Thursday, February 18, 2010

Bought 50 OFGPRA at 19.55/ SOLD 50 DKR AT 23.76/GT-XKK/WIN/ING/GRT/Obama on the Stimulus Bill

1. Bought 50 OFGPRA AT $19.55 (See Disclaimer): I have heard Cramer say that he spends his spare time drinking scotch on a dirty linoleum floor reading earnings calls transcripts and other mundane material relating to be an investor. I do not drink, but I spend a lot of time during the same kind of research. Last weekend, I went back to the quantumonline site to see if there was a income security previously overlooked that might warrant a nibble. I found one new name that fit that category, and I viewed it as barely worth a nibble of 50 shares. Maybe, that entire exercise proves more about the difficulty in finding anything remotely worthwhile that has a decent yield after almost a two year Jihad by the Federal Reserve against all of the savers and responsible citizens in the U.S. Personally, I do not like being punished for something that I did not do and would feel much better if the Masters of Disaster could be forced to disgorge their booty for bringing the world's financial system to its knees.

OFGPRA has a number of characteristics that I do not like. It is a junk rated, non-cumulative, perpetual, equity preferred stock from a bank. All of that is just negative from my viewpoint, nothing positive in any of those words. It does pay a qualified dividend according to the site, which is a plus, and the distributions are paid monthly. I would like to be paid daily, but monthly is the best payment period offered by exchange traded securities. Par value is $25 and the coupon is 7.125%. This gives me an effective yield at a total cost of $19.55 of 9.11%. OFG.PRA Stock Quote - Oriental Finl Group Inc PFD A 7.125%

This is a link to the prospectus: I did review the press release for the last earnings report: exv99 And I skimmed the last filed 10-Q for the Q/E 9/30/2009: e10vq The total risk based capital ratio was as of 12/31/2009 an excellent 19.84% and the Tier 1 Risk based capital ratio was 18.79%. Both of those numbers were among the highest that I have seen in recent times. The bank was listed in the top 25 in the Bank Director's 2009 scorecard, ranked # 19: Seeking Alpha The bank operates in Puerto Rico and Florida.

2. Leading Indicators and the Philly Fed Manufacturing Survey: The Philadelphia Federal Reserve bank reported the results of its manufacturing survey for February at 17.6, rising from the 15.2 reading in its January report. /regional-economy/business-outlook-survey/2010/ .pdf The expectation was for a reading of 17. In this survey, any reading above zero indicates expansion. The new order index jumped to 22.7 from 3.2.

The Conference Board's index of leading economic indicators rose for the 10 straight month in January rising .3%. (LEI)

3. ING (own hybrids only-INZ, IND, IDG and IGK): While ING reported a loss in the 4th quarter of 2009 of 712 million euros, this was largely the result of a 930 million euro after-tax provision for the additional amount payable to the Dutch government for its guarantee of ING's disastrous foray in Alt-A U.S. mortgages during the bubble years. Some may remember that the EC required ING to pay more for this guarantee as a condition for the EC's approval of ING's restructuring plan and the massive state aid given to it. ING to separate banking and insurance operations - ING If one desires to exclude all of the investment losses and extraordinary charges, ING did post an underlying profit of 74 million Euros in the 4th quarter. My general take away is that ING is making progress, but I will need to monitor its financial condition closely over the coming months. For my total exposure on the ING hybrids, I would characterize my opinion as modestly nervous most of the time, but not yet scared. The hybrids have been a very rewarding holding and I have harvested a number of large percentage gains already after making purchases during the meltdown periods in the fall of 2008 and in early 2009: ING Preferred Stocks (Hybrids): Links in one Post

Based on my analysis of the stopper provision in the ING hybrid form prospectus, I believe that ING has to make three quarterly payments on the hybrids in 2010 based on its purchase of Junior Securities issued to the Dutch government and its payment made on those securities late last year. This gives me some leeway in when I need to make a decision about the amount of my exposure to its hybrids. ING has eliminated its common share dividend, and I would be surprised that any such dividend would be paid in 2010. A payment of a dividend on a junior security would provide protection to the hybrid owner, a more senior security, under the mandatory payment event clause, also known as the stopper provision.

I did note this afternoon that ING declared its regular quarterly dividends on my hybrids INZ, IGK and IND. The other one, IDG, is on a different schedule for payments.

4. Winstream (owned): I view my holding in Winstream to be purely an income play. Item # 2 Winstream So my focus for this common stock is similar to my approach in evaluating whether or not to hold a fixed coupon bond holding, that is, the safety of the current payment. I do not expect a dividend increase from WIN, and my analysis focuses on just the maintenance of its existing payout. I am being paid a lot at my cost with just a continuation of the current payout.

Windstream reported GAAP net income of 17 cents per share, down from 19 cents in the year ago quarter after including in that prior quarter a 2 cent loss for discontinued operations. Revenues fell 3%. WIN generated 379 million in free cash flow during the 4th quarter and 288 million in net free cash flow which was a 14% increase year-over-year. And this is the most important take away from the earnings report for me. Winstream reduced the dividend payout ratio to 53% of free cash flow, the lowest number since the company's formation. This is important on the safety of the dividend, since WIN's dividend exceeds its net income number. For 2010, WIN projects revenues of 3.5 to 3.9 billion. The current consensus estimate was for 3.1 billion.

I bought shares in Winstream in March 2009 at $6.36, and currently own 200 shares. I take the dividend in cash.

5. Spain and Portugal Bond Auctions: Some recent auctions from Spain and Portugal went well. Portugal successfully sold €1 billion of 12 month treasury bills at 1.173%. Spain received €12 billion in bids for its €5 billion in 15 year bonds at a yield at the low end of expectations. Some news came out this week about Italy's use of derivative contracts: MarketWatch

6. Obama Claims Stimulus Bill A Success: The GOP tribe has already won this argument with the American people. In fact, only 6% of Americans believe that the 787 billion stimulus plan has created any jobs at all. The widespread belief that no jobs have been created is factually indefensible. The frequently held corollary belief, that government spending does not create jobs, is incomprehensible and delusional if actually believed. Of course, the government creates jobs by spending money, even if one excludes the tens of millions employed for their entire adult life working for governments at the federal, state and local levels and just focus instead on the millions of private sector jobs created to supply the beast with goods, services, buildings, and infrastructure For a GOP tribe member, they were blaming the Beanpole for the escalating unemployment numbers for January (779,000 lost jobs) and February 2009, reported a few days after he took office. And, they did not learn anything from the Great Depression or anything from the Near Depression either, nor will they ever see any relationship between their core ideology ( particularly on regulations) and the causes of the downturn.

When the world comes close to precipice of financial collapse, unemployment is going to soar and stay at high levels for years to come. Maybe the administration needed to focus on giving the American people that history and financial lesson. The only question is how high will it go. I think that it would easily have exceeded 20% sometime in 2009 without the massive bailout of the financial system in 2008. Collapse was imminent in September 2008, with the advent of a Great Depression then clearly on the horizon, and it would have happened if the House Republicans had been in charge. I believe that the Democrats won in November 2008 because non-ideological independents such as myself sensed that the GOP was incapable of dealing with this crisis, and never will be capable of dealing with one in the future. It is in their DNA.

After the world survived financial collapse with that financial rescue package and the innovative strategies of the Fed, I suspect that we would have topped out at around 12% in unemployment without the Democrat's 787 billion dollar stimulus plan passed shortly after Obama became President. While this plan did make the Great Recession less painful for a lot of folks, generations of Americans will end up paying for it. It will be financed and refinanced and then refinanced some more, for decades and generations to come. It is not like the U.S. had any of that money laying around for a rainy day. It was all borrowed, and it will always be part of our debt. So, if you are going to do that, you need to focus on both the short term and long term benefits of the spending. Most of the spending to date is transitory, and represents the Democrats desire to alleviate suffering over the short term. But it is likely that a lot of those state employees who would have lost their jobs could have found work in the private sector as part of massive federal infrastructure spending.

At most, the stimulus package created some jobs and saved far more from being lost at the state and local government level. Most independent estimates place the jobs saved or created by the bill at around 1.6 to 1.8 million. CBS News I would suggest that saved would be a far higher number than created, at least so far. Maybe more jobs will be created by what will be spent in 2010: CBS News

Obama allowed the GOP to spin their version of the stimulus bill virtually unmolested by the Obama administration for a year, as Obama focused on health care with the economy and jobs an afterthought-at best. I would have to give Obama an F - in allowing the GOP to run amok like that for a year. Their spin machine and ability to create an alternate reality is unparalleled, and it certainly helps their cause that millions are easily manipulated by the spinmeisters.

Possibly Obama's failure to take on the GOP's spin was due to his erroneous prediction early in his administration of how bad the unemployment problem would soon become as well as his equally erroneous belief in the job creation possibilities in the stimulus bill. That bill so far has saved jobs at the state and local level. My personal view is that more money needed to be funneled into long term job creating infrastructure projects rather than temporary job saving efforts among state and local government workers. This would have necessitated less money in transfer payments to state and local governments to keep some of their workers, but those cuts may eventually have to be done this year anyways. If a local government wanted to keep its police force at 2007 levels, for example, rather than to make a budgetary cut, it would then have to make cuts somewhere else.

But in the public perception battle, the Democrats have already lost the battle. For example, most Americans will deny that they received a tax cut from the stimulus bill and even believe that their federal income taxes had bee raised during Obama's first year, both are factually false. But, in the future, if you want to give families a tax cut in a stimulus bill, be sure to send them a check rather than reducing the withholding in their payroll checks. That is one lesson to be learned from the P.R. fiasco for the Democrats relating to the stimulus bill. Now, to be sure, the Democrats will try to raise taxes this year for those viewed as well off by the Democratic party, but that has not happened yet. The GOP has managed to convince the majority of Americans that their taxes have been raised rather than cut to date, another victory for them.

I do not view most of GOP members to be True Conservatives, and many are more properly classified with a label less pleasing to the ear than conservative, maybe about 5% of them are properly classified as conservative, a topic more thoroughly addressed in several prior posts and a favorite topic in this blog and possibly the most controversial:

So, my main problem with the stimulus bill is its focus, not so much the amount. If the nation is going to spend that much borrowed money to get back on its feet in a quicker manner, the money needs to be spent on projects that have a long term value (as in funding renewable energy research) or a long term useful life, as in constructing or repairing bridges and highways. It was after all a Republican Administration (Eisenhower) who undertook the construction of the interstate highway system which will pay dividends for generations; and both parties have seen the long term benefits of massive investments in public education.

8. Goodyear Tire (own senior bond-the TC XKK only): Goodyear reported better than expected results for the 4th quarter. Sales increased 7% and 4th net income was 107 million or 44 cents per share. As an owner of a junk rated senior bond, this is more than satisfactory. I own 550 shares of XKK, which is one of my largest junk bond holdings. The underlying bond matures in 2028. The TC XKK is unusual in several respects in that it has a 1% higher coupon than the underlying bond, and has a $10 par value. Goodyear Tire XKK Information about the underlying bond in the trust XKK can be found at FINRA - Investor Information - Market Data - Bonds - Bond Detail.

9. Glimcher Realty (GRT)(own Common and Preferred as LTs): My best buy from 2008, as far as an income security goes, was GRTPRF at $2.9 ($25 par value), then yielding 75% per annum at my cost. GRTPRF: A WALK ON THE WILD SIDE/ KTN add It has not missed a dividend since that time, and is now selling at over $20. Needless to say, when I ventured into both the common and the preferred as Lottery Tickets, the market did not have much confidence in GRT's survival. Glimcher, an owner of retail malls, reported Funds from Operation of 21 cents and 31 cents after certain adjustments. Occupancy at the core malls increased to 92.5% from 91.9% as of 9/30/2009. GRT expects FFO to be in the range of 76 to 82 cents in 2010, and 80 to 86 cents after a small adjustment for amortization of a fee incurred in connection with the modification of its credit facility. Both the common and preferred shares rose significantly after the release of this earnings report. The LTs on the common were bought at $1.61 in 2/2009 and at $2.79 in 12/2009. Buys: GRT & GIVN 50 GRT at 2.79

10. Yahoo (owned 2010 Speculative Strategy): Yahoo! and Microsoft have been cleared by regulators in Europe and the U.S. to begin their alliance for internet search.

11. SOLD 50 DKR AT 23.76 (SEE DISCLAIMER): This was a huge percentage gain. The remaining 50 shares of this TC containing a senior Hertz bond was bought at $6.45 in October 2008: TRUST CERTIFICATE HERTZ BOND DKR And I received several semi-annual interest payments. With this TC approaching its par value of $25 and a maturity date in 2012, I thought that it was best for me at least to harvest the long term capital gain now rather than risk losing it due to some unforeseen problem developing in the next two years. This is what happens when the Old Geezer is at the helm of the trading desk here at HQ. Headknocker may need to make a personnel change, with the appointment of a new Head Trader.

I had some more trades which will have to be discussed in tomorrow's post. Also, one of the canadian energy trusts reported earnings, and I do not have time to discuss it. Penn West (PWE). My shares are held in Canadian dollars and I take the dividend in Canadian currency: PWT-UN.TO

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