Tuesday, April 24, 2012

GE NPBC/Added 50 MTOR at $6.55/Romney Blames Obama For Events Occurring During the Bush Presidency

Romney claims that Obama's EPA is interfering with "personal freedoms". In that context, the GOP generally means the freedom to pollute. As proof of his contention, Romney cites an EPA action taken, not during Obama's administration, but during the administration of George Jr. FactCheck.org The EPA action was affirmed by a federal district court judge who was appointed by Daddy Bush. All of those actions were taken before Obama became President. The Supreme Court did overturn the EPA's action during the Obama Presidency. I would certainly agree with the 9-0 Supreme Court's decision overturning the EPA's action in this matter. (supremecourt.pdf). But that does not excuse Mitt misleading the public with his claim. Misleading and false assertions by this politician are the norm for him.

A similar misleading claim was made last week by Romney when he attempted to blame Obama economic policies for the closing of a drywall factory in Ohio. The factory closed during George Junior's administration. NYT  CNN

A few months ago, I did an analysis of job creation during Bush Junior's presidency using labor department data. The jobs record under that President was without question the worst in modern American history (starting with Truman). While Bush started his first term during a recession, he was preparing to leave office when the economy first started to shed jobs in a major way.

Whoever became President in 2009, it would have been an unavoidable jobs debacle. I did an analysis, where I did not credit Bush with the jobs losses in the first year of his presidency, but did credit him with the losses in 2009. The net result was a net job loss of 184,000 over an eight year period. That analysis is done with the Labor Department's data. Bush Tax Cuts and Jobs During the much maligned 4 year administration of Jimmy Carter, whose job performance is ridiculed by all GOP tribe members and even by most Democrats who admit to voting for him, 10.5 million jobs were created.  Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ

Job Gains/Losses 2001 to Date
Bureau of Labor Statistics Data The historical data goes back to 1939.

But I would like to address the broader issue raised by Romney and that Ohio drywall factory. Throughout my life, the home construction business has gone through boom and bust cycles. This would include both the homebuilders and their suppliers. The last boom cycle lasted for an abnormally long time, roughly from 1992 to 2007 in most areas. The cycle was prolonged several years by the improvident extension of credit resulting in an unsustainable rise in housing prices. Needless to say, the bubble burst before the Beanpole became President, though I am sure now that many have forgotten the year of his inauguration.

My father was a homebuilder and a successful one. I never heard him blame anyone in Washington for the boom and bust cycles occurring prior to his retirement in 1987. For him, the only important factual question about those cycles, viewed as inevitable, was whether a bust was coming or had already started, in which case he needed to scale back in order "to live and fight another day".

However, the federal government and both political parties share part of the blame for the last housing bust. Those acts include the 2004 SEC Rule Change, approved by representatives from both political parties,  that allowed investment banks to vastly increase their leverage to equity ratios. Another important failure involved inaction, the total inability to adopt any meaningful regulations that would have curtailed abuses in mortgage originations. If you had a pulse, you could get a mortgage loan and that easy credit drove home prices to levels that could not be justified based on real incomes. msnbc.comTop Twelve Causes of the Not So Great Depression (March 2009 Post).

{If LB had absolute power in the U.S., it could have adopted a few regulations that would have prevented the housing meltdown, but neither political party would agree with those modest proposals even now. Some of those include the following: (1) a minimum down payment of 5% so that the borrower has skin in the game; (2) no mortgages can be given when the total payments exceed 32% (possibly 33%)  of the borrower's provable personal income unless the mortgage originator keeps the mortgage (3) interest only loans would be prohibited and (4) the Supreme Law prevailing throughout the U.S. would be that a lender could collect a deficiency judgment from a defaulting borrower in order to prevent strategic defaults. You sign a note, then you have to pay from all assets and earnings short of having the obligation discharged in bankruptcy. That would at least give some borrowers second thoughts about over-extending themselves. Item # 2 Delays in Foreclosure Encouraging Defaults

The criminal trial of Feeling Pretty John Edwards, a former Democrat VP candidate and U.S. Senator, began yesterday. CNN

During an election cycle, I will keep a remote control nearby whenever I watch television. I will immediately change the channel whenever a station starts to air a political ad, irrespective of who is sponsoring the ad. As a general rule, political ads are frequently misleading and event fraudulent in their claims. It is best to ignore them altogether, particularly those originating from Super PACs, funded by secret donors, with names like "Endorse Liberty", "Restore Our Future" or "FreedomWorks for America". Super PACs | OpenSecrets

Spain is officially in recession with two consecutive quarters of negative GDP numbers. 

Berkshire Hills Bancorp (own) completed its acquisition of the Connecticut Bank and Trust Company. CBT had 8 branches in the Greater Hartford area.  

1. General Electric (own 500+ shares): GE beat both on the top and bottom lines for the first quarter. The company reported net income of $3.03 billion, or 29 cents per share, on revenues of 35.2 billion, higher than the consensus forecast of $34.7 billion.  Adjusting for one time items, the E.P.S. number was 34 cents, beating the consensus estimate by 1 cent. Organic growth in its industrial segment rose 11% in the quarter (see page 9). GE Capital earned $1.8 billion. Infrastructure orders were at a record high in the first quarter, up 20% from the prior year. SEC Filed Press Release 

I am reinvesting the dividend to buy additional shares and will likely continue doing so until the price exceeds $25 per share.

GE shares sank 29 cents yesterday to close at $19.07. 

2. National Penn Bancshares (own TP and common as LT): NPBC reported adjusted net income of $24.2 million or 16 cents per share, beating the consensus by 1 cent. SEC Filed Press Release  For the 1st quarter, return on average assets was 1.16%, and the net interest margin increased to 3.55% from 3.49% in the prior quarter.

As of 3/31/2012, the efficiency ratio was 57.47%; the total capital ratio was at 18.72%; the Tier 1 leverage ratio was 12.52%; and the allowance for loan losses to NPAs and loans 90+ days past due was at 160.7%; and delinquent loans to total loans +leases was at .46%.

Although I have pared the TP, I still own 50 shares of NPB Capital Trust II 7.85% Cum. Trust Pfd. in the ROTH IRA.

3. Bought 50 MTOR at $6.55 (see Disclaimer): Meritor was downgraded last Friday to Market Perform by Avondale Partners, and the price target was slashed to $8 from $15. I do not have access to that research report. I do have access to my instructions to average down on my position when and if the stock fell below $6.8. The Avondale downgrade caused a downdraft in MTOR stock which triggered a 50 share average down at $6.55. 

I recently acquired the other 50 shares at $7.62. While I am frequently criticized for buying small lots, I would note that 50 shares buy at $6.55 and $7.62 is better than a 100 or 200 share buy at $7.62.  

Meritor recently affirmed its guidance for fiscal year 2012.  SEC Filed Press Release That guidance was for adjusted earnings per share of $1.08 to $1.39. 

Some data from the Key Statistics Page at YF Based on a $6.5 Price and MTOR Data as of 12/31/11:

Forward P/E: 3.96
Price to Sales: .11
Price to Book: .13 

Profile page at Reuters

The five year chart is ugly. I would call it a fairly typical chart pattern for a company with a lot of issues, but with some potential, a roller coaster ride, which is fine provided the next move is up: MTOR Interactive Chart

A positive article on MTOR, focusing on its valuation, can be found at Seeking Alpha.

MTOR shares decline 17 cents in trading yesterday to close at $6.31. 

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