Thursday, December 1, 2011

ADDED 50 FFBC at $14.87/Coordinated Actions by Central Banks/Case Shiller/Italy Bond Auction/Network Interface Device/Lipitor-Now Generic

For those who still have phones tethered to land lines, there is a way to determine whether a problem originates inside the house or on the telephone network. There is a device attached to the outside of my house, called a Network Interface Device. Inside that box, there is a connection for a telephone. Anyone can plug a phone into that device and make a call. After plugging my phone into that interface, I was able to determine that there was a problem in AT & T's network. If I had received a dial tone with no static, then the problem would have been inside the house. It probably does not occur to most people to check this out whenever there is a problem. Theoretically, someone could sit in a lawn share outside my house and make long distance calls from that jack. Although I recently cancelled my land line service due to service issues, it would have cost me $85 for a service call if the problem had been isolated to inside the house rather than on AT & T's network.

Several positive news developments occurred yesterday. China cut its bank reserve ratio for the first time since 2008. The reduction was .5%. The reserve ratio is the amount of money banks have to set aside as capital. By reducing that ratio, the banks will have more money to lend. The FED and five other major central banks reduced the interest rate on dollar swaps by 50 basis points. FRB: Press Release--Coordinated central bank action to address pressures in global money markets--November 30, 2011 Reuters MarketWatch  The ADP reported yesterday that private payrolls increased by 206,000 from November to December. And, the Chicago PMI for November was reported at 62.6%, up from 58.4% in October.

I made several trades yesterday that will be discussed in subsequent posts. I resisted the temptation to buy a triple short stock ETF near the close, though it was awfully tempting. While I recognized the positive news developments, I did not have the same reaction as the market to them. Maybe the news was worth 200 DJIA points.

As noted in a NYT, rallies based on some news event relating to the European sovereign debt and banking problems have not lasted very long and have quickly reversed, as the "solution" was subsequently seen as inadequate to address the escalating crisis.  The actions taken by the central banks yesterday address only a symptom of the sovereign debt and bank liquidity issues. The rot is still there.  

Italy auctioned some bonds on Tuesday at the highest rates during the Euro era. Italy paid 7.89% on its three year bonds and 7.56% on ten year paper. Please note that the yield curve is inverted in Italy. The market apparently viewed this auction as a success, for reasons that escape my ability to comprehend. However, the yield on the 10 year benchmark bond fell yesterday to 7.1%:  IT 10Y Govt Bond Benchmark 

The WSJ reported that both Spain and Italy were applying pressure on their respective banks to buy their sovereign debt.

The September Case Shiller index for home prices showed a 3.9% decline in home prices over the past year. CNBC Video Most metropolitan areas had a decline in prices from August. The largest decline was 5.9% in Atlanta which also had the largest yearly decline at -9.8%. 

Corning (no position) warned on Tuesday that earnings would be less than expected due to lower demand for LCD televisions and tablet computers. (see also Press Release)

Bill Gross opined in his newsletter that it will take years for Europe, Japan and the U.S. to escape the straightjacket of debt and low growth. PIMCO He also believes that a 5% annualized return for a portfolio will be a good return for the next several years. 

The NYT had an article earlier this week that suggests that Greece will have a hard time collecting the recently instituted property tax. This tax is included in the electricity bill. Theoretically, if it is not paid, electricity will be cut off. Tax evasion is a national sport in Greece which is the reason for submitting the bill for the tax in this fashion.  

Pfizer's best selling drug Lipitor went generic yesterday. Fox News  CBS News  As discussed in this NYT article, Pfizer is acting aggressively to preserve profits generated by this cash cow. I have no position in Pfizer.

S & P downgraded the credit ratings of 15 large banks based on changes in its criteria: .pdf

1. Added 50 FFBC at $14.87 Last Tuesday (Regional Bank Stocks Basket Strategy)(see Disclaimer): First Financial Bancorp went ex dividend yesterday, the day after my purchase last Tuesday. I noticed then that the shares had fallen 25 cents, roughly equivalent to the dividend, and had declined below my $15 target price for a possible add. I have been contemplating the possible purchase of 50 shares, rounding my lot up to 100 shares, after the bank announced that it would pay out its net income per share in dividends. The recent dividend was 27 cents per share, equal to its E.P.S. for the third quarter of 2011. First Financial Bancorp  The regular dividend is currently 12 cents and the remainder is variable depending on earnings.  

This bank operates 116 branches in Ohio, Kentucky and Indiana. 

I bought the other 50 shares at $16.85 back in November 2010. 

I had been taking the dividend in cash. I changed the option to reinvestment after rounding the lot up to 100 shares. 

I discussed the 2011 third quarter earnings report at Item # 2 FFBC (see SEC Filed Press Release) As noted in that discussion, this bank has good capital ratios.

The current consensus estimate is for an E.P.S. of $1.11 this year and $1.2 next year.

Yesterday, the stock recovered the dividend payment and more, rising $1.27 yesterday to close at $15.88.  FFBC Stock Quote The dividend yield shown at Marketwatch is incorrect. The Marketwatch site includes only the variable 15 cent dividend for the current quarter in its calculation. The regular dividend is 12 cents plus the variable dividend.

Realized Gains Regional Banks


I am coasting until the end of the year.   The foregoing purchase was made with cash flow.

I will discuss the numerous trades from yesterday in the next two posts.  I was a net seller.

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