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James Byrne
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James Byrne is Chief Executive Officer of Grand Street Advisors an Independently owned Registered Investment Advisor with clients located across the country. Grand Street manages client portfolios that are highly customized to fit each unique situation and client needs.on a flat fee basis. The... More
My company:
Grand Street Advisors, LLC
My blog:
http://grand-view.blogspot.com
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  • GMAC, now ALLY Offers Attractive Yield as Bernanke Goes on the Offensive.

    Here Come the Fed!  This afternoon’s press conference is being built up bigger than the Oscar nominations for best actor.  The outcome will most likely be yawner.  The FOMC made no change to monetary policy.  SURPRISE!  Not really.  The Chairman is making a move to head off Congressional calls to more fully regulate the Federal Reserve in what they state as a move towards greater transparency.  It is more of a move by our fearless leaders for a power grab.  What would a seat on the Federal Reserve oversight committee to influence the Chairman be worth to lobbyists?   While the Chairman’s move towards greater transparency benefits us all, it is defensive or rather a move to the offensive in tactic.   

     

    Thus far corporate America has steered us through yet another earnings season with few negative surprises.  With one third of S&P 500 companies having reported, better than 72% have beaten on earnings and most have exceeded on top line revenue growth as well.   With job creation picking up steam, look for this trend to continue as more consumers reenter the equation. 

     

     

    Yesterday a barely mentioned article graced to front page of the Wall Street Journal. The article is one with huge implications for potentially restoring integrity to the corporate boardrooms.   Over the past decade as the SEC, awaken from their slumber have forced settlements with companies having run afoul of accounting regulations, stock option grants etc,.  In most cases the current shareholders were penalized for the actions of the few executives that in most cases were no longer even with the company.   Individuals walked off with golden parachutes and huge stock grants while the company picked up the tab.  Now, the government is attempting to oust the head of Forest Labs.  The company negotiated a nice $313 million criminal and civil settlement for sales related issues of their two primary prescription drugs.  Forest Labs thought they were covered.  Then the Dept. of Health and Human Services notified the company they intended to block their CEO from doing business with the government.  This would block Forest Labs from selling their two primary drugs to Medicare, Medicaid and the Veterans Administration.  Virtually putting the company out of business.  Bully for US.  Finally a CEO being held accountable for actions sanctioned or not, being held accountable for any misdeeds taking place under his watch.  No longer will actuaries be able to run simple cost analysis when making decisions they know at a minimum run in the “gray” areas of business conduct.   This is starting out in the Pharma arena, but look out Wall Street and board rooms everywhere, accountability is a coming.

     

    We’ll continue to monitor earnings and listen in on conference calls for any signs of a directional change in revenues and earnings trajectories as well as signs that inflationary pressures are hitting a tipping point, for signs we should alter strategy.  For now we maintain our aggressive posturing as we navigate the calm sea of earnings season thus far. 

     GM's former finance arm, GMAC, now ALLY Bank recently launched a preferred stock ALL-B 8 1/2% fixed/floating security.  For investors willing to take on the risk of a below investment grade company the 5year call protection and 8 1/8 yield looks attractive for this company with improving fundamentals.

    As with any and all investments, please do your own due diligence and consult your investment professional or myself before making any investment decisions. 

    Yours in pursuit of the Kwan!              

     



    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GM over the next 72 hours.

    Additional disclosure: We own GMAC bonds, the ALLY-B preferred and GM stock.
    Apr 27 3:02 PM | Link | Comment!
  • Have The Three Horsemen Arrived In Time For the Economy? Hartford Financial Providing 71/4% For Investors Willing to Ride The Stag
      This summer market participants were all on pins and needles worrying about a possible double dipping economy and thus sat on their wallets. Then September came around and investors began sensing change was in the air. First a shift in power up on Capitol Hill seemed a fore gone conclusion. Second the Federal Reserve seemed to be telegraphing a second helping of Quantitative Easing or QE II. Third the consumer refused to succumb to analyst surveys of their demise and the impacted spending habits due to a de-leveraging of their balance sheets. The arrival of these three horseman cheered the market and it has vaulted higher ever since.

    Then a funny thing happened on the way to QE II, some jobs showed up. The balance of power was restored up on the hill and the end to reckless spending seemed in sight, along with the most likely extension of the "Bush" tax cuts. How about that. Many Wall Street prognosticators are relying upon QE II for the market to continue its ascent. As this current move was driven by liquidity, liquidity and more liquidity needing to find a place. Bonds were the early beneficiaries, and as a result, yields plummeted. Equities are finally being invited to the party as investors finally begin to take on the more visible "risk" inherent in stocks. Most investors don't fully understand the risks associated with bond fund investing. Unfortunately, they will soon enough. But, what happens in the following scenario:

    1.Job creation is real and begins to trend higher.
    2.Global consumption is back in earnest and trends higher.
    3.The US dollar bottoms and the race to debase ends.
    4.The wild card. QE II is the final chapter in the Feds playbook to kick-start the economy and re-flate assets necessitated by a stronger US economy. Whoa!

    At this point in time, as much as corporate earnings have been stellar, this rally we've experienced off the March '09 lows has been primarily liquidity driven. I believe our next leg up will be more a function of fundamentals. Improvements on the job front may prove to be sustainable and downward pressures on weekly claims appear to be forming. In 2010 alone in excess of 1 million jobs have been filled. More work needs to be done, but just over one year ago we were bleeding over 500,000 job losses a month. This last earnings season we witnessed a second quarter of top line revenue growth and breadth was excellent. We continue to see companies bringing on temp workers. This action is typical and healthy. Companies bring on temp workers due to uncertainty after a sharp recession. As they become more comfortable with the recovery, those temps become permanent hires.

    Risks are many. Front and center is the Fed once again. Monetary policy is more a sword than a scalpel. The Fed has attempted to push money to where it was needed most. They have not been entirely successful as many of those dollars have found a home invested in foreign and emerging markets and commodities. Let's hope no major arteries get nicked when the Fed begins to withdraw some of those hundreds of billions. Move to quickly, potentially choke off any recovery. Act too slowly and potentially ignite a sickening bout of hyper inflation.

    It is early. The Fed has begun it first round of QE II initiated last week. We're currently experiencing a, most likely healthy round of profit taking. The dollar has firmed, for now. Negotiations up on the Hill have begun on the "Bush" tax cuts and austerity measures. And Black Friday is ten days away. I remain, as I have throughout this rally, cautiously optimistic and even more so now that the balance of power has been restored in Washington. Should there be a shift, I will not hesitate to move to a more defensive investment posture. For now, we maintain an aggressive allocation to equities and no exposure to the potential bubble in US treasuries.

    Many insurance companies got caught up in the near collapse of our financial system.   One such company clawing its way back out of the ruin is Hartford Financial.   The company's annuity business is a cash cow providing plenty of free cash flows.   While investors wait for insurance premiums to firm up, income investors can collect 7 1/4% on their convertible preferred.   In the current zero interest rate environment that's a home run in my book. 

    In a note of full disclosure, I may currently own or look to own shares of Hartford Financial for myself or my clients.  Before making any investment decisions do your own due diligence and contact your investment professional or contact me directly. 

    I wish you well with all your investments. 



    Disclosure: HIG, HIG+A
    Tags: HIG
    Nov 17 12:54 PM | Link | Comment!
  • Full Steam Ahead Into Earnings Season As Investors Remain Underinvested-Yield Seekers Look No Further Than Hartford Convertible Preferred

    The economy has been in the ICU now for over two years.  It’s been coddled, medicated and stimulated.   Much like a patient in extreme pain.  Morphine is administered at drips initially and slowly increased as the body builds up a tolerance to it.  Eventually the dosage necessary to ease the pain overcomes the patient entirely.  So what soothes the patient’s pain ultimately leads to his demise.  The same may be true with stimulus.  The initial injection works wonders and we get a super high.  The next drip, less so and so on.  My point, the next, if needed, dose of quantitative easing or stimulus must be targeted and provide such a jolt to cure the patient or else. 

     

    The economy has entered into a “new” phase or as Pimco’s CEO Muhammad EL-Erian references a “new normal” of subpar growth.  I would argue that assessment, but I still argue that peanut butter and chocolate don’t go together no matter that Reece’s Cups sale suggest otherwise.  I believe the US economy is in a self orchestrated restructuring, accelerated by the financial contagion.  Over the last 25 years corporate America has invested hundreds of billions in technology and further educating our workforce.  They are reaping the rewards of their investments now.  The US has the best most productive workforce anywhere.  We also operate in a virtual, ‘just in time’, inventory environment. 

     

    Our success though has morphed into an albatross or an anchor around our necks.  American productivity is at all time highs.  This means existing workers are being asked or demanded to work harder and more efficiently than ever before and are responding and up to the tasks.  Investments in inventory management are paying off handsomely also.  Inventories are lean and should remain so.  Why should companies stock or overstock shelves and cross their fingers the consumer will show up?  From a corporate view, that’s wasted money sitting on those shelves.  Now, due to their aforementioned investments, this is no longer necessary.  Everything is virtually a phone call or mouse click away from factory floor to showroom shelves.   So, as we transition to this next phase of our economy, lean inventories and stubbornly high levels of unemployment should linger. 

     

    What’s ahead?  Change is in the air.  The Republican Party should route the Democrats in the upcoming midterms.  I say this from a politically neutral perch.  My job is to remain politically neutral, unbiased, unemotional and seek to navigate the markets regardless of whom or what party charts our direction.   That being said, there is not a chicken in every pot.  People are being evicted from their homes (rightly or wrongly) in record numbers, with diminishing hopes of reentering the work force.   In short, they are unhappy.  The Democrats are in control, and so they should receive the brunt of that discontent, and get unseated.   Based upon this not so scientific approach and not some party biased poll suggesting otherwise, I believe the Republicans will retake control of the House and Senate restoring the check and balance between the Hill and the White House.  No more rubber stamping either party’s billion dollar pet projects.   Let’s hear it for gridlock! 

     

    Stimulus II?  Our elected officials, sensing the unrest amongst their constituency have been floating the idea of another round of stimulus.  Stimulus II.  Actually their count is off.  Remember President George W sent out those gift checks just for being Americans.  No, the stimulus we receive, should most likely come in the form increased exports and an expanding domestic clean energy sector.  Both should spur job growth and domestic consumption.  Next we should initiate another tax holiday to encourage Global US companies to repatriate their foreign dollars, some estimate to be in excess of $700 billion, sitting overseas.  Once back on our shores, companies could reinvest those dollars in new factories and hires.  Increase dividend payout and stock buybacks etc.   Next, we must end the madness as a government with regard to reckless spending.  Just because we/they have a credit card doesn’t mean it needs to be maxed out every month.   Sooner or later your credit score gets impacted and your card revoked.   That day of reckoning is a good distance down the road for the US of A, and most likely not in our lifetime, but it simply cannot be ignored, and it must be dealt with now to keep it out there.

     

    The next few weeks should be very interesting.  We are in the process of ramping up earnings announcements which should create a strong backdrop for the current rally and strengthen the argument for higher valuations.  The Federal Reserve is threatening/telegraphing, their intent to remain vigilant in their knock down drag out fight, (one which cannot afford to be lost) against a deflationary death spiral.   The rebalancing of power in D.C even if control is lost in only the House or Senate should be enough.  All three ingredients combined could lead to a powerful move to the upside.  I’ll continue to monitor the economic landscape and earnings results for warning signs. For now, investors, both individual and institutional remain underinvested as a whole.  There remains $7 trillion sitting on the sidelines.  Time is running out to reach their year end targets, which works to the benefit of our aggressively invested posture.


    Many insurance companies got caught up in the near collapse of our financial system.  Banks and Insurance companies alike are clawing their way back from the edge of the abyss.  One such company, Hartford Insurance still has work ahead of itself but appears to have turned the corner.   The company's annuity business is a cash cow and as insurance premiums begin to firm up after a long painful soft market  investors can sit back and collect a very attractive 7 1/4% on the convertible preferred.   In the current zero interest rate environment that's a home run in my book.  

    In a note of full disclosure, I may already own or look to own in the future shares of HIG-A for myself or my clients.  Before making any investment decisions please do your own due diligence and contact your investment advisor or myself.  

              




    Disclosure: HIG, HIG-A
    Oct 18 4:03 PM | Link | Comment!
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