Wednesday, September 5, 2012

SAN & SANPRB/VOTER ID Law In Tennessee/Bought 50 GLW at $11.98/Bought 50 MS at $14.98

The August ISM manufacturing index declined slightly to 49.6 from 49.9 in July. The new orders component fell to 47.1.

Banco Santander (SAN) announced that it was launching the public offering of up to 24.9% of Santander Mexico for a maximum USD $4.291 billion. The offer values Santander Mexico at up to $17.235 billion. Based on an announced price range of 29 to 33.5 pesos per share, the offering is expected to raise SAN's core capital by about .5%. As of 6/30/12, SAN's core capital was 10.1% under Basel II rules. I own 130 shares of SANPRB.  Advantages and Disadvantages of Equity Preferred Floating Rate Securities As shown in the snapshots at the end of the foregoing post, I have realized gains in this security of $445.2, with the largest gain being from a 100 share lot sold in August 2010. Sold 100 STDPRB at 18.11Bought 100 STDPRB at $15.3 (September 2009).

SANPRB (formerly STBPRB) pays quarterly qualified dividends at the greater of 4% or .52% above the 3 month LIBOR rate on a $25 par value. Prospectus My last purchases were at $13 during a price meltdown for all equity preferred floaters and at $15.44 (November 2011).

Quote: Santander Finance Preferred S.A. Unipersonal Floating Rate Gtd. Pfd. Series 6 (SAN.PB)

The NIKKEI 225 Index is currently around 8,700. A long term investor in that market average is waiting for Professor Siegel's stocks for the long run thesis to bear some fruit. To Professor Siegel: Time for a Re-Think The Nikkei 225 was over 10,000 in January 1984. If that index falls another 500 points, I may actually consider buying 100 of the iShares MSCI Japan Index Fund (EWJ) under my new $500 to $1,000 Flyers Basket Strategy.

A column by Jonathan Alter in Bloomberg highlights that the GOP Southern Strategy, hatched by Kevin Phillips in the 1960s, is still with us and went national soon after its successful debut in the South. I discussed the very same issue in a recent post. The GOP's Retrogression-Please Bring Back the Eisenhower Republicans

A recent poll showed zero support among blacks for Romney. NBC-WSJ.pdf This may very well be the last election for President where the GOP's National Southern Strategy has a reasonable chance to work. The downside is that the GOP is turning off a generation of non-white voters, driving them into the arms of the Democrats who are anxious to welcome them.  

Phillips is now a scathing critic of the monster that he created in the GOP.

Paul Krugman called Ryan's convention speech brazenly dishonest. NYT This is a link to analysis of Ryan's speech. The so-called conservative party proves over-and-over again that telling the truth and being accurate with facts are not conservative values held in any esteem by them.

I would agree with those who maintain that the primary purpose behind voter ID laws, passed by republican controlled state legislatures, is not to prevent voter fraud, which is rare (The Nation), but to make it difficult for the poor to exercise their constitutional right to vote. Those laws will end up being worse than the poll tax that was used to keep African Americans from voting in the south, as noted by the Attorney General Eric Holder. ABC News

An opinion column written by a Columbia law professor pointed out that the Voter ID laws are more likely to increase fraud through more absentee voting. A breakdown of those laws by state can be found at Voter ID: State Requirements.

For the first time in my life, I will have to produce my driver's license in order to vote in Tennessee. Previously, I had to produce my Voter Card, which only has my signature. I would then have to sign a form in front of an election official, who would compare my signature on the voter card with the one on the form. That is sufficient to prevent voting fraud at election time. Even an expert forger would have difficulty mimicking a signature for one person under those circumstances, let alone for several people.

When the GOP became dominant in Tennessee, they embarked on passing many of their long cherished pieces of legislation, including laws permitting guns in bars and playgrounds and a new voter id law that requires a government issued photo ID as a precondition to voting. Deleting the right to privacy contained in the Tennessee Constitution will not be far behind.

There was no evidence of voter fraud presented to support their recently passed Voter ID law. Study: Voter-ID Laws Perhaps, some GOP tribe members heard about an incident in another state, involving Acorn, reported by one of the faux blondes at Fox. And, that was enough for them to condition the right to vote on having a picture ID even though existing measures were more than adequate to prevent fraud.  Even if the their motive was pure, which I would view as ludicrous, since I have been inundated by the musings of GOP tribe members since birth and know them too well to be swayed by their rhetoric, the effect will be to deny those who do not drive, primarily the poor and some elderly, the right to vote, unless they want to take the time and trouble to secure a picture ID for the limited purpose of voting. And, as the GOP tribe members already know, many will elect to forego voting altogether just for that reason, and that is why Tennessee has a Voter ID law now.

1. Bought 50 GLW at $11.98 Last Friday (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): I noted last Friday that Oppenheimer had upgraded Corning to outperform and raised its price target to $16. I did not buy shares for that reason. Instead, Corning was just one of the stocks that qualified for purchase under my New Investment Strategy: The $500 to $1,000 Flyers Basket Strategy.

GLW has a 4 star rating by Morningstar and a fair value estimate of $16. S & P has a 4 star rating and a 12 month price target of $15. S & P estimates that GLW will earn $1.34 per share this year, which translates into a 8.94 P/E for a quality company.

Corning is currently paying a quarterly dividend of $.075 per year ($.3 annually) which will provide some downside support in the current interest rate environment. Assuming a continuation of that rate, the yield would be about 2.5%, more than a 30 year bond issued by our destitute Uncle Sam, at a total cost of $11.98.

Based on the most recent quarterly report, the price to book ratio is .81. As of 6/30/12, GLW had $6.345B in cash and cash per share of $4.26. Long term debt stood at 3.229B. Form10-Q at p. 5 Corning had net income of $462 for the 2012 second quarter or 30 cents per diluted share, down from 47 cents in the year ago quarter. The downtrend is primarily due to weak demand and pricing in the Display Technologies segment. Corning Display Technologies (glass substrates for LCD flat panel televisions, computer monitors, laptops and other consumer electronics) For the Q/E 6/30/12, $641M in revenues and $371M of GLW's net income came from this  business segment, page 34 form10q.

It is noteworthy that Corning has used the Federal Reserve's Jihad Against the Saving Class to its advantage. Some of the long term debt was issued this year. The company sold 500M of 4.75% senior unsecured bonds maturing in 2042 and $250M of 4.7% notes maturing in 2037. Form 8-K The other debt is listed at note 12, page 93 of the 2011 Annual Report, Form 10-K. Some of the debt is relatively high cost including two 8.875% senior bonds maturing in 2016  and 2021, both selling at large premiums to their par values. Another one with a 6.75% coupon will mature on 9/15/2013, so that one could be refinanced at maturity at a much lower cost. (Link to FINRA information on GLW debt)

I view a corporation's ability to refinance debt at low rate for long term maturities to be a major long term plus for their future profitability.

The five year chart shows GLW's problems with pricing and demand in its main product category. GLW Interactive Chart. In early 2011, the stock was trading over $20 and broke down in early May 2011, declining to $12.36 by late September. Since that time, the has traded mostly in a narrow channel between $12-$15.

I have been impressed with GLW's ability to transform itself over the years. In addition to its Display Technologies segment, Corning also makes optical fibers for telecommunications, Corning Optical Fiber | Home, and a number of specialty materials such as GORILLA® GLASS that has widespread adoption in smaller devices such as Smartphones, tablets and notebooks. For Q/E 6/30/12, the specialty materials business segment generated net income of $34M, up 48% from a year ago.

GLW's Environmental Technologies segment produced 32M in net income for the Q/E 6/3012 on $249M in revenues, a 3% decline from the 2011 second quarter.

GLW: 11.90 -0.09 (-0.75%)

2. Bought 50 MS at $14.98 Last Friday (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): Morgan Stanley is another stock that has been thrashed and whipped by investors. In May 2007,  Morgan Stanley's stock was trading hit $85 per share. During the Nasdaq bubble years, the stock hit soared to over 107. MS Interactive Chart The shares briefly traded near $10 during the Near Depression period. From January 2009 to date, the stock has been trading mostly in a broad channel range between $15 and $30. However, from around May 2009 to May 2011, the stock mostly traded over $25.

In the last quarter, MS reported net revenues of $6.6B and an E.P.S. of 16 cents, excluding the $350 debt valuation adjustment and a gain realized from selling a U.K. operation. I would exclude the debt valuation adjustment under FASB 159, positive or negative, when assessing core earnings. On a GAAP basis, the company earned 29 cents per share. Form 10-Q;  SEC Filed Press Release Earnings Q/E 6/30/12

I am aware that Morgan Stanley's debt was downgraded and that required the firm to post additional collateral for certain contracts. Notwithstanding that rating agency downgrade, MS appears to me to have a good liquidity position. As of the Q/E 6/3012, the company had $173B of highly liquid securities; $50B of tangible common equity; a leverage ratio of about 13%; and a Tier 1 common ratio of 8.5% under Basel III. Of course, MS also has a lot of debt, see pages 58-59  Form 10-Q The Basel I levels are shown at page 76.

MS is currently paying a 5 cent per share quarterly dividend.

I would not pay much attention to the consensus earnings forecast for MS. The current earnings forecast calls for 90 cents per share this year and $1.94 next year. Price to book value is .48. MS Key Statistics

Yesterday, J.P Morgan's analyst upgraded MS to overweight from neutral and cut GS to underweight from neutral.

MS: 15.52 +0.52 (+3.47%)


I also own 250 shares of MSPRA, a floating rate equity preferred stock issued by MS that pays qualified dividends at the greater of 4% or .7% above the 3 month LIBOR rate on a $25 par value. I have a slight unrealized profit on those shares (Prospectus), but I did harvest a gain of $962.87 on a 100 and 50 share lots (see snapshot at Advantages and Disadvantages of Equity Preferred Floating Rate Securities)

I found historical 3 month LIBOR rate information going back to 1986 at the St. Louis Fed: This is what a long term chart looks like:

3. Negative Current Yield of TIPs: I have sold out of my treasury inflation protected securities. Both the five and ten year TIPs are priced with negative current yields. Bloomberg When I bought the 10 year TIP at auction a few years ago, the current yield was about 2%. I took a snapshot a chart showing historical yield information:

10 Year TIP

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