Monday, October 31, 2011

Bought Back CHN at $25.975/VLY FFIC GBCI/Bought 50 SLGPRD at 24.7/Sold 30 TEX at $18/Sold 50 FFIC at $13.53/Sold 50 GBCI at $12.53

Microsoft's Windows 7.5 phone received a favorable review in the NYT.

Felix Zulauf expects the European sovereign debt crisis to continue for several years.  Barrons  He recommends buying more gold on dips, which I will not do. Zulauf expects gold to continue building a base in the $1,475 to $1,750 range, which "could be" the "platform" for another move up next year. I sold some gold for the first time when it crossed $1,900 per ounce and will sell another ounce when and if the price moves over $2000. Recent Gold and Silver Sales

I ran a comprehensive test over the past month to ascertain how two minor changes in driving impacts my mileage per gallon. Needless to say, no sensible driving practice is observed in the SUV Capital of the World that would have the effect of conserving gas.  Both changes involved coasting. I would coast into red lights and coast whenever I could maintain my speed close to the speed limit without touching the gas. My Saturn averaged another 1.5 miles per gallon.  In the SUV Capital of the World, SUV's would pass me as I coasted into a red light, pedal to the medal, hitting the brakes hard just before ramming the SUV in front of them, usually with a "W" sticker on the bumper  next to a sticker saying "Drill Baby Drill".

1. Bought Back 50 of the Stock CEF CHN at $25.975 Last Thursday (see Disclaimer): I briefly owned 50 shares in the China Fund last year, and sold those shares at $30 over a year ago. I bought back those shares last Thursday at $25.975.  The Chinese stock market has undergone a significant correction over the past several months, as shown in this ugly looking chart: SHANGHAI INDEX Chart I decided to repurchase these shares based on the comments from the Chinese premier that may signal an end to China's monetary tightening cycle. 

Sponsor's website: The China Fund, Inc. - Welcome

Morningstar has a 4 star rating on this CEF. I view the expense ratio as low for this kind of fund.

The fund manager looks to be young: China Fund Monthly Insight Report-SEC Filing

This is a link to the last SEC filed Form N-Q listing the fund's portfolio holdings as of 7/31/11: SEC Form N-Q

This is a link to the fund's last SEC filed shareholder report: SEC Form N-CSR

CHN closed at $26.28 last Friday. At that time, the fund's net asset value per share was $28.25 and the discount to net asset value was -9.22% based on the closing price of $26.28 on 10/28/11.

2. Valley National (VLY)(own: Regional Bank Stocks Basket Strategy): VLY is one of my largest positions in this basket strategy. Valley National reported net income of $35.4 million or 21 cents per share for the third quarter, in line with estimates. As of 9/30/11, the net interest margin was 3.8% (up from 3.67% as of 6/30/11); the allowance for losses as a percentage of non-accrual loans was at 114.01%; the efficiency ratio was at 60.01; NPLs as a percentage of total loans stood at 1.12%; total accruing past due and non-accrual loans as a percentage of total loans were 1.73%; the total risk based capital ratio was at 12.65%; and the tier 1 leverage ratio was 8.1%. 

REGIONAL BANK BASKET STRATEGY GATEWAY POST

3. Sold 50 Glacier Bancorp (GBCI) at $12.53 Last Thursday (Regional Bank Stocks Basket Strategy)(see Disclaimer): I sold these shares before GBCI released earnings. Based on the current consensus forecast of 69 cents in 2011 (GBCI Analyst Estimates), this stock was more expensive on a P/E ratio basis than most of the banks in this basket.  This is my second round trip in GBCI. The shares sold last Thursday were recently bought at $10.15. (9/16/11 Post).

After the close on Thursday, Glacier Bancorp reported 19 cents per share excluding a goodwill charge. The consensus estimate was for 19 cents. 

GBCI closed at $11.93 last Friday, down 58 cents or 4.64%.

Item # 3 Realized Gains Regional Banks

4. Sold 50 Flushing Financial at $13.53 Last Thursday (FFIC)(Regional Bank Stocks Basket Strategy) (see Disclaimer): Using FIFO accounting, I sold the 50 shares purchased at $11.05. I placed this trade before Flushing released its third quarter earnings report.  I had previously sold higher cost shares @ 14.51.

After the market closed last Thursday, Flushing Financial reported core earnings of 30 cents per share (33 cents GAAP). The consensus estimate was for 30 cents.

FFIC closed at $12.42 last Friday, down $1.01 or 7.52%.

5. Bought back 50 SLGPRD at 24.7 Last Thursday (see Disclaimer): This is the security that I wanted to substitute for CUZPRA, which was sold last week. Sold 50 CUZPRA at $25  I am more comfortable with the credit risk of SL Green Realty than Cousins Properties.

SLGPRD is a cumulative equity preferred stock issued by the REIT S L Green. It has a 7.875% coupon on a $25 par value. Dividends are paid quarterly. There is no maturity date. This security is junior in priority to all debt and senior only to common stock.

Prospectus: www.sec.gov

As with other REIT preferred stocks bought near par value, I am not a long term holder. I hope only to collect a few quarterly dividends and to exit the position at any profit north of $1. This security is bought with no expectation of a material gain on the shares. Instead, it is bought solely for its income generation.

I recently bought 50 shares of the functionally equivalent SLGPRC in my ROTH IRA. I discuss this REIT in more detail in that post: Bought 50 SLGPRC at $24.4-Roth IRA October 2011

This is a link to my Gateway Post discussing REIT preferred stocks:  REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

SLG.PD closed at $24.47 last Friday.

6. SOLD 30 Terex at $18 Last Thursday (see disclaimer): I am going to keep my TEX bond. /Bought: 1 Terex 8% Senior Subordinated Bond Maturing on 11/15/2017 at 96.947 The 30 share lot was not a serious buy and the stock popped almost 20% last Thursday. I bought those shares recently at $13.59.

The market had a lot more excitement about TEX's earnings report than I did.  SEC Filed Press Release

I will discuss the remainder of my trades from last Thursday in the next post. 

Friday, October 28, 2011

GDP/AVY Disappoints Again-Sold 50 AVY at $27.36/Sold 50 SIVBO at $25 ROTH IRA/FFBC/Added 50 of the Bond CEF FAM at $16.08/ CBO Report on the Wealth Gap Increasing

Yesterday was a most welcomed day. I am just glad the LB did not have any hedges in place. Still, under the Unstable VIX Pattern, hedges will generally be bought when the VIX falls below 20 and will be sold when either the VIX shoots near 30 again or the formation of the Stable Vix Pattern, whichever occurs first. Vix Asset Allocation Model Explained Simply Mark Hulbert and the Use of the VIX as a Timing Model The VIX closed at 25.58 yesterday, down 14.33%.

While I like to see a five figure green number, I could not get excited about another huge government bailout fund being approved  and a 50% haircut on bank loans to the flagrantly irresponsible Greeks.  Basically, the Greek government has been rewarded for committing fraud from the time that nation first applied to join the EU until the Socialist government came to power recently.

I used the rally yesterday to sell a number of minor positions which will take several posts to discuss.

Greenspan believes that the situation in Europe is "very dangerous".  He also said the European Union is doomed due to the fundamental differences in cultures. This forecast may be too far on the pessimistic side. 

A lengthy study by the CBO substantiates the growing wealth disparity in the U.S. between 1979 to 2007. cbo.gov  HouseholdIncome.pdf  Warren Buffett noted that there is class warfare in the U.S., being waged by the top 1%, to increase that disparity, and they are winning. MarketWatch

The flat tax being advocated by Rick Perry will substantially increase that wealth gap, and that is the desired objective.

Did the Bush tax cuts for the Job Creators cause the creation of jobs? Were those cuts for the purpose of creating jobs?

It is impossible for the TBs to even accept that more jobs were created during Jimmy Carter's four years than under 8 years of Bush Junior. In fact, the TBs will deny that fact.  During Carter's administration, there were 10.5 million jobs created. How many under Bush with the tax cuts going to the Job Creators? This article in the WSJ compiles job data for U.S. Presidents since Harry Truman. Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ

I did a somewhat different analysis of the Labor Department's data. I did not believe that it was fair to credit a President with the jobs lost or gained during the first year of his Presidency. My analysis of the Labor Department's data consequently credits Bush with the jobs losses in Obama's first year, and deducts the losses during Junior's first year. Bush's first term started during a recession.  My analysis using that one change results in  -184,000 jobs after 8 years of George Bush who did everything he could do for the Job Creators.  Bush Tax Cuts and Jobs (8/10/11 Post) (see also: "Blondes" and Fox "News"/Irresponsible Fools with Power/Taxes and the "Job Creators"  7/14/2011 Post)

Anyone who mentions a study on the widening wealth gap will be accused by Larry Kudlow or Maria Bartiromo as attacking the rich and engaging in class warfare. The fact that most people in the U.S. are falling behind is not disputed by these pundits. I happened to be listening to CNBC when Maria made that simple minded statement in response to a reporter discussing the CBO report. CNBC Her net worth is estimated at 22 million with a 1 million dollar per year salary. So it is understandable that she does not want her marginal tax rate increased by a couple of percent by the Democrats and would much prefer paying a 9% flat tax as her share. The Masters of Disaster, the most overpaid doofuses in the history of mankind, certainly share that opinion. After all, they are not the kind of people who would be storming Omaha beach on D-Day.

Marc Faber claims to be an optimist. CNBC As proof, he asserts that he must be an optimist, otherwise he would have already committed suicide given the kind of governments in place today. He does believe that stocks will outperform bonds over the coming decade, a view that I share. With that comment, I am not saying that either asset class will produce positive returns adjusted for inflation and taxes.

Bloomberg reported that a nurse employed by California made $269,810 last year.

The government released its first estimate of GDP for the third quarter yesterday. News Release: Gross Domestic Product The estimate was that GDP grew at an annualized rate of 2.5% in the third quarter, compared to the second quarter. The price index for gross domestic purchases increased 2%, compared to a 3.3% increase in the second quarter. The personal savings rate decreased to 4.1% from 5.1% in the second quarter.

The treasury auctioned $29 billion of seven year notes yesterday at a yield of 1.791%.  www.treasurydirect.gov.pdf

I was pleased to hear that HP is going to keep its PC division.  SEC Filed Press Release  And, I am glad that Leo was fired, though richly rewarded for stupidity. Leo is viewed by the LB here at HQ as an idiot. The spinoff would have cost HP billions. Reuters

I was more than pleased to see the government bring criminal charges against several individuals in connection with disability benefits claimed by certain employees of the Long Island Railroad.  NYT  This is a link to the criminal complaint: Fraud Complaint Virtually all employees who retired from that railroad claimed disability benefits, partly funded by Social Security. Item # 1 Unfunded Pension & Disability at State & Local Governments. I first discussed these claims made by that railroad's employees in a 2009 post after reading the following story in the NYT that was just disgusting.

Burton Malkiel, author of "A Random Walk Down Wall Street", believes that Chinese stocks are "extremely undervalued".  CNBC

1. Sold 50 Avery Denison (AVY) at $27.36 Yesterday (see Disclaimer): I  bought 50 shares of AVY last Friday, hoping that the shares were scraping bottom. Bought 50 AVY at 25.71 On Wednesday, AVY released another disappointing earnings report and reduced guidance again for 2011. SEC Filed Press Release The company reported a GAAP E.P.S. of 47 cents, down from 60 cents in the third quarter of 2010. The adjusted E.P.S. number was 48 cents. The consensus estimate was for 58 cents. AVY also lowered its full year outlook to a range between $2.15 to $2.3 on an adjusted basis. The company expects weak demand to continue into the 4th quarter.

I am not a long term holder of AVY shares. A long term investor buying might be satisfied with a $25.71 entry price, even with the recent earnings report. I just used the pop yesterday to sell my shares at $27.36. I would consider buying those shares back at below $25.

AVY rose 9.37% yesterday to close at $27.78.

I substituted a China stock CEF for AVY that I will discuss in the next post. I bought that CEF before reading the article about Malkiel's opinion on Chinese stocks. 

2. First Financial (FFBC)(own: Regional Bank Stocks Basket Strategy): FFBC reported net income of $15.6 million or 27 cents for the third quarter. SEC Filed Press Release  However, that number included $3.4 million, or 4 cents per share, of non-recurring items such as acquisition expenses. The consensus estimate was for 27 cents. One service claimed that the consensus was 29 cents.

As previously noted in a prior post, this bank recently adopted its policy to pay out 100% of its net income to shareholders. Reuters

As of 9/30/11, First Financial's net interest margin was 4.55% (the highest so far of banks in this basket); the tangible equity to tangible assets ratio was good at 10.31%; the total risk-based capital ratio was excellent at 20.08%; the allowance for losses to NPLs was at 71.35%; and NPLs to total loans (non-covered) was above average for banks in my basket at 2.6%. The company has been growing recently through FDIC acquisitions. As of 9/28/11, 28.2% of FFBC's loans were covered by a loss sharing agreement with the FDIC. (see page 14).  

3. Sold 50 SIVBO in Roth IRA at $25 (see Disclaimer): SIVBO is a TP with a 7% coupon on a $25 par value. Trust Preferred Securities: Links in One Post The TP and the underlying security mature in 2033: www.sec.gov I am interested in buying and holding this security when I can purchase it at a significant discount to par value. I made three 50 share purchases below $20 and held those shares for over a year before selling them near par value. Added 50 SIVBO AT $19.20 IN ROTH  Added 50 SIVBO at $19.15 Bought 50 SIVBO at $19.49 Sold 50 of the 150 SIVBO at 24.65 Sold Remaining SIVBO at $25 Snapshots of those gains can be found in the post discussing my last 50 share buy at $24.5 in the Roth IRA last September. The total LT realized gain was $788.82, as shown in those two snapshots found at that post.

 I am not interested in holding for very long a junior long term bond with a 7% coupon, when the purchase is made near par value. I decided to unload this security for a small profit plus one quarterly interest payment. I also wanted to increase my cash allocation in the ROTH IRA to take advantage of better opportunities which hopefully may arise soon.

SIVBO closed at $25.08 yesterday.

4. Averaged Down by Adding 50 of the Bond CEF FAM at $16.08 Last Tuesday (see Disclaimer): This brings me up to 200 shares in a taxable account and I also own some shares in a retirement account. With the dividends, I am close to break-even, but I have an unrealized loss on the shares that more than wipes out the dividends received so far.  Bought  100 FAM @ 17.9 November 2010  Bought: 50 FAM @ 17.37 in both Roth IRA and Taxable Account The only reason that I am close to even is that the dividend is rich and paid monthly. The current monthly dividend is 13 cents per share: FAM DISTRIBUTION HISTORY This CEF is a leveraged world bond fund that may invest up to 60% of its assets in non-investment grade bonds. FAM Fund Summary This is the credit breakdown as of 9/30/11:


This is a link to the last SEC filed shareholder report:  www.sec.gov

Morningstar currently has it rated 3 stars. A negative is that part of the dividend recently has been supported by a return of capital.  Another negative is the high expense ratio.

At the CEF section at the WSJ Market Data Center, daily NAV information can be found under the category "World Income".  WSJ  On the day of my purchase, 10/26/11, the fund closed with a net asset value per share of $17.26, a market price of $16.12, and at a discount to net asset value of -6.6%.

CEFA page on FAM.

The next ex dividend date is 11/1/11. At a  total cost of $16.08, and assuming a continuation of the 13 cent monthly dividend, the dividend yield would be around 9.7%.

FAM closed at $16.36 yesterday. 

Thursday, October 27, 2011

BYD FMER TRMK UBSI CBU/Sold 1 Goodyear Tire Senior Bond at 106.02/Sold 50 CUZPRA at $25/Sold 100 OPXT at 1.05

I suspect that the rally yesterday was mostly due to comments by the Chinese Premier that suggested a more dovish monetary policy may be underway in China after several months of tightening. MarketWatch

Some commentators suggested that the rise was due to a belief that Europe was finally gaining some traction in dealing with its sovereign debt problems.  I did not see much concrete evidence during market hours yesterday to support that belief, but some progressed was apparently made last night. Sarkozy said last night that the banks agreed to take a 50% haircut on their Greek government debt. He further added that the bailout out will be leverage up to $1.4 trillion.  WSJ.com

Boyd Gaming (BYD) reported better than expected third quarter results. While this casino company continues to be negatively impacted by a decline in gaming, BYD did report GAAP earnings of $3.1 million or 4 cents for the third quarter on a one percent decline in revenue. The revenue from the Borgata Hotel in Atlantic City, Boyd's 50% joint venture with MGM, was hurt by the closure due to hurricane Irene.  SEC Filed Press Release Net revenues were $590.2 million in the 2011 third quarter. I own 2 Boyd Gaming bonds and 30 shares of the common as a Lottery Ticket.

According to the Federal Housing Finance Agency, prices declined 4% in August nationwide, year-over-year. The FHFA housing index fell .01% in August, compared to July, which represented the first monthly decline since March 2011. The gain of .8% in July was revised down to show no gain.  www.fhfa.gov.pdf

The Treasury sold $35 billion in five year notes yesterday at a 1.055% yield. 

1. FirstMerit (FMER)(own: Regional Bank Stocks Basket Strategy): FMER reported net income of $31.7 million or 29 cents per share for the third quarter. SEC Filed Press Release The consensus estimate was for 28 cents. As of 9/30/11, the tangible equity ratio was 7.75%; the net interest margin was 3.74 (down from 3.96% as of 9/30/10); the efficiency ratio was 64.87%; the allowance for loan losses (non-covered) as a percentage of NPLs was 160.09%; and NPAs as a percentage of total assets stood at 1.21%.

FirstMerit closed at $13.85 yesterday, up 71 cents or 5.4%. I am in the hole on FMER. I am reinvesting the dividends:  Bought 50 FMER at 16.96 Added 50 FMER at 16.18 Bought 30 FMER at 11.35
2. Trustmark (TRMK)(own: Regional Bank Stocks Basket Strategy): Trustmark reported net income of $27 million or 42 cents per share for the third quarter.  The consensus estimate was for 41 cents. As of 9/30/11, the net interest margin was 4.17%; the efficiency ratio was 63.99%; the total risk based capital ratio was at 16.78%; tangible common equity to tangible assets was at 9.74%; the allowance for loan losses to NPLs (excluding impaired) was at 248.8%; and NPLs to total loans stood at 1.66% (non-covered). 

Trustmark closed at $22.25, up 47 cents yesterday.

Bought 50 TRMK at 19.57

3. United Bankshares (UBSI)(own: Regional Bank Stocks Basket Strategy): UBSI reported net income of $20 million or 40 cents per share for the third quarter. SEC Filed Press Release The consensus estimate was for 41 cents. As of 9/30/11, the coverage ratio was 99.7%; NPLs to total loans stood at 1.28%; the total risk-based capital ratio was estimated to be 13.6%; and the net interest margin was 3.87%.

United Bankshares closed at $23.49 yesterday, up 66 cents. 

Bought 50 of UBSI at $16.65 November 2009 I have probably kept this one due to my dividend yield being over 7% at my constant cost basis. I will likely sell at or near $30 however.

4. Community Bank System (CBU)(own: Regional Bank Stocks Basket Strategy): Community Bank System reported third quarter net income of $20 million or 54 cents per share, up from $17.3 million in the year ago quarter. The E.P.S. number included 1 cent in acquisition related charges. The consensus estimate was for 54 cents. As of 9/30/11, the tangible equity to tangible assets ratio was 6.79%; NPAs to total assets stood at only .33%; the loan loss allowance to NPLs was at 226%; the net interest margin was at 4.04%; and the efficiency ratio was 57%.

Community Bank System fell 5 cents yesterday to close at $25.3.

Bought 50 CBU @ 23.18 Added 50 CBU @ 25.19- Averaged Up

5. Sold 1 Goodyear Tire 8.25% Senior Bond Maturing 8/15/2020 at 106.02 Last Tuesday (Junk Bond Ladder Strategy)(see disclaimer): This strategy will be a success in my opinion by simply breaking even on the bonds. Since I expect defaults, I will need to offset those losses by selling some bonds at a profit and holding others bought at a discount to maturity. I am selling bonds bought near par value whenever there is a pop above par value. I recently bought this GT bond at 98.5. Bought 1 Goodyear Tire 8.25% Senior Maturing on 8/15/2020 at 98.5 A similar approach was used with the Alon Refining bonds bought at a slight discount to par value and later sold at 107.  SOLD 2 Alon Refining Krotz Springs Bonds @ 107 I fully expect to have several large percentage losses, so I can not offset those losses with trading profits realized from small 1 or 2 bonds bought close to par value. Instead, the only way to offset those expected losses will be to hold a number of the bonds, bought at greater than 10% discounts, until maturity.

If and when this bond falls back below par value, I will consider buying it back.

Item # 5 Realized Gains Junk Bond Ladder Strategy

6. SOLD 50 CUZPRA at $25 Last Tuesday (see Disclaimer): Given the limited upside potential possible when purchasing REIT cumulative preferred shares near par value, I will generally not hold my shares for very long. I noted that trading habit when I purchased 50 shares of CUZPRA back in March. BOUGHT 50 CUZPRA at 24.6 March 2011 I would collect some dividends and be content to sell the shares for more than a $1 profit which is what I did last Tuesday. Back in December 2008, I bought shares in CUZPRA at $11.5, and that is a sufficient statement of fact to illustrate the potential downside risk.  Buy of CUZPRA at $11.5 December 2008

Cousins Properties Inc. 7.750% Cum. Pfd. Series A, CUZ.PA is set to go ex dividend on 10/28/11, so I elected to forgo that profit in order to sell the shares for a profit now.

I may use the proceeds from this transaction to buy another REIT preferred with a slightly higher yield than CUZPRA but issued by a better credit risk in my opinion.  I am going to have to have a larger discount to buy back CUZPRA.

REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages  I now have snapshots of some of my REIT preferred trades in the foregoing Gateway Post.

7. SOLD 100 OPXT at 1.05 Last Tuesday (LOTTERY TICKET strategy)(see disclaimer): Opnext reported that its primary contract manufacturer, located in Thailand, has had its manufacturing facility flooded and believes that it will not be able to resume operations this year. That was just one too many problems for Opnext in my view. Consequently, I decided to exist my recently purchased shares at a small loss.  Bought 100 OPXT as LT at $1.18 One reason for buying a LT is that I at least see the possibility of an upside move over the near term, meaning within the next few months. This latest disaster makes that highly unlikely for OPXT.

The flooding in Thailand is pretty bad. Bloomberg

Wednesday, October 26, 2011

U.S. Military Presence in Iraq and the GOP/UBCP/Bought 50 MEA at $4.36 as LT/Sold 200 MUE at $13.54/Sold 50 FNLC at $14.25/The Greek Patronage State

The household debt of the nation's top 1% increased more than 3 times between 1989 to 2007, growing at a faster rate than their incomes. Their debt stood at $600 billion by 2007. WSJ

The market woke up yesterday with the realization that it is hardly certain that anything meaningful will occur in Europe today.  Bickering among European leaders was the subject of several news stories. Reuters  Bloomberg

The Case Shiller index for home prices in 20 metropolitan areas showed a greater than expected 3.8% decline in August over the prior year. One-half of those cities showed an increase in home prices compared to July 2011.

The Fed did not approve MetLife's proposal to increase its common share dividend and to buyback stock.

In his column, Jim Jubak discusses a confidential report about Greece prepared by the IMF, ECB, and the EU that highlights the obvious. Greece is hopeless. MSN Money A recession in Europe could require as much as $600 billion to bail out the Greeks. Under a more optimistic scenario, it is estimated that the bailout of the wildly irresponsible Greeks will encompass 350 billion dollars and take the remainder of the decade.  The Greeks will not stand for austerity for another year, let alone for the remainder of the decade.

Several American liberals claim that some austerity is destroying Greece. According to James Galbraith, for example, services are being cut to the point that healthcare, education and public services  are no longer functional. Daily Ticker Really? This is liberal hyperbole. In a nation with just 12 million people (including children, the disabled, and retirees), the government employs almost 800,000. That bloat is not paid for by the Greeks, where tax evasion is rampant, but by money received by the Greek government from negligent foreign creditors. Greece never had the ability to service the kind of debt necessary to finance their patronage state. Apparently, Galbraith believes that no layoffs can be made without causing a breakdown in the provision of all government services, but such a claim is frivolous on its face. And, it is my understanding that Greece has yet to start those cuts. Sure, the retirement age for civil servants has been increased to a less ridiculous age, and possibly some citizens are no longer receiving paychecks for the infamous 13th month in a year. Some 30,000 "civil servants" will be placed in a reserve at 60% of their wages but that law was just passed by the Greek Parliament.  Greece-Entitlement Society Run Amok Greece-Citizens in Aggressive Denial

Michael Lewis discussed the crux of the problem in Greece in his article published last year in Vanity Fair. In one example given by Lewis, the Greek government forms a unit to digitize photos of Greek public lands. The unit paid 270 employees to perform this task, but none of them knew anything about digital photography. They were hairdressers.  Hundreds of committees have been performed with no apparent duties. One committee was employed to manage a Lake Kopias, which dried up in the 1930s, just one ridiculous example of a patronage state at work.    Reuters

The Heritage Foundation, a "conservative think tank", claims that there are no poor people in the U.S. since most people have air conditioners, washing machines and coffee machines. Heritage Foundation Article That article was the subject of a Jon Stewart Comedy Central segment (about 4 1/2 minutes into that segment). Stewart's take was that the U.S. needed to just take all of the assets of the bottom 50%, referred to as the moocher class by the "conservative intellectuals at Fox", rather than increase the marginal tax rates of the Job Creators for a couple of years.

PolitiFact rated Rick Perry's statement that Romneycare was the model for Obamacare as true. 

Romney, Huntsman and Bachmann sharply criticized Obama's decision to withdraw all troops from Iraq by 12/31/11, suggesting that the President's decision was purely political. Washington Post The deadline was set by President Bush. U.S.–Iraq Status of Forces Agreement Since the Iraqi government would not grant U.S. troops immunity after 12/31/11 (NYT), the President had no choice in the matter, as the WSJ made clear.

The IRAQ war started in March 2003. Through November 2010, the U.S. has spent about $900 billion on this war. The U.S. has lost already close to 4500 troops, with over 32,000 wounded, 20% of whom received serious brain and spinal injuries. Iraqi deaths totaled over 100,000. Casualties of the Iraq War George Bush started this war by invading Iraq for the false reason that Iraq was involved in the development of weapons of mass destruction. The best evidence, known to the administration at that time, was that there was no justifiable reason for making that assertion. Accurate Information is Not a Side to an Issue/ Lying Works In PoliticsABC News: Forged Iraq Documents Were Full of FlawsNiger uranium forgeriesDowning Street memo2003 Article published by Washington Post (highlighting that the administrations best evidence on the aluminum tubes issue did not support the representations being made in public); Bob Woodward's book State of Denial; Leading To War (a film); 2003 story published by USATODAY.com; 2006 Washington Post story"Curve Ball"  60 Minutes (Curveball was the name given to this informant by the Germans, and the U.S. never interviewed him,

The GOP now wants the U.S. to remain in Iraq to counteract the influence of Iran, notwithstanding the lack of immunity from Iraq's government. The natural result of regime change was to increase the influence of Iran in Iraq, and having a military presence in that country for another ten years will not change that result.  Saddam was the counterweight to Iraq in the Middle East, which is why Reagan administration provided Saddam substantial assistance in the Iran–Iraq war.

In Rhode Island ten cents of every tax dollar goes to retired workers and that number will soon rise to 20 cents. CNBC

1. United Bancorp (UBCP)(own: Regional Bank Stocks Basket Strategy)United Bancorp, a small bank headquartered in Ohio, reported third quarter net income of $801,056 or 16 cents per share, up from 15 cents in the year ago quarter. As of 9/30/11, the net interest margin was 4.25%; NPLs to total loans stood at 1.53%; and the allowance for loan losses to NPLs was at 71.82%.  REGIONAL BANK BASKET STRATEGY GATEWAY POST

2. Washington Trust (WASH)(own: Regional Bank Stocks Basket Strategy): Washington Trust reported net income of $7.6 million or 46 cents for the third quarter. The consensus estimate was for 46 cents. As of 9/30/11, the net interest margin was 3.22%; NPAs to total assets stood at .82%; the total risk-based capital ratio was at 12.99%; the Tier 1 risk-based capital ratio was 11.72%; the tangible equity to tangible assets ratio was at 7.58%; and the allowance for loan losses to NPLs was at 137.29%.

3. First Interstate Bancsystem (FIBK)(own: Regional Bank Stocks Basket Strategy): First Interstate BancSystem reported net income of $11.1 million or 26 cents for the third quarter. The consensus estimate was for 23 cents.  This bank has an unacceptable NPL to total loan ratio of 6.14%. As of 9/30/11, the allowance for loan losses to total loans was at 45.82%; the capital ratios are good with the total risk-based ratio at 16.26%; tangible book value per share was  $12.25; and the interest rate margin was 3.84%. I bought 50 shares based on a Cramer recommendation and view that purchase as my mistake. Bought 50 FIBK at 15.64 Since my exposure was small, and the bank had some desirable characteristics, I have decided to keep those shares, but my patience with the loan loss numbers is running very thin.  

4. Bought 50 Metalico (MEA) at $4.36-LT Last Monday (LOTTERY TICKET strategy)(see Disclaimer): RB, the Head Honcho for this strategy, has been gravitating toward small and micro cap cyclical stocks. MEA is such a company. In addition, the stock meets certain statistical criteria used for LT selections. The current consensus earnings estimate is for an E.P.S. of 53 in 2011 and 70 cents in 2012, giving the stock a relatively low P/E. Price to book is around 1.08 and price to sales is .32. The forward five year estimated P.E.G. ratio is .82. MEA Key Statistics

Metalico is involved in scrap metal recycling and lead fabricating. Its operating facilities include 20 scrap metal recycling facilities, six platinum and minor recycling facilities, and four lead product manufacturing and fabricating plants.

Link to 2010 Annual Report: Form 10-K

For the Q/E 6/2011, the company reported a net income of $6.645 million or 14 cents per share, up from 10 cents in the second quarter of 2010. Form 10-Q  I am not really comfortable with the debt or the features of a convertible notes that have a 7% coupon and are putable back to the company. (see page 10)

This is a link to MEA's website that contains more information about the company:  Metalico

Profile at Reuters
Key Developments at Reuters

Lottery Ticket Strategy: New Gateway Post

5. SOLD 50 of 100 FNLC at $14.25 Last Monday (Regional Bank Stocks Basket Strategy)(see Disclaimer):  In the regional bank stock strategy, I will sell higher cost lots for a profit when I averaged down with a lower cost lot. I recently bought 50 shares of FNLC at $12.79. I sold the first 50 share lot on Monday, using FIFO accounting, and those shares were bought at a higher price. Bought 50 FNLC at 13.6 This kind of trade lowers my average cost while booking a profit.

6. SOLD 200 of the Leveraged Municipal Bond CEF MUE at $13.54 Last Monday (see Disclaimer): I am in a trading mode for leveraged bonds funds that own longer term bonds. I have several concerns about those funds that causes me to move in and out of them now.

First, the long term bull market in bonds started in 1982 and has already had an unusually long life for a long term secular bull market in any asset class. The worm will turn, and the only question is when. I know that it hard to believe, but there is such a phenomenon has a long term bear market in bonds. When one of those start, longer term bonds will decline in value, resembling on the downside what bond investors have grown use to for almost 40 years now. The most likely causes would be greater than expected rates of inflation and longer term structural problems with the major currencies of most developed nations including the U.S. and most of Europe which causes many investors to sell bonds denominated in those currencies. Inflation is already running a troublesome rates.

Second, the other major potential problem is that leverage works both ways. As rates rise, the fund is required to pay more for borrowed funds and the value of the long term bonds bought with those borrowed funds go down in value. A related issue is that the discount to net asset value may expand in that scenario, resulting in a triple whammy for the owners of a leveraged long term bond CEF that has a long duration.

I bought those 200 shares in September. Bought Municipal Bond CEFs: 200 NMO at 13.03, 200 MUE at $12.89 and 100 BAF at $13.89 (realized gain on 200 shares= $114.04).

Tuesday, October 25, 2011

First Niagara Downgrade/BOUGHT 50 BDGE AT $18/Bought 50 AVY at 25.71/Sold 101+ BRKL at $8.23/Junk Bond Ladder Table/GE

I noticed that Raymond James downgraded yesterday First Niagara from a strong buy to neutral based on the same concerns that I discussed in yesterday's post. Item # 2 FNFG While this bank is being negatively impacted by the Fed's Jihad, and the concomitant pressure on bank net interest margins, the main problem is the CEO's decision to buy branches from HSBC, in a geographic area where FNFG already has a number of branches, for close to 1 billion dollars. This will require a large capital raise primarily by the issuance of stock. I would agree with the RJ analyst's downgrade over the near term. I view the acquisition of the HSBC branches to be a mistake. Why would a bank add more branches in Buffalo? Prior to that pending acquisition, FNFG already had a #3 market share in the Buffalo region.  The Buffalo News (16 HSBC branches in Buffalo, 3 Niagara Falls, 19 Rochester, etc: HSBC  Branch Locations - NY)

Possibly, over the long term, the acquisition will have some minor positive impact, but the near and intermediate term negatives outweigh those potential longer term positives in my opinion. Nonetheless, FNFG has a number of positive attributes that make this bank a long term worthwhile hold in my Regional Bank Basket Strategy.  REGIONAL BANK BASKET STRATEGY GATEWAY POST An imperial CEO is not one of those attributes. Those favorable attributes include the very low Texas Ratio, the excellent loan loss record as shown by the low NPLs to total loan ratio, the high dividend yield, and the growing geographic footprint in New England.

The Obama administration is going to make it easier for underwater homeowners to refinance their mortgages under the Home Affordable Refinance Program. WSJ Reuters Fox Business This was done by scrapping the requirement that the existing mortgage balance had to be below 125% of the current appraised value. Appraisals would no longer be required to even qualify for the new loan. It would only be necessary that the mortgage loan was sold to Fannie or Freddie before June 2009 and that the borrower was current under the existing mortgage (though allowing for one late payment over the prior 12 months but not in the last six). This appears to be a last ditch effort by the Obama administration to jump start housing prices before the next election.

There are certain moral issues involved with Obama's plan that are discussed in this editorial found at the CSMonitor.com. Many of the borrowers, who will now qualify for low interest rate loans, lied about their incomes in order to receive their existing mortgage. To qualify for the new loan, there would be no inquiry to determine whether the borrower committed fraud in connection with the existing mortgage.

Easy credit from financial institutions and mortgage fraud by borrowers were precipitating causes of the bubble in housing prices and their subsequent and inevitable decline. Mortgage fraud was almost completely ignored by law enforcement. Instead of punishing the wrongdoers, the federal and state governments have made numerous attempts to reward that behavior. The states make it difficult for the lender to foreclose, allowing the admittedly delinquent borrower to remain in the home rent free for months or even years. The federal government wants to relieve the borrower of the consequences of their mistake with taxpayer funds. That will be the inevitable result of this latest action to fix the housing debacle.

Another inevitable result will be that many borrowers will be rewarded by the government for submitting false statements about their income in order to qualify for their existing loan.  And honest citizens will be on the hook for even more, as underwater borrowers renege on those refinanced loans and thereby increase the losses to Fannie and Freddie that have already turned into $130+ billion black holes.

It is one thing to pay for another's mistakes and quite another to pay for the consequences of another's fraud and/or greed.

The refinancing of higher rate mortgages with lower ones will have some deleterious impact on those mortgage REITs who buy GSE mortgage securities. Those funds will lose some of their higher yielding securities, thus narrowing the spread between their cost of funds and the yield on their securities portfolio.  

1. Added 50 Bridge Bancorp (BDGE) Last Friday (own: Regional Bank Stocks Basket Strategy)(see Disclaimer): I averaged down by buying 50 shares of BDGE at $18 after reviewing this small bank's last earnings report.

Bridge reported net income for the third quarter of 2.8 million or 42 cents, up 20% from the third quarter of 2010. The estimate, made by just one analyst was for 38 cents. As of 9/30/11, NPLS tot total loans was 1.02%; the allowance for loan losses as a percentage of NPLs was 126.35%; the total capital ratio was 13.7%; the Tier 1 capital ratio was 12.4%; and the net interest margin was 4.04%.

Bridge Bancorp closed at $18.37 yesterday, up fifty cents per share.

2. Junk Bond Ladder Table (Junk Bond Ladder Strategy):  The Old Geezer had to avert his gaze from this table, knowing that this picture had to be part of a horror movie, almost as terrifying as the  Attack of the 50 Foot Woman (1958), where a woman grows to 50 feet after an alien encounter and goes after her cheating husband.

Junk Bond Ladder Strategy: Table as of 10/21/2011
                                         
3. General Electric (owned): General Electric reported a 11% increase in operating earnings for the third quarter last Friday morning. The adjusted E.P.S. was 31 cents, in line with estimates.Third quarter revenues were  $35.4 billion, up 12% excluding the impact of NBCU divestiture. International sales rose 25%. However, revenues in GE's energy infrastructure business fell 9%. GE Capital continued its turnaround, earning $1.5 billion during the quarter.   Margins declined in the big four industrial businesses. And, the earnings were aided by lower tax rates. The market did not care much for the results and took the shares down 1.92% in trading last Friday. The lackluster results from GE need to be contrasted with the report from Honeywell that sent its shares up 5.82% on Friday. 

Barrons' columnist attempts to make the case for buying GE on valuation grounds.

4. Bought 50 AVY at $25.71 Last Friday (see Disclaimer): I have traded this security on several occasions. However, my last round trip was over two years ago, starting with a 50 shares purchase at a total cost of $20.66 per share. I sold those shares at $29.97 in July 2009 after the company cut its quarterly dividend from 41 cents to 20 cents:
2009 Taxable Account AVY 50 Shares Realized Gain +$457.46
Thereafter, AVY continued to rise and traded at over $40 per share earlier this year. AVY Interactive Chart The most recent decline back to the mid 20s was apparently triggered by an earnings warning in mid-July 2011. SEC Filed Press Release The company lowered its forecast for the second quarter and 2011. The reason had to do with a sudden decline in orders from apparel makers and consumer goods companies for tags and labels.

Avery has a leading market share in pressure sensitive materials and a variety of tickets, tags, labels and other converted products. 2010 AVY SEC Filed Annual Report

The second quarter earnings report was downbeat. Presentation dated July 26, 2011 AVY reported an E.P.S. of 69 cents, down from 78 cents in the 2010 second quarter. Revenues declined 2% before the benefit of currency translation.

The current forecast for 2011 at that time was $2.45 to $2.75 per share on an adjusted basis. The current consensus estimate is for $2.52 in 2011 and $2.95 in 2012. At a total cost of $25.71, the P/E on that forward estimate is around 9.35. The dividend yield is about 3.89% at the current $1 per share annual rate: Press Release

Morningstar currently rates this stock five stars. S & P is more subdued with a current rating of 3. I would go with Morningstar on a valuation basis and with S & P when focusing on near term earnings.

Avery Denison website: Avery Dennison Corporation Some basic financial information can be found at Avery Dennison Fundamentals Snapshot.

I would classify AVY as a cyclical company, but not as cyclical as a steel or copper firm.

Avery Dennison closed Monday at $27.24 up 84 cents for the day.

5. Sold 101+ BRKL at $8.23 (see Disclaimer):  This bank postponed the release of its earning report to give it more time to look at "certain booked entries that were made to correct differences between the Company's underlying loan systems and the general ledger". www.sec.gov I did not see any reason to stay around for the end result of that analysis.  I took a small loss on this transaction. I may buy the shares back when and if the company gives itself a clean bill of health. 

Monday, October 24, 2011

NYB FNFG AF FNB TRST FNLC OCFC: Regional Bank Earnings/MSFT/Sold OCFC at $12.45/Quicksilver Resources/Added 30 HBAN as LT at $4.8/Bought 50 FNFG at $8.88

Microsoft (owned) reported okay results last Thursday. For its first fiscal quarter, MSFT reported net income of 5.74 billion or $.68 per share on $17.37 billion in revenues, a 7% increase. SEC Filed Press Release dated October 20, 2011 Cash and short term investments rose to $57.403 billion as of 9/30/11, up from $52.772 billion at the end of the prior quarter.  MSFT did recently raise its quarterly dividend to 20 cents per share from 16 cents. Microsoft shares initially had a slight negative reaction to this report on Friday before nudging up 12 cents last Friday to close at $27.16.

Tiernan Ray noted in his Barrons' column that Rick Sherlund is recommending Microsoft. Sherlund, who used to be the axe on MSFT when he was an analyst at Goldman Sachs, believes that the launch of Windows 8 next year will be a catalyst for driving the stock higher. He noted that laptops are becoming lighter, and there is not much difference in weight between a new Samsung laptop and the IPAD. And the laptop has a keyboard. Windows 8 is supposed to have touch screen features and will be capable of running Office. With the laptop having a bigger touch screen, more features, a built in keyboard and a similar weight than the tablet, the question is why would the IPad  continue to eat into the laptop's market share?

Merrill Lynch is predicting that another rating agency will downgrade U.S. debt before year end.

In this post, I am going to discuss a number of regional bank earnings reports. These reports generally show a negative impact from the Fed's Jihad against the Saving Class, as the banks suffer a contraction in their net interest margins.  Operation Twist is expected to have a negative impact due to a flattening of the yield curve. These issues will have a disproportionate impact on thrifts who depend on mortgage lending.

The banks will suffer a double whammy on their mortgage portfolios, as their higher yielding mortgages are refinanced and the spread on new mortgage loans looks more unattractive due to the Fed's current monetary policy.  When one focuses on the current inflation data, running at an annual rate of 3.9%  based on the government's last CPI report, it would not appear wise to generate and hold long term mortgages yielding 4% to 4.25%.

Quicksilver's 2016 senior bond (own) surged almost 10 points last week after the company announced that it will form a MLP to hold some of its Barnett Shale assets, take the MLP public to raise more than $400 million an then use the proceeds to retire debt.  SEC Filed Press Release

As noted by Paul Krugman in his NYT column, a central part of the GOP's job plan is to permit more pollution.  Colbert reached the same conclusion. While this stance will win enthusiastic applause from the TBs, it is not likely to curry much favor with the independents.

Herman Cain, the current GOP front runner for President, says that the unemployed are responsible for their failure to have a job. The audience at a recent GOP debate applauded him for taking that stand. Colbert Report  Video Clip I suppose those middle aged unemployed persons can go to work delivering pizzas or flipping burgers. His 9-9-9 tax plan is designed to widen the gulf between the top 1% and the bottom 80%. That plan, which includes a 9% national sales tax, is probably the most regressive tax plan offered by any candidate for President, apparently based on the belief that the middle class and the poor need to be impoverished for the greater good of the Job Creators.  Tax Policy Center (see also republican Bruce Bartlett's commentary)

In a NYT article discussing the foibles of Eastman Kodak, an interesting historical tidbit is mentioned. Kodak's CEO, Kay Whitmore, who was later fired in 1993 NYT, actually fell asleep during a meeting with Bill Gates. Mr. Whitmore was a chemical engineer who had worked his way up in the film business at Kodak.

1. New York Community Bancorp (NYB)(own: Regional Bank Stocks Basket Strategy): New York Community Bancorp reported third quarter GAAP net income of $119.8 million or 27 cents per share. Non-GAAP cash E.P.S. was reported at 30 cents per share.  The Board declared the regular quarterly dividend of 25 cents per share. As of 9/30/11, NPLs to total loans stood at 1.44% (non-covered); NPAs ratio to total assets was 1.24% (non-covered); the cash efficiency ratio was 40.33%; the cash efficiency ratio was 41.65; the net interest margin decreased to 3.33% from 3.5% as of 6/30/11; the allowance for losses on non-covered loans to total non-covered NPLs was just 33.44%; and tangible book value was $7.04 per share. 

New York Community Bancorp closed at $12.41 last Friday, up 22 cents.

2. Added 50 First Niagara (FNFG) at $8.88 (Regional Bank Stocks Basket Strategy)(see disclaimer): FNFG is my largest position in this basket. First Niagara reported third quarter non-GAAP earnings of 73.6 million or 25 cents per share, one cent below the consensus estimate. As of 9/30/11, the net interest margin was 3.48%; the efficiency ratio was 67.04%; the Texas Ratio was 10.19%; NPLs to total loans was at .5%; NPAs to total assets was at .29%; the allowance for NPLs to NPLS stood at 137.7%; and the tier 1 total risk-based capital ratio was 12.15%.

During the conference call, FNFG raised the Durbin Amendment's negative impact for the 4th quarter to $3.5 million from $1.5 million Earnings Call Transcript

A negative factor for stockholders in my opinion is this bank's acquisition of 195 branches from HSBC for about $1 billion dollars which has not yet received clearance from the government. Bloomberg Based on the question and answer session during the earnings call, analysts appear to be concerned about the amount of stock that will have to be sold to finance this acquisition. While FNFG's plan to finance this acquisition will change with market circumstances, the Bloomberg story mentioned that the bank planned to issue $750 to $800 million in stock.  FNFG's management believes that this acquisition is a "strategic home run" (Transcript - Seeking Alpha). Based on his comments, he does not want to assign the blame for the recent weakness in the shares to his decision to acquire those branches. Instead, based on the comments made by the CEO, John Koelmel, during the conference call, he apparently believes that the Fed's Jihad and Operation Twist are to blame. I would instead assign about 60% to 70% of the recent share price weakness to the need for a large share issuance to finance the acquisition of those HSBC branches. Listening to that executive, I did not come away with the impression that disagreeing with him could be hazardous to one's job prospects at that bank.

Long term, I believe that FNFG will be a winner, but I may have to hold my 350 shares for a few years to realize a decent gain in them. The dividend yield at a total cost of $8.88 is over 7%.

First Niagara closed last Friday at $8.91, down 18 cent on a strong day for other banks and the market. Barclays maintained an overweight with a $15 price target but lower earnings estimates for the 4th quarter and 2012 due to net interest margin contraction.

3. F.N.B. (FNB)(own: Regional Bank Stocks Basket Strategy): F.N.B. reported net income of $23.8 million for the 3rd quarter or 19 cents per share, up from 15 cents in the year ago quarter. The consensus estimate was for 18 cents. As of 9/30/11, the total risk-based capital ratio was estimated to be 13.3%; the net interest margin was 3.79%; the efficiency ratio was at 59.01%; NPLs to total loans was at 1.85%; NPAs to total assets was 1.67%; and the allowance for loan losses as a percentage of NPLs was at 86.75%.  

4. Astoria (AF)(own: Regional Bank Stocks Basket Strategy): Astoria produced another disappointing report, easily the worst one for banks included in this strategy. AF reported net income o $11.2 million or 12 cents per share. The consensus estimate was for 19 cents. The bank blamed the flattening yield curve and mortgage prepayment activity. Fortunately, I sold out of AF at over $14 and only recently bought back 50 of the 150 previously sold at $8.9. As of 9/30/11, NPLs tot total loans stood at 2.44%; the net interest margin was a paltry 2.27%; the Non-GAAP efficiency ratio was 66.03%; the tier one risk-based capital ratio was 14.89%; and tangible book value was $11.45 per share (much higher than the current price).

I do not expect much positive price action in my 50 shares of AF over the near or intermediate term, but see some benefit to holding it for several years and reinvesting the dividends to buy additional shares. The bank has good capital ratios and a large number of branches in Long Island. Astoria Federal Savings Branches  I may round the lot up to 100 shares somewhere south of $7 per share.  I suspect that institutional investors are disgusted with this bank and have been dumping the shares since this last report.  Astoria declined again last Friday to close at $7.74 on close to twice the average 3 month volume.     

5. TrustCo (TRST)(own: Regional Bank Stocks Basket Strategy):  TrustCo reported third quarter net income of $9.2, up 10.4% over the 3rd quarter of 2010. As of 9/30/11, the net interest margin was 3.38%, down from 3.47% at the end of the second quarter; NPLs to total loans stood at 1.89%; NPAs ratio to total assets was 1.27%; the coverage ratio was at 1; the efficiency ratio was 55.71; and the tangible common equity to tangible assets ratio was 8.04.  The E.P.S. number was 10 cents, one cent better than the consensus estimate and flat with the year ago quarter, due to an issuance of shares that was unnecessary in my view for the reasons discussed in Item # 1 TRST. The company sold 15.640 million shares at $4.6 back in July.  The bank ended the quarter with 135 full service branches. Trustco Bank | Your Home Town Bank I am reinvesting my dividends to buy additional shares, and will vote against the Board for authorizing the issuance of those shares at $4.6 for as long as I own the shares.

6. First Bancorp (FNLC)(own: Regional Bank Stocks Basket Strategy): The First Bancorp reported third quarter net income of $3 million or 27 cents per share, down 2 cents from the year ago quarter. This bank recently redeemed the government's preferred stock but the government's warrants remain outstanding. As of 9/30/11, NPLs to total loans stood at 2.42%; NPAs to total assets were 1.91%; the efficiency ratio was 49.3%; the net interest margin was at 3.29%; and the capital ratios were in excess of the levels for well capitalized banks. I do not believe that there are any analysts providing earnings estimates for this small bank based in Maine.

7. Sold 50 OceanFirst Financial at $12.45 (OCFC)(Regional Bank Stocks Basket Strategy)(see Disclaimer): OceanFirst Financial reported net income of $5.1 million or 28 cents for the third quarter, down from 29 cents in the year ago quarter. The consensus estimate was for 28 cents. As of 9/30/11, the tangible equity ratio was 9.46%; the efficiency ratio was 57.58; the net interest margin declined to 3.55% from 3.75% as of 9/30/10; the allowance for loan losses as percentage of NPLs was 47.33; and NPLs to total loans rose to 3% from 2.23% in the prior quarter.

I was sufficiently unimpressed with this report that I elected to sell my 50 shares at $12.45. Bought 50 OCFC at 10.4

Realized Gains Regional Banks

Snapshots: REGIONAL BANK BASKET STRATEGY GATEWAY POST

8. Added 30 HBAN as LT at $4.88 last Thursday (LOTTERY TICKET strategy)(see Disclaimer): This brings me up to 60 shares of HBAN. I was allowed to exceed the $300 limit due to prior realized gains. (see snapshots at   Lottery Ticket Strategy: New Gateway Post Bought 50 Huntington Bank at $4.27 Added 40 shares of HBAN at $3.69 Sold 90 HBAN at $5.83).

This last 30 share purchase was an average down:  Bought 30 HBAN @ 7.25 as LT (February 2011 Post).

HBAN shares fell 6.87% on the day of my purchase, closing at $4.88, after the bank reported earnings for the third quarter that missed expectations by once cent according to one service and met the consensus estimate according to  Reuters. TheStreet Whatever, I believe that the decline was the wrong reaction. Considering the deep hole that prior management dug at Huntington, the recent earnings results represent a good start toward recovery in my opinion.

For the third quarter, Huntington reported net income of $143.4 million or 16 cents per share, up from 10 cents per share in the year ago quarter. SEC Filed Press Release The net interest margin did decline slightly to 3.34%. The regulatory capital ratios were good. The Tier 1 and total capital ratios were 12.37% and 15.11%, up from 12.14% and 14.89%, respectively, as of 6/30/11. As of 9/30/11, the efficiency ratio was at 63.6%, the total allowance for credit losses as a percentage of nonaccrual loans and leases was 187%; the tangible common equity to tangible asset ratio was at 8.22%; NPAs to total assets was 1.57%; non-accrual loans and leases to total loans and leases was at 1.45%.  Exhibit 99.3 to SEC Filed Press Release. Huntington is headquartered in Ohio and has 600 branches across six states. Huntington - Corporate Profile The new CEO, who took the helm in January 2009, is featured in this article at U.S. Banker:  www.huntington.com/pdf

The current consensus estimate is for earnings of 62 cents per share this year and 63 cents next year.  For the stock to significantly improve over its current level, the bank will need to show more earnings growth in 2012 than currently forecasted by this consensus estimate.

If I continue to see improvement at HBAN, I will take it out of the LT strategy and put it in the Regional Bank Basket Strategy where I can commit more funds.

Huntington Bancshares closed at $4.9 last Friday. Oppenheimer downgraded the stock to neutral from outperform last Friday. 

Friday, October 21, 2011

Intel/RNST/SVU/Bought 40 XRX at 7.55 as LT/Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89/Sold 50 of 100 JBI at $26.25

SUPERVALU (own senior bonds) reported a 28 E.P.S. for its fiscal second quarter, beating the consensus estimate of 20 cents. Revenues were reported at $8.7 billion, higher than the consensus forecast of $8.36 billion.  The company estimated FY 2012 earnings per share within a range of $1.2 to $1.3.  1 SuperValu 7.5% Senior Bond Maturing 11/15/2014 1 SuperValu 8% Senior Bond Maturing 5/1/2016 1 Senior 8.7% Albertsons' Bond Maturing 5/1/2030

A new movie about the Masters of Disaster, called "Margin Call", has received a very favorable review in the NYT.

Why would any state require an employer to pay unemployment benefits to an employee who voluntarily quit their job? NYT

After several months of declines, the Philly FED manufacturing index rose into expansion territory in October, with the index rising to 8.7 from -17.5 in September. Manufacturers See an Increase in Activity (October 20, 2011) - Philadelphia Fed

U.S. money market funds continue to substantially reduce their exposure to European banks. WSJ


1. Intel (own): Intel reported Non-GAAP income of 3.7 billion for the 3rd quarter or 69 cents per share.  The consensus estimate was for 61 cents per share.  The GAAP E.P.S. was 65 cents. Revenues rose 29% year-over-year. Gross margin fell 1.7% to 64.4% on a non-GAAP basis year-over-year. PC client group revenue increased 22% compared to the year ago quarter. PC microprocessor revenue was up 15.1%.

Given the recent price rise in Intel shares, I have elected to quit reinvesting the dividend.

INTEL UNREALIZED GAIN AS OF 10/20/11
Intel fell 63 cents in trading yesterday to close at $23.61, losing most of the prior days gains generated by the much better than expected third quarter earnings report.  INTC Historical Prices There appears to be a brick wall in the $24 to $25 share area that may prove difficult to break through.  Still, I am likely to hold until the price moves into the $27 to $30 range. 

2. Renasant (own: Regional Bank Stocks' basket strategy): Renansant (RNST) reported net income of $6.532 million or 26 cents per shares for the third quarter.  Press Release The consensus estimate was for 25 cents per share. The net interest margin increased to 3.92% from 3.76% as of 6/30/11 and 3.55% at the end of the first quarter. As of 9/30/11, the efficiency ratio was 70.64% (much prefer a number under 60%); NPLs to total loans was at 2.22%; the allowance for loan losses to NPLs was at 98.97%; the total risk-based capital ratio was at 14.89%; the Tier 1 risk-based capital ratio was at 13.63%; and the tangible capital ratio was at 7.47%. I own 150 shares plus reinvested dividends. 

3. BOUGHT 40 XRX at $7.55-Lottery Ticket (LOTTERY TICKET strategy)(see Disclaimer): As with many Lottery Ticket purchases, the decision to buy XRX was based primarily on several of the usual statistical points.  According to YF, the price to sales ratio is currently .47 and the price to book ratio is .81. The P/E based on estimated 2012 earnings is 6.3. The estimated 5 year P.E.G. is .33. XRX Key Statistics

There was an argument among staff here at HQ whether XRX was even appropriate as a LT selection, since the company was of a higher caliber than the companies typically found in this category. While the matter was subject to some dispute, it was resolved by LB, acting Head Trader, when it claimed to associate the names of Eastman Kodak and Xerox together.  RB claimed that was entirely unfair to Xerox. RB wanted to make it clear that it wanted to buy ten million shares rather than the 40 shares actually bought by the Lame Brain "Stock Stud" . LB was going to point out that such a purchase would require funds greatly in excess of Headknocker's capital base, but why argue with a Nitwit. Besides, LB knows what the RB is about to say. "That is not the RB's problem, if RB has been in charge of the trading desk for the last 40 years, 70 or 80 million dollars would be pocket change".

Xerox closed its acquisition of Affiliated Computer Systems (ACS) in February 2010.

Xerox reported second quarter earnings of 22 cents per share on a GAAP basis and 27 cents adjusted.  SEC Filed  second quarter 2011 earnings press release Second quarter revenue increased only 2% and was down 1% on a constant currency basis. XRX generated $347 million in operating cash flow during the second quarter. XRX raised its full year guidance to between $1.07 to $1.12 on an adjusted basis. That report was released on July 22nd.  The stock closed at $10.02 that day. XRX Historical Prices Analysts were expecting 24 cents on an adjusted basis.  Xerox 

Xerox is currently paying a quarterly dividend of $.0425 per share or $.17 annually.

Xerox closed at $7.57 in trading yesterday. The 52 week high was $12.08. As with all LT selections, the chart looks horrible. XRX Stock Chart 

I reviewed the S & P report, dated 10/14/11, that rated XRX as five stars with a 12 month $10 price target.

Morningstar also has a five star rating


4. Bought 1 Boyd Gaming 9.125% Senior Unsecured Bond Maturing on 12/1/2018 at $89 Last Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): BYD is a publicly traded owner and operator of casinos. The stock is owned as a Lottery Ticket based on statistical criteria such as the P/S and P/B ratios. BYD Key Statistics 

This is a link to Boyd's website:  BoydGaming.com A map of its casinos can be found at Boyd Gaming Corporation Destinations.


FINRA Information on this bond: FINRA  According to FINRA, the bond is currently rated at "B".

Prospectus for this bond: Prospectus

BYD 10Q 6.30.11 (DEBT DISCUSSED IN NOTE 8, STARTING AT PAGE 32).

I am assigning a 5 risk rating to this bond. Personal Risk Ratings For Junk Bonds  That is one notch lower than the senior subordinated bond issued by Boyd maturing in 2016 which is also owned as part of this strategy. 

My confirmation states that the current yield at my cost is 10.161% and my YTM is 11.241%.

5. Sold 1/2 of the Trust Certificate JBI at $26.25 Last Tuesday (see Disclaimer): I sold the 50 shares held in a taxable account that were bought at a premium to par value. I am going to wait for a price correction of at least 10% and then buy back this 50 share lot in a retirement account. I currently own 50 shares in the ROTH IRA with a total cost basis of slightly less than par value. Bought 50 JBI at 24.81 (May 2010 Post) 

I have been selling this TC when its price exceeded $26. Par value is $25 and there is a call warrant attached to this TC.  Sold 100 JBI at 26.5 I first discussed it in an October 2008 post when it was selling at $16. I first sold out of the position when the shares reached par value in January 2009.  SOLD 100 JBI AT PAR VALUE 

JBI fell 28 cents in trading yesterday to close at $25.97.