Wednesday, September 9, 2015

Update for CEF Basket Strategy as of 9/9/15

Update For CEF Basket Strategy As Of 9/9/15 - South Gent | Seeking Alpha

GATEWAY POST: Main Table of Contents

FINRA has changed its link information so many of my prior links to that site will no longer work.  I changed my link in this post to the main FINRA site since the old one no longer worked due to that change. 

My lack of qualifications for writing this blog are detailed in Stocks, Bonds & Politics: OG's Qualifications and Lack of Qualifications.

For any new readers, RB stands for my Right Brain and LB for my Left Brain, both in a constant state of discord. The Headknocker (HK), the ultimate boss here at HQ, sometimes referred to as the Great Leader with a tinge of sarcasm, is exactly what the name describes, a real hard case, a more enhanced and older version of the young LB sometimes pictured in the profile section of the post. The LB still believes it is 16 years old (or not a day over 21), with a lot of hair, capable of running a mile without drawing a deep breath, without an ounce of body fat, referring frequently to itself as the Young Stock Stud. The LB is the only Focus Machine at HQ.

The Old Geezer (OG) is a more mellow version of the HK, who reads theology and philosophy, and who is at least willing to listen to the RB, but frequently is subject to a case of nerves which has never afflicted the HK for even a nano second. The HK frequently sends the OG to the Old Folks Home for one or more transgressions involving a failure to advance HK's capital position as Head Trader, which is rarely important to the OG, but is the only important matter to the HK.

All of these characters are caricatures of different personality traits of one individual investor, who is finely attuned to all of their voices, now in his fourth decade of managing his own money.

The left brain (LB) is serious, rational, logical, analytical, organized and highly focused, a linear thinker absorbed with details and looking at the parts rather than the big picture. The right brain (RB) is the antithesis of the LB. The RB is subjective, intuitive & led by feelings, impulsive, creative, emotional, unfocused, and capable of seeing the big picture unlike the LB.

Most of these discussions, involving these personalities and brain characteristics, are intended for instructional purposes, and sometimes for humor. The topic of the role played by the brain structure in making investment decisions is explored in Jason Zweig's book : " Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich" Zweig would call my LB the reflective brain and my RB the reflexive. The reflexive brain gets the first crack at decision making, often the only crack for many investors, which would be viewed as a mortal sin here at HQ.

Being a prolific and wordy writer, this blog has expanded in a short time to over 1900 posts since October 2008, mostly long ones. Consequently, the best way to find specific information in this blog now is to use the Google search box on the right hand side rather than the search box at the top left hand side.

I would recommend that anyone interested in Trust Preferred, Trust Certificates or other exchange traded bonds register at the free site That site has links to the prospectuses and has other helpful information including credit ratings and a list of the preferred stocks that pay qualified dividends under current U.S. tax law.

Anyone interested in Bonds needs to become familiar with the free FINRA site.   Company Infomation

FINRA links made prior to mid-2014 or so no longer work due to a change in the links made by Finra.    

To find information about a firm's bonds, just enter the stock symbol, click go, then scroll to bond in the "search box", and then you will be on the bond page for that company.  You can also search for each bond the trades by customized dates at the bottom of each page.

Bond searches can also start at this Finra page: Bonds Home

Some links in this post will cease to work with the passage of time.


Gateway Posts for Asset Allocation Theory and Practice:

Using Volatility as a Risk Management Tool for Equity Preferred Stocks: Embracing Volatility as A Risk Management Tool In the Sub-Asset Class of Equity Preferred Stock

Stocks for the Long Run and Professor Siegel:  To Professor Siegel: Time for a Re-Think  The Roller Coaster Ride of the Long Term Secular Bear Market  Duality of Long Term Risks Long Term Stock Risks and Situational Risk/Managing Lost Opportunity Risk in a Long Term Secular Bull and Bear Markets  1974 or 1982: Start of Cyclical Bull in a Long Term Secular Bear Market or the Start of Secular Bull Market? More on 1982 or 1974  Continued Discussion on 1982 or 1974 Historical VIX Patterns The Importance of Identifying the Underlying Causes of Long Term Bull and Bear Markets LONG TERM SECULAR BULL PATTERN 1950 TO 1966/ Long Term Secular Bear Pattern from The Great Depression VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern Static v. Dynamic Asset Allocation Instability & Volatility in Asset Correlations

Gateway Posts for Bonds, Preferred Stocks and European Hybrids:
Exchange Traded Bonds (9/2009 Post)

ING PREFERRED (Hybrid Securities): ING HYBRIDS: Links in one Post

Junk Bond Ladder Strategy (no longer being updated as of 11/1/2012)
Personal Risk Ratings For Junk Bonds (no longer being updated as of 11/1/2012)
FINRA Links to Bonds in Junk Bond Ladder Strategy
Realized Gains Junk Bond Ladder Strategy(no longer being updated as of of 11/1/2012)
Junk Bond Ladder Table 7/25/12 Post 

Exchange Traded "Principal Protected" Unsecured Senior Notes: Item # 1  Principal Protected Notes; Item # 2  Principal Protected Notes (Links Just to Some of the Posts Discussing Citigroup Funding Notes-Guaranteed by Citigroup as Provided in the Relevant Prospectus: 100 MKZ bought at 9.96Bought 100 MKZ at 9.91 in the Roth IRABought 100 MYP at $10.12Bought 100 MHC at 9.8Bought 100 MOU at $10.12Bought 100 MBC at 9.84Bought 100 MBC at 9.78Bought 100 MKN at 9.85 January 2010Bought 200 MOL at 9.95Sold 100 MOL @ 10.3Bought 100 MTY at $10.03Bought 100 MTY at 10.49)

There are over 1900 posts in this blog and the foregoing are just some of the major stock and bond topics.

Tuesday, August 18, 2015

Saturday, August 1, 2015

Update for Bond and Preferred Stock Basket Strategy

In this one, I discuss my latest foray into Linn unsecured debt. Those purchases are not an investment, but are nothing more or less than pure gambling IMO. 

Friday, July 17, 2015

SA Instablog:

After losing some focus since I quit writing SA Instablogs, I have decided to return for awhile to publish Instablogs focusing only on five general topics.
1. Regional Banks
2. Equity REITs
3. CEF Portfolio
4. Bonds and Equity Preferred Stocks
5. Portfolio positioning and management
The discussions will be more general and thematic than previous blogs. In other words, details will be more suitable for the Twitter Generation who are frequent critics of my writing style.
I will not respond to any comment that is off topic. I will delete comments from the trolls. I will not be leaving comments elsewhere at SA.

Sunday, May 3, 2015

Sold: 100 WHARF (WARFY) at $14.53 and Sold 51+ Highest Cost FISI shares at $24.1

Anyone interested in the reasons why there will be no posts after 5/3/2015 has had sufficient time to read my explanation, so I have eliminated it from this blog.

My last full length blog published here was this one: Stocks, Bonds & Politics: OHI Update/HTGZ Partial Redemption Proceeds Received/Bank Earnings: WTBA, LBAI, FNB, TRMK/Bought 50 CORRPRA at $24.95-Roth IRA/Bought 50 EWI at 14.915/

My last full length SeekingAlpha Instablog was this one: Added To BANC At $12.4-Regional Bank Basket Strategy - South Gent | Seeking Alpha

1. Sold 100 WARFY at $14.53 (see Disclaimer):

Snapshot of Trade:

Snapshot of Profit:

2015 Sold 100 WARFY +$161.67

2. Pared FISI: Sold 51+ Highest Cost Shares at $24.1-Satellite Taxable Account (REGIONAL BANK BASKET STRATEGY)(see Disclaimer)

Snapshot of Trade:

Snapshot of Profit:

2015 51+ Shares +$254.18 LT 

Published an SA Instablog re: Added to BANC at $12.4;

I am not sure why I am fooling with SA Instablogs. I am not sure why I am writing here either. 

SA readers pepper me with personal critiques as my reward for the time and effort consumed in writing a post.

Needless to say, I am not writing the posts for my own edification or to generate income since I receive zilch. I do not need instruction from myself, or I at least hope that is a fair statement, nor have I ever received a penny for writing anything here or at SeekingAlpha.

I have been accused at SA by one commenter of fomenting a "pump and dump" scheme by discussing a 50 ADR share purchase of one of the largest financial institutions in the world. I have been accused of being mentally deranged and worse. I was even accused of manufacturing the snapshot of a 30 share purchase of GE. A commenter felt obliged to make their first ever comment at SA making that accusation, claiming that there were no trades at the price shown in the snapshot. I pointed out that every major financial service including Yahoo Finance had my executed price within the price range that day. 

A more common complaint, appearing virtually daily now, is that my writing is too hard to read. Why? Just way too many details and facts which caused one reader to  just throw up  and to develop a headache, the kind of pithy comment that received 13 likes so far at Seeking Alpha.  

Maybe I will be sued for causing those physical ailments. Those kind of comments thrown at me pass muster with SA's moderator who was offended by my comment, where I made fun of my own inability to learn a foreign language after five years in response to a comment made by a non-native English speaker in the same article as several snarky comments with no substantive content was hurled remain present and viewed as completely acceptable.  

I may reach the point soon where I cease all public writing, maybe after I publish a couple of pending posts, without warning to anyone I will just quit trying to help investors with less experience become better at it. I am already far beyond thoroughly disgusted. Once that decision is made, it will be irreversible. I certainly have no need for further aggravation at my age. 

So if you do not see another blog post after Tuesday this week, the reason will be that the posts have stopped forever. 

Saturday, May 2, 2015

OHI Update/HTGZ Partial Redemption Proceeds Received/Bank Earnings: WTBA, LBAI, FNB, TRMK/Bought 50 CORRPRA at $24.95-Roth IRA/Bought 50 EWI at 14.915/

Added: The number of gratuitous personal slams that I receive at SeekingAlpha is just stunning. Even though I am not being paid for writing posts here or there, many of the SA readers feel compelled to say nothing about the content of the article, but simply want to complain about me or to slam me in some gratuitous way. Then that gratuitous slam receives a number of likes. 

An example is a comment just made in a SA Instablog discussing the disposition of 300 BHK and 300 ACG. I was asked a question and spent a great deal of time responding as I always do. 

The response was that my posts were not "deep' or "very enticing" and my analysis was not for the really intelligent people. Pared Interest Rate Risk Exposure In Roth IRA: Sold 300 AllianceBernstein Income Fund Shares At $7.81 And 200 BlackRock Core Bond Trust Shares At $13.86 | Seeking Alpha

I would recommend reading the first paragraph of that reader's comment and perhaps someone can explain to me what he is talking about in the really "deep" analysis. The Twitter Generation is just so smart, just ask them, and they will gladly confirm it.   

Stable Vix Pattern (Bullish):
Links to SeekingAlpha Instablog, Articles and Comments:

South Gent's Instablog | Seeking Alpha

South Gent's Articles | Seeking Alpha

South Gent's Comments | Seeking Alpha


Recent Developments:

The government reported last week that first quarter real GDP grew only at a .2% annualized rate, compared the 1% consensus forecast. News Release: Gross Domestic Product This report will be revised as the government acquires mores data. Current dollar GDP increased by .1% due to a negative inflation rate for the first quarter. Real domestic consumer purchases increased 1.5% vs. 3.2% in the last quarter. The personal savings rate was 5.5%. Disposable personal income increased by $132.2 billion or 4.1%, up from 3.2% in the prior quarter.  

I thought the most important development last week was the rapid acceleration in German government bond yields.

That was picked up in Randall Forsyth's column titled "German Bunds: The Short of the Century" and published at Barron's (subscription required to view). I note below that the German 10 year was at 4.5% back in June 2008 and was yielding .07% on 4/20/15 before starting to move up. There was blow back into the U.S. treasury market.

Omega Healthcare: Update

I bought 100 share of OHI as part of my REIT Basket Strategy during December 2013 and still own those shares. Bought:  100 OHI at $29.85 (snapshot: purchase date 12/16/13)

OHI reported 1st quarter funds available for distribution of $87.5 million or $.65 per share. Adjusted FFO was reported at $.71. I will use the FAD number of $.65.

2015 Guidance:

The 2015 FAD guidance is currently $2.75-2.81 per share. The midpoint is $2.78. Assuming a $37 price, the forward P/FAD is 13.3. Using the midpoint for FFO at $3, the P/FFO would be lower at 12.33 based on that $37 assumed price.

Omega Announces First Quarter 2015 Financial Results; Adjusted FFO of $0.71 Per Share for the First Quarter

The last quarterly dividend was $.53, so the dividend is well covered by the estimated funds available for distribution. Using the midpoint of annual FAD at $2.78, the quarterly estimated number for 2015 would be $.695.

Omega Healthcare Investors, Inc. - Dividends

At a total cost of $29.85 and a $.53 per share quarterly rate, the current yield would be about 7.1%.

Other recent news items include the following:

Omega Completes Combination with Aviv REIT

Omega Healthcare Investors Declares Prorated Dividend for Remainder of Quarter in Connection with Acquisition of Aviv REIT, Inc. and Announces 2015 Guidance | Business Wire

I left a number of comments dealing with OHI in particular and interest rate risks in general to this Seeking Alpha article.

Partial Redemption By Issuer: Hercules Technology Growth Capital Inc. 7% Sr. Notes due 2019 (HTGZ )

Taxable Account:

The quarterly interest payment was received on the same day. Fidelity broke the interest payment for the 100 share lot into two parts, representing the interest payment the 24 shares redeemed that day and a separate entry for the payment made on the remaining 76 shares.

Item # 4 Bought 100 HTGZ at $24.63 (5/4/12 Post)(acquired 4/30/12)

The total annualized return would be slightly above the 7% coupon rate.

The same redemption occurred for the 100 shares owned in a Roth IRA account. Item # 3 Bought 100 HTGZ at $24.6-ROTH IRA (5/25/12 Post)

When HTGC announced this partial call for this exchange traded bond, it further announced that it intended to make additional partial calls this year. Hercules Technology Growth Capital Announces Intention to Partially Redeem its 7.00% Senior Unsecured Notes due 2019 (NYSE:HTGC) There is nothing to do except watch it happen.


1. Bought 50 CORRPRA at $24.95-Roth IRA (Equity REIT Common and Preferred Stock Basket Strategy (see Disclaimer):

Snapshot of Trade: 

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

Security and Company Description: The CorEnergy Infrastructure Trust Inc. Preferred Series A (CORR.PA) is an equity preferred stock that pays cumulative and non-qualified dividends at a 7.375% fixed coupon rate on a $25 par value. Prospectus

CORR has the option to call this preferred stock at par value plus any accrued dividends on or after 1/27/20, unless there is a change of control provision that activates an earlier redemption time.

In a period of declining interest rates, that five year window after the IPO data provides some interest rate risk protection to its owner. The interest rate risk balance is nonetheless asymmetric between the issuer and the owner.  The owner of a preferred stock bears more than 50% IMO of the interest rate risk and all of the credit and other risks described below.

At the end of the five year period, the issuer will refinance when and if it is in its interest to do so. The most likely reason for a redemption, as shown by recent history, is that the issuer can refinance at a lower rate. The owner is then left with the redemption proceeds that will likely lead to a lower yield when reinvested in a security of the same quality due to that decline in rates.  That result is one kind of interest rate risk.

The flip side of interest rate risk is a rise in rates that causes the preferred stock to lose value. In that scenario, the issuer will be unable to refinance at a lower rate and will gladly allow the existing owners to continue owning a security going down in value and providing less yield than alternative investments. The owner is then faced with the option of taking the loss on the lower yielding vintage preferred stock or losing the benefit of a higher yielding one for the funds tied up in the vintage preferred issue.

Many low yielding preferred stocks issued in the 1950s are still around. CORRPRA, like virtually all equity preferred stocks (a few exceptions) are potentially perpetual.

I say non-qualified which is normally the case for both REIT common and preferred shares. None of my REIT preferred stocks paid a penny in qualified dividends last year. CORR's common stock did nor pay any qualified dividends in 2014. SEC Filing That is typical for a pass through entity that avoids taxation at the corporate level.

Occasionally, some part of a distribution may receive a qualified classification depending on issues that may vary among REITs and the same REIT year-to-year.

This preferred stock was first offered last January. CORR announced last week the first ex dividend date for those shares. CorEnergy Declares 2015 First Quarter Increase in Common Stock Dividend and Initial Preferred Stock Dividend  The initial dividend will include more than a 3 month period. The amount will be $.635069444 per share.

The annual rate is $1.84375 per share or slight more than $.46 per quarter.

CorEnergy recently completed the $125M acquisition of MoGas Pipeline in November 2014. The MorGas pipeline system has about a 264 mile intra-state natural gas pipeline that primarily serves two utilities in the greater St. Louis region and Omega Pipeline which is another CORR subsidiary that serves Ft. Leonard Wood. That army post is in the middle of nowhere Missouri and is named after Leonard Wood. General Wood would have been President of the U.S. if he was willing to accept a bribe offered in connection with the 1920 GOP Presidential nomination process. Instead, he threw the bribe offerer (representing oil interests)  out of a his hotel room.  Warren Harding was more receptive to the offer, and that led to the Teapot Dome scandal.

The MorGas acquisition was discussed in an article published at Benzinga.

To finance that purchase in part, CorEnergy sold $13M in stock at $.8. The underwriter's paid $6.443 per share, Prospectus The underwriter's exercised the entire over allotment option of 1.95 million shares bringing the total offering to 14.95M shares sold at $6.8. After that offering, CORR had 46,598,904 shares outstanding.

Another important acquisition in 2014 was the $40M purchase of the Portland Terminal Facility, a rail/marine facility adjacent to the Willamette River in Portland, Or. The site has 84 tanks capable of storing 1.466M barrels. The facility is leased to Arc Terminals, a subsidiary of Arc Terminal Holdings LLC pursuant to a triple net lease. The lease is subject to an inflation adjustment after 5 years.

The largest infrastructure asset is the Liquids Gas and Gathering System acquired from Ultra Petroleum (UPL) in 2012 for $205M in cash plus about $24M in securities. Those assets are operated by UPL under a triple net lease.

The preceding assets and others are discussed in CORR's recently SEC filed Annual Report: CORR-2014.12.31-10K (pages 56-58 and starting at page F-16)

CorEnergy December 2014 Fact Sheet.pdf

Press Release Fiscal 2014 Results

SEC Filings for CORR

Prior Trades: None

Related Trades: I first bought the common shares, (CORR), as a Lottery Ticket. Lottery Ticket Basket Strategy-Bought 40 CORR At $7 -Seeking Alpha

Due to the price decline thereafter and subsequent developments including the MoGas acquisition and a 2015 dividend increase flowing therefrom, I elevated CORR to a much higher risk category which allowed for a 100 share purchase.  Item # 2 Elevated CORR from LT Basket to REIT Basket: Added 100 at $6.5 (12/3/14 Post).

The Lottery Ticket Basket is a risk category that permits only a $300 exposure. The REIT basket permits up to a $10,000 out-of-pocket investment in the securities from one REIT (e.g. common and preferred stock +bonds).

Brad Thomas selected the CORR common shares as his underdog pick for 2015. I would simply refer anyone interested in the common or to a description of CORR's then existing businesses to that SA article.

Recent Earnings Report: The first quarter earnings report is not scheduled for release until 5/11. The last earnings report was for the year ending on 12/31/14.

Sourced: SEC Filed Press Release

When researching a possible equity preferred stock purchase, I will review earnings releases. Instead of attempting to assign a fair value range for a common stock purchase, I am attempting to make a rational judgment about the issuer's ability to pay the preferred stock dividend. To make that assessment, I need to review the earnings reports and that research material is reviewed also for a common stock purchase.

There are risks here as summarized below.

Rationale For REIT Preferred Stocks In General and CORRPRA in Particular:  The main reason for buying CORRPRA in the Roth IRA is to receive tax free income at near the coupon rate of 7.375% based on my total cost.

Before inflation and with no taxes to consider under present Roth IRA law, money doubles in about 9.73 years at that rate. Estimate Compound Interest

The equity preferred shareholder has a superior claim to income than the common shareholder. The preferred dividend may not be deferred unless a common cash dividend is first eliminated; and the common dividend can not be eliminated when the REIT has net income (assuming the company wishes to maintain its REIT's tax status).

I could not find a "stopper" clause where there is a specific prohibition on the payment of a cash dividend to common shareholders as a prerequisite to a deferral of the preferred stock dividend. That is the first time that I have not been able to find that specific clause.

Instead, I could only find a statement at page S-16 that the Series A preferred stock is senior to common stock with "respect to the payment of dividends" and claims to assets in liquidation or dissolution (e.g. bankruptcy).

One REIT recently eliminated its common dividend and deferred its preferred stock dividend. Campus Crest Communities (CCG)

The eliminated common stock dividend is just lost, while the cumulative preferred dividend is merely deferred and has to be paid in full when the company initiates a common dividend.

Strategic Hotel (BEE) eliminated its common share dividend and deferred the cumulative preferred stock dividends for several quarters. The preferred shareholders received their deferred dividends, without any interest paid on the deferred amounts, when the common share dividend was reinitiated by the REIT. Strategic Hotels & Resorts - Press Release

The CORRPRA prospectus also has a change of control provision, which is summarized in detail starting at page S-20 of the prospectus. These provisions were not found in most REIT prospectus until the preferred shareholders of Innkeepers were left hanging after a leveraged buyout. The common shareholders received a nice premium for their shares, while the preferred shareholders had their stock delisted and the dividend later went into deferral. The preferred shares became worthless when the REIT filed for Bankruptcy.

Generally, when the change of control provision is activated, the REIT has to buy back the preferred stock at par value. If that option is not pursued, then the preferred shareholders have the right to convert their stock into common shares and participate in the takeover offer using a predefined conversion calculation.

A REIT preferred investor would want to see a change of control provision in the prospectus. You do not want to be left hanging with another company does a leveraged buyout. The immediate response when more debt is piled onto the capital structure, without a change of control provision, is to take the preferred share price way down.

Risks: The company discusses risks incident to its operations starting at page of its recently SEC filed 2014 Annual Report: CORR-2014.12.31-10-K

Risks relating specifically to this preferred stock are discussed starting at page S-10 of the Prospectus.

1. Concentration Risks: 

I would highlight the significant exposure to Ultra Petroleum due to this 2012 transaction where CORR paid $225 for pipeline assets that serve UPL's operation  CorEnergy 

UPL Interactive Stock Chart
UPL 2014 10-K
UPL 10-Q for Q/E 3/31/15

I would highlight and emphasize that concentration risk. CORR notes this risk exposure as the first item in its risk summary: Page 12 CORR-2014.12.31-10 (47% of assets as of 12/31/14)

That concentration risk will cause me, without any other consideration, to take only a small position in CORR securities.

CORR may benefit with an improvement in UPL's profitability which may provide me down the road an opportunity to liquidate the small common stock position.

Every investor needs to familiarize themselves with the risk summaries in both documents.

For me, the primary risks factors relating to an equity preferred stock are as follows:

2. Interest Rate Risk: This preferred stock is of recent vintage and was consequently not around when interest rates rose between May and December 2013. The ten year treasury went from one extremely low level (1.66%) to an abnormally low level of 3.04% as of 12/31/13.

I have linked some charts below of how REIT preferred stocks reacted to that rate rise, and that is nothing compared to someone who has actually had to invest money in the 1970s and 1980s. I included these REIT preferred stocks in my rotation into REITs starting slowly in September 2013:

NNN.PD Stock Chart
Bought:  50 NNNPRD at $22.63 November 2013

EPR.PF Stock Chart
Item # 1 Bought Roth IRA: 50 EPRPRF at $22.5

DLR.PG Stock Chart
Bought: 100 DLRPRG at $19.95

After many of those issues corrected 15% to 30% in price, I started to buy and have since sold almost all of them. There is a lot of risk in an equity preferred stock selling at over its par value, where the issuer has the option to redeem at par generally five years after the IPO.

I decided to nibble on CORRPRA after selling even riskier and lower yielding securities.

I have been discussing recently interest rate risks in several SA articles and comments.

Pared Interest Rate Risk Exposure In Roth IRA: Sold 300 AllianceBernstein Income Fund Shares At $7.81 And 200 BlackRock Core Bond Trust Shares At $13.86 | Seeking Alpha

An Analysis Of The Risk/Reward Balance For Intermediate And Long Term Treasuries | Seeking Alpha

Comment This Weekend: Seeking Alpha

I am keeping a very close eye now on German government bonds. The 10 and 30 year bunds started to spike up on 4/20/14: Germany 10 Year German 30 Year

The U.S. ten and 30 year treasuries have spiked in tandem. The ten year treasury closed on Friday April 17th at 1.87% and at 2.12% last Friday. Daily Treasury Yield Curve Rates

The German 10 year was yielding over 4.5% in June 2008. German Ten Year Bond  On April 20, 2015, the yield was .07%. The 1950-2014 average inflation rate for Germany is 2.45% and the rate was at  2.04% in 2012 and remained positive in 2014 even with the collapse in crude prices. The April flash estimate for German inflation, released late last week, was .3% versus a .2% estimate. What will be the impact on inflation when the deliberately torpedoed Euro has to buy crude priced in USDs.

3. Credit Risk: Given the lowly status in the capital structure, I would anticipate generally a 0% to 30% recovery of the principal amount in a bankruptcy. REITs have a lot of debt that has priority over equity preferred and common stock holders.The fact of a bankruptcy indicates significant financial distress, possibly a liquidity crunch and a forced sell of assets at an inopportune time. Owners of mortgages would likely take possession of their collateral leaving senior unsecured creditors fighting for what is left.

As seen in the recent Near Depression, the fear of a collapse can cause the preferred stock to crater in price. Quality REIT preferred shares with $25 par values could be purchased at greater than 50% discounts to par in late 2008 and early 2009.

Just to highlight this downside risk, I would just link blog discussions of some REIT preferred buys made during that period. All of the foregoing have been called by their issuer at par value and did not miss a dividend payment:

Buy 50 LXPPRD (7.44% coupon) at $7 in Roth IRA March 2009 (called at $25-2013)

Bought GRTPRF (8.75% coupon at $2.9 (October 2008)(called at $25-2012)

Bought SLGPRC  (7.625% coupon) at $10.5 March 2009(called at $25-2013)

Bought FRPRK (7.25%) at $8.4 February 2009 Regular IRA(called at $25-2013)

Bought of CUZPRA (7.75% coupon) at $11.5 December 2008 (called at $25-2013)

Bought  50 BDNPRC (7.5% coupon) at $9.25 February 2009 (called at $25-2012)

That period was a wake up call for preferred stockholders. No doubt, many just rode the shares down from over par value to the single digits and back.

And, that sorta worked this last time, once the risk of lost opportunity and total return calculations are just ignored and frequently are viewed as irrelevant.

The world's financial system came very close to a total collapse in 2008, where junior securities for a wide variety of leveraged issuers would not have made it far into what would have been the Second Great Depression.

Even with the comeback in price, the risk of lost opportunity was on steroids during that period, for those hold through thick and thin, satisfied with those dividend checks even though the yield of GRTPRF bought at $2.9 (October 2008) was 75% per annum, Needless to say, the yield was much lower for those who bought at over $25 before 2008. Which is better? 75% or 8.85%? One of my Right Brain's many quizzes where the investor receives either an A+ or a F-.

4 Volatility Risk: This risk can be manifested whenever concerns increase about credit and/or interest rate risks. In the 2011 summer, there was substantial volatility to the downside in preferred stocks that some may attribute to credit risks concerns. Maybe those concerns played a role. I would assign the downside action to "preferred stocks" starting to be less "bond like" and more "common stock like".  Individual investors panic and sell and the word "stock" has more importance than "preferred" when that happens. The S & P 500 fell quickly almost 20% during the 2011 summer.

I noted in an August 2011 that junior securities, including preferred stocks and various types of junior bonds, had around 15% to 20% intra-day moves in just one day.

Scroll to Item # 1
Fear and Enhanced Volatility in Certain Classes of Income Securities (8/9/11)

5. Risk of Lost Opportunity: Except for the wealthy, or those with substantial assets and a lucrative and safe pension other than just SS, buying and selling opportunities need to be seized. One of the clearest selling opportunities in my lifetime occurred in 1999.

I asked an "income" investor whether they would have sold 200 shares of GE at $59 in 2000 (a P/E in excess of 30 times estimated 2015 earnings!). The answer was no since GE was still paying a dividend and was then raising it.

After noting that 2000 price and that the almost $12,000 in proceeds could have been used to buy about 600 GE in 2002 (much more in the most recent meltdown when the price fell below $10), I then inquired whether 600 GE shares generated more income than 200 GE shares. The answer was still no. The vast majority of households in the U.S. can not afford to think like that.

Many will say GE is a bad example. MO worked for a buy and hold investor through thick and thin. I congratulate anyone who has been able to do pick the ones that actually worked and had the discipline to hold, plus no need to sell shares to buy a house, pay for a kid's college education and the myriad of other expenses that seem to crop up for most folks, though never for many others apparently.

All of my financial issues could have been resolved when I called my "full service" broker in 1974 to place an order to buy 100 BRK at $16 as I recall. While the phone was ringing, I hung up since I was afraid of losing money and the market was then having one of its really bad spills.

While I am old enough to dispel that kind of reaction now, I would still have to deal with holding that 100 share lot over the years, rather than selling and using it to pay some extraordinary expense.

Of greater importance for me, I would have had to resist the incredibly powerful urge to sell a stock bought at $16 at $100, then $1,000, or $10,000 per share a few years thereafter,  and now at $215,800 per share or $21,580,000. Needless to say, I could have made an abundance of mistakes if I had just bought those shares in 1974 and kept them until now.

Future Buys: I am not likely buy more of CORRPRA unless the price corrects at least 10%. Then I would just average up to 100 shares. I would then consider selling the highest cost lot profitably when and if given the opportunity. I would consider selling the 50 share lot with a spike over $26 after receiving a couple of dividends, an admittedly small ball approach. I view small ball as consistent with my opinions about interest rate risk now.

I am fine with an annualized, tax free rate of return at the coupon level. The tax free character, of course, is due to its purchase in the ROTH IRA.

I view this security to be at best a marginal buy at $24.95. I have zero interest in it at a higher price.

With the recent increase in the quarterly common dividend to $.135 , the yield at last Friday's closing price of $6.88 is about 7.85%.

I generally prefer coupling the preferred when it increases my blended rate rather than decrease it. Item # 1 Bought Roth IRA: 50 BPFHP at $23.35 and 50 BPFH at $12.35 (5/10/14 Post)

2. Bought 50 of EWI at $14.915 (see Disclaimer):

Snapshot of Trade:

Prior Trades: None

Security Description: The iShares MSCI Italy Capped ETF (EWI) is another country specific stock ETF.

MSCI Fact Street for its Italy Index (forward P/E=15.59, TTM P/E 29.09, both as of 3/31/15)

The fund currently owns 28 stocks.

I took a snapshot of the major holdings as of 4/27/15.

Sourced: iShares MSCI Italy Capped ETF | EWI

I just look at the Bloomberg pages for a few major holdings:

ENI:Brsa Italiana

ISP:Brsa Italiana

UCG:Brsa Italiana

LUX:Brsa Italiana

I was not impressed.

Rationale: The rationale is the same as several recent single country buys, including the last one.  I would just reference my discussions in three recent SA articles implementing the same strategy:

Bought iShares MSCI United Kingdom ETF at $18.55-ROTH IRA

Bought The Global X MSCI Norway ETF at $12.74

Bought iShares MSCI Poland Capped ETF (With An Investment Strategy Discussion Introduction) at $24.45

(1) Italy's stocks are priced in Euros and the Euro has cratered in value against my USDs. I am buying securities using a strong currency that are priced now in a weak one.

(2) I am buying country ETFs where the Shiller P/E is below 12 and there is one other appealing valuation metric.

One money manager calculates the Shiller P/E for the Italian stock index at 9.8 with a Price to Book of 1.3 and a Price to Sales of .5. 

The forgoing blue highlight sums up the rationale.

Sourced: Global Stock Market

Risks and Disadvantages: Currency risks is always important when buying a USD priced owning foreign securities. The EUR/USD exchange rates can provide a wild ride up and down.

A single country fund has concentrated "country risks".

Italy does not have good economic numbers. The GDP growth rate has been negative for several years. Government debt to GDP is over 130%.

Sourced Trading Economics: Italy GDP Annual Growth Rate | 1961-2015Italy Government Debt to GDP | 1988-2015Italy - European Commission

The EC report on Italy points to the same problems over and over again (structural problems; lack of competitiveness, lack of productivity growth, etc. and so). 2015_Italy.pdf It would not be rational to expect any material changes in any of the negative factors. It is what it is.

The dividend yield based on the TTM payments is below my threshold of 3%.

The TTM P/E is high. The three year standard deviation is reported at 24.72% which is way too high for me.

The sponsor discusses risks starting at page S-3 of the Prospectus.

Future Buys or Sells: I lack confidence in the long term future of these Italian companies. I will not buy more than 50 share and will likely sell when and if there is a pop.


A. Lakeland Bancorp (LBAI): Actual $.22 vs. $.2 Estimate

NIM= 3.56%

Lakeland Bancorp Reports 16% Increase in Net Income and Raises Cash Dividend

LBAI is a recent addition to the basket:

Lakeland Bancorp Inc. (LBAI)-Stock Quote

The current E.P.S. estimate for 2015 is $.9 and $.99 in 2016. LBAI Analyst Estimates

Bought 100 LBAI at $10.91 (3/13/15 Post)

B. FNB:  Actual $.22 vs. $.21 Estimate

F.N.B. Corporation Reports Record Net Income and 16% Increase In Operating Earnings Per Share

F.N.B.  (FNB)-Stock Quote

The consensus E.P.S. estimate is $.89 for this year and $.99 for 2016. FNB Analyst Estimates

I currently own 100 shares: Added 50 FNB at $7.8 (7/20/2010 Post)Bought 50 FNB at $11.25 (7/24/13 Post)

Prior to buying that 50 share lot in 2013, I had sold my highest costs lots using FIFO accounting and had kept the shares bought at $7.8 which I still own. Bought 50 FNB at $8.42 (May 7, 2010 Post) Bought 50 FNB at $9.36 (April 27, 2010 Post)-Pared FNB: Sold 50 at $10 and 50 at $10.18 (December 23, 2010 Post)

C. Trustmark (TRMK): Actual $.43 vs. $. 39 Estimate

I have been trading this one since 2009. 

My last purchase was last January: Bought Back TRMK at $22.25-Regional Bank Basket Strategy (snapshots aggregated)

Prior trades are linked in that post. Total realized gains currently stands at $674.13.

D. West Bancorp: $.32 per share vs. $.27 in the year ago quarter

The Board increased the quarterly dividend to $.16 from $.14. That brings my dividend yield at my $11.75 total cost per share up to 5.45%.  Bought 100 WTBA at $11.67 (6/29/13 Post)

West Bancorporation, Inc. Announces Record First Quarter Net Income, Increases Quarterly Dividend

WTBA Interactive Stock Chart