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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.