Day 2 of beating the indexes continued today, but this time the rest of my portfolio joined in:

BAC: 0.15 to $7.35 (2.08%, -7.55% overall)–bought at $7.95
CBRL: 0.86 to $61.27 (1.42%, 11.38% overall)–bought at $55.01
NNVC: 0.03 to $0.67 (4.69%, -6.94% overall)–bought at $0.72
SLRC: 0.07 to $21.77 (0.32%, -5.76% overall)–bought at $23.10
SPXU: 0.38 to $54.50 (0.70%, 1.00% overall)–bought at $53.96
STD: 0.02 to $5.32 (0.38%, 0.38% overall)–bought at $5.30 today

OVERALL: +0.57%

(Hat tip to Sadhill News for the picture. Link: http://sadhillnews.com/2011/04/10/obamas-victory-lap-round-the-lincoln-memorial)

There are times when a stock get so cheap, that all things considered, it MUST be bought. Banco Santander (STD) is one of those stocks at one of those prices.

I was reading Jim Jubak’s explanation for owning it (see link #1 below) and I agreed with his reasoning, specifically that the biggest Spanish-related threat to Santander is a complete default by Spain on it’s sovereign debt. Other than that, Santander’s exposure to Spain is only about 26-28% of it’s portfolio.

In addition to Jubak’s review, I would also recommend Caiman Valores’ review over at Seeking Alpha (see link #2 below), which shows their underwriting isn’t as bad as some American banks (including Bank of America and Citigroup).

But to top it off, Santander is just cheap:

P/E: 8.13
Forward P/E: 6.71
PEG: 0.37 (anything below 1.0 is good)
Book value/share: 10.07
Dividend Yield: 17.0%
Payout ratio: 76% (below 100% is acceptable, below 50% is preferred)

Jubak puts a target price in the range of $7.25 to $9.50 on STD. However, with a 17% yield, and assuming it remains around that level (STD’s dividend fluctuates with the euro/dollar, so it could drop some), I would go so far as to take a “Buffett” position on this one: Buy and hold it forever. Or at least for 6 years, because that is how long it would take a 17% dividend to pay off your initial investment.

I added a small position of STD at $5.30 today.

#1 Link: http://jubakpicks.com/2012/05/30/at-current-prices-i-think-the-risks-in-banco-bilbao-vizcaya-and-banco-santander-are-largely-political-which-doesnt-make-they-any-less-real-or-any-easier-to-judge/#more-9068

#2 Link: http://seekingalpha.com/article/628341-banco-santander-paying-the-price-for-its-association-with-spain?source=feed

Prior to this morning’s “punch to the gut” economic reports, the index futures were looking surprisingly positive. To me, that reads like a poker “tell”: The markets (or the powers that be which control them) want to go up. It is the last day of the month, so hedge funds and mutual funds have a lot at stake. They have to make the monthly numbers look good…

Even so, a drop at the open still seems likely, but don’t be surprised if we get a seemingly unexplainable bounce sometime today. However, it would take an incredible bounce (+6.4%) to get the S&P 500 into positive territory for May. I can’t recall it ever going up that much in one day. (Maybe they can get Morgan Stanley’s underwriters to arrange it, like they kept Facebook above $38 on the IPO day?)

Here are the S&P 500 levels to watch today:

UPSIDE: 1313-1318 (the closing prices for 5 of the last 7 trading days were in this range), 1316 (10 day moving average), 1324 (the high on two consecutive trading days last week), 1328 (last week’s high), 1331 (yesterday’s high), 1334 (this week’s high), and 1415 (May’s high, and it ain’t happening today!).
DOWNSIDE: 1310 (the low on 3 of the last 6 trading days, including yesterday), 1296 (low from May 23rd), 1295 (last week’s low), 1291 (May’s low), and 1282 (bottom of the Bollinger Bands).

I bolded 1310 and 1296 because we haven’t had a low, high, or close between those 2 numbers since May 17th, when we closed at the low of the day, 1304. However, we have passed through that level 3 times since May 17th. If we drop below 1310, don’t be surprised if we go all the way down to 1296, or lower.

ADP’s Employment Report disappointed this morning, showing 133,000 jobs added in May (versus consesnsus expectations of 154,000, pre Bloomberg). In addition, ADP revised April’s number down to 113,000, from 119,000.

Add to that this weeks jobless claims report, which came in at a disappointing 383,000, versus the Bloomberg estimate of 370,000.

On top of all the bad news about jobs, the 1st quarter GDP was revised downward to 1.9% growth, versus the prior estimate of 2.2% and the Bloomberg estimate of 2.0%.

With all of this bad news, index futures have started dropping. And there is more…

CNBC: US Planned Layoffs Jump 53%: Challenger Report
http://www.cnbc.com/id/47626277

My jaw dropped when I read this:

Job cuts jumped by 53 percent in May from April in the United States, with Hewlett-Packard’s layoffs propelling the computer industry to the top spot among the biggest job cutters this year, a report by consultancy firm Challenger, Gray & Christmas showed on Thursday.

Employers announced plans to cut 61,887 staff from their payrolls in May, 67 percent more than in the same month of last year. The figure represents the most job cuts since last September.

Admittedly, this is quite bad. However, it seems like most of this is economic “creative destruction”, where obsolete jobs get replaced with newer jobs. Unfortunately, this transition can take awhile. Meanwhile, the economy takes a hit.

Bloomberg: Microsoft Recruits Designers in Race for Windows Apps
http://www.bloomberg.com/news/2012-05-31/microsoft-recruits-designers-in-race-for-windows-apps.html

You have to give Microsoft credit for effort, even if they are late to the game:

Microsoft Corp. (MSFT) is so eager to have a panoply of applications for the next version of its Windows operating system that it has lined up design firms, recruited interns and sent engineers on an around-the-world road show to help developers get them built.

Unlike Apple Inc. (AAPL) and Google Inc. (GOOG), which run the world’s largest app stores, Microsoft doesn’t have the luxury of waiting for programmers to come knocking when they want to create downloadable games, productivity tools or online magazines for its computer software.

As Microsoft struggles to keep up with a technology landscape that is moving beyond the age of PCs into the future of tablets and apps, the company is pulling out all the stops to stake a claim to the tablet market. Demand for tablets has been bolstered by an app market expected to reach $58 billion by 2014, according to Gartner Inc.

“It’s going to be very important to have a lot of apps,” said Bill Predmore, president at Pop, a Seattle-based company that designs and develops apps, including a Windows 8 app for Major League Soccer. “You’re competing with the iPad. You have to have some compelling alternative to that.”

Microsoft will release Windows 8, a revamped version of its flagship software, by year-end, and will put out an almost complete iteration called a Release Preview today, people with knowledge of the matter said. Yet the machines that are most comparable to the iPad — which boasts more than 200,000 apps — won’t be able to run older Windows apps, forcing Microsoft to start from scratch. The company is under pressure to fill the gap because consumers won’t clamor for computers that lack a wide array of downloadable tools.

Windows 8 is the first Microsoft operating system for computers that use chips based on ARM Holdings Plc (ARM) technology. These chips are widely used in mobile devices, including the iPad. The trouble is, Microsoft’s ARM-based devices will run only apps designed specifically for Windows 8 — and none of the millions of programs already available for Intel-based machines.

I won’t say this makes Microsoft instantly competitive with Apple or Google. They will need an extra “something” which has yet to be defined. But the apps will be needed to bring them to the game.

NPR: Should We Kill The Dollar Bill?
http://www.npr.org/blogs/money/2012/04/19/150976150/should-we-kill-the-dollar-bill

Our story begins last month inside a busy Washington, D.C. subway station plastered with posters of giant dollar bills. One of them says: “Tell Congress to stop wasting time trying to eliminate the dollar bill.” Another asks: “Do you heart the dollar?”

Political fights in the nation’s capital normally involve billions or even trillions, not single dollars. What’s going on here?

This being Washington, there’s a back story. The $70,000 ad blitz was part of a small lobbying war over the fate of the dollar bill. On one side, leading a legislative charge to eliminate the dollar bill and replace it with a dollar coin, are Sens. Tom Harkin, D-Iowa, and John McCain, R-Ariz.

“The most important thing is it’s just more efficient. It’s way more efficient than a paper dollar,” Harkin says. “Canada has a coin that’s worth $2 … Switzerland has one worth about $5… And yet, what have we got? We got a 25-cent piece.”

It’s worth noting that Harkin and McCain both represent states that are home to businesses that profit from the production of dollar coins.

In Harkin’s case, it’s PMX Industries Inc., of Cedar Rapids. The company provides metal sheets the U.S. Mint uses to make coins. Harkin says he was pro-coin before PMX was doing business with the U.S. Mint, and so comes to the issue “with clean hands.”

McCain’s state, Arizona, has the nation’s most productive copper mines, and dollar coins are made mostly of copper…

On one level, the logic is persuasive. Coins last longer, so they might make a better choice for supplying the country with pocket money. But coins also cost more to make.

But when you do the math, the situation is more complicated.

To be fair, the people making the case for the paper dollar also have something at stake. Paper advocates include Crane & Co., which has been making the paper for U.S. bills since 1879. The firm started Americans for George, which is responsible for that subway ad campaign.

“U.S. currency: It’s some of the most durable banknotes on the planet,” says company vice president Douglas Crane, “And the one-dollar bill is probably the hardest-working note there is.

Now a coin-versus-bill cage match is on. Harkin’s bill would require Federal Reserve banks to stop putting $1 bills into circulation in as little as four years.

To make their arguments, both sides in the skirmish point to the same reports from the Government Accountability Office, a non-partisan arm of Congress.

In its most recent report, the GAO recommends switching to coins, which could make $4.4 billion for the government over 30 years. But the report says the government benefit does not come from the fact that coins are more cost effective. Instead the benefit comes from something called “seigniorage.”

Seigniorage is the profit the government makes from having money out in the economy. More money out there means more profit for the government.

Over time, coins earn more seigniorage for the government, but only because we don’t like using them.

“Lots of people when they take coins out of their pocket or purse at the end of the day put them in what we call a coin jar,” says the GAO’s Lorelei St. James, who oversaw the agency’s most recent study.

As a result, the GAO estimates that if the government were to eliminate $1 bills and switch to coins, it would have to replace every two bills with three coins, because one of the coins would sit idle.

So more coins means more profit for the government. But where does that profit come from? It comes from us — the public.

If you put a dollar coin in a coin jar, that’s a dollar you haven’t invested, a dollar you’re not doing anything with. Economists consider this a kind of tax.

Aside from the obvious question, “This is what our politicians are worried about?”, do we really need another tax from the government? Personally, I would prefer them having a discussion about how to cut spending, not how they can secretly leech more money out of the American people.

I added SPXU again at the end of the day (after selling yesterday’s position earlier today), and got a little reward in the last few minutes:

BAC: -0.23 to $7.20 (-3.10%, -9.43% overall)–bought at $7.95
CBRL: -0.48 to $60.41 (-0.79%, 9.82% overall)–bought at $55.01
NNVC: -0.03 to $0.64 (-4.48%, -11.11% overall)–bought at $0.72
SLRC: 0.06 to $21.70 (0.28%, -6.06% overall)–bought at $23.10
SPXU: 0.16 to $54.12 (0.30%, 0.30% overall)–bought at $53.96

OVERALL: +0.41%

As you can see, I also blew out the indexes today, which all dropped greater than 1%. Yay me…

Yesterday’s S&P 500 finish (at 1332) above the 1291-1328 range doesn’t necessarily signal an upside breakout. Based on this morning’s futures, it could be exactly the opposite, with a big drop coming. With several major economic reports in store Thursday and Friday, the markets could be pulling back in anticipation of bad things coming. At the very least, a run-up today would be an oddly optimistic market assessment of what are expected to be pessimistic reports.

My prediction: Don’t be surprised if we revisit yesterday’s S&P 500 low of 1318 before the end of the day today. But I would also expect a small move up at the end of the day (we are near the end of the month and professional fund managers have to make their holdings look good), so we may not finish at the day’s low.

S&P 500 levels to watch today:

UPSIDE: 1334 (yesterday’s high) and 1344 (20 day moving average).
DOWNSIDE: 1318 (yesterday’s low), 1317 (10 day moving average, and possible support), 1310 (the low from May 22nd and 24th), 1304 (the low and the close from May 17th), 1295 (last week’s low), and 1291 (May’s low).

Bloomberg: Apple CEO Says TV Is ‘Intense Focus,’ Sees Closer Facebook Ties
http://www.bloomberg.com/news/2012-05-30/apple-ceo-sees-scope-for-more-u-s-manufacturing-of-products.html

Ever since I got Netflix’s streaming video service, I find the idea of Apple’s iTV more intriguing:

Apple Inc. (AAPL) Chief Executive Officer Tim Cook said that television is an area of “intense focus” for the company as it seeks to add products that can build on the success of Macs, iPhones and iPads.

“This is an area of intense focus for us,” Cook said of TV in an on-stage interview yesterday at the D10 conference in Rancho Palos Verdes, California. “We’re going to keep pulling this string and see where it takes us.”

Apple co-founder Steve Jobs, before he died last year, told his biographer that he had “finally cracked” how to build a TV with a simple user interface that would wirelessly synchronize content with Apple’s other devices. The company is working on a television that may be unveiled this year and released in 2013, according to Gene Munster, an analyst at Piper Jaffray Cos.

The problem here is that Samsung already makes televisions that come with internet access. What will Apple build that is better than Samsung’s televisions? If anything, I think an Apple tv will bring more attention to Samsung’s tv’s.

Bloomberg: Billionaire Lee Fights Back Relatives Over Samsung Shares
http://www.bloomberg.com/news/2012-05-30/billionaire-lee-fights-back-relatives-over-samsung-shares-tech.html

The article above is must-reading for anyone wanting to understand the ownership structure of Samsung. Specifically:

During his long and controversial career, Samsung Electronics Co. Chairman Lee Kun Hee has transformed his family’s dried-fish and produce company into the world’s biggest maker of TVs and mobile phones, challenging Apple Inc. (AAPL) and Sony Corp. in the process. Now he must contend with feuding siblings.

Billionaire Lee, 70 years old and South Korea’s wealthiest citizen, is facing down lawsuits that his older brother and sister are waging in an attempt to win a slice of the family wealth. Lee Byung Chul founded what is today South Korea’s biggest business group in 1938 and died in 1987 without leaving a will, casting a shadow over the $153 billion electronics company’s future.

The siblings’ demand for at least an $850 million stake in the group that generates about 20 percent of South Korea’s gross domestic product threatens to be a costly distraction at a time of intense industry competition. The civil trial started today.

Read the whole article.

Businessweek: ‘Likejacking’: Spammers Hit Social Media
http://www.businessweek.com/articles/2012-05-24/likejacking-spammers-hit-social-media

As if you needed a reason to avoid Facebook:

Spammers create as many as 40 percent of the accounts on social-media sites, according to Risher. About 8 percent of messages sent via social pages are spam, approximately twice the volume of six months ago, he says. Spammers use the sharing features on social sites to spread their messages. Click on a spammer’s link on Facebook (FB), and it may ask you to “like” or “share” a page, or to allow an app to gain access to your profile.

Facebook and Twitter have hired programmers and security specialists to deflect the flotsam. “Tens of millions of dollars are spent on our site-integrity systems, including hundreds of full-time employees,” says Facebook spokesman Frederic Wolens.

This has to make you wonder how many accounts on Facebook are actual people and not spammers. If Facebook only has 60% “real people”, think about how much less that stock is worth.

Speaking of Facebook…

Bloomberg: Zuckerberg Drops Off Billionaires Index as Facebook Falls
http://www.bloomberg.com/news/2012-05-29/zuckerberg-drops-off-billionaires-index-as-facebook-extends-fall.html

Mark Zuckerberg, Facebook (FB) Inc.’s co- founder and chief executive officer, is no longer one of the world’s 40 richest people.

The 28-year-old’s fortune fell to $14.7 billion yesterday from $16.2 billion on May 25, as shares of the world’s largest social-networking company dropped 9.6 percent to $28.84. That extended the stock’s losses to 24 percent from the worst- performing large initial public offering in the past decade.

Let me get out the world’s smallest violin for him…

I added ProShares UltraPro Short S&P500 (SPXU) at the end of the trading day. Even if the market doesn’t drop tomorrow, and it could, I feel safe holding it into the economic reports at the end of this week.

Although my portfolio didn’t beat the indexes today, it was still a good day:
BAC: 0.29 to $7.44 (4.06%, -6.42% overall)–bought at $7.95
CBRL: 1.07 to $60.89 (1.79%, 10.69% overall)–bought at $55.01
NNVC: 0.00 to $0.67 (0.00%, -6.94% overall)–bought at $0.72
SLRC: -0.09 to $21.64 (-0.41%, -6.32% overall)–bought at $23.10
SPXU: -0.13 to $51.87 (-0.25%, -0.25% overall)–bought at $52.00 today

OVERALL: +0.35%

Until I see the range broken from last week, I expect the S&P 500 will remain inside the 1291-1328 range.

At the moment, the index futures are pointing to a slightly positive open for the S&P 500, up a few points. Don’t be surprised if we challenge the top of the range today.

Here are the S&P 500 levels to watch:

UPSIDE: 1318 (10 day moving average), 1324 (Thursday and Friday’s high), 1328 (last week’s high, which could be resistance), and 1347 (20 day moving average, although I doubt we go this high today).
DOWNSIDE: 1314 (Friday’s low), 1295 (last week’s low), 1291 (bottom of our current trading range, which could be support), and 1281 (bottom of the Bollinger Bands).

We get a truckload of important U.S. economic reports on Thursday and Friday this week, including: ADP Employment Report, 2nd guesstimate on 1st Quarter GDP, Unemployment Rate, and Nonfarm Payrolls. There are more, but those are the big ones.

Bloomberg: Rajoy Seeks European Backing as Spain’s Access Narrows
http://www.bloomberg.com/news/2012-05-28/rajoy-seeks-european-backing-as-spain-s-access-narrows.html

To summarize, the problem with Spain isn’t so much it’s debt, as it’s banks:

Spanish Prime Minister Mariano Rajoy called for a show of force from European authorities as his government sought ways to avoid tapping markets to fund the bailout of the nation’s third-biggest lender [Bankia].

“Europe has to dissipate any doubts about the euro,” the premier told a hastily called news conference in Madrid yesterday. It “must affirm that the euro is an irreversible project and act in consequence,” he said.

…“The truth is that Spain can’t do this on its own — it can’t afford to bail out or recapitalize its banking system,” Olly Burrows, a credit analyst at Rabobank International in London, said by phone. “Spain itself doesn’t need a bailout — this has always been about the Spanish banks, but it’s also true that you can’t borrow money from someone who doesn’t have it.”

Rajoy repeated yesterday that he wouldn’t seek a European rescue for the nation’s banks. Still, he said the European Stability Mechanism, which is due to start operating as a permanent rescue fund in July, should be able to recapitalize struggling banks directly, bypassing national governments.

European leaders are split over the issue, an EU official said on May 22, as the statutes say support must be channeled through national governments. Rajoy said “a lot of people” agreed with him, without giving details.

Rajoy also called for help from European authorities to address the “sustainability” of public debt. He didn’t name the ECB, as he did on May 23 when he called on the central bank to support Spanish bonds after a meeting of European leaders.

ECB Executive Board member Jose Manuel Gonzalez-Paramo said in an interview with Spanish state newswire Efe today that the government should talk less about what the central bank should do. The ECB has already shown “largesse” to Spain, which was the main beneficiary of its decision to offer 1 trillion euros of three-year loans to banks in December and February, Gonzalez- Paramo said.

Using public-debt securities instead of cash to bailout BFA-Bankia (BKIA), the lender Spain nationalized on May 9, may shift the burden of recapitalizing it to the Frankfurt-based ECB as banks can use such securities as collateral to get cash from the central bank. Spanish lenders’ net average borrowings from the ECB rose to a record 264 billion euros in April, compared with 42 billion euros a year earlier, according to data from the Bank of Spain.

…Spain’s bank-rescue fund, which has already committed 18.7 billion euros, equivalent to 1.8 percent of gross domestic product, to shoring up lenders, has 5 billion euros in cash. BFA-Bankia, with the biggest Spanish asset base, said on May 25 it would need 19 billion euros to clean up toxic assets and bolster capital.

Spain can’t afford to bailout their banks, and Europe is lukewarm on the idea. Basically, we can expect European leaders (or the ECB) to wait until they have no choice but to bailout Spain’s banks. While this is going on, we can expect Spain’s sovereign debt to take a hit, with their 10 year bonds already yielding over 6%.

CNBC: Greece to Leave Euro Zone on June 18: Wealth Manager
http://www.cnbc.com/id/47587509

More fun and games with Greece:

Greece will leave the euro zone on June 18 if the populist government wins the country’s elections on the 17 as the rest of the euro zone rounds on “cheaters,” Nick Dewhirst, director at wealth management firm Integral Asset Management, told CNBC.com Monday.

Interesting prediction. We will see how true it is…

In other Greek news:

Christine Lagarde, the head of the International Monetary Fund (IMF) sparked criticism in Greece after saying that Greeks needed to start paying their taxes, with Socialist leader Evangelos Venizelos accusing her of “insulting the Greek people.”

I am just curious how long Mr. Venizelos has lived in Greece? Surely he must know that Greeks are notorious tax-dodgers? Or does he consider it ok to dodge taxes, just as long as nobody outside the country calls them tax dodgers?