FSC, COP, BTZ/Bought 100 PWCDF at $27.29/ Sold 50 HAP at $40.78/Sold on the Toronto Exchange: 200 CAR_UN:CA at C$23.16 and 100 XMD:CA at C$26.1/Sold Roth IRA 50 DLRPRE at $25.5/Sold Taxable Account: 126 RMT at $12.6 and 100 CSQ at $12-Part of Ongoing Stock Allocation Reduction

Closing Prices Last Friday
S & P 500 1,967.57 +2.89 (+0.15%)
DJIA: 16,943.81 +28.74 (+0.17%)

VIX: 12.08 -0.51 (-4.05%) : VOLATILITY S&P 500
VXD: 11.21 -0.54 (-4.60%) : DJIA VOLATILITY
VXN: 13.66 -0.47 (-3.33%) : CBOE NASDAQ 100 Volatility
RVX: 18.80 -0.25 (-1.31%) : CBOE RUSSELL 2000 VOLATILITY


XLE: $98.41 -0.75 (-0.76%) : SPDR Select Sector Fund - Energy
XLI: $54.07 +0.31 (+0.58%) : SPDR Select Sector Fund - Industrials
XLK: $38.91 +0.19 (+0.49%) : SPDR Select Sector Fund - Technology
VNQ: $75.53 0.00 (0.00%) : Vanguard REIT ETF
XLU: $42.84 -0.32 (-0.74%) : SPDR Select Sector Fund - Utility ETF
KRE: $39.74 -0.05 (-0.13%) : SPDR S&P Regional Banking ETF


TLT: $113.58 +0.72 (+0.64%) : iShares 20+ Year Treasury Bond ETF
TIP: $115.31 +0.19 (+0.17%) : iShares TIPS Bond ETF
MUB: $108.14 -0.04 (-0.04%) : iShares National AMT-Free Municipal Bond ETF

GLD: $128.78 +0.24 (+0.19%) : SPDR Gold Trust
GLD Now Above its 200 and 50 Day SMA: SPDR Gold Trust ETF Chart
SLV: $20.57 +0.05 (+0.24%) : iShares Silver Trust

Big Picture Synopsis: 

Stocks: 

Stable Vix Pattern (Bullish)

Vix Asset Allocation Model Explained Simply

Use of the VIX as a Timing Model
Short Term: Market Needs a 15% Correction
Intermediate Term: Slightly Bullish (rise since the summer of 2011 borrows from the future)
Long Term: Bullish

I am continuing to reduce my stock allocation on a net basis. The short term goal is to simply remove the $31,000+ addition that was made between February and June. Stocks, Bonds & Politics: Stock and Stock Fund Update 6/6/14 To keep better track of what I am doing, I am now compiling a net number on a weekly basis.

I finally hit that $31,000 target reduction last Wednesday by selling several small ETF positions.

When paring my stock allocation, my preference is to generally eliminate or pare stock fund positions. This would include the jettisoning of underperforming funds, such as the ones described in Items # 1 and #5 below, and the paring of other funds that I intend to keep by selling the highest cost shares, as shown in Items # 6 and #7 below.

Ed Yardeni opines that the stock bull market may be in its final euphoric phase. Barron's

The perma bear Marc Faber believes the asset bubble has already started to burst. Faber also predicted that the price of gold would exceed the DJIA back in 2009: Barron's 2009 Roundtable The author of the Calculated Risk blog summarized some of Faber's most recent misfires.

The market allegedly declined last Thursday based on the problems being experienced by some bank based in Portugal. Another reason given by some pundits involved investors having second thoughts about the FED's tapering decision. Both items are not new. The Portuguese bank has been the subject of a number of unfavorable articles over the past several months, and everyone should know that the FED will end QE this year. Instead, renewed signs of economic weakness and abnormally low inflation in Europe were the likely culprits.  

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

The Difficult Path to Interest Rate Normalization

Back in March 2009, shortly after the FED announced QE1, I wrote a blog noting that stocks had a multi-year robust rally after the Fed announced a similar program back in 1933. Stock Rallies and Quantitative Easing (3/22/09 Post) This historical parallel is discussed in this article: stlouisfed.org.pdf

I was not aware until recently that the FED successfully pegged interest rates by buying treasuries in the 1940s. 

"By the end of the war, the Federal Reserve System held virtually the entire supply of treasury bills." Page 181 "Before the Accord: U.S. Monetary-Financial Policy, 1945-1951" nber.org/.pdf

FED Holdings 1942-1952

Ownership of securities topped out near $24B. By today's standards, that would be an irrelevant number. In 1946, $24B in treasuries would have been close to 10% of the debt. Government-Historical Debt Outstanding-Annual 1900-1949

Figure 1 shows that bond yields were near where the ten year treasury is now back in 1946-1948.

There is one interesting difference between then and now. Inflation was running hot in 1946 through 1948, until a recession cooled it down. Consumer Price Index, 1913- | The Federal Reserve Bank of Minneapolis

CPI Increases
1946:  +8.5%
1947: +14.4%
1948: + 7.7%

This history is interesting in that it shows that the FED can keep rates in the low single digits, even when inflation is much higher than it is now. In that kind of setting, the primary determinants for bond prices, including inflation and inflation expectations, take a back seat to the Fed's power to manipulate with asset purchases, the bull in a china shop.

Another interesting aspect is the FED was worried about the excess bank reserves created through its asset buying during this earlier period, which "soared to more than $3 billion" in 1935 (see page 179), another quaint number compared to today. Excess reserves are currently over $2.5 trillion. Excess Reserves of Depository Institution- St. Louis Fed

What would interest rates be now without the FED owning almost $2.4T in treasuries, mostly maturing in 10 to 30 years? And will those excess reserves start to work their way into the real economy, potentially creating more inflation?

In early June 2014, the interest rate on Spain's ten year bond hit a level last seen in 1789. It was only a couple of year ago that it looked like Spain was heated for a debt implosion. Does that sound kosher? France's ten year bonds sank to just 1.7%, a nominal rate last seen in 1746. France's debt to GDP is rising fast, France Government Debt to GDP, and that government's debt was downgraded by S & P last year to AA. NYT; Bloomberg

Global Government Bonds - Markets Data Center - WSJ.com

Spain 10 Year Government Bond Bond Yield

Germany 10 Year Government Bond Benchmark Bond Yield

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

Recent Developments: 

The minutes of the last FED meeting reveal an agreement to end QE this October. FRB: FOMC Minutes - June 17-18, 2014 (see last full paragraph before the heading "Committee Policy Action"). 

Goldman Sachs moved forward its prediction for the first FF increase to the 2015 third quarter. The prior estimate was for the 2016 first quarter. GS predicts that the FF rate will move gradually back to 4% by 2018.

Bloomberg highlighted that repurchase agreements, where treasuries are used as collateral, are failing at an increasing rate due to the shortage of treasuries. Those failures to complete a repurchase agreement by providing that collateral have averaged $65.6B per week this year and hit $197.6B in the week ending June 16th.

Bonds received a lift last Tuesday when stocks slid and there was sobering economic news from Europe. Germany reported that May exports declined by 1.1%, and imports fell by 3.4% which was the sharpest decline since 11/2012. The sources of the problem are discussed in this MarketWatch article. Energy costs for heavy users are much higher in Europe, causing competitive problems, and the slowdown in China is also negatively impacting Germany's exports. High energy costs drove BMW to build a plant in the U.S. rather than in Europe. The Seattle Times

France's industrial production plunged 3.7% Y-O-Y in May and declined 1.7% compared to April. German industrial production declined 1.8%. Italy also reported a negative industrial production number (-1.2% April to May) as did the Netherlands at -1.9%. It remains to be seen whether these weak numbers are just a pothole or the start of something more significant.

France's inflation was also reported at a lower than expected .5% Y-O-Y in June (+.6% when using a methodology harmonized with other EU countries). Core inflation was up only .1% Y-O-Y. Insee-The Consumer Prices Index Those numbers are disconcerting.

The three year treasury note was auctioned last week to yield .992%. Announcements, Data & Results The five year treasury was auctioned on 6/30/14 to yield 1.67%. The break-even spread for the five year TIP that day was 2%. The then current yield on a five year TIP was -.38%. Daily Treasury Real Yield Curve Rates

*************************
Fifth Street Finance (FSC) 

The BDC Fifth Street Finance raised its monthly dividend from .0833 per share to $.0917. FSC has cut its monthly rate several times since the 2010 4th quarter. The first cut was a small decline from $.11 to $.1066. The next cut was to $.0958 in January 2012 and then to $.0833. Fifth Street Finance Corp. (FSC) Dividend Date & History - NASDAQ.com

In response to this "increase", the stock went up slightly on a down day last Tuesday:

Closing Price 7/8/14: FSC: $10.03 +0.06 (+0.63%)

I own shares in both the Roth IRA, which turns the dividends into tax free distributions, and in a taxable account. BDCs do not pay qualified dividends.

Item # 4 Roth IRA: Bought 50 FSC at $9.08 (12/17/13 Post); Item # 7 Bought 100 FSC at $9.47 (12/3/13 Post);  Item # 4 Bought Roth IRA 100 FSC at $10.1 (10/19/13 Post)

When any BDC is owned in an IRA, the general idea is to harvest several dividend payments, generally a year or more, and then to sell when the market price exceeds the net asset value per share by 5%.

As of 3/31/14, the FSC's net asset value per share was $9.81, down from $9.9 on 3/31/13. (page 3 FSC- 2014.03.31-10Q). That would give me a possible exit price of $10.3 for the shares owned in the Roth IRA.

After the price finally worked its way back over $10 per share, FSC Interactive Chart, FSC announced after the close last Thursday that it was going to sell stock, one of the well known and perpetually annoying risks associated with BDCs. Fifth Street Finance Corp. Commences Public Offering of Common Stock

FSC priced 13.25M shares at $9.95 per share yesterday. There is an over-allotment option of up to another 1.9875M shares at that price.  Fifth Street Finance Corp. Prices Public Offering of Common Stock

Closing Price Last Friday: FSC: $9.73 -0.37 (-3.66%)

*********************
BlackRock Credit Allocation Income Trust (BTZ)(own in taxable and Roth IRA accounts):

BTZ received favorable write ups in two recent articles:

Morningstar: Scrounging

Barron's: Niche

CEFConnect Page for BTZ

My last open market trade was to sell shares: Sold Roth IRA: 210+ BTZ at $13.62 (3/17/14 Post)

My most recent buys are discussed in these posts: Item # 3 Added 50 BTZ at $12.35 (8/31/13 Post)(snapshots of realized gains=$413.8); and Item # 4 Added 70 BTZ at $12.63 (7/13/13 Post)

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

ConocoPhillips: 

ConocoPhillips increased its quarterly dividend by 5.8%. The new rate will be $.73 per share, up from the prior quarterly rate of $.66. ConocoPhillips (COP) Stock Dividend History The new rate represents slightly more than a doubling of the 2006 $.36 quarterly rate.

COP was one of my better buys this year: Item # 6 Bought:  50 COP at $63.68 (2/10/14 Post); Item # 1 Bought 50 COP at $68.87 (January 2014 Post)

COP, TOT and CVX are Citigroup's three top picks in "Big Oil". MarketWatch

Energy stocks tumbled last Friday after oil sank for the 4th consecutive day. Apparently, investors are less worried about events getting out of control in Iraq.

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

1.  Sold 50 HAP at $40.78 (see Disclaimer):

Snapshot of Trade:

2014 Sold 50 HAP at $40.78

Snapshot of HAP Profit: 

2014 HAP 50 Shares +$62.09

The Market Vectors Natural Resources ETF (HAP) was an unsuccessful investment. The primary headwinds have been the declines in metal and mining stocks over the past three years. The main problem has been, and likely will continue to be the slowdown in China's construction activity due to overbuilding. Bloomberg; Reuters; MarketWatch; WSJ; Morningstar "Real Estate a Warning Sign for Commodities"

Rationale: I am in the process of paring my stock allocation. My general approach when performing that kind of task is to identify underperforming stock funds for disposition. I will also pare stock funds that I intend to keep longer term by selling the highest cost shares.  

Some of the reasons for HAP's poor performance are likely to continue for the foreseeable future. The HAP price benefited over the past several weeks due to the price spike in energy names.

Closing Price Last Friday: HAP: $40.39 -0.03 (-0.09%)

2. Sold 200 CAR_UN:CA at C$23.16 (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Snapshot of Quote Before Trade:

Canadian Apartments was my lowest yielding Canadian REIT at the then current market prices.

Snapshot of Trade: The price rose slightly after I made the preceding snapshot:

2014 SOLD 200 CAR_UN:CA at C$23.16/Proceeds C$4,613 

Snapshot of Purchase Confirmation:

Purchase Confirmation: Total Cost =$C4,153. 

Profit in Canadian Dollars: C$460

I received the dividends in Canadian Dollars which were converted for tax purposes into USDs which reduced the amounts:

2014 CAR_UN:CA Monthly Dividend Paid in CADs

2014 CAR_UN:CA Dividends =USD $105.09

2013 CAR_UN:CA Dividends =USD$54.94

Total Dividends USD$160.03

Snapshot of Taxable Profit:

2014 Canadian Apartments 200 Shares +USD$275.8

Item # 1 Bought 200 Canadian Apartments at C$20.67

Security Description: Canadian Apartment Properties REIT (CAR.UN:TOR) is a Canadian REIT that owns apartment complexes in 6 Canadian provinces.

Website: CAPREIT

Rationale: Both Canadian and U.S. REITs cratered in price starting in May 2013 when interest rates started to go up. I would anticipate that both REITs and utility stocks will decline when interest rates start to move back up, just as both sectors have benefited by a decline in rates during the 2014 first half.

I consequently elected to sell first my lowest yielding Canadian REIT before rates start to rise.

Another consideration is difficult to explain. What happens if the CAR_UN:CA remain stable in price with the Canadian dollar rising in value against the USD?

In that scenario, my U.S. tax obligation rises while I receive no more CADs for selling this security. My intention is to generate more CADs through dividends/distributions and some profit taking. I would view it as less desirable to increase my tax obligation associated with selling a Canadian security at a profit without increasing my CAD stash.

Future Buys: I will consider repurchasing shares after a 10% to 15% pullback in the price. One option would be to buy the ordinary shares on the pink sheet exchange using USDs, which is more cost effective on a brokerage commission basis. CDPYF Canadian Apartment Properties Real Estate Investment Trust The CDPYF price will reflect the ordinary share price in Toronto converted into USDs. The CAD declined last Friday against the USD but is still above the 200 day SMA:  CAD/USD Currency Conversion Chart

Closing Price Last Friday: CAR-UN.TO: C$22.90 -0.03 (-0.13%)

3. Sold 50 DLRPRE at $25.5-Roth IRA (see Disclaimer):

Snapshot of Trade:

2014 Roth IRA Sold 50 DLRPRE at $25.5

Snapshot of History:

Roth IRA History DLRPRE

DLRPRE went ex dividend on 6/11/14, and I received another quarterly dividend on 6/30/14.

Snapshot of Profit:

2014 Roth IRA 50 DLRPRE +$92.97 

Total Return: $136.71 or 11.64% (holding period 4+ months)

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

Security Description: Digital Realty Trust 7% Cumulative Preferred Series E  (DLR.PE) is an equity preferred stock that pays cumulative and non-qualified dividends at the fixed coupon rate of 7% on a $25 par value. Digital Reality has the option to redeem this security at its $25 par value, plus accrued dividends, on or after 9/15/16. Prospectus

Related Trades: I nibbled at the common stock and still own those shares. Bought: 30 Digital Realty (DLR) at $53.4 (3/3/14 Post) I intended to average down when and if the shares declined below $50, which happened over a two day period in late March, but I failed to respond appropriately to that decline. DLR Historical Prices I did notice it. I am now more inclined to simply harvest the profit on the common shares provided I can sell the shares in the $58-$62 range.

Rationale: The yield fell below 7% which the current marker for selling an equity preferred stock. At a total cost of $25.5, the current yield is about 6.86%.

The DLRPRE price traded over $27.5 in early May 2013. When interest rates started to rise thereafter, the price cratered before bottoming near $21.5. DLR.PE Stock Chart That rapid decline in price (21.8%) highlights the interest rate risk issue. It is not helpful to receive a 7% annual dividend while losing 22% in the share price.

Future Buys/Sells: As with other equity preferred stocks, I will simply wait until there is a better entry point. At $21.5, the yield would be about 8.14%.

Closing Price Last Friday: DLR-PE: $25.71 +0.13 (+0.52%)

4. Bought 100 PWCDF at $27.29 (see Disclaimer):

Snapshot of Trade:

2014 Bought 100 PWCDF at $27.29

Quote Snapshot Made Shortly After Trade:

Prior Trades: None

Security Description: Power Corp. of Canada  (PWCDF:OTC) is a Canadian holding company that has interests, directly and indirectly, in financial services, communications and other business sectors. Power Corporation of Canada | Home

Profile Page at Reuters

I bought the ordinary shares traded on the U.S. pink sheet exchange using USDs.

Closing Prices 6/25/14
USD Priced Shares:  $27.39 PWCDF Historical Prices
CAD Priced Shares: $29.35 POW.TO Historical Prices
Currency Conversion C$29.35 into USDs=$27.32
Currency Conversion as of 7/3/14: $27.5158

Those holdings include other publicly traded businesses including Power Financial (PWF:TO), Great-West Lifeco (GWO.TO) and IGM Financial (IGM:TO).

Power Corporation of Canada has a 65.8% interest in Power Financial. Power Financial 2014 1st Quarter Earnings Report (net earnings of C$467M, up from C$394M in the 2013 first quarter).

Power Financial owned 67% of Great West Lifeco's common shares and 58.6% of IGM Financial's common shares. IGM also owned 4% of Great West Lifeco's common shares; and Great-West Lifeco owned 3.6% of the IGM's common shares.

So Power Corporation of Canada directly controls Power Financial and consequently has an indirect controlling interest in Great-West Lifeco and IGM Financial.

Great West Lifeco which operates through a number of companies worldwide including Great-West Life, London Life, Canada Life, Great-West Financial and Putnam Investments. Great-West Lifeco; GWO 2014 First Quarter Earnings Report (net earnings of C$587M, up from C$417M in the 2013 first quarter)

IGM Financial is a financial management company.

An organization chart can be found at the firm's website: Organization Chart

Power Corporation of Canada is profiled in a recent Motley Fool Article.

The company is currently paying a quarterly dividend of C$.29 per share. Power Corporation of Canada | Dividends

Power's senior debt is rated "A" by S & P: Credit Ratings

2013 Annual Report .pdf (net earnings of C$2.12, up from C$1.78 in 2012)

POW:Toronto- Bloomberg

Recent Earnings Report: For the 2014 first quarter, Power Corporation of Canada reported operating earnings attributable to common shareholders of C$440M, up from C$407M in the 2013 first quarter.

Rationale: There is some dividend support at the current annual rate of C$1.16 per share. The consensus estimate, as of 7/3/14, was for C$2.54, Bloomberg, so the P/E is reasonable. The P/B ratio was shown at Bloomberg at 1.32. If the Canadian Dollar rises against the USD subsequent to my purchase, this will give a boost to the ordinary shares traded in the U.S. and priced in USDs.

Risks: Currency risk is present for me since I elected to use USDs to buy the ordinary shares listed on the U.S. pink sheet exchange. The shares cratered during the recent Near Depression, with the Toronto listed shares falling about 50% in value: POW.TO Interactive Chart Consequently, there is obviously the usual risks associated with recessions. The company discusses risks starting at page 81 of its 2013 Annual Report. AR_2013.pdf

Yesterday, the CAD declined against the USD after a lousy Canadian jobs report. Seeking Alpha Employment fell by 34,000 in Ontario: Survey, June 2014 (employment increased just .4 or 72,000 compared with 12 months earlier).

Closing Prices Last Friday (CAD declined in value last Friday):
PWCDF: USD$28.40 -0.12 (-0.42%)
POW.TO: C$30.42 0.00 (0.00%)

5. Sold the Canadian ETF XMD:CA at C$26.1 (Canadian Dollar (CAD) Strategy)(see disclaimer):

This was not a successful investment which is one reason why I elected to sell it as part of my stock allocation reduction.

Security Description: iShares S&P/TSX Completion Index ETF (XMD:TOR) is a Canadian ETF that tracks an index of Canadian stocks that excludes those in the S & P/TSX 60 Index. So, this ETF is more of a small and mid cap index fund. XMD Overview - iShares Canada ETFs

Quote Shortly Before Order Entry:

Another reason for selling this security is its low dividend yield.

Snapshot of Trade:

2014 Sold 100 XMD:CA at C$26.1

Snapshot of Purchase Confirmation:

Profit in CADs: +C$210

Bought 100 of the ETF XMD:CA @ C$23.62 CAD (4/20/11 Post)

Snapshot of Loss Due to Currency Exchange:

Closing Price Last Friday: XMD.TO: C$26.07 -0.06 (-0.23%)

6. Continued Paring of RMT: Sold 126 Shares at $12.6 (see Disclaimer):

All of these shares were purchased with dividends and were my highest cost shares.

My previous pare involved a 200 share lot purchased in 2007. Sold: 200 RMT at $12.8-Lowers Average Cost Per Share to $8.61 The following snapshot includes the slight profit from that disposition.

Snapshot of Trade:

2014 Sold RMT 126 Shares at $12.6

Snapshot of Profit:

2014 RMT 126 Shares + $149.91 

Snapshot of Position Before Trade:

559.164 RMT Shares Average Cost Per Share=$8.68

Snapshot of Position After Pare:

RMT AFTER PARE As of 6/30/14: Average Cost Per Share =$ 7.91

Snapshots of Shares Bought With Last Two Dividend Reinvestments:

For both of the above reinvestments, I had selected the cash payment option, but received shares purchased with the dividends. All of those shares were included in the 126 share lot that was sold. All of the remaining shares reflected in the preceding snapshot were purchased with quarterly dividends.

Security Description: Royce Micro-Cap Trust is a leveraged stock CEF that invests in micro-cap stocks. Leverage is light at around 9% to 10%. As of 7/3/14, the average annual total return was 23.33% over five years and 12.4% over 15 years. RMT is a long term holding. However, given its recent outstanding performance, I viewed it as prudent to pare the position some by selling my highest cost shares.

CEFConnect Page for RMT

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

Data on Date of Trade (6/30/14):
Closing Market Price: $12.62
Closing Net Asset Value Per share= $14.02
Discount: -9.99%
Average Discounts:
1 Year = -12.07%
3 Years= -12.46%
5 Years= -13.65%

Rationale: This transaction achieves several objectives.

(1) I lower my average cost per share from $8.68 to $7.91.

(2) I sold only shares purchased with dividends, and all shares were sold profitably. I consequently enhanced the value of those dividends.

(3) By selling only the highest cost shares, I will incur less of a tax liability.

(4) I am reducing my stock allocation and this transaction is a baby step in that ongoing process.

(5) I am very concerned about valuations in small caps.

Closing Price Last Friday: RMT: $12.45 -0.06 (-0.48%)

7. Sold 100 of CSQ at $12 (see Disclaimer): I reduced my position by about 20% with this sell. I sold my highest cost shares, even though those shares were held for less than 12 months:

Snapshot of Trade:

2014 Sold 100 CSQ at $12

Snapshot  of Profit:

2014 CSQ 100 Shares +$171.54

I suspect that this profit number will be adjusted up some when the fund reports ROC for 2014 during the 2015 first quarter. Part of the dividend is supported by ROC.

Snapshot of Position Before Trade:

501+ Shares Average Cost Per Share=$9.12

Snapshot of Position After Trade:

401+ Shares Average Cost Per Share=$8.85 

I quit reinvesting the dividend after receiving the February 2012 monthly dividend.

Security Description: The Calamos Strategic Total Return Fun (CSQ) is a leveraged balanced CEF. As of 5/31/14, the fund had the following weightings:  54.4% in common stocks; 17.2% in corporate bonds, 6.5% in convertible preferred stock; 4.9% in synthetic convertibles; and 15.5% in convertible bonds.

Sponsor's website: Calamos Investments - Strategic Total Return Fund

Last SEC Filed Shareholder Report: N-CSR (period ending 4/30/14)

CEFConnect Page for CSQ

Data on Date of Trade (6/30/13)
Closing Market Price: $12.01
Closing Net Asset Value Per Share: $12.83
Discount: -6.39%
Average Discounts:
1 Year = -9.61%
3 Years= -8.76%
5 Years= -10.09%

Prior Trades: I discussed buying shares, which are currently owned, in these posts: Item # 2 Added 50 of the Balanced CEF CSQ at $8.28 (12/27/11 Post); Item # 2 Added 50 CSQ at 9.2 (8/3/11 Post); Item # 4 Bought 100 of the CEF CSQ at $9.66 (6/3/11 Post); Item # 2 Added 70 CSQ at $9.63 (4/19/11 Post); Item # 7 Bought:  100 CSQ @ $8.94 (11/29/2010 Post)

Prior to this last trade, I have netted some small gains in this CEF.

Rationale: The reasoning discussed in connection with the RMT pare applies here and this fund has some bond exposure unlike RMT.

Closing price Last Friday: CSQ: $11.97 -0.01 (-0.08%) 

Sold 102+ GDO at $18.79-Regular IRA/Sold Roth IRA: 200 JTP at $8.38, 107+ NBB at $20.26/Bought 100 ICLN at $11.85/Sold 100 FPF at $22.83/Bought 100 MSPRA at $20.19-Roth IRA/Paired Trade: Sold 155+ ENY at $17.55 and Bought 100 EWC at 32.11/Texas Industries 9.25% Senior Bond Redemption

Last Thursday's Closing Prices: 
Both the DJIA and S & P 500 closed at all time records
S & P 500 1,985.44 +10.82 (+0.55%)
DJI: 17,068.26 +92.02 (+0.54%) : Dow Jones Industrial Average
VIX: 10.32 -0.50 (-4.62%) : VOLATILITY S&P 500
VXN: 11.36 -0.23 (-1.98%) : CBOE NASDAQ 100 Volatility
TLT: $110.68 -0.40 (-0.36%) : iShares 20 Year Treasury Bond ETF
IEF: $102.42 -0.21 (-0.20%) : iShares 7-10 Year Treasury Bond ETF
VNQ: $74.63 -0.43 (-0.57%) : Vanguard REIT ETF
KRE: $41.14 +0.68 (+1.69%) : SPDR S&P Regional Banking ETF
GLD: 127.16 -0.54 (-0.42%) : SPDR Gold Trust
VWO: $44.01 +0.23 (+0.53%) : Vanguard FTSE Emerging Markets ETF
VEU: $53.05 +0.22 (+0.42%) : Vanguard FTSE All World Ex US ETF
XLI: $54.75 +0.45 (+0.83%) : SPDR Select Sector Fund - Industrials
XLU: 42.50 -0.47 (-1.09%) : SPDR Select Sector Fund - Utilities

Big Picture Synopsis:

Stocks:

Stable Vix Pattern: Bullish 

Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model

Short Term: Market Needs a 15% Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish

The Swiss based Bank of International Settlements, which is basically a central bank for the central banks, warned last week that stock markets were "euphoric" and detached from reality. BIS urged central banks worldwide to start raising interest rates. Bank for International Settlements - Wikipedia

The warnings was contained in the BIS annual report: bis.org/pdf (see pages 3, 15-16, 20-21)

The U.S. stock market responded to those words of caution by hitting new all time highs last week.

The histrionics from those caught flat footed over the past several years has gone up several decibel levels. John Hussman latest missive is an example. "The Delusion of Perpetual Motion - June 30, 2014 If I had the performance record of the Hussman Strategic Growth (HSGFX) fund over the past ten years (an annualized total return of -1.43 as of 6/30/14), I would be reluctant to show my face in public and would feel an irresistible need to wear a bag over my head when venturing outside. But, each investor needs to decide whether a pundit who has been so wrong may turn out be right now. In my opinion, Hussman lacks balance.

Yardeni Research regularly updates a publication that contains several charts depicting stark market valuation models and metrics: yardeni.com/.pdf

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

The Difficult Path to Interest Rate Normalization

If inflation and inflation expectations continue to creep up, I will have to change the slightly bearish tilt to a more bearish category. The slightly bearish categorization assumes no more than an average 2.25% annual inflation rate over the next years.

Some arguments for persistently low interest rates can be found in this Bloomberg article.

Bonds reacted negatively to last week's economic reports.

The break-even spread closed last Friday at 2.28%, the average annual rate of inflation necessary for the buyer of the ten year TIP to break-even with the buyer of the non-inflation protected ten year treasury. The break-even spread is regarded as the market's prediction for future inflation.

JP Morgan estimates that the FED will start to tighten in the 2015 third quarter and will end that year at a 1% federal funds rate and at 2.5% by 2016 year end. {Barron's: second from last paragraph} Another tidbit contained in that article is a reference to Monsanto partly funding a $10B share purchase program with $4.5B in new debt. Prospectus

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Recent Developments: 

The BLS reported a 288,000 increase in nonfarm payrolls for June. The number for April was revised from +282,000 to +304,000. The unemployment rate declined to 6.1%. The participation rate remained unchanged at 62.8%. Over the past 12 months, average hourly earnings have increased by 2%. Employment Situation Summary

The ISM Services PMI for June was reported at 56%. New orders increased to 61.2 from 60.5. 

The ISM Manufacturing PMI for June was reported at 55.3%. New orders increased to 58.9 from 56.9 in May.

WardsAuto reported that auto sales rose to a seasonally adjusted pace of 16.9M units in June, the highest rate since July 2006. June 2014 U.S. Sales;  Reuters.

ADP estimated that 281,000 private sector jobs were created in June. ADP National Employment Report The consensus estimate was 210,000.

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Texas Industries 9.25% Senior Note Maturing in 2020:

I received a notice that the Texas Industries 9.25% senior unsecured note maturing in 2020 was going to be redeemed by the issuer. Martin Marietta (MLM) just completed its acquisition of TXI.

MLM, which has an investment grade bond rating, quickly called this note for redemption. MLM will sell $700M in senior unsecured notes to raise the necessary cash. Fitch Rates Martin Marietta's Proposed $700MM Sr. Notes Offering 'BBB-'; Outlook Stable

The Texas Industries note requires a premium payment for an optional redemption. Prospectus at pages 41, 76

This note closed last Thursday at 113.44. Bonds Detail

I own just one $1,000 par value bond. Bought 1 Senior Texas Industries 9.25% Bond Maturing 8/15/2020 at 97.5 (7/18/11 Post)

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1. Sold 200 JTP at $8.38-Roth IRA (see Disclaimer): I am continuing to de-risk the IRAs by selling leveraged bond/preferred stock funds into the bond rally. I am content with the Y-T-D numbers for the entire year. 

Snapshot of Trade:

2014 Roth IRA Sold 200 JTP at $8.38

Snapshot of Profit:

2014 ROTH IRA 200 JTP +$154.9

Bought 200 JTP at $7.53-Regular IRA (10/14/13 Post)

Dividends Received=$93.6

Total Return: $248.5 or 16.42%

Security Description: The Nuveen Quality Preferred Income Fund (JTP) is a leveraged closed end fund that invests in preferred stocks and bonds. Credit quality is weighted in BBB rated securities at 68.1% of assets. JTP

Sponsor's website: JTP - Nuveen Quality Preferred Income Fund (210 holdings as of 5/31/14)

CEFConnect Page for JTP

Last SEC Form N-Q (holdings as of 4/30/14)

Data as of 6/19/14:
Closing Net Asset Value Per Share: $9.31
Closing Market Price: $8.39
Discount: -9.88%

Rationale: I am not trying to hit home runs in the IRA accounts. My primary emphasis is to preserve capital and secondarily to generate income. I am satisfied with JTP's total return of 16.42% in about 9 months. As noted many times, I am concerned about interest rate risk and the disconnect between bond/preferred stock yields and inflation.

For leveraged CEFs, a rise in the federal funds rate starting next year will increase their borrowing costs.

Last Thursday's Closing Price: JTP: $8.45 -0.05 (-0.59%) 

2. Sold 102+ GDO at $18.79-Regular IRA (see Disclaimer):

Snapshot of Trade:

2014 Roth IRA Sold 102+ GDO at $18.79

Snapshot of Profit:

2014 Regular IRA GDO 102+ Shares +$85.27

Item # 7 Bought 100 GDO at $17.79-Regular IRA (10/24/13 Post)
Dividends=$46.84
Total Return: $132.11 or 7.39% (holding periods 8+ months)

Security Description: The Western Asset Global Corp Defined Opportunity Fund (GDO) is a leveraged world closed end bond fund. GDO will liquidate on or about 12/2/2024. This gives the fund one of the characteristics of an individual bond, the promise to return an investor's money at a time certain. However, unlike an individual bond, there is no promise to pay a fixed sum (i.e. par value). The investor in GDO will simply receive their pro-rata share of the liquidation proceeds, which may be more or less than the current net asset value per share. The current discount to net asset value does provide some cushion.

According to the sponsor, the duration is relatively short at 4.1 years as of 3/31/14. Portfolio Characteristics

Credit Quality as of 3/31/14:

CEFConnect Page for GDO

Data as of 6/19/14
Closing Net Asset Value Per Share: $20.63
Closing Market Price: $18.8
Discount: -8.87%

Last SEC Filed Shareholder Report: WA Global Corporate Defined Opportunity Fund Inc (period ending 4/30/14)

As of 4/30/14, GDO had net unrealized appreciation of $30.638+M (note 3 at page 32)

Prior Trades: I currently own over 475 shares with my most recent purchases discussed in these posts: Item # 4 Added 100 GDO at $18.06 (2/25/14 Post); Item # 7 Bought 50 GDO at $18.03 (11/19/13 Post); Item # 7 Bought 100 GDO at $17.79-Regular IRA (10/24/13 Post); Item # 4 Added 50 GDO at $17.58-Roth IRA (6/29/13)

Completed round trip transactions are discussed in the following posts:

Bought 100 of the CEF GDO at $18.6 March 2010; Bought 70 of the CEF GDO in Regular IRA at $18.61 March 2010; Bought 200 of the CEF GDO at 18.63 and 18.53 (100 in Roth and 100 Taxable Account respectively) March 2010; Bought 200 of the CEF GDO at 18.63 and 18.53 (100 in Roth and 100 Taxable Account respectively) March 2010;  Bought 100 GDO at $18.57 April 2010; Bought Back 50 shares of GDO at 17.8 in the Roth IRA previously sold at $19.24 December 2010; Sold 100 GDO at $18.72 January 2012; Sold 200 GDO at $19.18 June 2012; Sold Remaining GDO in Taxable Account at $19.69 July 2012; Bought 100 Shares of GDO at $18.9 November 2012; Sold 100 GDO at $20.79 December 2012; Paired Trade Roth IRA: Sold 120 GDO at $20.73; Sold 120 GDO at $20.73 (February 2013)

I have not bothered to take snapshots of every realized gain.  I have been content harvesting numerous small gains after collecting several monthly dividends. Some of the gains are captured in these snapshots:

2013 Roth IRA GDO 120 Shares +$340.33

2012 GDO 436 Shares +$310.24

2011 Roth IRA 250 Shares +$65.78

Realized Gains: $701.62

Rationale: I am satisfied with my YTD gains in my retirement accounts. I am consequently content to coast with a higher than normal allocation in cash for several months and simply wait for better opportunities to buy income generating securities. My emphasis in on capital preservation first and income generation second. The Y-T-D gains provide me with a cushion to wait and see.

I currently own 216+ GDO shares in a Roth IRA account where I am reinvesting the dividends.

Future Buys/Sells: I am in a trading mode for this security. This last transaction simply reduced my overall position by a tad. I may be more likely to add 100 shares in my taxable account where I have built up my cash allocation more. I currently own 258+ shares in a taxable account and recently changed my distribution option from reinvestment to payment in cash.

Last Thursday's Closing Price: GDO: $18.45 -0.12 (-0.65%)

3. Sold 107+ NBB at $20.26-Roth IRA (see Disclaimer): I recently bought 100 shares of NBB in another Roth IRA account held at Vanguard. Roth IRA: Added 100 NBB at $20.1 The following transaction occurred in the Fidelity Roth IRA.

Snapshot of Trade:

2014 Roth Sold 107+ NBB at $20.26

Snapshot of Profit:

2014 ROTH IRA 107+ NBB +$91.33

I received one more monthly dividend, which was not yet shown in the preceding snapshot, on 7/1/14. Nuveen Build America Bond Fund (NBB) Dividend Date & History

Dividends= $145.77
Total Return: $237.1 or 12.25% on 100 share purchase cost

Security Description: The Nuveen Build America Bond Fund (NBB) owns taxable municipal bonds issued under the now expired Build America Bond program. The fund will liquidate on or before 6/30/2020.

CEFConnect Page for NBB

Data for 6/20/14:
Closing Net Asset Value: $22.05
Closing Market Price: $20.28
Discount: -8.03%

NBB Page at Morningstar

Last SEC Filed Shareholder Report (period ending 3/31/14)

Prior Trades: My history with this security can be found in my June 14, 2014 post discussing the 100 share buy executed on 5/30/14. Item # 1 Roth IRA: Added 100 NBB at $20.1

Rationale: While the FED and the market do not appear to have concerns about inflation heating up as the FED continues ZIRP, I am not so sanguine about it.

As recently discussed, this fund has the longest duration of any bond fund that I currently own. The leveraged average duration was 13.47 years as of 5/31/14. That was up from 12.2 years as of 4/30/14, when I last looked at that number. This increase in duration will work provided interest rates go down. The potential downside risks are substantial with just a one percent rise in rates. I decided to lighten up on NBB after buying 100 shares on 5/30/14, in effect taking me slightly below my position prior to adding that 100 share lot.

Future Buys/Sells: It is more likely that I will sell the remaining 150 shares held in a Roth IRA than to buy more due to my increasing concerns about interest rate risk. I could keep the lowest cost 100 share lot bought at $20.1 to address in part the low probability Japan Scenario.

Last Thursday's Closing Price: NBB: $20.17 -0.10 (-0.49%)

4. Sold 100 FPF at $22.826 (see Disclaimer): This security was bought as part of a paired trade which occurred on 4/11/14: Paired Trade: Sold 100 MSPRA at $20.21 and Bought 100 FPF at $22.12 (April 26. 2014 Post) In that trade, I realized a $116.98 profit on the 100 MSPRA shares after netting $203.08 in dividend payments (see history snapshot in preceding link).

I went back to MSPRA after selling FPF (see Item # 5 below). In a fashion, the pared trade worked a little, since I was able to buy MSPRA back at near the previous sell's price without missing a dividend payment, and made a profit on the FPF shares plus two monthly dividend payments. Just another example of small ball.

Snapshot of Trade:

2014 Sold 100 FBF at $22.826

Snapshot of History:

Snapshot of Profit:

2014 FPF 100 Shares +$56.55

I received two monthly dividends payments totaling $30.5.

Total FPF Return: +$87.05 or 3.92% (holding period about 2 months)

Security Description: The First Trust Intermediate Duration Preferred & Income Fund (FPF) is a leveraged CEF that invests in bonds and preferred stocks with the objective of generating current income and managing duration of between 3 to 8 years, excluding the duration adjustment for leverage which increases duration.

Data For 6/20/14:
Closing Net Asset Value Per Share: $24.79
Closing Market Price: $22.83
Discount= 7.91%

Prior Trades: I still own 50 shares in a Roth IRA: Bought 50 FPF at $22.07 (4/26/14 Post).

Rationale: The same rationale exists for this disposition, and relate to my concerns that bonds and preferred stocks are currently being mispriced in relation to inflation and inflation expectations.

This opinion is causing hyperactive trading among leveraged bond/preferred stock CEFs.

Another issue is that even the dovish and accommodative FED is predicting a rise in short term rates, probably to 1+% by year-end 2015 and 2+% by year-end 2016 (see "appropriate pace of policy firming" at FRB: June 18, 2014: FOMC Projections materials)

Assuming those are good estimates, the rise in short term borrowing costs will impact leveraged CEFs adversely, and will be impossible to predict when the market will start to front run that eventuality.  

Future Buys/Sells: I will consider adding this one back when the yield exceeds 8% or as part of a paired trade designed to increase my income generation. I may sell the remaining 50 shares held in the Roth IRA at anytime.

Last Thursday's Closing Price: FPF: $22.23 -0.32 (-1.42%)

5. Bought 100 MSPRA at $20.19-Roth IRA (see Disclaimer): This security went ex dividend shortly after my purchase. I have convinced myself that the floating rate equity preferred stocks can be traded, but recognize that my past success may not be prologue.

Generally, I tend to favor the floaters when their current yields are 2% or less than the fixed coupon equity preferred stocks from the same issuer. I am willing to lose up to 2% in yield for the unexpected inflation protection built into the floaters. The floaters become more interesting to me when I give up less than 1.5% in current yield. That is in part due to a lack of need for the income difference.

The issuer, Morgan Stanley, has one fixed coupon and two fixed to floating rate equity preferred stocks outstanding. I calculated the current yields based on the closing prices 6/27/14:

Fixed:

Morgan Stanley Preferred Series G (MS.PG)-Price $25.56/Yield 5.477%/6.625% coupon
Optional Call: 7/15/19 or anytime thereafter

Fixed-to-floating rate (mostly a gimmick in my view since the issuer will call at the time for the transition when it is in their interest to do so):

Morgan Stanley Preferred Series F (MS.PF)-Price $27/Yield 6.33%/6.875% coupon
Optional Call on or after 1/15/2024

Morgan Stanley Preferred Series E (MS.PE)-Price $28/Yield 6.38%/7.125% coupon
Optional Call on or after 10/15/23

All of the foregoing pay non-cumulative and qualified dividends and have $25 par values. All have the same junk ratings: Ba3 from Moody's and BB+ from S & P.

The current yield on MSPRA is about 4.95% at a total cost of $20.19 per share.

Snapshot of Trade:

2014 Roth IRA Bought 100 MSPRA at $20.1857

Security Description: The Morgan Stanley Non-Cum. Pfd. Series A (MS.PA) is an equity preferred stock that pays non-cumulative and qualified dividends at the greater of 4% or .7% above the 3 month Libor rate on a $25 par value. Prospectus

Advantages and Disadvantages of Equity Preferred Floating Rate Securities

Prior Trades: I have repeatedly bought and sold this security. Prior to this last trade, I was down to a 50 share lot purchased in a taxable account: Bought 50 MSPRA at $16.6 (September 2011)

Links to prior discussions and trade snapshots can be found in Item # 1 Paired Trade Roth IRA to Increase Cash Flow: Sold 50 MSPRA at $20.22 and Bought 50 FPF at $22.07 and in Item # 5 Bought 50 MSPRA at $19.25-ROTH IRA.

Total Realized Gains=$1,203.08

The largest gain was $839.29: Bought 100 MSPRA at $12.88 in May 2009-SOLD 100 MSPRA at 21.43 (January 2010)

2010 MSPRA Two Trades: +$962.87

I have been trading this security for much smaller gains after this trade.

Rationale: The main advantage is that this security addresses the low inflation and problematic inflation scenarios in the same security. The low inflation scenario is addressed by the minimum 4% coupon, while the Libor float provides some protection when short term rates are rising to problematic levels. When and if Libor rises above 3.3% during the relevant computation period, the coupon will start to rise. At a 6% 3 month Libor, the coupon increases to 6.7% which would result in about a 8.3% yield at a total cost of $20.18 per share during that hypothetical computation period.

As previously noted many times, it may be a long wait before the 3 month Libor triggers an increase in the minimum coupon.

The investor is giving up current income by buying the floater rather than the functionally equivalent fixed coupon preferred stock.

The question is how much income is an investor willing to give up now for the floaters problematic inflation protection.

I outlined my views on that subject above. I would note that I am trading these securities until I have a better feel for the likelihood of inflation becoming a problem which could cause unexpected large increases in the federal funds rate for a FED currently stuck at zero. If I see that on the horizon, I will own more floaters than I do now.

Risks: I have discussed risks of equity preferred floaters throughout this blog. If MS does a Lehman, MS preferred stock certificates would likely have a value lower than toilet paper.

A long term chart of this security highlights the downside risk.  The price hit the single digits during the recent Near Depression: MS.PA Stock Chart

Volatility risk is high for equity preferred stocks during times of market stress. Fear and Enhanced Volatility in Certain Classes of Income Securities (August 2011 Post)

During the interest rate spike period last year, the floaters did worse than the fixed coupon equity preferred stocks. The rise in rates then was not due to inflation or an upward revision in inflation expectations. Both inflation and inflation expectations went down during that period. The rate rise was due to the interest rate normalization process, probably just the first salvo, and this cause simply made the equity preferred floaters with their lower minimum coupons less competitive in yields without providing any upside hope of a coupon increase.

Future Buys/Sells: There is no way for me to predict now what I will do with any floating rate preferred stock.

Last Thursday's Closing Price: MS-PA: $20.34 +0.11 (+0.54%)

6. Bought 100 ICLN at $11.85 (see Disclaimer):

Snapshot of Trade:

2014 Bought 100 ICLN at $11.85

Security Description: The iShares Global Clean Energy ETF (ICLN) is an ETF that focuses on owning "clean energy" stocks. Many foreign companies are owned by this fund which brings into the mix country and currency risks.


Top 20 Holdings as of 6/23/14:

The third holding, Covanta Holding, was recently highlighted in a positive Barron's article.

Sponsor's webpage: iShares Global Clean Energy ETF | ICLN (31 holdings; .47% expense ratio)

While the return over 1 year looks fantastic at 55.12% (as of 6/23/14), the average annual return over a 5 year period is -6.03% based on the market price. The ICLN price was over $50 at inception back in 2008: iShares S&P Global Clean Energy ETF Chart

Rationale: I really do not know enough about this sector to pick individual stocks. However, I recognize the potential for alternative energy long term, given the level of pollution emitted by fossil fuel generation and the understandable reluctance to build expensive nuclear plants, particularly in the U.S.

The dividend yield will be insignificant. I did not realize on this one that I bought shortly before the ex dividend date for a semi-annual distribution.

That distribution just about pays for my brokerage commission after tax.

Risks: The chart referenced above highlights the risks. Until recently, this sector ETF has been a widow maker.

An industry trade association noted recently that the price of "a solar panel had declined by 60% since the beginning of 2011" through the end of 2013.  Solar Industry Data | SEIA

The sponsor discusses risks starting at page S-3 of the prospectus: ishares.com/pdf

There are a variety of regulatory risks. Recently, the U.S. slapped new import duties on Chinese solar products. Reuters

Future Buys/Sells: I am unlikely to buy more. I may let this one germinate for an extended period given my small exposure and the long term potential upside.

Last Thursday's Closing Price: ICLN: $11.98 +0.16 (+1.35%)

7. Paired Trade: Sold 155+ ENY at $17.55 and Bought 100 EWC at $32.11 (see Disclaimer):

Snapshots of Trades:

ENY:

2014 Sold 155+ ENY at $17.55

EWC:

Bought 100 EWC at $32.11

Snapshot of ENY Profit:

2014 ENY 155+ Shares +$296.37

Item # 4 Added 50 ENY at $14.04; Added 50 ENY at $15.6; Bought 50 ENY at $16.83;

Security Descriptions: The Guggenheim Canadian Energy Income ETF (ENY) is an ETF that owns Canadian energy companies.

Sponsor's Website: ETF (net expense ratio for an ETF is high at .7%)
ENY Holdings
ENY Page at Morningstar (rated 2 stars)

The iShares MSCI Canada ETF  (EWC) is a U.S. index fund for Canadian stocks that targets an 85% access to the Canadian stock market primarily through large and mid cap stocks.

EWC went ex dividend for its variable semi-annual distribution on 6/25/14:

Generally, a slightly larger distribution is paid in December. In 2013, EWC paid a total of $.691355 per share in ordinary dividends. No long term gains have been paid since 2000. EWC Distribution History

Sponsor's webpage: iShares MSCI Canada ETF | EWC (expense ratio is .48%; 96 holdings a of 6/23/14)

Top 25 Holdings as of 6/23/14:

iShares MSCI Canada Page at Morningstar (Not Rated)

Prior Trades EWC: I have periodically traded EWC for small gains and have generally held that small position for a few weeks.

2006 EWC 100 Shares +$157.19 (1+ month)

2007 EWC 100 Shares +$120.93 (41 days)

2008 Regular IRA 30 Shares +$136.49 (3+ months)

2009 Roth IRA 30 Shares +$53.58

Total Realized Gains:  $468.19 

Prior Trades ENY: I have had some prior small ENY trades:

2008 ENY 140 Shares +$138.73

2009 ENY 50 Shares +$90.97

2009 Roth IRA ENY 30 Shares +$53.58

2012 ENY 50 Shares +$37.58

Total Prior Realized Gains: $320.66
Total Realized Gains: $617.03 ($320.66 + most recent trade $296.37)

Rationale: When I made this paired trade, I jotted down the reasons for it.

1. EWC was up only about 1/2 as much as ENY so far this year.

iShares MSCI Canada (EWC) Total Returns
Guggenheim Canadian Energy Income ETF (ENY) Total Returns

2. The Canadian stock index has substantially underperformed the U.S. S & P 500 over the past 18 months. EWC's net asset value per share increased only 5.41% in 2013 and 8.84% in 2012, compared to SPY's total return of 32.21% and 15.99%:

SPDR S&P 500 (SPY) Total Returns

3. I acquire a broader exposure to Canadian stocks which includes the energy stocks owned by ENY, so I maintain some exposure through EWC to this sector.  I also acquire through EWC exposure to other Canadian natural resource and mining stocks, including several gold miners.

4. I maintain exposure to the CAD via a USD priced ETF that owns Canadian stocks after the CAD broke above its 200 day SMA line versus the USD.

CAD/USD Currency Conversion Chart

Risks: Generally speaking, I would anticipate less risk for country index fund than for a country index fund confined to a specific sector. EWC is more diversified than ENY.

If the CAD turns down in value against the USD, this will negatively impact the price of EWC.

While there is always country risk, this risk is not anywhere near the top of my worry list which would be the case for an ETF owning stocks based in Russia, China, and South America.

Last Thursday's Closing Prices:
EWC: $32.54 +0.15 (+0.46%) : iShares MSCI Canada Index Fund
ENY: $17.57 +0.07 (+0.40%) : Guggenheim Canadian Energy Income Fund