HIGH QUALITY/LOW RISK DEBT PORTFOLIO STOMPS HIGH YIELD PORTFOLIO
As we have been writing about continuously-- at this point you MUST be in high quality debt issues. If you have maintained a high quality portfolio you have done very well
Our High Quality Exchange Traded Debt Portfolio is now up by 4.8% since 7/11/2007.
The High Yield Exchange Traded Debt Portfolio is down by 4.1% since 7/11/2007.
This only goes to show that you must be in the highest of quality issues when the credit markets seize up and the economy is looking very soft.
We are also in the process of updating our Closed End Bond Fund data and are amazed that many of them are down 75%. Of course many of these funds hold high yield (junk) bonds and on top of the poor quality they have levered the portfolio by up to 30-35% which has only magnified their problems.
While if you own some of the Closed End Bond Funds it has been a terrible loss---to me it spells opportunity ahead. We will be watching closely over the months ahead to try to identify those opportunities as they present themselves
Consumer Revolving Credit EXPLODES at 11% Annual Rate
1/13/2008
Consumer revolving debt exploded at a 11% annualized rate (preliminary estimate) in November in what we consider a very ominous sign for the future economic well being of the country.
We have written about this development before (on October 11,2007 and September 6, 2007. We are always ahead of the curve on these types of items and we were noticing the changing tides in consumer credit card dept almost a 1/2 year ago. We are always hesitant to make firm pronouncements as we do not want to appear overly negative---but the time is now to be firm in saying we will be seeing a massive wave of bankruptcys ahead.
As we follow the home refi cycle through the last 5 years the writing is as clear as can be as to what is happening---and we DON'T care if the wall street types disagree----or let their own personal interests get in the way of seeing the obvious.
Here is some history. In 2002, 2003, 2004 and 2005 credit card debt rose at annual rates of 4.5%, 2.9%, 3.8% and 3.1% respectively. (Federal Reserve Consumer Credit Report)
In 2006 the bloom began coming off the housing rose and debt exploded up to a 6.1% annualized growth rate. For 2007 we believe the final rate of growth on this debt will be around 7.5 to 8%. People can no longer refi and use the proceeds to pay off revolving debt---so the revolving debt is growing at an ever increasing rate.
SO----stick to the high quality debt issues for now or even go to money market issues as the poop will continue to hit the fan.
High Quality Bond Holdings Versus the High Yield Lower Quality
January 9, 2008
We have finally gotten the High Quality Exchange Traded Debt Portfolio totally updated and we think can draw some conclusions from the results.
1---During Boom times hold the high yield securities.
2---At the first signs of economic distress get out of high yield and move into the high quality issues.
3---High yield instruments will drop during economic distress and not come back--Quality instruments will drop, but bounce back quite quickly.
Our High Quality Model Portfolio is up 1% since inception 7/11/2007 while the High Yield Portfolio is down 10% over the same period.
Obviously with the issues in the economy today we are only invested in the High Quality issues---which is performing dramatically better than common stocks.
High Quality Debt Portfolio Up and Running
December 31, 2007
As we look ahead and try to be optimistic-----we fail miserably.
With fuel prices high, homes prices falling, foreclosures rising and on and on it is pretty hard to find any light at the end of the tunnel. Of course the stock market has been acting reasonably well in the last number of months--but you really have to ask yourself why?
Certainly the large investment house employees should be happy with silly bonuses (a reward for taking billions in writedowns)----while deep down we know that a good share of them are crooks. Everything these people do is about 'what is in it for me?'
We are adding a high grade debt portfolio to the tab 'Exchange Traded Debt Portfolio'. Currently we are tracking a high yield portfolio----so we will build one with the more recent quality issues we have mentioned in this column and see how it tracks. We will go back to the same starting point as the high yield portfolio and track it forward to see what the results are side by side. We are convinced you must have upgraded quality in these hazardous times.
We have been preaching the need to stay in very high quality bonds while we work our way through this credit crunch.
Of course there is no reason that you can't be in high quality preferred as well. As with any investment you have to do your homework as large numbers of preferreds are available from REITS and other companies with attractive returns---but the returns may not be higher enough for the risk taken.
Just like debt issues we want a solid company behind the preferreds--so we think the obvious targets should be utility companies which have a fair number of available issues.
Check these issues for possible buys for your quality income portfolio---
Each of these are $25.00 issues and trades on the NYSE---they trade somewhat modest volume so limit orders are recommended
Looking Ahead---Extreme Caution Needed
December 26, 2007
As we look ahead and try to be optimistic-----we fail miserably.
With fuel prices high, homes prices falling, foreclosures rising and on and on it is pretty hard to find any light at the end of the tunnel. Of course the stock market has been acting reasonably well in the last number of months--but you really have to ask yourself why?
Certainly the large investment house employees should be happy with silly bonuses (a reward for taking billions in writedowns)----while deep down we know that a good share of them are crooks. Everything these people do is about 'what is in it for me?'
We are adding a high grade debt portfolio to the tab 'Exchange Traded Debt Portfolio'. Currently we are tracking a high yield portfolio----so we will build one with the more recent quality issues we have mentioned in this column and see how it tracks. We will go back to the same starting point as the high yield portfolio and track it forward to see what the results are side by side. We are convinced you must have upgraded quality in these hazardous times.
A Diamond in the Rough?
December 10, 2007
In our never ending quest for investments we ran across an issue that we never knew existed.
The company is National Rural Utilities Cooperative Finance Corp.
It sounds like some government agency---but it isn't. They are a private, not-for-profit cooperative whose primary duty is to lend to cooperative utilities throughout the country.
The cooperative has 3 series of notes available as exchange traded debt (bought and sold just like stock) -- each issue with current yields of around 7.1% (Tickers--NRC, NRN, NRU). We believe the NRN series may be called in February, and would provide a return of about 7% in the next 2 months if called..
This is the BEST issue we have tracked down this year for good yield with an investment grade rating.
Another Possibility for Decent Yields with Good Safety
November 28, 2007
Slightly more risky than the General Electric Capital Corp AAA rated debt mentioned on the 15th is the PPL Capital Funding 6.85% Exchange Traded Debt (ticker: PLV) now trading at $23.93. The current yield is 7.15%. PPL Corp is the old Pennsylvania Power and Light so you get some of the safety of an electricity generating utility----although PPL is not the strongest of the utilities, which is why you are getting a decent current yield. We purchased some of this one last week just to help up our portfolio yield while still feeling good about the safety. As with all exchange traded debt this one moves around a bit, but should remain fairly stable over time. The offering prospectus is here for those wanting to further research this issue.
The issue is callable at $25/Share anytime after July 31, 2012.
Looking for a Real Safe Decent Return?
November 15, 2007
General Electric Capital Corp (wholly owned by General Electric) has some decent $25.00 Exchange Traded Debt Shares out there that are AAA rated and give what we think is a good yield for fixed income investors given the uncertainty in the markets.
GEJ has a current yield of 6.28%, pays quarter dividends and is not callable until 2012 (at $25.00). Currently trading at 23.90/share they can be bought for the same commissions as any common share through any normal brokerage account. The reason we lean toward this investment at this time is that GE is the rock of safety in a wild marketplace and if they have issues we are all in real trouble.
There will be some share movement--up and down in this issue, but in the end we think they are worth a look by anyone looking for a decent return with the maximum safety.
Oil pushed up to $110/Barrel this month--but by and large the Canadian Oil and Gas Trusts have been quiet. One of our favorites has always been Pengrowth (PGH) and it has maintained almost a constant price for the last 3 months---between $17.50 and $19.00 per share. --while it paid (monthly) out a nice 15% annualized yield.. It would seem to us that these remain attractive long term holdings for most income portfolios. If you were to look out as far as the eye can see we will be pumping oil and gas and Pengrowth and other solid Canadian Trusts will be reaping the benefits.
As a disclosure we have 1% of our portfolio holdings in Canadian Oil and Gas Trusts. (we are really chickens---but our portfolio is up 5% this year compared to -9% for the S and P's)
Surveying the landscape of the REIT sector one can only be amazed at the decimation that most of the various issues have been hit by.
Of course we were all aware that the mortgage/financial REIT sector had been tremendously rocked by the recent credit crunch---but even I was not aware of how badly all the other issues had fared.
Almost across the board REITs have taken 20-50% haircuts in the last 3-4 months!!
The yields on REITs have jumped up into what we would call attractive range---EXCEPT we believe the dividends are going to be cut in the recession ahead and the prices will fall even further.
We believe that REITs in general will fall another 30%---maybe more. We see NO REIT worth buying out there as the recession has the potential to toss many of these issues into bankruptcy when their business heads south and they have to continue to service their very sizable debt loads.
Ocean Shipping Stocks Report
1/16/2008
And if you think the REITs have gotten pounded----they can't hold a candle to the pounding the Ocean Shipping Stocks have taken.
Diana Shipping, Double Hull Tankers and Genco Shipping and Trading are all down near 50% while Excel Martime and Dryships are down more than 60%.-- all of this in the last 3 months.
Of course just like the REIT's the yields now look attractive---but again we believe the dividends will be cut and the prices and yields will fall further.
We think that this sector will provide a great opportunity ahead----just when we don't know.
The depth of the pullback here will depend on how much the poor U.S. economy spills over to the rest of the world.
Do not be buying these issues too early--there is no need to be early as you don't have any idea how the economy is going to play out. and will be punished severely when if you are in too early.
A Silver Lining Just Ahead--Can the Lowest Mortgage Rates in 15 Years Help This Economy?
1/18/2008
The lowest mortgage rates in 15 Years are only a few weeks---or maybe a few months ahead. We feel very confident in saying that 30 Year rates will hit near the 5% level soon. Obviously the cause is the very weak economy--which is going to cause a virtual interest rate collapse.
Can these rates help the wounded U.S economy? Yes they can-----can they save it from recession---no they can't.
We think that the better mortgage rates will help the absolute prime borrowers that want to refinance their homes---and if they have enough equity (at least over 20%) even withdraw some equity. Of course the ones that need the most assistance are sub-prime and we can tell you first hand that the odds they are going to be helped by lower rates is not great---although a small percentage of them will be helped.
It will help home sales a bit, although this is the slow time of year for homes sales in much of the country so it will not provide much of a boost.
What will help is if we can get a downdraft in energy prices combined with low, low rates---this will raise consumer confidence and come March/April/May have a shot at giving the economy a decent upswing.
If You Haven't Owned High Quality Bonds--You're Missing the Boat.
1/19/2008
If you have continued to hold common stocks or high yield bonds you have missed the party this month in the High Quality Bond Sector.
We have owned the issues of National Rural Utilities Cooperative Finance Corp (there are 3 $25.00 issues available - mentioned below), General Electric Capital and PPL Corp (Pennsylvania Power and Light) Both mentioned in articles below. We have a portfolio gain of 3% for January versus 9% losses in common stocks.
You can buy $25.00 issues of exchange traded debt and preferred stocks on the highest of quality issues and have a reasonable expectation of over 6% return----and that is damn good in this environment. These issues trade in a narrow ranges so try to buy them in the lower end of their range so you can pick up a couple of points of capital gains as well
If You Think We Are Out of the Woods----Don't Be Pulling The Trigger Yet!!!
2/7/2008
We know ti is tempting to be looking at those great yields out there on some of the more speculative income products-----BUT just be looking----researching----and planning. DON'T be buying the junk!!!
There is so much we don't know out there---and a number of potential large shoes yet to drop that you will be putting your capital at great risk by being a buyer
You must stay in the very high quality bonds (see below). You can still get 6-7% quite safely - or worse case you can be in money market funds. Either way in the end you will be much wealthier.
Some of the bigger questions in the income sector concerns real estate. We believe commercial real estate is dropping in value--this puts payouts at almost all REITS at risk as so many depended upon capital gains on building sales to pump up their Funds from Operations.
We don't know the future level of bankruptcies of individuals that we are predicting will be very, very high this year.
We don't know if the economy is officially going to be in recession--we say YES it will. This puts Shipping companies, more REITS and even the U.S and Canadian Oil and Gas Trusts as well as limited partnerships at risk
What about the much lower interest rate the Fed is bring us?
We can tell you for FACT---the interest rates are doing little overall to help the credit crunch---the people and companies that need the help are unable to quality for the help. The FED could go to zero and it would not help the people that need it the most. We would say on a 1-10 scale with 10 being the most help that these lower rates are about a 3 (yes - there are some people being helped by the rates---but many of these really are not under financial stress, but are taking advantage of the low rates).
So keep your powder dry---be patient and search for future buys.
We will tell you that our personal funds in HIGH QUALITY debt instruments have returned almost 4% from the 1st of the year. Actually we have traded a couple issues numerous times---each time taking very nice gains (we do not advocate trading but we are on line all day long so will take a quick debt issue scalp if we see it)
U.S Oil and Gas Royalty Trust Report
2/19/2008
Just like the Canadian Oil and Gas Trusts we think one of the few places that an investor can put a small portion (1-2%) of their portfolio and be relatively assured of a long term gain in the U.S Royalty Trusts.. Of course UNLIKE the Canadian version of trusts U.S Trusts are finite--they will run out of oil and gas at some point in the future as they are not allowed to develop additional oil/gas fields
Virtually all of these trusts are yielding over 6%--and most are over 8%.
Some caution needs to be used for a buy point as each of the issues is trading near its 52 week high. Given that oil went over $100/barrel today this should be no surprise.
A good buy point will be when it is realized that we are in a global slow down---on the flip side these should only be bought for long-long term holdings. The high yields will help offset some of the potential volatility of the security
You can look at a master listing at this link and click through further to read the latest quarterly reports.
Remember - small portfolio positions and long term holds are the key here.
Searching for Signs of Economic Life-----Finding Damned Little
2/28/2008
As we have surveyed the economic landscape looking for signs of life we are frustrated by what we hear----and amazed by what we see.
1st off it should be known by anyone with age and wisdom that the housing market issues are A LONG WAY from being solved. We are talking another year----not--as the smart people say---'we are bottoming'. We have succumbed to watching some CNBC this week and it is amazing what is being said by so called experts. Foreclosures are still rising, mortgage resets continue and good interest rates are not available to those that need them the most. Foreclosed houses take 6 months to a year to work through the system and prices and high inventories will be affected for some time. We still think that a possible recovery will take place in the spring of 2009---it will take at least this long to work out all the issues.
Oil and gas prices remain stubbornly high in spite of the continuous rise in inventories (gas inventories are at the highest level in 14 years). We think that prices will set back somewhat in weeks to come---but Oil and Gas Trusts and some Limited Partnerships related to Oil and Gas remain one of the few bright spots for income investors. Anyone holding the issues mentioned in the columns on the right has done well in recent months.
Employment is in some amount of trouble as job creation in the private sector has begun to fall---while employment in the government sector continues to rise--no wonder that in our state of Minnesota the Democrats passed a 6.6 Billion dollar tax hike this week as government revenues continue to fall and spending continues to rise.
Consumer spending is dropping as confidence wanes even further than it was waning before----inflation is raging (on a relative basis) as energy---thus almost everything else rises. Food and energy prices being high is a prime driver of confidence and we believe that without confidence the economy can only grow worse.
We believe the Fed will cut rates more--although we don't believe that a March cut is guaranteed. We also know that low rates are NOT in and of themselves the issue. There is plenty of money to lend out there---just no banks that want to lend it. I guess when you can't figure out the quality of what you have already lent you are reluctant to lend more.
So the bottom line is you must stay in near cash or only quality income producing issues In particular we like those listed below.
National Rural Utilities Finance Exchange Trade Debt Issues---NRN, NRC, NRU
Canadian Oil and Gas Trust Issues--Pengrowth (PGH), Pennwest (PWE) and Harvest Energy (HTE)
PPL Exchange Traded Debt---PLV
Also there are others listed in articles below that we believe are safehavens for the time being.
And The Poundings Continue
3/6/2008
The poundings continue in the debt and equity markets and if you have been reading our columns you should be licking your chops at the opportunity that is going to be upon us----one of these days (if we knew when we would be charging a subscription price for out website).
Many of the financial REIT's have taken massive drubbings this week (Thornburg Mortgage (TMA) in particular)---and we don't know if they will survive.
In addition to the financial REIT's you need to know that any levered REIT has the possibility of having a cash crisis if the lenders believe the value of their collateral is falling.
The best bet is to continue to stay away from the REIT's (until this week Thornburg Mortgage was considered the bluest of the financial REIT's) because you don't know when something is going to blow up--and when they blow up you will lose your capital so fast that you will have no time to react to preserve your funds.
Keep that powder dry and be researching for the opportunities just ahead..
Conintued Next Column
Cont.
There continues to be a few good, safe buys out there
Most of the U.S and Canadian Oil and Gas Trusts are worth a look---we have mentioned some in particular that we like in other articles on this page. Of course beware that most are trading near their highs and volatility can be expected---these are long term buys
Also the highest quality exchange traded debt has held up well in this environment---in particular GE Capital Debt (GEJ), National Rural Utilities Finance Coop Debt (NRN, NRC and NRU), and PPL Corp Debt (PLV).
Also preferred shares of quality utilities have done OK. (some listed below)
We mention numerous issues in articles below----and honestly if we weren't buying these issues we would be buying nothing and keeping our money in a money market account.
You can be certain that any positive return in this market is to be coveted while you wait for the resolution of the credit crunch
Are These Bond Funds REALLY Worth This Little?
March 12, 2008
As we have noted there are opportunities ahead----how much opportunity depends upon the level of risk aversion you have for yourself.
In the normal course of reviewing data and trying to update our information we ran upon a rather new issue (it has been out since January).
The issue is the Junior Subordinated Notes of Xcel Energy (Ticker: XCJ). Xcel Energy operates in the Midwest and is a pretty solid electric utility.
This is a typical Exchange Traded Debt Issue. Callable at $25/Share---not earlier than 1/2013. The yield on this issue is a relatively spectacular 7.6%. ---right now it doesn't get much better than this for an investment grade investment. To get this type of high yield you would normally need to go to a much more speculative investment.
If you would like to read the prospectus for the issue and the latest 10K for the year end 12/31/2007 go here. They will be making an interest payment on these this coming week so you may want to wait a few days before buying the issue.
Add a Little Safety to a High Yield
March 31, 2008
For those with a bit of knowledge of the equity option market there is no reason why you can't fairly safely add a little zing to your long term holdings.
Specifically we are talking about selling some covered calls on positions that you plan to hold for a long time. If like us you have taken some positions in Canadian or U.S Oil and Gas Royalty Trusts as well as Master Limited Partnerships you can add a little yield, while at the same time adding a little safety to these positions.
While adding yield and adding safety seem a bit incongruous in this case they are not.
We will walk through a real life example and give you a laundry list of securities available for possibly using this strategy with.
Did You Add A Bit of Undervalued Bond Funds to Your Portfolio?
April 4, 2008
In an article below (on March 12) we wrote about some value in bond funds. We are not going to belabor the point, but if you would have put a tiny part of your capital to work in the fund mentioned you would have locked in a +30% yield and your fund would be up 20%.
Needless to say you need to look for assets that are beat up very badly and where the risk/reward is appropriate a tiny taste could zip things up for you.
On a different note we are now starting to look at a few REIT's. We have in particular started to look at Hotel/Motel REITs that can weather a recession and whose yield makes it worth a buy and hold strategy. Currently we are honing in on SuperTel Hospitality (Ticker SPPR). We are hopeful that they will suspend further acquisitions, yet continue to raise the dividend each quarter as they have done for the last 13 quarters. We will report back on this possibility
Is it Time for Hotel/Motel REITs to be Bought?
April 18, 2008
As we surveyed the decimated REIT sector we were somewhat surprised to find that there are sectors that appear to have reached at least their intermediate bottom and some have even moved back up somewhat.
Of course, until the economic weakness plays itself out further you can not be sure that the REIT's have hit bottom. We say this because of the extreme fragility of the U.S. consumer --- they can yet wreak havoc on REIT's of all sorts. There really are few REIT's that are not touched by consumer weakness.
As we have looked over the hotel/motel REIT sector we believe there are a number of issues that are looking attractive on a long term basis that present us with what we believe to be an adequate Risk/Reward profile. The profile we are looking for encompasses both technical and fundamental elements.
Over the coming weekend we will write - in detail - of why we think that SuperTel Hospitality (SPPR), Sunstone Hotels (SHO), and Strategic Hotels (BEE) are possibly worth a closer exam as possible long term holdings in your portfolio.
We have looked at the entire Hotel/Motel REIT sector and find only 1 company that we believe provides the level of reward that we require in these tough times. That company is SuperTel Hospitality (SPPR). We don't believe that SPPR is the best REIT company out there----just the one that pays us appropriately for risk.
SuperTel is in the 'budget' level hotel/motel business. They have over 100 Super 8's, Days Inns and similar properties--none of which is located in California--a market which we consider dangerous for the hotel/motel business at this time. In fact many of the properties owned by SuperTel are in small towns in the midwest where they have little competition as they may be the only motel in town. A few of their properties are in Florida---in the Orlando area--where they have some risk from the weakening economy.
SuperTel has raised their dividend payout for every quarter since 2003 and has been on somewhat of an acquisition binge during the last year----the most recent being 10 properties acquired during January, 2008.
SuperTel has NO off balance sheet transactions (contrary to some of the other REITS that have massive off balance sheet items). This helps give us a good level of transparency.
SuperTel does have a fair amount of variable rate mortgages in place which could hurt in the future when rates finally begin to move up. We could not find evidence that SuperTel had any monetary derivative risk (which a number of the larger REITs have).
We believe that SuperTel should STOP the acquisitions during 2008 and concentrate on operating efficiencies and maintenance of the current base of properties. The current economic environment will challenge all of the lodging industry and while this has the potential to make some bargain properties available you first need to make sure that YOU are not one of the companies forced to sell.
On a technical point---SuperTel has traded substantial volume the last month or so in the $5.00/Share area and seems to want to stay in this area until after earnings are released in the next couple of weeks.
It should be noted that we reviewed the entire Hotel/Motel sector and found any number of issues with some of the operators. For instance Strategic Hotels and Resorts (BEE) is a top notch operator, but has all of their properties in California, Arizona and Florida and has a portfolio loaded with interest rate swaps and other derivatives which we can not totally understand (nor do they most likely).
We have purchased a tiny slice (less than 1%) of SuperTel for our portfolio---remember we are chicken investors and worry more about capital conservation than we do about huge returns.
Currently the yield on SuperTel is in the 10% area and because of our tiny position here we have christened this tiny holding as a 'permanent' holding meaning we have locked into what we believe is a yield that will be maintained and it is unlikely we can find a better return without a lot more risk.
Remember--do your due diligence and diversify
How About a Storage REIT Preferred Security? April 24, 2008
Most of you that follow our writings know that in general we are not fans of REITs----nor generally are we fans of the preferred issues of REITs.
But doing our continuous digging through 10Q's and 10K's we came across what we believe is a potential buy for our portfolio.
This issue we have come upon and found some interesting facts about is Public Storage (Ticker PSA). You have probably seen there storage buildings around with the orange Public Storage signs on them----and their name pretty much describes the business. They rent storage to anyone and everyone---for storage of most anything.
Public Storage owns or has interests in over 2,000 facilities with over 130 million square feet of storage. Surprisingly they sell substantial amounts of complementary products at their facilities (such as tape, locks, boxes, truck rentals) which throw off a very healthy profit.
We are not impressed at all with the REIT common of PSA, but we are intrigued with their philosophy of financing the companies growth.
This is from the companies most recent 10K annual report----
OVERVIEW OF FINANCING STRATEGY: Over the past three years we have funded substantially all the cash portion of our acquisition and development activities with permanent capital (predominantly retained cash flow and the net proceeds from the issuance of preferred securities). We have elected to use preferred securities as a form of leverage despite the fact that the dividend rates of our preferred securities exceed the prevailing market interest rates on conventional debt, because of certain benefits described in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." Our present intention is to continue to finance substantially all our growth with permanent capital.
What this has meant is that PSA has financed their growth with Preferred Stock issuance INSTEAD of the more typical issuance of debt. (they carry debt, but not at the huge levels they would have normally had to issue).
We look at this as an extremely conservative way to finance which gives the preference share buyers more safety than if there was a huge amount of debt on the books.
As we have slowly gotten quite a bit of our portfolio out of money market and into other investment vehicles we have stuck to what we have written about below. Our personal portfolio is up 5.5% YTD so we are extremely pleased. What do we own?
National Rural Utilities Exchange Traded Debt (NRN) National Rural Utilities Exchange Traded Debt (NRU) General Electric Capital Corp Exchange Trade Debt (GEC) SuperTel Hospitality (SPPR) RMK Multi Sector Bond Fund (RHY) Provident Energy Trust (PVX) (both hedged with covered calls and unhedged) Harvest Trust Energy Trust (HTE) (both hedged with deep in the money covered calls and unhedged) Xcel Energy Exchange Traded Debt (XCJ)
With the above we are only 30-35% invested----all of these investments have performed almost perfectly--meaning as we had hoped they would perform.
When we continue this column on 5/15 we will expand on how we have gotten 5.5% in 4 months from these relatively safe investments.
Improving Overall Returns in Your Portfolio
May 15, 2008
We listed in the article below from May 13th the holdings we currently have in our portfolio and promised to write more on how we have attained returns of over 1% monthly.
Really we have no big secrets on how to attain these high returns, but it does take some time and attention to detail.
First off we mentioned in articles below our opinions on Morgan Keegan Fund (RHY) and on SuperTel Hospitality (SPPR). We did exactly what we said we were going to do at that time. SuperTel had gone through a period of many days at 4.95-5.00 per share---we bought our small position at that time and thus have a 10% gain in the last month--we intend to hold this position for a long time. RHY has a portfolio of mortgage backed securities which we reviewed line by line----and while we can't really analyze the quality in detail we do know that they have had to mark to market to the tune of up to 80%. Common sense tells us that 80% of the mortgages won't default---and even if they did they will sell for more than 20 cents on the dollar. Thus we locked in a 36% yield (even though the portfolio has be 'marked to market' the assets continue to perform). We have this as a long term hold with a gain in the last month or so of over 10%
Next we have a couple of Canadian Oil and Gas Trusts----Provident (PVX) and Harvest Energy (HTE). We had written in an article below (on March 31, 2008) about buying Canadian Oil and Gas Trusts for yield and then hedging our position by selling covered calls. We have done just that. We believe that oil and gas prices--thus profits will remain high (although not as high as they are currently) and the Canadians offer remarkable returns that have been high since the Canadian Government changed the rules governing Trust to take effect in 2011. Even when you factor in the changing rules and the 15% Canadian witholding for U.S. residents it is hard to beat these yields.
Has Anything Changed for the Better in this Economy?
June 1, 2008
Our answer to the above question is -- NO. In fact from what we can tell anecdotally things have gotten somewhat worse.
To review the items that we have always said were the main issues with this economy---the sub prime mortgage mess and secondly the high price of fuel.
The sub prime issues just go on and on---causing very substantial 'mark to market' writedowms (which we believe are the silliest writedowns we have ever seen, given that loans that are still performing well are being written down to near zero based upon an illiquid marketplace). This in turn is causing havoc with many of the other fixed income markets such as the Auction Rate Preferred Markets (the preferred stocks that many Closed End Funds sell in order to leverage their portfolio).. It is mostly silly crap---but markets are what they are and you have to respect the issues that are out there.
Hotel/Motel Sector Takes a Drubbing
June 2, 2008
After Marriot International lowered their financial guidance today the entire hotel/motel sector, including those in the REIT companies took a 1 to 4% haircut.
Not surprising Marriot indicated that domestic revenue per available room was soft while international rates remained strong. This should be factored in to decision making for those considering making an investment in the Hotel/Motel REIT Sector. As you look at the available REITS please note that a good share of them have NO international exposure.
In Our Chicken Investor Way We are a Buyer of Public Storage Preferreds
June 3, 2008
In an article below (April 24) we mention Public Storage (PSA) preferred shares as a possible investment that we would be making in the future.
In the article we list the reasons why we like PSA Preferreds (and dislike the PSA common shares) and we have been waiting and watching for what we thought was the appropriate time and price to get a little. of the preferreds.
As our title implies we diversify heavily and buy only tiny pieces of any given issue (except in those instance where we take somewhat larger positions in exchange traded debt issue as outlined below)
The fuel prices----well we know there is plenty of fuel out there, but the American people really need to get a grip on their driving habits and take control of high fuel prices by having a bit of common sense---but, in general, we are not sure that they are capable of controlling their habits.
Both of these issues have caused the biggest issue in the economy and that is consumer confidence being at it's lower level since 1980 (remember Jimmy Carter?? and 20% prime rates). The big difference is that interest rates are at levels that historically are very low.
We don't see these issues resolving themselves for the next 6-9 months ---but then hopefully by this time next year we will be in much better shape.
We will continue to invest in high quality debt issues----plus select other issues (such as SPPR which we write about either below or on the archive page linked on the bottom of this page). which strike us as having solid positions in there sector---whether it be REIT's, exchange traded debt, U. S. Royalty Trusts or the various Canadian Trusts.
Also today Sunstone Hotels (SHO) announced the sale of a large Hyatt property and at the same time announced the repurchase of 11% of their shares. We think this speaks to the weakness that may be coming in the Hotel/Motel Sector as they convert properties into share buybacks---in the past number of years the opposite was true---share issuance and property purchases.
As you can read below we have only indicated that we like ONLY SuperTel Hospitality (SPPR) in the Hotel/Motel REIT sector.
We have said all along that the key items in this economy that are driving essentially everything are 3 fold---the sub prime mortgage issue, the high gasoline (or fuel in general) prices and in turn because of these issues destruction of consumer confidence.
We have not changed this opinion a bit-----in fact I think we can now more than ever say every investment out there is at risk----and we do mean every one of them--including government bonds.
While it is our intention to continue to remain at the approximately 30% invested level we are going to be very careful--and not hurry to get the cash deployed.
With the inability of anyone---OPEC, the politicians, the oil and gas companies--to get the prices down not only are we in big trouble NOW----but wait until the HEATING SEASON to see the real consumer squeeze come on. We know at our house we paid over $1300.00 per fill on our propane tank last year and the way it is looking it will be more like $1800.00 this year if something doesn't change. Fortunately we can afford to pay this bill----but take my word for it that huge numbers will NOT be able to pay their heating bills and the federal government will have to BAIL out the consumers when they can't heat their homes.
Residential REITS Continue to Look Overvalued
June 11, 2008
As we skim through the Residential (and apartment) REIT sector we are taken aback that after falling between 15 and 30% in share price over the last year these investments are still mostly paying only a paltry 3-4% dividend!
While we expect most of these REITS to maintain their financial performance (people will always need a place to live--no matter the health of the economy)
The days of continued turmoil in the equity and debt markets go on and on----and looking at it from the bright side we see bunches of opportunities being presented for those that DON'T think the world is ending.
In particular we are looking for and buying exchange trade debt issues, preferred stocks and oil and gas trust issues.
In the oil and gas trusts we are buying, on somewhat of an averaging in basis, Provident Energy Trust (PVX) and Pengrowth Energy (PGH). The yields are very nice indeed on these issues and on a long term basis we don't believe you can hardly go wrong with these issues. Additionally both have options available so we can hedge our holdings while collecting the fat dividends.
In the exchange traded debt issues we have been picking up some of the Nationals Rural Utilities issues---NRN, NRC, and NRU as well as some of the PPL (Pennsylvania Power and Light) group debt (Ticker-PLV). In the preferred stock arena we have bought some FPL Group (Florida Power and Light) with ticker FPL-PC. The common thread here is that all the investments are investment grade and sport yields in the 6 to 7 1/4% area.
Of course kicking butt is a relative term---but we now have a gain of 9% since July 11, 2007.
It is borne out again and again and again that at this time--you must stick to quality and you will be rewarded for it.
We have NOT updated the High Yield Exchange Traded Debt Portfolio yet---but we would expect that it will show the portfolio was break even for the 13 month period----not bad compared to the S and P index, but not good compared to holding the quality issues.
Ocean Shipping Stock Report
August 8, 2008
In a article written on 1/16/2008 (left hand column below) we wrote that we did not believe it was time to buy the ocean shippers even though they had been butchered quite a bunch. Well our timing was off a bit---but not too bad.
Since that column was written the group has moved up and down and now is about where it started.
We continue to believe that this is NOT the time to buy the ocean shippers--the global economy is the driver of these issues and we think there are global issues ahead in the 4th quarter of 08 and 1st quarter of 2009.
In addition to the uncertain economy we know that there are a huge bunch of ships coming on line starting in 2009 and accelerating into 2010.
Thus only a special sale on the quality carriers will get us into the shippers.
Consumer Confidence to be Bolstered
August 8, 2008
There should be no doubt in anyones mind that the most critical component to the U.S economy is consumer confidence. This is where everything starts---Will I buy a car? Will I buy a new home? Will I buy steak instead of hamburger? Will I have a job next week?
The current fall in oil prices is the most visible piece of information that can be given the consumer to help bolster their confidence. Everynight the news reports the pricing of oil on the day----everyday the consumer pulls up to the pump for a fillup---or minimally drives by the filling station and looks at the price at the pump.
In fact my wife mentioned yesterday that her fillup was under $50 for the first times in a very long time. So there should be no doubt that this is going to be beneficial to all parts of the economy.
So what else is needed? As we have mentioned the credit crunch is a tough one, but on a small scale the lowering of oil prices will have a positive affect on this as well---people can have a few extra dollars to pay loans back etc. Of course this is a long term process and realistically I don' t think that we can heal this issue until mid 2009.
Even with the improvement in the oil situation there is NO reason to get giddy---watch for opportunities with quality investments and snatch them up when you can--and even with volitiliity you will be safe in the long run.
While our investment grade portfolio has done great in a rocky market (up 9% in 13 months) we think it is time to add some common stock to the mix---although not just any common. We are still of the belief that only the top quality issues can be bought and held here.
We like Great Plains Energy (Ticker GXP) as a quality company with an outstanding payout--a current dividend of 6.9%. Plus the shares would give us some of the capital gain potential that a high quality debt focused portfolio lacks.
The company has gone through a bit of turmoil lately as they have sold off assets and purchased another midwest Utility company (Aquila). The turmoil caused a quarterly loss recently as they got their house in order, but we think this just presents us with a good buying point.
The common stock now trades in the $24.00 area which is in the lower end of the 52 week range which is 22.15 to 30.52 and the generous, safe dividend pretty well puts a floor under the common price as investors search for investment grade vehicles that pay a nice yield.
As always we would suggest that you do your due diligence and of course, diversify. We stick to around 1-2% of our portfolio in a given vehicle and it has served us very well
Selective Insurance Group Debentures Jump!
August 18, 2008
In our 1st FREE email investment pick (sent via email 8/15/2008 at 1:18 am) we alerted readers to a somewhat rare opportunity that was presenting itself last week.
The opportunity was the Selective Insurance Group 7.6% Debentures (Ticker: SGZ) (this is a $25.00 face exchange traded debt issue) )that were selling with a CURRENT YIELD of over 9%. At the time of the alert the shares had closed at $19.19.
Today (8/18) those shares jumped as high as 20.74 before closing at 20.48 at higher than average volume.
Here is a link to our alert that was sent out----if YOU want the next pick for 8/30/08 just sign up above.