Sunday, May 3, 2009

REITs in Barron's/ Clarification on Qualified Dividends & REITS/Condi Rice Interview by Stanford Students: If the President Does it, Then it is Legal

Added 6/1/2009: For those interested in those preferred issues that pay qualified dividends, the free site QuantumOnline has collected them in one place (free though registration is required): Preferreds eligible for the 15% Tax Rate Table -

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This is a link to a video of Condi Rice being questioned by  Stanford  students more aggressively than any member of the press has ever done.   YouTube -   A more than a trace of arrogance is shown in this video from Condi.  Rice said the U.S. did not torture.  She would not answer a direct question about whether waterboarding was torture.  She also said basically that anything that the President does is legal because the President does it.  Is that belief consistent with true conservatism or some other "ism" altogether?  Maureen Dowd discussed this interview in her column this Sunday.  Maureen was tough on Bill and Hillary too. Since the headknocker reads papers including the NYT, some incorrectly identify him as a liberal, for in certain company, only liberals read the "elitist, liberal & mainstream" propaganda, which is defined to mean by the True Believers as any information not originating from approved sources like Rush and Sean.    I view the advocacy of an imperial Presidency to be at his core the precise opposite of American Conservative Values.  FASB Rule 159 and Bank Earnings/ Torture and the Imperial Presidency: Why are those Conservative Values?/

Sam and Pam were at HQ today.  Sam basically said in polite terms that LB was a doofus for not knowing- before this weekend- that it was possible to navigate to the internet from links contained in a saved pdf.  RB said about hundred times after that, "see LB is not so, so smart after all, just an egghead with a plague of stinking rules."  One of these days the nerd is going to delve into that rule book and get so lost in it that he will never come back, sort of like that graduate student at Tulane back in the early 1970s who started reading Being and Time by Martin Heidegger, and never returned to this world, sort of like that.  LB replied that those charges are bogus, it was just an egghead version of Big E. 

I do not own Aon common stock but I am managing risk in its junior bonds in TC form.  Aon is the world's largest insurance broker. Due to the bond position, I read its earnings release. Yahoo! Finance Revenue fell 3% and the adjusted earnings of 76 cents fell below the consensus estimate of 88 cents. The stock closed down $5.82 to 36.38.  As a bondholder, I am not concerned about this report.  Stockholders can worry about earnings misses.  This is still a profitable company that is doing well for the economic environment now.  AON was hurt by currency exchange.  

Barron's had a negative article on commercial REITs and had unpleasant comments about some of my lottery tickets, including Glimcher and CB & L properties, quoting from an analyst that those REITs were zombies.

Those REITs and others do have a very high ratio of debt to equity, but that was do the precipitous falls in their respective share prices.  CB & L has had a surge in stock price recently, giving up some of its large price appreciation off recent lows after a lousy report from Simon Property.  

When I have discussed these REITs, I have been critical of their leverage, just way too much debt in constant need of refinancing. 

For those who have been around real estate people, there is a tendency among many of them to blow up their firms with debt periodically, and in that respect share many of the same personality flaws  of investment bankers.  I would almost swear under oath that many of them consider debt to be a form of equity.  Ask one what he is worth, and he might say 45 million, when actually the big wheel owns properties worth 40 million with 45 million in debt on them. 

I called both the preferred and common stocks that I currently own in GRT and CBL to be lottery tickets, a speculative gamble on the recovery with purchases made at opportunistic prices.  Duality of Long Term Risks/Stocks Under $5: Per Se Lottery Tickets A cumulative preferred of GRT was purchased at $2.9 which gives me around a 75% yield based on a $25 par value, with two dividends received since that purchase. That is another reason why I raised my goal to 15 to 20% for the equity preferred sub-asset class.  If GRT makes it, I have 75% annualized return built into that position. 

This is a link to a general  S & P report on preferred stocks:  .pdf

This is a helpful document prepared by Boston Properties, Mort Zuckerman's firm Learn_About_REITs.pdf  Item number 12 of that release states when the dividends will be treated as qualified.  So it is more limited than I previously thought.  I checked my 1099s from 2007 and 2008 and found that I did not own any REIT securities in 2007 that paid me a qualified dividend, and  the dividends of the few common and cumulative preferred stocks owned in 2008 were classified as both qualified and non-qualified, as well as other designations, in my 2008 1099.  I also noticed a significant percentage amount of dividends classified as returns of capital in 2008.  Buy of UL/GRT/China Lectures U.S./Return of Capital Adjustments & Long Term Capital Gains/FASB/Google & Skype/   The part classified as a return of capital is excluded from dividends altogether on the 1099 and instead requires a downward adjustment in the cost basis by the amount of the payment so designated as a return of capital. 

ADDED AND REVISED 10:00 PM 5/3/09: So this issue will need to be revisited in  2010 after receiving my 1099 for 2009 which will have a broader sample of issues.  LB is not a tax nerd.  RB AGREED THAT LB WAS NOT A TAX NERD, BUT LB WAS A MAGNET FOR ESOTERIC TAX ISSUES.    THE QUANTUM SITE SAYS THAT THE DIVIDENDS FROM REIT PREFERRED STOCKS ARE NOT QUALIFIED DIVIDENDS.

The lottery ticket asset class is  meaningless in terms of the total dollars invested in this asset class.  I do enjoy trying to find a gem on two in the carnage, and view this effort to be only a better alternative than actually buying powerball tickets.  I have been on a winning streak lately however with several 100% + gains. 

I noticed some visitors were interested in the Verizon bond in TC form.  I have now found 4 functionally equivalent Trust Certificates containing the same underlying senior bond from Verizon as a result of using the Quantum site.   This means that the TCs contain the same bond with the same maturity and differ only as to the coupons payable by the TC.  Thus, it becomes a question of which one has the best yield at the price when the purchase decision is made.  It is entirely possible on any given occasion for the lowest coupon to have the highest yield, and to have significant disparities in the yield at a snapshot in time for functionally equivalent securities.  Those variations have narrowed a great deal since I started discussing them, not to say that I have had any impact.  It may have just been a coincidence. 

The four TCs with the same Verizon bond are listed in the postLINKS TO FINRA INFORMATION ON UNDERLYING BONDS IN TRUST CERTIFICATES
Anyone interested in the subject of tying information about pricing of the TC to the underlying bond pricing may want to return to that post since I will be updating it with information as I assemble it from its current haphazard storage location rather than writing a new post with additional links.  I want all of the links myself in one post. 

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