Monday, March 31, 2014

Update for Lottery Ticket, Equity REIT and Regional Bank Basket Strategies/RFMD/Bought in LT Basket: 30 ARCO at $9.03, 30 CYS at $8.58/Cash Flow Main Taxable Account 3/31

The weekly blog, normally published on Monday, is delayed for a day or two when I update these baskets. I am still working on it and will publish it tomorrow morning.

I will occasionally include in this monthly update a table of the recently launched Equity Common and Preferred Stock Basket. That table will also reflect positions as of the preceding Friday, including adds and deletions that have not yet been discussed to date since I am running 7 to 14 days behind discussing trades. Part of that delay is caused by leaving more comments at SA.

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Last Friday's Closing Prices:
VIX: 14.41 -0.21 (-1.44%) : VOLATILITY S&P 500 (Bullish-Stable Vix Pattern)
Vix Asset Allocation Model Explained Simply
S & P 500 1,857.62 +8.58 (+0.46%)
TLT: $109.37 -0.62 (-0.56%) : iShares 20 Year Treasury Bond ETF
KRE: $40.61 +0.15 (+0.37%) : SPDR S&P Regional Banking ETF
VNQ: $70.03 +0.42 (+0.60%) : Vanguard REIT ETF
VWO: $40.28 +0.32 (+0.80%) : Vanguard Emerging Markets ETF
GLD: $124.56 -0.03 (-0.02%) : SPDR Gold Trust

The regional bank and lottery ticket basket strategies are updated on the last Monday of each month. The price shown in the following tables will be from last Friday.

I frequently use a basket approach, particularly with industry sectors, that will vary in size as to the number of components. The focus will be on the total return of the basket, rather than individual components. Some of the advantage to this approach include diversification and risk mitigation. I am not concerned about a few mishaps provided other components are doing better than I anticipated when I made the initial purchase. As noted previously, I have been surprised by some of best and worst performers in the regional bank basket.

I recently published a table of a recently initiated basket featuring equity REIT common and preferred shares. Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14

1. Update of Lottery Ticket Basket Strategy 

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart, though I may occasionally buy one who does not fit those common criteria. Any technical analyst would most likely have a sell rating on the stock.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently slightly under $6,000.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit. Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and to keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

Snapshots of realized gains can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

There were two additions since the last update discussed below and no deletions.

Net Realized Gains:  $14,159.98

No stocks were sold since the last update. Update for Lottery Ticket and Regional Bank Basket Strategies

Click to Enlarge:

Lottery Ticket Basket as of 3/28/14

The largest unrealized gainers are as follows, led again by AMOT:

AMOT +91.75%
Allied Motion Reports Results For the Quarter and Year Ended December 31, 2013

FCE/A +58.13% and FCF +44.33%
ING + 51.33%
RFMD 44.22%
Of the LTs bought within the past 4 months, RFMD is the only one having a large percentage upside burst so far, though the one discussed below in Item B has risen more than 10%. Bought as LT: 50 RFMD at $5.18

Both ING and FCE/A are eligible for a promotion outside of the LT basket, but I have not been interested so far in buying more shares.

A. RF Micro Devices (RFMD): RF Micro announced before the bell on 2/24/14 that it will combine with TriQuint Semiconductor (TQNT) in an all stock transaction. RFMD and TriQuint to Combine, Creating a New Leader in RF Solutions RFMD shareholders will receive 1 share in the new company for each RFMD share. TQNT shareholders will receive 1.675 shares.

RFMD's stock popped up on the news.

Closing Price 2/24/14: RFMD: $7.03 +1.22 (+21.00%)

RFMD was recently added to the LT basket. That purchase was a replacement for LSI that had just jumped on a takeover.  Bought as LT: 50 RFMD at $5.18 (12/31/13 Post)

Closing Price Last Friday: RFMD: $7.70 +0.01 (+0.13%)

B. Bought 30 ARCO at $9.03 (see Disclaimer)

Snapshot of Trade:

2014 Bought 30 ARCO at $9.03
Arcos Dorados Holdings Inc. Cl A (ARCO) is not from Tennessee and needless to say it is difficult for an OG, perched at a desk located in the SUV Capital of the World looking at the Bradford Pear trees blooming, to render an informed judgment about what is happening in South America.

When looking at events in South America over the past four or so decades, two pithy statements always come to mind:

"Those who cannot remember the past are condemned to repeat it"
George Santayana
Life of Reason Volume 1, 1905

"Insanity: doing the same thing over and over agains and expecting different results"
Albert Einstein

Mass insanity and collective amnesia, which only appear as psychological conditions, may be caused by some currently unknown prehistoric parasite that inhabits the water supplies down south.

This company is the largest McDonald's franchisee in the world in terms of sales and number of restaurants. It operates in 20 countries and has over 1900 branded McDonald's restaurants throughout South America and the Caribbean. ARCOS DORADOS

And it is rapidly growing revenues at a far faster rate than the Big MAC U.S. stores. In the third quarter, same store sales rose 12.6% in local currencies compared to .7% growth for McDonald's U.S. Arcos Dorados Reports Third Quarter 2013 Financial Results

There are some issues which in my mind justify the Lottery Ticket classification.

ARCO's stores are in South America, where all kinds of problems have a way of cropping up, ranging from hyper inflation in places like Venezuela and Argentina to emerging market currency plunges. The governments in Argentina and Venezuela are without question openly hostile to business.

While the policies of those two governments lead to inflation, the populist leaders are able to convince gullible and uninformed voters that a McDonald's franchisee is actually responsible for rising costs of a Big MAC Combo meal.

Back in January, Venezuela  was suffering from 56% inflation and shortages of essential products due to what can only be described as idiotic government's policies. The government will not take any responsibility, of course, and instead blamed the "parasitic bourgeoisie" who were simply passing along the price increases caused by the government's policies. ARCO was forced by the government to lower the price of the Big MAC Dual Combo by 7.5% Bloomberg

Someday, it is conceivable that the voters in several South America nations might come to the realization that most of their problems originate from the policies followed by their elected leaders, with Venezuela and Argentina just being the two worst examples of grossly negligent and inept politicians infesting those countries currently and over the past century or so. I seriously doubt that will ever happen.  Did you know that the GDP of Argentina was close to the U.S. in 1913. Business Insider

After my purchase, the company reported 4th quarter results. Arcos Dorados reported that "net organic" income grew by 25.5% on a "systemwide sales increase" of 10.6% Y-O-Y, with adjusted EBITDA rising 20%. The GAAP numbers for all of those items were lower due to currency exchange. GAAP E.P.S. was also hurt by a one time charge of $10.8M associated with a bond redemption and other special items. Including the negative items. GAAP E.P.S. was reported at $.15 per share and revenues.

That earnings report is discussed in a Seeking Alpha article.

I left some comments to a recent SA article about Arcos Dorados: Seeking Alpha

Friday's Closing Price: ARCO: 10.07 +0.07 (+0.70%)

C. Bought 30 CYS at $8.58 (see Disclaimer): CYS Investments (CYS) is a paper REIT, otherwise known by most as a Mortgage REIT. The stock went ex dividend for a quarterly distribution of $.32 after my purchase. CYS Investments, Inc. Board of Directors Declares First Quarter 2014 Common Stock Dividend of $0.32 Per Share, and Preferred Stock Dividends

Snapshot of Trade:


I managed to exit this one at a much higher price, realizing a profit of $3.43 on the shares, now viewed as a victory. Sold 50 CYS at $13.33 (December 2011). I have a small realized loss on an existing 50 share position in a cumulative equity preferred issue: Bought 50 CYSPRA at $25.2-ROTH IRA

CYS Investments (CYS) is a Mortgage REIT, a highly leveraged enterprise that borrows boatloads of money short term and uses those funds to buy longer term securities, hoping to make money on the spread difference. I am leaving more than a few points out in that description, but that is close enough for a Lottery Ticket discussion.

For investors familiar with what happened to Mortgage REITs in 2013, their dangers were on display, as their share prices cratered, dividends were slashed, and net asset value per share declined substantially, a trifecta of horrible news, largely in response to the rapid and steep rise in rates staring last May. Things have calmed down some now and Mortgage REITs have rallied this year. Still, I have seen enough from last year to assign CYS to the LT category.

CYS had a quarterly dividend of $.6 per share in 2010 and its last declaration was for $.32. CYS Investments, Inc. - Investor Relations - Dividends & Splits

Assuming no further cuts, or increases, which would be an absurd assumption to make, the dividend yield at the current quarterly rate would be about 14.92% at a total cost of $8.58.

Link to 4th quarter earnings release: 8-K (net asset value per share of $9.24 as of 12/31/13 down from $13.31 as of 12/31/12; interest rate spread at 1.89%; leverage ratio at 6.97 to 1).

I view Mortgage REITs as dangerous securities. The leverage ratio for CYS was 6:97:1 as of 12/31/13.

Closing Price Last Friday: CYS: $8.24 +0.02 (+0.24%)

2. Update for Regional Bank Basket Strategy:

This strategy is explained in my Gateway Post on this topic:


Snapshots of realized gains and losses can be found at the end of that post.

The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher.

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000.

I am currently about $5,000 below the lower end of that range, as shown in the table below (subtract total unrealized gain from total value shown)

As a result of profit taking over the past several months, I am currently well below my minimum $40,000 out-of-pocket investment threshold for this basket. I am not comfortable with valuations in this sector. The price declines over the past few weeks brought a few near the upper end of my fair valuation range. Hopefully, I will see a number of 10% to 20% corrections over the coming weeks that will provide far better buying opportunities in this sector. I have not been impressed with most of the 4th quarter earnings reports from regional banks. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

Net Realized Gains to Date: $15,808.58 
Dividends 2010-2013 (updated yearly only)= $6,623.72

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011. I will have to increase my current exposure significantly in order to exceed the 2013 amount this year.   

There were no positions sold or added since the last update. 


Click to Enlarge:

Regional Bank Basket as of 3/28/14
A. Huntington (HBAN): News about HBAN is summarized in this press headline: Huntington Bancshares Receives No Objection from the Federal Reserve for Proposed Capital Actions, Including an Increase of the Quarterly Dividend to $0.06 Per Common Share and the Repurchase of up to $250 Million of Common Stock

HBAN was originally part of the lottery ticket basket and was promoted to the regional bank basket which allowed me to acquire more shares.

Added 40 HBAN at $7.04Bought 30 HBAN @ 7.25 as LTAdded 30 HBAN as LT at $4.8

Closing Price Last Friday: HBAN: $9.86 +0.15 (+1.56%)


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3. Update for REIT Common and Preferred Stock Basket:

This basket continues to expand, though there have been some preferred stock deletions under the current trading guidelines. The first publication of this basket was made on 3/5/14: Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14 I am using a blended strategy of including both common and preferred stocks. I have also recently initiated a starter type position in VNQ which can be bought commission free in my Vanguard brokerage account

Click to Enlarge:


It remains to be seen whether this sector shift, which started in early September 2013, will work. Without question, more income will be generated with these securities than the MM fund used to fund these purchases. I have not bothered computing the yield, as the composition changes with adds and deletions (mostly adds). I suspect that the yield would be somewhere between 6.5% to 7% based on my cost numbers rather than current prices.

Adds Discussed to DATE Since the 3/5/14 Post:

Bought Roth IRA: 50 EPRPRF at $22.5, 30 EPR at $53.3/Bought:  300 Dundee International REIT at C$9.27 and 100 DLRPRG at $19.95 (3/17/14 Post)


Bought 300 Temple Hotels at C$5.85/Bought 50 CCGPRA at $25.13-Roth IRA and 150 CCG at $8.51-Taxable Account (3/24/14)

I also discussed again how my REIT and Regional Bank Baskets fit together in my portfolio design: Stocks, Bonds & Politics: REIT and Regional Bank Baskets

I may have already included snapshots of some preferred stock deletions using current trading guidelines in the relevant Gateway Post:

Stocks, Bonds & Politics: REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages

Given the relative closeness to par value, profits realized from REIT preferred stock sales will be slim, unlike some multi-baggers from the Near Depression era. I disfavor REIT preferred stocks. I am using them in this basket to generate slightly more income and hopefully to tamp down some on what has been more volatility in the common shares over the past few months. The preferred shares have benefited over the past several weeks by an unexpected decline in rates.

Two of the adds to be discussed were 100 shares to both my Cominar and CSG positions, and a paired trade involving an equity preferred floater and ARCPP to generate more income.


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A Critical Component of Turtle Investing-Cash Flow Generation

Usually, I have a lot to discuss in the regional bank basket, but almost nothing for this update. I will simply use the extra space normally devoted to that basket to discuss what I would label as one of my fundamental long term investment approaches-the generation of a perpetually growing cash flow from dividend and interest payments which will be aggregated and then re-deployed in whatever appears to be the best income producing option then available, creating a compounding impact over a long period of time.

I took a snapshot of cash received in my main taxable account so far today. More will be received on the 1st. I will note the relevant aspects of this flow:

1. The flow is constant now, though most of the money will be received on the first and last business days of each month and mid-month.

2. There are a number of securities that pay monthly.

3. There are a large number of securities contributing to this cash flow generation. In this list, I noted plain vanilla common stocks, ETFs, bond and stock CEFs, bonds, preferred stocks, REITs and BDCs. No single contribution is important. I am focused on aggregate numbers.

4. Irrespective of my views about the market or the big picture opinions about the world in general, I will invest that cash flow no matter what. I am more concerned long term that my security selections will not result in a material number of bond defaults or dividend reductions during the worst of times, in which case I will have cash flow to buy when prices really get smashed as in September 2008 to March 2009:

Cash Flow So Far 3/31/14-Main Taxable Account (3 snapshots):

Click to Enlarge:







Monday, March 24, 2014

Lawsuit Against Seeking Alpha Contributor Alan Brochstein/SOLD 100 IDE at $17.47/Bought 300 Temple Hotels at C$5.85, 50 RSOPRA at $23.79, 50 MET at $51.76/Bought 50 CCGPRA at $25.13-Roth IRA and 150 CCG at $8.51-Taxable Account/Sold 1 Albertson's 2026 Bond at 87.125-Roth IRA

A SeekingAlpha contributor, Alan Brochstein, has been sued by AVT Inc. who did not like one of Alan's critical articles about that company. "Investors Should Avoid AVT" - Seeking Alpha

I have never met Alan, but have exchanged a few emails about stocks with him. I view him as a good guy who tries very hard to be accurate in his well researched articles, frequently making abundant citations to SEC filings. I would not even consider buying AVT, even if I had never read his article.

I donated some money to help him with his legal fees. I urge everyone to consider making donations to help him out which can be done at this website: Fight Frivolous Lawsuit by AVT, Inc. by Alan Brochstein - GoFundMe

As a firm believer in the values expressed in the First Amendment, which I view as holy, I find AVT's suit offensive.

I discussed with Alan a frivolous suit filed against the analyst Dick Bove that ultimately cost him a fortune in legal fees. NYTimes.com We need to fight back against companies that use lawsuits as a means to punish those exercising their First Amendment rights.

Big Picture Synopsis:

Stocks:
Stable Vix Pattern (Bullish)
Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Short Term: Hoping for a 15% Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish

I left a number of comments last week to an article titled "The Four Horsemen Of The Stock Market Apocalypse" published by SeekingAlpha.

The market had a good rally last Monday after the Europeans and the U.S. barely gave Russia a light finger tap in response to its military aggression and blatant violations of the Budapest Memorandum signed by it.

The CEO of Rosneft, a Russian company and major energy supplier to western Europe, noted that his company could take its business elsewhere and added that the sanctions adopted against Russia show evidence of powerlessness. I would agree with his last statement about the sanctions, might as well have just said in unison "Vlad is BAD". I seriously doubt that Rosneft's shareholders would agree with his first argument.

Looking at the ROSNEFT stock chart, perhaps shareholders need to find a new set of managers. But what can shareholders of a Russian company run by one of Vlad's cronies do anyway, which explains the very low P/E multiples of Russian companies.

I do wonder whether all of the cash shown on the balance sheets of Russian companies is still in a corporate account or somewhere else. My suggestion is for all of those Russian companies merge into Vlad, Inc. which would give them more transparency and simplify the bookkeeping.

The market was reassured last Tuesday when Putin claimed that he did not intend to annex further Ukrainian territory.

I am curious why anyone would believe a single word coming out of his mouth. He is without question a pathological liar who has created a lawless state designed to enrich himself and a few cronies, best known as a kleptocracy. The Washington Post

Two weeks before Russia formally annexed Crimea, Putin stated that Russia had no intentions of doing so, WSJ.com, and he continually represented that those 20,000 or so heavily armed men wearing masks, driving around in Russian military vehicles, were just some locals who acquired the uniforms and weapons at the local army surplus store and were beyond Russia's control.

He now says that Russia has no intention of annexing parts of Eastern Ukraine, as he amasses troops along that border.

Words coming out of Putin's mouth, or his signature on a piece of paper, can not be relied upon by any sensible person. Western Europeans and other civilized persons need to cease having delusions about Russia. It would just be supremely foolish for western Europe to depend on Russia for anything important, particularly natural gas and oil. Let them sell to their buddies in China.  

"Russia Without Illusions" - NYTimes.com

As I noted in the Politics and Etc. section of an earlier post, which also discussed Putin's theft of a $25,000 super bowl ring, Putin took control of two enclaves that had been part of Georgia in a previous military intervention (South Ossetia and Abkhazia). The NYT published an interesting story last week about what has happened to those poor souls in South Ossetia now under the thumb of Vlad and his Apparatchiks. Unemployment has risen and prices are high. Russian elites loyal to Vlad control the economy and drive around in big "glossy black cars" over unpaved roads. Russia of course did not keep its financial aid promises to the citizens of those two enclaves, and most of the small amount of aid actually given by the Russians was stolen by the boys.

I see that Hillary Clinton agrees with my earlier observation that Vlad has learned a thing or two from Hitler. Neither I nor Hillary are saying that Vlad can be compared to Adolf, at least at the moment, but his maneuvers involving neighboring sovereign nations are reminiscent of those made by Hitler. At least most folks know something about Vlad's role model.


Bonds:

Short Term: Slightly Bearish
Intermediate and Long Term: Slightly Bearish Based on Interest Rate Normalization

I have changed my short term forecast to slightly bearish from an equivocal "neutral to slightly bearish". I am sort of wavering back and forth.

The Fed announced another $10B reduction in its asset buying spree. FRB: Press Release--Federal Reserve issues FOMC statement --March 19, 2014 Thirteen of sixteen FED officials believe that the FED will start to raise short term rates in 2015 based on their current economic forecasts. FRB: March 19, 2014: FOMC ProjectionsNYT Eleven of the 16 members believe that the federal funds rate will be 1% or higher by the end of 2015.

The bond forecast assumes that the average annual CPI rate over the next ten years will be between 2% to 2.15%, the current projection embodied in the pricing of the ten year TIP.

For the first time in over two decades, Exxon tapped the debt market, selling $5.5B in fixed and floating rate notes.

There is an insignificant spread to the 3 month Libor rate for the floating rate notes. Free Writing Prospectus The one maturing in 2017 has a .04% spread to the 3 month Libor.

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Bond and Equity Preferred Stock Internal HQ Trading Guidelines: 

I have adopted the following criteria in managing my bond and equity preferred stock portfolio based on my current short and intermediate term forecasts. I will be a buyer of several of those securities when the current yield is over 8%. I will consider selling REIT equity preferred stocks when their current yields fall below 7% or their price exceeds $25.75 with a lower than 7.25% current yield. I will consider selling long term investment grades bonds currently yielding less than 6%.

One problem with selling anything is that the proceeds will probably be parked in a MM fund yielding nothing, so I would be giving up current yield in return for a slender capital gain; an avoidance of a potential capital loss; and a possible re-entry price at lower than my last purchase price creating a higher current yield and cutting down on the risk of lost opportunity.

Next week, I will discuss selling 1/2 of a long term senior bond position yielding less than 6% at the price sold and one elimination of a REIT equity  preferred stock yielding less than 7% at the price sold. I am using the price sold to compute current yield rather than the yield at my purchase cost. The general idea will be to buy these securities back at prices lower than my last purchase price.

In a 12/31/13 Post, I list the share prices for some securities that would be necessary to hit that 8% bogey. 


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Recent Developments:

The FED reported that industrial production increased .6% in February. Manufacturing output rose .8%. Capacity utilization increased to 78.8%. Industrial Production and Capacity Utilization

The NY FED Empire manufacturing report for February indicated an improvement in business conditions, with a 5.6 reading in the general business conditions index and an uptick in new orders. Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York

CPI rose .1% in February on a seasonally adjusted basis. Core CPI also rose .1%. Over a 12 month period, CPI rose only 1.1% on a non-seasonally adjusted basis.

The Philly FED manufacturing rebounded in March to 9, up from -6.3 in February. Any number above zero indicate expansion. philadelphiafed.org.pdf

The 4 week moving average of initial unemployment claims is looking much better.  4-Week Moving Average of Initial Claims- St. Louis Fed

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1. Bought 300 Temple Hotels (TPH:CA) at C$5.85 (Canadian Dollar (CAD) Strategy)(see Disclaimer): I will make a general observation about Canadian securities for U.S. investors. They are becoming cheaper for those buying them with USDs. USD/CAD Currency Conversion Chart It is odd in a way that the CAD appears to be in free fall against the USD. After all, Canada is about to move into a budget surplus. Reuters We can only dream. Actually, it would be grounds for committal for anyone to even suggest that the U.S. government is fiscally responsible.  

Snapshot of Trade:



Company Description: Temple Hotels Inc. (TPH:TOR) is a Canadian REIT that owns hotels.

As of 1/6/2014, the portfolio consisted of 26 hotels with over 3,600 rooms. It is the largest hotel owner in Fort McMurray Alberta with over 800 rooms in 8 properties. Temple Hotels Inc. General Information Fort McMurray is considered the heart of one of Canada's largest oil sand areas known as the Athabasca oil sands

Company Website:  Temple Hotels Inc. Homepage

Key Developments Page at Reuters

The current monthly distribution is C$.045 per share: Announcement of February Distribution.pdf


Temple Hotels Inc. Cash Distributions

Temple Hotels Inc. Income Tax Information

Assuming a continuation of that rate, which is of course in no way assured, the dividend yield at a total cost of C$5.85 would be about 9.23%.

This REIT agreed to acquire the Hotel Saskatchewan, located in Regina, for C$32.6M, subject to the customary closing conditions. News Release/2/19/2014.pdf

In January, Temple Hotel closed its acquisition of an extended stay property known as Nova Court in the NWT for a price of C$21.67.

In May 2013, Temple sold 1,448,495 at C$5.4.

Prior Trades: None

Recent Earnings Report: The last earnings report at the time of my purchase was from the 2013 third quarter. Third Quarter - 2013 MD&A.pdf For that quarter, the company reported revenues of C$42+M, up from $25.254M in the 2012 third quarter. Adjusted FFO rose to $.25 from $.12. The occupancy level was at 79%, up from 72%. The RevPar increased to $125.15 from $116.8.  Interest expense decreased by 7%. The weighted average interest rate on outstanding mortgages decreased to 5.17% from 5.26%. I found this to be a comprehensive report with a lot of details.

Subsequent to my purchase, Temple Hotels reported on 3/13 its 4th quarter results. For the year, AFFO was $.70 per unit, up from $.50 in 2012. The AFFO payout ratio was 76%.

Interest cost has been trending down as shown in this table from that earnings release:


Rationale: Again, I am attempting to generate income on my Canadian dollar stash. By buying these shares in Toronto, I will receive monthly distributions in Canadian dollars after a 15% withholding tax.

Risks: As usual, this one has currency risk associated with its purchase by a U.S. investor. Discretionary leisure spending will decline during recessions. A long term chart reveals that this stock closed at C$9.7 on 9/8/2008 and cratered to C1.8 by April 2009. TPH.TO Interactive Chart

The Canadian dollar has been trending down against the USD, which trend accelerated some after the Fed released its policy statement last Wednesday. USD/CAD Currency Conversion Chart On the bright side, an investor with no exposure to Canadian securities can now buy more Canadian dollars with their USDs, effectively lowering their cost per share, assuming no change in ordinary shares price when the USD would buy fewer CADs.

FFO is not predictable within a comfortable range. I noted that two analysts had a prediction for the current year, one was at C.$72 and the other was at C$.3, Reuters, so I would not even hazard a guess. Hopefully those two analysts know far more about this Canadian REIT than I do.

I can only point out the historical FFO numbers. I did not have the 2013 4th quarter report when I made my purchase, and the latest Annual Report was from 2012.

2012 Annual Report.pdf
Page 7
Adjusted FFO/Distributable Income (defined at page 32)
2012: C$.50/C$.53
2011: C$.44/C$.48
2010: C$.43/C$.28

I generally would not want to own this kind of security with a recession clearly on the horizon.

Commercial mortgage maturities are generally relatively short (5 years would be an average length), and consequently will need to be refinanced often. Mortgages represented 70% of this REIT's debt as of 9/30/13. Mortgages with an outstanding principal balance of C$41M mature before September 2014 and hopefully will be refinanced at lower rates than their existing ones. Refinancing existing debt is always a risk, at least as to the interest rate and possibly on the ability to do so under the then existing circumstances.

This REIT has outstanding a significant amount of high cost convertible debentures. By high cost, I am referring to the coupons on these convertible instruments:

The highest cost one, with a 8.5% coupon, was redeemed in April 2013.

Closing Price Last Friday: TPH.TO: C$5.84 +0.07 (+1.21%)

2. Bought 50 CCGPRA at $25.13-Roth IRA and Bought 150 CCG at $8.51-Taxable Account (see Disclaimer): Since I am more than a little reluctant to buy bonds at their current yields, I have been adding REIT common and preferred stocks as bond substitutes. I am picking up more yield and simply hope to exit these two positions at a combined profit of 5% on the shares plus one or two dividend payments.  I would not label Campus Crest as a quality REIT, and the yield on the common indicates to me that the market agrees with that assessment at the current time.

Both CCG and CCGPRA are ex dividend today, Monday 3/24/14, for their quarterly dividends. The market prices have been adjusted to reflect the amounts of those distributions.

Snapshot of Trades:

2014 Roth IRA Bought 50 CCGPRA at $25.13 
2014 Bought 150 CCG at $8.51
Security and Company Description: Campus Crest Communities Inc. 8% Series A Preferred (CCG.PA) is an equity preferred stock that pays cumulative and non-qualified dividends at the fixed coupon rate of 8% on a $25 par value. The issuer is the REIT Campus Crest Communities, an owner and developer of student housing properties.

Including pro forma for the "Copper Beach restructure", the company has "ownership interests" in 80 student housing properties with over 43,000 beds and another 10 in development or redevelopment as of 12/31/13. An amendment to an agreement for the Copper Beach portfolio was executed in September 2013 that enabled Campus Crest to acquire a 67% interest in 30 properties while deferring ownership in 7 others until the company exercises further purchase options. The initial acquisition of that Copper Beach portfolio was made in February 2013 through the acquisition of a 48% interest for $230.2 million including the repayment of $106.7M in debt. That portfolio consists of 35 student housing properties, one undeveloped land parcel and a corporate office building (page 4- 10-k)

The CCGPRA prospectus does contain a typical Dividend Stopper clause and a provision allowing for a possible conversion into common shares after a change of control, as defined in the prospectus, unless the issuer elects to redeem this preferred stock at par value. Final Prospectus Supplement

For the reasons discussed below, CCG's common share have become a falling knife, as reflected in a two year chart. CCG Interactive Chart The common shares have declined from over $14 in April 2013 to near $8.5. As noted in the preceding chart, there was a plunge of nearly 10% after CCG released its 4th quarter earnings report and provided lower guidance for 2014. At least two brokerage firms downgraded the common shares after that report.

The decline in the CCG share price from the $14 plus area to $8.5 has raised the dividend yield of course. The current quarterly rate is $.165. Campus Crest Communities (CCG) Dividend History- NASDAQ.com Assuming a continuation of that rate, which is in no way assured, the yield at a total cost of $8.51 per share would be approximately 7.75%.

The dividend yield on CCGPRA would be about 7.96% at a total cost of $25.13. Comparing the two yields, I sense some concern by investors as to the sustainability of the common dividend at its current level. That dividend was raised from $.16 in the 2013 first quarter.

At the moment, I see the operational issues to be less important to the preferred stock owner than the normal risks associated with any potentially perpetual equity preferred stock, including interest rate and volatility risks.

The decline in CCGPRA price is probably more reflective of the interest rate rise that started in early May 2013. That increase pounded a number of fixed coupon preferred issues. CCGPRA was trading near $28 in early May but appears to have hit a bottom in the $24.5 to $25 range, at least for now. CCG.PA Stock Chart  A new and lower range could easily be established, however, with renewed concerns about a spike in interest rates and/or increased credit concerns about Campus Crest.

Prior Trades: None

Recent Earnings Report: For the Q/E 12/31/13, the company reported adjusted FFO of $.21 per share up from $.20 in the year earlier quarter. AFFO for 2013 was reported at $.8, up from $.75 for 2012. Occupancy stood at 92.4% at year end. SEC Filed Press Release

Guidance for 2014 was viewed negatively by the market. The company guided AFFO to $.72 to $.74, compared to the actual $.8 in 2013. That forecast assumes that the company will not exercise its first Copper Beach option this year. As I understand it, the exercise of the first purchase option would give CCG more of an ownership interest and "give us day to day control".

So I asked myself this question. The company has already spent a great deal of money acquiring an ownership stake and it may not exercise an option that would give it operational control. That is just a negative and a big question mark for me.

The earnings release was made after the market closed on 2/26/14. The share price closed at $9.33 on 2/26/14 and closed down $.97 on 2/27/14 or a 10.4% decline in response to this release and the conference call. CCG Historical Prices I missed that decline and bought some common shares on 3/6 after the price look like it was stabilizing around $8.5, at least for now.

The consensus estimate now is for $.76 this year and $.85 in 2015. At a total cost of $8.5, that would put the P/FFO at 10 based on the 2015 estimate. Given the quality of this REIT, I would not want to pay more. I would probably be a seller at a 12 forward year estimated P/FFO or $10.2.

The company expects to deliver 8 new development projects for the 2014-2015 academic year totaling 5,213 beds.

During the 4th quarter, the company sold $95.2M in its cumulative preferred stock series and $100M of a 4.75% senior bond maturing in 2018.

Earnings Call Transcript - Seeking Alpha

Rationale: I am attempting to increase cash flow through a blended purchase of CCG's common and equity preferred stock. While the current yields are comparable, there is more risk to the common dividend. The preferred dividend can not be cut or eliminated short of a BK. The preferred dividend has to be paid in full as long as any cash dividend is paid to the common shareholders, and CCG must pay a common share dividend when it has net income in order to maintain its tax status.

I do not expect much, if any, significant appreciation in the common until there is more clarity about Copper Beach which is viewed favorably by institutional investors.

Risks: Some of the risks are discussing in the Earnings Report section above. The risk revolves around the Copper Beach acquisition.

The company discusses risks incident to its business starting at page 11 of its last filed Annual Report: 10-k

I would credit risk to be important for the preferred stock. I am not comfortable either the credit or interest rate risk.

Future Buys: I am not likely to average down by buying more of the common or preferred shares. I will consider selling the preferred when and if I have a 10% annualized total return which could be achieved with 4 quarterly dividend payments and around a $26 exit price on the preferred shares. To hit that price, interest rates will need to remain abnormally low for at least another year, with no projected significant future increases, and Campus Crest will need to resolve some of the material investor's concerns. I may exit the position at a loss based on a evaluation of future earnings reports or renewed concerns about interest rate risk.

As to the common, I will have a hair trigger on that one. I would certainly consider selling at a P/FFO equal to or greater than 12 based on the consensus estimate made by analysts for the forward year.

Closing Prices Last Friday:
CCG: $8.73 +0.16 (+1.93%)
CCG-PA: $25.65 +0.11 (+0.43%)

4. Sold 1 Albertsons 7.75% Senior Unsecured Bond at 87.125-Roth IRA (see Disclaimer):


Snapshot of Trade:



Snapshot of Profit:



Bought 1 Albertsons 7.75% Senior Note Maturing 6/15/2026 at 80

According to FINRA, this bond is currently rated CCC by S & P, deep into junk territory.

This transaction is the second round trip for this particular bond. BOUGHT 1 Albertsons Bond Maturing 2026 at 80 (February 2011)- SOLD: 1 Albertsons 7.75% 2026 Bond @ 88.3 (May 2011)

This was my last Albertsons' bond. I no longer viewed it as an appropriate investment in an IRA. Albertsons is no longer a public company. It was acquired by an investor led group led by Cerberus Capital Management from Supervalu (SVU) who had paid too much for this chain in 2006.

On 3/6/14, that same private equity consortium agreed to acquire Safeway. Safeway and Albertsons Announce Definitive Merger Agreement It would be just too difficult and time consuming to monitor its financial reports, and to assess the long term impact of these leveraged buyouts on the credit quality issue, particularly when my position was limited to just a single $1,000 par value bond.

5. Sold 100 IDE at $17.47 (see Disclaimer):

Snapshot of Trade:

2014 Sold 100 IDE at $17.47


Snapshot of Profit:
2014 IDE 100 Shares +$138.39
Rationale: IDE was another underperforming buy-write stock CEF. Over the past 3 years, ending on 3/14/14, the total annualized return based on net asset value per share was a most disappointing 4.16%.

Closing Price Last Friday: IDE: 17.24 +0.07 (+0.41%)

6. Bought 50 RSOPRA at $23.79 (see Disclaimer): This one makes the OG nervous. When researching this one, I noted that someone had bought 100 shares of the functionally equivalent RSOPRB, and I thought that I only owned 50 shares-another OG type of moment. LB just added helpfully that the OG was an embarrassment and way past his prime.

Snapshot of Trade:



Security Description: The Resource Capital Corp. 8.50% Cumulative Preferred. Series A (RSO.PA) is an equity preferred stock issued by the paper REIT Resource Capital (RSO) that pays cumulative and non-qualified dividends at the fixed coupon rate of 8.5% on a $25 par value.

RSO has the option of redeeming this stock on or after 6/14/17. Prospectus Supplement The prospectus contains a typical dividend stopper clause and a change of control provision, both viewed as material.

Dividend Stopper:


That clause is the legal means by which the preferred stock's preference rights to income over the common stock is enforced. As long as the common shareholders receive a cash dividend, the preferred stockholders must be paid in full. And, since RSO is a REIT, it must pay out cash dividends to its common shareholders as long as it has net income in order to maintain its tax status. Once cash dividend payments to the common shareholder are eliminated, however, the company would have the right to defer the preferred dividend payment and no interest will be earned or accrued on the deferred amount. The dividend stopper clause will normally extend to cash purchases of common stock in addition to cash dividend payments.

Prior Trades: None

Related Trades: Until I started to research this company again, I did not realized that I owned 100 shares of RSOPRB (50 shares in two accounts). "Maybe the OG is losing contact with reality again", the LB noted with a tinge of sarcasm, adding with the usual super serious tone, "Time to put the Stock Stud back in control of the Trading Desk". Added 50 RSOPRB at $24.75; Bought Roth IRA: 50 BANCL at $25.20  50 RSOPRB at $24.9 (March 2013)

Recent Earnings Release: 12/31/2013

Rationale: As with other preferred stocks, this purchase is all about income generation. I have lost several bonds to calls recently and the options for income replacement generally range from clearly undesirable to barely desirable with numerous reservations and a few "ifs, ands and buts".

The current dividend yield is about 8.93% as a total cost of $23.79.

There is some potential for capital appreciation back above par value, where this security was trading between April-July 2013: RSO.PA Stock Charts

Equity preferred stocks issued by highly leveraged financial institutions, particularly those whose business model can be substantially impacted by sudden changes in rates. And we know what happened to the paper REITs when rates spiked starting last May.

RISKS: Risks are in abundance. Unlike equity REITs, paper REITs are highly leverage with debt far exceeding equity. If things go wrong quickly, there is not that much equity supporting that mountain of debt.

As with all REITs and BDCs, money is flying out the door to the common shareholders. Preferred shareholders would prefer that all or most of those funds be kept as a cushion for the payment of their dividends. Those dividends are all that the preferred shareholder really has, other than a higher priority claim in a BK to the common shareholder and a potential conversion right to common in the event of a change of control.

Spikes in interest rates can be most disruptive to a paper REIT's business model. A spike in short term rates could easily have the same disruptive impacts, causing credit concerns among those owning preferred issues.

A potentially perpetual preferred stock will react negatively to increases in long term interest rates viewed by the market as non-temporary.

The company discusses risks relating to its operations starting at page 17 of its recently filed 2013 Annual Report: RSO-2013.12.31-10K

In a BK, I would seriously doubt that a preferred stock issued by a paper REIT will have any value whatsoever. So the downside potential is zero.

Closing Price Last Friday: RSO-PA: $23.78 -0.02 (-0.08%)

7. Bought 50 MET at $51.76 (Large Cap Valuation Strategy)(see Disclaimer):

Snapshot of Trade:



Closing Price Day of Trade: MET: $51.74 -0.95 (-1.80%)

Company Description: MetLife Inc (MET) is a well known provider of insurance and financial services. It is the largest life insurer in the U.S by total assets and provides group life insurance to 90 of the Fortune 100. In recent years, the company has been expanding to international markets and expanding its business lines beyond life insurance. Earnings from international market have risen to 35% of the total. Morningstar estimates that income from retirement and asset management businesses will rise at a combined 8% compound annual growth rate.

Key Statistics Based on Price and Data as of 3/14/14:
MET Key Statistics
Forward P/E 2015: 8.49
Five Year Estimated P.E.G. 1.22
Price to Book: .94
Price to Sales: .85
Projected E.P.S. Growth Rate 2014-2015: $5.7 to $6.12 MET Analyst Estimates
Projected Growth in E.P.S. 2014-2015: 7.37%

Barrons recently published a favorable article on MET.

MET is currently paying a quarterly dividend of $.275 per share. At that rate and a total cost of $51.76 per share, the dividend yield would be about 2.12%. Prior to reverting to the quarterly dividend, MET paid out $.74 per share annually starting in 2007 and ending in 2012. MetLife, Inc. (MET) Dividend Date & History - NASDAQ.com

This stock does not qualify under my dividend growth strategy. It does qualify under my Large Cap Valuation Strategy based on the data cited above. I view it to be better for a stock to qualify under both. Item # 6 Stocks, Bonds & Politics Common Stock Dividend Growth vs. Long Term Investment Grade Bonds

Prior and Related Trades: My related trades for MET involve only METPRA that I have traded successfully. All of my METPRA trades were profitable and I found the following examples looking just in my Fidelity accounts:

2012 100 Shares METPRA  +$1,283.99 
2011 Regular IRA 50 Shares +$492.52

2009 Regular IRA 50 Shares +$117.97
Recent Earnings Report: For the 2013 4th quarter, MET reported operating earnings of $1.6B, up 14% from the 2012 4th quarter. On a per share basis, operating earnings were 10% higher at $1.37. Book value per share was reported at $48.49. SEC Filed Press Release

Rationale: I really do not expect much of a dividend raise until the federal government decides how it is going to treat MET's capital requirements as a systemically important financial institution.  MET does not agree with that characterization but the government is not listening to those protestations. MET expects to be so designated late this year, or in 2015, but it is simply not known now whether the company will need to raise equity capital to meet the regulatory standard.  WSJ.com Due to this uncertainty, which will probably be cleared up within a year, MET is not using capital to buy back stock and the dividend increases have been to say the least stingy.

While dividend growth may pick up when a favorable resolution of future capital requirements, I would not view MET's dividend history as supporting a long term robust dividend growth.

I am buying the stock based on current valuation primarily, with some dividend support to the share price being a secondary consideration.

Risks: I mentioned one of the risks involving a possible, though currently unknown, material change in MET's capital requirements.

Some of the risk is on display simply by looking at a long term chart: MET Interactive Chart From September 2002 to October 2007, the stock rose around $21 to over $70, which works for me. Then the nasty happened and the price cascaded down to around $12.25 (3/09). Now, that had to hurt for a long time holder. The stock appears to have found a bottom, when it was trading between $30-$40 between September 2011 and May 2013. While it may be too early to tell, the stock looks like it is breaking out to a new trading range. Please remember that I have zero training in the art form known as technical analyses.

The company summarizes risks starting at page 34 of the recently filed 2013 Annual Report: MET-12.31.2013-10K

Future Buys and Sells: I may average down on this one, but I will not average up.

This one has moved up since my purchase.

Closing Price Last Friday: MET: $53.42 -0.23 (-0.43%)

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Politics and Etc:

1. Dmitry Kiselyov-One of Putin's Many New Stooges: Putin has basically silenced the free press in Russia. Best to eliminate the possibility of widespread dissemination of facts that would challenge the Putin line. Putin recently promoted Dmitry, labelled as a "journalist" by the subservient Russian media, to the head of a news agency. One of Dmitry's first journalistic observations was to pronounce that the U.S. better behave or Russia will turn our homeland into radioactive ash. MarketWatch I am not sure what Dmitry is saying except that nuclear suicide is an option for Putin unless the west plays ball on Russia's military aggression.

I wonder whether Dmitry and other Russian "journalists" have read from the Budapest Memorandum on Security Assurances. The Europeans may need to be reminded that Russia will violate the clear meaning of any treaty that it signs whenever it wants to do so. This is just the latest in a long list of examples.

The more serious long term question is whether Nato will respond when and if Putin attempts to annex countries, formerly part of the Soviet Union, that are now part of the NATO protection umbrella, such as the three Baltic states. Personally, if I was living in Estonia or Latvia, I would not count on the Western European countries, particularly Germany, to do much of anything of consequence. Trade is more important to them. If Russia's aggression is to be challenged with force, the U.S. will be carrying that burden probably with meaningful assistance from the U.K. and possibly France.

Demitry and his ilk do serve an important function in Russian society today. It is imperative to divert attention from Putin's kleptocracy and growing dictatorship and to instead focus the attention of ordinary citizens on a big rock known as Crimea.

I have only one other thought on this topic. I would prefer watching the faux blondes on the "fair and balanced" network than to look at Dmitry. 

Thursday, March 20, 2014

REIT and Regional Bank Baskets

Today illustrates a point previously made about how my regional bank basket and my equity REIT basket interact with one another. 

Earlier this month, I published a post containing the then current equity REIT common and preferred stocks.  Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14 I mentioned in that post that it remains to be seen whether or not that sector shift will actually work. 

A reader inquired how I would measure whether this particular sector performed to my expectations. He noted that this portfolio would throw off more income than cash earning nothing in a MM fund which is of course true. 

In the comment section to that post, I referenced a number of metrics that I would use to reach a conclusion on performance. 

My most important guideline is to beat the S & P 500 performance with far less risk/volatility and considerably more income. That is one bogey. 

Another measure is how the performance of that basket compares to VNQ, a low cost index fund offered by Vanguard that owns equity REITs and no equity preferred stocks. I would not draw any conclusions making that comparison on a daily or monthly basis, though I would look most days to see how I am doing compared to VNQ. 

VNQ was down .66% and my basket was down .33% a few minutes prior to publication of this post. For the most part, I am outperforming today due to my coupling of some preferred stocks with the common shares. The preferred shares are just holding up better, with several of them slightly in the green. An example would be DLRPRE up .21% while DLR is down again today by over 2% so far in the trading day.

The equity REIT common shares are reacting negatively, at least for the moment, to concerns about rising interest rates. 

I mentioned another performance metric. My portfolio has a lot of moving parts, checks and balances, and designed to cater to multiple possible future scenarios. 

Put my REIT basket together with my Regional Bank basket, the split would be roughly 60%REIT/40% Regional Bank. Rightly or wrongly, the market will take regional banks up in price when factoring an increase in interest rates. Today, that basket is up 1.04%. When I net the smaller regional bank basket against the REIT basket, I am up over $200 so far today on a net basis. The regional bank basket is up over $450.

******
Added Later in the Day Thursday 3/20

I checked the relationship between the two baskets again at 12:55 today C.S.T.

Regional Bank Basket +$630 up 1.45%
Equity REIT Basket -184 down -.29%

VNQ -.69%

My regional bank basket, which focuses more on micro cap and small caps, is not doing as well as KRE that has a much larger market capitalization than my basket:

KRE: 42.39 +0.77 (+1.85%) : SPDR S&P Regional Banking ETF

I do not own any of the top ten holdings:  KRE - SPDR S&P Regional Banking ETF

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Last Update Showing This Relationship
As of 11:3 C.S.T on Friday 3/21

Regional Bank Basket: +$170.
REIT Basket: +$408

Today, the REIT basket is slightly underperforming VNQ. Several of the equity preferred stocks that helped the portfolio yesterday are the source of that underperformance.

KRE: KRE: 42.44 +0.09 (+0.21%) : SPDR S&P Regional Banking ETF
TLT: TLT: 107.95 +0.88 (+0.82%) : iShares 20 Year Treasury Bond ETF
VNQ: VNQ: 70.32 +0.72 (+1.03%) : Vanguard REIT ETF

Monday, March 17, 2014

Bought 30 EPR at $53.3/Bought Roth IRA: 50 EPRPRF at $22.5,,100 AINV at $8.68/Sold IRA: 210+BTZ at $13.62/Sold: 100 WBSPRE at $24.4 and 200 RMT at $12.8-Lowers Average Cost Per Share to $8.61/Added 100 FAM at $13.68/Bought: 50 PRDSY at $15 and 300 Dundee International REIT at C$9.27 and 100 DLRPRG at $19.95/Cricket Communications

This post will be discussing trades made between 2/28/14 and 3/5/14, except that one of the trades made on 3/5/14 will be discussed in the next post since this one discusses 10 trades which is too many.

Big Picture Synopsis:

Stocks:
Stable Vix Pattern (Bullish)
Short Term: Hoping for a 15%+ Correction 
Intermediate Term: Slightly Bullish
Long Term: Bullish

Without a correction soon, followed by a period of consolidation and mostly sideways movement, the odds of a cyclical bear market increase, meaning a greater than 20% rapid decline in the S & P 500.

Bonds:
Short Term: Neutral to Slightly Bearish
Intermediate and Long Term: Slightly Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization

The bond forecast assumes that the average annual inflation rate will be between 2% to 2.25% over the next ten years, which is in line with the current forecast embodied in the pricing of the 10 year treasury TIP. The break-even spread closed last Friday at 2.17%, the average annual CPI increase over the next ten years which would be necessary fro the 10 year TIP to break-even with the 10 year non-inflation protected treasury note. 

Putin's foolish gambit in the Ukraine is providing a serious boost to U.S. treasuries and investment grade corporate bonds. Treasuries love his expressions of Russian manhood. The 10 year treasury declined from a 2.8% yield on 3/7/14 to 2.65% last Friday

Putin has proven that he is capable of torpedoing the Russian ruble, Russian government bonds and the Russian stock market for his unquenchable desire to blatantly violate Russia's treaty obligations through military agression, and for what, a big rock near the Black Sea where Russia can legally operate out of a naval base until 2042 with no change in an existing agreement. theguardian.com

Over the weekend, there were reports that Russian had sent its military into eastern Ukraine. CBS News; WSJ.com The Russian Foreign Office claimed to have receive requests for protection.

Putin is just your typical fool with access to a large army.

There is no shortage of fools and jerks who have led our country, and we have certainly learned that rising to the top of any organization or government frequently has nothing to do with intelligence, competence or good judgment.

Russia claims that it currently has no intention of blatantly violating its treaty obligations by seizing eastern Ukraine. Russia is keeping its options open in that regard and may find it necessary to send in troops to quell the disturbances being caused by its activities and policies. Russia pointed to the death of a Ukrainian demonstrator who was murdered by pro-Russian ones in Donetsk.

All of these recent events in the Ukraine show that Putin has learned something from Hitler's pre-WWII playbook. So he is capable of learning.

The ignorant and uninformed Russian speakers regularly watch state controlled, "fair and balanced" Russian TV, a farce, and accept as true whatever is being fed to them by the Russian government propaganda machine.

Russia's economy would make Argentina look good without the abundant natural resources including the natural gas deliveries to the more prosperous western Europe. Perhaps, the West should allow Putin to choke on that natural gas and find alternative supplies for the Europeans, even at a higher cost. I am glad to see that Merkel has "apparently" acquired a backbone. NYT Possibly, a few Europeans will come to realize that relying on Russia for anything important, such as natural gas and oil, is not in their long term best interest.

RSX Technical Analysis | Market Vectors Russia ETF

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Recent Developments:

Raymond James views it as likely that BDCs will be removed from the Russell indexes on June 27. Barrons.com PSEC and AINV are scheduled to be removed from the S & P 600 small cap and mid cap indexes respectively on 5/21. I will be monitoring the price action in PSEC and decide whether any decline in price due solely to its removal justifies a 100 share add.

Retail sales rebounded from the earlier weather induced results. The government reported a higher than expected .3% increase in February. census.gov/retailpdf

Some market participants view last week's economic numbers released by China's government in a negative light. WSJ.com

GLD is trading above its 50 and 200 day SMA lines:  SPDR Gold Trust ETF Chart SLV is barely above its 50 and 200 day SMA lines and has significantly underperformed GLD over the past year. iShares Silver Trust ETF Chart

A Barrons' article points out that corporations need to start using more cash flow to upgrade plant and equipment. I would agree. Money now being deployed to buy stock needs to be used instead for reinvestment in the business. Buffett noted in the Berkshire annual report that its subsidiaries had capital expenditures of roughly $11B last year, double their depreciation charges, and BRK did not buy back any shares. (page 5: berkshirehathaway.pdf)

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JZJ Partial RedemptionAnother Partial Call by the Owner of the JZJ Call Warrant

The profit realized on the redemption of 94 JZJ trust certificates was $488.32, bringing my net realized gain total for trust certificates to $27,467.64. (Trade snapshots at the end of Trust Certificates: New Gateway Post)

I received accrued interest of $49.52 on those 94 shares, incorrectly labelled by Fidelity as a dividend:


Snapshot of Profit: 

2014 JZJ 94 Shares +$488.17
**************

General Mills (own): 

General Mills is one of my turtle stocks.

I last discussed buying 50 shares when the price was near $35.


Stocks, Bonds & Politics: Bought 50 GIS at $35.53 (1/5/11 Post)

It is sort of like watching grass grow. You never see it grow but leave it alone for a few years and see what happens. GIS Interactive Chart

Like many consumer staples, dividend and earnings growth is steady and relatively predictable. GIS has paid a dividend without interruption or reduction for 115 years. General Mills - Dividends and Stock Splits

On 3/13, the Board announced a 8% increase in the quarterly dividend. General Mills Declares 8 Percent Dividend Increase

The current price is in my "do nothing" range which is broad for this kind of stock. I would consider buying more at below $46. GIS Analyst Estimates

GIS declined last Friday after warning about fiscal third quarter results.  General Mills Updates Fiscal 2014 Outlook

Closing Price Last Friday: GIS: $49.77 -1.24 (-2.43%)


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TICC Capital (own)

TICC sold 6 million common shares at $10.14 last Friday, and granted the underwriters an option to buy up to 900,000 more shares.

The constant share offerings by BDCs is known risk to existing shareholders. The price will decline in response to those offerings. At least the offering price was above the $9.85 per share net asset value as of 12/31/13, recently reported by TICC.

I recently bought 100 shares. Bought: 100 TICC at $9.97 (2/17/14 Post)

Friday's Closing Price: TICC: $10.00 -0.43 (-4.12%)

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Leap Wireless: (own bond)

Leap Wireless announced its acquisition by AT & T was completed on 3/13/14. Cricket Communications was a Leap Wireless subsidiary. AT&T/Leap Merger

I own one Cricket Communications senior bond. Bought 1 Cricket Communications 7.75% Senior Note Maturing on 10/15/2020 at 96.5 As noted in that post, the bond was rated at B3 by Moody's and CCC+ by S & P at the time of that purchase back in 2011.

Due to the completion of the merger, the Cricket bond was upgraded by both Moody's and S & P as shown in these emails received from my broker:




Existing Position Priced at 113.5 as of Friday 
FINRA Data on Cricket 7.75% (closed higher at 114.5)

I did spend a few minutes reviewing the optional redemption language in the prospectus to see if I had any protection from an AT & T call now and if so, how much?

Ideally, I would want a standard make whole calculation that would make an optional redemption now punitive for AT & T. While I am certainly no bond expert, I would label the optional redemption a modified make whole provision that provides less protection than the standard one, page 58 et seq. Prospectus To figure out the redemption price, the investor has to first look at the price per year (e.g. 103.875% for 2015) and then make what the prospectus defines as an "Additional Interest" calculation to the redemption date. I can not calculate the "additional interest" number since I do not see a clear definition of what it includes in the prospectus (see definition at page 82) Since I am unable to figure that out, I may sell the bond, but most likely will not have an opportunity online since the minimum bids usually require more than just 1 bond. I could have the broker place the 1 bond out to bid and then either accept or reject any offer that may be given to me.

A received a notice after the publication of this post that this bond is being redeemed in full, so I will find out soon enough about that additional interest calculation:


In a notice received this evening, Fidelity stated that the redemption date will be 4/14/2014.

***************************************

1. Bought 50 EPRPRF at $22.5-Roth IRA and 30 of EPR at $53.3 (see Disclaimer): I bought the preferred shares first and then decided to buy a starter position in the common, similar to what I have recently done with DLR. If the common share price falls below $50, I will consider buying another 30 shares.  

Snapshot of Trades:

2014 Roth IRA Bought 50 EPRPRF at $22.5
2014 Bought 30 EPR at $53.3
Security Descriptions: The EPR Properties 6.625% Series F Cumulative Preferred (EPR.PF) is an equity preferred stock issued by the REIT EPR Properties (EPR) that pays cumulative and non-qualified dividends at the fixed coupon rate of 6.625% on a $25 par value. EPR has the option to redeem at par on or after 10/12/2017. Prospectus

As of 12/31/13, EPR owned 121 megaplex theaters that were 100% leased; educational properties including 48 charter schools that were 100% leased; and owned recreational areas that were also 100% leased. The company had $89.5 of properties under development at year end.

The prospectus for EPRPRF contains a typical Dividend Stopper Clause (S-24) and a change of control provision (S-8 et. seq.).

The last quarterly ex dividend date for EPRPRF was on 12/27/13.

The last monthly dividend paid by EPR went ex dividend on 2/26: EPR Properties (EPR) Dividend Date & History - NASDAQ.com

After my purchases, 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.

SEC Filings For EPR: EDGAR

EPR has one other preferred stock that is functionally equivalent to EPRPRF except for the coupon and optional redemption date:

EPR Properties 5.75% Cum. Conv. Pfd. Series C  (EPR.PC)-Prospectus

At the time of my purchase, the dividend yield on the 5.75% preferred was less at the then existing prices.

There is also a convertible preferred outstanding:

EPR.PE Stock Quote - EPR Properties 9.00% Cum. Conv. Pfd. Series E (EPR.PE )-Prospectus

Prior Trades: None

Recent Earnings Report: For the 2013 4th quarter, EPR reported a $1.23 FFO per share, up from $.87 in the 2012 4th quarter. FFO for 2013 was reported at $199.4M or $4.13 per share. The payout ratio for 2013 was 81% of adjusted FFO. Debt to gross assets was at 40%.

The company guided 2014 FFO to a range between $4.12 and 4.22. At the midpoint of that range, the P/FFO at a total cost of $53.3 is 12.78, viewed by me as a fair price for an equity slice.

EPR-12/31/2013 earnings release

Rationale: Since 9/1/13, I have built up a basket of equity REIT common and preferred shares after a correction in their prices. This basket will generate income in the 6% to 7% yield range, bringing me close to a potential 10% annualized return with very modest price appreciation. As with other baskets, I will harvest some profits and add new positions in order hopefully to meet my modest goal of a 10% annualized total return derived mostly from dividends.

As noted above, the P/FFO is between 12-13 based on estimated 2014 guidance. I view that price to be reasonable.

EPR also pays monthly dividends at the current rate of $.285 per share. At that rate, the dividend yield is about 6.41% at a total cost of $53.4. Both the yield and the monthly payment schedule are viewed favorably.

EPR Properties (EPR) Dividend History-NASDAQ.com

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 need a current yield of 8% or greater to buy another 50 shares of EPRPRF. I will likely toss it when and if the price approaches par value.

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: $53.97 +0.31 (+0.58%)
EPR-PF: $24.03 -0.12 (-0.50%) 

2. Sold 100 WBSPRE at $24.4 (see Disclaimer):  

Snapshot of Trade:

2014 Sold 100 WBSPRE at $24.4


Snapshot of Profit/Loss:   

Security Description: The Webster Financial Corp. 6.4% Non-Cumulative Preferred Series E (WBS.PE) is an equity preferred stock that pays qualified and non-cumulative dividends at the fixed coupon rate of 6.4% on a $25 par value. Prospectus Supplement

This preferred stock went ex dividend for its quarterly distribution on 2/27/14, the day before I sold my 100 shares, so I will receive that dividend this week: 


Rationale: While this equity preferred stock has a junk rating, I have a BBB- comfort level with it. My problem with the security was that I bought my first 50 share lot at too high of a price. The $25.1 price paid for the first 50 share lot severely limits my potential upside capital appreciation and increases my interest rate risk compared to the second purchase at $22.59.

In addition, there is a meaningful current yield difference between the two 50 shares lots. At a total cost of $25.1 per share, the current yield would be about 6.37% compared to about 7.08% at a total cost of $22.59. 

Future Buys: I will revisit this security when I can purchase the first 50 share lot at less than $22.5 and the second lot at less than $20. By selling the security with that high priced lot now, I can reset my constant average cost per share number.

Closing Price Last Friday: WBS-PE: $24.19 +0.02 (+0.08%) 

3. Bought 50 PRDSY at $15 (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer):

Snapshot of Trade:

2014 Bought 50 PRDSY at $15
Company Description:  Prada S.p.A. ADS (PRDSY) is an Italian based company engaged in the design, manufacture, and distribution of high end goods, including leather handbags, jackets, skirts, trousers, eyewear and perfume.  The primary market for the shares is in Hong Kong. China is a very important market for Prada.

Company Website: Prada Group

Prada - Wikipedia

Closing Price In Hong Kong on 2/281/4:  HKD $58.3 

I took a snapshot of the conversion value of $58.3 Hong Kong Dollars into USDs on 2/28/14:



One PRDSY ADS shares equals two ordinary shares traded in Hong Kong. That would indicate a price for PRDSY at $15.0238. When I entered my limit order at $15.05, the PRDSY shares were trading at a premium to the HK closing price at $15.1. My limit order was filled on a downdraft, near the close, at $15.  

Closing Price PRDSY on 2/28/14PRDSY: $14.88 -0.42 (-2.75%) : PRADA SPA ADR (day's range $14.82 to $15.13)

PRDSY Interactive Chart

Financial Report for the Period Ending 7/31/13: Interim Financial Report.pdf

3Q_2013_Results_Presentation.pdf

Sales growth was 9% in the year ended 1/31/14, less than expected, due to weakness in Europe and currency issues. Prada opened 79 stores last year, bringing its retail store total up to 540 by the end of January 2014. Reuters

Rationale: This is sort of a play on the top 1%. I never have understood why women will pay hundreds, or thousands of dollars for a handbag. I have one wallet bought on sale at Target for less than $10 and its shows more than a little wear and tear. Maybe I will buy a new one in ten years or so.   

Risks: I am at my limit with a 50 share buy. I would have to promote this company out of the Flyer's Basket category to buy more. I see no reason for a promotion at this time. Among the risks, Bloomberg reported that Italian authorities "may" be allegedly investigating Prada for tax evasion, Bloomberg, and there have recently been several reports that China is clamping down on conspicuous consumption by their elite.

Closing Price Last Friday: PRDSY: $14.75 +0.20 (+1.37%) 

4. Bought 300 of Dundee International REIT at C$9.28  (see Disclaimer):

Snapshot of Trade:

2014 Bought 300 DI_UN:CA at C$9.28

Company Description: The Dundee International Real Estate Investment Trust (DI.UN:TOR) is a Canadian REIT that owns property outside of Canada. At the time of my purchase, those properties were located solely in Germany. Dundee International REIT - Portfolio This is a new REIT that started trading in August 2011. Stock Market Chart Toronto Stock Exchange

The early history is summarized on page 1 of the 2011 Annual Report. Annual-Report-2011.pdf The Dundee Group initially funded this REIT with $120M and an IPO was completed in August 2011. The initial foray into Germany involved the purchase of a portfolio primarily occupied by Deutsche Post.

This is a link to a December 2012 interview with Jane Gavan, CEO, Dundee International REIT- YouTube

Snapshot of Recent Monthly Dividend Payment in Canadian Dollars:



Assuming a continuation of that C$.0667 monthly rate per share and a total cost of C$9.28 per share, the dividend yield would be about 8.625%. I would emphasize that no dividend increases are likely in the foreseeable future since this REIT is already paying out close to 100% of its AFFO.

Prior Trades: None

Recent Earnings Report: I just took a snapshot of the relevant information contained in Dundee's 4th quarter report:

Click to Enlarge:


February-26-2014-Q4.pdf

As noted in footnote number one to the preceding table, results are converted from Euros to Canadian Dollars. This creates two currency risk issues for a U.S. investor. I have both the CAD to USD risk and the Euro to CAD risk. In exchange for the currency and other risks, I receive a good monthly dividend and exposure to high quality real estate in Europe's strongest economy without having to buy a European REIT with Euros.

Rationale: I am using a basket approach in the REIT sector similar to what I do with other sectors. This purchase gives me exposure to Germany, which improves my geographical diversification, and provides me with a monthly dividend yield of about 8.63%.

Risks: I mentioned the dual currency risk above. Needless to say, sitting at a desk in the SUV Capital of the World, I know zilch about the German real estate market. I did note that the occupancy rate increased to 86.4% as of 12/31/13 from 83.2% on 12/31/12. Occupancy levels, particularly during recessionary times, can be a significant risk for obvious reasons. If this REIT can lease more of its vacant space over the course of 2014, this will increase funds from operations and increase the spread between the dividend payout and AFFO.    

Future Buys and Sells: I am not likely to buy more. I do not yet have a target price. I would be more than pleased with a 10% return on the shares plus the dividend payments within 12 to 24 months.

Closing Price Last Friday: DI-UN.TO: C$9.17 +0.01 (+0.11%)

5. Bought 100 AINV at $8.68-Roth IRA (See Disclaimer): I will be monitoring the price action of AINV on May 21, the day that AINV will be kicked out of the S & P 400 index.

Snapshot of Trade:


2014 Roth IRA Bought 100 AINV at $8.68
Company Description: Apollo Investment Corp.  (AINV)

AINV's last public offering was last February, when it sold 12 million shares with an over allotment option of up to an additional 1.8M shares. Apollo Investment Corporation Prices Public Offering of Common Stock The underwriters bought the stock at $8.69 per share. Prospectus The company intends to use the proceeds to pay indebtedness under its senior secured credit facility.

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 a risk. 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.

Recently, I was reading some comments to a SA article about Prospect Capital, who slashed its dividend when it went from a quarterly to a monthly payment schedule. Some of those investors made the statement that PSEC's dividend was "safe". No BDC dividend is safe, and how could anyone maintain that a dividend is safe when the company slashed it recently? I felt compelled to leave a comment about the alleged safety of any BDC dividend. Seeking Alpha

Recent Earnings Release: For the fiscal 2013 3rd quarter, which ended 12/31/13, Apollo Investment Corporation reported net investment income of $.22 per share and a net asset value of $8.57, up from $8.3 on 9/30/13. The percentage increase in net asset value (3.3% in one quarter) was good enough to bring me back into buying a small position. In addition, I paid only a 1.3% premium to the 12/31/13 net asset value per share.  There were 101 portfolio companies at year end

This BDC is currently paying a quarterly dividend of $.2 per share.

Q3 2014 Results - Earnings Call Transcript - Seeking Alpha

Rationale: As with other BDCs, I do not plan to become a long term owner. The dividend yield at a total cost of $8.68 is about 9.22%. To achieve an annualized total return of 10%, which is generally my goal for a BDC, I will need a minimum return on the stock.

As with other BDC, it takes a lot of paper and words for AINV to describe the risks relevant to its operations. The last SEC filed Annual Report starts discussing risks at Page 9 and the discussion ends at page 32. Form 10-K

Risks: The very nature of the BDC beast is risk. Those companies invest in other companies that are frequently highly leveraged and unproven, particularly over the course of an entire business cycle. "Safe" companies are not now borrowing money at 12% or so. There will be defaults. A first or second lien will not prevent the lender from suffering losses in the event of a BK. The company acknowledges at page 30 that an investment in its common stock "involves a high degree of risk and is highly speculative". The company acknowledges the conflicts of interests between shareholders and management at pp. 18-20, 26.

These firms will frequently sell stock to replenish their coffers and many offerings are made at below net asset value. BDCs pay their managers hedge fund type compensation, yet none of them deserve anywhere near that level of pay for the results in my opinion. Part of the compensation is called a base fee that is 2% of total assets including the amounts borrowed by the company. The incentive is consequently to increase assets through common and preferred stock issuances and bond sales. The managers also receive an incentive fee on top of that base management fee which would entice them to invest in highly speculative securities.

Future Buys: I may add another 100 shares depending on how far AINV declines in response to its upcoming removal from the S & P 400 index. I do not have a price in mind, but below $8 would probably trigger a buy. A $8.25 to $8.5 is my definite "do nothing" range, and I am not likely to buy between $8 to $8.25.

Closing Price Last Friday: AINV: $8.48 -0.01 (-0.12%)

6. Bought 100 DLRPRG at $19.95-Satellite Taxable Account (see Disclaimer): I hope to flip this one. This is a trade, looking for a slender profit and one or two dividends. This security went ex dividend for its quarterly dividend shortly after my purchase (3/12/14) and rose in price that day to recoup $.23 cents of the $.367 per share ex distribution subtraction from the previous close (3/12/14 close: DLR-PG: $20.44 +0.23 (+1.14%)

Snapshot of Trade:

2014 Bought 100 DLRPRG at $19.95
Security Description: The Digital Realty Trust Inc. 5.875% Cumulative Preferred Series G (DLR.PG) is an equity preferred stock issued by the REIT . Non-qualified and cumulative dividends are paid at the fixed coupon rate of 5.875% on a $25 par value.

Prospectus Supplement

This prospectus has a typical Dividend Stopper clause (S-22) and a change of control provision (S-6 et. seq.).

DLR has the right to redeem this security on or after 4/9/2018. I seriously doubt that DLR will ever redeem it unless it found it advantageous to do so under the change of control provision. I would just say now that it is highly unlikely, though not impossible, that DLR could ever refinance this security at a lower rate sufficient to compensate it for the costs of refinancing.

As noted previously in connection with another purchase, Moody's rates DLR preferred stocks at BBB-and S & P has them at BB+.

At a total cost of $19.95 per share, the dividend yield is about 7.36%.

Digital Realty sold this preferred stock to the public at $25 in April 2013, a most opportune time for it. This security briefly traded near its $25 par value before sliding to a low near $18 during late December. DLR.PG Stock Chart

Subsequent to this last purchase, Brad Thomas wrote a detailed article about Digital Realty that was published by Seeking Alpha. One of the issues for data center REITs is that several large users are moving away from leasing space to owning their own. For now, this trend would be more of a concern to the common shareholders rather than the preferred shareholders. The equity preferred shareholder has no ownership interest in the business and is concerned about whether the company has sufficient capital to pay the preferred dividend without a deferral or default. A slowdown or decline in FFO is a matter of concern, but far less of an issue for the preferred shareholder. I will be monitoring this issue to decide whether I will buy another 30 shares of the common when and if the price declines below $50.

Prior Trades: None

Related Trades: I recently bought 30 shares of the common and 50 shares of DLRPRE.

I have nothing more to add to the discussion contained in those two recent posts:

Item # 9 Bought: 30 Digital Realty (DLR) at $53.4 (3/3/14 Post)

Item # 3 Bought 50 DLRPRE at $23.36 (2/25/14 Post)

The company summarizes risks relating to this preferred starting at page S-11 of the Prospectus. Risks relating to its operations are discussed starting at page 8 of its 2012 Annual Report. Form 10-K

Closing Price Last Friday: DLR-PG: $20.51 -0.08 (-0.39%)

7. Added 100 FAM in Taxable Account at $13.68 (see Disclaimer): I have not had much good fortune with this one for about a year now.

Snapshot of Trade:

2014 Bought 100 FAM at $13.68

Security Description: First Trust/Aberdeen Global Opportunity Income Fund (FAM)

Data Date of Trade 3/4/13
Closing Net Asset Value Per Share: $15.05
Closing Market Price: $13.66
Discount: -9.1%
Average Discounts:
1 Year -6.01%
3 Years -3.72%
5 Years -4.91%

CEFConnect Page for FAM

Sponsor's Website: First Trust/Aberdeen Global Opportunity Income Fund (FAM)

Morningstar Page for FAM (rated 4 stars at the time of this last purchase)

Last SEC Filed Shareholder Report: SEC (period ending 12/31/13)(unrealized gain less than $3M)

Credit Quality as of 12/31/13
Of the $27.155M in distributions paid to shareholders in 2013, the fund classified $6.105+M of that amount as a ROC.

To cut down on the ROC, the fund recently trimmed its monthly distribution from $.13 to $.11 per share. First Trust/Aberdeen Global Opportunity Income Fund Decreases its Monthly Common Share Distribution to $0.11 Per Share for March Individual investors will respond to negatively to that kind of cut, even though the fund is simply cutting back on a ROC with the reduction.

At a total cost of $13.68 per share, the dividend yield is about 9.65%.

Prior Trades: I am in a hole with my current FAM position. Item # 5 Added 50 FAM at $13.74 (December 2013); Item # 5 Bought 50 FAM at $14.2 (10/7/13 Post)Item # 6 Added 50 FAM at $14.95-Roth IRA (June 2013)Item # 10 Bought 50 FAM at $17.51 (April 2013)

I did a relatively good job at exiting a prior position: Sold 50 FAM at $17.99 September 2012-Bought 50 FAM @ 17.37 in Roth IRA November 2010 and Item # 4  Sold 150 of 200 FAM at $18.64 (October 2012)(profit snapshot +$114.23)-Bought 50 FAM @ 17.37 (November 2010)-Bought 100 FAM @ 17.9 (November 2010).

Rationale and Risks: I would just refer anyone interested to my last two discussions:

Item # 5 Bought 50 FAM at $14.2-ROTH IRA (10/7/13 Post)

Item # 6  Added 50 FAM at $14.95-Roth IRA (6/22/13 Post)

Closing Price Last Friday: FAM: $13.71 +0.07 (+0.51%)

8. Sold 210+ BTZ at $13.62-Roth IRA (see Disclaimer):

Snapshot of Trade:

2014 Roth IRA Sold 210+ BTZ at $13.62
Snapshot of Profit: I realized an artificial profit on these shares. I bought 200 shares in March 2013, which turned out to be a less than optimal timing decision. Bought 200 of the Bond CEF BTZ at $13.96-Regular IRA March 2013

2014 BTZ  210+ Shares +$128.85
Starting in May of last year, bond CEFs started to tank. I decided in to transfer those shares to from the Regular IRA to a Roth IRA, which will require me to include the depreciated share value as income. I then waited for the shares to recover most of their lost value after the ROTH conversion. The new cost basis for the shares was based on the price at the time of the ROTH conversion which resulted in the artificial profit shown in the following snapshot:

This kind of maneuver will occur frequently after a significant price drop. My first Roth IRA conversion occurred in October 2008. By performing that transfer when the security has declined significantly in price, I pay less income tax and I then allow the security to recover most of its lost value while owned in the Roth IRA.

Prior Trades: I have managed to trade this one successfully and still own shares in another ROTH IRA account and in a taxable account. I am mindful of what happened to leveraged bond CEFs between May and September last year and consequently believed that some profit taking at this juncture might be the prudent course.

One of my purchases within the past year are 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)

Security Description:  The BlackRock Credit Allocation Income Trust (BTZ)

Data From Day of Trade (3/4/14)
Net Asset Value Per Share: $15.32
Closing Market Price Per Share: $13.66
Discount: -10.84%
Average 1 Year Discount: -12.42%
Average 5 Year Discount: -10.79%

CEFConnect Page for BTZ

Rationale: I am simply trying to control my interest rate, volatility and normal CEF risks by selectively adding and deleting shares. The discount had declined some since my recent purchases, as noted above, and had fallen in line with the five year average discount.

Closing Price Last Friday: BTZ: $13.49 0.00 (0.00%)

9.  Sold 200 RMT at $12.8 to Lower Average Cost Per Share (see Disclaimer): This stock CEF has been a tear for the five year period ending 3/4/2014, producing an average total return based on net asset value of 31.83%. CEFConnect

Snapshot of Trade:

Sold 200 RMT at $12.8

The average cost per share was $9.68 per share for 749.075 shares before I sold this 200 share lot bought in 2007. I was able to exit that position with a slight profit. RMT does not support its dividend with a ROC.

By selling my highest cost shares, I avoid a tax liability in this case while keeping in place a significant unrealized gain on both my open market purchases and the shares acquired with reinvested dividends since 2008.

Snapshot of Position Shortly After Sale:

549+ RMT Shares Average cost per share=$8.61
I mentioned in a December 2013 post that I may sell 200 of my highest costs shares this year. Stocks, Bonds & Politics: RMT (introduction section)

Subsequent to this 200 share disposition, Royce Micro-Cap Trust increased its managed distribution rate to 7%. The first quarter's dividend was $.23, totally sourced from net realized capital gains.

Prior Trades: I have briefly discussed adds to this position in several posts including the following: Item # 2 Bought RJA at $6.73 (August 2009)Item # 6 Added to CEF RMT at $7.64 (January 2010)Item # 6 Added 50 RMT at 7.82 with Cash Flow (July 2010); Item # 2 Added 50 RMT at $9.45 (April 2012)Item # 4 Added 50 RMT at $8.62 (June 2012). I will frequently add to this kind of position with cash flow received from dividends and interest.

I have also flipped some shares in an IRA.

2012 Roth IRA Flip and Dividend Clip: 200 Shares +$84.37
Security Description: The Royce Micro-Cap Trust (RMT) is a closed end stock fund.

CEFConnect Page for RMT

Sponsor's website: Royce Micro-Cap Trust (RMT)

Last SEC Filed Shareholder Report Period Ending 12/31/13: www.sec.gov

RMT Page at Morningstar

Rationale: Small caps are in my opinion overvalued after their tremendous appreciation over the past five years. The current P/E on estimated forward year earnings is almost 20 for the Russell 2000. P/Es & Yields on Major Indexes- WSJ.comYChartsSeeking Alpha

I also wanted to get rid of my highest cost shares at a profit which will reduce the average cost of the remaining shares without incurring a meaningful tax obligation.

Closing Price Last Friday: RMT: $12.44 -0.01 (-0.08%)