I am retired and take educated guesses on all things financial.

July 29, 2010

July 30, 2010: Dividends You Want? Dividends You Get

Apparently,inflation that many expected with the government printing presses running red hot is not imminent or likely to appear soon. Many articles have been written about dividend explorations seeking companies that pay a regular dividend and will likely raise dividends a few cents per year. Sorry, that is not for me.

I don't want to wait eons for the dividend to show meaningful growth within my portfolio. And, with the present world order and Beltway economic geniuses working hard to separate you from your wealth, staying married to a stock for a paltry annual raise in a dividend may be bad portfolio management.

Why not hefty dividends now? Why wait? Balanced with other securities and hard asset investments, the investor will create a diversified and enriched portfolio.

Here are some current choices for consideration:

Recommended are trust preferred investment grade securities that are priced below the call price (usually $25.00). A screened list is available at Quantum Online and likely available elsewhere. If they are not priced below the call price and/or rarely traded, don't buy them.Use limit orders.The yield should be north of 6.25%.

For those wanting instant yield through preferred stocks, I recommend the iShares Preferred Stock Index Fund (PFF), trading at $39.24 and yielding 7.57%.

Here are a few individual securities that I like and in some instances own:

National City Capital Trust II (NCCpA): $24.22/ahare, 6.92% yield, ex 8/12,average 10-day volume 75g.

Commonwealth REIT 7.5% Senior Notes (CWHN): $19.99/share,7.42% yield, ex-10/29, average 10-day volume 24g.

Deutsche Bank Capital Funding Trust X (DCE): $24.50/share, 7.52% yield, ex-9/10, average 10-day volume 63g.

Bank of America Preferred J (BACpJ): $23.43/share, 7.73% yield, ex-10/13, average 10-day volume 225g.

Archer Daniels Midland Preferred A (ADMpA): $37.98/share, 8.04% yield, ex 8/12, average 10-day volume 145g. This security is convertible at $50.00/share with consideration for stock price targets within the prospectus.

For those seeking inflation protection diversified away from TIPs, two securities out of several with inflation protection features are worth exploring:

MetLife Preferred A(METpA): $23.25/share,4.42% yield, ex 8/26, average 10-day volume 125g. The minimum dividend is 4% or 1% above the 3 month LIBOR.

Prudential Financial(PFK): $24.92/share,4.68% yield, monthly dividends, average 10-day volume 9g. The minimum dividend is the CPI plus 2.40%.

Certainly, some Master Limited Partnerships would qualify as immediate dividend-rich securities, so long as the profits are earned to support the dividend.

Above all, be nimble as the economic and political winds change in both course and intensity.

July 23, 2010

July 23, 2010: Is The U.S. In Terminal Condition?

"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." - Thomas Jefferson

Roger Nusbaum, a widely quoted and successful financial planner and blogger (Random Roger's Big Picture) issued a great post today on problems confronting productive workers in our economy, who expect some benefit from their efforts later in life. I responded to Roger's post as follows:

"You bring to the fore issues that politicians are loathe to deal with. Our bad - we vote for (them).

Those with a knowledge of history understand that the greatest empires were not conquered - they rotted from within. We are following that same path. Less-advanced cultures now dominate our remarkably successful Judea-Christian heritage, endless sport spectacles are a narcotic for increasingly undereducated and mis-focused masses, a crumbling military and infrastructure (and) the colossal failure of our ruling class to command and navigate the ship of state in an appropriate manner seals the deal.

The world is changing, and an unsustainable number of Americans sit on our overweight, government-subsidized asses confident that higher taxes, endless lawsuits, windmills and playing nice to adversaries is our final solution.

Rome, 2020? Or, do we wake up?"

"My reading of history convinces me that most bad government results from too much government." - Thomas Jefferson

"To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical." - Thomas Jefferson

Note: The three quotes are attributed to Thomas Jefferson from multiple sources, but I have not verified them through Mr. Jefferson, himself.

July 19, 2010

July 19, 2010: Fannie ,Freddie, Dodd and Frank: Real Estate Practices Adjusted

It is a largely unanimous opinion that the ongoing real estate collapse in almost all areas of the country was in large part caused by lenders lowering, or ignoring, standards relating to home mortgage qualifications. Lending institutions were bailed out, closed and re-packaged under another brand, and forced to tighten lending requirements. The medicine was bitter, but necessary.

Apparently, the medicine was unacceptable to the wrong patients.

Kenneth Harney, a respected columnist for the Washington Post, published a most interesting article today that states, effective September 1, 2010,that Fannie Mae will prohibit mortgage lenders who sell it loans from adjusting appraisal numbers. Lenders were often refusing to accept appraisals that appeared high to avoid the wrath of the Feds who accused mortgage lenders regularly after the 2008 debacle of inflating property values for unsavory reasons.

The National Association of Realtor's seems to have lobbied hard to influence Fannie and Freddie to step in and prevent bank's lowering of appraisals on or about closing to avoid stopping questionable appraisals voiding realty transactions (this practice hurts the commissions of involved parties that benefit from a successful transaction). The NAR accused lenders of "sabotage....arbitrarily reducing the value estimate" of the appraiser.

As of September 1st, Fannie Mae will prohibit lenders from changing appraisal numbers. According to Harney, "lenders must contact appraisers to resolve and disagreement about property valuation. If that is not possible, they should order a second appraisal - not just chop the value surrounding the real estate contract." Needless to say, appraisers applaud the new rule. Realtors applaud the new rule. Title Agencies and lawyers likely applaud the new rule. Taxpayers?

The dirty little secret is that many appraisers, especially local appraisers, are beholden to others involved in the transaction who stand to gain commission as property values are not appropriately challenged for mortgage loans. Quite likely, here we go again. Is it no surprise that Fannie Mae and Freddie Mac are immune from the recently passed financial reform bill?

The NAR reports that the Dodd-Frank Wall Street Reform and Consumer Protection Act included a number of provisions impacting real estate. The NAR secured an exemption for Realtors performing traditional activities from the long arm of CFPB, although the Real Estate Settlement Procedures Act (RESPA) is now under the eye of the CFPB. Other aspects of the bill impacting real estate and the mortgage lending industry include new rules on seller financing (predatory landing protection),establishment of a "Qualified Mortgage" safe harbor from risk retention rules, sunset of the Home Valuation Code of the Conduct (HVCC), risk retention rules for commercial mortgage backed securities, re-defining the "accredited investor", and a 3% cap on fees and points for transaction entities as a part of the qualified mortgage safe harbor.

This complex legislation surely will produce unintended as well as intended consequences yet to be discovered. A lobbyist's field day, perhaps?

July 08, 2010

July 8, 2010: June Housing Data Stinks

The monthly real estate results are in, and the Credit Suisse Monthly Survey Of Real Estate for institutional investors (my favorite professionally adjudicated document because of its boots on the ground approach and demonstrated predictive accuracy) tells a simple tale. Economic concerns + a tax credit hangover = plunging traffic and a deepening fiasco in the single family home market.

Nationally, the home traffic index dropped to a level not seen since the credit crises during the latter months of 2008. This drop is more serious, as it is compounding the initial plunge reported for May, after the tax credit expiration.

According to CSFB, another round of declining home prices is inevitable because of high inventory coupled with limited traffic. Real estate professionals report that sellers are capitulating on prices in most markets. Inventory is expected to increase significantly with increasing foreclosures flooding markets again. The time needed to sell a home increased by almost 20% in June compared to May, which was a bad month in itself.

Dallas, Orlando, Southern California and Las Vegas slowed the most of the fifty nationwide markets in the survey. Every one of the twenty largest real estate markets slowed.

Builders, as predicted in this survey in prior months, are in a state of desperation, with land impairment charges in the cards for builders in the third and fourth quarters of this year. CSFB believes that stocks of builders may be attractive at that time, but only if the economy pulls out of the doldrums.

Here are some headline takeaways from several large markets followed in the survey:

Atlanta,GA:"No stability following tax credit expiration".
Austin, Tx: "Traffic continues to slip. Buyers anxious over the economy."
Charlotte, NC:"Weakness continues. Traffic takes another step lower."
Chicago,IL:"Where are the buyers, on tax credit vacation?"
Dallas,TX:"Traffic falls off a cliff."
Denver,CO: "No more rebates, no more buyers."
Jacksonville, FL:"Traffic falls on further economic concerns."
Las Vegas, NV:"Buyers lack confidence."
Los Angeles, CA:"State tax credit has little impact."
Miami, FL:"Weak entry level demand, Appraisals low."
Minneapolis, MN:"No first time buyers left."
New York Metro:"There is no confidence, no tax credit, no money, no jobs."
Orlando, FL:"Worse than expected traffic in June."
Phoenix, AZ:"Price does not meet income." Another bubble is apparent, from investors.
Seattle, WA:"Many agents have had contracts fail even after buyer was pre-approved."
Tampa, FL:"Prices show signs of cracking as demand continues to slip."
Washington, D.C.Metro:"Traffic continues to weaken as buyers lack motivation."

A few areas, such as Ft, Meyers, FL, are experiencing an uptick as investors buy property at a fraction of the price point a few months ago.

I do not take pleasure reporting on the current real estate downward spiral. Many involved in the housing industry are getting sucker-punched on a regular basis.

July 02, 2010

July 2, 2010: Well, Well, Cuba Drills Deep

As reported in Friday's Wall Street Journal, Cuba will begin deep water drilling early next year. The first well to be drilled will be done by Repsol YPF a scant sixty miles south of Key West. Repsol (REP) will use a floating drill rig presently being repaired in a Chinese shipyard which is almost identical to the Deepwater Horizon unit of BP fame,with the addition of five blowout devices instead of the four on Deepwater Horizon. Almost all parts and components of the rig, reports the WSJ, are from non-US companies. Thanks to a 1977 treaty between Jimmy Carter and Fidel, the Straits of Florida were divided equally between Cuba and the United States, which gives Cuba the right to drill so close to the U.S. land boundary.

Inspires hope and confidence,doesn't it? And there are many more oil projects off the Cuban coast from Havana to the Yucatan Channel to follow. Repsol's partners in Cuba include Statoil ASA (STO) and India's state-run Oil and Natural Gas. Eight other oil companies hold fossil fuel leases from the Castro Brothers, including Petrobas(PBR)and Sherrit International (SHERF.PK).

It appears as though anything that President Obama does to curtail drilling for fossil fuels in the Gulf of Mexico fails to stop other countries from exploiting the billions of dollars in fossil fuel energy stored beneath the waves.We lose.Cuba,Mexico,Venezuela and other Caribbean countries win.

Investors should monitor this series of events, as well as Cuba's efforts to extract fossil fuels and minerals on land, via companies such as Freeport-McMoran (FCX).

By most measures, Cuba itself is an awful place to do business. Cuba,for the companies named above, is a small part of their overall operation. The takeway is that the United States can remove U.S. Gulf of Mexico oil production through regulation, Florida Governor and Senate hopeful Charlie Christ can propose an amendment to the Florida constitution to forever ban drilling off the Florida coast and we can spend our way to alternative energy oblivion while right under the nose of the most powerful nation on earth, deepwater drilling en masse will commence with the lion's share of profits going to our adversaries.