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  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    LMH: There was an extra dividend of $.1405 per share paid in December in addition to the regular $.09 monthly rate. I am not that familiar with PFL. I did note some energy exposure in its N-Q filing which has holdings as of 10/31/14.

    There was also several foreign bonds. I do not know whether those bonds were denominated in USDs or in foreign local currencies. There was some exposure to Russian energy companies, Rosneft Finance S.A. and Gazprom Neft OAO Via GPN Capital S.A. as well as other Russian companies, Sberbank of Russia Via SB Capital and Russian Agricultural Bank OJSC Via RSHB Capital S.A.S.A.

    That may have hurt irrespective of the currency in which the debt is priced, Rubles or USDs.

    The last shareholder report has holdings through 1/31/15:

    As to 2013, rates started to rise in early May and peaked on 12/31/13.

    Market Price/Net Asset Value/ Premium
    5/2/2013 $13.60 $12.63 +7.68%
    12/31/2013 $11.31 $11.50 -1.65%

    That is a fairly typical reaction among leveraged bond CEFs and highlights the double whammy problem. NAV per share did go down but the loss was made worse by the 7.68% premium shrinking to a -1.65%. The triple whammy occurs when you add a rise in short term borrowing costs as the securities bought with that borrowed money go down in price.

    The initial impact on leveraged bond funds from a rise in short term rates will be negative, since the spread between the cost of funds and the yields on owned assets shrinks.

    The other impact will depend on whether the yield curve is steepening or declining.

    If short, intermediate and long term rates are rising more or less in tandem, then that is the worst case scenario for a leveraged bond fund.

    The best case scenario is what they have enjoyed for many years now: a bull market in bonds and abnormally low borrowing costs which gives them a good net interest spread and provides a favorable environment for prices to increase, thereby generating both more income and more capital gains.

    The flip side to that benign scenario is less income due to contracting net interest spreads and capital losses flowing from a rise in intermediate and longer term rates, when combined, would then likely cause the discount to widen at the same time, creating the infamous triple whammy.
    Mar 31, 2015. 08:56 PM | 1 Like Like |Link to Comment
  • REIT Basket Strategy Added 100 Chambers Street Properties Shares At $7.74 [View article]
    Raleigh: There are interest rate swaps on the floating rate debt tied to spreads over the three month Libor rate. The effective interest rate shown in the table is higher now due to those swaps. The 3 month Libor is around .275% now.

    A 1.75% Libor spread for the Capital One term loan would be about 2.025% rather than the effective interest rate of 4.32% shown in the table.

    The swap contracts are tied to the expiration of the term loan facilities, so the swap for the Wells Fargo Term Loan #2 ends on 3/7/2018.

    Page 65

    So the company is protected, as you note, from a rise in the 3 month Libor for as long as the swap agreements are in place, but has to pay more now in interest due to their existence. My statement in the article was consequently too broad.

    I would anticipate a much higher FF and Libor rates when these swaps mature, which would favor using the current abnormally low long term rates to sell long term unsecured bonds rather than to take a chance on this variable rate debt becoming more expensive in a few years than the "effective" rates shown in the table.

    As to foreign currency impacts, the decline in both the British Pound and the EURO would have a negative impact. I looked for currency risk hedging in the 10-K, but could not find any reference. It is a very long document.

    There is a "foreign currency translation (loss) Gain" adjustment to net income at page F-5, 2014 10-K, which shows a -19.183M loss in 2014 and a $7.834M gain in 2013. The impact on cash flows was shown at -$792,000 at F-7. The accumulated foreign currency losses are shown at page F-44.

    The foreign currency issue is a negative now. but most investors realize that this kind of detriment turns into a benefit, back and forth, and consequently tend to discount it. I would put myself in that camp.

    25 Year EUR/USD Chart^EURUSD&t=BAR...

    I view the market price problem now to be primarily a lack of cash flow growth, which translates into a stagnant dividend rate.

    LXP also gave lackluster guidance for 2015. LXP estimated "that its Company FFO guidance will be an expected range of $1.00 to $1.05 per diluted share for the year ended December 31, 2015."

    There are also significant differences in FFO and FAD for both LXP and CSG. For LXP, I noted in my last Instablog discussing a purchase that 2014 company FFO was $1.11 and FAD was $.86:

    I believe that issue is playing into the market prices. You will not see that kind of wide differential when looking at other triple net lease REITs like Realty Income:

    2014 Realty Income Numbers: $2.58 and $2.57
    Mar 31, 2015. 12:18 PM | 1 Like Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    LMH: PFL has moved from a small premium price to its net asset value per share to a slight discount. The close today was at a -.26% discount. The 52 week high was a +5.65 premium, with -4.93% discount being the low.

    Part of the decline may be due to the premium shrinking since your purchase.

    You can go to CEFConnect, click the "pricing information" tab at PFL's page, and then navigate to the day that you bought the shares.

    When rates started to climb after the ten year treasury closed at 1.68% (2/2/15), the PFL NAV per share was 11.26 with a market price of $11.7 as of 2/2/15, creating a premium of +3.91%.

    The ten year topped out at 2.25 % (3/6/15), at least for now, before drifting back down.

    PFL's market price closed at $11.78 on 3/6/15, and the NAV that day was at $11.61, creating a premium of +1.46%.

    So PFL performed well on a net asset value per share basis during that rate spike with its NAV per share going up from $11.26 to $11.61, unadjusted for a monthly distribution that went ex dividend on 2/10/15 for $.09 per share. If I add that sum back to NAV, that would take it up to $11.7 adjusted for that dividend from 11.26 when rates started to rise.

    PFL is a leveraged fund which means that its interest costs will start to rise when the FED increases the federal funds rate.
    Mar 30, 2015. 11:28 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    LMH: I read this article where the author claims that the inability to string two consecutive up days, prior to today, is a meaningless 6 sigma event:

    That streak ended with up days last Friday and today.

    I did not view that trend as meaningless, but simply due to a lack of conviction and some confusion among investors. Market participants are easily swayed now by the news du jour.

    The news about that the new China led Asian Infrastructure Investment Bank (AIIB) plays directly in one of my long term secular bull themes involving emerging market growth.

    The deal making tsunami is also a positive. I no longer owned Kraft. My GIS position has received a lift due to Kraft's proposed acquisition by Heinz, engineered by Buffet's BRK and 3G Capital (mostly rich Brazilians)

    Whenever there is this much merger activity, everyone starts looking for the next candidate and prices get bid up in entire sectors.

    The prices paid for those acquisitions appear rich to me. The reasoning differs. Some involve opportunistic uses of low borrowing costs while filling some long term objective (e.g. expanding a drug pipeline or acquiring a new complimentary business segment).

    My foray today was to buy one balanced CEF, which is supporting its monthly distribution and 8% yield through earnings (mostly capital gains), and to sell one that is significantly supporting the dividend with ROC.

    So I bought 200 ZTR back and sold my remaining 221+ CSQ, with the CSQ shares bought in 2010 and the remaining in 2011.

    I had previously pared my CSQ position by selling some shares last year at a higher price:

    Item # 8 Snapshot of 2014 Profits=$685.68,
    Mar 30, 2015. 09:05 PM | 1 Like Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    LMH: There continues to be robust deal making activity in the healthcare sector.

    UnitedHealth (UNH) announced this morning an agreement to acquire Catamaran (CTRX).

    CTRX $59.85 Up 11.53(23.87%) 12:48PM EDT

    The Vanguard Health Care Fund (VGHCX) owned 4,937,683 CTRX shares as of 12/31/14, which was only the 53rd largest holding in that fund:

    Teva Pharmaceutical Industries announced that it had entered into an agreement to acquire Auspex Pharmaceuticals (ASPX)

    ASPX $100.50 Up 29.59(41.74%) 12:57PM EDT

    Over the past few weeks, the market has had trouble stringing together two consecutive up days.
    Mar 30, 2015. 01:03 PM | 1 Like Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    F & G: I would add one thought to the P/E and P.E.G. relationship.

    How confident is the investor that the current growth rate can be sustained long enough to justify that elevated P/E?

    Frequently, where the P/E is well above the S & P 500 average, the company has no long term moat and no long term competitive advantage.

    Some other company builds a better mouse trap and profit margins erode as quickly as they shot up. That is one reason why value trumps growth investing over time. Growth investors end up paying too much for future earnings.

    1980 to 2010: Value of $10,000 investment
    Large Cap Value=$305,169
    Large Cap Growth: $187,071

    Mid Cap Value= $508,700
    Mad Cap Growth: $274,209

    Small Cap Value: $601,860
    Small Cap Growth: $188,107

    There are only a few companies that could sustain a 20% growth rate over a ten year period. Microsoft was one in its heyday.

    Most of the companies that have experienced rapid growth may be able to sustain it for a couple of years or possibly as many as 4 or 5 before operations/profits turn to more mundane rates or even declines.

    I have no opinion on whether SWKS can sustain its earnings growth, nor am I aware of whether the past earnings used to assess valuation are ex items or GAAP.
    Mar 27, 2015. 01:32 PM | 3 Likes Like |Link to Comment
  • Duff & Phelps Global Utility Income Fund: Bought Back 50 Of 163+ Shares Recently Sold In Roth IRA [View article]
    BNOR: I am in a trading mode with all leveraged bond CEFs.

    Increases in the federal funds rate will increase their short term borrowing costs, squeezing their net interest spreads.

    All of them performed badly when intermediate and long term interest rates spiked in 2013. It was more than just the net asset values per share going down.

    A typical reaction was a percentage market price decline close to twice the percentage decline in net asset value per share.

    When you combine an expansion of the discount, a decline in the net asset value per share and a rise in borrowing costs, I call the result simply the Triple Whammy. Best to avoid whenever possible.

    DPG held up better than the closed end bonds funds in 2013. Unadjusted for the quarterly dividends, the net asset value went from $21.54 (5/2/13) to $21.46 (12/31/13). That period coincides with an increase in the ten year treasury from 1.66% to 3.04%. The market price went down more, increasing the discount from 7.34% to 11.09%. The discount has really never recovered from that year.

    One reason for the net asset value per share holding up is that the MLP holdings probably did well. The ETN AMJ had a total return of 28.51% in 2013 based on net asset value per share.

    That performance may not repeat.

    DPG also received a lift from two electric utilities accepting takeover offers: Pepco (POM) and Intergrys (TEG). The fund still owned 500,000 shares of TEG as of 10/31/15, and neither merger has yet to consummate.

    The fund sold its 1,567,200 POM shares at some point after 4/30/2014 when its N-Q filing still showed ownership:

    Page 8

    Proceeds were used in part to establish a new position in DTE and to add shares to a few other electric utility positions including Duet and Westar.
    Mar 27, 2015. 12:49 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    LMH: If you click the "portfolio and management" tab at the sponsor's webpage for VHT, it shows a a P/E of 30.1. That is just too high for me. VHT does not have any foreign holdings, so there is no exposure to companies like Novartis, Roche, Sanofi, Actavis, AZN and GSK.

    I am not adding to my position in the Vanguard Health mutual fund at current prices other than through dividend reinvestment. The P/E is just too high for me as a cautious value investor.

    The mutual fund has about a 20% foreign company exposure:

    I prefer the mutual fund for that reason. If I am going to own a health care fund, I want worldwide exposure rather than limiting the investment to U.S. companies only.

    The advantage for VHT is that an investor can start building a position with less than $3000. The Vanguard brokerage customer can buy commission free which allows for a cost effective position build in small lots. I have bought on bad market days 5 shares of a Vanguard ETF commission free. I would then pick up my buying some after a 10% correction, more after a 20% correction and even more after one of those 50% dips.
    Mar 26, 2015. 12:04 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    DAP: Someone wanting to buy or sell a couple hundred CIZN can jerk the price up and down. Today's high was $18.63 with a low at $17.7, but the volume was only 3,070. The average volume is about 2,163 according to YF so today's action was a bit heavy.

    I am not aware of any public news that would account for the up and down moves other than the frequently bizarre trading action of a thinly traded micro cap with large bid/ask spreads. I own a few of those, but CIZN has the largest bid/ask and daily trading spreads.

    The stock recently went ex dividend on 3/12. I did bring my lot up to 100 shares with a limit order filled at $17.62. I do not plan on buying more.

    I will consider buying back the 100 CSG sold at $8.76 when and if the price falls below $7.75, as noted in my recent update of my REIT basket strategy. That REIT is in a category that I call "trading core positions", where I will consider selling my highest cost lots on pops and then buying back when and if the shares fall below a predetermined level, with no intervening bad news and where the subsequent purchase will reduce my average cost per share:

    Update For REIT Basket Strategy As Of 3/19/15

    That sell of 100 CSG was somewhat embarassing. I had 150 shares in that highest cost lot. When I went to enter the order to sell that 150 shares, I had already forgotten that I needed to sell 150 and instead entered an order to sell 100 at $8.76 which was filled.

    Sunday, February 8, 2015
    2. Sold Highest Cost CSG Shares at $8.76

    One of those issues that seems to crop up from time to time as I add on more years.
    Mar 25, 2015. 04:04 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #72 [View instapost]
    I am not in the mood to buy stocks at the moment. I was thinking about taking a nap.

    I did buy a first mortgage bond yesterday:

    ADDED 100 ELB In Roth IRA: An Exchange Traded First Mortgage Bond Issued By Entergy Louisiana

    SVNLY is ex dividend for its annual distribution today.

    Svenska Handelsbanken AB ADS

    I may buy another 50 shares if it falls another $1.
    Mar 25, 2015. 03:27 PM | Likes Like |Link to Comment
  • Mistakes Made -- (Part 2) The Fallacy Of Focus On The Wrong Inputs To Drive Intermediate Term Market Movements.  [View instapost]
    The synthetics are more of a pure play on a rise in yields.

    The junk loan CEFs are leveraged and will experience a rise in borrowing costs as the FF rate rises. Their borrowing costs will closely match those increases. There is no such offset in the synthetic floater yields.

    The CEFs that you referenced are leveraged:

    BGT at 29.61%

    PHD at 32.89%

    JRO at 37.6%

    Most junk bank loans have Libor floors which means that there will be no increase in coupon until the floor is exceeded, and that may be at a 3 month Libor rate of 1% or higher depending on the loan.

    So initially, those funds will have an increase in their borrowing costs and a narrowing of the spread between cost of funds and the yields on investments bought with borrowed money.

    I also mentioned the profit realization potential due to the synthetics having a maturity date. The quality of the underlying security is much higher which I consider important and give weight too. The CEFs bear a number of risks unique to that class of security, including an increase in the discount subsequent to the purchase and the additional problem inherent in any bond fund that has no maturity date.

    The total returns are not that hot for the CEFs. Over the past ten years, the JRO total annualized return is 6.62%, which is probably less than its coupon during that period.

    Click Performance Tabs:

    BGT 10 Year Annualized Total Return:
    5.43% base on price

    PHD 10 Year

    With GJS, assuming a redemption of the underlying bond in 2033, the owner can pick up a YTM of 2.79% even if the coupon remained at 1% until maturity. The YTM goes up to 6.41% with the average annual three month T Bill at 3.1%, which is below the long term average.

    As with a discussion that I had with Extreme Banker regarding GSPRC vs. COFPRC, the discount to par will come into play when the market sees the FED in a tightening cycle that will make the float look better then than now:

    With a change in perception about the likely course of short term rates, due to a change in the forward inflation expectations, the potential for a profit realization of the discount long before the actual maturity of a GJT or GJS could lead to a much higher yield depending on when that the discount to par narrows to none at all or close to it.

    And, I am pairing a small floater position, 50 shares, with a longer term high quality bond.
    Mar 24, 2015. 03:12 PM | Likes Like |Link to Comment
  • Mistakes Made -- (Part 2) The Fallacy Of Focus On The Wrong Inputs To Drive Intermediate Term Market Movements.  [View instapost]
    T: The synthetic exchange traded floaters have their issues and are not suitable for most investors. GJT and GJS have as their underlying security senior bonds issued by Allstate and Goldman Sachs. Instead of paying the fixed coupon rates, those securities pay a float over the three month treasury bill:

    GJT .8% over 3 month treasury bill Max 8% (Mat: 4/1/2036);

    GJS .9% over 3 month treasury bill MAX 7.5% ( Mat: 2/15/2033).

    Needless to say, they pay very little now, so I only bought 50 shares to pair with a 100 share buy of the first mortgage bond. The coupons will go up when the Fed starts raising the FF rate. The 3 month T bills will track that rate pretty close.

    A main benefit is that they can be purchased now at deep discounts to par value, which will juice their yields when rates do rise, and create a profit opportunity at maturity or earlier.

    And after the initial commission cost, there is no recurring fees which would be the case with a CEF. The underlying securities are of higher quality than in junk loan funds (PG for GJR, WMT for GJO) I am playing with the house's money on most of them, and have not fooled with buying any of them after selling out more than 2 years ago. I just believe now that we are much closer to a tightening cycle where these securities make a little more sense.

    " According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (3.0% annualized rate) in February. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.0% annualized rate) during the month.. . . Over the last 12 months, the median CPI rose 2.2%. . ."
    Mar 24, 2015. 02:23 PM | Likes Like |Link to Comment
  • Mistakes Made -- (Part 2) The Fallacy Of Focus On The Wrong Inputs To Drive Intermediate Term Market Movements.  [View instapost]
    RD: I can only say for certain that I am not going to lend the U.S. government money at the current yields and I would have much appreciated a 3.8% thirty year mortgage rate in 1982.

    For the time being, I am paring a purchase of a high grade, potentially long term corporate bond with an interest sensitive bond when buying bonds in my Roth IRA. Bond purchases make more sense in that account since I turn taxable interest into tax free interest, both at the time of receipt and withdrawal.

    I had been selling some exchange traded first mortgage bonds, with $25 par values and rated A or better, that had popped to $26+. I bought one of those that had slid back closer to par after making a quarterly interest payment. I then paired that trade with a synthetic floater that pays a spread over the 3 month treasury bill rate.

    My Blog:
    Synthetic Floaters
    Mar 24, 2015. 01:56 PM | Likes Like |Link to Comment
  • Mistakes Made -- (Part 2) The Fallacy Of Focus On The Wrong Inputs To Drive Intermediate Term Market Movements.  [View instapost]
    New home sales, the missing ingredient so far in a U.S. recovery, did perk up in February and the January number was revised higher as well.

    Household formations are accelerating, a key ingredient for new home sales.

    When I was 30, the 30 year mortgage rate was over 16%. I had no choice but to use cash to build a house in 1982 as noted above, rather than to use those funds to buy stocks after turning bullish that summer. The Millennials are running out of time to lock in that abnormally low rate long term IMO.
    Mar 24, 2015. 12:37 PM | Likes Like |Link to Comment
  • Best Ways To Invest -- What's Your Opinion? A Place To Share Ideas! #71 [View instapost]
    LL: You can post whatever you want here at SA as an Instablog. If you make a change to your allocation, you could note it in a comment to your own blog which is then time stamped by SA.
    Mar 24, 2015. 12:20 PM | Likes Like |Link to Comment