Monday, November 30, 2009
For How Long Will Cash Be Trash?/Money Market Yields as a Source of Funds for Global Risk Trade/Sold PST
Sunday, November 29, 2009
Normally, my response to what I would characterize as a probable dangerous parabolic move is to sell the asset undergoing the parabola, or at least make a substantial pare. I am not able to do that with my gold and silver. In fact, I have never sold any of it.
I mentioned previously that my first gold purchase was when I was 13, a five dollar (1/4 ounce) Liberty Head gold piece minted by the U.S. in the 1880s, purchased for the then staggering sum, at least to a 13 year old, of $30. I was also using my earnings to buy at face value dimes, quarters, and half dollars that contained 90% silver which was the case for those coins minted in 1964 or earlier. Those earnings were all available for investment back then, in the sense that I had no living expenses at 13, but there is only so far that one can going earning a $1.25 an hour. When I started to add to my gold, I also added to my silver by buying one of the more beautifully designed coins ever minted by the U.S. Mint, the Walking Liberty originally issued as a half dollar with 90% silver content, from 1916 to 1947 ( Walking Liberty Half Dollar - Wikipedia), but was reissued by the Mint as a silver dollar which could be bought at a slight premium to their bullion value starting in 1986. The American Eagles Program of the United States Mint I bought several rolls of those. And those coins are one troy ounce of 99.9% grade silver.
Saturday, November 28, 2009
Friday, November 27, 2009
Thursday, November 26, 2009
Wednesday, November 25, 2009
short-term interest rates for an extended period, including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations. While members currently saw the likelihood of such effects as relatively low, they would remain alert to these risks. All agreed that the path of short-term rates going forward would be dependent on the evolution of the economic outlook."
The Fed expects unemployment to remain well over 9% throughout 2010, with their current prediction being 9.3 to 9.7%.
5. Winstream (WIN)(owned): Windstream continues its acquisitive bent by agreeing to acquire Iowa Telecommunications for 530 million plus the assumption of 598 million in debt. The deal calls for Winstream to pay about 261 million in cash and the rest in stock. This would value Iowa Telecommunications at around $16 per share based on Winstream's closing price last Friday. I view this deal negatively on the price paid. Iowa Tel is expected to earn about 51 cents in 2009 and is highly leveraged. These acquisitions are starting to worry me some. This one makes no sense to me. Still, I do not need more money earning nothing, and my yield is good on the Winstream stock.
6. Synovus (owned Lottery Ticket category): Yesterday the common stock of Synovus closed at $1.49 with a volume of 43,298,222 shares.
The Chairman & CEO of Synovus Financial is a fellow by the name of Richard E. Anthony. Mr. Anthony has been CEO of Synovus since July 2005 and President since October 2003. Before then he was Vice Chairman since September 1995. He is currently being paid close to a million a year. BusinessWeek Why is he still employed? The closing price yesterday was the lowest price since the Yahoo Finance chart started in 1990.
I am curious why American companies insist on generous rewards for failure. Isn't it clear that Mr. Anthony has failed, along with his management team and the Board of Directors? A few months ago, there was a story in the Atlanta Business Journal about a 220 million dollar non-performing loan made to Sea Island Company, a resort developer, by Synovus. Atlanta (report of a lawsuit relating to disclosures about this loan Jacksonville.com )(see also yesterday's Bloomberg story) Mr. Anthony was quoted then as saying that the exposure to Sea Island was much higher than appropriate for a bank the size of Synovus. Really! And, when exactly did that occur to Mr. Anthony, before or after the 220 million dollar write-off? It is scary when you start to look closely at the competence of those running our financial institutions.
(The excellent series called the Reckoning in the NYT showed without a doubt that a large number of those Masters of Disaster were in fact far worse than worthless. The Reckoning - Series - The New York Times Actually, the Old Geezer is being too kind to them. LB says that as a group they had a negative value of about 5 trillion dollars. If the Masters of Disaster were experts in anything, it was in the creation of illusory profits as a base for their outlandish compensation. And who wants to defend now the hundreds of millions paid to the financial wizards at AIG's London Financial Products Unit NYT, or the twenty million a year "professionals" who used 40 to 1 leverage to buy CDOs squared containing subprime mortgages?)
The market is basically saying that there is no confidence left in Synovus, and more protestations of capital adequacy will fall on a lot of deft ears. If that is a correct assessment, it is not irrational. The bank has reported a comprehensive loss of 1.182 billion during the first nine months of 2009. (page 10 e10vq) The treasury sunk $967,870,000 into Synovus for equity preferred stock, more than the current market cap of the bank which stands at around 750 million at the $1.5 price. The recent pronouncement by Mr. Anthony concerning the bank's solvency (Reuters) did result in a temporary pop of a few pennies above a $2 handle on the stock, before falling to a new all time low yesterday of a $1.5. I am a recent shareholder with just a 50 share buy as a Lottery Ticket, viewed as speculative with a high potential of a loss. Even though I lack confidence in the management of this bank, to say the least, it is conceivable that the author of this article is right about the loss cycle peaking ( Guru), though I do not share his optimism.
7. Dividends and Interest: The Aegon and ING hybrids that I own will go ex dividend on Friday. This includes IND, IGK, INZ, AEB, AEH, and AEF. The two Zions equity preferred stocks, ZBPRA & ZBPRC, both owned, go ex dividend too along with my shares in the floating rate equity preferred issue from SunTrust Bank, STIPRA. Suntrust is paying just a quarterly dividend of just 1 cent a share to its common shareholders, but that 1 cent is as meaningful as a dollar under the stopper provision. Coca Cola common, owned, goes ex dividend on Friday. KeyCorp goes ex with its one cent per share common dividend, and I recently added one of its TPs and I own the common as a LT. PFK, the Prudential CPI floater, goes ex with its monthly interest payment. Prudential has another exchange traded bond, PHR, which goes ex with its quarterly interest payment. That one has a 9% coupon and is a junior bond maturing in 2068. Prospectus Supplement I do not currently own PHR due to the maturity date but I may get desperate enough to buy it soon. PennWest declared its regular monthly distribution of 15 cents Canadian. I take my dividend from Canadian companies in Canadian dollars.
Brookfied Infrastructure, a recent add (Added to BIP), is ex dividend today.
A cornerstone of my investment strategy is to buy a lot of securities that throw off cash, and to use that constant flow of income to buy more securities that throw off cash, hopefully making the most opportune picks with each reinvestment of cash flow, choosing among all types of income generating securities including preferred stocks (fixed and floating), synthetic floaters, trust certificates, trust preferred, exchange traded baby bonds, closed end investment funds with monthly or quarterly distributions, canadian energy trusts, and high yielding domestic and foreign common stocks. So this approach requires a lot of information about a wide variety of potential investments and a considerable number of judgments made continuously.
8. Tidbits: Frequently, those who played a role in the causing the Near Depression disclaim any responsibility for their role. In fact, they present themselves as a victim of some kind of natural disaster, rather than a cause of a man made disaster. It would be analogous to listening to a lawyer for an arsonist blowing smoke at the jury, arguing that his client was not responsible for burning that building down since he only started the fire in one room.
One major cause of the Near Depression is the assignment of a AAA rating to pools of mortgages securities known as CDOs by the rating agencies. Without that rating, the securities could not be sold by Wall Street, who would then use the proceeds to fund the origination of more mortgages by firms who are now bankrupt to borrowers who clearly could not afford the payments. In fact, those mortgage pools were frequently nothing more or less than toxic junk. This provided the fuel for the easy credit that caused a distortion in home prices to levels than made no economic sense based on incomes.
The rating agencies are now being sued for their role and are claiming protection under the First Amendment. Bloomberg They were paid by the Wall Street firms that bundled the securities for sale and who had to have that AAA rating to complete the transaction. So I read with amusement the following statement by Moody's in response to a suit filed by Ohio: “It is unfortunate that the state attorney general, rather than engaging in an objective review and constructive dialogue regarding credit ratings, instead appears to be seeking new scapegoats for investment losses incurred during an unprecedented global market disruption.” NYT
Some of my prior discussions about the role playing by the rating agencies in causing the Near Depression can be found in these posts:
A summary of some of the issues can be found in this article The Reckoning series from the NYT.
One thing will probably end up being true. Those who made money on each step in the transaction will keep their booty, whereas the ones who received nothing will pick up the tab for cleaning up their mess. All of that comes under the heading, life can be unfair, deal with it.
The ING shareholders are voting today on proposed breakup plan and the 7.5 billion Euro rights issue, the last step needed before ING actually starts to implement the restructuring plan recently approved by the EC. Reuters says the shareholders are expected to approve the plan.
Order for durable goods fell unexpectedly in October, declining .6%. Machinery had the largest decrease with a 8% decline. www.census.gov .pdf
Weekly jobless claims fell by 35,000 to below 500,000ETA Press Release: Unemployment Insurance Weekly Claims Report This data is seasonally adjusted. If you look at the unadjusted data , the total increased 68,080 to 543,926. LB had to think about that one for a second.
Added 12 p.m. ING shareholders approved the rights issue and the restructuring plan. Reuters Pending a successful rights issue, and I anticipate no problems now, the EC will not compel a deferral of the hybrid coupons.