Thursday, May 8, 2008

When You Look at Something in Only One Respect, You Can Miss a Ton

I can see the tops of the turnip plants pretty clearly now. The sunflowers are about 4 inches tall at this point. I still do not see anything from the cucumbers or potatoes yet, and the new grass seed I put down in some areas has not begun to grow either. Maybe all I can grow are turnips and sunflowers? Growing stuff is hard!

Ford and GM are Basically Screwed
I have explained why it is highly unlikely I will ever buy another US designed car again, based on my 2000 Pontiac Grand Prix GTP experiences (water leaks, brakes gone after 6k miles, major water leaks, etc), but I still hold out hope that GM and Ford may one day rise again. I am patriotic after all! When I read a headline like this one today, I wonder if they will even survive the next year or two:
AP
Toyota projects first full-year profit drop in 7 years
Thursday May 8, 9:23 am ET By Yuri Kageyama, AP Business Writer
Toyota projects first full-year profit drop in 7 years on strong yen, sluggish US market

I mean, if Toyota is having a rough go of it, how can GM or Ford expect to have a better shot? I had to chuckle because just this morning there was this story:
Reuters
Ford tells shareholders turnaround gaining traction
Thursday May 8, 2:44 pm ET By David Bailey

What do you believe? That the Ford turnaround is gaining traction while the recession is just starting and even Toyota forecasts bad results, or that Ford is only gaining traction as they run to a cliff to jump off? Always good to see two totally opposed outlooks printed within a few hours of each other.

Do Not Waste Your Time Praising Mr. "I Never Veto" Bush Just Yet
The house has passed an especially terrible bill to once again "preserve the American dream" for a bunch of flippers and dreamers that knowingly gambled and lost. As a refresher for the term "gambling and losing" I refer you to Wikipedia on Flatulence:
"Nerve endings in the rectum usually enable individuals to distinguish between flatus and feces, although loose stool can confuse the individual, occasionally resulting in accidental defecation also known as "wet farts", "sharting", "varting", "gambling and losing", "Leaky Pete" or "following through"

Loosely (haha loosely) translated to housing this means a bunch of fools thought home prices should all be well over a million dollars per home, and that banks for some time agreed to that logic and provided funding. Now that they are sure they were just a bit wrong, they are doing things in their pants out of fear.

President Bush has made all the right statements regarding the bill, and said all the right things if you want him to VETO the damn thing. One problem. He is HIGHLY unlikely to do that. Not in an election year. Not with all the crybaby's involved in the multitude of bailouts. The only way he follows through is because most of the banks do not want this bill. He may surprise me, but I doubt it.

When You Look at Something in Only One Respect, You Can Miss a Ton
In yet another "all clear" sign that the credit crisis is now over, AIG reported "earnings" (also known as losses) and it was pretty ugly indeed:
AP
AIG posts 1Q loss of $7.8B, plans to raise $12.5B in capital
Thursday May 8, 5:32 pm ET By Stephen Bernard, AP Business Writer
AIG loses $7.8 billion in 1st quarter on credit default swap and investment portfolio losses

If the headline was not scary enough, take a look at some great highlights:
  • AIG lost $7.81 billion, or $3.09 per share, during the quarter ended March 31, compared with earnings of $1.58 per share, or $4.13 billion, during the year-ago period.
  • AIG's combined ratio increased to 96.86 during the first quarter, compared with 87.52 during the year-ago period.
    Combined ratio measures the amount of money an insurer receives from writing premiums compared to how much it spends on claims and other expenses. A ratio above 100 means the insurer is spending more than it earns.
  • Separately, the board of directors approved a 2-cent per share, or 10 percent, boost to its quarterly cash dividend, to 22 cents. The dividend will be paid Sept. 19 to shareholders of record on Sept. 5. (WHAT THE F#UCK??)

So it was a tough quarter. Looking at the "combined ratio" measure, I would say AIG has about a 3 point cushion before they become the US post office and lose money as their primary business. Very impressive!

Massive dilution to the tune of 12.5 BILLION in new capital is pretty wild. How does that feel current shareholders? I always wonder who in their right mind would be buying all these AIG (or FNM, MER, MS, etc shares for that matter) right now with zero visibility going forward? You can put your hand down now Mr. Bernanke!

Point three is where I would like to spend some time. An increase in the dividend is puzzling. With AIG having to raise ginormous amounts of capital, what is with a dividend increase? Glad you asked, as it brings us to a sad fact regarding big money funds:

They basically do ZERO research and know less than most about the stocks they buy.

See, AIG is a dividend paying stock, hence plenty of big funds buy it simply because it sports a nice dividend per share ratio. In the midst of a falling stock price, a dividend increase will make it even more attractive purely on a dividend per share price ratio basis. The problem here is that the company is facing serious structural problems. Why give a hoot about a dividend, when the dilution facing your holdings is shaping up to the tune of 20%? There is no reason to get excited, unless you are using some dumb model based on one parameter.

When you stare at something up close too long, you fail to see the big picture. AIG has allowed their stock to remain somewhat higher by precluding a forced sale of the stock by institutions that only hold dividend paying stocks. As AIG is raising new cash at probably over 8%, paying out a paltry dividend makes little sense to a stock buyer. But you would have to think and understand to get that. Nevermind!

Leave Friday rock/entertainment blogging ideas in the comments.

Have a good night.

8 comments:

Anonymous said...

GYSC

Cucumbers take about 13 days with a soil temp of 59 to germinate, maybe it just hasn't warmed up enough yet.

I haven't been paying much attention to the markets, see gold is up with oil and gasoline hitting new highs almost every day. Corn set a new record today which I knew was coming with all the rain and late planting in Iowa. We are in the same shape where I am. Livestock prices will not be far behind these increases. The more they try to stop the housing bust the worse this will get.

Kevin

watchtower said...

More rain here this week.
Our local news said that since March 1st we are up 266% over our average rainfall.
It is incedibly wet around here.

watchtower said...

Make that "incredibly" wet.

Went past a winter wheat field yesterday and there was just strips of wheat growing here, there, and yonder, the bare places were the areas that had flooded.

Rob Dawg said...
This comment has been removed by the author.
Rob Dawg said...

Ford cuts off a hand and a foot (Rover, Jag) and is almost certain to cut off a leg (Volvo) and is trying to call these a weight loss campaign. Insane.

What Ford needs to do is buy one of every year Honda Civic back to the 70s CVCC series. Reverse engineer then and predict what the next two generations will be like and try to emulate the send generation with their next brand flag platform. They won't do that so they are screwed.

Anonymous said...

Anyone else got the feeling that gas prices are set to explode?

When a major auto manufacturer releases a deal to "LOCK IN" gas prices for a few years around $3.00 you know we are in for some major pain.

Any other thoughts?

G

PS: It stuns me that it's gas fixin vs. car fixin at this point.

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