The jobs report released last Friday is consistent with other data pointing to another slowdown in the U.S. economy. I would not be surprised to see a negative GDP number before the end of 2012.
The Labor Department reported that the U.S. economy added only 69,000 jobs in May. Importantly, the job numbers for March and April were revised down. The April increase was revised to 77,000 from 115,000. Employment Situation Summary The U-6 number increased to 14.8% from 14.5%. Table A-15. Alternative measures of labor underutilization The average work week declined by .1 hour. The manufacturing workweek declined by .3 hour. The long term unemployed, those without work for over 6 months, grew to 5.4 million from 5.1 million.
With yields on the ten year treasury already at record lows, another round of quantitative easing would not provide any solutions to what ails the U.S. economy. The U.S. slowdown confirms to me that the Fed has no power to alter what is already underway. The jobs data does make it more likely that the FED will actually continue its Jihad Against the Savings Class until 2015.
Keeping short term rates near zero does have deleterious effects on demand by depriving the Saving Class of income. The Real Cost of The Federal Reserve's Jihad against the Saver Class What Are the Reasons for a Continuation of the Fed's Jihad Against the Saver Class
I mentioned in a post from last December that the robust stock market rally was based on "hopium". Robust Market Rally Based on Hopium Another discussion in that same post involves the "velocity of money" which has continued to trend way down, Velocity of M2 Money Stock (M2V). There has been, for many time periods, a positive correlation between the velocity of money and the stock market. Creating more money is not going to help the economy when money fails to circulate and is being hoarded in non-productive assets like treasury bills and notes yielding next to nothing.
Most developed countries are in no position financially to engage in more debt financed stimulus programs. For those that may have that capability given investor's appetite for their debt (U.S. and German), there is no political will to do so. With less spending by governments, and a contraction in private demand, a worldwide economic slowdown is underway and is likely to accelerate. That result could be alleviated by aggressive stimulus programs by emerging market nations, particularly China, Brazil and India, and/or by radical actions by the EU to restore confidence.
Europe is most likely headed for a severe recession and may take the rest of the world down with it, unless there is a shock and awe policy action soon. The May manufacturing PMI index for 17 nation EU fell to 45.1 from April's 45.9, marking the 10 consecutive month of readings below 50, the demarcation line between expansion and contraction. This last reading is a three year low. markit Last Friday, Eurostat revised the unemployment number up to 11% for the EU 17 which is the highest unemployment rate since the creation of the EU. That rate equates to about 17.405 million unemployed people. (eurostat.PDF) Spain had a 24.3% unemployment rate.
The German two year note dipped into negative yield territory last week. Germany's ten year bond closed at 1.18%, DE 10Y Govt Bond Benchmark, 10YR_GER Bond
If the closet, hard line communist Alexis Tsipras wins the upcoming election in Greece, and otherwise acquires the authority to form a new government, I would expect Greece to the reject all austerity measures.
Tsipras has vowed to clamp down on rich tax cheats in a nation of tax evaders. Money will fly out of Greece, if and when he gains power.
Tsipras has repeatedly stated that he wants to nationalize Greece's banks and other industries, and even renege on all of the Greek government debt. It is no accident that the hammer and sickle appear at his rallies. {see generally articles in Bloomberg, Reuters and Businessweek;}. He reminds me of Lenin.
The consequences of such actions, the full extent of which can not be foreseen with any precision, could easily cause widespread contagion on nations already in a weakened and vulnerable state including Spain, Italy, Portugal, and Ireland, and possibly even to France through its vulnerable private banks.
The fact that the U.S. 5 and 10 year notes are hitting record lows daily is a clear manifestation that all is not right with the world. The ten year closed at a 1.457% yield. The two year treasury note closed last Friday with a .25% yield.
The VIX rose 10.81% last Friday to close at 26.66, reflecting a typical inverse relationship to the S & P 500 which declined 32.29 points or 2.46%.
Gold had a robust upward move last Friday. I mentioned in an earlier post that a spike in the VIX toward 30 has been correlated with an upward move in gold prices. Stocks, Bonds & Politics: May 17, 2012 Post I suspect that some investors return to gold when there is a major spike in stock volatility, willing to readopt gold temporarily as an alternate currency and a safe haven. I am, however, not confident enough in that past correlation to play it now with a GLD purchase.
Instead, if gold returns accelerates to anywhere close to $2,000, I will use that opportunity to lighten up again on bullion, which is what I did earlier this year and in September 2011. Recent Gold and Silver Sales Those transactions were on 9/6/11 and 9/12/11, when gold was trading near $1,900 and silver was trading in the $40-$42 per ounce range. Past Historical London Fix
S & P gave a tentative rating of "B" to Boyd Gaming's proposed $300 senior note offering. TEXT-S&P The report is noteworthy for the positive comments made about Boyd's proposed acquisition of Peninsula Gaming. I own just one senior bond and the common shares as a Lottery Ticket. Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 I have sold the senior subordinated Boyd bond. Sold 1 Boyd Gaming 7.125% Senior Sub Bond Maturing 2/1/16 at 93.25-Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89
Boyd Gaming was able to increase the offering to $350 in 9% senior notes maturing in 2020.
1. Berkshire Hills Bancorp (own: Regional Bank Basket Strategy): Berkshire Hills Bancorp is acquiring Beacon Federal Bancorp (BFED) in a transaction valued at approximately $132 million. Beacon is headquartered in East Syracuse, NY and has seven full service banking offices.
I was surprised to see that two of those branches are in Tennessee, located in Middle Tennessee (Smyrna and McMinnville: Locations) I would be curious to see whether this bank expands into Middle Tennessee or elects to sell those branches. I viewed the Smyrna branch at Google Maps. Nissan USA Manufacturing is located nearby. Nissan has a large plant employing about 6,000 people in Smyrna, capable of producing 550,000 vehicles per year. Nissan Corporate Nissan North America moved in 2006 its headquarters from California to Franklin, Tennessee, a few miles from HQ. As noted in a New York Times article published in 2005 announcing the move, it costs 44% less to do business in Tennessee compared to California.
Berkshire has an investor presentation on this acquisition, which has a map of its existing branch locations and red squares showing how the 5 northeastern Beacon branches fit into Berkshire's existing territory. Investor Presentation at page 5. In that presentation, Berkshire claims that it is paying a 111% of tangible book value whereas other regional transactions have been valued at 162% (page 8)
Fifty percent of the BFED shares will be exchanged for $20.5 in cash, with the other 50% exchanged for .92 Berkshire (BHLB) shares. Berkshire estimates that this transaction will produce $.22 per share in core earnings accretion during 2013. Prior to that announcement, made after the close last Thursday, Beacon Federal Bancorp shares closed at $13.3, so the owners of those shares will receive a nice premium.
For the 2012 first quarter, Beacon earned 21 cents per share, down from 25 cents in the 2011 first quarter, Form 10-Q. The net interest margin decreased to 2.82% from 3.16% (page 43).
As of 3/31/12, Beacon's total capital ratio was 15.29%; the Tier 1 capital to adjusted total assets ratio (leverage ratio) was 10.57% (well capitalized 5%); NPAs stood at 4.01% (down from 4.44% as of 12/31/11); net-charge offs for the first quarter were 3.03% of average loans; the coverage ratio was 36.17% (prefer over a 100%); and NPLs to total loans stood at 5.07% (regarded as poor). {see also SEC Filed Press Release} I would regard this report to be unsatisfactory, except for the capital ratios.
This proposed acquisition will cause me to place a hold on the purchase of more BHLB shares. Bought 50 BHLB AT $21.66 (March 2012 post).
Berkshire Hills Bancorp declined 4.9% or $1.07 last Friday to close at $20.75.
2. Exide (own 2 senior secured bonds: Junk Bond Ladder Strategy): Exide has been in a legal tussle with Frisco, Texas about Exide's battery recycling plant. That dispute involves Frisco's refusal to grant a zoning permit for the installation of environmental controls designed to comply with new lead emissions standards. Frisco's obvious purpose underlying its actions was to shut down the plant. That dispute was discussed at page 32 of the recently filed Form 10-Q and during the question and answer session of the most recent earnings call.
The Labor Department reported that the U.S. economy added only 69,000 jobs in May. Importantly, the job numbers for March and April were revised down. The April increase was revised to 77,000 from 115,000. Employment Situation Summary The U-6 number increased to 14.8% from 14.5%. Table A-15. Alternative measures of labor underutilization The average work week declined by .1 hour. The manufacturing workweek declined by .3 hour. The long term unemployed, those without work for over 6 months, grew to 5.4 million from 5.1 million.
With yields on the ten year treasury already at record lows, another round of quantitative easing would not provide any solutions to what ails the U.S. economy. The U.S. slowdown confirms to me that the Fed has no power to alter what is already underway. The jobs data does make it more likely that the FED will actually continue its Jihad Against the Savings Class until 2015.
Keeping short term rates near zero does have deleterious effects on demand by depriving the Saving Class of income. The Real Cost of The Federal Reserve's Jihad against the Saver Class What Are the Reasons for a Continuation of the Fed's Jihad Against the Saver Class
I mentioned in a post from last December that the robust stock market rally was based on "hopium". Robust Market Rally Based on Hopium Another discussion in that same post involves the "velocity of money" which has continued to trend way down, Velocity of M2 Money Stock (M2V). There has been, for many time periods, a positive correlation between the velocity of money and the stock market. Creating more money is not going to help the economy when money fails to circulate and is being hoarded in non-productive assets like treasury bills and notes yielding next to nothing.
Most developed countries are in no position financially to engage in more debt financed stimulus programs. For those that may have that capability given investor's appetite for their debt (U.S. and German), there is no political will to do so. With less spending by governments, and a contraction in private demand, a worldwide economic slowdown is underway and is likely to accelerate. That result could be alleviated by aggressive stimulus programs by emerging market nations, particularly China, Brazil and India, and/or by radical actions by the EU to restore confidence.
Europe is most likely headed for a severe recession and may take the rest of the world down with it, unless there is a shock and awe policy action soon. The May manufacturing PMI index for 17 nation EU fell to 45.1 from April's 45.9, marking the 10 consecutive month of readings below 50, the demarcation line between expansion and contraction. This last reading is a three year low. markit Last Friday, Eurostat revised the unemployment number up to 11% for the EU 17 which is the highest unemployment rate since the creation of the EU. That rate equates to about 17.405 million unemployed people. (eurostat.PDF) Spain had a 24.3% unemployment rate.
The German two year note dipped into negative yield territory last week. Germany's ten year bond closed at 1.18%, DE 10Y Govt Bond Benchmark, 10YR_GER Bond
If the closet, hard line communist Alexis Tsipras wins the upcoming election in Greece, and otherwise acquires the authority to form a new government, I would expect Greece to the reject all austerity measures.
Tsipras has vowed to clamp down on rich tax cheats in a nation of tax evaders. Money will fly out of Greece, if and when he gains power.
Tsipras has repeatedly stated that he wants to nationalize Greece's banks and other industries, and even renege on all of the Greek government debt. It is no accident that the hammer and sickle appear at his rallies. {see generally articles in Bloomberg, Reuters and Businessweek;}. He reminds me of Lenin.
The consequences of such actions, the full extent of which can not be foreseen with any precision, could easily cause widespread contagion on nations already in a weakened and vulnerable state including Spain, Italy, Portugal, and Ireland, and possibly even to France through its vulnerable private banks.
The fact that the U.S. 5 and 10 year notes are hitting record lows daily is a clear manifestation that all is not right with the world. The ten year closed at a 1.457% yield. The two year treasury note closed last Friday with a .25% yield.
The VIX rose 10.81% last Friday to close at 26.66, reflecting a typical inverse relationship to the S & P 500 which declined 32.29 points or 2.46%.
Gold had a robust upward move last Friday. I mentioned in an earlier post that a spike in the VIX toward 30 has been correlated with an upward move in gold prices. Stocks, Bonds & Politics: May 17, 2012 Post I suspect that some investors return to gold when there is a major spike in stock volatility, willing to readopt gold temporarily as an alternate currency and a safe haven. I am, however, not confident enough in that past correlation to play it now with a GLD purchase.
Instead, if gold returns accelerates to anywhere close to $2,000, I will use that opportunity to lighten up again on bullion, which is what I did earlier this year and in September 2011. Recent Gold and Silver Sales Those transactions were on 9/6/11 and 9/12/11, when gold was trading near $1,900 and silver was trading in the $40-$42 per ounce range. Past Historical London Fix
S & P gave a tentative rating of "B" to Boyd Gaming's proposed $300 senior note offering. TEXT-S&P The report is noteworthy for the positive comments made about Boyd's proposed acquisition of Peninsula Gaming. I own just one senior bond and the common shares as a Lottery Ticket. Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89 I have sold the senior subordinated Boyd bond. Sold 1 Boyd Gaming 7.125% Senior Sub Bond Maturing 2/1/16 at 93.25-Bought 1 Boyd Gaming 9.125% Senior Bond Maturing on 12/1/2018 at 89
Boyd Gaming was able to increase the offering to $350 in 9% senior notes maturing in 2020.
1. Berkshire Hills Bancorp (own: Regional Bank Basket Strategy): Berkshire Hills Bancorp is acquiring Beacon Federal Bancorp (BFED) in a transaction valued at approximately $132 million. Beacon is headquartered in East Syracuse, NY and has seven full service banking offices.
I was surprised to see that two of those branches are in Tennessee, located in Middle Tennessee (Smyrna and McMinnville: Locations) I would be curious to see whether this bank expands into Middle Tennessee or elects to sell those branches. I viewed the Smyrna branch at Google Maps. Nissan USA Manufacturing is located nearby. Nissan has a large plant employing about 6,000 people in Smyrna, capable of producing 550,000 vehicles per year. Nissan Corporate Nissan North America moved in 2006 its headquarters from California to Franklin, Tennessee, a few miles from HQ. As noted in a New York Times article published in 2005 announcing the move, it costs 44% less to do business in Tennessee compared to California.
Berkshire has an investor presentation on this acquisition, which has a map of its existing branch locations and red squares showing how the 5 northeastern Beacon branches fit into Berkshire's existing territory. Investor Presentation at page 5. In that presentation, Berkshire claims that it is paying a 111% of tangible book value whereas other regional transactions have been valued at 162% (page 8)
Fifty percent of the BFED shares will be exchanged for $20.5 in cash, with the other 50% exchanged for .92 Berkshire (BHLB) shares. Berkshire estimates that this transaction will produce $.22 per share in core earnings accretion during 2013. Prior to that announcement, made after the close last Thursday, Beacon Federal Bancorp shares closed at $13.3, so the owners of those shares will receive a nice premium.
For the 2012 first quarter, Beacon earned 21 cents per share, down from 25 cents in the 2011 first quarter, Form 10-Q. The net interest margin decreased to 2.82% from 3.16% (page 43).
As of 3/31/12, Beacon's total capital ratio was 15.29%; the Tier 1 capital to adjusted total assets ratio (leverage ratio) was 10.57% (well capitalized 5%); NPAs stood at 4.01% (down from 4.44% as of 12/31/11); net-charge offs for the first quarter were 3.03% of average loans; the coverage ratio was 36.17% (prefer over a 100%); and NPLs to total loans stood at 5.07% (regarded as poor). {see also SEC Filed Press Release} I would regard this report to be unsatisfactory, except for the capital ratios.
This proposed acquisition will cause me to place a hold on the purchase of more BHLB shares. Bought 50 BHLB AT $21.66 (March 2012 post).
Berkshire Hills Bancorp declined 4.9% or $1.07 last Friday to close at $20.75.
2. Exide (own 2 senior secured bonds: Junk Bond Ladder Strategy): Exide has been in a legal tussle with Frisco, Texas about Exide's battery recycling plant. That dispute involves Frisco's refusal to grant a zoning permit for the installation of environmental controls designed to comply with new lead emissions standards. Frisco's obvious purpose underlying its actions was to shut down the plant. That dispute was discussed at page 32 of the recently filed Form 10-Q and during the question and answer session of the most recent earnings call.
Last Thursday, Exide Technologies announced a tentative agreement with Frisco. As part of that settlement, the Frisco Community Development Corporation and the Frisco Economic Development Corporation will buy Exide's 180 acres of undeveloped land, surrounding the plant and used as a buffer zone, for $45 million. Exide will close down the plant and remove all vertical structures other than an administrative office building and wastewater treatment plant.
3. Sold 300 of WIW at $13.01 Last Thursday-Roth IRA (see Disclaimer): I have repeatedly bought and sold this CEF. My last purchase was made in early April 2012 at $12.75-ROTH IRA. While this fund is selling at a significant discount to its net asset value, I am concerned about the current value of U.S. treasury inflation protected securities. An investor buying 5 or 10 year TIPs in the market now will receive a negative yield. I am not an investor who views a negative current yield as a buying opportunity. Obviously, a large number of investors disagree with that opinion and are falling over one another to buy U.S. TIP paper at negative rates.
Last Thursday (5/31/12), WIW's discount to net asset value per share did expand some to 12%, based on a closing price of $12.98 and a net asset value per share of $14.75. The 10 year TIP closed that day at a -.57 yield and the 5 year TIP was at a -1.09% yield.
Data on government bond yields can be found at Bloomberg.
With this last transaction, I have realized gains of $582.54 trading WIW, excluding dividends. (see snapshots and links at Item # 1 Bought 300 WIW at $12.75-ROTH IRA)
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW) rose 6 cents in the debacle last Friday to close at $13.04. The current yield on the 10 year TIP went deeper into negative territory.
iShares Barclays TIPS Bond Fund (TIP) rose 50 cents to close at $121.1. iShares Trust Barclays 20+ Year Treasury Bond Fund (TLT) rose $3.02 to close at $130.13 on 6/1/12.
Last Thursday (5/31/12), WIW's discount to net asset value per share did expand some to 12%, based on a closing price of $12.98 and a net asset value per share of $14.75. The 10 year TIP closed that day at a -.57 yield and the 5 year TIP was at a -1.09% yield.
Data on government bond yields can be found at Bloomberg.
 |
| 2012 Roth IRA 300 WIW +$63.97 |
Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW) rose 6 cents in the debacle last Friday to close at $13.04. The current yield on the 10 year TIP went deeper into negative territory.
iShares Barclays TIPS Bond Fund (TIP) rose 50 cents to close at $121.1. iShares Trust Barclays 20+ Year Treasury Bond Fund (TLT) rose $3.02 to close at $130.13 on 6/1/12.
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