A First Look at Consolidated Edison. Hint: buy under $40

Bonds outstanding: $475 million

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Not much is coming due anytime soon.  This is good for dividend safety.

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What the company does – Consolidated Edison is a holding company for two regulated utilities: Con Ed of New York and Orange & Rockland. These utilities provide steam, natural gas, and electricity to customers in southeastern New York–including New York City–and parts of New Jersey and Pennsylvania. The company’s electric utility operations generate more than three fourths of Con Ed’s operating revenue. The remainder comes from an energy marketing business and infrastructure investments.

Morningstar’s take – Consolidated Edison’s 200-year-old wires-and-pipes business generates dependable earnings and dividends. Furthermore, New York’s need for significant infrastructure should provide growth investment opportunities for Con Ed over time, supporting long-term earnings and dividend growth.

DIVIDEND RECORD – Consolidated Edison is a slow and steady dividend grower typical of century old utilities companies

Dividend: $0.60 quarterly

Dividend yield: 4.1% ($2.40 annual dividend/$58.38 share price)

Dividend payout ratio: 67% using Google Finance’s recent EPS of $3.56 or 72% using the company’s average adjusted EPS of $3.35.  ED is a dedicated dividend payer.

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EARNING POWER – $3.35 average adjusted earnings per share @ 292.2 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$2.95

$737 M

250 M

$2.52

2007

$3.47

$929 M

267 M

$3.17

2008

$4.37

$1,196 M

274 M

$4.08

2009

$3.14

$868 M

276 M

$2.96

2010

$3.47

$992 M

286 M

$3.39

2011 (est)

$3.95 (est)

$1,160.687 M

292.2 M

$3.95 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$1.06

$311 M

294 M

$1.06

2011 Q2

$0.56

$165 M

294 M

$0.56

2011 Q3

$1.30

$383 M

295 M

$1.30

2011 Q4 (est)

$1.03 (est)

$301.687 M

292.2 M

$1.03 (est)

2011 total (est)

$3.95 (est)

$1,160.687 M

292.2 M

$3.95 (est)

Six year average adjusted earnings per share is $3.35

Consider contrarian buying below $26.80 (8 times average adjusted EPS)

Consider value buying below $40.20 (12 times average adjusted EPS)

Consolidated Edison is currently trading at 17.42 times average adjusted EPS.  This is still priced for investment, but it is getting close to speculative pricing.

Consider speculative selling above $67.00 (20 times average adjusted EPS)

BALANCE SHEET – Consolidated Edison is a slow equity grower.  It doesn’t have a lot of current assets on hand to pay current liabilities (see current ratio and quick ratio below).  It high priced compared to book value.

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Book value per share: $39.93

Price to book value ratio: 1.46 (under 1.0 is good)

Current ratio: 1.17 (over 2.0 is good)

Quick ratio: 0.79 (over 1.0 is good)

Debt to equity ratio: 0.89 (lower is better)

CONCLUSION – Consolidated Edison is a solid dividend payer and a slight grower.  It isn’t a high dividend stock now at over $58 dollars per share, but it is below $40 per share.  At $40 per share the stock would be yielding 6%.  ED has excellent and stable earning power of $3.35 per share @ 292.2 million shares.  Its earnings are not volatile compared to most other industries.  However, ED is almost speculatively priced at 17.42 times average adjusted EPS.  You can buy Consolidated Edison below $40 per share when the stock market tanks in the near future.  The double-dip recession in Europe and the coming recession in China and the US will push equity priced down to their March 2009 lows.  Edison’s balance sheet is unremarkable.  I’d like to see more current assets and cash to cover next year’s current liabilities.  The price to book value ratio would be attractive if the price fell back below $40.  You should consider buying Consolidated Edison below $40 per share.

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DISCLOSURE – I don’t own Consolidate Edison (ED).

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Published in: on January 30, 2012 at 2:23 pm  Leave a Comment  

Doug Casey on the Collapse of the Euro and the EU

Here are some of my recommended action steps to help you with
implementing Doug Casey’s recommendations in his recent article for
LewRockwell.com (http://lewrockwell.com/casey/casey105.html)

1) Buy $10,000 worth of precious metals if you have none. Put 80%
into gold coins from your home country. I recommend tenth ounce gold
coins because they are more tradeable, but they have a higher premium
over the spot price of gold. Go to http://www.kitco.com or http://www.apmex.com to
learn the spot price of gold and silver and the associated premiums
for various coins.

http://www.apmex.com/Category/504/American_Gold_Eagles_2012__Prior.aspx

Put the remaining 20% into one ounce silver coins or junk silver
coins. Junk silver is not “junk”. That is the name of US dimes and
quarters from before 1965. Their composition is 90% silver.

http://www.apmex.com/Product/27/90_Silver_Coins___100_Face_Value_Bag_.aspx

2) Have printed cash on hand to buy valuable tools of production for
your side business from desperate sellers locally (e.g. Craigslist) or

3) I disagree with Doug Casey that the gold mining stocks are cheap
right now. Visit some of the gold mining stock articles on my blog to
see why I don’t think they are so cheap. Here is one to start wiith:
http://www.myhighdividendstocks.com/category/stocks-that-pay-small-dividends/…

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sheets.

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Published in: on January 29, 2012 at 12:56 pm  Leave a Comment  

A First Look at Enbridge Energy Partners (EEP).

Bonds outstanding: $4.8 billion

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What the company does – Enbridge Energy Partners LP is one of the largest crude-oil transporters in America. The company operates the U.S. portion of the Lakehead pipeline system, the world’s longest crude pipeline, which stretches 3,300 miles from the Canadian oil fields in Alberta to Chicago, points east, and is currently being expanded toward the Gulf Coast. The company has several other smaller crude pipelines in the U.S. as well as a sizable natural gas gathering and processing business.

Morningstar’s take – Enbridge Energy Partners, L.P. EEP is a master limited partnership operated by its general partner, Canadian pipeline giant Enbridge Inc. ENB. We’re big fans of EEP’s crude oil business. While its natural gas gathering and processing operations detract somewhat from an otherwise wide moat, they also bring attractive growth potential thanks to booming unconventional natural gas liquids (NGL) production.

DIVIDEND RECORD – EEP issues stock and debt to pay for its dividends not covered by earnings (see cash flow chart further below).  Dividend gaps in 2007 and 2009.

Dividend: $0.53 quarterly

Dividend yield: 6.3% ($2.12/$33.55)

Dividend payout ratio: 203% using the most recent EPS ($2.12 DIV/$1.04 EPS) or 252% using average adjusted EPS ($2.12 DIV/$0.84 avg adj. EPS)

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EARNING POWER – $0.84 six year average adjusted earnings @ 273.15 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.81

$285 M

140 M

$1.04

2007

$1.23

$250 M

173 M

$0.92

2008

$1.82

$403 M

194 M

$1.48

2009

$1.12

$261 M

233 M

$0.96

2010

($1.09)

($260 M)

239 M

($0.95)

2011 (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

EPS

Net income

Shares

Adjusted EPS

2011 Q1

$0.38

$97 M

253 M

$0.36

2011 Q2

$0.51

$130 M

255 M

$0.48

2011 Q3

$0.36

$96 M

265 M

$0.35

2011 Q4 (est)

$0.39 (est)

$106.5 M (est)

273.15 M

$0.39 (est)

2011 total (est)

$1.64 (est)

$429.5 M (est)

273.15 M

$1.58 (est)

Six year average adjusted earnings per share is $0.84

Consider contrarian buying below $6.72 (8 times average adjusted EPS)

Consider value buying below $10.08 (12 times average adjusted EPS)

Consider speculative selling above $16.80 (20 times average adjusted EPS)

Enbridge Energy Partners is currently trading at 40 times average adjusted EPS.  This is highly speculative pricing.

CASH FLOW – Capital expenditures and dividends are being funded from debt and stock issuance; not operating profits.

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BALANCE SHEET – Poor book value to stock price ratio; stagnant increase in equity.

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Book value per share: $14.03

Price to book value ratio: 2.39 (under 1.0 is good)

Current ratio: 1.05 latest quarter (over 2.0 is good)

Quick ratio: 0.91 (over 1.0 is good)

Debt to equity ratio: 1.39 (lower is better)

CONCLUSION – Enbridge Energy Partners (EEP) is a high dividend stock that lacks enough earning power to pay for that dividend out of operating profits.  It funds its dividend from periodic equity and debt issuances.  The stock is speculatively priced at 40 times average adjusted earnings.  The balance sheet is weak due to a high book value per share ratio.  EEP does not have a lot of current assets to pay for its current liabilities.  I would wait until the price drops below $10.08 per share (12 times average earnings).  The European double dip recession and sovereign debt crisis will spread to the USA.  This will tank the stock market.  Buy EEP on sale if you want to.

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DISCLOSURE – I don’t own Enbridge Energy Partners (EEP).

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Published in: on January 24, 2012 at 8:28 pm  Leave a Comment  

TIP OF THE WEEK – Register your stocks in your own name

Register your stocks in your own name

Jason Brizic

January 20th, 2011

The MF Global bankruptcy proved one very important thing.  It proved that your assets are not your assets if you allow your broker to register them in their street name.  In fact, your brokerage can use your assets as their own to make risky derivative bets.  And when they go bust due to bad leveraged bets, then your assets can go to their creditors instead of to you.  This is what just happened in the MF Global bankruptcy.

Protect yourself by registering the stocks you own in your name.

Call your broker and tell them that you want all your stocks registered in your name.  Tell them you don’t want them in street name anymore.  There is a cost to this.  It will cost you time and some money each time you sell your stock certificates, but this is the price you must pay to secure your assets from brokerage theft.  If you are not willing to do this, then you probably should not own stocks.

This will make life very difficult for day traders, but much safer if you are a high dividend stock investor.  The high dividend stock investor buys when companies with earning power and strong balance sheets are priced at a deep discount.  He sells the stocks he owns when the company is not likely to deliver high dividend yields and when earning power and balance sheet strength diminishes.  This usually doesn’t happen overnight, so you can afford to register your stocks in your own name.

Here is an article by Gary North that summarizes the problem nicely.

* * * * * * * * * *

A lot of Americans do not know how ownership of stocks is handled. They think they personally own the stocks in their portfolios. They don’t.

There were investors in MF Global who thought they owned commodities. They didn’t.

Consider this.

Do you own gold and silver mining stocks? Or any stocks for that matter? Even if you say, “yes”, chances are you don’t really own them.

It is one of the dirtiest little secrets in the brokerage business. And 99.9% of people have no idea it is even being done to them. It’s called “street name registration” and it’s how the brokerage where you hold your stocks “registers” your shares. To save money and time, and to allow your shares to be included as assets that they can use to do what they want with, your brokerage never actually registers you as an owner of the shares.

Street name registration allows your broker to lend your shares to short sellers, thereby driving down the price of your own stocks. Additionally, this method allows your broker to “re-hypothecate” your assets–meaning it allows your broker to borrow money against your shares and speculate in the derivatives market.

These hidden risks are planting the seeds of tomorrow’s ultimate collapse – In which there may be a system-wide collapse of broker dealers, taking down millions of investors, and ensuring permanent non-recoverable losses to an entire generation!

Too extreme? Maybe. But consider this:

MF Global investors found out first hand just how secure their funds were. Most don’t realize it, but MF Global was a clearing house for both stocks and futures. Like many/most brokerages, they “invest” their own funds, often on a highly leveraged basis, to earn income. But, with the recent collapse of Greek government bonds and with MF Global’s highly leveraged position in them, MF Global was bankrupted in an instant.

The problem is, they tried to cover their losses with their customer’s own funds. You see, unless your shares are registered in your own name – a process that isn’t that difficult or costly – your brokerage considers it as assets they can use for their own needs.

Plus, once a brokerage goes bankrupt (which is something we expect to happen very often over the coming years) if you hadn’t personally registered your shares then your shares go down as assets of the brokerage and are used to pay off their creditors.

In normal times, this does not happen. We are heading into abnormal times.

Some believe their stocks will be protected by the Securities Investor Protection Corporation (SIPC), which insures stocks accounts from broker collapse up to $500k for securities, and account cash balances up to $250k. But what if you have more than $250k in cash and/or more than $500k of securities in your account? What if one of the largest broker dealers in the country went bust, bringing down thousands of accounts and depleting the entire reserves of the SIPC? What if the SIPC itself goes bankrupt? What few people are aware of, is that the SIPC only carries about $1 billion in funds to cover investors! This means only one or two high profile broker dealer bankruptcies will be enough to completely wipe out the SIPC.

Some may claim the US government will bail out the SIPC to whatever extent needed. But what if two major broker dealers went bust while at the same time the US government suffers a major Treasury bond auction failure? This is all but a certainty in the coming years.

And the same thing applies in Canada to Canadian brokerages and Canadian stocks. The Canadian economy is intricately tied to the US. In fact, not many people are aware, but all that backs the Canadian dollar is the US dollar. The Canadian Government sold all its gold decades ago.

There’s lots more to learn here. Read the full article.

Continue Reading on www.resourceinvestor.com

* * * * * * * * * *

For more tips, go here:

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

Published in: on January 20, 2012 at 1:56 pm  Leave a Comment  

First look at Energy Transfer Partners (ETP).

Bonds outstanding: $7.7 billion.  There are there a bunch on bonds due in the next decade.

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What the company does – Energy Transfer Partners is a master limited partnership primarily engaged in natural gas transportation and storage. The partnership operates more than 17,500 miles of natural gas gathering and intrastate transportation pipelines in Texas and Louisiana and the 2,500-mile Transwestern interstate pipeline. Energy Transfer Partners is also the third-largest retail marketer of propane in the United States, serving more than a million customers across the country.

Morningstar’s take – Energy Transfer has grown into one of the largest master limited partnerships through a steady buildout of large-diameter natural gas pipelines and a few transformative acquisitions. Energy Transfer’s Texas intrastate pipeline system is a phenomenal machine for moving gas around and out of Texas, and its interstate pipelines only increase market access and fee-based cash flows. With the LDH acquisition, however, Energy Transfer has now entered the natural gas liquids business. We think this shift in strategy could lead to considerable growth opportunities for the partnership.

DIVIDEND RECORD – Energy Transfer Partners has been a dividend grower since 1997, but the payout ratio has grown to over 100%.  The dividend hasn’t grown since 2008 Q3.

Dividend: $0.89 quarterly

Dividend yield: 7.2%

Dividend payout ratio: 263% using the most recent EPS ($3.56 annual dividend / $1.35 TTM EPS) or 168% using the average adjusted EPS ($3.56 / $2.12 avg. adj EPS)

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EARNING POWER – $2.12 six year average earnings per share

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

8/2006

$3.15

$516 M

109 M

$2.46

8/2007

$3.31

$676 M

133 M

$3.23

8/2008

$3.74

$550 M

147 M

$2.62

8/2009

$2.53

$426 M

168 M

$2.03

8/2010

$1.19

$229 M

189 M

$1.09

8/2011

$1.37

$271 M

209.59 M

$1.30

EPS

Net income

Shares

Adjusted EPS

2010 Q4

$0.66

$127 M

192 M

$0.61

2011 Q1

$0.71

$140 M

195 M

$0.67

2011 Q2

$0.19

$42 M

210 M

$0.20

2011 Q3

($0.19)

($38 M)

209.59 M

($0.18)

2011 total (est)

$1.37

$271 M

209.59 M

$1.30

Six year average adjusted earnings per share is $2.12

Consider contrarian buying below $16.96 (8 times average adjusted EPS)

Consider value buying below $25.44 (12 times average adjusted EPS)

Consider speculative selling above $42.40 (20 times average adjusted EPS)

Energy Transfer Partners is currently trading at 22.6 times average adjusted EPS.  This stock is speculatively priced.

BALANCE SHEET – ETP has a weak balance sheet

Image009

Book value per share: $24.59 ($5,153 M in equity / 209.59 M shares)

Price to book value ratio: 1.95 (under 1.0 is good)

Current ratio: 0.84 (over 2.0 is good)

Quick ratio: 0.53 (over 1.0 is good)

Debt to equity ratio: 1.49 (lower is better)

CONCLUSION – Energy Transfer Partners (ETP) is a high dividend stock, but it is not earning enough money to sustain the dividend at its current rate.  The company has an earning power of $2.12 per share @ 209.59 million shares.  At a current stock price of 47.98 is it speculatively priced at 22.6 times average adjusted earnings.  Lastly, it balance sheet is weak.  This stock shouldn’t be bought above $25.00 per share.  It will probably suffer a dividend cut and drop back to that price.  You can buy it then for much cheaper and less downside risk.

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DISCLOSURE – I don’t own Energy Transfer Partners (ETP).

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Published in: on January 19, 2012 at 2:42 pm  Leave a Comment  

An excellent video on SOPA and PIPA legislation

There are a lot of blackouts on major websites like Wikipedia.org against PIPA and SOPA.

This is the best video I’ve found on the issue:

http://video.ted.com/talk/podcast/2012S/None/ClayShirky_2012S.mp4

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Published in: on January 18, 2012 at 5:20 pm  Leave a Comment  

Carnival Corp. (CCL) is listing to port. How low will it sink?

Most people have heard about the grounding of the cruise ship Costa Concordia.  If you haven’t, then follow this link: http://tinyurl.com/7b596qk.

Carnival Corp. (CCL) is the parent corporation of the Costa Concordia.  Putting aside the human tragedy of the grounding, Carnival estimates that it will lose at least $85 – $95 million or $0.11 – $0.12 per share.

http://www.sacbee.com/2012/01/15/4190934/carnival-corporation-plc-required.html

I wrote one article on Carnival that said the stock should not be bought above $21.68 (http://www.myhighdividendstocks.com/stocks-that-pay-small-dividends/first-look-at-carnival-corporation-ccl).  That price was before the grounding of the Costa Concordia.  I think that Carnival was already heading lower due to the oncoming double dip recession.  Look at the March 2009 lows.  The ship wreck and ensuing fallout will only make matters worse for Carnival.

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DISCLOSURE – I don’t own Carnival Corp. (CCL)

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Published in: on January 17, 2012 at 1:57 pm  Leave a Comment  

Some Financials on Monsanto (MON)

Bonds outstanding: $3.8 billion

Image003

What the company does – Originally a chemical company, Monsanto has morphed into an agricultural giant, focusing on seeds and crop protection products. In a major breakthrough, Monsanto introduced the first genetically modified crop seeds in 1996 and has remained the industry leader. The St. Louis-based company generated $10.5 billion in sales during fiscal 2010, and is focused on bringing new biotechnology traits to market to improve farmer yields and productivity.

Morningstar’s take – Monsanto is still bouncing back from a series of missteps and misfortune that have plagued the company (and its stock price) during the last couple of years. An overly aggressive pricing strategy for the firm’s latest technology, SmartStax corn seeds and Roundup Ready 2 Yield soybeans, led to weak uptake, price cuts, and lower than anticipated profitability from the firm’s increasingly important seeds and genomics business. Seeds are more important for Monsanto today because profits from the firm’s other business, crop chemicals, have fallen off a cliff after glyphosate overcapacity forced Monsanto to basically cut Roundup prices in half and reset expectations. Adding to the company’s drama, the federal government has started poking around Monsanto’s business, looking for antitrust violations. While this list of bad news sounds daunting, we still believe Monsanto is the premier player in agricultural biotechnology. The company possesses a promising pipeline of seed products and with a few tweaks to its strategy (in our opinion, the firm needs to become more "farmer friendly"), we think Monsanto will right itself and continue generating shareholder value for years to come.

DIVIDEND RECORD – Monsanto is a consistent dividend grower, but it has a low payout and a low yield.

Dividend: $0.30 per quarter

Dividend yield: 1.51 ($1.20 annually / $79.20 share price)

Dividend payout ratio: 41% ($1.20 annual dividend / $2.92 average adjusted earnings)

Image005

EARNING POWER – Monsanto earns an average of $2.92 per share @ 535.41 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.79

$993 M

555 M

$1.85

2007

$3.62

$2,024 M

559 M

$3.78

2008

$3.77

$2,092 M

556 M

$3.91

2009

$1.99

$1,096 M

551 M

$2.05

2010

$2.96

$1,607 M

542 M

$3.00

Average

$2.83

$1,562 M

535.41 M

$2.92

Five year average adjusted earnings per share is $2.92

Consider contrarian buying below $23.36 (8 times average adjusted EPS)

Consider value buying below $35.04 (12 times average adjusted EPS)

Consider speculative selling above $58.40 (20 times average adjusted EPS)

Monsanto is currently trading at 27 times average adjusted EPS.  This is speculative pricing.

BALANCE SHEET – Stockholder equity is not growing much.  The price to book value ratio is way too high for my likings.

Image011

Book value per share: $20.62

Price to book value ratio: 3.84 (under 1.0 is good)

Current ratio: 1.66 latest qtr (over 2.0 is good)

Quick ratio: 1.02 latest qtr (over 1.0 is good)

Debt to equity ratio: 0.14 (lower is better)

CONCLUSION – Monsanto is an evil corporation that is creating franken-foods.  Their GM crops are spreading onto farms that don’t want them.  That is a massive violation of property rights.  Worse, Monsanto then sues the farmers for GM copyright infringement.  That is vile.  I would never buy this stock on moral principles.  http://bestmeal.info/monsanto/company-history.shtml or type evil monsanto into google.  You’ll be amazed what you’ll find.

The company has a measly dividend with a low payout ratio.  On the plus side it is a dividend grower.  It earns an average of $2.92 per share.  This makes the current price of the stock speculative at 27 times average earnings.  Never pay more than 20 times average adjusted earnings for a stock.  Monsanto’s balance sheet is nothing special.  Price to book value is too high at 3.84 times total equity.  This company is not a good deal.

The best time to buy Monsanto in recent years was at the end of June 2010 when the stock was trading at around 14 times average earnings.  Even then at the bottom the dividend yield would have been on 2.7% at today’s $0.30 quarterly dividend.  I don’t think there is much chance of Monsanto becoming a high dividend stock unless its management started paying out 80% of average net income in dividends ($2.33 annual dividend) and the stock dropped in price down to 12 times average earnings.  In that case Monsanto would yield 6.6% ($2.33 DIV / $35.04 share price), but that is not going to happen.  Bye-bye Monsanto.

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DISCLOSURE – I don’t own Monsanto (MON) and I never will.

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Published in: on January 13, 2012 at 2:02 pm  Leave a Comment  

Some Financials on Monsanto (MON)

Bonds outstanding: $3.8 billion

Image003

What the company does – Originally a chemical company, Monsanto has morphed into an agricultural giant, focusing on seeds and crop protection products. In a major breakthrough, Monsanto introduced the first genetically modified crop seeds in 1996 and has remained the industry leader. The St. Louis-based company generated $10.5 billion in sales during fiscal 2010, and is focused on bringing new biotechnology traits to market to improve farmer yields and productivity.

Morningstar’s take – Monsanto is still bouncing back from a series of missteps and misfortune that have plagued the company (and its stock price) during the last couple of years. An overly aggressive pricing strategy for the firm’s latest technology, SmartStax corn seeds and Roundup Ready 2 Yield soybeans, led to weak uptake, price cuts, and lower than anticipated profitability from the firm’s increasingly important seeds and genomics business. Seeds are more important for Monsanto today because profits from the firm’s other business, crop chemicals, have fallen off a cliff after glyphosate overcapacity forced Monsanto to basically cut Roundup prices in half and reset expectations. Adding to the company’s drama, the federal government has started poking around Monsanto’s business, looking for antitrust violations. While this list of bad news sounds daunting, we still believe Monsanto is the premier player in agricultural biotechnology. The company possesses a promising pipeline of seed products and with a few tweaks to its strategy (in our opinion, the firm needs to become more "farmer friendly"), we think Monsanto will right itself and continue generating shareholder value for years to come.

DIVIDEND RECORD – Monsanto is a consistent dividend grower, but it has a low payout and a low yield.

Dividend: $0.30 per quarter

Dividend yield: 1.51 ($1.20 annually / $79.20 share price)

Dividend payout ratio: 41% ($1.20 annual dividend / $2.92 average adjusted earnings)

Image005

EARNING POWER – Monsanto earns an average of $2.92 per share @ 535.41 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.79

$993 M

555 M

$1.85

2007

$3.62

$2,024 M

559 M

$3.78

2008

$3.77

$2,092 M

556 M

$3.91

2009

$1.99

$1,096 M

551 M

$2.05

2010

$2.96

$1,607 M

542 M

$3.00

Average

$2.83

$1,562 M

535.41 M

$2.92

Five year average adjusted earnings per share is $2.92

Consider contrarian buying below $23.36 (8 times average adjusted EPS)

Consider value buying below $35.04 (12 times average adjusted EPS)

Consider speculative selling above $58.40 (20 times average adjusted EPS)

Monsanto is currently trading at 27 times average adjusted EPS.  This is speculative pricing.

BALANCE SHEET – Stockholder equity is not growing much.  The price to book value ratio is way too high for my likings.

Image011

Book value per share: $20.62

Price to book value ratio: 3.84 (under 1.0 is good)

Current ratio: 1.66 latest qtr (over 2.0 is good)

Quick ratio: 1.02 latest qtr (over 1.0 is good)

Debt to equity ratio: 0.14 (lower is better)

CONCLUSION – Monsanto is an evil corporation that is creating franken-foods.  Their GM crops are spreading onto farms that don’t want them.  That is a massive violation of property rights.  Worse, Monsanto then sues the farmers for GM copyright infringement.  That is vile.  I would never buy this stock on moral principles.  http://bestmeal.info/monsanto/company-history.shtml or type evil monsanto into google.  You’ll be amazed what you’ll find.

The company has a measly dividend with a low payout ratio.  On the plus side it is a dividend grower.  It earns an average of $2.92 per share.  This makes the current price of the stock speculative at 27 times average earnings.  Never pay more than 20 times average adjusted earnings for a stock.  Monsanto’s balance sheet is nothing special.  Price to book value is too high at 3.84 times total equity.  This company is not a good deal.

The best time to buy Monsanto in recent years was at the end of June 2010 when the stock was trading at around 14 times average earnings.  Even then at the bottom the dividend yield would have been on 2.7% at today’s $0.30 quarterly dividend.  I don’t think there is much chance of Monsanto becoming a high dividend stock unless its management started paying out 80% of average net income in dividends ($2.33 annual dividend) and the stock dropped in price down to 12 times average earnings.  In that case Monsanto would yield 6.6% ($2.33 DIV / $35.04 share price), but that is not going to happen.  Bye-bye Monsanto.

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DISCLOSURE – I don’t own Monsanto (MON) and I never will.

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Published in: on January 13, 2012 at 2:02 pm  Leave a Comment  

How the New York Stock Exchange Really Works

This gem of an article reprint from LewRockwell.com back in 2009 shows the hidden role of the specialist in the stock exchange.  This is a definite must read.

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August 19, 2009

How the New York Stock Exchange Really Works

Posted by David Kramer on August 19, 2009 08:34 AM

Richard Ney on the Role of the Specialist
by Michael Templain

"The story is told that after he had been deported to Italy, Lucky Luciano granted an interview in which he described a visit to the floor of the New York Stock Exchange. When the operations of floor specialists had been explained to him, he said, ‘A terrible thing happened. I realized I’d joined the wrong mob’" (1Ney, 8).

It was with these words that Richard Ney began his first of three books on the nature of the New York Stock Exchange. Ney wrote over 20 years ago, a time when a 750 Dow was high and today’s volumes were beyond imagining. Some of his material is dated, and must be read in the light in which it was written. But the main premise of his books is still true: that the specialist exists not to ensure the free and orderly trade of stock in a particular company, but to fatten upon the innocence and ignorance of the small investor.

The New York Stock Exchange is not an auction market (2Ney, 86), though many investors still hold onto that image. It is a rigged market. Volume is an effect of price. Prices are controlled absolutely by the specialists, the ‘market makers’ in individual stocks. It was this discovery that led Mr. Ney to eventually give us small investors a priceless gift: enlightenment.

"Studying the transactions in each stock, I became immediately conscious that, on too many occasion to be a coincidence, a stock would advance from its morning low and then, often during the afternoon, would show an up-tick of a half-point or more on a large block of anywhere from 1,500 to 5,000 or more shares. This transaction seemed to herald a transformation in what was taking place, for immediately thereafter the stock would begin to drop like Newton’s apple. Before I could find out what caused this, another question presented itself: What caused the same thing to happen at the low point in that stock’s decline? For it was also apparent that a block of stock of the same size often appeared on a down-tick of a half-point or more, after which the stock quickly rallied. Together these two facts seemed to give a stock’s pattern continuity. At the end of several days of investigation, I discovered that these transactions at the top and bottom of a stock’s price pattern were for the specialist’s own account. … Clod that I was, I had at last recognized that, although the study of human nature may not be fashionable among economists, it is never out of season" (2Ney, 9).

The specialist is part of a system. First, he is part of that rare fraternity of men who are all specialists in an exchange. It is a small private club, to whose membership one can only be born. The specialists of the Dow 30 exhibit the spirit of ‘all for one, and one for all’. If one of the 30 is having problems, the other 29 wait for him, before they move onto their next agreed upon campaign (2Ney, 172). The rest of the specialists take their lead from watching the Dow 30.

But the system is more extensive and more powerful than just the specialists. The specialists are the heart of the exchange. The exchange, in turn, has practical control of the major corporations, banks, insurance companies, and brokerage houses in this country. These, in turn, influence news reporting and the regulatory agencies.

ADVANTAGES OF BEING A SPECIALIST
The specialist has many advantages, many tools to use to pry dollars from unsuspecting investors and mutual funds. Chief among these advantages is his book. In his book he can see at a glance all the buy and sell orders from the public and the funds. His book tells him of potentially massive sales above and below his current price. This gives him a great advantage when he is trading on his own investment and omnibus accounts.

Because of his book, the specialist sees shifts in trends long before anyone else. This gives him a great advantage. The specialist will buy heavily at the bottom of a slide (at wholesale) then advance prices and sell, at heavy volume, at the peak of the rally (retail). He will then sell short and take prices down. The turning points of a rally will be marked by heavly volume in the Dow 30 (3Ney, 85-89).

When he desires he can even make large block trades without entering them into his book. In this way the public is never made aware of those trades. Should the specialist want to supply a buy or sell order from his own accounts, rather than from public orders on book, he can and will do so (1Ney, 156). Ney cites specific examples when his customers orders were ignored while the specialist completed orders for his own accounts.

When serving as the market maker, the broker’s broker, the specialist trades from his Trading Account, which is to be used to service the needs of the market. However, he also has Investment Accounts (plural). His Segregated Investment Accounts put him directly into competition with every other investor in his stock. The reason for he has segregated investment accounts is that they enable him to convert regular income into long-term capital gains (1Ney, 113).

In addition, he also trades on Omnibus accounts, taking orders from a friendly bank on behalf of friends, family, and himself (1Ney, 58). Although he is not allowed to be both long and short in his Trading account, he can take the opposite stance in his Investment or Omnibus accounts (3Ney, 130).

A Specialist will often not have any shares in his trading or omnibus accounts. If public demand for shares suddenly increases, the Specialist is more than happy to supply those shares to the public by short selling. This, of course, forces the Specialist to take the price down soon thereafter, so that he may cover his short sales at the lower price. Or, the Specialist may sell from his Investment Accounts, establishing a middle or long term high (1Ney, 61), and then take the price down. Whichever strategy he employs, a large public demand for stock ultimately drives the price of that stock down, not up.

Distribution of large amounts of stock can be done from the specialist’s trading account, usually as short sales. The trading account can then be covered by transferring stock from the long-term investment accounts into the trading account (1Ney, 64).

The existence of the specialist’s Investment and Omnibus Accounts is ultimately detrimental to the public. "In a stock with only a small capitalization or floating supply, the segregation of large blocks into long-term investment accounts for the specialist further decreases the supply of the stock available to the public" (1Ney, 61)

The specialist has absolute control over price. He can match the buys with the sells in any way he sees fit. He can raise the price of the stock 3 points in three trades, and open the next day down 5.

The seeming unpredictability of stock prices is due to the fact that prices exist at the whim of the specialist. A stock is only worth what the specialist is willing to pay for it at the moment. The fluctuations you see are, in fact, the evidence of how the specialist is working out his inventory problems to meet his short-term, intermediate-term, and long-term goals (2Ney, 172). The specialist will sometimes ‘leap frog’ his prices up or down, creating a gap. This is done to keep a group of investors from buying or selling at a particular price. ‘Leap Frogs’ show specialist intent.

Ney offers specific examples where specialists opened stocks considerably lower:
August 8, 1967 Chicago and Northwestern Railroad opened down 39 points.
October 21, 1968 one of the preferred stocks of TRW opened down 28 points.
February 4, 1970 Memorex opened down 29 1/2 points (1Ney, 15)

"With $8,000, you can buy $10,000 worth of stock, but with $8,000 in stock, any Stock Exchange member can buy $160,000 worth of stock for his own segregated investment account" (1Ney, 112).

Because most investors have margin accounts, and the margin account agreement allows their brokers to lend their shares, specialists have an unlimited number of shares to borrow and sell short (1Ney, 68).

Margin agreements also allow the broker to use their customer’s shares as collateral without the customer’s knowledge or permission. This practice is fraught with dangers. In November, 1963, the Ira Haupt brokerage firm (NYSE), which dealt in both stocks and commodities was caught unwittingly in a scheme by one of its commodities customers to leverage nonexistent salad oil. The failure wiped out the partners of the firm and left it owing some $37 million in debts. "To compound Haupt’s and the New York Stock Exchange’s problems, it was impossible to return the stock to customers because the stock (held by the brokerage firm for its customers) had been pledged to banks by Haupt" (1Ney, 122).

Margin accounts usually allow the broker to borrow any cash in the account to use for his own purposes at no interest, even to lend back to the customer for margin purchases, at interest (1Ney, 119).

At the bottom of a cycle of a stock, having panicked customers into selling, the brokers and specialist borrow the customers’ money to make their own long-term purchases; using their advantageous margin to acquire large amounts of stock. At the top of the cycle the process is reversed. Customers are paid back their money by the brokers and the specialist selling their shares to customers at a profit. The insiders even have extra cash to loan customers for margin purchases (1Ney, 136).

Another powerful tool for the specialist is the short sale. Though the specialist is responsible for 85 percent of the short selling done in a stock, the Exchanges are loathe to print any timely data on specialist short sales (2Ney, 94)(3Ney, 234). The specialist uses the short sale to control both downward and upward movements of stock (3Ney, 88).

The private investor or mutual fund can only sell short on an up- tick. The up-tick rules serves only to trap the public into selling short at the bottom, as the specialist drives the price down without a single up-tick for the public’s use (1Ney, 72). But the specialist need not even create an up-tick to sell short. The SEC has been careful not to publicize its rule 10a-1(d), in which sub-paragraphs (1) through (9) exempt the specialist from the up-tick rule (2Ney, 97)(3Ney, 126, 215).

The Securities Exchange Act of 1934 prohibits pegging, the act of artificially holding a stock’s price at a certain level for the advantage of the person or persons doing the pegging. However, SEC rule X-9A6 (1940) allows pegging by specialists in order to ‘maintain an orderly market’ while a large-block distribution of shares is taking place (2Ney, 117).

THE CORPORATION, THE SPECIALIST, AND THE EXCHANGE
The specialists and brokers hold shares "in street name" for investors, and therefore can vote the proxies for those shares. Officers in a corporation must report to the SEC any trading they do in the shares of their own company. Yet the Specialist reports his profits in trading the shares in that same corporation to no one (1Ney, 54-55).

The specialist, one of his partners, a friendly broker, their lawyers, or their bankers, often sit on the company’s board of directors, which makes the specialist privy to information before the average trader. Where an officer of a corporation is held strictly accountable to the SEC for his use of ‘inside information’, the specialist and fellow brokers are accountable to no one (1Ney, 54-55).

"It is an ideal situation. When you control a corporation’s proxies, everyone is sympathetic to your point of view and your choice of directors. This is the other reason why nearly every major corporation listed with the Exchange (NYSE, M.T.) has a broker or a broker’s banker on its board. It gives the exchange a pipeline to that corporation" (1Ney, 90).

Large brokerage houses, large banks, and the New York Stock exchange use dummy corporations as fronts to hold large portions of stocks in corporations. A list from any large corporation of its largest stockholders will be a roll of these very dummy corporations, who show up on list after list of major stock holders in America’s largest corporations (2Ney, 19-23).

The intertwining of interests runs even deeper when the relations of Wall Steet’s top Law firms are examined. For example, in 1974 the New York Stock Exchange’s legal counsel also represented Chase Manhattan Bank. Both entities, through their dummy corporations, were large stockholders in scores of major U.S. corporations (2Ney, 26).

THE EXCHANGE, THE SEC, THE FEDERAL RESERVE, AND THE WHITE HOUSE

"The bankers’ man, Senator Carter Glass, who steered the Federal Reserve Act through Congress in 1913, had maintained that the Federal Reserve banks would be merely ‘lenders of money.’ The only collateral they were to accept was notes that could be paid when, in the course of business, goods and services had been manufactured and distributed. However, almost from the day of its inception, the Federal Reserve System set about making loans on common stocks" (1Ney, 103).

Who sits on the Federal Reserve Board? … Chief officers of banks and corporations, all of whose companies are controlled by the Exchange (1Ney, 103-105).

Billions, perhaps trillions of dollars worth of stocks are now held by banks as collateral for loans. This too works to the advantage of the specialists. For, to protect their interests, banks will issue stop orders to sell the stock before it falls below a certain price. The specialist holds those stop orders in his book and therefore knows exactly where a large number of shares can be had, and at what price they can be purchased. One quick sweep down those ranges of prices will deliver to the specialist the inventory he desires for short and mid-term purposes (1Ney, 101).

On June 30, 1934 President Roosevelt appointed Joseph Kennedy to be the first Chairman of the SEC. Only 4 months before, Kennedy, along with Mason Day, Harry Sinclair, Elisha Walker, and others were found to be responsible for operating ‘pools’ that were actively manipulating stock. When these, "poolsters withdrew and the boom collapsed the administration denounced the men who operated them" (1Ney, 215). But what’s a little denouncement between friends?

The stock markets had been headed downhill since December of 1968. On May 26, 1969 a party was held at the Nixon White House. In attendance were John Mitchell, Maurice Stans, Peter Flannigan, thirty five guests from Wall Street, fourteen industrialists, seven bankers, five heads of mutual and pension funds, and two heads of insurance companies. The next day a bull rally began on Wall Street. May 27th saw the Dow Jones 30 average rise by 5 per cent in one day (2Ney, 71).

On April 17, 1971, President Nixon, who along with Attorney General Mitchell had been a Wall Street lawyer (Maurice Stans was a broker), appeared for photographs with friends from the New York Stock Exchange. Nixon recommended the public to invest in the market. By April 28th the market was in a steep decline. Nixon circulated, "to 1,300 editors, editorial writers, broadcast news directors, and Washington bureau chiefs a list of the stocks of ten corporations that had advanced during the past year" (2Ney, 32).

There is a revolving door between the exchange and Washington. SEC Chairmen ‘retire’ to go to work for the Exchanges or major brokerage houses at many times their government salaries (2Ney, 50-63). SEC Chairman Hamer Budge was found by Senator Proxmire’s investigation to be making frequent trips to Minneapolis to confer with officials of IDS. IDS was under investigation at the time by the SEC. After leaving the SEC, Budge took the position of Chairman of the Board with IDS (2Ney, 56).

NEWS AND FINANCIAL REPORTING
It is highly unlikely that we will see news reports critical of U.S. stock exchanges, or of the specialist system. There is a simple reason for this. All news organizations are corporations and do but reflect their management’s views. Corporations that own media have specialists influencing the choice of management. Newspapers, magazines, and television are but extensions of the corporate world.

When Richard Ney’s first book, The Wall Street Jungle, came out it was on the New York Times best seller list for 11 months. Yet the New York Times would not review it. The Wall Street Journal refused to take an ad from a New York bookstore that featured The Wall Street Jungle (2Ney, 30).

All three of the major networks were wary of having Ney appear. NBC banned only two people from appearing on the Tonight show with Johnny Carson: Ralph Nader and Richard Ney. Not only do large banks, brokerage firms, and corporations advertise on television, they also are the largest stock holders (2Ney, 33- 34).

SPECIALIST STRATEGY
The specialist should be thought of as a merchant with some rather unique inventory problems and opportunities. His goal, always, is to buy at wholesale prices and to sell at retail. This applies to his actions in the course of trading day as well as a year of trading.

At the bottom of a slide the specialist will buy heavily for his trading, investment, and omnibus accounts. His goal then becomes to raise the price of his stock with his wholesale inventory intact. In practice, though, he may have to sell shares to meet public demand. This will cause him, then, to lower the price to re-accumulate his inventory before he can proceed to higher levels.

A rally begins while the price of the average stock is still falling. "Major rallies begin and end with the unexpected," (3Ney, 184).

To stimulate public demand for his stock, near the high the specialist will raise the angle of the rising prices dramatically for the stock. True to one of Ney’s axioms that prices beget volume, the public will rush into the market place at the rally high. The specialist can now sell his accumulated inventory to fill the increased demand. Heavy Dow 30 volume at the high is evidence of heavy short sales by the specialists (3Ney, 113).

When the specialist has sold all his inventory, and has sold short, he will then begin a downward slide of prices so necessary to his plans. Slides are a mirror of rallies. Near the bottom, the specialist will increase the angle of price decline, alarming investors, scaring them into selling their shares to the specialist who needs them to cover his short sales, and to build a new inventory at wholesale. The media will remain bullish, or cautiously optimistic throughout a slide, until the last two weeks, when they will turn suddenly bearish (3Ney, 158).

TIPS FROM RICHARD NEY:
Specialists in the most active stocks will require more time than their fellow specialists to move stocks up or down, or to cover at the top of a rally or the bottom of a slide (2Ney, 84-85).

Specialists may use a rally as a ‘stalking horse’ for a later rally. Price is used like a geiger counter to locate volume (3Ney, 149).

During the typical bear market, or slide, the specialists will usually bring prices up on Fridays, to keep investors hopes alive (2Ney, 92).

Leaders of the rally in the Dow 30 will often act as ‘screens’ for the price declines of the other 24 or 25 Dow stocks.

Each stock exhibits its own distinct pattern or rhythm of price behavior (2Ney, 189).

THINGS OF WHICH TO BE AWARE
How can you spot the nadir of each high and low? Ney says to look at volume very closely. In particular look at the volume of the individual Dow 30 Industrial stocks (2Ney, 171). Get to know these specialists’ habits. Follow what they do. Patterns of behavior will emerge.

Ney emphasized that a sense of timing was critical for survival in the market (2Ney, 149).

Ney was convinced that detecting Specialist short selling was a key. Specialist short selling at the peak of a rally should be detectable through increased volume.

Richard Ney used charts extensively. Ney was quick to point out that what is really being measured in his charts is not the behavior of the masses in the marketplace, but the techniques of the specialist in an individual stock as he maneuvers to solve short-term, intermediate-term, and long-term inventory problems (1NEY, 259).

Ney points to the gaps in prices that develop when a specialist is trying to ‘catch up’ with the market. These gaps, be they up or down, signal specialist intent (2Ney, 172).

"Investors assume that what happens in the economy or to the corporation in terms of earnings or sales determines the trend of stock prices. … The most misleading element in this type of analysis is that it ignores the basic needs and motivations of the specialist system" (2Ney, 150).

We, as consumers react to certain critical numbers. Specialists know this. Specialists use the 10’s (10, 20, 30, etc.) and 5’s (5, 15, 25, etc.) in their strategies. They will use these numbers to elicit heavier buying or selling from the public. Often too, though, they will avoid critical numbers to avoid buying or selling stock when they do not wish to do so (2Ney, 155-156 & 163).

NEY’S SMALL INVESTOR TRADING RECOMMENDATIONS (1Ney, 297-301)
1. Do not buy the acknowledged leader in a field. Buy the number 2 or 3 company. These companies are more likely to be subject to bull raids by the specialists (1Ney, 298).
2. "Nothing puzzles me more than an investor’s willingness to pay more than fifty dollars a share for stocks. Buy low priced stocks. It’s percentages you’re after and you’ll get them in these stocks in a bull market" (1Ney, 298).
3. Invest only in stocks listed on the NYSE.
4. Do not buy secondary offerings from your broker.
5. Buy only stocks whose prices have fallen at least 35 to 50 percent.
6. "The rule, ‘Cut your losses and let your profits ride,’ was invented by a broker" (1Ney, 298).
7. The average investor need not worry about tax brackets, so do not hesitate to sell at a profit. "A short-term gain is better than a long-term loss" (1Ney, 299).
8. Own your stock. Do not use margin.
9. Do not sell short.
10. Do not allow your stock to be borrowed (via a margin account; M.T.)
11. Credit balances should be immediately transferred to your bank.
12. Do not leave your stock with your broker in street name.
13. Invest only in growth oriented, not income, stocks.
14. 4 to 5 stocks in a portfolio is plenty.
15. Make arrangements with your bank to receive your stock.
16. If there has been a major advance from the summer lows, look for the public to begin selling 6 months hence.
17. Big block sales at the end of a run-up (usually marked by heavy volume) marks the imminent decline in price.
18. Look for bull raids in May, up from the April 15th tax low.
19. Never enter stop or limit orders.
20. If you are interested in a stock, learn its specialist’s habits.
21. Stocks that are ideal for bull raids are those that decline as close as possible to an angle of 45 degrees.

Works Cited:
1Ney, Richard. THE WALL STREET JUNGLE, fifth printing. New York: Grove Press, Inc., 1970.
2Ney, Richard. THE WALL STREET GANG, third printing. New York: Praeger Publishers, Inc., 1974.
3Ney, Richard. MAKING IT IN THE MARKET. New York: McGraw-Hill, 1975

[The source for this essay is here. I posted my version of the entire essay because I edited out comments that the author Michael Templain made that I disagreed with, i.e., I felt he didn’t grasp fully what Ney had written. You can read the original essay for yourself in order to make up your own mind. If you decide to read the books, read them in chronological order. They are impossible to find in a library, and are very expensive to buy used.]

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Link to original article: http://www.lewrockwell.com/blog/lewrw/archives/33424.html

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Published in: on January 12, 2012 at 1:14 pm  Leave a Comment