I am retired and take educated guesses on all things financial.

April 27, 2008

April 28, 2008: National City Corporation Borrows Out Of Oblivion

Recently, National City Corporation (NCC) received a capital infusion of approximately $7b which in all likelihood will be used for both recognized and new loan losses. While devastating for existing shareholders who stand to lose 1/3 of their share's value, this financial maneuver gives National City the wherewithal to cover losses and move forward going into the 2009 fiscal year.

National City was overloaded with high risk real estate and to make matters worse deployed a lot of capital to buybacks and acquisitions during the 'bubble", so the old shareholders are getting payback for irrational exuberance.Bad for them - good for you. In my view along with several respected analysts' opinions this past week, NCC now will become a good bank vs. a bad bank. National City likely will sell vagrant portfolio loans at a deep discount or by moving the loans held for sale and thus marking them to market. Before the bank turns a profit next year, the estimated book value of NCC now is $7.00 per share. Earnings at NCC will hopefully come in at $0.40 per share in 2009 and $0.55 per share in 2010. Then, NCC will roll on, putting the 2007/08 near collapse on the ash heap of history.

National City Corporation is a financial holding company operating primarily in Ohio, Florida, Illinois, Indiana, Michigan, Kentucky, Missouri, Pennsylvania and Wisconsin, In addition, NCC operates 410 retail mortgage offices throughout the United States. Buying MidAmerica Savings in the Chicago region and Fidelity Bankshares of southeast Florida gave the bank some terrible loans, but also a large Hispanic footprint which will be an important building block for future market penetration in Latino communities.

Trading at $6.32 per share and way below the 200 day average due to the dilution of shareholder value, I believe that the market has over compensated for NCC's near demise. The bad news is known and the transparent manner of Nationl City's funding and flawed loan disposition leaves hardly a doubt that this company will rise up in relatively short order and reward new shareholders willing to forgo dividends common to financial stocks for the likelihood of substantial long term capital gains. Being traded almost like a penny stock on steroids with huge average daily volume over the past ten days, the price action may have bottomed from a 52-week high of $38.32 to a low reached April 23rd of $5.87, concurrent with the news of the financial strategy of the company.

National City Corporation may suit the speculator who believes that all that could go wrong for NCC is, indeed, old news. National City Corporation's Series F Preferred (NCC+F) 9.875%, currently yielding 11%, may be a nice way to game NCC's comeback as well.


April 24, 2008

April 24, 2008: Choo-choo, cha-ching: Canadian National Railway

Picture:CNI rail system

A recent addition to my Speculative Portfolio has been Canadian National Railway(CNI). Although there are other rail stocks that appeal in the current energy price environment, CNI has unique characteristics that made it my choice.

Canadian National Railway is enjoying a high profit margin of approximately 26%, which is at or near the top in the industry. The company states that it has many more short term than long term freight contracts which gives them the ability to adjust rates to accommodate current economic conditions. Investors that follow the rails know that CNI benefits from the huge Price Rupert Terminal, which is projected to bring in approximately $110m to CNI coffers this year.

True, earnings missed consensus by a penny ($0.61/$0.62) recently, but considering the severe weather (CNI had to shut down temporarily to ensure safety), fuel and maintenance issues, the quarter could have been worse. Excellent year ahead earnings seem right on "track".

The stock is priced at $50.92, which is slightly above its 200-day moving average and at a mid-point from a 52-week high of $58.49 and low of $41.89. However, the PE of CNI is around 12, significantly below the industry PE average of 20. I see no compelling reason for the disparity. In fact, with the recent grain shortage panic and continuing energy issues, CNI stands to benefit from increased shipments of these commodities as well as increased freight traffic from elsewhere in Canada and the U.S. as rails remain an obvious choice for efficient, relatively cheap transport.

Canadian National Railway could be a $65.00 stock one year from now.

Note: I mentioned the Prince Rupert Terminal being an earnings windfall for CNI. Here is a tidbit of news for readers. There is a proposed $12b plus container port scheduled to be put in place on the Cape Fear River between Wilmington and Southport, NC which will be amongst the largest on the eastern seaboard. Slated for operation around 2015 the port is to employ 12,000 workers once the political posturing ceases. I am presently looking into the rail system(s) and other infrastructure plays that will most benefit from this major addition to our country's incoming container traffic system.


April 22, 2008

April 23, 2008: Quotes From The Great Masters (of investing)

After watching the ebb and flow of the markets and incessant babble of talking heads, I found it interesting to revert to some comments from those who live(d) large in the world of securities.

I hope you enjoy these as you take a deep breath and think LONG TERM.

Benjamin Graham - "Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate and gamble."

Benjamin Graham - "I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities."

Georg Soros - "The financial markets generally are unpredictable. So that one has to have different scenarios. The idea that you can actually predict what's going to happen contradicts my way of looking at the market."

Jesse Livermore - "I don't buy long stocks to scale down. I buy them on a scale up."

Jesse Livermore - "The market does not beat them. They beat themselves, because though they have brains they cannot sit tight."

Carl Icahn - "In life and business, there are two cardinal sins. The first is to act precipitously without thought and the second is to not act at all."

Carl Icahn - "We have bloated bureaucracies in Corporate America. The root of the problem is the absence of real corporate democracy."

John Templeton - "Humility about how little I know has encouraged me to listen more carefully and more wisely."

John Templeton - "If you buy all the stocks at or below two times earnings, you will lose money on half of them because instead of making profits they will actually lose money....others will be mediocre performers. But the remaining big winners will go up and produce fabulous results and also ensure a good overall result."

Charlie Munger - "You have to have a passionate interest in why things are happening. That cast of mind, kept over long periods, gradually improves your ability to focus on reality. If you don't have the cast of mind, you're destined for failure even if you have a high I.Q."

Charlie Munger - "If you took our top fifteen decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along you pounced on them with vigor."

Prince Alwaleed - "If I'm going to do something, I do it spectacularly or I don't do it at all."

Prince Alwaleed - "My wheels are running. My investments are local, regional and international."

Prince Alwaleed - "I'm not panicking and I'm not scared. I've been through Iraq, Afghanistan, the Gulf War, the Asia crisis and the Russian crisis."

April 17, 2008

April 17, 2008: Yield to the Calamos Convertible Opportunities and Income Fund

The Calamos Convertible Opportunities and Income Fund (CHI) is a CEF that attempts, through a combination of capital appreciation and current income, to provide optimum results investing in a diversified portfolio of convertible securities and below investment grade fixed income securities. According to the Calamos Fund managers (John Calamos and son Jack),"the Fund's enhanced fixed income strategy uses all ranges of credit quality and a variety of debt instruments to achieve its objective. The strategy provides an alternative to investment-grade fixed income instruments. Offering potential capital appreciation while delivering an attractive, stable monthly distribution, the Fund may be suitable for investors who are focused on long-term total return and are looking for dynamic allocation to maintain a consistent risk/reward balance throughout the market cycle."

Lofty goals.CHI has been a disappointment over the past year, declining from a high of $20.49 per share in May 2007 to as low as $12.80 on March 17Th of this year. Granted, the CEF features a dividend of 11.79% and pays it monthly, currently at fourteen cents. CHI has a market cap of approximately $677m and trades about 80,000 shares daily. The lack of insider buying over the past year does not bode well on face value for the short term prospects of CHI.The 1.20% management fee is not unusual for a CEF that is aggressively managed. In spite of the poor performance over the past year, investors taking a longer term view may find both the dividend and the securities selection of interest.

A representative basic sampling of convertible securities/bonds includes Intel Conv. Bond, VeriSign Conv. Bond, Freeport-McMoran Pref.,Schering Plough Pref., Mandalay Resort Group 8.38% Bond, Invitrogen Conv. Bond, Conv. Bond, Bayer Conv. Pref. Stock, Linear Technology Conv. Bond and L-3 Communications Conv. Bond.

The average rating of bonds held by percentage of quality works out to a BBB overall. High Yield, but I do not detect pure junk in their most recent roster.

Recent institutional investors in this CEF include Zaske and Associates, Citi Investment, Claymore Advisors, First Clearing LLC (the largest in dollar holdings for this Fund), Hollencrest Capital Management,Morgan Stanley, National Financial Services, Newgate Capital Management LLC, Charles Schwab and UBS Financial Services. A respectable lineup.

Disappointing, down, but not out, the investor seeking income may want to bottom fish and nibble at CHI, hoping that the Calamos family will pull their research together, roll up their sleeves and get this CEF moving forward,resisting long lunches at The Greek Islands or Papagus Restaurants of Greek renown within range of their headquarters.


April 14, 2008

April 15, 2008: Financial Safety

As we navigate uncertain financial times for investors worldwide, I am reminded of a list created by the late Harry Browne. Browne was an intellectual, free thinker and dogmatic in his views - economic and political. Some may remember his run for the Presidency as head of the Libertarian Party a decade ago. Although never respected by mainstream Wall Street, I always admired Mr. Browne for being true to his beliefs and innovative with his candor about the subject of personal finance. I had an exchange of e-mails with him before his death and found him to be a gentleman in every respect, although we differed on many topics.

So here's to you, Harry Browne. We can still profit from some of your ideas.


1. Your career provides your wealth. Investments won't take you from rags to riches. They may take you from riches to rags.

2. Don't assume you can replace your wealth.

3. Recognize the difference between investing and speculating.

4. No one can predict the future.

5. No one can move you in and out of investments consistently with precise and profitable timing.

6. No trading system will work as well in the future as it did in the past.

7. Don't use leverage. When someone goes completely broke, it is almost always because they used borrowed money.

8. Don't let anyone make your decisions.

9. Don't ever do anything you don't understand.

10. Don't depend on any one investment, institution or person for your safety. Every investment has its time in the sun - and its moment of shame.

11. Create a bulletproof portfolio. Diversify holistically in a Permanent Portfolio.

12. Speculate only with money you can afford to lose. Use a Speculative Portfolio to bet on eclectic securities or other investments you think will do exceptionally well.

13. Keep some assets outside the country in which you live. Don't allow everything you own to be where your government can touch it - to tax or confiscate it.

14. Beware of tax avoidance schemes. Nothing is worse than the IRS suppressing tax cheats. It is not worth the chance to get caught in questionable tax schemes.

15. Enjoy yourself with a budget for pleasure. Your wealth is of no value if you can't enjoy it.

16. Whenever you are in doubt about a course of action, it is always better to err on the side of safety.

April 13, 2008

April 14, 2008: Spirit Aerosystems(SPR): Beyond Boeing

Pictures: Spirit Aerosystems fuselage and product development systems.

Every time Boeing get a cold, their suppliers seem to catch pneumonia. Deserved in some instances, but not with Spirit Aerosystems Holdings (SPR). Trading at $25.01 per share, SPR is trading somewhat below its 200-day moving average, and was walloped a few weeks ago when earnings met the company prediction, but was two cents short of analysts' expectations. SPR has a 52-week trading range of $21.07-$41.72 and the PE is presently 11.7.

Spirit Aerosystems Holdings is based in Wichita, Kansas at the former Boeing site. They have locations elsewhere in the U.S., U.K. and soon, Kuala Lumpar and Europe. SPR provides manufacturing and design expertise for a wide range of products and services for aircraft original equipment (specializing in fuselage, propulsion and wing systems), aftermarket parts and retro-fit packages. Although originally a Boeing dominated company, Spirit Aerosystems has diversified within the aircraft sector to being a large suppler for Airbus (including the new A380), Cessna, Gulfstream and Beechcraft amongst others. Importantly, SPR maintains a huge inventory of certified parts for almost all Boeing commercial and military aircraft and has stockpiles of parts for other aircraft. Their aftermarket installation and aircraft maintenance programs are widely respected to be amongst the very best in the world.

Boeing's recent delay (third times a charm) of its 787 Dreamliner will not have a significant impact on SPR, as earnings may be impacted a maximum of 5% which should be more than compensated for by aggressive orders elsewhere, including a new working partnership with Rolls-Royce. With SPR being the largest aerostructure supplier for both Being and Airbus, the bases are covered.

Anticipated cyclical slower growth of aircraft sales are ptredicted to beginin 2010. SPR's repair, spare parts inventory for active aircraft, and worldwide service capabilities and diversification amongst numerous types of aircraft should deliver handsome profits regardless of new aircraft production. I believe that Spirit Aerosystems should be considered for purchase as a play on transportation that is not married to a branded airline or single "big box" company. I would wait to buy shares until SPR decides whether to issue more shares (perhaps mildly dilutive to current shareholders) or increase their borrowing power through other means. This situation should be clarified by mid-May, 2008. Long term, SPR is a security well worth your investment dollars at an entry point in the low $20s.


April 08, 2008

April 9, 2008: 10 Principles of Investing - revisited

I have always enjoyed reading older financial publications. Many are humorous as their seemingly infallible predictions supported by convincing arguments and a truckload of supporting evidence are completely wrong. Some reach a conclusion that in hindsight proved to be somewhat accurate - using suppositions and assumptions that were so wrong that I wondered how they got the result close to correct. Then, there are others that stand the test of time to a large degree.

An old chestnut entitled 10 Principles was penned by H.D. Vest, who was a talking head pioneer and financial advisor to the masses in the 1980s. With a tweak from me, here is his list:

10 Principles of Successful Investing

1. Self-discipline, not income level, determines your ability to save money.

2. If your "safe" investments do not outpace true inflation, they are not very safe.

3. Don't try to time the stock market to succeed as an investor. Those who try usually fail.

4. Your investments should be part of an overall investment strategy designed to achieve your specific financial objectives.

This requires a brief explanation. Vest was referring to the fact that many individuals look upon investing as a day-to-day event. This is in error, as investing should be viewed as a deliberate process, with set goals, measured in years, not days,weeks or months. College funds, retirement funds, estate planning, insurance, real estate and other investment items require specific, executed strategies. Working in concert, all financial moves should form a coherent, efficient financial plan.

5. Substantial growth of assets requires exposure to stocks. The percentage of stocks in your financial plan should be appropriate for your risk tolerance and financial realities.

6. The most efficient portfolios are properly diversified, both within and amongst asset categories.

7. The most successful investors are patient, long-term investors. This is the only way to take full advantage of the twin miracles of time and compounding.

8. Investing should be as systematic as paying a monthly bill.

9. You should take a holistic approach to your financial life, recognizing that tax strategies, insurance needs and investment goals are interrelated.

10.Unless you have the time and aptitude to go on your own, you should consult with a knowledgeable tax and financial advisor you can trust. Make sure the advisor is not solely transaction oriented, and that he or she has your best interests at heart.

As a timely conclusion, Vest notes "most people fail to educate themselves about investing and thus resort to investing by fear".

One can elaborate or dismiss some of the above principles revived from a dusty book. My thought is that the above ten items make more sense in total than most of the daily rants from the business media today - and tomorrow.

April 07, 2008

April 7, 2008: EEP, A Good Partner

I have been positive on several Master Limited Partnership's for months and have held two in my Permanent Portfolio for a long time. One of the best of breed in my view is Enbridge Energy Partners, LP which was formed in 1991 to own and operate the Lakehead system, which is the U.S. portion of a crude and liquid petroleum pipeline system extending from western Canada through the upper and lower Great Lakes region of the U.S. to eastern Canada as well as encompassing the Gulf Coast. Much of EEP's product comes from western Canada, increasingly from the Alberta region. EEP provides services to its customers and returns for its unit holders primarily through interstate pipeline transportation and storage of crude oil and liquid petroleum, gathering, treating, processing and transportation of natural gas and NGLs through pipelines and related facilities and providing supply, transportation and sales service, including purchasing and selling of natural gas and NGLs. Headquartered in Houston,the Master Limited Partnership has approximately 78,000 unit holders not including a substantial stake held by Enbridge Management LLC.

Enbridge Energy Partners is trading just below its 200 day moving average at $50.24 per share, up substantially over the past month. The 52 week price range has varied from $43.52-$61.82 per share with average daily volume of approximately 250,000 shares. Sporting a PE of 20.7 the shares may not be seen as a value play. However, I believe that enhanced earnings and analysts' upgrades may well propel this stock significantly higher in price. The 7.56% tax advantaged yield is a beautiful thing.

Lately, many talking heads and other media minions have begun to hop on the energy MLP bandwagon to which I say: about time. High yields with good growth prospects (especially for the diversified petroleum and natural gas entities) in a wide swatch of locales allows the investor to profit via interesting inter-sector diversification coupled with high yields which are likely to rise with a tax advantaged factor to boot.

In today's investment climate, MLP's in general and EEP specifically may be a lucrative addition to your portfolio, indeed.


April 03, 2008

April 3, 2008: EnCana, O! Canada! How We Love Thee.

This may not be the best time to buy EnCana (ECA), but this stock deserves to be on just about every stock picker's short list of outstanding companies possessing long term appreciation.Priced at $76.52 per share and trading significantly above it's 100day moving average, ECA begs to be purchased on the significant dips that occur periodically. Encana pays about a 2% yield, has a PE of 15 and trades over 2.7m shares per day on average. EnCana's decision to double the dividend a second year in a row reflects the sustainability of the company's strategy and reinforces management's commitment to capital discipline.

EnCana is a large natural gas producer and more. The company is one of the largest holders of natural gas and resource lands in North America. EnCana's other operations include the transportation and marketing of crude oil, natural gas and natural gas liquids, as well as the refining of crude oil and the marketing of petroleum products. All of EnCana's proved reserves and production are located onshore in North America. ECA is also engaged in recent select exploration activities internationally. Last year, ECA entered into a comprehensive business partnership with ConocoPhillips, thus creating for EnCana an integrated oil base of operations and compliment its existing energy model.

As an example of the company diligence, natural gas production from existing acreage in 2007 was about 760,000boe/d. By 2012boe/d is expected to be at 1,000,000. Additional energy finds through ECA's individual and partnership efforts will only sweeten that figure.

ECA also maintains a strong position in the Alberta oil sands area. A portion of their partnership with ConocoPhillips is a joint effort to increase the capacity and efficiency of the Wood River refinery, which refines oil sands crude.

EnCana's strategy continues to target a moderate and sustainable growth rate coupled with capital discipline and a strong emphasis upon execution. Management has indicated that due to high commodity prices, the company would likely use incremental cash flow to buy back shares or pay down debt rather than for increased drilling. Encana's drilling costs are about 11% less than the industry average and the company seems to always take the long term view of success in the energy patch.

Natural gas growth continues to benefit from higher volume at several of EnCana's unconventional gas plays, including the Amoruso field in East Texas, the Jonah field in Wyoming and Cutback in northeast British Columbia. Low cost and large scale positioning in the North American gas basins bode well for ECA.

This brief article covers Chapter One of the Encana story. Investors are encourged to explore EnCana further at to obtain a more comprehensive feel for this superbly run entity.


PS - I will be out of town on real estate business through Saturday. Some new, some foreclosure. All fun.