November 12, 2009: Home Buying Slips in October. Now What?

The Credit Suisse National Survey of monthly real estate traffic throughout the country by city and region is in, and the results are continued weakness despite the home buyer's credit that expired. This credit scheme was recently extended for another several months (along with tax write offs for current homeowners who meet basic residence longevity criteria).

October traffic slipped from September levels as a whole. The stats do not tell the whole story, however. Traffic early in October was above September levels as last-minute buyers driven by the tax credit hurried to close deals. Later in the October, traffic declined significantly. There is concern that with credit still tight, many first-time buyers have already acted and there will be fewer people participating in the extended tax credit purchase program. Consensus opinion indicates that the tax credit pulled forward demand and that there will likely be a lull in buyer traffic at the end of 2009 into 2010.

A key to what happens next will be homebuyer traffic in late November. If traffic levels improve from current numbers, it would be an indication that the slowdown in traffic may void the consensus view expressed above for early 2010 and beyond.

Selectively, there was a meaningful decline in traffic within the Minneapolis and Seattle areas, whereas most other markets were relatively stable. The best market according to key price and traffic data in October? Las Vegas. The highest levels of traffic were experienced in Ft. Meyers, Orlando, Los Angeles, the Inland Empire and Washington, D.C. Upward pricing trends were noted in Washington, D.C., Ft. Meyers, Los Angeles, Sacramento, San Diego and San Francisco. That stated, the stats strongly indicated that stability and slight improvement in the housing market remains generated on low-end homes and foreclosure transactions. Investors have stepped up to the plate (with a high percentage using cash) to buy distressed property.

Interestingly, as investors gather up single family homes, the rental vacancy percentage is trending higher as renters who qualify for the tax credit, or see a real deal on a short sale/foreclosed home, flee their unit to become homeowners.

It is incumbent for the investor to keep abreast of actual trends versus media hype and carefully monitor home ownership data and the predicted next wave of foreclosures coming in early spring of 2010. Another piece of data to be mined will be the number of homeowners who had their mortgage reset this year and failed to meet the renegotiated terms. Estimates of upcoming flops are as high as 70%. This may set in motion a new housing price downdraft, with the government out of ammunition to stop further mayhem. Investors must be alert to data on all major aspects of this sector.

October 31, 2009: Fixed Rate Capital Securities: An Interesting Alternative For Income Oriented Investors

In the early 1990s, a product called a fixed rate capital security(FRCS) was introduced to meet the needs of income-oriented investors and provide a cost efficient source of capital for issuers.

These securities combine the features of corporate debt securities and preferred stock:generous yields compared with other investment vehicles, regular income disbursement, predictable investment time frames, liquidity and investment grade quality(in almost every case).

Like corporate debt securities, fixed rate capital securities rank senior to common and preferred shares and have a stated maturity date. Like preferred stock, they have a $25.00 liquidation value (generally) and trade on a major securities exchange.

Unlike preferred stock, fixed rate capital securities offer no tax benefit to corporate investors, carry a "call" risk, the possibility of deferred payments and an "extension" risk which may allow the issuer to extend the time frame for redemption.

Factors that affect the price of fixed rate capital securities include: interest rate risks (inflation, deflation, etc.), credit risk of the issuer, purchasing power risk due to inflation of devaluing of the dollar and price risk. Investors should also be aware of peculiar characteristics of the security they are purchasing, if any.

I prefer to purchase securities with a modest (2-4 year) maturity and also trade at a discount from their $25.00 liquidation price. Assessing the company's prospects to make payments and eventually redeem the security should rank at the top of any investor's benchmarks to purchase.

Here are a few securities, some having all of the characteristics above, you may want to explore:

MetLife (METpfB): $21.75, 7.47% yield, call date 9/15/2010
Gabelli Equity Trust (GAB pf): $25.00. 6.20% yield, call date 11/10/2011
PPL 6.85% Senior Notes (PLV): $24.70, 6.93% yield, call date 07/01/2012
National Bank of Greece (NBGpA): $24.69, 9.19% yield, call date 06/06/2013
General Electric Credit (GEG): $23.85, 6.34% yield, call date 02/06/2012
Deutsche Bank Cap. Funding Trust X (DCE): $22.63, 8.12% yield, call date 12/15/2012
Deutcshe Bank Cap. Funding Trust IX (DTT): $20.96, 7.90% yield, call date 8/20/2012
Comcast 6.625% Notes (CCS): $22.95, 7.22% yield, call date 05/15/2012
Barclays Bank (BCSpA): $21.44, 8.28% yield, call date 12/15/2012
Archer Daniels Midland (ADMpA): $42.68, yield 7.32%, call date 06/01/2011 ($50)
Alabama Power 5.875 Senior Note (ALM): $25.03, yield 5.87%, call date 04/01/2012
National City (PNCpA): $21.19, yield 7.82%, call date 11/15/2011

The author owns ADMpfA, GEG and PNCpfA.

October 25, 2009: Homes Without Equity, Here We Go Again

John Burns Real Estate Consulting has released some unhealthy statistics regarding new home purchases from January through mid-October,2009. 59% of sales have been dependent upon government financing programs such as FHA, VA and USDA that allow purchases to be financed at 96.5%-100% loan LTV (loan to value). The highest use of FHA financing was in Northern California (68%), while southern Florida builders reported the highest percentage of cash purchases - a good thing(22%).

Two hundred and sixty-two home building industry executives from public and private companies responding to the survey also provided the following statistics, as of early October.

Average net sales per community dropped from 17% nationally, returning to levels last seen this past June and July. While homes were overall much more affordable with low conventional mortgage rates and the federal tax credit continuing to support new home sales,home builders still reported declines in traffic and sales rates in September and early October, seasonally adjusted.

In addition, major banks reinforced by pronouncements from the US Treasury are reporting that foreclosures are expected to bounce upwards again in 2010. As some markets are already 2/3 dominated by foreclosures and short sales, this is not good news for the home building industry.

Extending and/or expanding the home purchase credit due to expire November 30th may bring another stream of buyers back to the market, but if they have questionable budgeting habits and are likely to default, is this really a solution?

With recession unemployment hitting record numbers, the ability to make payments on a home, whatever the initial credit and promotional discounts, will be problematic for many.

Current economic conditions and the continued lack of buying within one's means remain front and center to the home industry problems. Eventually, this situation becomes everyone's "problem".

October 19, 2009: Islamic Debt - The Satan Is In The Details

The Financial Times had an interesting article buried in the back pages of the second section today regarding Islamic debt defaults.

It seems as though two prominent Middle Eastern investment companies - Kuwait's Investment Dar and Saudi Arabia's Saad Group - are at the cusp of a legal battle that will largely determine the $1,000b Islamic-style bond industry. This bond industry is one of the fastest growing niches of international finance. The deal is simply this: invest in Islamic operations that can technically comply with Islamic law against interest while providing a product that creates a guaranteed or floating interest rate that is, well, not an interest rate. A product such as this is called a sukuk.

Sukuks avoid the Islamic ban on interest by allowing investors to make a steady profit from the income of an underlying asset such as rental income by placing the income in a special purpose vehicle for the duration of the "bond", rather than receive, technically again, a fixed interest rate on a specific non-maturing date.

Lawyers and bankers are now trying to determine what interest these sukuk bondholders have in a bankrupt company. In short, does a sukuk have a claim on the assets of a company which issued the "bonds".

Herein lies the problem. Experts say that the issue of claim may not be clear cut. The defaulted companies claim that "asset-based" is not the same as "asset-backed". It appears that more than a few Islamic bonds are asset-based, not asset-backed. With sukuks being structured to adhere to Islamic principles, a concern is that courts anywhere in the world may rule against the bondholders if the issue is merely asset-based.

Muslim clerics, who have to approve all Islamic products (for a fee, such as an underwriter) often disagree on how closely Islamic bonds act like other bond instruments, and what happens in case of a default.

"If someone has purchased a sukuk assuming that they automatically have recourse to the (company) assets, they might be unpleasantly surprised", stated former sharia scholar Muddassir Siddiqui, now head of Islamic finance at DentonWildeSapte."At the core of this confusion lies the subtle -some would say fictitious- distinction between 'beneficial right' and 'legal right' to the asset."

The outcome of the two legal wranglings will have a dramatic impact upon future sukuk issues. At the least, the Islamic sukuk investor will have to read fine print on so-called guaranteed Islamic bonds to see if they are as such.

Perhaps, like any investment that tries to split too many hairs to avoid offending the law or, worse yet, God, if it looks too good to be true, it is.

October 12, 2009: CRACKER BARREL OLD COUNTRY STORE - Y'ALL LOOK AT THIS ONE, HONEY

Ordinarily, I examine only three things about a restaurant: the cleanliness rating, the menu (including the specials of the day, which are usually to be avoided from bitter experience), and the price. I haven't eaten at a Cracker Barrel for some time. Per chance, I was driving the family by a Cracker Barrel around brunch time Sunday after church and we agreed to eat there.

I was very impressed by the clean, friendly atmosphere at Cracker Barrel. The menu was refreshed a bit from what I remembered, especially the non-breakfast items. Prices were well within the reach of a family on a budget and the staff was not overly attentive (you know, the "Is everything all right?" every thirty seconds). The gift shop was generating sales and the merchandise did not appear stale and dusty as I recalled on a previous visit many months before. And the food was substantial, properly plated and served quickly.

But this is not supposed to be a restaurant review.

Cracker Barrel (CBRL) is trading at $36.00/share and has a 2.23% yield. The stock goes ex-dividend October 14th. The 52-week price range is $10.67-36.00. CBRL is trading at a 52 week high for two reasons: several analyst upgrades, likely a result of a successful investor's conference in September, and a management team that appears to "get it" with the country casual dining experience, providing exceptional value for the money in a tough economic environment.

CBRL has a ROE of 52%, a net margin of 2.8% with revenues of $2.37b. It's market cap is $755m with five year earnings forecasted around 11%/yr. Institutions own a big chunck of the common stock.

Looking at the company and the sector, I think that lower commodity and utility costs will probably benefit CBRL's margins. This restaurant chain actually has an under priced menu compared with peers so there appears to be room to nudge up the entree prices and still retain a wide customer base. The astute management team is also likely to continue to massage both menu and service. Debt will likely be reduced from ongoing sale-leaseback transactions, the proceeds perhaps going towards a share buyback or dividend increase. New IT systems are being introduced system-wide to ultimately lower labor and food costs.

Yes, there is risk in any restaurant stock. Fuel prices may spike which will hurt both customer traffic, store operating expenses and the cost of procuring foodstuffs. The government may stifle the sector with higher taxes, minimum wage hikes and insurance expectations. And, specifically, Cracker Barrel management must continue to be mindful of never again experiencing widely reported racial slights that cost the company dearly a few years ago.

In total, CRBL is an investment worth exploring, perhaps on a modest pullback in share price. If all cylinders are hitting,this tasty company will earn you more than grits.

The author does not presently own a position in this stock.

October 10, 2009: D R HORTON HITTING A "HOME" RUN

Recently, I visited a large D R Horton community near Calabash, North Carolina. I took a seasoned local contractor acquaintance with me for company, comments and to catch up on the local gossip. As we all know, home builders for the most part have been slow to adjust to the new economy of change and at the lower end of the new home price point spectrum, even slower to produce a 21st century residence which includes the energy saving expectations and and construction applications at a less than rip-off price to unsuspecting entry-level homebuyer.

I came away from this visit very impressed with Horton's game plan - and even more importantly, pleasantly surprised at the amount of homes under construction non-spec. Price points for single family, townhouse and cottage residences were less than competitors, especially the local contractors of which there are many in the Wilmington-Myrtle Beach corridor. Walking through homes under construction, the bones and finish quality were very good. Subcontractors on site were complimentary to the company, although no one was happy with 2009 wages if they were part part of the pre-2008 construction feeding frenzy. I also spoke with a few homeowners and all were highly satisfied with their new home (the North Easterners were just overjoyed to "get out of Dodge" and enjoy a superior climate,much lower taxes and less risk of crime).

Speaking off the record with a Horton supervisor on site, I learned that D R Horton has worked tremendous cost efficiencies into each plan. And, by offering three distinct classes of homes in a well-conceived and mild amenity community, sales are brisk even in a moribund market. Further investigation lead me to surmise that this community is not unique for the new, wiser D R Horton. By selectively concentrating an overweight of communities in areas of the country where there is climatic and tax advantages, this home builder recognizes both the political realities of the present and the construction expectations of the future.

D R Horton (DHI), based in Houston Texas, is priced at $11.70/share with a yield of 1.28%. The company has market cap of $3.7b and a highly liquid trading volume. The 52-week price range is $3.79-13.90. Investors should be aware that the stock has been trading up recently and has been upgraded by a few analysts.

While kicking the tires of a company is not a tested indicator of the potential of the common stock, I find it useful in the brick and mortar sectors to get a feel for the attitude of the boots on the ground and friendly conversation to unmask situations analysts do not explore.

DHI may be an interesting home builder for your portfolio. I certainly have no qualms about the entry-level residence products I saw from the inside out.

October 6, 2009: E*TRADE BONDS TO THE INDIVIDUAL INVESTOR

I am familiar with the platforms of several online brokerage firms. Trading stocks on every service is generally easy and prompt. However when it comes to bonds, there is definitely a difference. Trying to research and invest in bonds on most of the sites I tested ranged from mediocre to downright awful.

E*Trade was the most comfortable bond service platform I used.

First, E*Trade maintains a large selection of bonds and other fixed-income securities that can be purchased for as little as $1.00 per bond ($10.00 minimum/$250.00 maximum). What E*Trade doesn't have online directly they will procure for the investor promptly and at a satisfactory price. If you want to sell a bond, I found the process to be user-friendly and on target with prices.

Second, their online research tools are easy to manipulate and comprehensive. When I called the bond desk, I was not faced with what seemed like a high school GED candidate - which was my impression from some other brokerages online. Plus, they acted quickly upon my phone inquiry without the usual waiting period which at one brokerage took almost an entire Symphony's worth of time.

Third, the investor will find E*Trade's bond fund selector an easy tool to work with. Locating practically any fund complete with excellent start-up data is at most four clicks of the mouse away.

Finally, for those who need to have their hand held, professional assistance is available.

All in all, E*Trade has their bond system operating to provide excellent service to the investor.

September 30, 2009: Pimco's El-Erian Warns Investors (Again)

Mohammed El-Erian, Chief Executive and Co-Chief Investment Officer at Pimco has again warned investors of the investment climate ahead.

Through an op-ed piece in the Financial Times, El-Erian warns investors to begin to think and act in terms of absolute and current facts - not the rates of projected change. He used a recent, blunt quote from the Governor of the Bank of England as the foundation of his article. "It's the level, stupid - it's not the growth rates, it's the levels that matter here." Investors have not accepted the reality that absolute levels of income, debt, wealth and unemployment are what really matters today. The outlook for major countries will continue to be driven by the levels of these key variables.

El-Erian goes on:

First, consumer debt is still too high relative to income expectations and credit availability. This will hold back any sustainable bounce in aggregate demand.

Second, many banks' balance sheets are still being manipulated for the comfort of regulators or their own managers. This will inhibit them from lending to important components of the real economy.

Third, unemployment has risen well beyond expectations and is likely to prove unusually protracted. It will take years for US unemployment to return to a natural rate. This will dampen the recovery of consumption and investment, stress social contracts that assume a flexible labor market and endanger political support for essential structural reforms.

Fourth, public debt has grown so rapidly as to spark concerns about future debt dynamics. This would inhibit the effectiveness of future stimulus measures, as well as complicating the formulation of exit strategies. It would also erode the medium-term ability of the US to fund cheaply its large deficits by undermining both the global standing of the dollar as world reserve currency and the attractiveness of US financial markets.

Taken in total, these four issues will make it tough for the global economy to attain Obama confidant Larry Summers' view of "escape velocity" - which translates to the US achieving a sufficiently high and sustained growth to propel the world into recovery.

El-Erian warns that current market valuations assume companies will be able to robustly grow earnings through higher revenues, not renewed reliance on cost reductions that have juiced up earnings over the past six months. This assumes depending on what is likely to prove to be an elusive high-growth scenario for 2010.

Investors need to focus on levels now rather than rates of change later. We are in uncharted waters and predicting a future earnings without taking into consideration the above four issues is a big mistake.

September 22, 2009: H.R 135, A Multi-Family Nightmare

Rep. Sander Levin (D-Mich) has introduced H.R. 1935 which will gut the carried interest tax treatment of multi-family housing. Carried interest is an interest in the capital gains of a partnership when it sells the property. Investing partners grant this interest to the general partners to recognize the value these partners bring to the venture as well as the risks such as recourse debt. litigation risks,responsibility for cost overruns, etc., posed by the venture. Carried interest has been an integral part of real estate partnerships for decades.

Currently, the carried interest income is taxed at capital gains tax rates - 15%. Under H.R. 1935, lawmakers seek to tax this as ordinary income, which may go as high as 39.6% by 2011. In addition to the draconian increase in the tax rate, reclassifying carried interest income from a capital gains to compensation would also subject that income to self-employment taxes.

It is estimated that 550,000 workers employed by the apartment industry as well as the 16 million apartment dwellers in the United States will be adversely affected by H.R. 1935.

Needless to say, the National Multi Housing Council and other like-minded groups are aggressively lobbying against carried interest taxation. They feel that the current tax treatment is appropriate as it represents a return on the underlying long term capital asset as risk and entrepreneurial activity.

An unintended consequence of H.R.1935 would be it's change upon the economics of apartment construction so significantly that many proposed multi family housing complexes would not be viable and thus cancelled, thus impacting in a negative way the nation's affordable housing shortage.

For information about the carried interest issue, go to:

www.nmhc.org/goto/CarriedInterest

J.B. Gray, vp of the NMHC in Washington, D.C. was a primary source for this post

September 16, 2009: More Price Cuts On Single Family Homes

Trulia, Inc. announced that 26% of homes currently on the market in the United States have experienced at least one price cut. The data was the fourth straight month of price reduction data and was 10% larger compared to June of 2009. The data on the study was current as of September 1, 2009.

As stated in RISMEDIA,the steady rise in price reductions are a signal that sellers are still trying to adjust to market conditions. Trulia, Inc. states "that the $8000.00 federal tax incentive will extend the home purchasing season beyond the summer months, continuing to drive competition amongst sellers and ultimately leading to more price reductions", creating a great buying opportunity for eligible buyers.

Luxury homes continue to be the hardest hit segment of the market. Discounts of 14% and more off already slashed prices are common. Although luxury homes represent just over 2% of the market, they are responsible, according to Trulia, Inc., of 25% of the $28.5b in home price reductions to date.

September 13, 2009: New Credit Scores Will Help Homebuyers

Does anyone remember how several States improved their student achievement test scores? Dilute the measurements to obfuscate the result, they did. And no one was the wiser.

Now, a new and improved FICO scoring scheme will allow more individuals access to refinancing their present home or buying a new one. The developer, Fair Isaac Corporation, predicts this new analysis instrument will help lenders reduce default rates on consumer loans from 5 to 15 per cent. One hangup - Fannie Mae and Freddie Mac have yet to approve the new credit score tool. Until they do, the traditional model scores will suffice.

Fair Isaac believes this new system will be a great boost to the housing market. The system takes into account the borrower's history and penalizes them less for a single "unusual" event. It also has more score card levels, allowing for finer adjustment of the credit score. It will also likely reduce the power of collection agencies since a single event will have less significance to the borrower who had that problem.

I believe that current scores, if followed, are plenty liberal to validate one's propensity to pay back a debt.

That said, if the new system is approved by the big boys, plan on a nice bump up in home sales and credit access. Hopefully, we are not planting the seeds for another credit bust down the road.

September 8, 2009: US Dollar Under Assault

Briefly. Today, the UN has recommended an unprecedented move away from the dollar as the world's reserve currency. A new Bretton-Woods is upon us. Switzerland has surpassed the US in competitiveness with other nations such as Singapore closing fast.

Our world foes are acting like sharks smelling blood in the water to dismantle our dominant economy while our politicians in power spend more, tax more and play class warfare politics. The public schools spawn more ill-prepared citizens in every respect except, perhaps, possessing the knowledge to grope for "free" entitlements.

Evidently, the majority of Americans are oblivious to the national and international train wreck just around the bend. Where are our brains??

September 6, 2009: Tobacco Stocks: Smokin'.

Tobacco companies jointly filed a lawsuit in Kentucky against the U.S. and the Food and Drug Administration, claiming a law signed by President Obama in June of this year imposes "unprecedented restrictions" on First Amendments Rights.

For instance, the law prohibits tobacco companies from jointly marketing their cigarettes with non-tobacco products. Also, they can't market or describe any products as less harmful than others unless they have approval to do so from the FDA. This includes a new generation of smokeless products, which may be less harmful than cigarettes. Or, not harmful at all.

Interestingly, Altria (MO), the nation's largest cigarette maker, oped out of the group's lawsuit. It appears that Altria is hurt less by the new law than smaller competitors because it already has a huge market share.If fact, Altria backed the new law.

True, cigarette makers have seen sales shrink over the past several years. However, I believe that several American tobacco companies will do very well in the future for several reasons.

As prohibition taught us, the more a government restricts a product, the intrinsic demand rises and the more profitable the product becomes. Well-cured tobacco leaf is still a worldwide indulgence and few areas grow tobacco of better quality than in the United States. Tobacco companies will pursue ways to cut the cost of tobacco products (such as making shorter cigarettes that are being successfully test-marketed in Florida and elsewhere). Tobacco companies will enhance their marketing offshore and offer U.S. quality tobacco and products other countries cannot match.
The huge lawsuits against Big Tobacco are winding down and the Feds and State governments, having squandered most of the billions in tobacco settlement monies, have no legal means to extort more monies from the tobacco companies.

Tobacco users in many states are creatively growing their own tobacco, which is legal. They can also sell it without Federal and State tobacco taxes if sold be the whole leaf (uncut). Some tobacco companies have shown an interest in micro-growers to support their efforts at unique regional blends - adding cachet to their product lines. In northern Ohio, for instance, good quality tobacco is being grown and used to excellent reviews by both producers and users.

Here are some tobacco companies that are likely to thrive under almost any Federal legislation:

Reynolds American (RAI) $46.60/7.30% yield/$13.7b market cap

Vector Group (VGR) $15.87/10.02% yield/$1.1b market cap

Altria (MO) $18.50/7.35% yield/$38.3b market cap

Alliance One International (AOI) $4.10/0% yield/ $356.7m market cap

Universal Corp. of Va. (UVV) $38.07/4.81% yield/$950m market cap


With prescription drugs floating about in our nation's water supply, mass killings on or southern borders and elsewhere as gangs smuggle tons of illegal narcotics into the country, meth labs and worse cooking up fatal brews for hundreds of thousands of addicts nationwide, marijuana a primary income source for many of America's rural counties and alcohol taxed and given a wink and a nod by government so long as taxes are paid, cigarettes seem to be, while not benign, certainly a less fatal avenue of relaxation that society should accept without encouraging.

Tobacco companies know this, and will adjust their product to compete positively with more sinister plants, drugs and other concoctions.

September 5, 2009: Boston Capital Corporation: Questionable Property Management Hurts Investors

Boston Capital Corporation and its affiliates operate several tax credit and loan schemes to corporations and individual clients. One of their earliest investment pitches was Tax Credit Funds, which implied a handsome return of generated tax losses and to preserve and protect the assets of the investment partnerships resulting in the eventual disposition of apartment complexes around the country that met HUD standards for subsidized housing vouchers.

These investments Funds (called Boston Capital Tax Credit Fund followed by a Roman Numeral to classify the order of these $150-200m offerings) were sold by handsomely commissioned agents, often financial planners. The tax "losses" created by aggressive financing and government tax credits would be valuable as they were used to offset gains on certain income that was taxed, thus creating a positive tax result from negative tax credit application. It made sense, especially since Boston Capital appeared to be politically connected to the Democratic Party which was writing the tax credit legislation. George Mitchell of Democratic Party pedigree was an influential member/advisor of their Board. All went well for some time and tax credit "losses" were paying off for investors. However, the cash investors invested ($1000. per "unit") is now being swept away by inept property management, fees upon fees and poor oversight of the property portfolios.

Take Series XV as a case in point.

Series XV has about forty three apartment complexes. The Fund began operations in 1992 with $38m of investor monies buying 68 properties. Investors have seen practically no return on the sales. Apartment complexes remaining have been documented to have been poorly managed, materially neglected and seem not to have a systemic game plan for resolving issues. Of course, Boston Capital has made their fortune prior to letting apartment complexes deteriorate, and continue to make money hand over fist through additional commissions, fees and "other charges".

Examples of management problems:

Lakeside Apartments: Occupancy 55%.

Livingston Plaza: Occupancy 67%.

Showboat Manor Apartments: Real Estate taxes were delinquent.



A Typical Fee Hit To Investors:

"The investment general partner transferred its interest in Wood Park Pointe to AN ENTITY AFFILIATED WITH THE GENERAL OPERATING PARTNER for its assumption of the outstanding mortgage balance and cash proceeds to the investment partner of $37g. Of the total, $1455.00 represents reporting fees due to an affiliate of the investment partnership and the balance represents the proceeds from the sale. Of the remaining proceeds, $15g was paid to Boston Capital for expenses related to the sale, which includes third party legal costs. The remaining $20,545.00 will be returned to cash reserves..."

These examples are not uncommon.

The frequency of "an entity affiliated with the general operating partner" is an interesting sales tactic, and one that hints to raise red flags somewhere. In addition, fees and management practices certainly do not appear to be in the best interests of unit holders. Perhaps Boston Capital Corporation hopes unit holders are not active investors.

In fairness to Boston Capital, tax credits for several years met or exceeded expectations, and the Reznick Group, P.C. has stated that all financial are in order. Information regarding performance of their programs appears to be readily available.

That said, the questions of extracting maximum value after the initial Lease-up of the apartment complexes remain. And initial investor money appears to be of little consequence to Boston Capital Corporation after the big money has been made.

September 3, 2009: Personality Politics - Slick Words or Substance?

As Congress, especially the House of Representatives, appears incapable to construct mature legislation, it is up to the President to become less of an orator with a persona and more of a legislator, putting all those IQ points to work.

Here are how two father/son Presidents coped, in their own words:


JOHN ADAMS:

Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other.

Property is surely a right of mankind as real as liberty.

Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did not commit suicide.

Fear is the foundation of most governments.

Great is the guilt of an unnecessary war.

Genius is sorrow's child.


JOHN QUINCY ADAMS:

Always vote for principle, though you may vote alone, and you may cherish the sweetest reflection that your vote is never lost.

If your actions inspire others to dream more, learn more, do more and become more, you are a leader.

Posterity: you will never know how much it has cost my generation to preserve your freedom. I hope you will make good use of it.

The highest glory of the American Revolution was this: it connected in one indissoluble bond the principles of civil government with the principles of Christianity.


GEORGE H. W. BUSH:

I think I was a better President because I was in combat.

I'm conservative, but I'm not a nut about it.

I am not one who flamboyantly believes in throwing a lot or words around.

America is never wholly herself unless she is engaged in high moral principle.

We are not the sum of our possessions.

You cannot be President of the United States if you don't have faith.


GEORGE W. BUSH:

A dictatorship would be a heck of a lot easier, there's no question about it.

After the chaos and carnage of September 11th, it is not enough to serve our enemies with legal papers.

Americans are rising to the tasks of history, and they expect the same of us.

For diplomacy to be effective, words must be credible.

Government does not create wealth. The major role for the government is to create an environment where people take risks to expand the job rate in the United States.

There is no bigger task than protecting the homeland of our country.

The true history of my administration will be written fifty years from now.

I am mindful not only of preserving executive powers for myself.

It's going to be the year of the sharp elbow and the quick tongue.

Only a liberal senator from Massachusetts would say that a 49% increase in funding for education is not enough.


And, so it goes......

August 28. 2009: Tax Credit Schemes For Green, Both Ways

Tax Credits for a greener America are in fashion. In each case, we may as well admit up front that these type of programs amount to taking money from all taxpayers to fund pet environmental whimsy of the environmental crowd. The State of Florida, amongst others, had rebate programs to save the planet in place until it ran out of money. The solution? Use federal stimulus money to front it. Astute investors and consumers will take advantage of these programs to a certain degree, hopefully after reading the fine print (such as the up to $4500 of TAXABLE income that was credited to those who transacted in the recent vehicle "clunker" program).

The Miami Herald recently ran a story highlighting several of these programs.

So your car isn't a clunker? And you're not a first-time new home buyer? Maybe your air conditioner is a on it's last legs.

The price for a new Ruud air conditioner is, say, $6295.00. Because of a combination of a rebate from Florida Power and Light, the manufacturer and a $1500.00 credit on his taxes next year means the cost will be $3520. Any air conditioner that qualifies as an Energy Star appliance will qualify for these incentives, in Florida and in other states proffering similar programs.

Federal stimulus laws allow home buyers to receive a tax credit of 30% of the cost of energy efficient windows, water heaters, air conditioners and furnaces, up to a maximum of $1500.00. If you max out your credit this year, you can buy a qualifying item and claim the credit again next year so long as the item is installed by December 31, 2010.

Another tax credit allows homeowners to get up to 30% of the cost of solar energy systems, such as a solar water heater and solar power, small wind systems and geothermal heat pumps if they are installed by December 31, 2016. It's a separate credit from windows, air conditioners, etc., so homeowners can use them both. And there is no cap on the amount of this credit. One fellow from Miami Shores, FL spent $54000.00 to install solar panels and a battery back-up system for his home. He received about $20000.00 from a state solar energy rebate program and will receive a further $10200.00 as a credit on his taxes.

Water heaters are also a hot item because water heaters might also qualify for more money back than just the tax credit.In Florida, a natural tankless water that costs between $1600-$2000.00 would net a $450.00 rebate from the gas company TECO and a 30%tax credit on the purchase price.

A rather obscure tax break allows businesses to claim a bigger deduction for new equipment such as furniture. Land, buildings and items like a new central air conditioner don't count. Section 179 of the tax code, around for a while, doubled the amount deductible to a maximum of $250000. and the 2009 law extended the deductions through the end of 2010. Businesses can claim the entire deduction each year, according to the IRS.

More? Absolutely. Upcoming for everyone is the cash for "clunker" appliances which are rebates to buyers for the right kinds of dishwashers, washing machines, refrigerators, dryers, air conditioners and other items.

What companies may see a rise in their stock price as a result of these type of programs? Here are a few well-worn and new names that will not only sell product or merchandise, but have good fundamentals as well:

Broadwind Energy (BWEN) $7.72/$746m market cap

Helix Wind (HLX) $2.86/$110m market cap

Whirpool (WHR) $65.05/$4.6b market cap/2.67% yield

Herman Miller (MLHR) $16.15/$920m market cap/0.53% yield

Steelcase (SCS) $6.42/$853m market cap/2.38% yield

HNI (HNI) $21.44/$968m market cap/3.27% yield

Home Depot (HD) $27.65/$47B market cap/3.89% yield

First Solar (FSLR) $125.00/$10.7b market cap (beware solar stocks=price war coming)

Lowe's (LOW)$21.67/$32b market cap/1.66% yield

Rinnai (RINIF) $46.75/$2.5b market cap (pink sheets, but a great energy-saving appliance company)

August 23, 2009: Food Processors, A Nutritious Meal

Many investors, including myself, feel that the market is due for a correction. Some predict with the increased national debt, weaker dollar and a Congress unwilling to grasp both, even worse things may occur that will effect our standard of living now and, especially, in the future.

One sector that may withstand a negative outlook are food processors. I used a computer screen to isolate those with anticipated growth of 10-25% next year. All appear stable and quite a few are international in scope. I must admit to having several obscure companies grace my computer screen. I did investigate all of them to a certain degree and without exception they look quite acceptable for investment consideration.

You may decide to explore the companies on this roster for further study and, perhaps, inclusion within the defensive elements of your portfolio. I am.

Lifeway Foods (LWAY) $13.77/ $231m market cap

Inventura Group (SNAK) $2.87/$53m market cap

Maui Land and Pineapple Company (MLP) $6.50/ $53m market cap

Zhongpin, Inc. (HOGS) $11.37/$331m market cap

J&J Snack Foods Corp. (JJSF) $43.81/$809m market cap

Peet's Coffee and Tea (PEET) $27.27/$354m market cap

United Natural Foods, Inc. (UNFI) $26.61/$1.15b market cap

Yuhe International, Inc. (YUII) $5.40/$85m market cap

Flowers Foods, Inc. (FLO) $23.57/$2.2b market cap

Del Monte Foods Company (DLM) $10.36/$2.1b market cap

Kellogg Comnpany (K) $47.35/$18.2b market cap

Archer Daniels Midland (ADM) $28.67/$18b market cap

Sanderson Farms (SAFM) $39.71/$808m market cap

Food processing is not a sexy sector, but it is a great place to hide as others lose their lunch during the next downturn.


The author does not presently hold a position in the above stocks.

August 19, 2009: Another Reason NOT To Buy A GM Vehicle

Rumblings abound about a lack of spare parts for GM vehicles, especially SUVs. I had heard rumors of this and now, unfortunately, have experienced this firsthand.

I purchased a 2006 Envoy last year. Last week, the electronics on the driver's arm rest stopped functioning. With the vehicle less than four years old, I assumed having the unit repaired or replaced would not be a problem.

I was wrong.

The major clearinghouse for company manufactured GM parts in Lansing, Michigan informed the authorized Mr. Goodwrench dealer that THEY NO LONGER HAD THAT PART. Now, I can't open the window(s) and lock the vehicle.

If this pattern continues, your GM will be a throw-away vehicle soon enough.

This is how GM services customers, imagine how they will treat stakeholders in the company.

You have been warned.

August 16, 2009: Today's Playbook On Health Insurance Stocks, Post- Public Option

In an astute political move, Health and Human Services Secretary Kathleen Sibelius on Sunday said that providing citizens with the option of government-run insurance is not essential to the Obama administration's overhaul of U.S. health care. Evidently, the administration has caved on this very important issue, leaving the door open for private health insurance companies to move forward with creative products and profits for shareholders. Of course the devil will be in the details, but at fist glance Team Obama will expand health using cooperatives similar to the public/private scheme in the domestic utility industry.

Here are potential winners for investors to explore. Beware using the insurance index ETFs as your vehicle, as the health care sub-sector is in play now, not all insurance stocks.

Aetna (AET) $28.28/$12.3b market cap/ 0.14%

American Independence Corp. (AMIC) $4.75/$40.4m market cap/0%

AMERIGROUP Corp. (AGP) $23.98/$4.3b market cap/0%

Amerisafe (AMSF) $16.83/$317m market cap/0%

Assurant, Inc. (AIZ) $28.20/$3.3b market cap/2.93%

CIGNA Corp. (CI) $28.82/$7.9b market cap/.14%

Coventry Health Care, Inc. (CVH) $22.60/$3.4b market cap/0%

Health Net, Inc. (HNT) $14.67/$1.5b market cap/0%

Humana, Inc. (HUM) $34.69/$5.9b market cap/0%

Molina Healthcare, Inc. (MOH) $19.90/$508m market cap/ 0%

Triple-S Management Corp. (GTS) $16.45/$335m market cap/0%

UnitedHealth Group, Inc. (UNH) $28.06/$32.6b market cap/0.11%

Universal American Corp. (UAM) $9.10/$702m market cap/0%

WellCare Health Plans, Inc. (WCG) $24.85/$1.0b market cap/0%

Well Point, Inc. (WLP) $52.10/$475m market cap/0%

I like Molina and Health Net as they provide extensive private and government managed health care services, which may be a sweet spot to be focused upon.

As we all know, things turn on a dime in politics. The "progressives" will go nuts without a public option, but it is apparent the country just will not sanction that approach. As Democratic Senator Kent Conrad said Sunday, "There are not the votes in the Senate for the public option.....To continue to chase that rabbit, I think, is a wasted effort."

August 12, 2009: Apartment Rental Rates Set To Spike Upward

Many apartment owners can't wait until 2012. If the economy recovers, they will be looking at a perfect storm of events - a shortage of available entry-level housing units, a boom in demand driven largely by Millenials (real-estate jargon for those just about ready to strike out on their own), and the ability to push rents significantly higher due to a shortage of suitable apartments.

Tom Bozzuto, CEO of the Bozzuto Group, a Greenbelt, MD.-based multifamily manager overseeing 28,500 units in the Mid-Atlantic states, told Multifamily Executive Magazine recently that "It's not a lot of fun right now to be in the apartment business. But, you take pleasure in knowing that this is the trough in the wave."
Other pros in the field feel exactly the same way.

Ron Terwillinger, chairman of the country's largest multifamily builder, Trammell Crow Residential based in Dallas, TX expects rents to increase 5% in 2010 and another 10% in 2011. "It looks to me like there will be a rental housing shortage in 2012 and 2013", he stated. This is due in part to the number of Milleniums that will need to get a place to rent and the large decrease in the number of new apartments constructed in 2008 and 2009 (the trend continues into 2010 at the earliest). The lead time from land acquisition to finished apartment complex of scale is generally three to four years. Also, there has been a decline in household formation (marriage, other family units) which indicates less demand for homes and more demand for apartments.

Another reason for rental increases is that there has been a rise in the number of (usually) small volume landlords who have begun to disregard preventive maintenance and basic repairs. In essence, they have cut costs short term at the expense of their apartment unit value long term. Some have just walked away from their investments in both urban and suburban neighborhoods and banks are usually terrible landlords, without a clue as to appropriate Property Manager selection or the art of running an apartment complex. These type of apartments often become vacant lots or, creatively, condominiums after a thorough rehab.

How can the investor play this theme? Here are some interesting stocks to consider that are pure apartment plays:

Apartment Investing and Management Company (AIV) $11.50.3.70%/$1.35b market cap

Avalon Bay Communities (AVB) $66.42/5.30%/$5.31b market cap

BRE Properties, Inc. (BRE) $28.13/5.30%/$1.49b market cap

Camden Property Trust (CPT) $34.92/5.20%/$2.24b market cap

Equity Residential (EQR) $27.81/7.00%/$7.63b market cap

Essex Property Trust, Inc. (ESS) $73.47/5.60%/$2.10b market cap

Home Properties (HME) $38.84/6.80%/$1.30b market cap

Mid-America Apartment Communities (MAA) $42.55/5.80%/$1.20b market cap

Post Propreties, Inc. (PPS) $16.04/5.00%/$712m market cap

UDR, Inc. (UDR) $13.25/5.50%/$2.0b market cap


All of the above have sustainable yields to entice the investor to wait for the positive apartment industry action to come.


The author does not presently have a position in any of the above securities. He does own a large position in rental real estate.