A scary chart for Keynesians on Halloween

The scariest chart ever – to a Keynesian!!
 
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Published in: on October 31, 2011 at 9:47 pm  Leave a Comment  

Sprinting to bankrupcy unless Sprint (S) can profit?

Sprint Nextel (S)

Share price: $2.72

Shares: 2.996 billion

Market capitalization: $8.14 billion

Bonds: $18.5 billion

It amazes me that Sprint went from $1.35 in November 2008 to $6.45 May 2011.  There is a lot of speculating going on in this stock because the fundamentals are just plain horrible.

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DIVIDEND RECORD

Sprint has not paid a dividend since the end of 2007.  It paid an annual dividend of $0.50 from 2001 to 2004, then it cut its dividend to $0.30 in 2005, and in 2006 – 2007 it cut the dividend to $0.10 annually.  Sprint offers no current income to its remaining shareholders.

EARNING POWER

                EPS                         Net inc.                Shares                  Adj EPS

—————————————————————————-

2006       $0.45                     $1,327 M              2,972 M                $0.44

2007       ($10.27)                ($29,580 M)        2,898 M                ($9.89)

2008       ($0.98)                  ($2,796 M)          2,863 M                ($0.94)

2009       ($0.84)                  ($2,436 M)          2,886 M                ($0.81)

2010       ($1.16)                  ($3,465 M)          2,988 M                ($1.16)

2011E    ($0.93)*               ($2,786 M)          2,996 M                ($0.93)

*mean loss according to Wall Street estimates I looked up on Morningstar.com

Sprint would have to lose $0.40 per share in 4Q2011 to meet the mean Wall Street estimates.  I don’t think that will happen since the iPhone 4 users start adding to Sprint’s revenues in 4Q2011.  I think Wall Street analysts have set the bar so low than even Sprint can beat their estimates.

Results from the first three quarters of 2011:

1Q          ($0.15)                  ($439 M)              2,992 M                ($0.15)

2Q          ($0.28)                  ($847 M)              2,994 M                ($0.28)

3Q          ($0.10)                  ($301 M)              2,996 M                ($0.10)

—————————————————————————-

Total      ($0.53)                  ($1,587 M)          2,996 M                ($0.53)

Six year average adjusted earnings per share is ($2.22).  I wouldn’t buy Sprint until it becomes profitable for several years.

BALANCE SHEET

Sprint’s balance sheet is frightening.  Assets are falling more than liabilities, so equity keeps disappearing.  It will be interesting to see

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Book value per share: $4.35 as of 3Q2011

Price to book value: 0.625 (this is good, but book value keeps shrinking)

Current ratio: 1.12 (over 2.0 is good)

Quick ratio: 0.49 (over 1.0 is good)

CONCLUSION

Sprint offers no dividend, no profits, and shrinking shareholder equity.  These three facts do not add up to safety of principal and a satisfactory return.  The purchase of Sprint at $2.72 per share is speculative.  AT&T (T) and Verizon (VZ) offer high dividends, profits, and increasing shareholder equity.

Almost everyone who has bought Sprint stock in the past 12 years has lost large amounts of money.  This company has forgotten how to make money.  It will take a few profitable years and some hefty dividends to attract me to their stock.  Sprint offers no safety of principal with its horrible yearly losses and the bad economic backdrop.  What is their unique selling proposition?  As best I can tell it is the download speed of their 4G network.  They claim it is up to 10x faster than their 3G service.  AT&T and Verizon both make the same claims.  Perhaps they have the largest 4G network, but that doesn’t come across in their advertisements.  It will take huge infrastructure costs to build out their 4G network.  The large yellow circles mask the smallness of their 4G network.  I’m not impressed after visiting the Verizon and AT&T websites to examine their 4G offerings.  Sprint is sprinting to bankruptcy.

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For example, there are many areas in Denver that you would only get good 4G service while outside on the street.  Most people are inside their work locations most of the day.

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DISCLOSURE  I don’t own Sprint Nextel (S)

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Published in: on October 30, 2011 at 5:10 pm  Leave a Comment  

Budget Deadlock in Washington

Budget Deadlock in Washington

by Gary North

Recently by Gary North: Not Theirs To Occupy

 

   

The debt ceiling battle led to a compromise. Congress and the President promised to submit to mandatory budget cuts. A bipartisan super committee was set up to put together a package of debt reduction cuts totaling several trillion dollars over supposedly a decade. If the committee deadlocks, the cuts will begin automatically on January 2, 2013. These must be $1.2 trillion in cuts, or $120 billion a year.

As expected by everyone, the committee is deadlocked. The Democrats want $3 trillion in debt reduction, mainly from tax increases. The Republicans will not grant this.

Democratic sources told CNN that at the meeting Tuesday the plan was presented to the 12-member committee by Sen. Max Baucus, D-Montana, the Finance Committee chairman. A majority of the six Democrats on the super committee supported the proposal but sources declined to say which member or members disagreed.

The plan would have made cuts to entitlement programs such as Medicare and Medicaid, which the Democratic sources described as a major concession from their party. In return Republicans were asked to go along with between $1.2 and $1.3 trillion in new tax revenue.

An unnamed Republican aide expressed anger that some Democrat had leaked the details of the deal to the press. I mean what kind of stab in the back is this? Telling the public what's in store for them! This is clearly an outrage. It means, the aide said, that the Democrats think the super committee will fail.

Did anyone in his right mind expect it to succeed? The August deal to extend the ceiling and thereby avoid shutting down some government agencies temporarily was based on a sham solution.

The politicians want no responsibility for cuts. There was no record of which Democrats opposed the leaked deal. Some did. Everything is being kept hidden. There is an election year coming up.

This was the first proposed plan. The committee has not gone public with anything in two months. It has a deadline for announcing a plan: November 23. That is less than one month away. If Congress and the President refuse to accept a plan, or if no plan is offered, then cuts will begin a year later.

So, phase one deadlock is here. There is little likelihood that members of the super committee will put their careers on the line and vote publicly for cuts that specific special-interest groups can identify. There would be retaliation in November 2012.

THE IMPORTANCE OF POLITICAL SYMBOLS

The debt ceiling extension had a back-up plan: mandatory cuts, imposed by no one in particular, beginning on January 2, 2013. That gives the politicians a year to find a way to defer the cuts.

The cuts can be blamed on no one in particular. But the cuts will start hurting special interests. One of the main targets will be the military. The Pentagon will howl.

I think the reason why Obama is pulling out all U.S. troops from Iraq in December is to take advantage of the deadlock. He is willing to accept these cuts in the Pentagon's budget in 2013. They will not be blamed on him in 2012. After all, this was part of a bipartisan compromise. Those Republican voters who were committed to keeping troops in Iraq "for as long as it takes" – with "it" being undefined, open-ended, and forever – will not be able to pin the tail on the Democrat donkey. The cuts in the Defense budget will come because Republicans in Congress demanded this budget compromise. This is Obama's moment of opportunity. One of his campaign promises was to pull the troops out of Iraq. He is finally doing it. He gets a Republican cover. He can say that these reductions are part of his good-faith attempt to conform to the budget compromise made in August 2011.

The deadlock in the super committee transfers to the President the right to pick and choose the cuts he will make. Constitutionally speaking, the House must introduce all spending bills. In fact, the President has possessed this power for two generations. Obama has been granted a license to cut as he sees fit. It is clear that his first cut is the cost of keeping troops in Iraq.

The name of the political game is to defer taking unpopular political actions. The Congress is a master of this game. The public put pressure on Congress last summer to do something symbolic to defer the debt crisis "with honor." The looming debt ceiling limit was a convenient hammer for the minority of Tea Party-leaning Republicans in the House of Representatives to use to force the Republicans to agree to something resembling a balanced budget.

Of course, the budget is not going to be balanced. The Congressional Budget Office has projected $1 trillion annual deficits through 2020. But the Tea Party Republicans demanded a fig leaf: $1.2 trillion in cuts over a decade, beginning in 2013 at the latest.

These cuts are symbolic. But symbols are important in life. They are important in politics. Someone has to propose cuts, and some special-interest groups must suffer cuts. Special-interest groups resist all cuts.

EMERGENCIES ALLOW DEFERRAL

Politicians will label their spending programs with whatever emergency is available. In Eisenhower's era, Congress passed spending bills in the name of national defense. The best example is the interstate highway system. In 1956, Eisenhower signed into law the National Interstate and Defense Highways Act. In 2001, terrorism was the catch- all. The homeland security law had been sitting in Clinton's files for years in 2001. He just did not introduce it. The time was not ripe. Today, it's job creation.

As the U.S. economy heads into a recession in 2012, an election year, the government is running a deficit of over $1 trillion. This is four years after the recession of 2008 and the bailouts in September and August of that year. Unemployment is still over 9%. Businesses refuse to borrow. New businesses, which provide most increases in employment, are locked out of the bank loan market.

The voters are most concerned over the rotten job market. The deficit is a nagging concern, but unemployment is on the front burner. The politicians know this.

So, as the economy slows, and unemployment rises, Congress will be able to come before the public and call for emergency increases in spending. It is unlikely that unemployment insurance will be cut off. Other programs will receive funding. But new large-scale programs are less likely in an election year. Republicans will block them.

It is doubtful that Obama will get another stimulus package passed in the House. He keeps proposing big spending plans in the name of job creation. Why? Because he knows the House will reject these bills. He can go to the voters in the name of the Democrats in 2012 and claim that the Republicans are to blame for the lousy job market.

For the first two years, he blamed Bush. This year, that strategy has failed to gain traction. It is now his labor market. So, he is setting up Republicans in the House for the great tail-pinning in 2012. He will cease blaming Bush and instead blame Republicans for their refusal to pass his stimulus bills.

He may not get away with this. His rhetoric is no longer drawing crowds. The word magic has worn off. But it is clear what his strategy is: propose, propose, propose; blame, blame, blame. He has the mainstream media on his side. He also has academia.

THE KEYNESIAN ESTABLISHMENT

His political strategy assumes that Keynesianism is true, that the best way to create jobs is for the government to borrow or tax or inflate in order to get the economy rolling again. It assumes that money extracted from the private sector by force today (today's taxes) or promise of future force (tomorrow's taxes) will be used to create jobs, while money left in the private sector will not.

The political economy of the world is built on this assumption: in the USA, in Europe, and in mercantilist Asia. At the center of the modern economy, according to Keynes and his disciples, are the state and the central bank.

In contrast to the Keynesian worldview is Austrian School economic theory, which argues that there is no center. There is decentralized capital in the broadest sense: money, tools, skills, and vision. The absence of any center is the basis of creativity and growth, including job growth. Other schools of free market economics accept this same outlook to one extent or another, but all of them insist on the need for a central bank.

President Obama is relying on the Keynesian analysis to justify additional stimulus spending laws. But he faces a major obstacle. His $787 billion "shovel-ready" law of February 2009 has not led to a strong job market. This job market has been the most resistant since the Great Depression. The unemployment rate stubbornly refuses to come down. This is creating problems for Keynesian economists. They are calling for even greater stimulus spending. But this is no longer politically marketable. The voters have had enough. They know the spending will not lead to unemployment at 5%.

This is not the first time that economic reality has put a crimp in Keynesian theory. The Keynesian outlook was called into question in the 1970s by stagflation. By the end of the decade, the monetarists had gained considerable influence in Washington and in academia. Academia worships power, and monetarism seemed to be the wave of the future. It looked as though Keynesianism was in retreat. The 1980s and 1990s brought a boom and a rising stock market. Keynesianism seemed vulnerable.

The recession that began in late 2007 has brought Keynesians back into unchallenged power. The monetarists are nowhere to be seen or heard. They did not challenge the Paulson-Bernanke coup in 2008. They either said nothing or hailed the October big bank bailout as necessary. They did not challenge Obama's stimulus, either. Yes, a few did, but they were minor figures for the most part: a few hundred out of tens of thousands of economists on various payrolls.

There is not much price inflation today. This undercuts the monetarists. Their schtick rests on either double-digit price inflation (late 1970s) or double-digit price deflation (1930-33). There is surely stagnation today. Monetarism seemed to explain the 1970s: two recessions and rising consumer prices. It does not explain today's economy. This puts monetarist defenders of limited government at a disadvantage in the competitive marketplace of ideas.

Monetarism for over three decades has been the only prominent alternative to Keynesianism. The supply-siders have never had a college-level textbook. The public choice theorists have no unique monetary theory. The rational expectations economists' position is "accept the present and make no changes." Only the Austrian School has provided both a theoretical explanation for the bubbles and the busts. Only they called the recession in advance. Only they argue that decentralization is the only theoretically plausible solution to the problem of systemic unemployment: the decentralization of ownership, political power, and money creation.

This defense of decentralization dooms the Austrian School in academia. Liberal arts academia worships power. Academics did not actively criticize all aspects of the Soviet Union, Red China, and their satellite nations. The intelligentsia did criticize a few peripheral aspects of Communism, such as its limits on the freedom of speech. The intelligentsia did not criticize central economic planning in terms of its inevitable waste of resources and its decades-long failure to increase the standard of living. Academic economists publicly denied that the Soviet Union suffered from widespread poverty. They trusted the published statistics issued by the Soviet Union. The handful of economists who said that the statistics were fabricated were ignored. How many economists in 1970 had ever heard of Naum Jasny (d. 1967), who showed for years that the statistics were fake? Hardly any, and those who had heard of him usually rejected his warnings. I cited his findings repeatedly in the chapter on Soviet economic planning in my 1968 book on Marx, but who noticed? No one. (http://bit.ly/gnmror) Most important, in the eyes of academia, was this fact: the Soviets had nuclear weapons. They also had domestic power. Academia did not turn on the USSR until after the Communist Party committed suicide on December 31, 1991.

The Austrian School argues that centralized political power makes nations poorer. Some call for a lightly armed night watchman state. Others call for disarming the night watchman. All call for a vast decrease in political power, taxation, and regulation. They call for a comprehensive surrendering of power by Washington. Academia will not tolerate this. It is subsidized by the state. Its bread and butter is supplied by the state. Eliminate all academic subsidies from the state, including the state's enforcement of accreditation, and college professors would wind up at the unemployment office – the privately funded unemployment office.

This is why there will be no solution to the fiscal crisis in Washington. There is no body of academically acceptable economic opinion that can be invoked by any political faction to justify the only viable solution: the decentralization of political power and the cutting of Federal spending back to what the Constitution authorizes.

A SYMBOLIC DEFEAT

The inability of the super committee to come up with any plausible plan to balance the budget is an indicator of the present state of the economy. The automatic budget cuts that will begin in January 2013, if they even take place, are merely symbolic. They will not do much to balance the budget. But they at least will be symbols of the need to do so.

Then what of the debt ceiling? Will Republicans be able to hold the line and force a balanced budget? Ron Paul has offered the only plausible scenario for doing this. No other Washington politician in modern times has.

No one takes it seriously in Washington. They do not think he will be elected. They know he will leave Congress in 2013. They think they can safely ignore the plan.

When the symbolic budget cuts begin in 2013 – assuming they are not deferred by a new law – the voters will have a play-pretend solution to keep them asleep at the wheel. The trillion-dollar-plus deficits will continue. The Federal debt will grow.

The symbolic victory of the August debt ceiling compromise was in fact a symbolic defeat. It meant that the Congress is not serious about the cuts. There were some promised cuts, but they will be dwarfed by the deficits.

The fiscal numbers are not irrelevant. They do have meaning. They do point to the bankruptcy of the U.S. government. They cannot be evaded. They can be sustained only for as long as investors, especially the central bank of China, continue to fun what is obviously a suicidal fiscal policy that cannot possibly be sustained for another decade.

CONCLUSION

Most investors hide their eyes. Most voters hide their eyes. All but two members of Congress hide their eyes. There is universal blindness. The masses really do think that the day of reckoning will never come.

They are wrong. It will come. Deferral is a tactic, not a strategy. Blindness is a tactic, not a strategy.

October 29, 2011

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2011 Gary North
 
Link to original article on www.LewRockwell.com : http://lewrockwell.com/north/north1055.html
Published in: on October 29, 2011 at 6:07 pm  Leave a Comment  

TIP OF THE WEEK – A Free Lesson on How to Read a Financial Report

A Free Lesson on How to Read a Financial Report

Jason Brizic

October 28, 2011

A proposed definition of INVESTMENT from “Security Analysis” 2nd ed. (1940) written by legendary investors Benjamin Graham and Christopher Dodd is particularly appropriate for this Tip of the Week.

An investment operation is one which, upon through analysis, promises safety of principal and a satisfactory return.  Operations not meeting these requirements are speculative.

The phrases thorough analysis, promises safety, and satisfactory return are all chargeable with indefiniteness, but the important point is that their meaning is clear enough to prevent serious misunderstanding.  By thorough analysis [Graham and Dodd] mean, of course, the study of the facts in the light of established standards of safety and value.  An “analysis” that recommended investment in General Electric common at a price forty times its highest earnings merely because of its excellent prospects would be clearly ruled out, as devoid of all quality of thoroughness.

The “facts” that Graham and Dodd are referring to are the financial results that are located in company’s quarterly and annual reports.  You should be able to understand how the company makes a profit, what its assets and liabilities are, and how much cash is flowing into the business.  In general, you should have a basic understanding of how to read a financial report.

Merrill Lynch has provided a short 52 page free report on “How to Read a Financial Report”  It is available for free in PDF format at this link http://tinyurl.com/63yr4qs .  I’ve read this document and it is a great introduction to the contents of the typical financial reports worldwide.

There are more free sources on how to read a financial report available from this Google search http://tinyurl.com/3dxe7xq

For more tips, go here:

http://www.myhighdividendstocks.com/category/tip-of-the-week

Published in: on October 28, 2011 at 5:04 pm  Leave a Comment  

AGNC announces pricing of public offering of common stock (again)

If you were wondering why AGNC’s stock price was down 3.87% when the DJIA was up almost 3%, then here is the reason why.

So, before the dust has even settled on AGNC’s 3rd quarter 2011 financials they offer to sell more stock to lever up over 7x.  They have to keep doing this to make their $1.40 per share dividend payments and to have some assets to pledge as collateral for more repurchase agreements.  This is a house of cards.  Leverage works both ways – just as Lehman Bros.

American Capital Agency Announces Pricing of Public Offering of Common Stock

BETHESDA, Md., Oct. 26, 2011 /PRNewswire via COMTEX/ — American Capital Agency Corp. (Nasdaq: AGNC) ("AGNC" or the "Company") announced today that it priced a public offering of 37,000,000 shares of common stock for total estimated gross proceeds of approximately $1.0 billion.

In connection with the offering, the Company has granted the underwriters an option for 30 days to purchase up to an additional 5,550,000 shares of common stock to cover overallotments, if any. The offering is subject to customary closing conditions and is expected to close on November 1, 2011.

AGNC expects to use the net proceeds from this offering to acquire additional agency securities as market conditions permit and for general corporate purposes.

Citigroup, Deutsche Bank Securities and J.P. Morgan Securities LLC are joint book-running managers for the offering. Barclays Capital Inc., Mitsubishi UFJ Securities and Nomura Securities International, Inc. are co-lead managers for the offering. Keefe, Bruyette & Woods, Inc. and Wunderlich Securities are the co-managers for the offering.

The offering will be made pursuant to AGNC’s existing effective shelf registration statement, previously filed with the Securities and Exchange Commission. The offering of these securities will be made only by means of a prospectus and a related prospectus supplement, when available. Copies of the prospectus and prospectus supplement may be obtained from Citigroup, Brooklyn Army Terminal, 140 58th Street, 8th Floor, Brooklyn, New York 11220; telephone: (800) 831-9146; Deutsche Bank Securities, Prospectus Department, Harborside Financial Center, 100 Plaza One, Jersey City, New Jersey 07311-3988, telephone: 1-800-503-4611; J.P. Morgan Securities LLC, c/o Broadridge Financial Solutions, 1155 Long Island Ave, Edgewood, NY 11717, telephone: (866) 803-9204.

This press release does not constitute an offer to sell or the solicitation of an offer to buy shares of common stock, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

Link to AGNC investor relations press release: http://ir.agnc.com/phoenix.zhtml?c=219916&p=irol-newsArticle&ID=1622187&highlight=

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Published in: on October 27, 2011 at 4:50 pm  Leave a Comment  

A first look at Hewlett-Packard (HPQ) after a 49.3% price decline

DIVIDEND RECORD

HPQ has paid an $0.08 quarterly dividend since 1998 with the exception of 4Q2009 (no dividend).  Hewlett-Packard is not a dividend grower that keeps up with price inflation.  Price inflation has eroded about 39% of the dollars purchasing power since 1998, yet the dividend remained the same over this time period.  This is the same effect as a gradual dividend cut.  They finally increased the dividend to $0.12 per share in 2Q2011.

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Dividend: $0.12 quarterly

Dividend yield: 1.76%  ($0.48 DIV/$27.27 share price)

Dividend payout ratio: 11.3%  ($0.48 DIV/$4.26 EPS according to Google Finance)

EARNING POWER $3.99 EPS @ 1.99 billion shares

            EPS                   Net inc.             Shares               Adj EPS

2006     $2.18                $6,198 M           2,852 M             $3.11

2007     $2.68                $7,264 M           2,716 M             $3.65

2008     $3.25                $8,329 M           2,567 M             $4.19

2009     $3.14                $7,660 M           2,437 M             $3.85

2010     $3.69                $8,761 M           2,372 M             $4.40

2011E   $4.67E              $9,293 M E        1,990 M             $4.67 E

6 year average adjust earnings = $3.99 per share

Consider contrarian buying below $31.92 (8x avg. earnings)

Consider value buying below $47.88 (12x avg. earnings)

Consider investment buying between $47.89 and $79.79 (12x – 20x avg. earnings)

Consider speculative selling above $79.80 (20x avg. earnings)

BALANCE SHEET

Hewlett-Packard’s balance sheet is completely stagnant.

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Book value per share: $17.69

Price to book value ratio: 1.5

Current ratio: 1.15 TTM (over 2.0 is good)

Quick ratio: 0.70 TTM (over 1.0 is good)

CONCLUSION

Hewlett-Packard’s dividend is pathetic.  HPQ could be a high dividend stock if the executives would choose to pay 80% of earnings as dividends instead of 10%.  A $0.80/quarterly dividend would result in an 11.7% dividend yield and might get investors a reason not to sell the stock like they have since its $53.86 top in April 2010.  The company’s earnings have held up for the past five years, so something else is the cause of the stock’s decline since April 2010.  HQP does not have a strong balance sheet.  Shareholder equity is stagnant.  Don’t buy HPQ despite its low valuation until you know why the stock has lost 49.3% of its share price since April 2010.  A bear market in stocks informs me that there will be opportunities to buy HPQ at much lower prices.

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DISCLOSURE

I don’t own Hewlett-Packard.

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Published in: on October 27, 2011 at 1:51 pm  Leave a Comment  

American Capital Agency Corp. (AGNC) report 3Q2011 financials after the market closes today.

American Capital Agency Corp. (AGNC) is a high dividend stock yielding 19.5%.  AGNC reports today after the close of the US markets.  Here is the 3 year chart of AGNC.  It is topping out.  More to follow in the next few days following the earning release this afternoon.

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American Capital Agency Corp (NASDAQ: AGNC) is expected to report their earnings today for quarter ended Jun 2009. Revenues are expected to come in at $22.10M. Shares of American Capital Agency Corp traded higher by 1.05% or $0.3/share to $28.86. In the past year, the shares have traded as low as $22.03 and as high as $30.76. On average, 7038620 shares of AGNC exchange hands on a given day and today’s volume is recorded at 3092686. The shares are currently trading below the 200-day moving average but above the 50-day moving average. The stock may be range bound between these two levels where the 200-day moving average of $28.86 represents resistance and the 50-day moving average of $27.74 would be an area of support.

Link to original source: http://www.tickrwatch.com/2011/10/earnings-preview-nasdaq-agnc-nyse-arb.html

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Published in: on October 25, 2011 at 1:13 pm  Leave a Comment  

A Review of Safe Bulkers (SB) 3Q2011 Financials

There was nothing special or concerning in Safe Bulkers (SB) third quarter 2011 financial report.

http://www.safebulkers.com/sbpr101711.pdf

This stock is a value buy under $7.00 per share, but there is significant downside risk due to deteriorating world economic conditions.  The dry bulk shipping market has an oversupply of ships and demand for shipping services at current prices is eroding due to a worldwide recession.  I think there will be another opportunity to buy SB for $2 – $3 per share like in March 2009.

DIVIDEND RECORD

Safe Bulkers is a high dividend stock.  It is currently yielding 8.93% ($0.60 annual DIV/$6.72 share price).

Safe Bulker’s dividend record remains unchanged.  The company management will pay its 14th consecutive dividend payment since the company’s IPO in 2008.  The dividend is unchanged at $0.15 per share.  The dividend payout ratio increased to 53.5% ($0.15 DIV/$0.28 EPS) from 45.5% last quarter ($0.15 DIV/$0.33 EPS).  I will become concerned when this value goes above 80%.  There diminished earnings are more than enough to pay the dividend in the future.

EARNING POWER

Safe Bulkers’ earning power will continue to decline as the world economic recession continues.  Several of its ships will have to take extremely low charter rates in the next few quarters.  The ships at the bottom of this graph will need to find charters in the dismal spot market.  The Pedhoulas Leader, Venus Heritage, and Venus History have charters that end in October 2011.  The Andreas K and the Panayiota K have charters that end in April and May 2012 respectively.  These ships will be a drag on earnings.

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Net income for the third quarter of 2011 decreased by 10% to $19.8 million from $22.0 million during the same period in 2010.  Net income for the first nine months of 2011 decreased by 16% to $66.2 million from $78.5 million during the same period in 2010.  The company’s management reported that the decrease in net income was mostly attributed to: slightly higher net revenues offset by a lower time charter equivalent (TCE) rate, higher vessel operating expenses, increased depreciation, losses on interest rate derivatives contracts, a decrease in interest expense, and some other small financial costs.  For details see their financial statement (linked above).

From Zack’s we read: Safe Bulkers (NYSE:SBSnapshot Report) had sales growth of 1.4% during the last fiscal year. The company has reported $165.6 million in sales over the past 12 months and is expected to report $196.9 million in sales in the next fiscal year.  http://www.zacks.com/research/get_news.php?id=293l8525 .

The higher sales will come from some newbuild ships that are starting service in 2012.  Yawn!  Nothing exciting here and that’s good.  At least you can understand how Safe Bulkers earns its profits (unlike financial institutions and insurance companies).

BALANCE SHEET

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Current asset decreased quite a bit.  They gained possession of the MV Venus History on September 9th, 2011.  That accounts for the gains in Vessels, net.  And they received some advances for vessel acquisition.  All that added up to a 2.9% increase in total assets.

It is nice to see Safe Bulkers paying down some of their debts.  Total liabilities at the end of December 2010 were $561.239 million.  Total liabilities have dropped to $510.035 million as of September 2011.  This improved their overall balance sheet, but they are a little strapped for cash right now.

Book value per share improved from $3.70 in December 2010 to $4.50 in September 2011.  This is a nice increase of 21.6% in book value per share.

CONCLUSION

Safe Bulkers remains a buy below $7.00.  There is downside risk due to the world economy in recession.   You will have an opportunity to buy below book value.  I’m waiting for lows like in March 2009 (approx $2.00 – $3.00 per share).  I don’t own Safe Bulkers yet.

The left side of the following chart scares me.  Nothing has been solved in the world economy.  There is another financial crisis coming.  SB’s stock price will be a victim.  That huge decline is more than enough to wipe out any high dividend gains.

Image007

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Published in: on October 24, 2011 at 1:17 pm  Leave a Comment  

Don’t Trust Those Seasonally Adjusted Jobless Numbers

“Don’t trust those seasonally adjusted jobless numbers” is the title of an excellent Minyanville.com article by Lee Adler.  Mr. Adler goes beyond the Bureaucracy of Labor Statistics drivel to give you the real scoop on the state of jobless claims.  The bottom line is that we are still in the recession that started in 2008.  This is not good for the stock market.

http://www.minyanville.com/businessmarkets/articles/seasonally-adjusted-unemployment-claims-unemployment-data/10/20/2011/id/37497

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Published in: on October 24, 2011 at 12:00 pm  Leave a Comment  

The Evil 1%

The Evil 1%

by Llewellyn H. Rockwell, Jr.

Recently by Llewellyn H. Rockwell, Jr.: The Dawn of Late Fascism

 

   

The "occupy" protest movement is thriving off the claim that the 99% are being exploited by the 1%, and there is truth in what they say. But they have the identities of the groups wrong. They imagine that it is the 1% of highest wealth holders who are the problem. In fact, that 1% includes some of the smartest, most innovative people in the country – the people who invent, market, and distribute material blessings to the whole population. They also own the capital that sustains productivity and growth.

But there is another 1% out there, those who do live parasitically off the population and exploit the 99%. Moreover, there is a long intellectual tradition, dating back to the late middle ages that draws attention to the strange reality that a tiny minority lives off the productive labor of the overwhelming majority.

I’m speaking of the State, which even today is made up of a tiny sliver of the population, but is the direct cause of all the impoverishing wars, inflation, taxes, regimentation, and social conflict. This 1% is the direct cause of the violence, the censorship, the unemployment, and vast amounts of poverty, too.

Look at the numbers, rounding from latest data. The U.S. population is 307 million. There are about 20 million government employees at all levels, which makes 6.5%. But 6.2 million of these people are public school teachers, whom I think we can say are not really the ruling elite. That takes us down to 4.4%.

We can knock of another half million who work for the post office, and probably the same who work for various service department bureaus. Probably another million do not work in any enforcement arm of the State, and there’s also the amazing labor-pool fluff that comes with any government work. Local governments do not cause nation-wide problems (usually), and the same might be said of the 50 states. The real problem is at the federal level (8.5 million), from which we can subtract fluff, drones, and service workers.

In the end, we end up with about 3 million people who constitute what is commonly called the State. For short, we can just call these people the 1%.

The 1% do not generate any wealth of their own. Everything they have they get by taking from others under the cover of law. They live at our expense. Without us, the State as an institution would die.

Here we come to the core of the issue. What is the State and what does it do? There is vast confusion about this issue, insofar as it is talked about at all. For hundreds of years, people have imagined that the State might be an organic institution that develops naturally out of some social contract. Or perhaps the State is our benefactor because it provides services we could not otherwise provide for ourselves.

In classrooms and in political discussions, there is very little if any honest talk about what the State is and what it does. But in the libertarian tradition, matters are much clearer. From Bastiat to Rothbard, the answer has been before our eyes. The State is the only institution in society that is permitted by law to use aggressive force against person and property.

Let’s understand through a simple example. Let’s say you go into a restaurant and hate the wallpaper. You can complain and try to persuade the owner to change it. If he doesn’t change it, you can decide not to go back. But if you break in, take money out of the cash register, buy paint, and cover the wallpaper yourself, you will be charged with criminal wrongdoing and perhaps go to jail. Everyone in society agrees that you did the wrong thing.

But the State is different. If it doesn’t like the wallpaper, it can pass a law (or maybe even not that) and send a memo. It can mandate a change. It doesn’t have to do the repainting. The State can make you repaint the place. If you refuse, you are guilty of criminal wrongdoing.

Same goals, different means, two very different sets of criminals. The State is the institution that essentially redefines criminal wrongdoing to make itself exempt from the law that governs everyone else.

It is the same with every tax, every regulation, every mandate, and every single word of the federal code. It all represents coercion. Even in the area of money and banking, it is the State that created and sustains the Fed and the dollar because it forcibly limits competition in money and banking, preventing people from making gold or silver money, or innovating in other ways. And in some ways, this is the most dreadful intervention of all, because it allows the State to destroy our money on a whim.

The State is everybody’s enemy. Why don’t the protesters get this? Because they are victims of propaganda by the State, doled out in public school, that attempts to blame all human suffering on private parties and free enterprise. They do not comprehend that the real enemy is the institution that brainwashes them to think the way they do.

They are right that society is rife with conflicts, and that the contest is wildly lopsided. It is indeed the 99% vs. the 1%. They’re just wrong about the identity of the enemy.

October 21, 2011

Llewellyn H. Rockwell, Jr. [send him mail], former editorial assistant to Ludwig von Mises and congressional chief of staff to Ron Paul, is founder and chairman of the Mises Institute, executor for the estate of Murray N. Rothbard, and editor of LewRockwell.com. See his books.

Copyright © 2011 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

Link to original article: http://lewrockwell.com/rockwell/the-evil-1-percent194.html

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Published in: on October 23, 2011 at 4:25 pm  Leave a Comment