lorddarley

General Electric: Sorry Mr. Immelt, You Missed!

www.bloomberg.com/apps...

A balanced report on GE and Immelt appeared on Bloomberg after my post. It's articulate, and makes many of the same points. I would encourage you to read it.

LD


On Mar 02 11:08 AM lorddarley wrote:

> I agree that the GE dividend cut should have been immediate. However,
> I am still not as critical of Immelt as many.
>
> First, St. Jack made the decision to overconcentrate in the financial
> sector. Immelt has been on record for quite a while that GE needed
> to cut back on financial businesses.
>
> Next, dumping 32 million shares of Swiss RE in June, 2007 (shares
> are down about 90% since then) shows that there have been some right
> decisions. On the negative side, they did not move fast enough to
> dump WMC after the June, 2007 announcement that they would.
>
> Immelt is not an A+, but he is better than many. GE is an ocean liner,
> and Immelt has done reasonably well to get the Board to buy into
> his vision to change the diversification mix. He is not in a strong
> enough position to make decisons without Board buy-in, however. That's
> why he had to listen to the constituency of shareholders who "need"
> dividends. Although he is a substantial owner, I don't consider the
> delay in implementing the policy to be motivated by self-interest.
> He is getting pressure from the board.
>
> My main criticism of Immelt is that he hates to speak "bad news,"
> so it seems as if he is dissembling. Still, I would not replace him.
> I'm sick of petty tyrants running our great companies.
>
> LordD

What to Buy: Debt

I agree only slightly with this article. No one should buy a corporate bond without reading the indenture. You have to know its call, subordination and default provisions. Take call provisions, for example. Unless the bond is deeply in the money, you (the investor) take all the risk. If rates decrease, you lose the bond to a call. If rates go up, you are a reluctant owner until maturity.

The great advantage of bonds (not available to the average person) is that if you buy enough of them, you do get a significant say in the terms of any bankruptcy. If that's your hope, it's better to be with an activist manager than to try to do this on your own with a few thousand (or million) to invest.

It does not take a crystal ball to know that in the next few years that rates will go up significantly. The US government is borrowing huge amounts on a short term basis, and even buying back its long bonds to borrow more on the short end. Although it criticizes consumers who opted into flukey mortgages, the US is the ultimate ARMS borrower, refinancing long debt with short debt for the quick satisfaction of temporarily suppressing long rates.

Is that the environment in which to commit long term money to any bond? No way, except for a quick an nimble speculation.

Long-termers should stay in cash, and start buying the stocks of great companies which are on sale. If you want to play with bonds, wait two years and you will get munis at 8-12%, because state and local governments have no way of catching up with their debts and unfinded pension liabilities.

LordD

General Electric: Sorry Mr. Immelt, You Missed!

I agree that the GE dividend cut should have been immediate. However, I am still not as critical of Immelt as many.

First, St. Jack made the decision to overconcentrate in the financial sector. Immelt has been on record for quite a while that GE needed to cut back on financial businesses.

Next, dumping 32 million shares of Swiss RE in June, 2007 (shares are down about 90% since then) shows that there have been some right decisions. On the negative side, they did not move fast enough to dump WMC after the June, 2007 announcement that they would.

Immelt is not an A+, but he is better than many. GE is an ocean liner, and Immelt has done reasonably well to get the Board to buy into his vision to change the diversification mix. He is not in a strong enough position to make decisons without Board buy-in, however. That's why he had to listen to the constituency of shareholders who "need" dividends. Although he is a substantial owner, I don't consider the delay in implementing the policy to be motivated by self-interest. He is getting pressure from the board.

My main criticism of Immelt is that he hates to speak "bad news," so it seems as if he is dissembling. Still, I would not replace him. I'm sick of petty tyrants running our great companies.

LordD

Raising Tax Rates Doesn't Guarantee More Revenues

On the subject of planning for higher tax rates in 2011 and later, 2010 is the year when you can convert to a ROTH IRA even if your MAGI (modified adjusted gross income) exceeds $100,000.

If you believe that stocks will go up again, a ROTH conversion allows you to pay taxes at low values, and to make tax-free withdrawals after your stocks increase.

The populists will probably repeal the 2010 change, even though it would raise a lot of current tax revenue. If they do that, it will still be possible to do a ROTH conversion, but you will have to be able to shift income away from the conversion year to stay under the $100,000 MAGI limit.

If you own your own business or can defer income with a cooperative employer, you should start thinking now about how to manipulate your 2010 income to go under $100,000 (under the theory that Congress will repeal the 2010 change).

Be sure to punch the numbers. For many, paying taxes early is a bad idea, even if rates go up.

LordD


On Feb 27 03:27 PM Steve in Greensboro wrote:

> Unless the House turns over in 2010, I think those of us with value
> in IRAs should seriously consider removing the cash and paying the
> income tax plus the 10% penalty. Obama has given us fair warning.

The White House vs. Rick Santelli

This press secretary, Robert Gibbs, took out the old weapon of established government, whenever an average guy speaks out.

Name calling.

Santelli is belittled as a derivative trader, a caffeine-soaked junkie, a guy who doesn't read carefully. How about addrressing fairness, Mr. Press Secretary?

If this $800 billion had been put into payroll tax relief, we would have given working people a 7 & 1/2% salary hike on the first $106,000 of wages. Their employers would have benefited and would have been encouraged to maintain jobs. Washington doesn't get it. The CNBC anchor team, with fingers in the wind, don't get it either.

Rick Santelli, get ready for the once an hour showers and run for Congress.

LordD

Should We Really Nationalize Banks - Or Privatize Congress?

Elected officials complain about CEO compensation. Agreed, it has been excessive in many cases. How do we get that information? It is disclosed on compensation tables and public releases in proxy statements, 10Qs, 10ks, and 8-Ks. We may resent it, but at least we can see it.

Where is the uniform disclosure counterpart for Congress and State legislators? Where do we see a coherent compensation table which quantifies the benefits of tax-free campaign funds, lavish defined benefit programs, and "affiliated" compensation paid for book deals, honoraria, and consulting.

Putting all that compensation into one place, according to uniform valuation methods, would be the first step to real reform. The thousands of elected officials, appointees, and sycophants have corrupted our democracy.

Fair compensation disclosure would be fought tooth and nail, assuming anyone with appropiate stature ever proposed this. So we complain like decapitated chickens, without the necesary information to show to voters and to engage in meaningful reform of government.

We abet corruption when we do not insist that politicians reports under the same standards they apply to the companies they "regulate."

LordD

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

This is a good article, but missing the big picture. Are banks good investments? I believe that most realize (finally) that all of the sizzle in their stocks was fluff from the non-banking businesses that were added after the repeal of Glass-Steagall.

Please, a reality check is in order for those who want to be bullish about banks. There is way too much banking capacity in the US. Our government is hell-bent to keep big bad ones afloat. The "good" banks will accordingly not get the profit they deserve, any more than the "good" homeowner, who paid bills on time, will profit from the Pelosi-Obama agenda.

It reminds me of the airline industry, which used federal bankruptcy laws to maintain constant pressure on margins of responsible carriers, with the result that none of them are good investments.

People forget that a bank was traditionaly a simple thing. It takes in deposits (liabilities) and makes loans (assets). Assuming that the loans are good, a bank is worth a little more than book. It's only when you add a little imagination, nonbanking products, and greed that you value a bank for more than that.

I would be sanguine about USB and other "good banks" in this article if I thought their less successful competitors were going out of business. However, they will be propped up by government, so they will continue to pressure margins of "good" banks.

Banks get money for almost nothing, and can lend it out at great margins. However, there just aren't enough good customers, and there are too many banks chasing them. Avoid the sector unless you are a short term trader angling for a bounce.

LordD

Top 10 Energy Stocks and an Overlooked Power Fund

One minor correction of a typo in that last post:

I'm hopeful that cross-defaults of that type are [NOT] present, and will ask for confirmation at the next cc.

LD

Top 10 Energy Stocks and an Overlooked Power Fund

Atlantic Power units, which I acquired recently, make up a large position for me and crtain clients. A few points were not mentioned in Cliff W's article that were important to me when I decided to invest.

(1) On the plus side, they advise that their project debt is non-recourse to the parent. That's important in case one of the projects turns out to be a stinker. However, the loan documents for each transaction are not available, so I don't know if there are cross-default provisions (i.e. a failure under one project is a failure for all), which could be almost as bad. I'm hopeful that cross-defaults of that type are present, and will ask for confirmation at the next cc.

(2) Another plus. The looney is in the crapper. That's had the effect of saving lots of money, because the share dividend and the coupled 11% note are payable in looneys, while the revenue from projects is US dollars.

(3) On the "negative" side (or maybe it's positive if you like ballsy management), they bought Auburndale in November by cleaning out the credit line. The debt is reasonable, but there is little margin for error. This is not your grandmother's utility company.

Anyway, it's nice to see coverage on these units, which are obscure, but very promising.

LordDarley

Bank Nationalization: It's Just Plain Wrong

Who knows what a Bank is these days? Since the repeal of Glass-Steagall, we have a lot of financial supermarkets. The current spin is that the investment houses (like Goldman) now get to pose as banks.

And what are the loans which these "banks" actually hold in portfolio? Many are loans to speculators, to abet the outlandish hedging positions permitted by laxity of the past Administration.

We should let "banks' that can't pay their way go into bankruptcy, and the federal government should be present to purchase selected portfolios of loans which were made in the national interest and to insure deposits, regardless of FDIC limit. (Most of the legitimate bank activity at the supermarket "banks" would be purchased by real banks, anyway, if we insisted on bankruptcies.)

Instead, we are spending billions just to prop up counterparty loans on leveraged gambles of big banks that were too big just to be banks. Those gambling positions should not have been honored with taxpayer money. Let's put it simply. We are bailing out bookies. The loans which they made to assist hedgie gambling, and the institutions which made those loans, should be flushed through the bankruptcy courts, as we have done with other incompetent and unnecessary businesses over the decades.

Instead, we are contributing capital to prop up bad bets, and not putting money into the real economy. $800 billion per year would cover all of the employment taxes in the USA. That's a 7 & 1/2 % boost in wages for each worker, and a 7 & 1/2% support to their employers. That is how the money should be spent if we want to get working America back on its feet.

LordD

It's Not a Recession, It's Reality

Whenever I read the prase "lost decade", I wonder what was "lost" in the Japan of the '90's.

Clearly, Japanese stock prices decreased, and stayed low. However, the average Japanese citizen (aka/ Main Street) does not seem to have suffered.

Worthwhile or not, Japanese jobs were preserved and social dislocation was kept at a minimum after a bubble founded on the myth that the Japanese would rule the world.

During the "lost" '90's, Japanese industry continued to produce profitable exports and to establish profitable beachheads in their client countries. Although there are unsolved problems in Japan today, its currency is the world's safe haven.

My own views on this are not well-formed, so please don't blitz me with a bunch of "nays" for thinking the unthinkable. Was the decade of the '90's really lost to Japan citizens, or just to stockmarket speculators?

We live in interesting times. We have been taking social stability for granted. The Japanese of the '90's took no chances, and prioritized stability over the stock market. That might be the choice for our upcoming lost decade.

LordD

Why Is Everyone Blaming the CEOs? It's the Government's Fault

The problem was the dismantling of Glass Steagall. Banking and exotic underwriting do not belong under the same roof. That may mean less "profitable" banks, but it's clear that the profits were just a chimera, siphoned off as compensation.

We have too many banks in this country, and we would have been better off to let these banks go into bankruptcy reorganization.

At present, the money center banks are hogging the federal reserve money that could have been used by more viable banks for lending. Money center banks stand in the way of recovery, because we are helping them to bail out the non-banking parts of their corrupt organizations and keeping credit away from more viable lenders..

LordD

Microsoft Retail Effort: Don't Try to be Apple Cool

The idea of Microsoft selling products in retail stores is DOA. However, here is what they could (but won't) do. They could franchise stores and subsidize payments to enrepreneurs / experts that know how to make this whole process of using Windows, and Windows compatible sofware, a lot easier for small customers.

MAC succeeds because it is "easy." However, as wonderful as the MAC is, it will always be a fringe player, with less than 5% of the world's units. The Windows advantage is that the price of MAC conformity and integration is too high. MAC users do not have access to most of the creativity (with chaos) that is available in the Windows environment.

I hate Microsoft. However, I have no choice but Microsoft, and a Microsoft help-store is what I (and millions of computer users) really need and would pay for. If they emphasize service, the Microsoft stores will be a winner, because they will combat the one advantage of the MAC: ease of use.

Of course, Balmer is too lame to get this. It's just my little vision on a Saturday morning.

Obama's Role in the Market's Next Breakout

What a shame. Not a penny of the House bill is dedicated to tax credits to induce solvent, non-failed, companies to maintain and expand their US payrolls, or to give real tax relief to working Americans.

How much more simple if we abolish the 15% payroll taxes (on the first $106,800 of wages) that penalize most workers, and the companies which employ them. That's about $850 million in 2009. Over 12 months this money could have flowed directly to payroll checks (and to their employers) with a simple computer entry.

Also, regardless of one's views on workers' rights, private employers do not hire when it is difficult to fire. The new government wants to additional workplace mandates, which will reinforce the idea that it is bad business to expand US payrolls.

The decision makers all have public sector backgrounds. They are rehashing failed policies with a welfare bill that poses as "stimulus." We will not be a stronger country one year from now, We will be weaker because of the debt, and our employment base will continue to diminish.

LordDarley

Housing Affordability Surges

The author's thesis is extremely simplistic and misleading.

The sales price he is using is obviously weighted by foreclosure "sales." This would include semi-finished units in subdivisions which may not even have full utiliities. And they would be in areas of the country without employment due to severe local recession.

Sometimes, you need to use common sense. The author is right that there are a lot of affordable units out there. What he does not point out is that the average buyer would consider himself grossly underhoused if he bought one of the "average" units. And to buy one of those units, he would have to move to an area of the country where he couldn't get a job at his current income level.

LordDarley