familiar with his story, his efforts to save 20000 Jews from Nazi extermination and his capture by the Soviets and disappearance into Stalin's penal system. I was generally aware that the Swedish government did nothing to pressure the Soviets to release this diplomat, and the U.S. was almost equally at fault. I did not know however the full extent of the evil sanctioned by the Swedish government. The Swedish ambassador told the Russians. "It would be splendid if the mission were to be given a reply...that Wallenberg is dead."  In other words, Sweden was not only going to do nothing to secure Wallenberg's release but in effect told the Soviets to kill him to get rid of the problem.   

Norway's government is celebrating Knut Hamsun with a 20 million museum and statue.  NYTimes.com Hamsun was a Nazi collaborator and welcomed the Nazi occupation of Norway during WWII.  He gave his nobel prize to Joseph Goebbels as a gift. In 1945, Hamsun wrote an article saying Hitler was a warrior and "a prophet of the gospel of justice for all nations". The Pope recently revoked  an excommunication of a bishop, Richard Williamson, who denied the existence of Nazi gas chambers in televised remarks. Now, after that provoked some outrage, the bishop says he needs to review evidence supporting the existence of the holocaust. 

I assume that Andrew Bary knows what he is talking about when he stated in his Barron's article this week that the Citigroup Trust Preferred shareholders will continue to receive dividends. Barrons.com

Friday, February 27, 2009

Time to Hunker Down

The S & P 500 index closed below its prior intra-day low from November 21, 2008 which was 741.02, finishing the week at 735.09.  I view that development as negative for the future.  It is time to hunker down even more.  I am going to restrict any new buying only to investment grade senior bonds, government bond ETFs both foreign and domestic,  and the ETF LQD which I do not currently own.  This restriction will be in effect until I have more clarity on the potential downside and applies to all accounts including the retirement accounts.   If I make a change in this policy, it would only be to add preferred stocks and junk bonds but those categories are on the prohibited list at least until mid year or later, most likely. 


In all accounts, I will start adding common stocks again only when the S & P 500 index closes the month above 815 and then I will only invest my cash flow until the VIX falls below 20 and stays below 20 for 3 months.   I am now in a capital preservation mode.  

GE Pay Cut for Shareholders But Not Management & Kicking Sand in the Wound/ Citi: Equity and Trust Preferred Stocks

GE has been brought to its knees, cutting its dividend by 68%. CNBC.com  I did not see in the release announcing this deprivation to its shareholders that management was taking a pay cut.  Yahoo! Finance  GE did say that ten cents was attractive to shareholders, maybe for those who bought all of their shares at a 1994 price.  While I expected the cut, I will vote against any Board that does not demand a pay cut by management after announcing a significant dividend cut.  I will continue voting against the Board until the dividend is restored to its original level or managements'  pay is cut by at least 10%.  I still expect the rating agencies to take away the AAA rating later this year.  S & P still has GE on negative outlook after this announcement.  Reuters

When stating in an earlier post that I viewed a dividend cut as very likely,  I also predicted that it would take three years to restore it back to the existing level. BUY 50 BDNPRC/Home Sales/Kudlow's Creation of His Own Reality/LQD & Correction in Bond Prices/   When GE said that its new dividend of just 10 cents was "competitive", this indicates to me a change in emphasis and makes it likely in my view that far more than 3 years will pass before it is restored to 31 cents, maybe as many as seven years. When the price declines to 1994 levels, and then the management says a 68% reduction is "attractive" and a "competitive" dividend, as a result of the tremendous fall in the share price,  then they are merely kicking sands in their shareholders' wound.  I would expect GE shares to trend down to below $5.  While expected, these dividend cuts are just ghastly for individual shareholders who need to start expressing their displeasure when voting and should take the time to vote in the upcoming annual meetings of these companies who slash their dividends and maintain executive pay at extraordinarily high levels. 

I am not a holder of any preferred stock in Citigroup.  The Trust Preferred shares are rallying today so it is unclear to me whether their dividends are being deferred or whether it is just the equity preferred dividends that have been eliminated so far.  It does not make any difference to me because I have no intent on buying either the equity or trust preferred so I am not going to make an effort to resolve that issue.  It is just unclear to me reading the WSJ story. 

For the time being I am keeping my prediction of DJIA 6400 but I am more likely to lower that estimate than raise it. 

All of these dividend cuts by large American companies  whose shares were bought by individuals for their secure dividends will have a very negative psychological impact.  These huge dividend cuts will even result in a higher budget deficit as individuals lose dividend income and that will be aggravated by substantial decreases in  interest income as well.   

GDP Down 6.2%/ Citigroup & Insolvency/ Another Problem: Deferral of BEE Preferred Dividends /

The 2008 4th quarter GDP was revised down, as expected, but the downward revision was worse than the consensus estimate.  The plunge in GDP was revised to a fall of 6.2%.    The current quarter is likely to be similar, though the current forecasts call for a drop of 4.8% annualized.  The last time the economy shrank more than 4% in two consecutive quarters is 1947. MarketWatch

The S & P 500 will close the month below 815.  This will mean at a minimum a continuation of the prohibition on buying common stocks in the taxable accounts until April 1st. 

Citigroup will plunge again this morning after the announcement of its new deal with the government to try to save it.  Yahoo! Finance
The terms will be dilutive but there is a bright side.  Without the government's involvement, the common and preferred shareholders would be holding worthless paper.  Pandit says that this new deal should end concerns about nationalization.MarketWatch  Citigroup is already a ward of the State so I am not sure what Mr. Pandit is talking about in the press release.  The initial conversion of the government's preferred shares would be into a super preferred share class that would be senior to other debt.  The payout on other preferred shares will be suspended which of course means the common share dividend of a penny a quarter is now gone.  The conversion price  will be $3.25.  If the common shareholders do not approve the deal, then the preferred shareholders who had agreed to the swap could buy common shares at a penny a share so the common shareholders are being forced to agree to it.  As I read it, the entities other than the U.S. government who bought preferred shares in the prior bailouts, totaling 27.5 billion including the Government of Singapore, would have their preferred dividends suspended as an incentive to agree to the conversion of their stakes to common shares.  The government will match that conversion dollar for dollar up to 25 billion of its preferred shares.  Any of the government's existing preferred shares which are not exchanged will be converted into Trust Preferred securities yielding 8%. The deferral of all preferred dividends may have been legally necessary in order to defer the dividends payable to the Saudi Prince, the Singapore government and others who participated in earlier privately arranged transactions, which gives them an incentive to do the conversion.     This entire arrangement proves to me that Citigroup is in fact a zombie.   You have to remember everything the government has already done to prop Citi up and that was obviously not sufficient.   I was correct in my assessment that the Citi preferred issues were not worth the gamble among the bank preferred issues. ING Loss/New York Post Cartoon Sets a New Bar for the Tennessee GOP/CR, GRT, VRNM/ Bank Preferred Issues
  I am surprised that those issues are holding up today but it does not matter to me since I do not own any of them and will not even do a nibble.  This sort of event, elimination of dividends on equity preferred, will have a negative impact on the entire preferred share market.  As I understand it, the public equity preferred holders may be eligible to participate in the conversion and it is unclear to me about the trust preferred shareholders. 
 
When it rains it pours as the saying goes.  Strategic Hotels suspended payment of its preferred dividends.  I had previously discussed that this company could do that given the fact that it had already eliminated its common stock dividend. Take A Short Term Profit vs. Hold as a Part of an Asset Allocation Plan/ J P Morgan: Extreme Negativity on GE/ Liesman and Lewis/Buys: GRT & GIVN The price yesterday already reflected a likely deferral of the cumulative preferred dividends.BEE-PA: Summary for STRATEGIC HOTELS A - Yahoo! Finance   The common shares have been trading under a buck for few weeks. A further drop is likely in the preferred shares, possibly stabilizing in the $2 area, and the only thing that I intend to do now is wait and see with my 100 shares, maybe I will get paid down the road but not likely in 2009.  I will wait until the middle of 2010 to make a decision on what to with my 100 shares.   Strategic Hotels & Resorts Reports Fourth Quarter and Full Year 2008 Results: Financial News - Yahoo! Finance
 It is my understanding that the accrual of an unpaid preferred dividend is a taxable event for the holder of that security which is bad of course.  But the preferred shareholder has to be paid before the common shareholder receives a dividend, which in this case may be never.  Whenever a REIT eliminates its common and defers its preferred dividends, it is skating on thin ice as to solvency,  as I discussed in connection with MaGuire Properties (MPG).   I would not buy a REIT preferred in a taxable account that has deferred its dividend and probably would not take a gamble in a retirement account unless I had  (1) some confidence in survivability, (2) several dividends had accrued since the original deferral and had not yet paid, and  (3) the cost was nominal say less than $200 for 100 shares.  BEE is about a year away from having to address those considerations now. Most likely, my investment in BEEPRA will be a $500 or so loss after netting the dividend payment received last quarter.  The management of this company made a big mistake in its expansion plans which caused a huge write off. BEEPRA: STRATEGIC HOTELS PREFERRED A I did not see in its earning release any comments about reducing their pay some. In all the years that I have traded REIT preferreds this is the first time that I have been caught in a deferral. 

Westar (WR) missed its earnings estimate by 2 cents but guided 2009 in line with estimates.Westar Energy Announces 2008 Results: Financial News - Yahoo! Finance

The five firms that had SNTA as a buy downgraded it this morning as you would expect. Quotes for SNTA - Yahoo! Finance
It is trading close to the value of its cash on hand.   Yahoo! Finance
 I went ahead and took my medicine wiping out the gains so carefully nurtured in this security. The reason is more psychological than anything else, just put it in the category of out of sight out of mind. 


DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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. 



 

Thursday, February 26, 2009

SNTA BLOWUP/ Bought WR/Obama Screws Sallie Mae & Health Care Companies/Hyperventilating on Taxes/

There goes all of my profit on SNTA as it had to abandon its late stage cancer drug on safety concerns.   Yahoo! Finance
As I said, if this drug failed, SNTA would be a $1 stock and that is why I tried to be careful with it.  Completed Additions Long Bond with minor GTC limit orders in place/LOOMIS SAYLES/SNTAUnfortunately I did not sell the fifty shares when it crossed 9 a few days ago which would have limited my downside, so I was caught with 100.ROK/Balancing Risk & Reward on SNTA/Buy 100 NSSC at $1.02/Electronic Medical Records & the Stimulus Bill/M & DKQ  And my unrealized loss will eat up my realized gains. I do not recall seeing any data about safety concerns, particularly concerns about the drug causing death, and this was a big surprise.   I really do not see much hope for this one so I may just sell it tomorrow and take my medicine.  But this is a good lesson for anyone venturing into this area, for it is all or nothing with these small biotechs and the failure rate is very high.  That is why I limit my total exposure to them, and try to trade them as I successfully did with SNTA to the point where I am playing with the house's money so a failure of their lead drug candidate means that I just lost whatever I had won to date which will be the case with SNTA.   I should have suspected something was amiss with the 30%+ fall in the past few days.  

Fannie Mae is insolvent.  It lost 59 billion dollars last year and needs another 15 billion or so to stay afloat.  Yahoo! Finance

The budget deficit is expected to grow to 1.75 trillion for fiscal 2009, a stunning number, and the highest deficit as a percentage of GDP since 1942 when the U.S. was ramping up for WWII. WSJ.com


Early this morning , I bought 30 shares of Westar (WR) at 16.9 in an IRA account, which is not under the trading restrictions that apply only to taxable accounts.   I thought that I would invest in WR because the company just raised its dividend, making it unique in corporate America today. MarketWatch  I have never owned shares in the company.  It is the largest electric utility in Kansas.  I did read analyst reports from both Morningstar and Value Line before buying.  The analyst at Morningstar gives it five stars and a $27 price target whereas VL is far more subdued.  This electric utility is embarked on a large scale expansion in generating and transmission capacity for its size, but has received support so far from the state commission to raise electric rates to support those capital expenditures.   For purposes of determining asset allocation in the retirement accounts only, I will add WR to my bond percentages.   The current yield at my price is around 7.1% at the new dividend rate.  Some of the recent weakness in electric utility stocks today may be due to concerns about the cost of the Beanpole's cap and trade emissions proposals. washingtonpost.comBloomberg.com: U.S.
WR fell some in the afternoon after my purchase. 

RBC Capital Markets initiated Stryker with an underperform.  Quotes for SYK - Yahoo! Finance
Medtronic is cutting executive pay and freezing wages for the working stiffs.  Reuters  MDT has not cut its dividend.  As more investors ponder the impacts of Obama's budget proposals as they relate to health care,  it will be hard for many of this stocks to gain any upside traction. 

How many Bernie Madoffs are out there?  The SEC charged two money managers for allegedly misappropriating at least 553 million, mostly from institutional investors. WSJ.com

Sallie Mae (SLM) was trashed today as word spread that Obama's budget called for elimination of government backed student loans from private lenders. Starting in 2010 fiscal year, the government's involvement would be limited to its direct lending program. WSJ.com Yahoo! FinanceReutersI own a Sallie Mae bond with a little over a $1000 in it, which took a hit today, OSM.  I would not call the Beanpole's efforts to substitute government for private lending to be a fait accompli, and his proposal is more consistent with communism than mere liberalism.  It did cause the wholesale dumping of Sallie bonds and pressure on them will likely continue until the measure is defeated and put to rest.  If it passes, then my investment in OSM, small as it is, will end up being a mistake in hindsight, but Sallie may survive in some form as a preferred servicer of government financed student loans.  It will also be able to run off its existing loans.  I would not add to OSM under these circumstances but it is too early to take my medicine on it.  

Another sector being hurt by Obama's budget plan is the HMOs, like UNH and HUM.  WSJ.com  I am just avoiding all of these kind of stocks for several reasons, and the Democrats coming to power in Washington is just one very good reason.  The others include the crunch caused when rising medical costs and claims start to occur in an economic environment where corporations are increasingly unwilling to pay more in premiums, plus there is is revenue lost from less employees covered by the HMO plans due to layoffs.    

In the budget, Obama does let the Bush tax cuts expire for those families making more than $250,000.  This would in effect mean a tax increase in 2011 for those families and for single filers making over $200,000  WSJ.comThe expirations of those tax cuts at those income levels is as close to a sure thing as you can have in politics.  The Democrats are not going to pass a tax bill extending the Bush tax cuts for families making over $250,000.      The expiration of those tax cuts which basically restores the code back to the Clinton years is certainly a method of wealth re-distribution, and I do view it as part of the Democrat's strategy to partly fund health care insurance for the uninsured.  Yahoo! Finance   I would simply disagree with the characterizations of this tax policy, or even Obama's health care plan, as socialism. Socialism - Wikipedia, the free encyclopedia   

The Obama tax increase is not a massive wealth distribution policy, as the critics try to maintain.  I read a host of comments to the articles in the WSJ and Marketwatch by those who claim that they operate a small business and will have to engage in mass firings to make ends ends meet.  While I am not an advocate for using the tax code to re-distribute wealth, I do not wish to overstate the case against Obama's tax proposals which is the norm for his critics.  A modest 2 or 4% increase in marginal tax rates on high income earners is not going to have the impact claimed by the critics. Most small businesses do not have net income in excess of $250,000 (less than 2% are over that levelPolitiFact  and possibly some of the critics are like Joe the Plumber who confused gross with net taxable income.  It would actually be more likely that most small businesses will receive a tax cut particularly when you figure in the new tax credits and other provisions in the recently passed stimulus bill.  NYTimes.com  How much would that small businessman have to earn -NET INCOME- before a 2 or 3% rise in marginal rates would cause him to fire an employee making $30,000 say to recoup the extra taxes paid,  when that employee expense is deductible from gross income to arrive at taxable income.   So when I hear those people say the world is coming to an end, I just do the math in my head and conclude that they are either hyperventilating or confused or just attempting to mislead others about the consequences.  Since the actual impact is easy to ascertain, I have to assume the later is the most likely explanation.   If I have to breathe into a paper bag, I would hope that it is only after contemplating the budget deficit rather than the tax increase. 

My primary problem with Obama's tax policy is that additional tax revenue is not used for deficit reduction.  Instead, the increase in tax revenue is really being used as justification for starting a new federal social program involving health care benefits, and only part of the costs for this new social program is  being financed with the tax increases.  The new health insurance program will also end up costing more than the administration now claims.  This will end up only adding to our already enormous fiscal problems. It is simply irresponsible for the government to vastly increase its costs for non-medicare healthcare by creating new obligations, when it has yet to deal effectively, in any manner, with the future funding gaps for medicare spending in the years and decades to come.   The Democrats will never admit that this is irresponsible however, but it is without a doubt extremely irresponsible.    

The Rocky Mountain News, the oldest paper in Colorado, will cease publication on Friday. MarketWatch   While I hate to see closures of newspapers, I do wonder whether the failures of many papers might strengthen some of the remaining ones.  But I suspect that would have to be hundreds of such failures before a publication like USA Today would see a significant benefit.   

Dell is just another disaster avoided as far as I am concerned.  Dell's earnings report was not encouraging. Yahoo! Finance  MarketWatch     Yahoo! Finance

I do not expect to avoid all disasters but I have avoided the big ones other than BAC.  Where I have been caught, it has been with relatively small amounts of money except for my unfortunate common stock position in Bank of America, still my worst mistake in the past two years.  The mistake was not in buying it when I did, but refusing to sell it when I knew that it had to go and then keeping it throughout 2008 to this very day.    SNTA was not a mistake except in my failure to do what I said that I would do, sell 50 at over 9 to reduce my risk further.    

DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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. 

BUY 50 BDNPRC at $9.25/Buy 50 BCF at $6.6/Home Sales/Kudlow's Creation of His Own Reality/LQD & Correction in Bond Prices/

Yesterday, the market rallied into positive territory after the treasury announced a plan to provide more funds to the banks through the purchase of convertible preferred stock, with the conversion price set at 10% below the price on 2/9/09.


After thinking about this plan for about thirty minutes, the market turned to despair again. On 2/09/09, BAC closed at $6.89 ; C at 3.95; and WFC at 19.06. So the treasury picked a recent good day for the banks' stock prices, but the 10% discount would mean the bank would have to be desperate to take advantage of this offer. Some may view the discount as a negative for banks. I simply view it as an attempt to balance the banks' need for more cash with the interests of the American public to earn a return on their investments.

It looks like the government will soon own 40% of Citigroup. WSJ.com

Citigroup is easily the most desperate of the big banks.

Gannett slashed its dividend by 90% to 4 cents from 40 cents. MarketWatch

I was expecting at a minimum a 50% haircut, but the reduction to 4 cents is more than I expected. This reduction is however consistent with the way corporate America is treating their stakeholders now. The reasonable expectation now is that 4 cents may be all that a GCI shareholder can expect for the foreseeable future. And, never again will Gannett's shareholders see 40 cents a quarter again, 40 cents a year if their lucky. I wonder if management is taking a similar percentage cut in their pay. I would be more willing to accept the dividend cuts as long as management announced at the same time a huge pay cut for themselves which never seems to accompany the announcement slashing the dividend. It is time to just vote against everyone running for the Board at the annual meetings as well as any proposal relating to the grant of options to management that is not a reduction in pay or potential pay.

The equally hapless Textron (TXT), maybe not as hapless as Gannett, also cut its dividend from 23 to 2 cents. Hearst-Argyle (HTV), struggling to stay over a buck, eliminated its dividend after reporting a huge loss.Reuters  Baytex (BTE) , one of the canadian energy trusts which is not owned, reduced its monthly distribution from 18 to 12 Canadian cents.

Macquarie Infrastructure (MIC), which used to be a source of income for investors, suspended its dividends and otherwise continued its dismal performance. I did not see anything in its release about pay cuts for management. Macquarie Infrastructure Company Reports Fourth Quarter and Full Year 2008 Results: Financial News - Yahoo! Finance

On the bright side, Westar (WR), an electric utility, raised its dividend by a penny to 30 cents. Finance Waste Management increased its payout by two cents to $.29. I just want to make a note of those companies who are not giving the shaft to their shareholders by eliminating or resorting to a nominal dividend like Gannett.

A Hilliard Lyons analyst claims that GE is trading below the asset value of its industrial businesses. Stocks To Watch Today : General Electric: Trading Below Industrial Assets' Value

I now view a significant dividend cut by GE as very likely. The only question is how quickly will it recover back to the current dividend level after making the cut, and my current guess is three years.

I think that Bob Dylan may be a better economist than Larry Kudlow who is incapable of learning much of anything from events. Events will never change the opinion of an ideologue. I am not suggesting that Dylan has the same training as Kudlow in economics. But poets do seem to see things more clearly than virtually all economists. To paraphrase a lyric from "Like a Rolling Stone", when you got nothing left, you got nothing else to lose, so there is only 7270 more points to lose in the DJIA before we no longer have to worry about how far down it will go. In fact, I may start reading some poetry myself to improve my abilities as an investor of course. Reading philosophy was probably my best training to being a self-reliant individual investor. The last thing that I would do would be to read an economic textbook.

I was listening to Kudlow and his fellow traveler Rick Santelli yesterday on CNBC. Both were blaming the stock market fall on Obama, as you would expect, rather than the events that took place before Obama became President. Ideologues will always create their own reality to conform to their ideology.

Existing home sales fell 5.3% in January, the lowest monthly decline since July 1997. Without adjusting for seasonal factors, sales fell 7.6%. The median price fell 14.8% from a year ago, down to $170,300 from $199,800. As bad as that sounds, it is actually worse since about 45% of those sales are foreclosed homes or other distressed sales. NYTimes.com

Foreclosures is a main factor driving home prices down. Some economists claim that foreclosures do not have any impact on prices. If there is any good news from a report like this, it is simply that the nation is getting closer to the point where price is in line with income, and the inventory of homes for sale did decline which is good. I am looking hard for silver linings in the parade of ugly news.

With the massive number of companies cutting common stock dividends, and a continued downdraft in earnings likely, I have decided to shift my allocation in my retirement accounts to 60 % bonds & cumulative preferred stocks and 40% stock, trying to emphasize in the stock portfolio companies less likely to cut dividends, allowing one exception-GE. I am also permitting myself the right to engage in some speculation by buying small caps like the recent buy and sale of ISIS in a retirement account. I previously explained why I classify equity preferred as a bond in my asset allocation. I am going to add electric utility common stock to my bond category just for purposes of determining asset allocation percentages in my retirement accounts.

It is harder for a company to defer a cumulative dividend, and ultimately it does not save the company any money as it does by cutting or eliminating the common dividend, since the cumulative dividend still has to be paid at some point short of bankruptcy (theoretically, it could be deferred indefinitely as long as no common dividend was paid which could start a riot with the common shareholders). Many cumulative preferred dividends also require interest on the deferred dividend at the same rate as the coupon. Senior bonds are higher up the priority chain of course, and a failure to make a senior bond interest payment is generally a default event that could lead to bankruptcy, voluntarily or involuntarily. At the height of the credit bubble, some bonds were issued that allowed payment in kind rather than cash interest and had far more liberal provisions in favor of the borrower, so each prospectus has to be looked at individually for a lender to know their rights upon default. Just as an example of what happens when an interest payment is missed on a senior bond, see p. 154 of the prospectus for PFX. /www.sec.gov Optional deferral is allowed in virtually all equity and trust preferred issues that I know about. It is generally only when you get to the senior bond level that consequences for non-payment tilt against the borrower.

LQD, recently sold, is pulling back significantly from my recent sales price due to two factors, a rise in interest rates impacting both corporates and treasuries and an increase spread over treasuries due to increasing concerns about the economy.

A high yield bond ETF, HYG, had a good rally from around 65 in mid December 2008 to around 79 at the end of the year as there was a whiff of optimism about a recovery in 2009. As that belief has waned, and concern about default rates gained the upper hand, the price has fallen from 79 to a few cents below 70 in trading yesterday. While high yield bonds are tempting, I am still avoiding an investment in a high yield ETF for now and I am far more likely to buy back LQD rather than initiate a position in HYG due to concerns about the relative default rates in 2009 between investment grade securities and junk rated issues.

I decided to wait on buying 50 of DKR. With anxiety increasing by the day, I am more likely to wait for downdrafts in better quality bonds but I will reconsider DKR if it falls to below 6 again.

DuPont has worked its way down to a 1991 price. This would be another one ripe for a dividend cut sometime in 2009. I at least succeeded in completely avoiding the meltdown in Dow Chemical, and I have started to judge my successes by the number of catastrophes that I have managed to avoid.

Sometimes it may seem like that I have lost confidence, and that would be an incorrect assessment. I still believe, for anyone with money left in places other than the cookie jar, the reward for correctly timing a re-entry into this market will be huge. But, an incorrectly time entry could lead one to raid that cookie jar for sustenance in the golden years.

I bought back 50 shares in a Brandywine Realty cumulative preferred issue at 9.25 late yesterday, BDNPRC. The yield at that price is a tad over 20%.   The position was sold at a profit recently at around 14.75. Sold BDNPRC/ 

I have mentioned that I am trading these REIT cumulative issues hoping to make a profit on them as a class or category of investment rather than being concerned about profit or losses from individual issues. Recently, I have taken some hits in the ones currently owned but the trading has been profitable primarily due to the volatility of this asset class both up and down. Last week was just brutal for the REITs and real estate funds. TheStreet.com

BDNPRC is a typical REIT cumulative preferred with a $25 par value, no maturity, and a coupon at 7.5%.
This is the link to the prospectus:PROSPECTUS 
BMO Capital Markets recently upgraded BDN to overweight.

Considering the circumstances, and relatively speaking, the last earnings report was okay

This is a link to the last earnings call transcript. Seeking Alpha

The company did cut its common stock dividend last year but it still has one which is all that is important to the preferred stock shareholder. As long as there is a cash dividend paid on the common shares, the preferred dividend has to be paid in full. I can start to worry when the common dividend has been eliminated as is the case with BEE.

In my main account, I used the proceeds from the LNC sold yesterday to buy shares in the closed end investment company Blackrock Real Asset, BCF, at $6.6, increasing by just a tad my exposure to commodity stocks.

I would have to say that I am against Obama's plan to fund a new health care spending. While it is not as bad as I expected, I was not heartened by the statement that the 600 or so billion was just a down payment on the total cost. WSJ.com
Some people incorrectly label me as a liberal but I am in reality a True Conservative. Random Observations: Sarah, Vietnam, Unemployment and Disney

The new deficit projection for the current fiscal year is 1.75 trillion. Yahoo! Finance
I think that I will hold on to my positions in TBT and PST for the foreseeable future and look for opportunities to add to them as hedges for my corporate bonds.

GM showed today that it is a basket case capable of losing money by the boatloads.Yahoo! Finance

Orders for durable goods plunged more than expected in January with a 5.2% decline. This is the 6th straight month of declines which is the most ever. Yahoo! Finance

New home sales fell 10.2% in January, to a record low, with sales down 48.2% from a year ago. MarketWatch
New jobless claims jumped to 667,000, more than expected, and continuing claims rose to
5.1 million. I wonder if those commentators at newsbusters are still complaining that the liberal and mainstream news media is blowing everything out of proportion. NEWSBUSTERS: A CONSTANT SOURCE OF COMEDY
J P Morgan will be cutting 12 thousand jobs relating to its Washington Mutual acquisition.

Under the circumstances, and relatively speaking, the results reported this morning by HRPT Properties was okay. HRPT Properties Trust Announces Results for the Periods Ended December 31, 2008: Financial News - Yahoo! Finance MarketWatchI recently bought one of its cumulative preferred issues.

In the midst of the gloom and doom, toil and trouble, the Tennessee Legislature is discussing one of the most important issues to it, expanding the places people can carry their firearms to include state parks and bars. Why state parks? Well, there was one instance where a bear attacked a girl and, if anyone had been packing, they could have shot that bear. NewsChannel 5.com I kid you not. When you have reached brain dead status, any argument will do. Perhaps, the more ridiculous argument even sounds better. Of course, this argument assumes that at that moment, one of the bystanders on vacation in a state park would be a registered gun owner, who was at that time carrying his concealed weapon on his person, and the odds of that happening would be negligible. Most likely, by encouraging the carrying of firearms into state parks, a dispute between gun owners will result in one of them getting killed. This may make some people sad but not anyone in the GOP tribe. The bill would also make the database of gun permits beyond the scope of public scrutiny. www.tennessean.com | The Tennessean
I am just thankful that the legislature is delaying a push to allow firearms to be taken into the airport which is one of the primary goals in Georgia. TO The Tennessee Legislature: Please Move to Another State But, I am going to wait for a shootout by a bunch of drunks before commenting further about the legislation likely to be passed in 2009. Personally, I rely on a pristine and genuine Louisville slugger signed by Frank Robinson. I prefer wood over the metal.

After slowing to a crawl in early 2008, I am now virtually motionless in my stock investing. As a result, I will most likely slow down the posting of my blogs.


DISCLAIMER:
I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. 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.

Wednesday, February 25, 2009

Wild West Capitalism & Brooksley Born/Emerson Describes Events Today/ Sold LNC/Japan Exports Plunge/T

There was an interesting story in Newsweek about a call received by Brooksley Born, Brooksley Born -Wikipedia, chairwoman of the Commodity Futures Trading Commission, from an irate Larry Summers in 1998. Summers was then Clinton's Deputy Treasury Secretary and he is now Obama's chief economic adviser. By all accounts, Summers dressed Born down in a loud and rude manner.

What was her offense? Born was proposing that her agency explore regulating the vast market in derivatives.  While necessary, it would potentially step on a few Wall Street toes in their practice of wild west capitalism regardless of the consequences to civilization. That was why Larry was yelling at her that morning on the phone back in 1998. Born's effort to regulate derivatives was shot down by Alan Greenspan, Arthur Levitt,  Robert Rubin and Larry Summers.  NYT

Levitt is quoted by Newsweek as saying: "All tragedies in life are preceded by a warning. We had a warning. It was from Brooksley Born. We didn't listen". Newsweek.com

So Levitt, who is not one of the Masters of Disaster, admits that he made a mistake. I will not hold my breath for Robert Rubin and Larry Summers, fellow travelers of the Masters of Disaster, to ever admit to being wrong.  

Zillow estimates that 75% of the homes in Maricopa County in Arizona (Phoenix), including those with no debt (total homes) owe more on the mortgage than the current value of their homes.WSJ.com

I bought 30 shares of Lincoln National at 6.45 late last year during one of the now periodic meltdowns. Time to Fire my Head Trader: He Bought LNC I sold last year the higher cost shares acquired a few weeks earlier. Buy of Kraft Food and Partial Sell of LNC Postion LNC announced last night that it was reducing its dividend to a penny a quarter form 21 cents which was a dividend cut from its mid 2008 dividend. In fact, I believe the 21 cent dividend was paid just for one quarter, having just been cut from 41.5 cents. Business Journal My tolerance for dividend cuts is at a low ebb at the moment and I am just fed up. Even though my position is small and I should not care that LNC just cut its dividend to a penny, I want to lodge my protest so I just sold my 30 shares at 11.02.   

I have already forgiven GE for its dividend cut that will be made later this year.

The effort of AIG to auction its crown jewels, it Asian insurance operations, so that it could start paying something back to the government, failed with bidders scrambling for the exits. WSJ.com

The WSJ has a new name for AIG, American Insatiable Group. WSJ

The recent news has had a severe negative impact on the pricing of International Lease and American General bonds, which Bill Gross had recommended. What to Do When There is No Let UP in Bad News/JPM/ECB Rate Cut & the Dollar/BAC & AIG sub Bonds

I tried to sell both International Lease bonds that I own last week and could not generate a bid. One matures in May and the other in September of this year.  International Lease is in much better condition than American General Finance, a consumer lending subsidiary of AIG.  If the government bails out AIG again this weekend, pricing may improve next week. If bankruptcy is filed, I suspect the American General bonds to be priced at what the "smart money" would expect to recover in bankruptcy court (looks like 20 cents on the dollar as of today based on the quotes that I saw this morning) and International Lease bonds will likewise suffer but not as much.  

Emerson wrote a poem "Ode: Inscribed to W.H. Channing" where he said "Things are in the saddle, And ride mankind" Ode, Inscribed to William H. Channing Translation: Events are in the saddle and are in control of mankind. Ralph Waldo Emerson : The Poetry Foundation


Japan's exports plunged 45.7% in January. WSJ.com

The bankruptcy court allow Delphi to eliminate health care benefits for 15,000 current and former employees. Bloomberg 

Yesterday was a wimpish bear market rally that did not even recover the prior trading day losses.

ISIS, one of my speculative small biotech plays, reported financial reports. The company is still a developmental stage biotech and I am already familiar with the news summarized in its release.

It ended 2008 with 490.998 million in cash which does not include the IBIS sale to Abbott which happened this year. This increased cash to around 650 million at the start of 2009. I just look at the cash burn rate and the company expects to end 2009 with "more than $550 million in cash". It is not material whether the company beats or misses expectations since it has no products for sale. The value will be determined ultimately by the success of its pipeline. 

AT & T, a recent buy before my trading model required a halt to purchases in all taxable accounts, was upgraded to overweight by J P Morgan. MarketWatch

I was asked for my gambler's odds on ING or Aegon deferring a preferred stock dividend for at least one or two quarters within the next two years. My odds on that event, based on currently available information, is 50/50. If I continue to read reports like their respective financial reports for the 4th quarter of 2008, those odds will increase. That is one reason that I have placed most of the recent buys in a retirement account, to avoid having to pay taxes on deferred dividends. I would also increase my odds on bankruptcy in the event preferred dividends are deferred since I view such an event from a financial institution to be a sign of severe distress.  

I read a story the Hearst corporation may soon close the San Francisco Chronicle quickly without an agreement on significant costs cuts from the union and others. Several "conservative" bloggers were pleased with the potential closure of a newspaper, and blame the potential failure of the paper on its alleged failure to cater to them.

Most of the ones who believe that Fox news is fair and balanced and listen to Rush on the radio would rejoice at the complete elimination of the "mainstream" media. They are at their core anti First Amendment.


I  own only cumulative preferred shares of Lexington Realty (LXP). Under the circumstances, and relatively speaking, the earnings release this morning was okay, and I see no reason to dispose of my preferred stock.

DISCLAIMER:
  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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. 

Tuesday, February 24, 2009

Buy of 50 AEV in IRA/Hertz/Bernanke/

The statement by the Fed Chairman that it was possible for the recession to end in 2009 was enough to spark a rally today.  Bernanke also said that he did not believe any major bank was near failure. WSJ.com

My order to buy 50 AEV at 5.75 was filled. The yield at that price is around 30%.  This is a link to the prospectus:
This is the one that I mentioned in my morning post that I had already placed a below market limit order to buy.  Masters of the Universe=Masters of Disaster/AIG & Financial Black Holes/M, CBR,TGT/BUY OF ISFThe pricing of this preferred would make sense only if bankruptcy was a realistic possibility or a deferral of the cumulative dividend for more than two years was probable, in my opinion.  Since I do not see an Aegon bankruptcy anywhere in the horizon, based on currently available information, nor do I think that a two year or longer deferral is probable, though possible, I am still buying these securities on meltdowns. But there has to be a recognition of possible adverse outcomes given the uncertainties and risks attendant to virtually all financial institutions today.  The risk to a preferred shareholder is attenuated after the common share dividend has been eliminated, as is already the case with AEG and ING.    I have about $300 or so left to invest in ING and Aegon preferred issues.  The  preferred stock issues from these two Dutch companies have been incredibly volatile.  ISF bought early in the morning at $4.6 closed at $6.2, up $1.20 or 24% after being down when I made the buy.  AEV closed  at $7.42 and my buy was at $5.7.  This may indicate good timing, only time will tell.  But all it really indicates for certain is extreme volatility both up and down.  And, if Aegon and ING do not defer any payments and stay out of bankruptcy, then these purchases will look astute.  Otherwise, they will look not so smart.  Tomorrow is the ex dividend day for most of the Aegon and ING preferred securities, including all of the ones that I now own.   
 
Bernanke had a good explanation of how the stress test for banks relates to the conversion of preferred shares into common.  MarketWatchThis takes some of the negative edge off the earlier reports about Citigroup  making such a request. 

I am continuing to monitor Hertz due to my 50 share position in DKR which has been cut in half since my last sale.  I was looking for a re-entry point to buy back the 50 shares sold at  14.75  but decided against it at least for now. SOLD 1/2 POSITION DKR/GE FUNK/ I DO NOT OWN ANY BANK TRUST PREFERRED issues/CURRENCY INTEREST RATE DIFFERENTIALS/FOREST CITY  HERTZ BONDS  Hertz reported a loss of 1.21 billion including a large impairment charge and an adjusted loss of 22 cents compared to net income of 29 cents in the year ago quarter.  MarketWatch
I regarded my small speculative position in a senior bond to be highly speculative last year and even more so after reviewing this report.    Hertz Reports Fourth Quarter and Full Year Operating Results: Financial News - Yahoo! Finance
I am not in a rush to buy another 50 DKR anyway.  But the dive it took late today made it more interesting, closing at $5.875. MS SATURNS HERTZ 7% | DKR | Yahoo! Finance Charts
The market is saying that Hertz will not survive to pay off this note maturing in 2012.   If it was able to survive the return would exceed 100% annualized combining the payment at maturity and the annual interest payments.  The dividend yield alone is almost 30%.  A buy of 100 at $6 would generate another $1900 if Hertz paid off at maturity in about 3.3 years.  Par value is $25 payable in 2012 so anyone can do the math (the return on the spread between cost and par value if paid is almost 100% a year + the semi-annual interest payments, but there is no free lunch)   Fitch downgraded Hertz's rating outlook to negative.   Fitch downgrades Hertz Corp.: Financial News - Yahoo! Finance 
Hertz's senior unsecured debt is rated as junk by Fitch, BB-.  So, I will read the earnings transcript and its earnings release tonight and try to ascertain the odds of survival, which will be at best just a guess.  Seeking Alpha The risk on this one is extreme which is why there is no free lunch for 100+% or so annualized return.   I have a stop loss at 2 on my existing 50 shares.  If I buy another 50, I will raise it to somewhere between 3 to 4.  

I do believe that the individuals, whose ideology is most responsible for the current turmoil, will do their best to place as many obstacles and obstructions as possible in the way of the current administration's effort to resolve it.  It is sort of like the amnesiac arsonist who wants to know why it is taking so long to put out the fire that he started and his assistance is as useful as disabling the nearby fire hydrants.

The Office for Thrift Supervision released a report on the delinquency rate of loans after modifications.  Of the home loans modified during the first 9 months of 2008,  55% had re-defaulted within six months. MarketWatch
Those whose mortgages exceeded the value of the homes were more likely to default as you would expect.   

Bank loan delinquency rates rose to 4.6% in the 4th quarter, the highest rate since 1992. Loan  MarketWatch



DISCLAIMER:

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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. 

Masters of the Universe=Masters of Disaster/AIG & Financial Black Holes/M, CBR,TGT/BUY OF ISF

From henceforth, the bonehead egomaniacs, formerly know as the Masters of the Universe, will be called by a more appropriate label-Masters of Disaster. Without a doubt, these clowns need to have an entry in the Guinness Book of Records as the highest paid doofuses in the history of mankind. Likewise, henceforth, the phrase "financial wizards" will be characterized as a contradiction in terms, an oxymoron, or maybe I should just say Financial Moron to avoid confusion and just go easy on the sarcasm. Some readers of these posts may have already caught my sarcastic drift and tone when discussing the wizards and understand that I view them collectively as the most overpaid and incompetent people that have ever walked the face of this planet, maybe in the Universe since the beginning of time and most probably until the end of time.

 It is unfortunate that they are all Americans. It is almost embarrassing. I offer my apologies to the world on their behalf since they have never uttered an apology about anything in their miserable lives and still regard themselves as the cream of mankind, the apex of what we have been struggling to achieve since Adam and Eve walked with the dinosaurs (yes, that is a fact and you can see it for yourself in a Kentucky museum: NYTimes.com)

 But that is what happens when a civilization rewards above all else the business of shuffling papers around and creating artistic methods to screw people out of their money rather than making and inventing something that is actually useful.

The Masters of Disaster at AIG are preparing to report a 60 billion dollar loss for the 4th quarter of 2008 next Monday. This will likely result in further debt downgrades and the requirement that more collateral be posted to support its contracts. The talks with the government revolve around replacing a 60 billion loan government loan with equity and stakes in AIG's operating units.

Black hole is an inadequate description for the phenomenon know as AIG. WSJ.com 


My sole exposure to Macy's is a small position in one of its senior bonds that has tanked over the past week. The company reported a profit of $1.06 excluding items on sales of 7.93 billion. After several downward revisions, the consensus estimate was 99 cents. Sales fell from 8.5 billion in the year ago quarter. Macy's expects a very tough 2009 with earnings in a range of 40 to 55 cents excluding restructuring costs. MarketWatch I have been weighting the possibility of increasing my senior bond exposure by less than $500 but have not made a decision. Macy's is looking to take as much as a 5.5 billion asset impairment connected with its 2005 acquisition of May Department stores. WSJ.com

I still have no interest in the common.

It is depressing to just look at names of some of the companies in the Dow Jones Industrial Average, supposed to be the cream of American industry. Those names include General Motors, Bank of America and Citigroup. AIG was in the average until it was just too embarrassing to keep it, and consequently Kraft was substituted for AIG. USATODAY.com

The giants of American industry are pressing for more assistance from the government. U NYTimes.com

Ciber, a small position at 50 shares, reported flat 4th quarter revenues and a decline of GAAP EPS to 10 cents per share compared to 12 cents a year ago.  

The Office Depot earnings looked horrible. MarketWatch Target's earnings fell 41%. TGT: Summary for TARGET CP - Yahoo! Finance RadioShack earned 50 cents versus the 73 cent estimate. Reuters I always underweight retailers. I do not own any common shares in any of them and it is way too early to even start building a small position. There will be nothing but bad news coming for the remainder of 2009. Wal Mart may have the best chance to hold its current price but no retailer will be immune to the declines in retail spending likely to occur through most of 2009.

The Case-Shiller index for housing prices continues to show declines, with both the 10 and 20 city indexes showing an 19% decline in 2008. Prices have fallen by 27% from their 2006 peak. Phoenix is down 46% since its peak. WSJ.com

Most experts who use housing affordability measures, such as price to income, believe that further declines are likely.

Novartis went ex dividend today and this caused NVS to fall below its 52 week low in early trading today. NVS 

I have mentioned that I view the ING and Aegon preferred stock issues as both dangerous and tempting. I bought 50 ISF at 4.6 in my traditional IRA this morning.

At that price, the yield is over 34%. If it continues to fall in price significantly after going ex dividend tomorrow, I will include it in a Roth conversion. The coupon is 6.375% on a par value of $25, and this is a perpetual security. The brokerage claims that it has a maturity in 2049 but the prospectus says it is perpetual. The common shares fell to below 4 in early trading today. This leaves me about $500 to invest in these speculative preferred stock securities issued by these two Dutch companies.

I write this blog in a stream of consciousness. It has not improved my writing but it has had a tremendous impact on my typing ability, so much so that I am confident that I could now find a job as a secretary if the DJIA falls to its lows last seen in 1932. When I took typing in the 9th grade in Huntsville, Alabama, I was the only male in the classroom and the teacher discriminated against me by giving me a C+. I am confident now that I could beat all of those girls in a rematch.

I am sure that I have mentioned in prior posts that my trading restrictions apply only to my non-retirement accounts, by far my largest, and do not apply to my retirement accounts where I maintain a fairly constant 60% stocks/40 bonds split and only keep cash as a temporary allocation. I try to stay fully invested in my retirement accounts and just try to reduce risk with my trading. VANGUARD ASSET ALLOCATION: IS VANGUARD PROUD? MORE ON VXD

 I am considering switching the retirement asset allocation in favor of bonds but have not done it yet, preferring to use my stock allocation to move into and out of positions which has proven beneficial during this bear market. I sold recently my position in Progress Energy at around 40 in a retirement account and just substituted Pepco (POM) at around 15.4.

I also bought 30 shares of GE today in my regular IRA in the 8.60s somewhere.

I also placed a below market limit order to buy 50 of an Aegon preferred getting smashed today that I do not own. I am more confident in Pepco than I am in GE. So POM was put in the ROTH which has a lot of excess cash now whereas GE was bought in the regular IRA in case it falls further which will make it eligible for the next Roth conversion. Reinvesting the cash in the Roth and redeploying the proceeds from bonds sales in the main account should keep me out of trouble during the next few weeks.

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I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will. 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.