Friday, January 8, 2010

JOBS/Sold 50 of the 200 OSM/Bought 50 CVI at 7.75/ Sold 100 of the 200 EMO/General Electric

With the temperature falling closer to zero here in the SUV Capital, the OG is pleased to announce that the RB has given up its quest for now to buy Canada, all of it, and Switzerland, most of it. The OG does not care much for cold weather. The RB, living forever in the present, had to be reminded that it does not like cold weather either. And the OG has never had any desire to put on a pair of skies, go down a steep hill at a 100 miles an hour or to jump off a twenty five foot lift, as Tyler recently did in Colorado, apparently on "study" leave from Northwestern, and breaking his hand in the process.

The LB just said that it is biding its time, waiting for its opportunity, soon to come no doubt, when the Headknocker realizes once again that the OG and the RB are mental midgets sowing confusion and chaos, and restores the LB, Stock Jock Extraordinaire, to its rightful place as the Head Trader here at HQ. LB now turns to one its ten thousand or so daily chores of writing this blog.

1. BLS Report on December JOBS: This was a disappointing report. Employment Situation Summary The BLS reported a loss of 85,000 last month, worst than expected. It is going to take a very long time to replace the jobs lost during the last recession, five years or more is a reasonable estimate. Job growth was revised in November to show a small gain of 4 thousand. Temporary employment was up 47,000 and the average work week held at 33.2. The unemployment rate stayed at 10%. Construction employment fell 53,000 in December, possibly due to the cold weather. Mark Zandi said on CNBC he would not be surprised to see the unemployment rate to hit 11% without further major government help.

2. Sold 100 of the 200 of EMO at $25.72 (See Disclaimer): I sold the shares in my taxable account for a small profit plus one quarterly interest payment. Bought 100 EMO at $25.28 EMO is a first mortgage bond issued by Entergy Mississippi, with a 2032 maturity date and a $25 par value. I have mentioned in several posts that these long bonds selling at over par value make be nervous, and I fully understand the potential risk at what I view as an approaching end to a long term secular bull market in bonds. I mentioned in a prior post that I would keep the 100 shares bought in an IRA, at least until I became more concerned than now about "interest rate risk" caused by the end of the Fed's accommodative interest rate policy and rising inflation. Bought Another 100 EMO at 25.21 I mentioned in that last linked post that I view this bond as a more appropriate holding in a retirement account, since I prefer to hold bonds in those accounts anyway. And I am reasonably comfortable about the credit risk associated with EMO. I am just no where near as comfortable with the interest rate risk aspect of owning this long bond now trading over par value to yield around 7%.

I have discussed the risks of bonds throughout this blog. The most recent discussion is in ITEM # 2: 2010 Strategy/Interest Rate Risks- Bonds/ The long bond is particularly susceptible to interest rate risks.

3. Sold 50 of the 200 Shares of OSM at $16.01 (see Disclaimer): The 50 shares sold yesterday were in my regular IRA.

One reason that my retirement accounts have done well over the past two years is that there was a focus on bonds and income generating securities in those accounts, and I managed the accounts aggressively to capture gains in those securities. I would call these type of asset management Aggressively Conservative. Frequently, I would own the same security in both a taxable and a retirement account, sell the shares after a meaningful percentage pop in the retirement account, and then keep my shares in a taxable account. As a result of that general approach, the two retirement accounts exceeded their value from October 2007, adjusted for subsequent contributions, far sooner than the taxable accounts and are now up about 30% from their 10/2007 adjusted levels.

I currently own 150 shares of the Sallie Mae CPI floater in a taxable account, and I have no desire to sell those shares. I am not concerned about interest rate risk connected to my purchases of OSM. I started discussing the exchange traded CPI floaters last December when OSM was selling at around $10 with a $25 par value. The following are links to four of the posts from December 2008:

My entire concern since my purchases has been credit risk. So, I have focused in several posts about the survival prospects of Sallie rather than interest risk issues.cramer & sallie mae:/ obama sallie mae & my holding osm Why is there a lack of concern about interest rate risk? For one, this is a floating rate security tied to a 2% spread over a CPI calculation, which is obtuse until you get the hang of it. CPI and CPI Floaters OSM and PFK / And, I had bought the security at a deep discount to par value. And the maturity date is in March 2017 at $25, not really that far into the future.

The 50 shares of OSM sold yesterday were recently bought in the regular IRA at $11.8 last June: Item # 3 Late Afternoon Buys and Sells 6 9 2009 So a $200 gain on a $600 investment in seven months, plus a few monthly interest payments, is viewed as satisfactory in this account.

4. Bought 50 CVI at 7.75 Yesterday (2010 Speculative Category) (see Disclaimer): This purchase is sort of in between a LT and the kind of securities that I will be purchasing in the 2010 Speculative Category. 2010 Speculative Strategy-Gateway Post CVR Energy (CVI) first came to my attention when its refining, located in Coffeyville Kansas flooded back in 2007, and the event received some news coverage after crude oil discharged into the town. As you would expect, this resulted in some lawsuits, and about 55 million dollars as of 9/30/09 in remediation expense. This is discussed in the last 10-Q filing at pages 19-20: e10vq. This appears to be largely over except for a few pending legal claims by individuals and more importantly the claims made by CVR against its insurance carriers to pay for the damages. Those claims are summarized as follows: "The Company’s excess environmental liability insurance carrier has asserted that the Company’s pollution liability claims are for “cleanup,” which is not covered by such policy, rather than for “property damage,” which is covered to the limits of the policy. While the Company will vigorously contest the excess carrier’s position, it contends that if that position were upheld, the umbrella Comprehensive General Liability policies would continue to provide coverage for these claims"

The Coffeyville refinery is a 115,000 barrel a day "complex full coking medium-sour crude refinery". CVR also owns and operates supporting businesses described at page 32. Normally, when I start to add small positions in refiners, I would buy Valero, Delek and Alon. I have already bought small positions in VLO and DK.Bought 50 VLO at 16.3 Bought 50 DK at 5.75 This time I elected to buy CVI rather than ALJ, because of CVI's exposure to the nitrogen fertilizer business, described by the company in the following manner:

"Nitrogen fertilizer business. The nitrogen fertilizer business consists of a nitrogen fertilizer plant in Coffeyville, Kansas which includes two pet coke gasifiers. The nitrogen fertilizer plant is the only operation in North America utilizing a pet coke gasification process to produce nitrogen fertilizers (based on data provided by Blue Johnson & Associates). Its redundant train gasifier provides good on-stream reliability and with the use of low cost by-product pet coke feed, produces high purity hydrogen. This hydrogen is then converted to ammonia at a related ammonia synthesis plant. Ammonia is further upgraded into UAN solution in a related UAN unit. Pet coke is a low value by-product of the refinery coking process. On average during the last five years, more than 75% of the pet coke consumed by the nitrogen fertilizer plant was produced by our refinery. The nitrogen fertilizer business obtains most of its pet coke via a long-term coke supply agreement with our refinery.
The nitrogen fertilizer manufacturing facility is comprised of (1) an 84 million standard cubic foot per day gasifier complex, which consumes approximately 1,500 tons per day of pet coke to produce hydrogen, (2) a 1,225 ton-per-day ammonia unit and (3) a 2,025 ton-per-day UAN unit. In 2008, the nitrogen fertilizer business produced approximately 359,120 tons of ammonia, of which approximately 69% was upgraded into approximately 599,172 tons of UAN."

CVI lost 16 cents during the last quarter compared to earnings of $1.16 in the year ago quarter.

Price to book is around 1.03 currently. Price to sales is .23. CVI: Key Statistics for CVR ENERGY INC

The consensus estimate for 2010 E.P.S. is 91 cents.

This is a link to the profile page, and the link to the Key Developments.

Cash stands at 86.870 million as of 9/30/09 with debt at 476 million.

The public went public at $19 a share in October 2007, and has not done well after trading above $20 in early 2008. CVR ENERGY INC An affiliate of Goldman Sachs owns about 28% of the stock after recently selling some e424b3 It has been a tough couple of years for refiners.

5. General Electric (owned): I have been buying GE common in bit and pieces, as the spirit moves me. Some of the buys from 2009 are described generally in this post from last December, when I added more to the pile, now close to 400 shares. / Bought GE at 15.48 GE jumped in price yesterday, a huge move for it, rising 5.18% to close at $16.25. I did see a news story that GE had signed a deal to supply 50 locomotives to a Brazilian company. I later learned from a WSJ story that some brokerage firms had some positive comments for a change. It will be impossible for me ever to look at GE the same way after GE Capital was caught with its pants down during this last recession. And the much vaunted management talent did not look so hot in assembling NBC Universal either. In fact, it is clear now that the management at GE is way overrated. Other manufacturing firms have performed much better during this last recession, including MMM, United Technology, and Emerson Electric (owned). Maybe GE needs to hire some managers from some of those firms to replace those that have failed. And, needless to say, I was not pleased with a 68% slashing in the dividend while the managers responsible for the mess kept on trucking with their perks and pay. GE Pay Cut for Shareholders But Not Management & Kicking Sand in the Wound/ Personally, I am not a believer in rewarding failure which appears to be the norm now. Other industrial firms maintained and increased their dividends.

The OG just told the LB to chill out on GE, be nice, and try not to be so critical. LB told the Old Goat to stuff it.

5. Activision (owned): Activision shares slipped some yesterday, possibly in the quake that followed a warning from the game retailer GameStop (GME). This retailer said that same store sales for 9 week holiday season declined 8.6%, blaming inclement weather and an unexpected shortage of a few key products. I expect the heavy discounting by Wal Mart played an important role too. GME fell almost 15% yesterday.

6. Bank of America (own common, equity preferred and a TP): I did take a loss on some BAC shares in December last year in an effort to reduce my tax liability by offsetting some realized gains. I still own most of my position, however. Credit Suisse upgraded BAC to outperform yesterday and increased it price target to $21, labeling it the cheapest of the big bank stocks. Barrons I will always view keeping my BAC common shares throughout 2008 to be my worst decision on any individual security.

7. Cramer on HBAN & RF and in CNBC's Stop Trading Segment 1/7/2010: I did not see it yesterday, but Cramer referred to the action in one of my Lottery Ticket's, Huntington Bank (HBAN), as a "true" breakout: He was also positive on another one of my LT's Regions Financial in the same segment. The last comment that I heard from him about Regions prior to yesterday was a very negative take on that bank's CEO: Item # 3 AFTERNOON COMMENTS; Item # 1 Bought 50 RFPRZ at 22.88 Cramer has been positive on HBAN. I have been more skeptical.

Huntington and Regions are part of my Category # 1 in the Regional Bank Stocks' strategem. Simply put, I view those banks in that Category as currently crap with recovery potential. I am not willing to risk more than $300 in this particular category as explained in earlier posts. Once I see improvements in a bank's fundamentals that causes me to no longer view the stock as crap, I will take it out of the Category #1 with that $300 limit and place it in Category # 2 which has a $2000 maximum investment limit, which has been reached so far with one bank, NYB, and that was done fairly quickly. I was positive on NYB when Cramer was negative. Cramer said "Do Not Buy" at 11. Item # 8 NYB The stock closed yesterday at $14.86, and currently pays $1 per share annually in qualified dividends, or about 9% at my $11 or so average cost per share over four transactions.

Both HBAN and RF are still part of my LT category: LOTTERY TICKET PURCHASES: LINKS IN ONE POST

8. Arnold Goes Begging: After reading a story about Schwarzenegger asking our destitute Uncle Sam for assistance, as California is unable to act responsibility by cutting spending to make ends meet, I went to bed and woke up in the middle of the night with a nightmare, actually sweating. I had dreamed that I was traveling to California by air, as I frequently did on business years ago, and one of my two bags was confiscated at the L.A. airport under a new CA law permitting only one bag per customer for those entering the state. The contents of that bag containing my better clothes would be sold to help pay down CA's debt. I could keep the clothes that were currently covering my trim, no body fat, muscular body, as long as I paid a "use" tax on them. And, as to the other bag, which I was allowed to keep, that new law only permitted visitors to bring underwear and socks into CA with the remaining items confiscated to help CA pay down its debt, also viewed favorably by CA retailers as I would now have to replace my clothing in state or spend a week in my skivvies.

9. Eurozone Unemployment: Unemployment in the euro area (16 European nations) rose to 10% in November. Spain has a depression level of unemployment at 19.4%. The Netherlands had the lowest at 3.9%. EUROPA - Press Releases - November 2009Euro area unemployment rate up to 10.0%EU27 up to 9.5%

10. Robust December Retail Sales: About 75% of the retailers beat analyst estimates for December sales, with an overall 2.9% gain in same store sales. TJX has a 14% increase in same store sales and Costco was +9%. NYT Best Buy reported this morning a 8.2% same store increase: Best Buy

11. Risks of Bond Funds: In several recent posts, I have delved into the risks of bond funds. I thought that this article in USA Today this morning hit some of the high points:

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