Tuesday, October 21, 2014

Added 50 BWG at $17.01/Added 100 APTS at $8.29/Bought 50 AINV at $7.94-Roth IRA/Sold 361+BTZ at $13.45-Taxable Account

I am having yet a another new problem with Google's Blogger website. When writing this post, I receive this message every few seconds:

I have not logged out from another location. If I click the phrase "Yes, I want to log in again", then I log in again, and then I will receive the same message again within a few seconds. To write this blog, I have to click close and then try to type a few words before I have to hit close again.

I found that Google was not saving most of the what I was writing, which would disappear when I opened the blog back up even after managing to save the work product. Google was destroying my work product making it impossible for me to make changes. 

Google improved in its ability to keep material after I published the post for the first time, which has allowed me to make some additions, like the one I am typing now.  The text in bold red lettering was added after this post was first published which apparently resolved Google's problem. 

Needless to say, this is most annoying and caused me to quit writing this blog, and to go ahead and publish it even though it had entire sections missing.

Google's Blogger service has reached a highly dysfunctional state. 

The same is true for Google's email service. Last night I received an email saying that some one had my password and Google has blocked access to my Gmail account. As far as I can tell after investigating this claim, Google blocked my attempt to access the account from the computer that I always use to access the account.

I was not allowed to log into my account later this evening due to my "account settings" being out of date. I logged back into the account and was taken to the account settings page. After that happened , I clicked the tab "advanced sync settings" and then clicked OK which seemed to solve the problem at least for now. What the heck?

To access the blog most of the time, the blog URL does not work. Typically there will be a delay followed by a message that the site is unavailable. Google has simply lost the ability to connect to my blog using the blog URL.

I may start writing more posts for publication at SeekingAlpha.

Big Picture Synopsis 

Stable Vix Pattern (Bullish)(Requires a Trigger Event To End)                   
Short Term: Market Needs to Correct 10% to 15%               
Intermediate Term: Slightly Bullish (gains to date borrow from the future)
Long Term: Bullish

Short to Long Term: Slight Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization

That forecast is known as the break-even spread, the average annual rate of inflation for the owner of the 10 year TIP to break even with the owner of the non-inflation protected treasury.

The break-even spread is calculated by subtracting the yield of the TIP
Daily Treasury Real Yield Curve Rates

From the Yield of the Non-inflation protected treasury
Daily Treasury Yield Curve Rates


Recent Developments:

China's GDP grew at 7.3% during the third quarter, the slowest rate in five years. CBS News

Existing single family home sales increased at a 2.4% seasonally adjusted annual rate in September. Sales reached their highest pace so far this year, but are still 1.7% below the annualized rate from September 2013.  Existing-Home Sales Rebound in September | realtor.org

Omega HealthCare (OHI): 

OHI raised its quarterly dividend by 1 cent per share to $.52 per share: Omega Announces Ninth Consecutive Increase in Common Stock Dividend

In a Seeking Alpha article published last week, Brad Thomas discusses this dividend increase in the context of improving fundamentals.

I own 100 shares as part of  my Equity REIT Common and Preferred Stock Basket.

Item # 2 Bought: 100 OHI at $29.85 (12/23/13 Post)

At the new quarterly rate, the dividend yield would be about 6.97% at a total cost per share of $29.85.


1. Added 50 BWG at $17.01 (see Disclaimer):

Snapshot of Trade:

2014 Added 50 BWG at $17.01

Snapshot of Quote Before Trade:

Snapshot of Data Day Before Trade 10/15/14

Security Description: The Legg Mason BW Global Income Opportunities Fund (BWG) is a leveraged bond CEF that invests globally.

Data From Date of Trade:
Closing Net Asset Value Per Share: $19.85
Closing Market Price: $17.07
Discount -14.01%
Average Discount 1 Year= -12.97%

CEFConnect Page for BWG

I suspect that the sharp decline between October 15 to 16 was due to the fund's heavy exposure to certain sovereign debt securities including the 2037 Portugal bond.  Net asset value per share declined from $20.11 (10/15/14) to $19.85 (10/16/14), but then rebounded to $20.11 on 10/17/14. That tells me something about this fund. The ride will be volatile.

SEC Form N-Q Holdings as of 7/31/14: Legg Mason BW Global Income Opportunities Fund (unrealized gains $5.797M; as noted in that report, the fund does some currency hedging)

Last SEC Filed Shareholder Report-Period Ending 4/30/14: LM BW Global Income Opportunities Fund

Sponsor's Website: Individual Investor (portfolio characteristics as of 6/30/14: effective duration 8.92 Years)

Dividends: BWG is a relatively new bond CEF which started operations back in 2012. The fund started out paying a monthly distribution of $.12 per share, raised that to $.125 per share effective for the June 2014 distribution, and increased the rate to $.13 effective for the September dividend. The fund also paid a capital gain distribution of $.42 per share back in December 2013. CEF Details Distributions|

Morningstar calculates the total return at 13.76% YTD and 10.99% over 1 year through 10/15/14 based on net asset value. There is a material difference when calculating the YTD return based on market price which was 7.75%. That significant disparity between total returns based on net asset value and market price indicates that the market price change has not kept up with the increase in the total return based on net asset value per share. The difference in values is manifested in an increase in the discount to net asset, one of the many known risks and potential benefits associated with bond CEFs.

The credit quality is weighted in investment grade bonds, but the fund has substantial exposure to BB and B junk rated bonds.

Prior Trade: There is a saying that is more than cliche. If you find yourself in a hole, stop digging. That rule is sometimes referred to as THE FIRST LAW of HOLEs.

I am in a hole with BWG, and I am still digging.

My last purchase was at $17.75.

Rationale: The primary reason for investing in any bond CEF is to generate income hopefully without incurring a loss on the shares-another one of those easier said than done predicaments.

Short term borrowing costs for a leveraged bond fund are at abnormally low levels now and for the past six years due to the FED's ZIRP monetary policy. The fund can borrow short term and use those borrowed funds to buy higher yielding longer term bonds, capturing the yield differential that juices the current dividend payments to the fund's owners who are either smart or stupid, or something in between for accepting the leverage risk for a little more current income.

Considering our low yield world, and the lowering of inflation expectations throughout the developed world and even in several emerging markets, the current yield, which is not yet supported by a ROC, is about 9.17% at a total cost of $17.01 per share.  Risks are frequently commensurate with yield. But there are all kinds of risks. One risk is that the investments will not generate a sufficient total return to accomplish an investor's objectives.

Only the very rich can plow their savings into a ten year German government bond yielding .9%, or a ten year TIP with less than a .5% current yield. Daily Treasury Real Yield Curve Rates; DE 10Y Govt Bond Benchmark Bond

I comprehended that risk a long time ago, maybe around 1975 or so, that I would generally describe as the risk of falling short, possibly way short. This is not to say that I will take foolish risks, like investing in internet bubble stocks in 1999, but I needed to take risks to reach the point where I am now.

Risks: (1) Leverage and Bond Value Risks: What is the disaster for the leveraged bond CEF owner? It involves the infamous triple whammy.  Borrowing costs rise as short term rates start to go up while a rise in intermediate and longer term rates cause the value of owned bonds to fall in price, including those bought with borrowed money. The confluence of those two events sends the individual investors who are the predominant owners of these funds scurrying for the exists, buyers disappear, and the discount to net asset value increases as the dividend is cut, bond losses pile up and the net asset value per share declines-not a pretty picture for those who do not know that bonds can actually be in a long term bear market.

The last long term bear market started around 1950 and lasted until 1982. This is a link to a chart that highlights the devastation: CHART

At first, it was like suffering a thousand paper cuts before the coup d'grace was administered in the late 1970s and early 1980s. There was an adage at the time that went something like this: "How do you become a millionaire trading bonds, start out with $2 Million".

(2) Currency Risks:

Any foreign security owned by a fund priced in USDs is going to have this significant risk which can also turn into a benefit when the foreign currencies gain in value against the USD. Recently, several foreign currencies have been declining in value which flows through into the value of the fund's holdings, at least to the extent the currency decline is not hedged and that hedging can cost money too. Maybe the fund makes money on its hedges when the USD is rising in value and then loses money when the USD is falling. Hedging by a fund is not a one way street unless a market timing gift is bestow by the Lord on the fund managers.

Future Buys/Sells: I may average down with 50 share lots. I will definitely sell some of the higher cost shares whenever I have a profit. I can wait. Unadjusted for dividends, including the 2013 capital gain distribution, the price was over $21 back in May 2013: BWG Interactive Chart The rise in rates in the U.S. starting in May 2013 had a widespread negative impact on international bonds, both in terms of price and currency. On 5/1/13, the net asset value per share was $22.97 and the discount was -7.58 based on a close that day at $21.23.

3. Bought 100 APTS at $8.29-Averaged Down (Equity REIT Common and Preferred Stock Basket)(see Disclaimer)

Snapshot of Trade:

Company Description: Preferred Apartment Communities (APTS) is a relatively new REIT primarily focused on apartments with the intention of growing its retail assets to 20% of the total.

I repeatedly lost part of my discussion about recent developments, so I gave up trying to type any extensive discussion of these important developments.

Hopefully, Google will not eliminate the following links that disclose the acquisition of 6 grocery shopping centers and 4 apartment complexes, along with the financing arrangements for those acquisitions. I spent about twenty minutes earlier in the evening typing a description, but Google has lost it twice now:



Key Developments Page at Reuters

APTS is currently paying a quarterly dividend of $.16 per share. Preferred Apartment Communities, Inc. Announces Third Quarter 2014 Common Stock Dividend Assuming a continuation of that rate, the dividend yield at a total cost of $8.29 is about 7.72%.

Since its IPO in 2011, APTs has raised its quarterly dividend several times, starting with a $.125 dividend rate in 2011. (APTS) Dividend Date & History

I left one mostly meaningless comment to a recent Seeking Alpha article on this REIT. I just wanted to point out that the apartment complex that APTs was acquiring in "Nashville" was in Gallatin, TN.

Last Earnings Report: Due to the recently announced proposed acquisitions, the company as configured, prior to the closings of those acquisitions, is not that important or predictive of future results.

Preferred Apartment Communities reported second quarter FFO of $4.091+M or $.25 per share. Normalized funds from operations was given at $.26 per share. AFFO was reported at $.21 per share. Same store rental revenues rose 4.3% during the quarter compared to the second quarter of 2013, while NOI increased by 6.99% on the same basis.

For apartments, the company discussed acquiring 1,397 apartment units in four geographic areas that it describes as Nashville, Kansas City, Dallas, and Houston. The total purchase price is $181.7M which is a huge bite for such a small REIT. That acquisition cost is higher than the current market cap.  I noted in a comment to a recent SA article that it is a bit of a stretch to call the "Nashville" acquisition as being in Nashville. As I mentioned in my comment to the SA article reference above, this apartment complex is near Nashville and may be inside what some would call the greater Nashville metropolitan market, but the address is 2325 Nashville Pike, Gallatin, TN. 37066. (see article about this acquisition in Multi-Housing News Online) That complex has 364 apartments and is located on 30.5 acres. It looks nice.

Google Map Showing Location of "Nashville" Apartment Complex: Stoneridge Farms-Google Maps

Another apartment complex is near "Houston", but is actually located in Katy, Tx.: Vineyards Apartments - Google Maps;  Katy,TX | Vineyards Apartments

The two other apartment complexes appear to be:

Estancia Townhomes in Dallas- Google Maps

Sandstone Creek-Google Maps (just outside of Kansas City); Overland Park, KS-Sandstone Creek Apartments


At the current quarterly rate, the dividend yield is about 7.72% at a total cost of $8.29.

An article published in Seeking Alpha back in August contained a chart estimating the market value per share of REIT apartment properties. The estimate then was $10.69 per share. I have no opinion on that valuation, and simply offer it for whatever it may be worth, if anything. The article does contain a good discussion about the supply/demand factors for Apartment REITs.

Risks: One substantial risk involves all of the recently announced acquisitions. Those acquisitions will more than double the REIT's size and will have to be financed successfully. Whenever a company grows this fast, there is always some danger that it will grow too fast or grow too much at the wrong time.

Future Buys/Sells: I may average down in 50 shares lots, but I doubt that more than 50 more shares will be purchased in the IRA due to risk considerations. There could be a downdraft when APTS announces a share offering to help for the previously discussed acquisitions.

4. Sold 361+ BTZ at $13.45 Taxable Account (see Disclaimer):

Snapshot of Trade:

Snapshot of Profit:

2014 Sold 361+ BTZ shares +$116.91

I can not find the links to all of those purchases. Some of the shares were acquired when another Blackrock bond CEF merged into BTZ. Item # 3 Added 50 BTZ at $12.35 (8/31/13 Post)Item # 4 Added 70 BTZ at $12.63 (7/13/13 Post)

Security Description: The BlackRock Credit Allocation Income Trust (BTZ) is a closed end leveraged bond fund that is weighted in investment grade bonds.

I am transferring this position to the Roth IRA. Item # 2 Added 100 BTZ at $13.47-ROTH IRA (9/20/14)Item # 8 Bought 100 BTZ at $13.7-Roth IRA (7/26/14 Post);

Sponsor's Website: Credit Allocation Income Trust | BTZ (number of holdings as of 6/30/14=573; effective duration shown at 5.64 years-Get to know your bond fund: Duration| Vanguard)



Data as of Date of Trade 10/17/14
Closing Net Asset Value Per Share: $15.36
Closing Market Price: $13.39
Discount: -12.83%

CEFConnect Page for BTZ

2014 Second Factsheet.pdf

The fund sponsor has a new website that easier to navigate and prettier than the old one. That site has more up to date information:

The current monthly dividend rate is $.085 per share or $.966 annually. I did own the shares when BTZ went ex dividend on 10/10.

Prior Trades: I do not recall doing it, but apparently I sold some BTZ shares held in a regular IRA earlier this year. Item # 8 Sold IRA: 210+BTZ at $13.62 (3/17/14 Post) One reason for writing this blog is simply to keep track of what I am doing, since I am increasing forgetting what I have done or what I am supposed to do. I noted in that post that those regular IRA shares were sold as part of the transition to shares being owned entirely in a Roth IRA account.

A purchase made within the past year is discussed in the following posts: Item # 3 Added 50 BTZ at $12.35 (8/31/13 Post)(discount then at -14.87%). In that post, I have some snapshots of prior trading profits totaling $413.80. 

Another recent purchase was discussed in this post: Item # 4 Added 70 BTZ at $12.63 (7/13/13 Post)(discount then -13.57%)

Rationale: I am simply transitioning this position to the ROTH IRA, as previously noted in earlier blogs. Since this fund collects interest payments from its bond positions, the dividends paid to its shareholders take on that same non-favored tax status and would be taxed at my highest marginal rate when paid into a taxable account. Dividends paid into my ROTH IRA are not taxable when paid or withdrawn under current law with a very limited exception that is not applicable to my situation. I in effect turn the BTZ taxable "interest" payments into tax free distributions in the Roth.

Future Buys: I will gradually build my IRA BTZ position to 300 shares, buying only when the purchase will lower my current average cost per share in that account.

5. Bought 50 AINV at $7.94 Roth IRA (see Disclaimer): 

I lost a great deal of my discussions involving this purchase and the one noted in Item # 5.  I saved the material, but it disappeared nonetheless. I will try to expand my discussion of AINV by writing a SA Instablog tomorrow. I can not spend anymore time typing and re-typing at Google's Blogger site.  

Snapshot of Trade:

Company Description Apollo Investment (AINV) is one of the largest and oldest BDCs.

Sponsor's website: Apollo Investment Corporation

Apollo Investment Corporation Portfolio

Prior to the Near Depression, AINV stock traded over $23 in 2007 and then made a swan dive into the low single digits which simply highlights the risks. AINV Interactive Chart Since August 2011, the stock has moved mostly in a narrow channel between $6.5-$9.

AINV was paying a quarterly dividend of $.52 per share in 2008 and then slashed it $.26 effective for the 2009 first quarter. The dividend was slashed again to $.2 in the 2012 first quarter and has thereafter remained at that level. Apollo Investment Corporation (AINV) Dividend History Needless to say, I view that dividend history most unfavorably.

Let me emphasize the potential loss by summarizing some historical net asset values per share data.

Data Taken From  AINV 10-Q Filings

6/30/2007: $19.09 Form 10-Q
3/31/09: $9.82 Form 10-Q
6/30/2011: $9.76 Form 10-Q
6/30/12: $8.3 Form 10-Q
6/30/2013: $8.16 10-Q
3/31/14: $8.67
6/30/14: $8.74 AINV-2014.6.30-10Q

Talent? Competence? Incentive Fees for incinerating money?

I would emphasize that these Masters of the Universe are being paid 2% of total assets plus an incentive fees for this performance. (page 79, AINV-2014.3.31-10KBDC Fees: Seeking Alpha)

Given my disdain for externally managed BDCs, which I view as amply supported by their history, I am content to harvest their dividends and to escape with whatever profit is possible.

Last  February, Apollo sold 12M shares at 8.69. The net asset value per share was reported at $8.67 per share as of 3/31/14. 

Prior Trades: I am buying back 50 of the 155+ shares sold a few weeks ago. Sold 155+ AINV at $8.81-ROTH IRA (8/20/14 Post)-Bought Roth IRA: 100 AINV at $8.68 I averaged down soon after that purchase at $8.68 by buying a 50 share lot at $8.06, as shown in the snapshot discussing the sell of that shares.

I currently own 100 shares in a taxable account. Bought: 100 AINV at $7.95 (5/10/14 Post)

Apollo Investment SEC Filings

Link to Upbeat Seeking Alpha published in August.

Related Trade: I still own 50 shares of Apollo's exchange traded senior bond:  Bought Roth IRA: 50 AIY at $24 (4/5/14 Post)

Quote: Apollo Investment Corp. 6.875% Senior Notes due 2043 (AIY)

Last Earnings Report: My discussion of the earnings report, rationale and risks continues to be deleted and I have given up trying to write it again. This picture survived Google's malfunctions. 

Q1 2015 Results - Earnings Call Transcript | Seeking Alpha

Rational And Risks:

Future Buys and Sells: I have AINV on a very short leash. While the recent history does now show net asset value destruction, there was an annihilation between 2007-2010.

6 Added 50 IF at $9.29 (see Disclaimer): 

Snapshot of Trade:

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

Data from Day of Trade: 10/21/14
Closing Net Asset Value Per Share: $$10.35 
Closing Market Price: $9.26 
Discount: - 10.53%
1 Year Average Discount: - 10.53%
3 Year Average Discount: - 9.95%
5 Year Average Discount: - 9.17%

CEFConnect for IF

Last SEC Filed Shareholder Report (period ending 6/30/14; net unrealized appreciation $32.633+M on net assets of $100.52+M)

Factsheet as of 8/31/14

Indonesia just elected a new President, Joko Widodo, who claims to be a reformer.  CNBC When he was elected in July, Indonesia's stock index surged to 1-year.

Recent Distributions:  

Aberdeen Indonesia Fund, Inc. (IF) Dividend History

In 2013, I received two dividend payments amounting to $1.42018 per share. Tax Information I owned then 100 shares. Of that amount the fund classified $1.32227 per share as long term capital gains. The ordinary dividends were classified as qualified and represented the remainder of those distributions. I would not expect much in annual ordinary income dividends.

Another distribution of $.1099 per share was just paid and represented almost entirely long term capital gains.

10 Year Annualized Total Returns to 10/20/14: 16.14% (based on net asset value)

The past 1 and three years have been far more subdued: 2.12% for 1 year and 5.47% for 3 years.

Aberdeen Indonesia Fund Page at Morningstar (currently unrated)

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

Prior Trades: 

My last purchase was back in June 2014: Item # 3 Bought: 50 IF at 9.73 (6/7/14 Post). Besides reinvested dividends, I also currently own the shares bought at $11.23

I have sold only some shares bought in 2013: 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)
CEFConnect for IF  

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.

"New Indonesian Consumer Class of 2020" Nielson Publication (middle class on track to represent 52% of the total population by 2020)(March 2014)

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.

Indonesia Economic Quarterly, July 2014: Hard Choices-World Bank

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