matisse capital management

Positive Inflation in the Eurozone

A change of direction.  After seven months of negative inflation (see chart above), the EU registered a positive number of 0.6% in November.  According to Eurostat, most of the increase was in energy prices.  Core inflation (which excludes energy and food prices) is still trending downward.  According to economists, inflation is expected to increase again in December.

Dubai World - No Government Rescue

Dubai World requests a debt "standstill."  By now everyone has heard that Dubai World, the company that supervises investments and developments for the government of Dubai, has asked for a "debt standstill:" the delay of all debt payments until the end of May 2010.  A subsidiary of the company has a payment of $3.4 billion due on December 14.  Dubai World is the developer of the Burj Dubai, a 160-story tower, the tallest building in the world.  Recent estimates place Dubai World's total debt at $59 billion, or about 3/4 of the emirate's total debt of $80 billion.  According to the Globe and Mail, Dubai's government has disavowed responsibilty for Dubai World's debt: 

“Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai's department of finance. “They think Dubai World is part of the government, which is not correct."

And, "Nakheel (a Dubai World subsidiary) earlier on Monday asked for three of its Islamic bonds, worth a total of $5.25-billion, to be suspended on Nasdaq Dubai until it was in a position to “fully inform the market."

In my opinion, the distinction between Dubai World and the government is one of semantics.  It remains to be seen which EU and US banks are holding this debt...

Companies Raising Dividends - 11/27

    BDX, Becton Dickinson, from $0.33 to $0.37, quarterly; yield = 2.0%

    BOBE, Bob Evans Farms, from $0.16 to $0.18, quarterly; yield = 2.8%

    CPB, Campbell Soup, from $0.25 to $0.275, quarterly; yield = 3.1%

    HRL, Hormel Foods, from $0.19 to $0.21, quarterly; yield = 2.2%

    MKC, McCormick & Co., from $0.24 to $0.26, quarterly; yield = 2.9%

    NKE, Nike Inc., from $0.25 to $0.27, quarterly; yield = 1.7%

    ORIT, Oritani Financial Corp., from $0.05 to $0.075, quarterly; yield = 2.4%

    ROP, Roper Industries Inc., from $0.083 to $0.095, quarterly; yield = 0.7%

    SJI, South Jersey Ind., from $0.2975 to $0.33, quarterly; yield = 3.7%

    UBSI, United Bancshares, from $0.29 to $0.30, quarterly; yield = 7.1%

    YORW, York Water, from $0.126 to $0.128, quarterly; yield = 3.5%

A Renewed Downturn for Housing - "Flat is the New Up"

Two indices show prices faltering.  From the NYT: "The Standard & Poor’s Case-Shiller home price index... a measure of the housing markets in 20 metropolitan areas, barely rose in September, rising 0.3 percent from August on a seasonally adjusted basis.....(and) A report from the Federal Housing Financing Agency showed that prices were flat in September from August...'There is no clear, easy way out for housing,' said John Silvia, chief economist at Wells Fargo. 'Contrary to my hopes, housing prices and the housing market in general will weaken again.' He forecast a new decline in prices of as much as 10 percent, which he expected to shave a half-point off the nation’s economic output just as it emerges from the recession...Maureen Maitland, the vice president for index services at S.& P., said the oversupply of inventory was acting as a brake.  'You can look down the street and have 10 houses to choose from,' she said.

About 3.57 million used homes are for sale, a number that...represents seven months of inventory at the current sales rate...'They’re not buying as investors, they’re buying as homeowners,' said Grant Stern of Morningside Mortgage Corporation in Bay Harbor Islands, Fla., near Miami Beach. 'Nobody expects a 50 percent gain. Flat is the new up.'"  Note:  The August 20-city Index only had two cities with negative appreciation:  Las Vegas and Detroit.

Price Declines Aug-Sep: Boston -0.2%, Charlotte -0.7%, Cleveland -1.6%,  Dallas -0.7%, Denver -0.5%, Las Vegas -0.9%, New York -0.3%, Portland -0.5%, Seattle -0.4%, Tampa -0.6%.

Price Gains Aug-Sep: Chicago 1.2%, Detroit 1.8%, Los Angeles 0.8%, Miami 0.5%, Minneapolis 1.8%, Phoenix 0.8%, San Diego 0.9%, San Francisco 1.3%, Washington 0.6%.

Companies Raising Dividends - 11/18

    AWH, Allied World Assurance, from $0.18 to $0.20, quarterly; yield = 1.7%

    BF-B, Brown Forman, from $0.2875 to $0.30, quarterly; yield = 2.3%

    CATC.OB, Cambridge Bancorp, from $0.33 to $0.35, quarterly; yield = 4.7%

    FSC, Fifth Street Finance Corp., from $0.25 to $0.27, quarterly; yield = 10.6%

    INTC, Intel Corporation, from $0.14 to $0.1575, quarterly; yield = 3.1%

    MLAB, Mesa Labs, from $0.10 to $0.11, quarterly; yield = 1.8%

    UVV, Universal Corporation, from $0.46 to $0.47, quarterly; yield = 4.1%

Roubini: "The Jobs Just Are Not Coming Back"

Nouriel Roubini on unemployment, selected tex below.  It sounds like he's advocating a return of the Works Progress Administration (WPA) the agency that carried out public projects during the Depression.  You can find the entire article at The New York Daily News.  

"Think the worst is over? Wrong. Conditions in the US labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%."

Friday's Bank Closures

• Pacific Coast National Bank, San Clemente, California
• Orion Bank, Naples, Florida
• Century Bank, FSB, Sarasota, Florida

Pacifc Coast National bank had $134.4 million in assets.  Orion Bank had $2.7 billion in assets, while Centruy Bank had $728 million in assets.  The failure of these three institutions will cost the FDIC an estimated $986.4 million, per AP.  So far this year, the FDIC has closed 123 banks, the highest number since the S&L crisis.  You can get a list of all bank closures since 2000 here.  

EU Economy Rebounds, Slightly

Euro Zone out of recession, per the NYT, chart left.  "the euro area emerged from recession during the third quarter, helped largely by export growth and improved industrial production in its largest economy, Germany.....Eurostat reported Friday that gross domestic product for the 16 countries using the single currency expanded by 0.4 percent from the second quarter, following 5 quarters of contraction. Against a year earlier, G.D.P. was still 4.1 percent lower."

Companies Raising Dividends - 11/11

    ADP, Automatic Data Processing, from $0.33 to $0.34, quarterly; yield = 3.2%

    CIFAF.PK, CI Financial, from C$0.05 to C$0.06, monthly; yield = 3.7%

    CLF, Cliffs Natural, from $0.04 to $0.0875, quarterly; yield = 0.9%

    DV, DeVry, Inc., from $0.08 to $0.10, semi-annually; yield = 0.4%

    FMMH.OB, Fremont Michigan, from $0.03 to $0.04, quarterly; yield = 0.7%

    MHLD, Maiden Holdings, from $0.06 to $0.065, quarterly; yield = 3.6%

    PRU, Prudential Financial, from $0.58 to $0.70, annually; yield = 1.4%

    SPAN, Span-America Medical, from $0.09 to $0.10, quarterly; yield = 2.5%

Note: ADP is a member of the ever-dwindling Dividend Aristocrat list.  Over the last 10 years, it has increased its dividend at an average annual compound rate of 15.6 percent.

In 1983, Unemployment was 10%...

By July 1983, as a result of the 1981-82 recession, the US unemployment rate reached 10%.  Inflation was high, at 11.8% in January 1981, a hangover from the late 1970s.  And in n mid 1981, the Fed was still fighting inflation; the effective federal funds rate was an incredible 19% (see the chart above).  To stimulate the economy, the  Fed began easing rates, below 10% by 1983.  And by year end 1984, unemployment dropped to 7.2%. Although this was the last period of high unemployment, it's easy to see how it differed from the current one.  For one thing the Federal Reserve had a lot more room to stimulate the economy by manipulating interest rates.  In July of 1983, the effective federal funds rate was 9.3%.  The effective federal funds rate, as of November 2009, is 0.12%.   Note: pre-1987, the main rate in the US was called the discount rate.