matisse capital management

Japan's New Stimulus and its Public Debt

In 2007, Japan's GDP growth rate began declining.  In 2008, it was -0.7%, and 2009 projections are lower still.  For much of the last decade, GDP growth has been under 2.0%.  To reverse this trend, the new government has announced a 10-year spending plan to push real GDP growth over 2% per year, and to create new jobs.  Per the Financial Times: "The strategy, which was laid out on Japan’s final market trading day of 2009, is thought to be an attempt by the Government to quash rising domestic fears over the country’s gargantuan mound of public debt. The debt equates to about 180 per cent of GDP and will probably hit 200 per cent in the wake of the record budget announced last week....Halfway through the Government’s ten-year plan, Japan's debt relative to GDP may rise to 246 per cent, according to analysts from the International Monetary Fund. The ambitious ten-year plan would see Japan shift some of the focus of its giant economy, with new emphasis placed on environmental technology, science, tourism and medical care."  If the debt rises to 246%, that will make Japan second only to Zimbabwe for debt as a percent of GDP.  To put things in perspective, public debt as a percent of GDP for the US is currently = 60.8%; for Italy it is 103.7%, Russia = 6.8%, Denmark = 21.8%, Brazil = 40.7%. 

Commercial Real Estate Data from Moody's

Another month of declining prices.  The Moody’s Commercial Property Price Index was released yesterday.  The index purports to measure the performance of all property types nationwide (office, retail, industrial and apartments).  As reported in Retail Traffic, commercial prices dropped 1.5% in October.  Moody's has compiled this data since the fourth quarter 2000, when the index was set at 100.  The peak occurred in October 2007, when the index reached 192.  Currently, it is at 108, down 43.7% from the peak, and 36.4% from one year ago.

Will the Pound and Euro Reach Parity?

The prospect seems likely.  The pound is currently trading at about €1.11, after previously reaching a low of €1.02, about one year ago.   If it does reach parity, it will create more diuffiulties for UK citizens paid in pounds, but paying thier mortgages in euros on homes in Spain, France or any EU member state.  Per the Financial Times, the root of the problem is Britain's £178 billion budget deficit:

"Douglas McWilliams, the chief executive of the Centre for Economics and Business Research, said that the British economy was walking 'five yards away from the edge of the cliff' and could be toppled by an “unexpected gust”...'If I had to bet, I would bet on the side of parity being broken,' said Mr McWilliams...“There is still a pressing need on whoever is Chancellor after the general election that is due by mid-2010 to be much more transparent on public spending cut details and tax rises in order to win credibility over the long-term recovery of the UK’s public finances,” said Howard Archer, chief UK and European economist at IHS.

Recession Shifts Population Growth

The Great Recession has shifted domestic migration patterns - i.e., the movement between states of people already living in the country, this per the Washington Post.   Many states that had previously been engines of growth, like, Florida, Nevada and Arizona have either lost population or had minimal growth over the last year.  From the US Census, the states that lost the most population due to out migration between 2008 and 2009 were:

• California, -98,798
• New York, -98,178
• Michigan, -87,339
• Illinois, -48,249
• Ohio, -36,278
• New Jersey, -31,690
• Florida, -31,179
• Maryland, -11,163
• Minnesota, -8,813
• Connecticut, -7,824

  The states that had the biggest in-migration are listed after the jump:

Moody's Cuts Greece's Debt Rating

From the NYT:

Moody's downgraded Greece to A2 from A1, citing the country's swelling budget deficit. ...Government steps announced in the last few weeks to curb the deficit are likely to prove only partially effective, Moody's said, keeping its outlook for Greece negative, meaning the country risks a further downgrade....But Moody's also made clear that it saw little chance of a near-term financing crisis in Greece and that instead, the risks were long-term. Its downgrade was smaller than the two-notch cut which the markets had feared, and its new rating for Greece was still two notches above the BBB+ assigned by Fitch and S&P. 

More Companies Raising Dividends

    ACV, Alberto-Culver Inc., from $0.075 to $0.08, quarterly; yield = 1.1%

    BCE, BCE, Inc., from $C0.405 to $C0.435, quarterly; yield = 5.9%

    D, Dominion Resources, Inc., from $0.438 to $0.4575, quarterly; yield = 4.7%

    ENSG, The Ensign Group, from $0.045 to $0.05, quarterly; yield = 1.3%

    GIS, General Mills, from $0.47 to $0.49, quarterly; yield = 2.8%

    T, AT&T, from $0.41 to $0.42, quarterly; yield = 6.1%

    VLGEA, Village Super Markets, from $0.23 to $0.24, quarterly; yield = 3.4%

Companies Raising Dividends - 12/14

    DPL, DPL Inc., from $0.285 to $0.3025, quarterly; yield = 4.3%

    EIX, Edison International, from $0.31 to $0.315, quarterly; yield = 3.5%

    HMN, Horace Mann Educators, from $0.053 to $0.08, quarterly; yield = 2.6%

    WU, Western Union, from $0.04 to $0.06, quarterly; yield = 1.3%

In addition to the companies above that have already raised their dividends, there is speculation that Pfizer (PFE) may increase its dividend.  And that this dividend increase could be as high as 20.0 percent.   Meanwhile, in Canada, Laurentian Bank (LB.T) increased its dividend nearly 6%, the first major canadian Bank to do so since September of 2008.  Will the other major banks follow suit?  Disclosure: The author is long PFE.

France Follows on Bonus Tax

From Bloomberg and Guardian UK:

 “'We can only tax them if we tax them both sides of the Channel,' Sarkozy said in Brussels today. 'We want and we wait for others to do the same, because we are in a globalized world...' France will enact a tax next year on 2009 banker bonuses. The tax will apply to bonuses exceeding 27,000 euros ($40,000), two officials said yesterday.... 'In 2009, the financial sector was in such a situation it had to call on taxpayers’ money,' French Finance Minister Christine Lagarde said today in Paris. 'It’s only fair that in relation to that particular year there is an exceptional contribution to the state.  An exceptional contribution is fully justified.'"

Britain's 50% Bonus 'Supertax'

Banker's bonuses in London face a new tax.  A 50% tax will be levied on all bonuses over £25,000, as announced by Alistar Darling, Chancellor of the Exchequer.  From the Guardian:

"There are some banks who still believe their priority is to pay substantial bonuses to some already highly paid staff." He added: "Their priority should be to rebuild their financial strength and increase their lending. So I am giving them a choice. They can use their profits to build up their capital base. But if they insist on paying substantial rewards, I am determined to claw money back for the taxpayer."

"Anti-avoidance measures are also being introduced with immediate effect and HM Revenue & Customs made it clear that 'it will not be possible to avoid bank payroll tax by the use of loans which are in substance earnings,or by channeling a bonus through an employee benefit trust or similar intermediary vehicle.'

Screening for Utility Stocks

Looking for another utility stock.  A year and a half ago, I sold my shares of Constellation Energy (CEG) after the company anounced it was cutting its dividend a second time.  The company's shares had dropped from a high of $107 in early 2008, to $24 by September that year.  This, after CEG anounced it had accounting problems, never a good sign.  To stave off bankruptcy, a rescue deal was crafted with Warren Buffet's MidAmerican Energy.  I am now looking for a boring utlity stock - one that will stay in business, without wide swings in its share price, and will pay a regular, increasing dividend.  I began my search by screening utility stocks.  My screen criteria?  Sectors: electric, gas and water utilties.  PEG Ratio: 0-2.  Dividend Yield:  3.0%+.  Standard & Poor's Rating:  3 or 4 stars.  The results were as follows:

• D, Dominion Resources, Inc.
• DPL, DPL Inc.
• ETR, Entergy Corporation
• FPL, FPL Group, Inc.
• NU, Northeast Utilities System
• UGI, UGI Corporation