Friday, June 4, 2010

JOBS/SOLD: AMAT, ATVI, MRO, JPC, ZBPRA/Heineken Share Classes/Added Double Short as a Hedge

1. Jobs: This report was disappointing but I would not view it in a deeply negative fashion. Still, the number does suggest the vulnerability of the economic recovery to exogenous shocks, such as the sovereign debt crisis in Europe, and thereby raises the odds of a double dip recession in the U.S. after the massive fiscal stimulus winds down later this year.

The 431,000 increase in payrolls is not the significant number of course, since it was inflated by 411,000 temporary Census workers. The important number is that only 41,000 jobs were added in the private sector. Employment Situation Summary

Part of the reason for the disappointing number may be explained in the hours worked number, which increased to 34.2 hours from 34.1 hours in April. This suggests that some employers are increasing the hours for current employees rather than hiring new ones. This actually makes sense under the circumstances.

On the positive side, the alternative measure of unemployment, which includes unemployed persons, those marginally attached to the workforce and individuals working part time involuntarily (Table A-15, U-6), declined from 17.1% in April to 16.6%. The number of temporary service jobs increased by 31,000 bringing the total temp jobs to 362,000 since last September. I suspect that many of these jobs will eventually be filled with a permanent hire. Economists generally view the growth in temp jobs coming out of a recession as a harbinger of stronger job growth ahead.

I did not view the fall in the unemployment rate to 9.7% from 9.9% to be important. Actually, the reason for the decline has negative implications. The number of unemployed people who have given up hope and left the workforce increased by 286,000 in May.

2. Two Classes of Shares in Heineken: A reader from the Netherlands pointed out to me in a comment that Heineken has two classes of shares. One class, Heineken Holdings, is simply a holding company that owns shares in Heineken N.V.. (see comments to Response To Question About Heineken ADRs)

Heineken Holding owns 50.005% of the share of Heineken, N.V. which is the operating company. According to the annual report of Heineken Holding, each share of Heineken N.V. owned by it is matched by one share of Heineken Holding. Thus, the net asset value of both shares are the same and the dividend payable by the two companies is the same (see page 3: /www.heinekeninternational. .pdf)

The ADR with the symbol HINKY represents .5 of the ordinary shares of the operating company Heineken, N.V. The Heineken, N.V. shares trade in Amsterdam under the symbol HEIA.AS.

The Heineken Holding shares trade in Amsterdam with a lot of volume under the symbol HEIO.AS. They trade at a significant discount to the Heineken, N.V. shares. Unfortunately, the ADR for Heineken Holdings trades on the "Grey Market" in the U.S. which lacks transparency. There are no market makers and the bid/ask prices are not displayed. Volume is practically non-existent and it is frequently very difficult to trade shares. I have made maybe fifty or so attempts to buy some securities on the Grey Market without success to date. The order is routed to one of the firms that handles trades in this market. Since bids are not displayed, I have seen orders filled at lower than my bid. The sell order went to another firm who just matched it with an order on its book. The ADR symbol for Heineken Holding is HKHHF. If I felt the need to buy Heineken Holding, I would place the order on a European exchange and use EUROs to pay for the order. The symbol used by Fidelity for Heineken Holding is HEIO:NL. Their Heineken, N.V. symbol is HEIA:NL.

3. LB Reduces Risk as the First Order of Business Friday Morning-Sold MRO/ Sold AMAT/ Sold ATVI/ Sold JPC/Sold ZBPRA (See Disclaimer): Part of this risk reduction was the purchase of a double short ETF on a foreign index that had not gained much in value in early trading on Friday. It later rose about 4% during the day.

One way to reduce stock risk is to sell stock, which is a point that even LB will not belabor, and then move the proceeds to cash which is what LB did on Friday to a small degree.

The remaining 151 shares of Marathon Oil were sold at $31.2839. This included the 100 shares lot purchased in February at at 28.15 and the remaining 50 shares of a 100 share lot bought at at 31.68. I sold 50 shares of the lot bought at $31.68 at 33.05 in April. This was pure profit taking. I will most likely buy some of these shares back when and if the market finds its footing and settles down.

2010 MRO 201+ SHARES +$330.77

I sold 100 AMAT at $12.94 for a small profit. Added 50 AMAT at 12.28 Bought 50 AMAT at 12.48 I sold 100 ATVI at $10.91 for a small loss.Bought 100 Activision Both positions were eliminated just to raise cash and were chosen as sell candidates primarily for their low dividend yields. I may buy AMAT back when and if the price falls closer to $11.

JPC, a CEF with some stocks was sold at $7.42. JPC was bought at $6.85 in the regular IRA. It was sold to raise sufficient funds to enable me to place a bid for a senior bond yielding close to 8%.

The 50 shares of ZBPRA were sold at $16.85 on Friday. These are the shares purchased in the regular IRA at $12.5 last January: Bought 50 ZBPRA at 12.5 in IRA I am keeping the 100 shares bought at $7.8 in the main taxable account where I am willing to assume more risk. ZBPRA is a non-cumulative traditional preferred stock that pays the greater of 4% or .52% above 3 month LIBOR. It is rated junk (Caa3 by Moody's according to Like almost all equity preferred floaters, ZBPRA is issued by a financial institution, in this case by Zions Bancorporation (ZION). I also own 50 ZBPRB, a TP, bought in the Roth which I intend to keep and just 30 shares of a fixed coupon equity preferred issue, ZBPRC, held in the main taxable account. Analysis of Prior Question: ZBPRA vs. ZBPRC OR ZBPRB

4. Hungary: To add to Europe's woes, a new sovereign name has popped up a potential source of woe. The vice president of the "Fidesz" party in Hungary declared on Thursday that Hungary was in a Greece styled sovereign debt crisis. The Fidesz party wan parliamentary elections in April, unseating the Socialist government.

LB is almost sad in having to report that the OG, not being the deep thinker in the operation, actually bought 5 $20 scratch off lottery tickets earlier today, hoping to regain some of the losses. It is regrettable on so many levels. It is of course embarrassing to the LB that the OG views this act of mindless gambling to be part of his "investment strategy". Frequently, on those rare occasions where his winnings exceed the losses, he has been heard to exclaim that he was going to reinvest the winnings in more lottery tickets. And what does he mean by that? Say he wins $30 on one $20 ticket and loses $20 on another, he refers to his winnings as $30. So today, he wanted all of the staff here at HQ to know that he had won, done his part to advance Headknocker's capital by "winning" $60 on the $100 bet, and consequently could not wait to reinvest the "winnings" to buy more. So now the truth can be known, the entire LOTTERY TICKET stock strategy was an audacious plan by the LB to curtail both the RB and the OG purchases of scratch off lottery tickets and to channel their collective inanity into something that might actually be profitable. Well, what can you say, it is a never ending struggle for the LB.

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