At least we know now the real problem at the SEC, something that explains their failure to catch the Madoff and Stanfords, and similar ilk, notwithstanding repeated warnings. About 33 employees, half of whom made between $99,000 to $223,000, were watching porn on their office computer. One lady had attempted to access 1800 porn sites and had saved 600 images on her laptop. ABC News RB wants her email address. Another accountant attempted to access porn sites 16,000 times in one month. A senior attorney had downloaded so much porn that his computer was full, and he had to store the stuff on DVDs in his office. He spent as much as 8 hours a day watching porn. And, we just found out that one of the SEC attorneys who repeatedly quashed the SEC's investigation of Stanford's "alleged" Ponzi scheme later sought to represent him. Times Online
The WSJ is reporting that the SEC's enforcement chief, who has been in the forefront of the Commission's action against Goldman Sachs, oversaw the legal department at Deutsche Bank that developed the same products that is the subject of the SEC's case.
Seven banks in Illinois were seized by the FDIC yesterday at a cost of close to 1 billion dollars. MarketWatch The FDIC's fund is about to run dry. Recently, the FDIC estimated that the cost of bank failures will grow 100 billion dollars over the next four years. The FDIC is seeking to require the banks to prepay 45 billion in insurance premiums for 2010-2012 to help defray its cleanup costs. FDIC: Press Releases - PR-178-2009 9/29/2009 NYT
It is amazing that Jon Stewart is the only real journalist who routinely facts checks the "fair and balanced" network (e.g. Video: A Farewell to Arms Scandal-List - Tea Bagging and see more at Videos Tagged Fox News)
Morningstar is starting a Closed-End Fund Weekly Update, which may be available to non-subscribers. The update can be found by clicking the link at the end of the article. I have been investing in closed end funds since around 1983.
1. Greece: Greece is increasingly looking like a basket case, where the only viable solution would be to give about 60% of the population a brain transplant. The Eurostat claimed that Greece's budget deficit was wider than represented just recently by the Greek government. The current estimate for the 2009 budget deficit is 13.6 of Greece's GDP for 2009. WSJ Public sector employee have gone on strike complaining about cuts in benefits as their government runs out of money, unable to repay 11.4 billion in borrowing coming due on May 19th without being bailed out by the more responsible EU countries and by the IMF. The ten year Greek government bond is yielding around 9%, close to the yield of several emerging market countries. The 2 year notes hit 12% on Tuesday: WSJ Randall Forsyth pointed out in a recent Barrons that the German's government's thirty year bond auction failed, in that Germany tried to sell €3 billion and received bids only for €2.752 billion. Some attribute the problem to Germany possibly ending up as nation bearing the brunt of the bailout burden for the PIGS.
After this significant deterioration in Greece's ability to raise capital to retire upcoming bond maturities, Greece formally requested the activation of the EU/IMF bailout package. NYT The IMF will likely be more prompt with its share than the EU, since the participation of the EU countries has to be approved by their legislative bodies. From what I understand, the Greek bailout is very unpopular in Germany and understandably so.
2. Exelon (EXC)(own-core electric utility holding): Exelon beat estimates by 10 cents and raised the lower end of its guidance for 2010 to $3.7 from $3.6. The company maintained its high end guidance at $4.
3. Bought 50 JNJ at $64.44 (dividend growth strategy)(See Disclaimer): After KMB's report yesterday, I sold 50 of my 100 shares and mentioned that I would redeploy the proceeds into another firm meeting the criteria of the dividend growth strategy. Johnson & Johnson announced last Thursday that it was raising its dividend by 10.2%. The new quarterly penny rate will be 54 cents per share, up from 49 cents. The new dividend rate brought the yield at a total cost of $64.44 above the 3% threshold requirement for the dividend growth strategy. This strategy requires, with some exceptions allowed on one of the criteria, the following:
(1) a minimum starting point of a 3% yield at my cost
(2) a long history of annual dividend growth
(3) no dividend reductions in at least the last 10 years
(4) a payout ratio to net income of less than 60%
(5) a historical rate of dividend growth that results in a doubling of the dividend in 12 years or less (the preference is a double in 8 years or less)
After the dividend raise, the yield at a total cost of $64.44 would be around 3.35%. The current annual run rate is $2.16 per share. The annual rate for 2004 was $1.10 and $.55 in 1999. I am going to call that a doubling every 5 or 6 years, better than KO which is on a historical path to double its dividend every 7 years. Barrons Recommendations and My Trades in The Barron's Columnists' Recommendations in 2009 The payout ratio (dividends as % of profits) hovers around 35% to 40% and the rate of dividend growth is consequently supported by the growth in earnings over time. Conditions (2) and (3) above are likewise satisfied easily.
Some investors following a dividend growth strategy will look at the free cash flow/payout ratio: 10 Dividend Stocks (Article dated 4/23/2010 by Todd Wenning in Motley Fool) JNJ's free cash flow/payout ratio was 38%, according to the author of the preceding linked article, indicating that JNJ has plenty of room to increase its dividend and to invest in its business. The KO number provided by Wenning in that article is much higher at 61%. Kraft, another one owned in this strategy, is in between JNJ and KO at 46%. Exelon (EXC) is also listed among the top 10 by this author.
I would not characterize the last earnings report as stellar: firstq20108k The current forecasts call for $4.87 in 2010 and $5.27 in 2011. If the 2011 number is hit, then my buy yesterday would be at a 12.23 P/E of the 2011 estimated earnings.
4. Added 50 Shares to KO at $53.77 (dividend growth strategy)(see Disclaimer): This brings me to my limit in KO. I just own the common stock. Admittedly, it would have been better to just buy all of the shares at $38.72 in March 2009, but there was a limit to my bravery back then. Earlier this month, I bought 50 shares at 54.26. The current forecasted earnings of $3.76 in 2011 (KO) translates into what I would consider a reasonable P/E of 14.3 at a total cost of $53.77.
I have changed my dividend distribution option from cash to reinvestment into additional shares.
5. Sold 100 of the 150 ABWPRA at 22.2 (see Disclaimer): I did not care for the 1st quarter earnings report from Associated Banc-Corp. The bank continued to lose way too much money in my opinion at this stage in the credit cycle. I would have sold all of my shares in ABWPRA except the bank did raise $500 million in a common stock offering earlier in the year, giving it a buffer to work through the poor decisions made by it in the past. Some would say that credit related charges in the 1st quarter of 165.7 million is an improvement over 405.3 million in charges in the 4th quarter of 2009. I would agree that the trend is positive but the amounts for a bank this size speak volumes about the competence of management. I do not own the common stock and have no intention of buying it.
I sold 50 of the 100 shares in the main taxable account, and those shares were the highest cost shares purchased at $21.04. I will keep the 50 shares bought at $19.42 in that account. The other 50 shares were sold out of the ROTH, and those shares were bought at $21. I no longer view this TP from Associated Bank to be an appropriate investment for the retirement account. A couple of quarterly interest payments were received so this was a slightly profitable investment. I would consider buying back the 50 shares sold in the taxable account at below $19, provided I gain more comfort than now about the credit risk.
6. Sold 50 of 201 of MRO at $33.05 (See Disclaimer): I bought my position in MRO in two round lots of 100 shares. The first lot was purchased at $31.68. Using FIFO accounting, the fifty shares sold last Friday came from that lot. RB just said that it wants a divorce. I thereafter bought another 100 shares at $28.15. This transactions lowers my cost basis in the remaining shares. I am reinvesting the dividend to buy additional shares. In the event the share price falls below $28, I would consider buying back those 50 shares.