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  • Royalty Trusts And The ETF Retirement Portfolio [View article]
    I only take a position in a royalty trust that has exchange traded options. I maintain a nearly perpetual hedge with in-the-money put options. A few days before ex date I increase the hedge to -1.5 delta. On ex day the unit price frequently drops more than the amount of the dividend providing increase in value of the put options more than the loss on the unit price. There are occasional transaction costs for rolling over the put options and opportunity cost in keeping funds tied up in the put options, but so far this is working pretty well and eliminates the need for closely tracking or worrying much about financial statements, trust hedge positions or the prices of underlying commodities.

    For trusts paying quarterly I am also considering selling shares soon after the ex date and just buying call options to replace the unit position until some time closer to the next ex date when the calls would be sold or exercised (the put hedge is maintained). That way funds can be invested in other high yield securities that pay during the interim between ex dates. Long SDR, SDT, ROYT, CHKR, looking at PER.
    Aug 17 10:38 PM | Likes Like |Link to Comment
  • Atlas Energy: An Unloved Value Play [View article]
    I note insider buying in ATLS, APL and ARP. With regard to recent drops in market value I note the high Beta of ATLS (2.45) and APL (1.68), so, of course, the unit values followed the recent market downturn with some exaggeration. I also note the recent drop in energy prices which is not supportive of values. I do think the overall equities market and energy prices are oversold on a short term basis, so there is some reason to think current levels might warrant at least a pause with base building, if not a short term bounce. On a technical basis I'd either wait to invest naked long in any of the Atlas MLPs until slow stochastics drop to 20, or else take any initial position hedged with put options.

    With regard to ATLS in particular, I note the very high debt/equity ratio of 8.16 which is likely a source skepticism for many investors and short sellers (even most mREITs don't engage in such leverage these days). The long term debt/equity ratio is 8.15, so almost all debt is long term. Given the ROI of -2.90% and ROE of -19.1%, and a net profit margin of -2.6%, it makes sense to question how it is possible for ATLS to earn its cost of capital without stellar growth in sales and improved margins.

    The analysis of distribution coverage of an MLP is best focused on free cash flow dynamics. I think the author would have done readers a service by elucidating that analysis before making recommendations about values. I wouldn't buy one just on the basis of hope for M&A activity.

    I've been watching ARP for a while and the distribution yield of almost 12% with monthly payments certainly looks appealing. Pending further due diligence before a naked long position, I think an initial position with a put hedge at the 20 strike price looks attractive.
    Aug 10 10:30 AM | 2 Likes Like |Link to Comment
  • Intel: Losing Dominance In The Server Segment? [View article]
    The general market has been down. Intel beta is 0.93. Also valuation is a bit high for a 9% earnings grower. PEG ratio 1.83; price/free-cash-flow at 32.92.
    Aug 9 09:40 AM | Likes Like |Link to Comment
  • How To Use The CAPE Ratio To Double The Return Of The S&P 500 [View article]
    Thanks for a very interesting food-for-thought article. I was intrigued by your reference to a study showing superior performance of a CA-BM [cyclically adjusted book value to market capitalization] methodology. Here are some key excerpts from the Gray and Vogel paper you referenced:

    "Stock returns are measured from July 1973 through December 2012. ...An annually rebalanced equal-weight portfolio of high CA-BM stocks earns 16.6 percent a year and generates the highest Sharpe (.64) and Sortino (.85) ratio among all cyclically adjusted metrics tested. While CA-BM is the marginal top performer over the past 40 years, all cyclically-adjusted value measures have outperformed market benchmarks by large margins.
    ...Employing a monthly rebalance enhances the performance of all valuation measures. For example, the CA-BM strategy goes from a 16.6 percent compound annual growth rate (OTCPK:CAGR) to a 19.3 percent CAGR.
    ...Using the monthly rebalanced portfolios, we split each decile into high and low momentum. Employing this additional momentum screen adds at least 100 basis points across the different valuation metrics. For example, the high-momentum CA-BM portfolio has a compound annual growth rate of 21.6 percent, which is 230 basis points higher than the monthly rebalanced CA-BM portfolio.
    ...Our data sample includes all firms on the New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and Nasdaq firms with the required data on CRSP and Compustat. We only examine firms with ordinary common equity on CRSP and eliminate all REITS, ADRS, closed-end funds, and financial firms. ...To ensure there is a baseline amount of liquidity in the securities in which we perform our tests, we restrict our analysis to firms that are greater than the 40th percentile NYSE market equity breakpoint at June 30th of each year.
    ...The monthly results do not account for taxes or transaction costs, which are assumed to be much higher relative to the annually-rebalanced results"

    That looks like a very promising methodology for superior long term performance, perhaps restricting rebalancing to quarterly frequency to reduce the necessary time comittment and transaction costs. Has the author considered publishing a portfolio of stocks conforming to that approach? Does anybody know of an ETF that uses such methodology?
    Aug 3 12:17 PM | Likes Like |Link to Comment
  • 8 Indicators That Tell Us Where Gold Might Go Next [View article]
    On a weekly bar chart for GLD, now at 124.38, RSI is trending down from 60%, a point of resistance for recent rallies. Slow stochastic turned down from over 80%, where all significant recent rallies have topped, and is now at 73.92 with a long ways to go to another bottom below 20 (typically takes 2.5 to 3 months). Money flow index has also turned down from about 60, also a point of resistance for short term rallies during the last two years, and should drop to at least 20-30 for another good bottom. I'd be waiting for a possible test of the previous two bottoms at 115 over the next two months and check indicators' statuses at that point. I also note that commercial hedgers in gold futures are more short now than they were at the previous two intermediate tops at 1420 and 1390, and that's bearish.

    For traders, it appears that a short position is currently indicated, perhaps with October or longer dated puts on GLD, or gold futures. I'd be surprised if there wasn't at least a small short term trading bounce from 120. If it takes at least two months to drop to 120 with indicators in bottoming status, that would signal a very possible turn in the intermediate and long term turn in trend at 120. A subsequent breach of 120 would indicate a test of 115, and a serious breach of 115 would indicate the likelihood of a continuing bear market or grinding sideways bottoming process below 115 for a while longer.
    Aug 3 10:50 AM | Likes Like |Link to Comment
  • The Day The Trend Changed... Or Not [View article]
    I thoroughly enjoyed this article and your previous one. You write very well and with great humility and humor.

    Regarding possible timing clues, I can't help noting on the chart above for the DJIA that every time in the last three years that the slow stochastic has dropped below 25 has coincided with a buying opportunity and that's now the case. I see the possibility of a further drop intraday to 16,400 followed by a sharp rally, either intraday or the next day to reestablish upward momentum.

    I also note that the McClellan oscillator hit -89 yesterday, and that any level near -100 has coincided with a significant intermediate low in the last few years.

    I further note that the summation index has quickly dropped from an overbought level near +1100 to a near neutral level of +287. Drops of such magnitude in the last few years have coincided with significant lows. Particularly if the index gets into negative territory and its slope reverses from downward to upward, that has been particularly telling of a new uptrend.

    Your previous article coincided with a short term top to be sure, and one can never be certain where a new short term downtrend ultimately leads. However, for those who wish to try a short term or swing trade, or to add to long term positions, it appears that the odds favor a new or expanded long position currently or very soon for the short term or longer until indicators once again suggest a top. I'm guessing that by next December you might not be completely happy with having sold out if you remain so.

    I also think the recent drop has delivered tempting price levels and higher yields in several of the high yielding securities that pay 10-30% distributions and also can be hedged with options against capital loss. For example, PSEC, FSC, AGNC, IVR, CYS, REM, ARR, JMI, BBEP, PER, SDT, SDR, CHKR and ROYT among many others. If you hold those with hedges you can still make 10% or better on an ongoing basis just from distributions while you consider your buying opportunities for indices and stocks of faster growing companies.
    Aug 2 05:10 PM | Likes Like |Link to Comment
  • The Day The Trend Changed... Or Not [View article]
    Very well thought out and good advice. Over a year ago I actually started writing an article which made almost identical points with the thought of possibly submitting it to SA. I didn't finish it and had forgotten about it until I read your comment. Since you beat me to publishing the concepts perhaps you should submit for an article. In any case, defining the intended time frame for holding securities and the investment objective are keys to deciding whether and when to sell (or vice versa in the case of short sales).
    Aug 2 04:39 PM | Likes Like |Link to Comment
  • An End To Our Relationship With Yahoo, A New Era For Equity Research [View article]
    I don't use Yahoo finance much. However, I often go to finviz to get basic financial data, charts and insider data, and when you get data for any stock they cover there is a list of articles ordered by date, including SA articles among many others. So, I often use finviz to find the most recent SA articles about a stock (finviz doesn't cover penny stocks, however).
    Jul 27 06:37 PM | 1 Like Like |Link to Comment
  • The Day I Sold Everything [View article]
    Too early to sell, and actually no need to sell ever to protect capital value if you can hedge. If you need to sleep better, sell a few shares to raise enough cash to buy some long term puts at a strike to protect some of your profits, if any, or calendar put spreads using long long-term puts and short short-term puts at a lower strike price. If you don't expect your stocks to move significantly higher real soon, or you're currently satisfied with current price level, sell some out of money calls to pay for some cost of the puts. If you're well hedged, you won't give up any dividends and can protect most capital value, and even continue to benefit from some appreciation.
    Jul 26 05:21 PM | 1 Like Like |Link to Comment
  • The Day I Sold Everything [View article]
    "The yield curve is strongly positive. What severe correction ever took place without a tightening of the yield curve?" 1987, 1990, 2010, 2011. I agree the odds of a severe correction are lower with a positive yield curve. However, it's true there's never been a notable economic recession with a positive yield curve. But, as we've seen the stock market and the economy are truly different animals, although they influence each other.
    Jul 26 05:05 PM | 2 Likes Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Tack, thanks for a very interesting observation. You're addressing an issue for those who might attempt long term trade timing. I have noticed that in almost any time frame a reversal is borne when there's a sharp spike above recent trading which necessarily entails an increase in the slopes of recent averages. It seems that prices want to drop back to "fill" spaces that had little trading above a recent range. If that principle holds for long term averages of indices, then one would expect a short term sharp spike upward in indices over several days or weeks to precede any long term reversal as you noted for 1999 and 2007. The difficulty comes in deciding how much of a spike is enough! One thing seems fairly certain, with indices above previous all time highs, there is reduced pressure to sell, and an actual bear market probably can't happen until there's a deep short term correction with a subsequent run at highs in order that distribution take place and the moving averages flatten. So perhaps, look for a spike on weekly charts, then moderately deep correction back near previous trading range, then rally back toward highs lasting at least as long as the overhead trading range, and then failure. Some systems say hold until the 50-day moving average crosses below the 200-day moving average; others say sell if the price drops below the 50-day average.

    However, even with an orderly trending market you can typically see short term corrections evolve when prices get near the top of a trend envelope, that is, prices are a characteristic distance above moving averages. Sometimes it's sideways correction as in the past few weeks, and sometimes it is a deeper drop down, often near to the top of a previous range. I also notice that the depth of the correction seems somewhat dependent on the length and depth of the trading immediately preceding the correction. In any case, as the old adage goes, you won't go broke taking profits, or, more appropriately in a well-developed bull market, periodically hedging.
    Jul 26 04:38 PM | 1 Like Like |Link to Comment
  • Why This Is The Most Hated Bull Market Of All Time - Understanding The Folly Of Financial Engineering [View article]
    Positive yield curve = near zero chance of recession, most likely bull market continuing with periodic 5-15% corrections.

    Very low interest rates = high stock prices and low cost of investments.

    Falling real median income and very tough credit conditions = limp along economy.

    Inflation in goods and services way above interest rates and wage increases= ever higher percentage of citizenry falling into poverty.

    Buy high yield dividend stocks for income portfolio and periodically hedge them.

    Buy rapidly growing small and mid cap stocks that have a moat or unique products.

    Stock averages got way above 50-day and 200-day moving averages, so short term correction likely, so maybe hedge long term index call options or index ETFs with calendar put spread.

    Federal deficit of 2009-2012 due almost entirely to fallen tax revenue not stimulative fiscal policy other than the meager one of 2010; there has been no increase in real federal spending at all in the entire time period. Recent drop in deficit due to restrained spending plus tax increases + increased tax revenue from economic recovery.

    US is a very slow growing capitalist country with social welfare programs but no government ownership of means of production as in a socialist system. The fastest growing large economy is China with a communist system, central planning, over 60% ownership by government of means of production, and 66% of all spending is by government. Make of it what you will!
    Jul 26 03:30 PM | 1 Like Like |Link to Comment
  • Tesla, Are We About To Be Surprised? [View article]
    Insiders have done nothing but sell since April. One director, Antonio J. Gracias sold 105,000 shares in 11 transactions between May 15 and June 3 at prices between 187 and 210, and as of June 3 held none.
    Jul 26 09:30 AM | 1 Like Like |Link to Comment
  • Pacific Coast Oil Trust Opportunity [View article]
    I wondered what the heck happened. Thanks for a good article, and thanks to some of the commentators regarding water issues and the language of the proposed ordinance. This is exactly the type of unknown that keeps me hedged on holdings of royalty trusts, BDCs, and mREITs. I got lucky and was able to roll over my ROYT August 12.5 puts to September for only a 0.10 cost, and I also picked up some Dec 10 calls and Sept 10 puts for a little speculation. I'm hoping price drops below 10 where I can roll the 12.5 puts down to 10 strike and possibly add to Dec 10 calls. This is practically a replay of what happened with my PSEC 12.5 strike puts which I rolled down to 10 strike and added 10 strike calls (now hedged again at 12.5).
    Jul 24 12:20 AM | Likes Like |Link to Comment
  • Should You Invest In UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN? [View article]
    I had BDCL and MORL for a while but sold when capital gains looked like they were worth a couple years distributions (which is interest, not dividends). What worries me about ETNs, particularly the leveraged ones, for long term holding is what could happen in the next crash. In such events, more often than not, bids disappear on a short term basis, at which time your ETN can be "accelerated" (i.e. redeemed for cash) at a really depressed price, after which the underlying index or securities could quickly run back up sharply leaving you with a loss and having to buy back into the market at higher prices. The following is from the UBS website regarding risks of the Business Development Company ETN traded as "BDCL," but a similar statement is made for MORL:

    "Potential automatic acceleration - In the event the indicative value of the ETNs is equal to $5.00 or less on any Index Business Day or the intraday index value on any Index Business Day decreases 30% from the most recent Monthly Initial Closing Level, the ETNs will be automatically accelerated and mandatorily redeemed by UBS and you will receive a cash payment equal to the Acceleration Amount as determined during the Acceleration Measurement Period. The Acceleration Amount you receive on the Acceleration Settlement Date may be significantly less than $5.00 per ETN and may be zero if the level of the Index continues to decrease during trading on one or more Index Business Days during the Acceleration Measurement Period as measured by the Index Performance Ratio on one or more Index Business Days during the Acceleration Measurement Period."

    The UBS risk statement scares me, not the least because I'm not entirely clear how the Acceleration Amount is calculated. One of these days the bond market is going to tank again, probably worse than in 2013, and much of the drop could be overnight, resulting in a big gap down in MORL and mREITs in general. If panic selling sets into mREITs, I'm not sure what might happen to MORL, but "acceleration" appears to be a very unattractive possibility. I prefer to hold the mREITs themselves, with married put hedges. If one wishes to use leverage, one can always buy the stocks on margin, instead of MORL, and hedge with puts accordingly (MORL has no options available); perhaps that's not as efficient, but less risky.
    Jul 21 10:11 PM | 1 Like Like |Link to Comment