Saturday, October 4, 2014

Bought 30 EPR at $50.72/Bought Roth IRA: 50 MPW at $12.33/ Sold 30 MDT at $64.4/Bought Back 100 MSPRA at $20.24/Bought Back 100 EWM at $15.43

Housekeeping Matters:

ADDED: I noted after publication that there is unusual coloring and boldness added by Google's software program throughout this blog. In addition, many links are not underlined but the reader can determine the existence of a link by moving the cursor over what in context appears to be a link. Those anomalies can not be found in my draft which follows my standard format for colors and bold lettering. Some lettering is now blue when the draft shows black or another color like green. I have attempted to correct the problem, but it originates with Google and can not be corrected at my end.

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Since I now view it likely that will Google continue to losing my blog's URL for an extended period of time, the less irksome way to gain access is simply to bookmark a link to a specific post rather than the blog's URL link (e.g.: Stocks, Bonds & Politics: SOLD: 300 HLP-UN:CA at C$14.17 and 300 AX-UN:CA at C$15.71)

Bookmarking a link to an entire month will also work which can be implemented by simply clicking a month in the list to the right under "Blog Archive". Stocks, Bonds & Politics: October 2014

I would note that the Google search box (located to the right) has been loading its search engine for about five days, but can start working any second now:


What can you say? If these kind of problems are widespread, it could be an early sign of an ongoing and growing entropy so common in large organizations, particularly those that grow to mega cap size quickly.

On another house keeping matter, one of the commenters at SA claimed that my understanding of economic history comes from a ten minute reading at Wiki.

Normally, I do not respond to those who are trying so hard to achieve a juvenile mentality at SA. My only suggestion is that their mommies might need to monitor their computer usage more closely. I think younger folks call them "trolls".

I did respond to that comment with an observation that I was accepted to Harvard's P.H.D program in history, more than a few moons ago (1973) after graduating with a triple major at Tulane that included 163 semester hours. One of those majors was history, where I had 60 semester hours of courses, including enough semester hours of graduate level courses to qualify for a masters decree. That might be an adequate rebuttal to the ten minute Wiki assertion.

I told that individual that I would copy a relevant section from my transcript showing the triple major.

I graduated third in my class. I would have graduated first except that I spend the first year partying too much.


My father knew that the first year would be not be a stellar one academically for me. After all, I was 18 and had a car, spending my first year away from the cocoon. What would you expect in Sin City?

I knew that he knew that the first year would not be up to snuff.

So, I called him one spring day, back in 1970, and told him that I was ready to settle down and improve my grades.

All that I needed was a push to get started by taking some summer school classes and staying in New Orleans during the 1970 summer.

He agreed to fund this excursion.

What I did not tell him is that I knew that he would fund it, and I was really trying to avoid working for him during my "summer vacation".

So to end this story, my grades were perfect in the sophomore year, and I tried the same gambit again. Did not work the second time.

As shown by a pay stub that I copied in an earlier post, I spent the summer of 1971 working at $2 per hour for my Dad doing real labor, though I did not have to pay for the work out and the suntan. Learning the Value of a Dollar

Big Picture Synopsis: 

Stocks:
Stable Vix Pattern (Bullish)
Short Term: Market Needs to Correct
Intermediate Term: Slightly Bullish
Long Term: Bullish

Friday's Closing Prices:
VIX: 14.55 -1.61 (-9.96%) : VOLATILITY S&P 500
S & P 500 1,967.90 +21.73 (+1.12%)
S&P 500 Index Chart (broke back above 100 day SMA)

In comments to a recent Seeking Alpha, I generally discuss my views about the Shiller P/E and other backward looking valuation metrics as well as the importance of catching the periodic bursts in the stock market.

Annualized REAL Total Returns S & P 500:

March 2009 through August 2014: +18.944%
August 1982 through September 1987: +24.328% (the current burst reminds of that one)
September 1991 through March 2000: +16.261%
S&P 500 Return Calculator

Those returns are adjusted by inflation and with dividends reinvested to buy more shares. The real returns based solely on the index price change would be significantly lower.

If an investor sits out one of those bursts, then their long term performance from a stock portfolio is likely to be subpar, probably exceedingly so, unless they are able to harvest oversized gains with a few positions and only a few have done so. (e.g. Apple since the IPod introduction; BRK when it was $16 in 1974, Microsoft and Intel in the early 1980s, etc.)

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The dollar is showing considerable strength over the past several weeks and that has negatively impacted foreign securities priced in USDs.

The two main dollar indexes have different weightings but show the same powerful trend:

DXY Index Chart (basket of 6 currencies weighted in the Euro)

BBDXY Chart - Bloomberg Dollar Spot Index (12/13/13 10 currencies weightings: Currency)

International stock and bond funds are seeing those declines flow through into the price of their owned securities.

The rise in the USD is having an adverse impact on commodity prices. The chart for the iPath Bloomberg Commodity Index ETN shows a steep and steady decline since closing at $40.11 on 6/25/14. A similar looking chart is the iShares GSCI Commodity-Indexed ETF (heavier weighting in energy than DJP)

Energy stocks have had an unpleasant few weeks. The SPDR Energy ETF (XLE), which owns the S & P 500 energy stocks  declined from $98.19 (8/28/14) to the $88.17 yesterday. The broader Vanguard Energy ETF (VDE) fell from $142.26 (8/29/14) to yesterday's close at $127.77. Over the last few sessions, the herd has been in a stampede move to the exits.

The drillers and oil service companies are being hit harder than the large producers, but that is small consolidation to their owners. My only individual major is COP, and I lost a good chunk of my unrealized appreciation last month. The Canadian oil sands producers were hit pretty good, given that the slide in oil prices make their higher cost production less favorable. The slide in the CAD has exacerbated the price decline of Canadian stocks priced in USDs such as the 50 shares of CNQ that I still own.

U.S. oil prices have skidded about 16% from their June highs.

Part of the recent decline is due to Saudi Arabia and Kuwait unilaterally cutting prices for Asian customers without consulting other OPEC members. As noted in a WSJ article, OPEC appears currently to be in disarray as the cartel members bicker about production limits as the U.S. production booms.  U.S. Field Production of Crude Oil (Thousand Barrels)

My energy exposure is relatively light with COP accounting for most of the exposure. I recently eliminated some positions: Sold 50 SU at $40.95 and 50 FENY at $27.81 (8/16/14 Post) and Sold 155+ ENY at $17.55 (7/5/14 Post). I also had a few elimination earlier in the year. Sold: 200 CA:ERF at C$22.14 (4/18/14);  Sold 100 HUSKF at $29.39 (2/10/14 Post); Eliminated Royal Dutch After Profit Warning-Sold: 52+ RDS/A at $70.85 and 51+RDS/A at $70.83 (1/28/14 Post) I also significantly pared the stock CEF that has a significant weighting in energy stocks include the CEF PEO.

Another sector that had a relatively bad month was REITs. The total return for the Vanguard REIT ETF was a -5.78% over the past 30 days, but is still up 14.73% YTD. VNQ Total Returns

BDCs had a bad month too.  Market Vectors BDC Income ETF (BIZD) fell 4.69% on a total return basis over the past month. A 2x leveraged BDC ETN declined -9.65%. BDCL Total Returns

Bond CEFs also produced negative total returns for the month. The only positive was that dividends were reinvested at lower prices.

Overall, it was a much tougher month for income oriented investors than the passive investor in SPY which declined -1.53% over the same 30 day period.

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The last correction in the S & P 500 ended on October 3, 2011. The index closed at 1,099,23 that day. Historical Prices | S&P 500 Index

There have been longer bullish bursts in the S & P 500 without a correction.

The longest was 2,553 days between 10/11/90 and 10/7/1997. RBC Wealth Management That one was interrupted by the Asian Contagion.

At the moment, two other longer streaks include the March 2003-August 2007 bull move and the one occurring in 1984-1987 leading up to the October 1987 crash. 

Bonds: 
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

The 10 year TIP break-even spread closed yesterday (10/3/14) at 1.93% and has been trending down.

Notwithstanding the positive economic news yesterday, bonds rose in price and fell in yield. This would appear nonsensical given the economic news, so I would just chalk it down the the USD strength yesterday.

TLT: $117.70 +0.50 (+0.43%) : iShares 20+ Year Treasury Bond ETF

LQD: $118.93 +0.34 (+0.29%) : iShares Investment Grade Corporate Bond ETF 

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Recent Developments:

The government reported that September's payroll employment increased by 248,000 and the unemployment rate fell to 5.9%. Employment Situation Summary The consensus estimate called for 220,000 and 6.1%. The average work week rose .1 hour to 34.6 hours. The U-6 number fell to 11.8 from 12 in August. Table A-15. Alternative measures of labor underutilization

ADP reported that private sector jobs increased 213,000 in September.

Eurostat reported that the Y-O-Y inflation rate for the Euro area was .3% in September and is certainly consistent with economic stagnation. The inflation rate is at a five year low. Bloomberg

U.S. real personal consumption expenditures rose a seasonally adjusted .5% in August. The government revised July's real PCE to +.1% from -.1%. News Release: Personal Income and Outlays  Disposable personal income (DPI) increased by .3% compared with .1% in July. DPI number is one component in the calculation of the DSR ratio which measures disposable income after debt service payments. Household Debt Service Payments as a Percent of Disposable Personal Income That calculation starts with disposable income number and then computes what is left after debt service payments. It is good news for the American households when their disposable income increases, while their main debt service obligation remains constant. That increases the amount of disposable income after debt service payments even more.

Chart Disposable personal income
Chart Real disposable personal income 

ISM reported its September Manufacturing PMI at 56.6, slightly lower than the consensus estimate. The new orders component declined to 60 from 66.7.

ISM reported its September Services PMI at 58.6, basically in line with the 58.5 consensus estimate.

I took a snapshot of a chart for this index, which shows consistent movement above 50 since February 2010. Any number over 50 indicates expansion. The number will bob up and down each month and that is just noise. The direction clearly points to a continued expansion.


ISM Non-manufacturing

Bernanke disclosed that he was unsuccessful in refinancing his mortgage due to tight credit standards.

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1. Bought 30 EPR at $50.72 (see Disclaimer):

Snapshot of Trade:


2014 Bought 30 EPR at $50.72
The purchase was made on the ex dividend date.

The share price declined $2.35 on 9/18/14 after EPR announced and priced the sale of 3.2M shares at $52.25, with the usual over allotment option. EPR Properties Announces Pricing of Equity OfferingEPR Historical Prices

After noticing that decline, I decided to pick a spot and to repurchase the 30 shares previously sold at $55.22 a few weeks ago. The prior position was bought in another taxable account.

Company Description: As of 6/30/14/31/13, EPR is a net lease REIT that owned 125 megaplex theaters, nine entertainment retail centers and five family entertainment centers; educational properties including 53 charter schools and two early education centers that were 100% leased; and owned recreational areas that were also 100% leased. The company had $182.9M in properties under development as of 6/30/14. EPR-6.30.2014 earnings release The owned recreational facilities consisted of 14 metropolitan ski areas, four waterparks and 8 golf entertainment complexes. EPR's owned portfolio consisted of 15.1M square feet that was 99% leased.

EPR Properties Profile Page at Reuters

EPR Properties Key Developments Page at Reuters

EPR Key Statistics Page at Yahoo Finance

Brad Thomas wrote about this company in an article published by Seeking Alpha last August.

EPR was mentioned favorably in a Barrons.com article, written by Jack Hough, that focuses on "pass through" companies, defined to mean those ownership structures that avoid corporate taxes on income pass through to their shareholders. Both REITs and BDCs are in that category. Hough refers to a JPM analyst who argues that EPR is his "top name" for income investors.

The last monthly dividend paid by EPR went ex dividend on 9/26/14, the day of my purchase. EPR Properties (EPR) Dividend Date & History - NASDAQ.com

The current monthly rate is $.285 per share. At that rate, the yield is about 6.74% at a total cost per share of $50.72.

SEC Filings For EPR: EDGAR

EPR Interactive Chart

Prior Trade: Item # 6 Sold 30 EPR at $55.22 (8/9/14 Post)(snapshot of profit $41.66)-Item # 1 Bought 30 EPR at $53.3 (3/17/14 Post)

My last purchase was $2.58 per share lower than the previous one ($53.3), though I did miss three monthly dividends by selling that lot including the one that went ex dividend on 9/26. The three dividends totaled $.855 per share, so I just saved $1.725 per share by selling. Hardly worth it, some would say with justification, but I am a practitioner of small ball and every dollar made or saved counts in my book. In any event, I am not likely to change at my age anyway. Another  consideration is that a lower cost basis per share results in a higher dividend yield.

Related Trade: I have bought and sold an EPR equity preferred stock. Item # 7 Sold ROTH IRA: 50 EPRPRF at $24.65 (6/28/14 Post)(snapshot of profit=$93.98)-Item # 1 Bought Roth IRA: 50 EPRPRF at $22.5 (3/17/14 Post)

Quote for EPRPRF:
EPR Properties 6.625% Series F Cumulative Preferred Stock (EPR.PF)
Prospectus for EPRPRF

EPR also has two convertible preferred stocks:

EPR Properties 9.00% Cumulative Convertible Preferred Series E  (EPR.PE)
Prospectus

EPR Properties 5.75% Cumulative Convertible Preferred Series C (EPR.PC)
Prospectus

Recent Earnings Report: For the 2014 second quarter, EPR reported FFO of $.65 per share, up from $.56 in the 2013 second quarter. AFFO was reported at $.94 per share up from $.85. Revenues increased by 11% to $91.8M. EPR-6.30.2014 earnings release

The analyst estimates appear to be based on AFFO. The consensus 2014 is $4.03 and $4.4 as of yesterday.  EPR Analyst Estimates

EPR-6.30.14 10-Q

Rationale: As noted above, the P/FFO is 12.59 based on estimated 2014 AFFO and 11.53 based on the 2015 estimate. I view that P/AFFO to be reasonable, particularly given the projected AFFO growth rate Y-O-Y.   

EPR also pays monthly dividends at the current rate of $.285 per share. At that rate, the dividend yield is about 6.74% at a total cost of $50.72 Both the yield and the monthly payment schedule are viewed favorably.


Risks: The company summarizes risks factors for the preferred stock starting at page S-15 of the Prospectus. Risk factors relating to EPR's operations are summarized starting at page 9 of its 2013 Annual Report recently filed with the SEC. EPR-12.31.2013-10-K

At the moment, interest rate and volatility risks are the most important risks, but credit risk issues can easily come into play during a recession.

There is also a risk of a dividend cut during a recession, as consumers cut back on discretionary spending. EPR did cut its quarterly dividend from $.84 to $.65 in the 2009 first quarter. The quarterly rate was thereafter gradually increased to $.79 by the 2013 first quarter. EPR then went to a monthly dividend payment schedule. With the recent rise in the monthly rate, the annual rate is now slightly over the annual rate when the quarterly dividend was at $.84 per share. 

Future Buys and Sells: I will consider adding 30 more of the common at below $50. Splitting the orders into two 30 share lots, and remaining hopefully disciplined about entry and exit points, is my alternative to buying 50 shares of a stock, priced over $50, all at once.

Closing Prices Last Friday: EPR: $50.78 +0.33 (+0.65%) 

2. Sold 30 MDT at $64.4 (see Disclaimer):

Snapshot of Trade: 

2014 Sold 30 MDT at $64.4

Snapshot of Profit: 

2014 MDT 30 Shares +$914.05
Those shares were bought during the summer 2011 market swoon. Bought 30 MDT at $33.4 (8/8/11 Post) 

Prior Trades: I have not documented all of my MDT trades in the blog. After this last sale, I own no MDT shares. 

I have previously documented in the blog one prior trade: 

MDT +$883.29
LIQUIDATED MDT AT $40.68 (May 2011) 

Rationale: Medtronic is attempting to acquire the Dublin based Covidien in a tax inversion. The Obama administration has made it more costly for American firms to do these deals. Barrons.comBloomberg

While the new rules will probably be challenged as being outside the scope of executive authority, I would not hazard a guess on the potential outcome. I am certainly not to going to research that legal issue when my total stake in the matter is 30 shares of Medtronic. 

I previously mentioned that MDT had inserted a provision in the acquisition agreement that allowed it to walk after a change in the tax law relating to inversions. NYT I do not know whether the change in the laws adopted by the treasury department, if legal, would fall within that escape hatch. I was of the opinion that the Covidien merger was a long term positive for MDT, and the recent law changes made that assessment more difficult. 

While the foregoing was law change was one factor motivating the disposition of this last owned lot, profit taking was a more dominant and important rational. My total return was close to 100%, which is just fine with me for an investment over a 3 year period. 

Another factor is that the IRS will treat the inversion as a taxable event for current MDT shareholders. So, at some point in the near future, I am going to have these shares sold under the tax law even if I exchange them for shares in the newly formed combined company. TAX HIT I ran into the same issue when Canadian Royalty Trusts decided to convert to regular corporations after a change in the Canadian tax law. When that transformation was done, the IRS treated it as a sell even though the U.S. shareholder still owned the same shares and had done nothing other than exchange the royalty trust units for regular "C" corporations shares in the same amount and even with the company keeping the same stock symbol. So I might as well control the sale's price by disposing of the shares before the inversion occurs. 

Closing Price Last Friday: MDT: $65.02 +2.22 (+3.54%)(see WSJ, Bloomberg)

3. Bought Back 100 MSPRA at $20.24 (see Disclaimer): This is a trade. 

Snapshot of Trade: 


Security Description: The Morgan Stanley Non-Cumulative Preferred Series A (MS.PA) is an equity preferred stock that pays non-cumulative and qualified dividends at the greater of 4% or .7% above the 3 month Libor rate on a $25 par value. Prospectus The current coupon is the minimum 4% rate which is likely to remain the applicable coupon for two or possibly more years. At a $20.24 total cost per share, the yield would be about 4.94% currently.

An increase in the minimum 4% coupon will occur when the 3 month LIBOR rate is over 3.3% during the applicable computation period. If the that rate was then 6%, the coupon would then become 6.7% and the effective yield would increase to 8.28% at a constant total cost per share of $20.24. 

This security will be senior only to common stock. The prospectus does contain a standard "stopper" provision that would prevent Morgan Stanley from paying a cash dividend to the common shareholders and eliminating the MSPRA dividend. (see pages S-2 to S-3; S-14 to S-15). Once the common dividend is eliminated, there would be nothing legally that could stop MS from eliminating the MSPRA dividend.

However, as a practical matter, it would be unwise for MS to eliminate the MSPRA dividend to preserve capital. If you were an institutional client, what kind of message would such an elimination send to you?

For an investment bank, dependent on customer confidence in its financial viability, the only practical course would be to pay the preferred stock dividend until the company does a Lehman Brothers. A failure to pay prior to a bankruptcy filing could easily cause that result.

MSPRA has a typical stopper clause:

Click to Enlarge: 


The stopper clause is the legal mechanism that assures the preferred stock owner that their dividend will be paid in full for as long as a cash dividend is paid on the common shares. As soon as that common share cash dividend is eliminated, however, there is no remaining legal impediment to prevent the elimination of the non-cumulative preferred dividend.

Prior Trades: I have repeatedly bought and sold this security. 

Prior to this last buy, I was down to a 50 share lot in the main taxable account account:  Bought 50 MSPRA at $16.6 (September 2011).

The largest gain was on a 100 share lot purchased in 2009: Bought 100 MSPRA at $12.88 in May 2009-SOLD 100 MSPRA at $21.43 (January 2010)






Total Realized Gains MSPRA=$1,203.08 ($1,168.6 in prior trades, snapshots at Item # 5, Bought 50 MSPRA at $19.25-ROTH IRA)

Rationale and Risks: The main advantages of this type of security are as follows: (1) the security pays qualified dividends when purchased in a taxable account and (2) provides a measure of deflation/low inflation and problematic inflation in the same security.

The deflation/low inflation scenario is addressed by the minimum coupon, while the protection for problematic inflation involves the LIBOR float activation. By buying at a discount to par value, I juice the yield in both scenarios.

With the Jihads being practiced by central banks against savers worldwide, short term rates are likely to remain low, irrespective of the inflation rate until the central banks start to raise their short term benchmark rates, with the U.S. Federal Reserve being the most important and the leading practitioner of financial repression. 


When and if central banks allow rates to rise, and assuming inflation has become a problem too, then this kind of security could  start to increase its coupon in response. I really view this kind of security as providing some protection against unexpected and problematic inflation. With inflation trending under 2% for an expended period time, and the 3 month LIBOR staying below 3.3%, then this security becomes relatively unattractive given its 4% coupon compared to other higher coupon equity preferred stocks issued by MS. 

In effect the investor is paying an insurance type premium in accepting a lower rate now for MSPRA than a fixed coupon preferred stock. If that premium is 1.5% or less, then I will consider adding the floater since I became of age as an investor during a period of problematic inflation and am consequently very sensitive to its dangers.

For MSPRA, the 3 month LIBOR rate would have to rise above 3.3% during the applicable computation period to trigger a higher coupon than 4%. Historically, before the current extended period of financial repression, a 4% or 5% three month LIBOR rate was not uncommon. (move left cursor all the way to the left to get data going back to 1986: 3-Month LIBOR

MSPRA will at least produces a current real rate of return of almost 3%, before taxes, based on the currently forecasted inflation rate embodied in the ten year TIP price.

At a total cost per share of $20.24, the dividend yield with the minimum 4% coupon is about 4.94% as noted above

I discuss the advantages and disadvantages of this kind of security in Advantages and Disadvantages of Equity Preferred Floating Rate Securities. Given the many disadvantages, I view non-cumulative equity preferred stocks issued by financial institutions with some disfavor. 

While these securities are classified as part of a firm's equity, I view their bond characteristics to be more dominant than their equity features. From an individual investor's viewpoint, the equity features of MSPRA include the qualified dividend, the non-cumulative feature, and the perpetual term of the security. Unlike common stock, however, the owner of MSPRA does not have an equity interest in the business and really only has the dividend. 

Non-cumulative equity preferred stocks issued by financial institutions are hyper-sensitive to perceptions about the firm's creditworthiness. During the Near Depression, it was common to see this type of security, with a $25 par value, sell at less than $10 per share. (e.g. Bought BMLprg at $8.8Bought 100 ZBPRA at $7.8). 

This security would likely become worthless when and if Morgan Stanley files for bankruptcy.

Generally, I would expect the senior unsecured note owners to recover less than 25 cents on the dollar. Owners of more junior securities, including trust and equity preferred stocks, will most likely be wiped out completely. The Lehman equity preferred shareholders were left holding a worthless pieces of paper. Lehman had a floating rate equity preferred stock that was traded on the stock exchange (formerly under the symbol LEHPRG).


I started to invest in some of these securities during the Near Depression when they could be purchased at greater than 50% discounts to their $25 par values. The downside risk is zero as shown by what happened to those unfortunate souls who owned LEHPRG, a Lehman equity preferred floater, that is now worthless of course.

An equity preferred stock is only superior to common stock. It will be junior in the capital structure to all bonds. Given that low priority, the non-cumulative dividends paid by most of them, and the highly leveraged balance sheets of financial institutions issuing them, there will be no recovery in a bankruptcy for an owner of an equity preferred stock. Investors realized that would be the likely outcome and will behave irrationally when there is a whiff of a possible financial collapse. (a 75% chance of bankruptcy when a rational number would be less than 10%).

This type of security can be extremely volatile in price, as shown by my trading history, and by a long term chart. MS.PA Interactive Stock Chart This stock fell to below $8 during the Near Depression period. I first bought shares at $12.88. The two year low was on 12/30/11 at $14.71 and the high was $23.46 hit on 5/17/13. I do not regard that price action as rational. And, anyone investing in this sector just has to deal with it.

I do not believe that the recent decline is related to credit concerns. The fear of a security going to zero is a powerful one. That fear was not irrational in October 2008 for MS, but was borderline irrational when I first bought MSPRA in May 2009.

Periodically, these stocks will hit an air pocket. I am just use to it.

I discuss an example from August 2011: Item # 1 Fear and Enhanced Volatility in Certain Classes of Income Securities I was able to buy Santander's floater at $13 during that one. A few weeks later, yet another downdraft, and I picked up HBAPRG at $16.18 (HSBC's US operation). Bought 50 HBAPRG at $16.8

One of my earlier discussions about embracing their volatility in a trading strategy is discussed in a May 2009 post. Embracing Volatility as A Risk Management Tool In the Sub-Asset Class of Equity Preferred Stock

So, volatility and risk are just known hazards. Know what you are buying, its history and characteristics.

Closing Price Last Friday: MS-PA: $19.95 +0.06 (+0.30%) 

4. Bought 50 MPW at $12.33-Roth IRA (see Disclaimer): I just sold 100 shares of MPW in this account at $14. Item # 6 Sold 100 MPW at $14-Regular IRA (9/13/14 Post) I mentioned in the preceding linked post that I would consider buying back the shares at below $12.76. Instead of buying back 100, I elected to buy only 50 and then consider averaging down at below $12 with another 50 share lot.

Snapshot of Trade: 

2014 Roth IRA Bought 50 MPW at $12.33
Company Description: Medical Properties Trust MPW) is an equity REIT that owns net-leased healthcare facilities. As of 6/30/14, MPW's portfolio consisted of 118 properties in 25 states and in Germany (56 acute care hospitals, 23 long term acute care hospitals, 31 in-patient rehabilitation hospitals; 2 medical office buildings; and six "wellness centers". 10-Q at page 36

At the time of my purchase, the 2014 consensus FFO per share was $1.06 and $1.17 for 2015. MPW Analyst Estimates

Key Developments at Reuters

Company Website: Medical Properties Trust

Last March, MPW sold 7.7M shares at $13.05, excluding up to 1,245,000 shares in the over-allotment option: Form 8-KPress ReleaseProspectus.

MPW is currently paying a $.21 per share quarterly dividend, which was raised from $.2 in the 2013 4th quarter. Medical Properties Trust, Inc. (MPW) Dividend Date & History - NASDAQ.com

The $.20 per share quarterly rate was in effect since the 2008 4th quarter when it was reduced from $.27. I view that dividend negatively for two basis reasons: (1) the dividend was cut 25.9% and (2) after being slashed, it was kept at a constant amount for 5 years before being raised by a penny. Assuming a continuation of that dividend growth rate, I will not live to see a doubling and may not live to see the quarterly rate return to the pre-slash level of $.27.

2013 Annual Report: 10-K


Brad Thomas published an article about this REIT back in February at Seeking Alpha. He wrote an article about MPW, published at Seeking Alpha, and he prefers DOC and VTR to MPW. The dividend cut referenced above is one reason for preferring VTR. The other one that he prefers, Physicians Realty Trust (DOC), is new (IPO in 2013) and has not yet been tested by challenging conditions.

Prior Trades: As mentioned above, I just completed a round trip for a 100 share lot: Item # 6 Sold 100 MPW at $14-Regular IRA (9/13/14 Post (snapshot of profit=$108.27; total return of 10% in 5 months); Item # 2 Bought Regular IRA-100 MPW at $12.76 (4/18/14 Post)

I bought and sold this stock once in an IRA. I was fortunate to buy it at a more favorable price that allowed me to realize a decent percentage profit. Item # 3 Bought 100 MPW at $9.9-ROTH IRA (2/13/12 Post)-Item # 6 Sold 100 MPW at $12.25 (1/3/13 Post)(snapshot of profit=$221.08 & total return of $321.08).

Recent Earnings Report: For the 2014 second quarter, MPW reported normalized FFO of $.26 per share, up from $.24 in the 2013 second quarter. Medical Properties Trust-Press Release MPW excluded from normalized FFO a $29.6M impairment charge or $.17 per share relating to two hospitals.

The company expects that the annual run rate for normalized FFO will be in the range of $1.1 to $1.4 per share based on its existing portfolio and yet unidentified acquisitions.

Last Quarterly Report: 10-Q
Debt: $1.64+B, page 17

Rationale and Risks: The primary reason for owning a REIT is income generation and hopefully a modest potential for capital appreciation. MPW is also reasonably priced at P/FFO of 10.82 based on the $12.66 share price and the forward 2015 estimated FFO.

The dividend yield at a total cost of $12.33 per share is about 6.81% at the current quarterly rate of $.21 per share. The $12.33 price was $.43 below my April 2014 entry price and $1.67 per share or 11.93% below the September's sale's price for those shares referenced above.

One risk is highlighted by the long term chart. The price hit $3 in March 2009 after cascading down from $16 in 2007. MPW Interactive Chart

Another risk is highlighted by the abrupt decline from my recent disposition at $14 to the purchase at $12.65, based on no public news that I can find.

Future Buys: I will consider buying the other 50 shares at below $11.5.

Closing Price Last Friday: MPW: $12.50 +0.07 (+0.56%) 

5. Bought 10 OEF at $89.37 (see Disclaimer): I meant to discuss this starter position in an earlier post but forgot about it. I remembered when I noticed receiving a dividend payment ($4.37) on 9/30/14.

Snapshot of Trade: 

Trade Confirmation Showing No Commission Charge
This ETF can be purchased by Fidelity customer's commission free, so it is cost effective to buy shares in small positions. 

Security Description: The iShares S&P 100 ETF Fund is a low cost stock ETF that owns the S & P 100 which contains 100 of the largest publicly traded U.S. corporations, representing approximately 40% of the market capitalization of publicly traded U.S. companies. When buying a mega cap stock index, the investor is basically trading lower growth for more financial stability and lower volatility. Many of the companies in this index have been around for a long time and are properly characterized as financially stable and mature companies. A number of them have a long standing history of paying dividends. 

Back in the 1990s, the S & P 100 had "dominant" returns and traded at a "large premium" to small cap stocks according to the Morningstar analyst. Many of the mega caps hit clearly unjustifiable multiples in the late 1990s, and consequently had relatively poor price performance in the ensuing decade, as I noted in two 2010 old posts. Large Cap Valuations; Item # 3 Large Cap Valuation Strategy 

That situation has reversed as small caps now trade at a premium to the mega caps. These cycles come and go. 

Through 10/2/14, OEF had a YTD total return of 7.07% compared to -5.79% for the Russell 2000 ETF IWM. 

Sponsor's Webpage:  iShares S&P 100 ETF (OEF)(expenses ratio=.2%)  

OEF Page at Morningstar (rated 3 stars)

Snapshot of Some TOP Holdings as of 10/1/14:



Prior Trades: 
2011 OEF 103+ Shares + $1,096.72


2010 OEF 100 Shares +$516.5 (holding period 6 months +)

Needless to say, I would have been better off just forgetting that I owned this security. The LB can easily enter a rhythm of trading for decent percentage gains harvested over relatively short periods, with the big picture unobservable by its tunnel vision. 

Total Realized Gain: $1,613.22

Rational: This ETF will have a very high correlation with the S & P 500 for a simple reason.  The mega caps dominate the S & P 500. Still, when the prices of those mega caps underperform that index, which has been happening recently, their overall valuations can be slightly more attractive than an index fund for the S & P 500, particularly when the investor takes into account their greater financial safety and the worldwide operations of most components.  

5 Year Total Annualized Returns Through 10/2/14
OEF: 15.18%
SPY: 15.98%

One powerful long term secular trend favoring the mega caps over the smaller companies is their worldwide diversification, including their operations in rapidly growing emerging markets. An investor would be hard pressed to find many Russell 2000 companies with significant international operations. Most of them will be focused entirely on the U.S. 

The greater worldwide focus has its drawbacks that include exposure to adverse currency swings and numerous country risks (think Russia, Venezuela and Argentina) 

Overall, however, I view the emerging market exposure to be a long term secular trend that favors U.S. mega caps and the European ones as well. 

While many of the mega caps pay dividends, several of the newer ones, such as Google, Amazon and Facebook, have never paid a cash dividend. One of the older non-dividend payers would Berkshire Hathaway. 

The Prospectus summarizes the "principal risks" starting at page 2. The main risk in my opinion is that the ETF owns stocks, and that asset class can enter prolonged periods of negative and low real rates of total return. 

The long term chart highlights the risk since 2000 in case anyone needs to be reminded about 2000-2002 and 2008 again: iShares S&P 100 ETF ETF Chart 

Future Buys: I am nibbling due to the market's current valuation and level. On pullbacks, I will be adding in small lots, spaced over a long period of time, as long as Fidelity allows me to purchase shares commission free.  

Closing Price Last Friday: OEF: $87.93 +0.98 (+1.13%) 



6. Last Week's Minor Adds in Low Cost Stock ETFs Bought Commission Free: (see disclaimer) I am not going to discuss minor adds to low cost ETFs that can be bought commission free in one of my brokerage accounts. The following snapshots highlight what I am doing with this strategy.  

FIDU is a Fidelity ETF that can be bought commission free by customers of that firm. I placed the order near the close last Wednesday, when the DJIA closed down 238.19 points. This brings me up to 60 shares.  



2014 Bought FIDU 10 Shares at $26.84
Bought 50 FIDU at $27.41 (8/6/14 Post) 

FIDU | Fidelity Investments (expense ratio .12%; 351 holdings)


Closing Price Last Friday: FIDU: 27.12 +0.34 (+1.27%) 



2014 Bought VEA 5 Shares at $38.86
Vanguard  FTSE Developed Markets ETF (VEA)(expense ratio .09%; holdings 1,370)



2014 VGK Bought 5 Shares at  $54.01
Vanguard  FTSE Europe (VGK)(expense ratio .12%)(515 stocks)

VEA and VGK are two international ETFs. Both have been falling in price recently and their declines have been made worse by the rise in the USD against the Euro and other developed market currencies Those are two reasons why I bought some shares and why I limited the purchase to 5 shares. Europe also does not look so hot now going into 2015. Stagnation is the only possible description. The European companies weighted the heaviest in indexes are mostly large multinationals that have more leeway to grow earnings based on those international operations. 


7. Bought 100 EWM at $15.43 (see Disclaimer): I am still trying to catch the Malaysian stock market just before it hopefully resumes a sustained uptrend. I have been trying to do that for about two years now, without success, though I have exited the positions profitably after concluding the time was not yet ripe.  

Snapshot of Trade:



2014 Bought 100 EWM at MPW at $15.43
Security Description:  The iShares MSCI Malaysia ETF (EWM) is an ETF that owns stocks based in Malaysia.

Sponsor's website: iShares MSCI Malaysia Index Fund (EWM): Overview - iShares (expense ratio after waiver=.49% and .51% without waiver; 45 holdings as of 1/14/14; 12 month dividend yield 3.06%)


Most emerging markets have substantially underperformed the S & P 500 over the past one and three years. As of 9/30/2014, EWM had a one year total return of just 5.05% and an annualized total return of 10.45% over a 3 year period, substantially underperforming the S & P 500. The recent trends over the past several years explains why I am darting in and out. 

The ten year annualized total return is much better at 12.14%. iShares MSCI Malaysia ETF (EWM): Performance - iShares

I am not familiar with the stocks owned by this index fund: iShares MSCI Malaysia ETF (EWM): Holdings - iShares



EWM Page at Morningstar

Geographic Area: 127,350 square miles (roughly the size of New Mexico)

Population: 28.33 million in 2010 Malaysia - Wikipedia


Malaysia | Data-World Bank (forecasted 2014-2016 GDP growth between 4.8%-4.9%-see chart)



Prior Trades: Item # 4 Sold 100 EWM at $16.17 (7/26/14 Post)-Item # 7 Bought: 100 EWM at $15.23 (1/20/14 Post). I realized a $172.64 trading EWM in 2013: Item # 5 Sold 100 EWM at $16.01 (9/21/13 Post)-Item # 4 Bought Back 100 EWM at $15.29 (8/17/13 Post); Item # 1 Sold 100 EWM at $16.45 (May 2013)-Item # 1 Bought 100 of the ETF EWM at $15.23 (January 2013)


Rationale and Risks: I am hoping to catch this market on an upswing. By selling shares last year and earlier this year, I was simply reaping whatever profit I could given the overall lackluster performance of Malaysia's stock market.  As shown in the performance numbers referenced below, based on market prices, this market can take off and produce really good returns:

2010: +36.24%
2009: +51.36%
2007: +45.44%
2006: 36.19%
2003: +25.07%


It just has not been doing it since I started to try and catch and ride one of those waves, just want to be a Surfer Dude here. 

Total Returns: 
YTD Through 10/2/14: -.59%
2013: +7.8 

While GDP growth has slowed some in Malaysia, growth is still averaging over 4% per year. GDP growth (annual %) | Data | Table

There is some dividend support: iShares MSCI Malaysia Index Fund (EWM) Dividend Date & History The fund paid $.48 per share last year, which would generate about a 3.11% dividend yield at a total cost of $14.53 per share. The dividends are paid semi-annually in June and December.

I did stay around long enough earlier this year to collect the first semi-annual payment:


The risk is highlighted by the negative 41.36% return in 2008 and the recent weakness in Malaysia's currency against the USD. 

On May 6, 2013, one USD would buy about 2.98 MYRs (Malaysia's ). On 9/26/14, the day of my last EWM purchase, one USD would buy about 3.26 MYRs. USD/MYR Currency Conversion Chart That 9.4% MYR currency decline flows through into the value of Malaysian stocks owned by a U.S. ETF priced in USDs.  

The OG may need to acquire more patience with this ETF which is not likely to happen unless that wave appears. 

Future Buys: A future buy is unlikely. If my wave does not come within a few months, and I can sell at a profit, I will probably do so. 

Closing Price Last Friday: EWM: $15.42 -0.05 (-0.32%)