Money and Investing Thoughts

It has been entertaining (kind of) to watch the amount of fear based generated by the supposed, alleged, sort of a pandemic caused by the swine flu. Unfortunately, today Reuters has burst the bubble:

Its global spread has kept alive fears of a possible pandemic, although scientists say this strain does not appear more deadly than seasonal flu. via WRAPUP 2-Chinese, Mexicans return home as flu fears ease | Markets | Markets News | Reuters.

The bad news is that Mexican citizens have been held in quaranteen all over the world. The Mexican tourism industry has taken a huge hit and pork producers are see the prices for pork fall as the great unwashed start to believe they can catch the flu from their pork chop.

The good news is that UN and WHO officials have gotten huge amounts of media air time and they all can have a big meeting in Geneva in a few weeks, drink excellent cocktails and enjoy gourmet dinners.

According to the article above the number of confirmed death by swine flu has reached the staggering total of 26. By comparison, in the U.S. (pop. 300+ million) approximately 7,000 people die every day from various causes. Think about it.

This line from an article on MarketWatch  gives in a nutshell why the stock market continues to rally:

Buoyed by earnings that are proving better than dire forecasts, U.S. stocks on Thursday moved toward solid April gains, with the Standard & Poor’s 500 index poised for one of its strongest months in years. via With earnings bar low, April strong for stocks – MarketWatch.

There is so much pessimism built into the the current economic forecasts that when economies follow their natural cycle and start to recover, the surprises will be towards the upside. The market has continued strong so far in May and the S&P500 is up 35% from the low hit in early March.

With the stock market historically being a 6 to 9 month leading indicator of an economic recovery, if early march was the true low for this economic cycle the overall economy should be showing positive growth near the end of 2009.

I have been believing that the market hit its lows for the current bear market in November, the week before Thanksgiving. It now looks like the market will be testing those lows again 3 months later. Here are the current values of the major market indices and their 52 week lows:

• Dow Jones Industrials: 7,365.67….7,226.29
• S&P 500: 770.05….741.02
• Nasdaq: 1,441.23….1,295.48

The DJI is less than 2% above the recent low but the Nasdaq has another 10% to fall before cracking the recent low. In November, we were in the midst of all of the 4th quarter economic turmoil that is resulting the bad results we are seeing now. I think the market is reacting again to the same stimuli. With more government stimulus money coming, leading economic indicators turning positive and my favorite, the Baltic Dry Index continuing to climb, I see at least a 50% possibility of the economy turning to positive growth as early as the 2nd quarter of 2009. Too many pundits are pushing their predictions of the recovery dates further out based on news that is really from the last quarter of 2008.

With the market crapping on everything it is difficult to try to write in depth analysis of interesting stocks. Their fortunes will not turn until market sentiment does, no matter how compelling their story. So here are a few brief notes on stocks that released earnings this week:

Bladex, the  Banco Latinoamerico de Exportaciones (BLX: 19.61 +0.54 +2.83%) reported earnings for the year of $1.51 per share compared to $1.98 in 2007. During the 4th quarter the bank called in aboout 20% of their outstanding loans, those that they considered the most risky. They currently have 0% non-performing loans. Bladex is in excellent financial shape and their niche of providing trade credit in Latin America has lost most of its competition. Bladex is now in a strong defensive position and is ready to resume growth when regional trade recovers. BLX historically has traded within a few percent of its book value, currently $15.77 per share.

Silver Wheaton (SLW: 35.96 -0.69 -1.88%) reported a paper loss for the 4th quarter on a $64 million non-cash write down on long term investments. Silver prices averaged less than $11 per oz. during the quarter compared to $14 in the previous quarter. Silver is again trading around $14. SLW sold 11.1 million oz. of silver in 2008, a drop of 2 million oz. from 2007 and is projecting sales of 15 to 17 million for 2009. Silver Wheaton has been in the potential is in the future quarters camp for the  2 years I have been watching the stock. Hopefully, someday that future will get here. Rising silver prices and silver sales could at some point make this a hugely profitable company. I keep the stock in this site’s portfolio because I still believe it is an excellent way to have precious metal exposure. SLW is the only stock in positive return territory for my Opportunities Portfolio, which kicked off on October 1, 2008.

Note: SLW and BLX are components of this site’s Opportunities Portfolio. I also hold a personal small position in SLW.

Atlas Energy Resources – News and Press Releases.

Atlas Energy Resources (ATN: 0.00 N/A N/A) has announced the 4th quarter distribution will be 61¢ for shareholders of record on February 9, 2009. The distribution is the same amount as the previous two quarters. Even after today’s price bump the stock is still sporting a yield near 17%.

ATN is well hedged through the rest of 2009 and into early 2010. They are  positioned to continue to grow their well numbers and production even at the current low natural gas prices. If past practices hold they should release year end result in a couple of weeks.

ATN is a component of this site’s hypothetical Opportunities Portfolio and a personal holding.

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Ashford Hospitality Trust Enhances Liquidity Position Through Strategic Transactions.

It is interesting to see a company dance around a dividend cut in their press release. You can see from the title of the release linked above that Ashford Hospitality (AHT: 9.58 +0.17 +1.81%) went for the euphemism “Enhancing liquidity”.  The suspension of the dividend is not mentioned until about the 6th paragraph of the press release.

I have noticed a couple of interesting items over the last few weeks. First, both AHT and Aircastle Ltd. (AYR: 14.29 +0.10 +0.70%) were significantly later (a week or so) than the previous year to announce their dividend position for the current quarter. It appears that boards of directors will drag their feet a little before  announcing bad news. Or maybe it just takes them awhile to come up with the best terminology.

I added a small position of AHT to this site’s Opportunities Portfolio on November 6. I understood that the market was pricing the stock for a dividend cut and thought they had a chance to keep paying a significant payout. I was wrong. At this point I plan to “sell” the position out of the portfolio. It was interesting to see the stock price increase after the announcement was made to suspend the dividend. I guess all of the bad news was already priced into the stock.

My thoughts on Aircastle (AYR: 14.29 +0.10 +0.70%) are a little different. I was disappointed when they cut the dividend, but still think the financial position of the company is strong. The new dividend still gives the stock a yield close to 8%. The company is a cash generating machine and I hope they do something in 2009 to enhance shareholder value. Either resumption of the higher dividend or some asset purchases to increase cash flow would be positive.  AYR will remain a component of this site’s Income Portfolio.

At this point I see a lot of fear that an extended economic recession will start to have an increasingly negative effect on business and individuals. I am more of the belief that the economy will have a blow-out-bad 4th quarter then start to recover. It takes a while for the various economic stimulus packages to start to stimulate economic activity and signs of their impact should start to show in the 1st quarter. The inauguration of President Obama should give a psychological boost to the country and the rest of the world.