Saturday, June 7, 2014

Roth IRA: Sold 100 MDIV at $21.81 and 50 PYS at $23.3 and Bought 100 JPI at $23.34/Sold: 123+ BIAUX at $23.13 and 50 AGIIL at $24.480/Bought: 50 IF at 9.73, 50 GSPRD at $20.2, 300 DIR_UN:CA at C$9.53 / ROTH IRA Paired Trade: Sold 50 ARCPP at $23.75 and Bought 100 JPI at $23.38


Stable Vix Pattern (bullish)
Short Term: Market Needs a 15% Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish

Sam Eisenstadt, the quant behind the Value Line ratings who is now retired after 63 with that firm, told Mark Hulbert that his model is predicting another 10% advance in the S & P 500 by 11/30/14 (i.e. above 2,100)

I may be taking some chips off the table with a continued move upward.

A few considerations are keeping me near a 60% stock allocation: (1) the green light in my Vix Asset Allocation Model; (2) my opinion that the weight of the evidence justifies classifying the stock market as being in a long term secular bull mode; (3) the difficulty in timing tops and re-entry points and (4) the lack of anything rational that I can point too at the moment that would cause a crash.

I am not that concerned about a 10% to 20% correction; and I recognize that many were calling for the bottom to fall out in 2011 and 2012. Now, we could have a 20%+ correction and still be way above the S & P 500 close in late August 2011 at 1050. A 20% correction based on a 1950 close would take us down 390 points to 1560.   

Short to Long Term: Slightly Bearish Based on Interest Rate Normalization

The bond forecast is predicated on an average annual inflation rate between 2% to 2.25% over the next 10 years, which is consistent with the forecast embodied in the 10 year TIP pricing.


Recent Developments:

ISM reported that the services PMI rose to 56.3% in May, better than expected. The new orders component rose to 60.5 from 58.2. Prices, which are starting to concern me some, rose to 61.4 from 60.8. Inflation is perking up as the FED continues its monetary policies designed to stoke inflation.

The government reported a 217,000 increase in jobs during May. Employment Situation Summary The unemployment rate remained unchanged at 6.3%. The U-6 number declined to 12.2% from 12.3%. Table A-15. Alternative measures of labor underutilization Average hourly earnings rose $.05 and have increased 2.1% over the past year. Total employment is now 98,000 above the pre-recession peak.  

ADP estimated that the private sector added 179,000 jobs in May, below the 210,000 consensus estimate. ADP National Employment Report ADP also revised the April increase from +220,000 to +215,000.

The Commerce Department reported that the trade deficit increased to $47.2B in April, up from the revised March number of $44.2B.

According to AutoData, light vehicle sales rose 9% Y-O-Y in May, and increased 5% over April. Fox BusinessAuto Sales - Markets Data Center -

Eurostat reported that inflation rose .5% Y-O-Y in May. 

Eurostat reported last Wednesday that seasonally adjusted first quarter euro area GDP rose .2% and was up .9% seasonally adjusted Y-O-Y. Europe's first quarter GDP number was better than the U.S. which was recently revised down into negative territory.

In an effort to combat the low inflation trend in Europe, the ECB lowered its benchmark rate to .15% from .25% and applied a negative rate .1% interest rate to average reserve holdings in "excess of minimum reserve requirements". ECB: Monetary policy decisionsECB: ECB introduces a negative deposit facility interest rate"European Central Bank Takes a Radical Step" - NYT The negative rate on excess reserves represents an effort to force banks to make more loans. The ECB has not yet pulled the trigger on QE.


Cascades Tender Offer for 7.75% Senior Unsecured Bond Maturing in 2017:

Cascades Inc. Announces Cash Tender Offer and Consent Solicitation for Any and All of its 7.75% Senior Notes due in 2017 and its 7.34% notes due in 2016

I own the one maturing in 2017: Bought 1 Cascades 7.75% Senior Bond Maturing on 12/15/2017 at 96.5 (9/1/11 Post)

I spent a few seconds trying to locate the optional redemption provision in the prospectus. If the note is redeemed prior to 12/15/14, which looks likely, then the issuer has to pay 103.875% plus accrued interest to the redemption data: Page 71, Prospectus.

I am noting this tender offer since it is just another manifestation of an ongoing problem. Generally, the issuer will conduct a tender offer for any and all bonds and then complete the purchase of the outstanding balance at whatever price has to be paid under the prospectus. I consequently expect to lose this bond relatively soon.

Cascades Inc. just sold upsized bond offerings, selling $550M 5.5% notes maturing in 2022 and C$250 notes with the same coupon maturing in 2021. The company specifically states that it will redeem whatever is left after the tender using the proceeds from those bond sales.

So, the company extends the maturity and cuts the rate by 2.25%.

I would just add another note to this saga. The unsecured senior debt of Cascades is currently rate Ba3 by Moody's and B by S & P: Cascades - Current Credit Ratings

Compass Bond Upgrade:

One of my bonds is now rated investment grade by all three rating agencies: Compass Bank 5.9% Maturing in 2026

I bought this one in July 2012. BOUGHT 1 Compass Bank 5.9% Subordinated Note Maturing in 2026 at 76.75 It is now selling near par. This bond is lightly traded, and a one bond lot would be extremely difficult to sell. I am pretty much stuck with it until maturity.


1. Sold 50 PYS at $23.3-Roth IRA (see Disclaimer):

Snapshot of Trade:
2014 Roth IRA Sold 50 PYS at $23.3

Snapshot of Profit:

2014 PYS 50 Shares +$163.52
Bought 50 PYS at $19.75-Roth IRA (February 25, 2014 Post)

Security Description: The Merrill Lynch Depositor Inc. PPLUS Cl A 6.3% TRUCs Series RRD-1 for R.R. Donnelley & Sons Co. (PYS) is an Exchange Traded Bond in the Trust Certificate form of legal ownership.

The TC represents an undivided beneficial interest in RR Donnelley senior bonds owned by a trust maturing on 4/15/2009. PYS has a lower coupon than the underlying senior bond. The TC has a 6.3% coupon on a $25 par value, whereas the bonds owned by the trust have a 6.625% coupon on a $1,000 par value. 

PYS Prospectus

Prior Trades: Most of my profits trading this security originated from two fifty lots sold in 2010 for a $222.68 profit. Bought 50 PYS at 20.01 March 2010Added 50 PYS at 19.59 June 2010Sold 50 PYS at 20.76 July 2010Sold  50 PYS @ 24 November 2010

I have also profitably traded RRD common shares and RR Donnelley bonds in the bond market. I currently own just one $1,000 par value RRD senior unsecured bond: Bought 1 R.R. Donnelley 6.125% Senior Bond Maturing 1/15/2017 at 89 That one generally trades in the 108-111 range and I would gladly sell when and if a buyer emerges for just one bond in that price range. Bonds Detail

Rationale: I am raising cash levels in my IRA due to concerns that the FED may allow the inflation genie back out of the bottle by continuing their extraordinary easy money policies as inflation ticks up. This is a precautionary move.

I managed my IRAs with preservation of capital as the prime consideration. Most likely, I will never withdraw any of the those funds. I will gradually transfer the remaining funds in a regular IRA into a ROTH IRA which has no mandatory withdrawal requirements for the owner (as opposed to someone who inherits a Roth IRA, MRDs for Inherited IRAs)

Future Buys: Given the junk rating, the long standing secular decline in RRD's business, and interest rate risk inherent in any long bond, I will require a price below $20 before I would consider repurchasing a small lot.

Closing Price Last Friday: PYS: $23.60 0.00 (0.00%) 

2. Sold 50 AGIIL at $24.48 (see Disclaimer):

2014 Sold 50 AGIIL at $24.48
Snapshot of Profit:

2014 AGIIL 50 Shares +$152.58
Item # 3 Bought:  50 AGIIL at $21.11 (October 2013 Post)

I received two quarterly interest payments, totaling $40.62 :

Total Return: $193.2 or 18.17% on a total cost basis of $1,063.45 (holding period=7 months)

Security Description: The Argo Group International Holdings Ltd. 6.5% Senior Notes Due 2042 (AGIIL) is a senior unsecured exchange traded bond issued by the Argo Group, a U.S. subsidiary of the Argo Group International Holdings Ltd.  (AGII). This notes makes quarterly interest payments at the fixed coupon rate of 6.5% per annum on a $25 par value. The issuer has the option to redeem at par plus accrued interest on or after 9/15/2017. If not redeemed early, the note matures in 2042. 

Prior Trades: I still own 50 shares in a Roth IRA. Item # 6 Bought 50 AGIIL at $20.2 (December 2013 Post). 

Rationale: AGIIL is a potentially long term bond with considerable interest rate risk. While this bond was yielding more than 6% at the $24.48, I elected to harvest the profit anyway due to my concerns about inflation/interest rate risk. I will consider repurchasing shares when and if the price declines below my last purchase price.  In the last analysis, and at the current stage of the interest rate cycle, I am inclined to believe that 6.5% to 6.7% is inadequate compensation for a bond maturing 2042.

Closing Price Last Friday: AGIIL: $24.10 -0.15 (-0.62%) 

3. Added 50 of the foreign stock CEF IF at $9.73 (Emerging Market Consumer Super Cycle Strategy)(See Disclaimer): I mentioned adding to my position in last week's post. This add brings up to 164+ shares. 

Snapshot of Trade:

Security Description: The Aberdeen Indonesia Fund (IF) is a closed end fund that invest in Indonesia's stocks. 

Subsequent to my last purchase, this fund paid a $1.1037 per share long term capital last December and a $.2186 per long term capital gain distribution in September 2013. I reinvested both distributions. 

Data from Day of Trade: 5/21/14
Closing Net Asset Value Per Share: $10.84
Closing Market Price: $9.67
Discount: -10.79%
1 Year Average Discount: -11.11%
3 Year Average Discount: -9.81%
5 Year Average Discount: -8.84%
10 Year Annualized Total Return to 5/21/14: 18.4% (based on net asset value)

CEFConnect for IF  

Aberdeen Indonesia Fund Page at Morningstar (currently unrated)

JKSE Index Index Chart (Jakarta index was trading over its 50 and 200 day SMA at the time of purchase)

Prior Trades:  Prior to this trade, I owned 114+ shares. Bought Back IF at $11.23

Item # 5 Sold 100 IF at $12.91 (April 2013)(snapshot of profit=$110.77)-Item #1 Bought 100 of IF at $11.64 (1/3/13 Post)

Rationale: Again, I am playing a long term super cycle involving the parabolic growth of middle class consumers in emerging markets. Indonesia is just one of those markets. This fund has generated an excellent annualized total return over the past 10 years. The past may not be prologue but I believe that Indonesia has better days ahead of it. 

Risks: There are numerous risks associated with a CEF that invests in stocks from one foreign country. Currency risk was highlighted recently, starting last May, when a spike in U.S. interest rates caused a significant decline in EM currencies, stocks and bonds. Emerging markets can be quite volatile, and can be positively correlated with downside moves in U.S. stocks with much higher betas.  

USD/IDR Currency Conversion Chart

Closing Price Last Friday: IF: $9.70 +0.03 (+0.31%)

4. Sold 100 MDIV at $21.81-Roth IRA (see Disclaimer):

Snapshot of Trade:

2014 Roth IRA Sold 100 MDIV at $21.81 
Snapshot of Roth IRA History:

Dividends Paid as of 5/1/14: $188.53
Dividend Paid 5/30/14= $12.48
Total Dividends= $201.01

Snapshot of Profit:

2014 Roth IRA 100 MDIV= +$126. 96
Bought 100 MDIV at $20.4-ROTH IRA (Sept. 2012

Total Return: $327.97 or 16%

Security Description: The First Trust ETF VI Multi-Asset Diversified Income Index Fund (MDIV) is an ETF that attempts to track the Nasdaq Multi-Asset Diversified Income Index. Multi-Asset Diversified Income Index Fund (MDIV) Holdings

Prior Trades: I still own 100 shares in a taxable account, but will probably sell those shares later this year. Item # 2 Bought 100 MDIV at $20.51 (September 2012)

Rationale: I am raising cash in the Roth IRA. I also do not like this fund's 15% exposure to a junk bond ETF. I view junk bonds as overvalued taking into consideration their current low yields in relation to their default risks. During the Near Depression period, the Merrill Lynch U.S. High Yield Effective Yield Index soared to over 20%, and is now below 5.5%. St. Louis Fed This fund was hurt last year due to its exposure to Mortgage REITs whose market prices and net asset values per share spiraled downward as interest rates rose, made worse by a series of dividend cuts.

The total return was decent provided I harvested a profit rather than a loss on the shares.

Closing Price Last Friday: MDIV: $22.22 +0.07 (+0.32%)

5. Bought 300 DIR_UN:CA at C$9.53 (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Snapshot of Trade:

2014 Bought 300 DIR_UN:CA at C$9.53
Security Description: The Dream Industrial Real Estate Investment Trust (DIR.UN:TOR) is a Canadian REIT that owns industrial properties. As of 3/31/2014, DIR owned 205 light industrial buildings located in seven Canadian provinces.

Website: Dundee Industrial REIT (former name)

Prior Trades: None

Recent Earnings Reports: For the 2014 first quarter, DIR reported FFO per unit of 24 cents, up 11% from the year ago quarter. Adjusted AFFO per unit was C$.20 per unit, up 18% over the 2013 first quarter. The AFFO payout ratio was 86.3% (and 71.1% based on FFO). Occupancy was reported at 96.3%. The portfolio size was 15.6 million square feet, with a weighted average capitalization rate of 6.73% on stabilized net operating income. Leverage was at 52.4%. The weighted average interest rate on DIR's debt was 4.17%.


This is a very detailed report.

Rationale: This REIT is currently paying a monthly dividend of C$.058 per unit or C$.7 annually. At that rate, the dividend yield at a total cost of C$9.53 per share is about 7.35%.

As with other Canadian REITs, I am attempting to earn some return on my Canadian dollar stash. The general goal is harvest at some point a 10% or higher annualized total return which can be achieved with less than a 3% appreciation in the share price per year assuming a continuation of the dividend at the present rate.

The occupancy rate for an industrial REIT is excellent. Recent lease renewals have been at higher rates:

Page 9 of First Quarter Report
Risks: This is a new REIT that commenced operations in 2012. In the initial IPO, DIR sold 15.5M unit at C$10 per unit. Another 13.57M units were sold in December 2012 at C$10.6. Another 10.465M units were sold at C$11 in March 2013. Shares were also issued to the sellers of some properties as noted at page 19 of the 2013 Annual Report.

DIR_2013 Annual Report.pdf

The company discusses risks relating to its operations starting at page 32 of the Annual Report.

Currency risk is always present when a U.S. investor buys a foreign security. That risk is not avoided by buying an ADR using USDs or by converting USDs into a foreign currency to buy the ordinary shares on a foreign stock exchange. The ADR purchase using USDs does avoid the currency conversion fees (1% at Fidelity) and the higher commission rate charged by most brokers for purchasing the ordinary shares on a foreign stock exchange.

Closing Price Last Friday: DIR-UN.TO: C$9.62 -0.06 (-0.62%)

6. Added 50 GSPRD at $20.2 (see Disclaimer): This brings me up to 150 shares. I have convinced myself that I can successfully trade these floaters, but the past may not be prologue.

Snapshot of Trade:

Security Description: The Goldman Sachs Group  Non-Cumulative Preferred Series D (GS.PD) is a floating rate equity preferred stock that pays non-cumulative and qualified dividends at the greater of 4% or .67% above the three month Libor rate on a $25 par value. Prospectus

I generally describes the advantages and disadvantages of equity preferred floaters in this post: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

One of the advantages is that some protection is built into the same security for both the deflation/low inflation and problematic inflation scenarios. The minimum coupon addresses the deflation/low inflation scenario while the float above the 3 month Libor is relevant for the problematic inflation scenario.

Prior Trades: This purchase brings my current position up to 150 share (100 shares in a taxable account and 50 shares in a Roth IRA). This purchase was made in a taxable account and represents an average down.

Currently Owned Shares: 

Item # 6 Bought Roth IRA: 50 GSPRD at $21.65 (July 2013)

Item # 1 Bought 50 GSPRD at $20.6 December 2012

I have repeatedly flipped this security for small capital gains:

Item # 5 Sold 100 GSPRD at $23.71-Roth IRA (April 2013)(contains snapshot of gain=$219.25)-Item # 4 Bought 100 GSPRD at $21.38 (February 2013);

Item # 6 Sold 100 GSPRD @ $23.89 (4/23/13 Post)(snapshot of realized gain $257.24)-Bought 100 GSPRD at $21.18 January 2013

Item # 6 Sold 50 GSPRD at $20.03 July 2012 (snapshot of profit $42.47)-Item # 1 Bought Back GSPRD at $18.9 July 2012;

Item #2 Sold 50 GSPRD at $20.47 (March 2012)(snapshot of gain=$79.48)-Item # 1 Bought 50 GSPRD at $18.6 (September 2011 Post)

Item # 1 Sold 50 GSPRD @ $22.72 (April 2011)(realized gain $41.07-snapshot in Gateway Post)-Item # 2 Bought 50 GSPRD at 21.58 (January 2011)

Total Realized Capital Gains: $639.51

Related Trades: I have also bought and sold two other functionally equivalent Goldman Sachs equity preferred floaters, GSPRA and GSPRC. Stocks, Bonds & Politics: Floaters: Links in One Post I currently own 50 shares of GSPRC: Bought: 50 GSPRC at $19.95

I have also bought and sold GSPRJ, a fixed to floating rate equity preferred stock. Bought:  50 GSPRJ at $22.78

Rationale and Risks: The current yield at a total cost of $20.2 per share is about 4.95% which looks okay for a floater; given what is available now after the FED's Jihad Against the Savings Class, now in its 6 year. The three month Libor would have to rise above 3.33% to trigger an increase in the coupon, and I do not expect that this will happen for several more years.

Inflation and inflation expectations may force the FED to raise the federal funds rate sooner and/or faster than currently expected by the market.

I am obviously in a trading mode for this security. Prices for equity preferred floaters were hit hard when interest rates started to rise last year. Generally, the percentage decline in equity preferred floaters with low minimum coupons (4% or less) was greater than fixed coupon equity preferred stocks from the same or similar issuers. Rates were not rising based on an increase in inflation or inflation expectations, but due to the process of interest rate normalization.

Equity preferred stocks can become volatile with a strong downside bias during periods of market turbulence. The last such period was during the summer of 2011, when the VIX spiked and stocks corrected by almost 20%. I noted the price action on one day back in August 2011: Fear and Enhanced Volatility in Certain Classes of Income Securities

The Near Depression period was far worse for equity preferred stocks, as their prices plummeted to the single digits for most issues, particularly those issued by banks and other  leveraged firms including equity REITs. So, when and if that kind of event rolls around again, don't ask me why an equity preferred stock bought near its $25 par value is selling at $8 or even lower even when it is paying its dividend.

Future Buys/Sells: On a rise above $22, I will consider selling my highest cost 50 share lot bought at $20.6 in the taxable account.

Closing Price Last Friday: GS-PD: $20.22 +0.11 (+0.55%)

7. Bought 100 JPI at $23.34 Roth IRA (see Disclaimer): I also added 100 shares in another Roth IRA account, part of a paired trade, discussed in # 9 below.

This fund intends to liquidate on or before 8/31/2024. (Prospectus at page 1 Nuveen Preferred and Income Term Fund)

Snapshot of Trade:

2014 Roth IRA Bought 100 JPI at $23.34
Security Description: The Nuveen Preferred & Income Term Fund (JPI)

Data From Date of Purchase (5/28/14)
Closing Net Asset Value Per Share: $25.47
Closing Market Price: $23.39
Discount: -8.17%
1 Year Average Discount: -7.82%
Fund Commenced July 2012

Last SEC Filed Shareholder Report: Period Ending 1/31/14

CEFConnect Page for JPI

Sponsor's webpage: JPI - Nuveen Preferred and Income Term Fund (as of 3/31/14, effective duration was 5.74 years and the leverage adjusted duration was 8.01 years)

The market price went from $26.38 on 5/8/13 to $21.77 on 12/12/13: JPI Interactive Chart The net asset value per share went from $26.29 to $24.51 during that same period. Unadjusted for dividends, the market price declined 17.48%, while the net asset value per share went down 6.8%.

Prior Trades: None

Rationale: The primary rationale is to generate tax free income in the Roth IRA. The current monthly dividend rate is $.158 per share. Nuveen Closed-End Funds Declare Monthly Distributions; CEFConnect-Distributions Tab.

Assuming a continuation of that rate, which is in way assured, the dividend yield at a total cost of $23.34 would be about 8.12%.

The fund did pay out a short term capital gain of $.4879 per share last December.

The monthly rate was cut from $.169 to $.158 in March 2014.

So far, CEFConnect does not show any ROC.

The liquidation data in 2024 could be a positive, provided rates have not risen substantially between now and then. By buying this CEF at a greater than 8% discount to the current net asset value per share, an investor desiring to hold long term has some cushion insulating them from a rise in rates over the next decade, while collecting almost ten years of monthly dividends and possibly more capital gain distributions. That cushion may prove to be nowhere near enough, however, depending on credit and interest rate risk issues.

Risks: The fund summarizes risks at its website and starting at page 17 of its last SEC filed shareholder report.

The liquidation feature, which turns JPI into a term bond fund, may be good, bad or indifferent. It would be bad for a long term holder with interest rates spiking near the liquidation data, causing the fund to sell bonds at a loss in preparation for the liquidation. The positive side is that the term bond fund mimics in some ways the purchase of a bond with a maturity date. The term funds that own only bonds maturing in a particular year, such as the Guggenheim term junk and investment grade ETFs, have less interest rate risk than a term bond fund like GDO, IGI or JPI which owns bonds many bonds maturing after the liquidation date. That difference may be an advantage or a disadvantage depending on what prices are doing before the liquidation date.

Future Buys/Sells: I view this purchase as a trade, but I may also decide to hold until the 2024 liquidation date. That kind of decision will be based on what amounts to a guess about the future course of interest rates. If it appears reasonable that I could collect the monthly dividend and lose nothing on the shares by holding, I may elect to just hold. If the shares spike back toward $25, harvesting the profit would be likely given the uncertainty about future interest rates.

Closing Price Last Friday:  JPI: $23.32 +0.03 (+0.13%)

8. Sold 123+ of the Stock Mutual Fund BIAUX at $23.13 (see Disclaimer):

Snapshot of Trade:

Snapshot of Profit:

2013 Sold 123+ BIAUX +$217.13

The shares sold included those purchased with the 2013 annual distribution: 4.842 shares bought at $22.85 or $110.64 (Snapshot in Introduction under "Recent Mutual Fund Dividend Reinvestments)

Initiated Position ($2,500 minimum) in BIAUX

Total Return= $347.79 on $2,500 or 13.9% annualized (proceeds $2,847.79 - $2,500 total investment)

Security Description: The Brown Advisory Small-Cap Fundamental Value Fund;Investor Fund Price Today (BIAUX) is a mutual fund.

BIAUX Page at Morningstar (rated 5 stars)

Rationale: This fund was briefly made available to Fidelity customers on a NTF basis.  The availability was subsequently changed to a transaction fee for new purchases so I decided to let it go. I will not pay a transaction fee to acquire any mutual fund. I could sell the shares bought on a NTF basis, and reinvested dividends, without incurring a commission. I am also very concerned about valuations in small caps.

9. Paired Trade Roth IRA: Sold 50 ARCPP at $23.75 and Bought 100 JPI at $23.38 (see Disclaimer): I pick up more yield with an overall higher credit quality and a diversified portfolio with JPI. This JPI purchase was made in another ROTH IRA account.

Snapshot of ARCPP:

2014 Roth IRA Sold 50 ARCPP at $23.75
Snapshot of ARCPP History-Roth IRA:

Dividends Received + One Pending=$37.46

I will receive one more monthly dividend since this security went ex dividend shortly after this transaction.

Snapshot of ARCPP Profit:

2014 Roth IRA 50 ARCPP +$107.22

Item # 1 Bought ROTH IRA 50 ARCPP at $21.33 (2/13/14 Post)

Total Return 50 ARCPP=$144.68 or 13.48% annualized in slightly more than 4 months

Snapshot of JPI Purchase:

2014 Roth IRA Bought 100 JPI at $23.38
Security Descriptions:

ARCPP: American Realty Capital Properties 6.7% Cumulative Preferred Series F (ARCPP) is an equity preferred stock that pays cumulative and non-qualified dividends at the fixed coupon rate of 6.7% on a $25 par value. Prospectus

JPI: Discussed in Item # 7 Above

Prior Trades for ARCPPItem # 7 Paired Trade: Sold 100 ARCPP at $23.43 and Bought 300 ARCP at $12.69 (5/10/2014 Post)Item # 2 Paired Trade: Bought 100 ARCPP at $22.76-Sold 50 BMLPRJ at $21.05 (4/15/14 Post)

Rationale: My disdain for the ARCP's CEO is growing exponentially. Without going into any great detail here, I would just reference my comments about Nick's history; and the recent less than desirable actions of this company, including the clear statement by Nick that ARCP would not issue shares at $12 made in February 2014 followed by the sell of 138M shares at $12 in May: southgent1951's Comments on ARCP

I elected to dispose of the ARCPP since the current yield at the $23.75 sale's price was 7%, which is at my marker (7% or less) for selling an equity preferred stock. I also pick up more current yield and a more diversified higher quality portfolio with JPI.

The two governance watchdogs, ISS and Glass, Lewis & Co., recommended that shareholders vote against ARCP's compensation plan as being too generous. WSJ Shareholders defeated the proposed compensation package in an advisory vote:  WSJ

For: 134,034,390
Against: 279,510,480

SEC Form 8-k

The number of withheld votes for the election of the Directors indicates to me significant displeasure with what is happening at ARCP.  

A hedge fund known as Marcato Capital Management sent a letter to ARCP expressing its displeasure with recent events: Marcato Sends Letter to American Realty Capital Properties

Future Buys and Sells: Given my growing disdain for ARCP's management, and Nick's recent history of contradictory promises made to shareholders, I am not likely to buy more ARCP or ARCPP shares. Given the recent involvement of Marcato, I may hold until there is a dividend cut or a substantial recovery in the share price, which ever occurs first. Part of that approach is based on what happened to the CWH share price after a similar letter was sent to management, which allowed me to sell the shares at a decent profit.

Closing Price Last Friday: ARCPP: $23.56 +0.06 (+0.28%)

Politics and Etc:

1. Opinions Formed Via Brain Malfunctions and No Accurate Information: Two of my favorite topics are the "efficient market" theory and the "rational man" foundation of modern economic thought. Efficient Market Theory: Do Humans Really Behave Rationally-Seek out Relevant Information & Then Process Information With Good Judgment?Efficient Market Hypothesis as Hokum; ERROR CREEP and the INVESTING PROCESS

It is humorous at times to read comments made at SeekingAlpha that are based on clearly erroneous information. There is also a strong correlation between the certainty of those opinions and the absence of reliable information underlying them. More reliable information and a measure of good judgment deflates dogmatism and sows the seeds of doubt.

Many will even become angry with anyone that points to a reliable piece of information inconsistent with their reality creations. True Believers, the name that I assign to this crowd, can not be persuaded with accurate factual information. They are beyond hope in that regard.

I read an article in Newsweek that delves into a common brain malfunction known generally as conspiracy theories. "The Plots to Destroy America" In that article, there is a reference to a poll which showed that 28% of Americans believe "a secret power elite is conspiring to rule the world through a global authoritarian government" (usually the United Nations). Another 15% believe the government is exercising mind control through television broadcasts. Other examples are given in that article that simply highlights other topics involving mass delusion.

While descriptions of these wingnut fantasies are illuminating, they only scratch the surface. Millions of investors are acting on basically the same kind of fantasies and reality creations, having no inclination to discover accurate information and no mental toolkit to separate fact from fiction. The mass delusions underlying bubbles in asset prices is just one of many manifestations. The title of that book published in 1841, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, scratches the surface of this particular manifestation of a collective brain malfunction. I would never assume that the market price is a "rational" price because a large number of humans are involved in setting it.

The same kind of lemming infestation frequently occurs in the U.S. when the masses make going to war decisions. I am just highlighting here the major adverse ramifications of this thesis. How many citizens formed a coherent and informed opinion about the Vietnam or Iraq War before the U.S. became involved in those conflicts, during their course, or even after their conclusion. It is really frightening from my perspective how easily tens of millions can be manipulated with false information.