Thursday, October 31, 2013

Bought 50 BDNPRE at $23.14 Roth IRA/Bought: 200 NMO at $12.02, 300 MIN at $5.24, 100 RioCan REIT at C$25.65, 50 EVERPRA at $22.05, 50 ARU at $24.5, 50 AGIIL at $21.11/Bought 10 FHLC @ $25.39 and 10 FTEC at $25.12 (commission free ETFs-Fidelity Customers)/Sold 50 of 100 GYC at $20.8/More Reasons to Repeal Obamacare/Obama as Bystander in Chief/Gerrymandering and Democracy

Big Picture Synopsis


Short Term: Expecting a 10%+ Correction
Intermediate and Long Term: Bullish

Individual investors have decided to jump back into the stock market with increasing gusto. For the week ending October 23, conventional funds and ETFs took in a net $65.6B. Lipper US Fund Flows

I am finding it increasingly difficult to find any stock to buy.

For the moment, I am content to keep a significant cash allocation and to use all my cash flow as well as minor amounts of my cash allocation to buy individual bonds, bond funds, and bond like securities in very small doses.

In my parlance, bond like securities include BDCs, Equity REITs, Equity Preferred Stocks, individual MLPs and MLP funds.  


Short Term: Slightly Bullish
Intermediate and Long Term: Slightly Bearish

The bond forecast is based on interest rate normalization and assumes an average annual inflation rate of 2%-2.25% over the next ten years.

The Coca-Cola Company sold $5B in bonds last week. Most of the shorter ones are likely to produce negative real rates of return before taxes. For example, the coupon on the new KO 2018 note is 1.65%. The 2.45% note due in 2020 has a chance to produce a slightly positive real rate of return before taxes. 

Recent Developments:

The Fed decided to continue buying $85B per month in treasuries and mortgage backed securities after noting that the fiscal policy "is restraining economic growth", the "unemployment rate remains elevated" and "the housing sector slowed somewhat in recent months". FRB: Press Release--Federal Reserve issues FOMC statement--October 30, 2013 Overall, the FED believes that economic activity has "continued to expand at a moderate pace" but wanted more data that "progress will be sustained before adjusting the pace" of asset purchases.

The FED's balance sheet will probably expand to over $4T before there is any taper. System Open Market Account Holdings - Federal Reserve Bank of New York I have to be concerned about how the market will react when QE ceases, and the FED then owns a massive chunk of the outstanding MBS and treasury paper.

CPI rose a seasonally adjusted .2% in September. On a non-adjusted basis, CPI rose 1.2% for the 12 months ending in September. Consumer Price Index Summary

Industrial production increased .6% in September. For the 3rd quarter, industrial production increased at an annualized rate of 2.3%, with manufacturing output increasing at an annualized rate of 1.2% during the quarter. Capacity utilization for total industry increased to 78.3% which is 1.9% below its long run average. Industrial Production and Capacity Utilization

Producer prices fell a seasonally adjusted .1% in September. Over the past year, wholesale prices have increased an unadjusted .3%. Producer Price Index News Release

ADP reported that private employers added 130,000 jobs from September to October.

With rates moving down again, mortgage applications increased by 6% in the week ending 10/25.

Chicago PMI was reported at 65.9, beating handily the consensus estimate of 54.5.

GE Dividend Reinvestment:

I decided to change my dividend option to payment in cash. The most recent dividend bought shares at a $26.1. I would prefer having the cash rather than shares bought at that price:

Adams Express:

Adams Express is a closed end stock fund that launched just in time for the 1929 stock market crash. It was one of the few CEFs that survived the Great Depression.  About Adams Express The fund does not use leverage. The CEFs that crashed and burned in 1929-1932 used a lot of leverage.

I own almost 900 ADX shares and have quit investing the dividend. My last reinvestment was for the 2012 year end distribution, when I bought 33.737 shares at $10.455 with a $352.72 dividend payment ($285.18 in a long term capital gain distribution: snapshot at Item # 6 CEF Reinvestment Snapshots)

I may sell 200 shares, my highest cost shares, before year end in order to lower my average cost per share. I would consider selling them within a $13.1 to $13.3 range before the December distribution. Those shares have generated so far $310 in dividends, mostly long term capital gains distributions and could be sold profitably. The disposition of those highest cost shares would reduce my average cost per share below $10. I would then use the proceeds to buy back some or all of those sold shares when and if I could lower my average cost per share.

ADX is currently committed to "an annual distribution rate of at least 6%". The 2012 distribution rate was 6.3%. (home page lower right hand corner: Adams Express Company). This fund will avoid return of capital distributions. The only way for it support a 6% annual distribution rate is through capital gains. Most of the dividend for the year will be paid at year end and will consist of capital gains.

ADX recently released its third quarter report. I will always review shareholder reports. For ADX, I will first look at the letter to shareholders which will contain information about the capital gains realized to date. The fund has realized already this year $53.761+M in capital gains or $.58 per share ADX q-3_2013.pdf At page 5 of the report, I noted that the fund has $272+M in unrealized gains. The fund will be able to support its managed distribution with capital gains this year.

The fund has started to become more aggressive in repurchasing its shares which historically have traded at large discounts. During the nine months ending in September, the fund repurchased 860,045 shares at an average price of $12.26 and a weighted average discount of -13.6%, "resulting in a $.02 increase to NAV per share".

If there was a major downturn in the market, wiping out most or all of the unrealized gains, then the fund would likely end the managed distribution policy, provided it was necessary to avoid a ROC distribution.

ADX no longer provides in its shareholder reports the buys and sells made during the quarter. That information is available at its website:  Quarterly Changes in Portfolio Securities In the 2013 third quarter, I see an unusual amount of activity for this fund. adx_quarterly changes_09/30/13.pdf There were a number of large and important adds. The fund bought 65,200 of the baby Berkshire shares and made large purchases of the Utilities Sector ETF and the Consumer Discretionary ETF. Those two ETFs would be the Select SPDR products.

ADX is managed by its employees. There is no external management agreement. Since the retirement of its President, the fund has become aggressive in trading and has started to use ETFs as part of that trading strategy. During the third quarter, the fund bought 130,000 shares of the SPDR S & P 500 ETF and sold 250,000 shares of that ETF.

The repurchases have yet to narrow the traditionally high discount.

ADX at CEFConnect


1. Bought 50 BDNPRE at $23.14-ROTH IRA (see Disclaimer):

Snapshot of Trade:

2013 Roth IRA Bought 50 BDNPRE at $23.14
Security Description: The Brandywine Realty Trust 6.9% Cumulative Preferred Series E (BDN) is an equity preferred stock that pays cumulative dividends at the fixed coupon rate of 6.9% on a $25 par value.  Brandywine has the option to redeem this stock at par plus accrued dividends on or after April 11, 2017.  

There is a conversion right into common shares after a "Change of Control" (Page S-4; S-19)

This security is currently rated Ba1 by Moody's and BB by S & P. 

The stopper clause can be found at page S-15.

The company used a portion of the proceeds from the issuance of the Series E preferred stock to redeem all 2M shares of BDNPRC which had a 7.375% coupon.

The Series E preferred stock was sold to the public in April 2012. 

Company Website: Brandywine Realty Trust

Map of Properties

BDN owns "urban, town center and suburban office properties comprising 283 properties properties and 32.9 million square feet, including 210 properties and 24.2 million square feet owned on a consolidated basis and 54 properties and 6.2 million square feet in 17 unconsolidated real estate ventures as of June 30, 2013." 

Common Share Dividend History (note the quarterly dividend slash from $.44 per share to $.3 for one quarter and then to $.1-now at $.15 per share since the 2010 first quarter)

For as long as BDN pays a cash common dividend, it has to pay the preferred stock dividend in full. When and if BDN eliminates the common share cash dividend, it may legally defer paying the preferred stock dividend. Any accrued and unpaid preferred dividend will not earn interest. 

Brandywine Realty Trust (BDN) Profile Page at Reuters

Key Developments Page at Reuters

BDN Key Statistics Page at YF

The current FFO per share estimates are $1.39 in 2013 and $1.43 in 2014. BDN Analyst Estimates

BDN 12/31/2012 10-K (List of Properties start at page 27)

The preceding link to the 2012 Annual report has historical results from 2008 to 2012 at page 38.

Prior Trades: None

Related Trades: I currently have a position in the common shares and have been reinvesting the dividend. My last purchase was back in November:  Item # 3 BOUGHT 50 BDN at $11.7 (November 2012)

Recent Dividend Reinvestment:

I have flipped the common in the Roth IRA. Item # 2 Sold 100 BDN at $12.38-ROTH IRA (August 2012)-Item # 1 Bought Roth IRA 100 BDN at $11.24

2013 Roth IRA 100 Shares BDN +$100.5
In 2008, I also had a quick flip in a taxable account, holding a position for slightly over one month:

2008 BDN 50 Shares +$62
I have also flipped small positions in BDN's preferred shares which have now been redeemed by this REIT. 

2009 BDNPRC 50 Shares +$234.48
In the Roth IRA, there was a 30 share flip of BDNPRC in 2008:

2008 Roth IRA BDNPRC 30 Shares +$162.99
Recent Earnings Report: For the second quarter, BDN reported core FFO available to common shareholders of $50.2M or $.32 per share, down from $.33 per share in the 2012 second quarter. During the second quarter, BDN incurred $14.4M in "maintaining capital expenditures". SEC Filed Press Release The cash available for distribution to common shareholders was $.19 per share.  The CAD payout ratio, given the $.15 per share common dividend, was 78.9%.

As of 6/30/13, the core portfolio of 206 properties was 87.9% occupied and 90.9% leased.

After my purchase, Brandywine Realty Trust reported core FFO of $63.2M or $.4 per share for the third quarter. Cash available for distribution was $27M or $.17 per share after BDN incurred $19.3M of maintaining capital expenditures during the quarter. BDN provided initial 2014 FFO guidance of between $1.4 to $1.49 per diluted share.

Q3 2013 Results - Earnings Call Transcript - Seeking Alpha

Rationale: I generally discuss the advantages and disadvantages of equity REIT preferred stocks in this Gateway Post: REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & Disadvantages

BDN Q/E 6/30/2013 10-Q

All or virtually all of the dividends paid by REIT common and preferred shares will be classified as non-qualified due to the REIT's tax status.

The primary purpose for buying this security is to generate tax free income in the ROTH IRA. At a total cost of $23.14 per share, the dividend yield is about 7.45%.
Risks: Risk factors are discussed by the company starting at page S-8 of the Prospectus.

I discuss the main negative factors for equity REITs in the preceding linked Gateway Post.

One of the potential negative factors, discussed in that post, would not apply to BDNPRE when and if the change of control provision is activated due to a buyout. I would regard that provision as potentially important given what happened to the owners of Innkeepers' preferred stock after the REIT was purchased in a leveraged buyout and later declared bankruptcy.

Interest rate and volatility risks are the two main ones when buying this security anywhere near its par value.

Equity preferred stocks are perpetual securities unless the issuer finds it advantageous to redeem the security and to refinance at a lower coupon rate. When would that likely happen? It would not happen when interest rates have risen and knocked down the price of the fixed coupon preferred stock. It could happen with interest rates falling significantly below the current levels, whereupon the investor would be left with the redemption proceeds and even less desirable alternatives to buy.

These type of securities will generally prevent a redemption within five years after issuance, occasionally with certain exceptions, and that provides a limited amount of protection in a falling interest rate environment.

What do I mean by volatility risk? When buying a preferred stock issued by a REIT or a bank, there will be a considerable amount of debt having priority over the equity preferred stock which is senior only to common share in the capital structure.

During periods of financial stress, such as the recent Near Depression, fear becomes a dominant driver of pricing decisions. Equity preferred stocks issued by REITs fell into the single digits at some point during late 2008 or early 2009.

I am not whistling Dixie on this point.

I bought BDNPRC at $9.25 on 2/25/2009:

If I had bought that security near par value in 2007, could I have held onto it as it declined into single digits? As mentioned above, BDN redeemed BDNPRC at its $25 par value from the proceeds received from the BDNPRE IPO. How many individuals bought high and sold low? That is what I call volatility risk which I also associate with the risk of lost opportunity. 

By buying at or near par value, and then holding the preferred stock, I lose the opportunity to use the proceeds to buy at a lower price which will generate both a higher yield and potentially more profit on the shares.

Closing Price 10/31/13: BDN-PE: $23.66 +0.11 (+0.47%)

2. Bought 50 ARU at $24.5 (see Disclaimer):

Snapshot of Trade:

2013 Bought 50 ARU at $24.5
Security Description: The Ares Capital Corp. 5.875% Senior Note (ARU) is a senior Exchange Traded bond issued by the BDC Ares Capital  (ARCC).

This bond will make quarterly interest payments at 5.875% on a $25 par value. The note matures on 101/2022. Ares has the option of redeeming the notes on or after 10/1/2015 at par value plus accrued interest.


I would not anticipate that the bond will be redeemed prior to maturity given its low coupon.

The bond is currently rated Ba1 by Moody's and BBB by S & P.

Prior Trades: None

Related Trades:  I have bought and sold another senior exchange traded Ares Capital bond maturing in 2040. Quote: Ares Capital Corp. 7.75% Sr. Notes 2040  (ARY). That bond is being priced now as if a redemption is likely on or after 10/15/14.

Item # 5 Sold 100 ARY @ 24.6 (February 2011)-Item # 3 Bought: 50 ARY at $24.2; Item # 5 Added 50 ARY @ 23.75 (December 2010)(profit $38.6-no snapshot)

Some investors might prefer buying ARY over ARU given the current yield advantage in favor of ARY. If ARY is not redeemed due to a rise in interest rates, then that bond certainly has more interest rate risk than ARU which matures in 2022.

I currently own 170 common shares (120 in IRAs/50 in taxable). The last purchase was made in the regular IRA: Item # 2 Bought 70 ARCC at $17.24-REGULAR IRA (4/16/13 Post); Bought: 50 of the BDC ARCC at $16.17 in taxable account and at $16.3 Roth IRA (January 2011)

I have sold some ARCC lots:

SOLD 100 ARCC at $17.54-IRAs in Two 50 Share Lots (September 2012)-Added 50 ARCC at $16.9-Regular IRA (May 2011) and Item # 3 Bought 50 ARCC at $16.51 Roth IRA (March 2011) (total profit=$53.07-no snapshots)

Item # 5 Sold 50 ARCC at $17.7 (May 2011)-Item # 3 Bought: 50 ARCC at 16.89 Main Taxable Account  (December 2010)(profit $24.81; no snapshot)

Recent Earnings Report: For the 2013 second quarter, Ares reported GAAP net income of $.50 per share, up from $.37 per share. GAAP net income included $.12 per share in unrealized gains. Core E.P.S., however, declined to $.38 per share from $.40 in the 2012 second quarter.  Core E.P.S. included $.35 per share in net investment income and .$03 in net realized gains. This BDC paid out $.38 in dividends during the second quarter. Book value per share was reported at $16.21 per share as of 6/30/13, up from $15.51 on 6/30/12.

SEC Filed Press Release

The dividend payment to the common shareholders which matched core E.P.S. highlights a risk to the bond owners. Money is flying out the door to owners of junior securities. On the flip side, the balance sheet reflected over $7B in assets and $2.78+ in liabilities. While there is a cushion reflected in those numbers for the senior bond owners, it remains to be seen how that cushion would hold up when there is severe economic crisis, causing a substantial loss (realized and unrealized) in investments (e.g. greater than 50%), and a liquidity event requiring the disposition of investments at fire sale prices.

Rationale: (1) Solely About Income Generation: As noted many times, my primary investment strategy is to generate a continuous flow of interest and dividend payments and to use that cash flow to buy more income generating securities, creating a compounding effect over time. No single security is material. Only the aggregate flow is material.

At a total cost of $24.5 per share, the yield is about 6%. That is not bad in the current interest rate environment for an investment grade bond (S & P only) that matures in less than 9 years.

For comparison purposes, an investor can go to the FINRA site and search for BBB rated bonds maturing in 2022: Bonds - Advanced Search

Just as examples, I found the following bonds, rated BBB by S & P, maturing in 2022:

Autozone 3.7% 4/15/22
Dow Chemical 3% 11/15/22
Eastman Chemical 3.6% 8/15/22
CBS 3.375% 3/1/22

Risks: While the price can certainly go down with a rise in intermediate term rates, the maturity date will restrain that decline, compared to a longer maturity such as AGIIL discussed below, and eventually the price will recover as the maturity date approaches, assuming of course no material adverse change in credit quality. In that sense, interest rate risk for a good credit comes down to a risk of lost opportunity, the inability to use funds tied up in one security to buy a higher yielding one including the same security at a lower price and a higher yield. With a bond, the risk of lost opportunity encompasses both the current yields and profit differentials. Balanced against that risk of lost opportunity, the investor has to weigh the cost of an alternative investment now. The funds used to buy ARU came from a MM fund yielding .01%.

Credit risk is present but I view it as less important than the interest rate/lost opportunity risks.

Risk factors are discussed in the prospectus starting at page S-14.

The risk factors associated with ARCC are discussed in its Annual Report starting at page 29. 10-K The discussion continues until page 50.

The payment of all or virtually all net income to the common shareholders deprives bondholders of a cash and/or asset cushion build up. A more secure scenario would be a 50% payout ratio, but the BDC has to pay 90%+ of its net income to maintain its tax status which avoids taxation at the corporate level for funds distributed to the common shareholders.

Future Buys/Sells: I am not likely to buy more shares until I can realized a 8% current yield. It probably would not make any sense to sell this one before maturity, unless I have first collected several quarterly interest payments and can sell this bond somewhere over its par value.

Closing Price 10/31/13: ARU: $25.03 +0.02 (+0.08%)

3. Bought 50 AGIIL at $21.11 (see Disclaimer):

Snapshot of Trade:
Bought 50 AGIIL at $21.11
Security Description: The Argo Group International Holdings Ltd. 6.5% Senior Notes Due 2042 (AGIIL) is a senior Exchange Traded bond issued by the Argo Group US, the U.S. subsidiary of Argo Group International Holdings Ltd.  (AGII). The note is guaranteed as provided in the prospectus by the parent company.

AGII is an international underwriter of speciality insurance and reinsurance products in the property and casualty market. (Profile Page at Reuters: Argo Group International Holdings)

AGILL will make quarterly interest payments at 6.5% on a $25 par value. The issuer has the option to redeem at par value on or after 9/15/17. Unless redeemed early, the bond matures on 9/15/42.

Final Prospectus Supplement

The bond is currently rated BBB- by S & P.

This bond was sold to the public at $25 back in September 2012. The bond traded mostly between $25 to $26 until May 2013, whereupon it slid rapidly to $21 as interest rates started to spike up. AGIIL Interactive Chart The price only stabilized at close to $21 after interest rates started to go back down, starting in September.

Argo Group International Holdings Key Developments Page at Reuters

AGII Key Statistics Page at YF

The consensus E.P.S. estimate for AGII is $2.92 in 2013 and $3.42 in 2014. AGII Analyst Estimates

Argo Group International was formerly known as PXRE Group.

Earnings can be erratic as shown at page 46 of the 2012 Annual Report: Form 10-K

Prior Trades: None

Earnings for Q/E 6/30/13: AGII reported net income of $31.7M or $1.13 per diluted share, up from $.84 per diluted share in the Q/E 6/30/12.  SEC Filed Press Release

Form 10-Q

Rationale: This senior investment grade bond became mildly attractive after declining from $26 (5/7/13) to my purchase price of $21.11. That decline of 18.81% does two things for me. It provides me with a higher yield and a possibility of capital appreciation simply by recovering part of that quick decline.

At a total cost of $21.11, the current yield is about 7.7%

Risks: Reinsurance companies make me nervous. I will generally avoid the common stocks altogether and will dabble only in their bonds.

The 10-K contains a long discussion of the risks relating to the issuer starting at page 18. Form 10-K

Any bond with a maturity in 2042 has a ton of interest rate risk. The coupon is sufficiently low that the issuer may never redeem it. Still, a 7.7% yield for an investment grade bond is a rational compensation for assuming that type of risk.

Future Buys/Sells: If given an opportunity to harvest a 10%+ total return, I will probably take it. Rates will start to rise again and we have already seen how this bond reacted to a rise in rates starting in May 2013-NOT GOOD.

As to credit risks, that will always be a concern for a long bond too. I am also generally nervous about reinsurance companies too.

Closing Price 10/31/13: AGIIL: $21.91 +0.31 (+1.44%)

4. Bought 200 NMO at $12.02 (see Disclaimer)

Snapshot of Trade:

Security Description: The Nuveen Municipal Market Opportunity Fund (NMO) is a leveraged municipal closed end bond fund that pays monthly dividends.

The last ex dividend date was 10/10/13 for $.0645 per share. Nuveen Closed-End Funds Declare Monthly Distributions

Assuming a continuation of that rate and a total cost per share of $12.02, the tax free yield is about 6.44%. The tax equivalent yield, which assumes a marginal tax rate of 28%, is about 9.91%.

CEFConnect Page for NMO

NMO Page at Morningstar (rated 3 stars)

Sponsor's Webpage: NMO - Nuveen Municipal Market Opportunity Fund

SEC Form N-Q (holdings as of 7/31/13)(unrealized gains +$15.197+M)

Last SEC Filed Shareholder Report (period ending 4/30/13)

Data as of Day of Trade (Tuesday 10/22/13)
Closing Net Asset Value: $13.51
Closing Market Price: $12.03
Discount: -10.95%

Discount as of 10/31/13: -11.22

Prior Trades: I have one prior trade.  Item # 3 Bought 200 NMO at $13.03 (September 2011)Sold 200 of the Bond CEF NMO at $13.81 (December 2011)

Related Trades: There are several Nuveen municipal bond funds that are close to being functionally equivalent as to their holdings. I previously bought NPI which closed at a -9.6% discount to its net asset value on 10/22. Last Two NPI add: Item # 5 Added 50 NPI at $12.16 (August 2013); Item # 3 Added 50 NPI at $12.45 (July 2013) I am reinvesting the NPI dividend to buy additional shares.

This is what I mean by two municipal bond funds being close to functionally equivalent:

Holdings as of 9/30/13 (effective leverage as of 7/31/13; credit quality & Leveraged adjusted duration as of 9/30/13; discount as of 10/22/13):

                                    NPI                                       NMO
AAA                         15.33%                                   14.8%
AA                            31.2%                                     36.8%
A                               38%                                        30.5%
BBB                            9.9%                                    10.4%
BB                                 .7%                                      3.1%
B                                  3.5%                                     4.00%
Effective Leverage     39.44%                                 39.2%
Yield                            6.94%                                   6.44%
Leveraged Duration    16.02 years                           16.82 years
Discount                       -9.6%                                   -10.95%

The ten year average total return based on NAV through 10/22/13 was 5.11% for NMO and 5.29% for NPI. The past year has been unfavorable for long term municipal bond funds, but not as bad as 2008. For the YTD, NPI is down -6.51 based on net asset value per share and -12.45% based on price, while NMO is down -7.71% in net asset value per share and -13.81% in price.

One CEF risk is that the market price will decline at a greater percentage than net asset value per share during downturns. That disparity is manifested in an increase in the discount to net asset value.

When I bought NMO, the discount to net asset value was more than 3 times greater than the 5 year average:

Average Discounts to Net Asset Value
1 Year:   -6.98%
3 Years:  -3.33%
5 Years:  -3.41%

At CEFConnect, it is helpful to pull up the historical chart showing premium/discount information, which is available under the "pricing information" tab.

Most of the time since inception, NMO has traded at less than a 5% discount to it net asset value per share. There have been notable exceptions. The largest discounts were experienced in late 2008. Similar 10%+ discounts were recorded periodically in the following periods:

December 1999 to February 2001 (bubble burst; recession)
August 2004 to December 2005
September 2007 to June 2009 (Near Depression)

I have bought and sold similar Nuveen municipal bond CEFs. I did not attempt to compile a complete list but found a list of trades for NQS, NPT and NPM:

NQS: Item # 3 Bought 100 NQS @ 13.7 (November 2010); Item # 5 Sold 100 of 200 NQS at $14.55 (November 2010)(profit $31.07-no snapshot); Item # 2 Sold 100 NQS at 14 (June 2011)

NPM: Item # 3 Bought: 100 NPM @ 13.48 (November 2010)-Item # 1 Sold 100 NPM at $13.9 (July 2011)

NPT: Item # 3 Bought 200 NPT at 12.2 (September 2011)- Item # 2 Sold 200 of the Bond CEF NPT at $12.92 (November 2011)

2011 Trading Nuveen Municipal Bond CEFs
I have not lost money trading Nuveen municipal CEFs, but I have not made much either.

Rationale: (1) Tax Free Income Generation: At my purchase price, the tax free dividend yield is about 6.44%.

(2) Potential for Share Appreciation:  At the time of my purchase, this CEF was trading at unusually large discount to its net asset value per share compared to its historical numbers. A return to an average five year discount, with the net asset value per share remaining constant or increasing some, could provide a decent profit on the shares.

Risks: (1) Interest rate risk: This fund has a long duration and consequently there is a considerable amount of interest rate risk.

Duration—What an Interest Rate Hike Could Do to Your Bond Portfolio - FINRA

Get to know your bond fund: Duration| Vanguard

(2) Usual CEF Risks: The potential for losses resulting from an expansion of the discount, a particularly important risk for leveraged bond ETFs in a rising interest rate period, is aptly demonstrated by what happened with NMO's pricing since May 2013.

(3) Credit Risks: I am more concerned about interest rate and CEF risks. However, there can be periods when investors become concerned about the creditworthiness of municipal bond issuers. A recent example is what happened generally to prices after Merideth Whitney sounded an alarm about municipal finances. CBS News The recent high profile bankruptcies of Detroit and San Bernardino highlight issues that are likely to occur in the coming years and decades.

Credit risk is mitigated by the quality and number of holdings.

Closing Price 10/31/13: NMO: $12.19 -0.05 (-0.41%)

5. Bought 50 EVERPRA at $22.05 (see Disclaimer):

Snapshot of Trade:
2013 Bought 50 EVERPRA at $22.05

Security Description: The EverBank Financial Corp. 6.75% Non-Cumulative Perpetual Preferred Series A  (EVER.PA) is an equity preferred stock issued by EverBank Financial  (EVER) that pays non-cumulative and qualified dividends at the fixed coupon rate of 6.75% per annuam on a $25 par value. Final Prospectus Everbank has the option to redeem this security on or after 1/5/2018.

The prospectus contains a typical stopper clause that is summarized at page 12. EVER is currently paying a small common share dividend. That dividend would have to be eliminated before EVER could eliminate the preferred stock dividend.

EverBank Financial Corp Profile Page at Reuters

EverBank Financial Key Developments Page at Reuters

Everbank has 15 financial centers in several Florida metropolitan areas. It is primarily an internet bank.

As of 10/24/13, the date of my purchase, the consensus E.P.S. estimate was $1.2 in 2013 and $1.38 in 2014.  EVER Analyst Estimates

In mid-September, GS downgraded the stock to neutral and reduced its price target to $16.5 from $18 due to what the analyst viewed as a low asset sensitivity and a large mortgage portfolio.

Some investors may be familiar with Everbank due to its unusual CDs that are denominated in foreign currencies. (Reuters; The Street Video: Currency CD)

Home - EverBank

Prior Trades: None

Recent Earnings Reports: For the 2013 second quarter, Everbank reported net income of $46M or $.35 per share. ROE was reported at 12.7% on the GAAP number.

On Thursday, EverBank Financial reported GAAP diluted earnings of $.25 per share, up from $.19 in the 2012 third quarter. The total risk based capital ratio was reported at 14.5%.

Rational: (1) Tax Advantaged Income With Possible Capital Appreciation: At a total cost of $22.05 per share, the current dividend yield would be about 7.65%. The funds used to finance this purchase were earning .01%.

This is another recently issued preferred stock that traded over its $25 par value in May 2013 before sliding as interest rates started to rise.  The closing high was at $25.82 in May and the price fell to $21.8 on 8/19/13. EVER.PA Stock Chart

Risks: This one has the usual risks associated with non-cumulative equity preferred stocks issued by financial institutions.

EVER describes the risks starting at page 29 of the EVERPRA prospectus.

Future Buys/Sells: I am not likely to buy more. I am hoping for a 8% to 10% annualized total return and will likely harvest the profit when and if that goal is met after commissions. (10% would require about $112 in dividends and/or share profits)

Closing Price 10/31/13: EVER-PA: $21.99 -0.05 (-0.24%)

6. Bought 100 RioCan REIT at C$25.65 (see Disclaimer):

Snapshot of Trade:

2013 Bought 100 REI_UN:CA at C$25.65
Security Description: The RioCan Real Estate Investment Trust  (REI.UN:TOR) is Canada's largest REIT focused entirely on retail real estate.

As of 12/31/12, the REIT has ownership interests in 335 properties with 49.489M net leasable square feet of income producing properties.  factsheet.pdf  Most of those properties are in Canada but this REIT has expanded into the U.S.

RioCan has been busy over the past year effectively dissolving its U.S. joint ventures and taking control over the properties:

Taking Control Over U.S. Properties Owned by Joint Ventures
As with other Canadian REITs, RioCan pays distributions on a monthly basis. The current rate is C$.1175 per share. RioCan -Distribution History The overall rate of dividend growth is not impressive. On the bright side, RioCan did not cut the dividend during the recent Near Depression period.

The last ex dividend date was on 10/29.

At a total cost of C$25.65, the current dividend yield is about 5.5%.

In May 2013, the shares traded over $29 per share and at least hit a temporary bottom in August near C23.5. REI.UN Stock Chart

RIOCAN.COM - Home Page

RIOCAN.COM - Property Portfolio

This REIT is discussed in a Seeking Alpha article published last August.

I bought the ordinary shares traded on the Toronto exchange using CADs.

RioCan's ordinary shares can be purchased on the U.S. pink sheet exchange using USDs. RIOCF Riocan Real Estate Investment Trust The ordinary shares traded in USDs closed at $24.58 on 10/25/13, roughly equivalent to C$25.61.

Some of the Canadian securities are only available on the Grey Market, where there is no transparency. Bid and ask prices are not displayed in the grey market. An example is Cominar Real Estate Investment Trust whose shares were recently purchased on the Toronto exchange.

Two other recent Canadian REIT purchases are traded on the pink sheet exchange: ARESF Artis Real Estate Investment TrustCDPYF Canadian Apartment Properties Real Estate Investment Trust.

When buying a stock on the U.S. pink sheet exchange that ends in the letter "F", the investor is buying ordinary shares, the same as traded in the home market, except the price will be in the host currency price converted into USDs, which is the medium of exchange. There will be far less volume and liquidity in the pink sheet exchange compared to the home market, and limit orders need to be used. Some brokers will not allow trading in those "F" listed stocks, while others may charge additional fees. I will generally buy the Canadian "F" listed securities using only Schwab and TDAmeritrade. In my Fidelity account, I will go directly to the foreign exchange.

To illustrate the difference in closing prices (Friday 10/25/13), Artis closed at $14.086 USDs on the pink sheet exchange and at $14.71 CADS in Toronto AX.UN Stock Quote The difference is currency conversion values, with the 1 CAD buying less than 1USD. I could convert $14.09 USDs into CADs and then buy 1 share on the Toronto exchange and achieve the same result before commissions and fees.

After my purchase, Motley Fool published this favorable article about RioCan.

As mentioned above, this security went ex dividend for its monthly distribution shortly after my purchase. A large of my Canadian securities which pay monthly dividends went ex dividend on 10/29.

Prior Trades: None

Recent Earnings Report: For the 2013 second quarter, RioCan reported operating FFO of $.4 per unit and paid dividends of $.3525 per unit.

Rationale: I am attempting to earn some income on my Canadian dollar stash. And, RB is still working on its plan, always fine tuning it, to acquire Canada, all of it.

Risks: From what I can tell by reviewing the 2012 Annual Report, the material at the RioCan's website, and the most recent quarterly report, this REIT appears to be well managed but will be subject to the usual stock, economy (e.g. severe recession) and market risks. One market risk is demonstrated by the slide from $29 to $23.5 when interest rates started to rise back in May. That is a common reaction of many investors who view REITs as bond like investments. For those investors, the value of the dividends becomes less when compared to a high quality bond whose yield has risen during a period of rising interest rates.

Closing Price 10/31/13: REI-UN.TO: C$25.45 +0.01 (+0.04%)

7. Bought 300 MIN at $5.238 (see Disclaimer):

Snapshot of Trade:
2013 Bought 300 MIN at $5.238
This purchase was made in a taxable account.

Security Description: The MFS Intermediate Income Trust (MIN)

MFS INTERMEDIATE INCOME TRUST SEC Form N-Q (holdings as of 7/31/13)(unrealized appreciation $16.348+M)

Last SEC Filed Shareholder Report MFS INTERMEDIATE INCOME TRUST (period ending 4/2013)(shows significant ROC for fiscal years ending in October between 2008 thru 2012)

Data as of Date of Purchase (10/24/13)
Closing Net Asset Value Per Share= $5.75
Closing Market Price: $5.23
Discount: -9.04%

Discount as of 10/31/13: -8.33%
NAV= $5.76

CEFConnect Page for MIN

MIN Page at Morningstar (rated 2 stars-noting ROC issue)

Average Discounts:
1 Year:  -.18%
3 Years: -.29%
5 Years: -1.17%

MIN is almost entirely weighted in investment grades bonds:

Credit quality as of 9/30/13
Sponsor's webpage: MFS Intermediate Income Trust

Prior Trades: I am under water on another trade. Item # 2 Bought 300 MIN at $5.6 (6/18/13) The net asset value per share at that time was $5.97 and the discount at a $5.6 price was -6.2%.

I am reinvesting the dividend to buy additional shares in the IRA account, but will be taking the dividend in cash for now in the taxable account.

Rationale: (1) The general idea for this kind of purchase is to exit the position whenever my total return exceeds 10% on an annualized basis. Most of that return could be achieved through collecting 12 monthly dividend payments and then to sell the stock at a small profit based on my unadjusted for ROC purchase cost plus round trip commissions. To harvest that 10% return, I would need 12 monthly dividends and to sell the original 300 shares for about $5.35, or some other combination of dividends and price appreciation for a period less or more than one year.  

Risks and Disadvantages: (1) Dividend is Being Reduced and is Supported by ROC: In F/Y 2012, the fund paid out $62.664+M in dividends and $27.492+ of that total was ROC (page 30 MFS INTERMEDIATE INCOME TRUST N-CSRS)

(2) Modest Interest Rate Risk: The average duration is only 3.5 years, as of 8/31/13.

(3) Slight Credit Risk: The main advantage to owning a fund, rather than individual bonds, is that credit risk is lessened through a fund's diversity. As of 8/31/13, MIN owned 358 bonds. The investment grade quality of the holdings also reduces credit risk.

(4) CEF Risk: This is a major risk in my opinion. As noted many times, the discount to net asset value per share can expand or contract after a purchase.

If the discount expands when the net asset value per share is going down, and those two items will frequently occur together, the potential loss would be greater than a mutual fund owning the very same bonds.

Conversely, the potential for profit can be enhanced by a narrowing of the discount after purchase even when the net asset value remains constant.

Future Buys/Sells: I am likely to trade this last 300 lot purchase. The most favorable outcome would be to harvest a total annualized return of 10%. I will not be reinvesting the dividend.

I am reinvesting the dividend paid by the shares owned in the ROTH IRA but will cease doing so when and if the discount to net asset value per share is less than 5%.

Closing Price 10/31/13:  MIN: $5.28 0.00 (0.00%)

8. Pared GYC at $20.8 (see Disclaimer): The Corporate Asset Backed Corp. CABCO Series 2004-102 Trust SBC Communication Inc. Floating Rate Certificates (GYC) is a Synthetic Floater that pays the greater of 3.25% or .65% over the 3 month Libor rate on a $25 par value, with a cap of 8%. GYC Prospectus

Snapshot of Trade:

2013 Roth IRA Sold 50 of 100 GYC at $20.8
The shares popped on 10/25/13: GYC: $21.53 +1.93 (+9.85%) The volume was only 5,314 shares and the range that day was between $19.6 to $21.95.  The move started on 10/24 with a close at $19.6, up from the prior day's close of $19.02. This synthetic floater was trading in the mid-$22 area in August 2013. GYC Historical Prices

I recently averaged down by buying another 50 shares:  Item # 4 Added 50 GYC at $18.66

I sold the higher cost shares purchased at $20: Item # 1 Bought Roth IRA: 50 GYC at $20

The profit on this last transaction was just $26.03 (no snapshot-less than $30)

Prior Trades:

Sold 100 GYC at $22.22 (profit $357.45-snapshot)-Bought 50 GYC at $15.5 May 2009 Added 50 GYC at $21.60 in Roth IRA February 2011

Sold 40 GYC at 22.3 in regular IRA November 2010Bought TC GYC at $21 September 2010 (profit $36.08-snapshot at Stocks, Bonds & Politics: Trust Certificates: New Gateway Post)

Total Realized Gains GYC=$419.56

Rationale: Since GYC popped soon after I averaged down by buying a second 50 share lot at $18.66, I just decided to keep the lower cost lot and sell the higher cost one. I did receive one quarterly interest payment on the lot sold.

I have two ROTH IRA brokerage accounts. I will generally own bonds and bond like investments in them. I will primarily attempt to grow the accounts through dividend and interest payments. Over the past five years, most of my total return has come from realized gains, particularly in 2009-2010 when I was able to buy trust certificates, trust preferred and equity preferred stocks at deeply discounted prices.

So far in 2013, I have realized gains of over $4,100 in the main ROTH IRA account:

2013 Realized Gains Roth IRA to 10/25=$4,100.22

Closing Price 10/31/13: GYC: $21.45 +0.11 (+0.52%)

9. Bought 10 FTEC at $25.12 and 10 FHLC at $25.39 (See Disclaimer):  I just wanted to highlight some new sector ETFs that can be bought and sold commission free by Fidelity brokerage customers.

Snapshot of Trades:

2013 Bought 10 FTEC at $25.12
2013 Bought 10 FHLC at $25.39
A young investor has the option today of building a ETF portfolio using very low cost ETFs that may be purchased commission free.

The brokers have different ETFs offered on a no commission free basis.

Vanguard only offers its own ETFs commission free.

Schwab probably has the deepest selection of its own ETFs and those offered by several other sponsors. TD Ameritrade has a large offering including several Vanguard ETFs.

Fidelity had been offering 65 IShares ETFs on a commission free basis. It has now launched several sector ETFs that may be purchased commission free by its customers.

I initiated a position in two of them, Fidelity MSCI Information Technology Index ETF (FTEC) and Fidelity MSCI Health Care Index ETF (FHLC), both having a .12% expense ratio.

FHLC had 280 holdings as of 10/29/13. I took a snapshot showing the larger holdings:

FHLC Partial Holdings as of 10/29/13
FTEC had 404 holdings as of 10/29/13. Apple was weighted at 14.24%; MSFT at 8.08%; Google at 7.91%; IBM at 5.34%; Oracle at 3.57% etc.

These sector ETFs will include all market caps. The slightly more expensive Sector Spider ETFs for technology and health will have far fewer holdings since they include only stocks that are part of the S & P 500. Health Care Select Sector SPDR (XLV); Technology Select Sector SPDR (XLK) (Apple at 15% as of 10/28/13)

Vanguard has sector ETFs that use the same index and are functionally equivalent to the Fidelity ETFs. Vanguard Health Care ETF (VHT)(expense ratio .14%; 293 holdings; JNJ at 10.4%; PFE at 8.1%; MRK at 6.1%; Gilead at 4.1% as of 9/30/13); Vanguard Information Technology ETF (VGT)

More information about the new Fidelity Sector ETFs is available at Fidelity's website.

Partial List of New Sector ETFs:
Fidelity MSCI Industrials Index ETF (FIDU)
Fidelity MSCI Energy Index ETF (FENY)
Fidelity MSCI Consumer Staples Index ETF (FSTA)
Fidelity MSCI Financials Index ETF  (FNCL)

See also, "Fidelity Enters the ETF Game" - TheStreet; Seeking Alpha article; ETF Database article.

I may use some of my cash flow each month to nibble at some of these ETFs.

Closing Prices 10/31/13:
FHLC: $25.15 -0.10 (-0.40%)
FTEC: $25.2 +0.05 (+0.05%)


Politics and ETC.

1. Gerrymandering of Congressional Districts  and the Destruction Of Moderation in American Politics: Both political tribes engage in gerrymandering designed to artificially bolster the prospects of their respective candidates in congressional elections. The only difference between now and 50 years ago is that both sides have an abundant amount of voter data that makes gerrymandering extremely efficient down to the street and precinct levels

Recently gerrymandering has benefited the GOP after that tribe gained control over several state governments, the first step in the gerrymandering process since that gives one side the unfettered ability to draw their own congressional districts.

Successful gerrymandering is one of the primary reasons for polarization in the House of Representatives. A large number of districts have been drawn to silence voices of moderation altogether. In most congressional districts, there is no chance whatsoever that one tribe will replace the other. Instead, the only possibility is that a GOP incumbent may face a challenger from their right, and could lose in a primary, unless they tow a radical reactionary line.

To maintain power at the state level, it is imperative that the state senate and house districts be gerrymandered in order to keep power.

TIME magazine noted in a recent issue that there has been a 45% decline in the number of swing districts since 1998. Of the GOP House members, 89% are not likely to face a serious Democratic challenge. The GOP has 234 seats in the House, with the Democrats at 201, notwithstanding  the republicans gathering 1.4M fewer votes. "The Great Gerrymander of 2012" - NYT

The impact of gerrymandering can be seen in states like Pennsylvania and North Carolina.; North Carolina gerrymanderingWhich States, Districts Are Most Gerrymandered?

This is a link to a few gerrymandered congressional districts including two in North Carolina and one in Pennsylvania. MAPS -

Take the 12th and 4th congressional district in N.C. for example. North Carolina's 12th congressional district, North Carolina's 4th congressional district When I look at those maps, the purpose seems to be to put most of the Democrats in two congressional districts. The general idea of a successful gerrymander, recently made in both NC and PA, is to put as many Democrats as possible into a district. Gerrymandering Denialists While that results in a safe Democrat seat, it makes more GOP seats safer and turns others from Democrat to Republican.

The voting in the 2012 NC congressional races favored the Democrats by 51% to 49% for the republicans, yet the republicans won 9 out of 13 House seats. NYT

The 7th congressional district in PA is the same kind of contortion. "In Pennsylvania, the Gerrymander of the Decade?" | RealClearPolitics

I live in the gerrymandered 7th Congressional of Tennessee, designed to insure the election of a republican and only a no name Democrat will run against the incumbent with a zero campaign budget. The result is a radical reactionary zealot.

One can draw their own congressional districts using this APP: Dave's Redistricting (requires MSFT's Silverlight)

Gerrymandering is antithetical to a properly functioning democracy. It silences the voices of a substantial part of the electorate including most moderates in state senate and house elections as well as the congressional races.

2. More Reasons to Dislike Obamacare: In an earlier post, I spelled out the reasons why I would have voted against Obamacare. (Politics and Etc Section: Why I Would Have Voted Against Obamacare)

I did not list a reason that many critics are now emphasizing, since I did not know then the full extent of the problem.

I knew that Obama was being less than candid (some would say lying) when he said that all Americans could keep their existing health plans. He may not be lying since it is certainly possible that the Bystander in Chief did not fully comprehend the ramifications of his own program. Some of the political reasons for Obama making that categorical statement are explored in this CBS News article written by John Dickerson.

Obama's statement was made in a categorial and definitive way that would encompass 100% of existing health plans:

"If your'e one of the more than 250 million Americans who already have health insurance, you will keep your health insurance". Remarks Made on June 28, 2012 by the President on Supreme Court Ruling on the Affordable Care Act | The White House

A video montage of similar statements made by Obama was compiled by the Daily Intelligencer. It is monotonous to hear him make the same claim over and over and over again.

I was aware that the existing plan had to be in existence as of 3/23/2010 in order to be "grandfathered". Consequently, I knew that the President was incorrect insofar as he included policies taken out after 3/23/2010 that did not meet the minimum coverage criteria mandated by Obamacare.

I was under the false impression that all health plans in existence as of 3/23/2010 would be grandfathered and would be allowed to remain in existence. BlueCross of Tennessee has notified me that my plan would fall under Obamacare's grandfather provision. I had not researched the issue until I saw this NBC story aired last week.

An investigation by NBC discovered that a majority of existing plans taken out by individuals have already been terminated or will be canceled by insurers in the coming weeks. This will include some plans in existence prior to 3/23/2010 where there has been a significant change since that time. "Obama administration knew millions could not keep their health insurance" - Investigations

Two similar stories were broadcast by CBS: "Obamacare: More than 2 million people getting booted from existing health insurance plans" - CBS News; "Policy cancellations, higher premiums add to frustration over Obamacare" - CBS News

See also, "Cancellation of Health Care Plans Replaces Website Problems as Prime Target" - NYT and Washington Post: "This is why Obamacare is canceling some people’s insurance plans"

The Obama administration is now trying to argue that the new policies, while costing more than those being cancelled in droves, will be better since they are more comprehensive.

This raises the Nanny State issue. The Democrats know what is best for you given your unique circumstances (health, finances, family history of diseases, etc).

Why is the government making a decision on everything that has to be covered rather than allowing the individual to check a few boxes that exclude certain types of coverage that are mandatory now in order to save money?

Youngsters might choose to go without certain types of coverages since they do not need one or more of them (e.g. mental health services, prescription drugs, addiction treatment, maternity care: Marketplace Insurance Types: Bronze, Silver, Gold, and Platinum Plans)

See Definition of Essential Health Plan Requirements at

I have just started to take a a blood pressure medicine for slight hypertension, costing about $4 a month, and I would want the option to exclude prescription drugs, addiction treatment and mental health services.

CBS News also reported that states which opted to set up their own exchanges have used more than $1B of the federal government's money to do so.

3. Bystander in Chief: I wrote this section before the NYT published a front page article last Wednesday on this subject.

Obama may have the leadership skills of an average President. For his leadership skills, I would give him a "C". I do not grade on a curve and that is viewed as an average grade.

His lack of attention to important details is reminiscent of Ronald Reagan, the one who walked on water according to virtually all republicans.

Wouldn't the successful launch of Obamacare be extremely important to this President? You would think so.

Sebelius stated a few days ago that Obama did not know of the "glitches" until after it went live. - Transcripts; "Sebelius: Obamacare website problems blindsided the President" -

Some may question the veracity of that statement. Maybe Sebelius is just trying to protect the President.

I have no trouble accepting her statement as true since it is consistent with what I have observed about Obama for years. I have no trouble believing that Obama never even asked Sebelius how things were going with the website.

A competent CEO would have repeatedly been asking pointed questions about such an important development and would have actively intervened months before the launch. A competent CEO would not have some government tech person overseeing the various contractors. And why was Marilyn Tavenner in charge? (NYT article regarding her testimony before Congress).

Obama is just not a competent CEO, which is made even worse since he mistakenly believes that he is super competent.

Several years ago I wrote a post about Robert Rubin's role in the near destruction of Citigroup. This is the title of that old Post: Stocks, Bonds & Politics: ROBERT RUBIN: CITIGROUP JUST AN INNOCENT BYSTANDER Although Rubin was a senior officer and Board member, he basically took the position that he was a shiny ornament that had no responsibility over details. I thought about that old post when I read about Obama being unaware of the problems.

4. Marsha Blackburn, Obamacare and HIPAA: Several republicans, including the Know Nothing representative from Tennessee's 7th congressional district, have asserted that is not compliant with The Health Insurance Portability and Accountability Act of 1996, referred to as HIPAA for short.

Marsha was questioned by a CNN Anchor to be specific about her claim that endangers America's privacy and somehow violates HIPAA. It is futile to ask Marsha for actual facts supporting her opinions. HIPAA protects medical information. The government website does not request confidential medical information. HIPAA is not even relevant.

Jon Stewart made fun of Joe Barton, a "conservative" republican representative from the 6th congressional district in Texas, who was making the same claim. 10/28/13 - Video Clip | Comedy Central

Joe Barton's claim to fame is based entirely on his public apology to BP for the Administration's efforts to hold that company responsible for the massive gulf coast oil spill.

Stewart noted that apology and also shows some comments that are just bizarre from another republican Pete Olson from Texas's 22nd congressional district. Pete makes Marsha look good.