Cash Flow is King..... Run and Gun trading.

My last posting was about a "loss" that was pending in our fund from a significant drop in price from ERF.   A couple of readers asked why we are not in depression or panic mode due to the size of the pending loss. The reason is simple hedge fund traders learn to accept losses from time to time.  We try to keep these losses to a minimum, but sooner or later they happen.  Most times the losses for our fund will be several thousand dollars, such as $2k or $3k.  Hedge fund trading many times is nothing more than run and gun offense with only prior thought given to how to play defense. Defense is played with selection of securities we trade, after that we trade with an eye towards how fast one can turn over the trades and how much premium you get from each trade. 

ERF offered significant premium month to month and we weighted that premium income versus the risk involved in the trade. That risk is mitigated by extensive research to keep us from being exposed to fundamental risk we do not know. We knew the risk in ERF so we accept the loss with the understanding it could happen.  We are also sitting on a medium size loss in GG right now as well, again we knew the risk involved in GG but decided the premium income outweighed the risk.  Point is over the many years we have traded ERF we have made lots of money even with the pending loss.  We expect similar results from GG which we only started trading last year.  

Run and gun trading means cash flow.   Cash flow even when you are deep in the money on the security.  Option trades for premium income.  If we are sitting on a capital loss in the stock using research and prior experience we make a decision about what price to trade on the option which will bring us the best income with the least loss all the while knowing turnover is more important than the negative capital situation. Once you are assigned out of the stock you reassess the security  deciding if the risk is worth taking another option position.  

Essentially because the fund is based on a equity margin position even if we make any profit we are making money from nothing but your effort and time because if we did not use the leverage we would still have the equity position. Not using the equity position means that opportunity goes to waste.  I know this is deep in the weeds thinking, but many hedge funds operate just in this manner.  We have noted that the fund could essentially make 12% almost guaranteed if the fund took less risk with security selection taking option positions on regulated electric utilities and stocks such as Johnson and Johnson where price movement is very low and risk almost non existent.  That would be nice but not as much fun as matching wits with those we consider top dogs in this business.  Years where performance is above 20% makes for some good vibes.  Many of the people you see on CNBC and other financial shows essentially have made all the millions they desire and now are using the capital they have to make the 12% and basically retire.  You could not find a federal government bond in their portfolio. 

The STI fund uses a moderate risk approach selecting securities where the risk is smaller while adding in some that offer more bang and more risk. We have never had a negative year using this style and can not see any situation where we could ever see a negative cash flow year.  Several people who keep up with our model take some of our risk adverse stock selections and make very conservative option trades to make additional cash flow.  From time to time they note that they left cash on the table since the call option was taken from them when the stock was several dollars higher than the strike price.  That can make one not happy I suppose and at one time it did us. However again turnover and cash flow is king.  As I explain to them getting the last few dollars of profit is best left to those willing to take the significant added risk of buying the call or put from you.  Let them have it and take the fact that your capital is now freed up for another option position, which will offer additional profit for you. 

One last point.  Selling an option is playing with the house's money, buying an option is playing with your money, since most options expire worthless in the end.  I like using someone else's money to make my money as I noted in a posting back sometime ago on how people get rich using someone else's money. 

Thinking and Praying, Wishing and Hoping.

Thinking and Praying, wishing and hoping will not make it go away.  If you are old enough to remember where that line came from you know what it really means is that you got to make a move to get the action started.  The move for us is to bite the bullet and make a play to sell the darn mistake. The mistake this time is big as noted in a post of couple weeks ago and that is ridding ourselves of ERF.   This is hard to do since ERF has been one of our largest cash flow generators for many years, but you date stocks never marrying them if you are a smart trader or investor.  This date is over. 

We really believed that CEO Gord Kerr could make the turnaround happen after the huge drop in natural gas prices. The North American continent is swimming in natural gas, more than it can use and ERF was at one time a major player in this field. Unfortunately with the huge supply comes a huge drop in well head prices now approaching $1 per unit.  Frankly that price is at virtual cost and ERF was not making the cash flow it was in earlier months. The CEO has been trying with good results to move ERF to more oil related assets where prices are still solid and profits sound. Of course if Obama would get off the stupid green energy trip and let oil producers start doing their thing we would have similar issues with oil, but that is not going to happen. 

Anyway the efforts at moving ERF more towards oil has not come fast enough to make up for the collapse of natural gas prices. The result is a cash flow burdened by higher than can be sustained dividend once one adds in the capital expenditures and regular expenses. Mr. Kerr has been using the retained tax pools from ERF being a trust earlier and natural gas asset sales to cushion the changeover from natural gas to oil.  Short sellers and now I believe he will lose his race sometime in 2013.  Frankly ERF is likely fairly valued currently in the high teens and after sometime we might even dive back into the shares, but for now it is time to move on and quit wishing and hoping the price will return to our entry point.  For now there are better opportunities with less risk.

Years ago I had a supervisor, who happened to be the VP of the large company I was working with, take me to the back of the office and pass on to me a little gem of advice I never forgot. The gem has served me well over the years in my investing and selling work. The advice was this, if you have a customer who owes you hundreds from some transaction you and they disagree on such as a billing error or mistake in the product sold, do not allow hundreds of dollars to stand in the way of a future of thousands of dollars of business.  Simply accept the mistake to be yours, write it off as loss, and move forward for future business with your customer. Trust us this is usually very hard for salespeople or anyone who is a competitor to do, but it is the smarter action long term. 

Thus it is with ERF, we will accept our significant loss in order to free up the asset and have opportunities for future profits.  The technical way we do this in the fund is to sell tight call options for maximum profits until the asset is assigned away from us, which could take one month or several months.  Either way you continue to max the cash flow once you make a decision to sell. Once sold the net loss is registered and this one will be our second largest ever as a trader.  Reminding those who have read this blog from the start this action comes under the ability to "take a loss". 

                

Jacksonville's old New River Shopping Center.

When the men who fought World War Two returned to the states in 1945 and 1946 they set about building a nation and life for themselves and their soon to be growing families that would become known as the Baby Boom. Many of them settled in towns and cities where there were jobs and opportunities to build that life. With the coming of Camp Lejeune in Jacksonville NC those men were drawn to the town for what would become lots of civil service jobs on the new base, lots of jobs for those staying in the military, and lots of jobs to service and build the new Marine base.  Jacksonville became a modern day boom town in the late 1940's. 

The new boom town needed new homes for the fast growing population as well as new shopping for their needs. A company called New River Management filled the bill with new apartment homes in the area just to the east of the old downtown section. Add in the rapidly growing single family homes being built north the the New River called Northwoods and you have a ready made group of people to make one of those new shopping centers popping up all over the US become financially a success. 

Thus began New River Shopping Center. Those of us who grew up in the late 1950's through much of the 1970's knew this shopping venue as the place to go do some serious shopping.  There was a movie theater, lots of individual shops, a big Colonial grocery store, as well as a post office and other service stores to sell to the new residents in Jacksonville and Onslow County. Looking at the center now no one would know that at one time NRSC had the highest volume Sears store in the country and the largest grossing independent pharmacy in the entire country as well.  One of the most visited stores was a huge Roses store in the back side of the center. 

All these thoughts came rushing through my mind back a couple of weeks ago when we needed some cheap household products for our new beach home and found a Big Lots in the old Roses store at NRSC. I had not visited NRSC for several decades until that day and the melancholy that rushed through my mind was one emotional moment.  Going into the old Roses store was a moment in time since the last time I had been in that building was with my mother at least over 25 years ago.  Almost felt like I should not go in as it would be unholy to change my memories of my last shopping experience in the building. 

But went in I did and bought our products and left. But then began some exploring of the old center and a chance to stop and look and revisit the old glories and my memories of the once vibrant and exciting shopping there.  The pharmacy is gone having been torn down for more parking.  New River Pharmacy however is there in my memories where I bought my first in car stereo system and where I watched my mother fill prescriptions. Sears is gone too, but the building remains where I used to go look at new bikes and dream about those banana seat versions, where my father would find deals on new Sears tires, where my good friend was a TV salesperson, where you could look at the Christmas catalog in real life.  

NRSC was also where my mother could turn me loose to walk and explore by myself  without any concern about someone picking me up or adducting me for evil purposes. All I had to do was tell her where I was going and where I could meet back with her. NRSC was where she knew some nice lady sales clerk would look after a little boy like he was her own if I ever got into something I was not supposed to be doing. Try that nowadays in any shopping venue. 

The memories flowed as I thought about seeing movies in the old theater there, looking at all the new Keds and such at the Thom McCam shoe store, and the intrigue of the old hobby store there whose name I can not remember.  Almost guaranteed was that you would run into more than a few people you knew shopping that day too since NRSC would draw people from all over Onslow County to shop. 

I get this melancholy too every time I drive down Henderson Drive in Jacksonville past another old shopping center, Northwoods Shopping Center, which is a small cousin of NRSC.  Then past old Northwoods subdivision where many people made new homes back in the 1950's and 1960's.  These homes seem small now compared to what many of us presently live in, but to our parents they were Home Sweet Home then and a chance to have a middle class life of shopping, family, and friends.  Truth be known they might have been happier than we are now with a bigger homes. We seem to think more and bigger is better, but maybe it is not. I do know they brought a sense of calm steady adult leadership to society we sorely miss now.  

I suppose as you get older and see places like old NRSC we are replaying the same trek our parents and grandparents had when they visited old downtown's and small country stores as they grew older too.  I expect our children will do the same with malls and such as they close and new shopping venues become the norm. However the one thing they will not be remembering is places like NRSC since the population is growing and the smallish community centered places like this are quickly becoming a thing of the past. Maybe too the one time moment of millions of GI's returning from the war will never be repeated as well.  I consider myself blessed to have grown up in such a moment in time and expect if you are reading this you do too.

               

Interstate 95 Toll Road Update.

Opponents of tolling on I-95 in North Carolina had their first organizational meeting Tuesday in Smithfield and we attended the meeting. As noted in earlier posting on this blog it is hard to get more opposed to the tolling of this road than we were, but after yesterday's meeting we find ourselves to be just that. Listening to many people who are doing business on I-95 and operating businesses along I-95 and how it will hurt them is truly sobering. 

One point we had not considered that is truly a negative for tolling is the loss of jobs. Once again NCDOT and the elite power brokers pushing the tolling forgot to tell us one little bit of information. This one is a dozzy however. Trucks will be tolled EXTRA for using the road, how about $100 for a round trip versus $40 for cars. Now most of you will say yeah they deserve to pay more since trucks are heavier and hurt pavement more. Maybe so, but the other side of that cost is the loss of jobs. If you think these small businesses can absorb $100 round trips added costs daily and not lay off workers then you are a fool or maybe a I-95 toll denier. $100 each time adds up to real money pretty quickly. One time daily is almost $40000 annually or one job for many businesses.  Not to mention the loss of truck traffic at stops like Kenly 95. 

We also caught wind of the fact that NCDOT actually has about $14 billion in revenue projected for the road over expenses projections. Now where is that money going? Is it headed to some other road in the state? How about NCDOT just lowering tolls on the road. We are still waiting on NCDOT to come forward with the other options that were considered in the original study. 

Another point made that in Halifax County the vehicle count would drop by 4.4 million vehicles annually in that section of the road due to the toll using NCDOT own numbers.  Excuse us here, but unless you really are a I-95 Toll Denier or just not thinking clearly please tell us how a drop of that magnitude WILL NOT hurt businesses in that county. Expect similar losses in other counties as well. 

North Carolina has the sixth highest state gas tax in the US and NCDOT tells us it is not enough to pay for improvements and maintenance on I-95?   Maybe if the almost $4 BILLION in road fund money had not been diverted for other purposes by elite power broker in Raleigh and elsewhere earlier we would have more than enough money to do the I-95 work. Of course now they come telling us they need more. 

The real kicker here is the same elite power brokers now tell us if we the opponents prevail in this fight they will just not spend ANY money maintaining or improving I-95. That my friends is a bad case of sour grapes and just plain cry baby status, but that is what these people are as we know them. Play ball my way or I take my ball and go home. 

Big kudos to US Congresswoman Renee Ellmers for coming out strong against this toll idea. Proving this is not a Republican/Democrat issue Congressmen Walter Jones and Mike McIntyre have also come forward to co-sponsor Ms. Ellmers bill to ban tolling on I-95. Congressman Butterfield has said he is against the toll, but says it is not a federal issue. Sorry Mr. Butterfield it IS a federal issue now since the US Transportation Dept. must first approve tolling on an existing interstate before a toll can commence  and this road IS a federal highway. 

We have heard Democratic NC Governor candidates Etheridge and Faison have also announced they are against the toll and Dalton has used the "federal issue" dodge for his stand. Republican NC Governor candidate Pat McCrory has yet to state his stand on the issue despite numerous attempts to get his decision.  Come on Mr. McCrory man up here on the issue.  Frankly we have our doubts about Mr. Etheridge's stand here since he is a darling of the elite power broker crowd, but give him credit he has come forward unlike Mr. McCrory. 

We also await Congressional candidates Rouzer and Pantano making a stand on this issue as well.  For you information no other sitting Congressperson has come forward either way to date. Add in the most candidates for the NC House and Senate have not made a statement on their stands as well. Seems this issue causes exceptionally weak knees in politicians. 

Finally it seems that many people still fall back on the "let the damn Yankees who use the road pay for it" reason for supporting the toll.  Let's address this point one more time. Trust us or trust NCDOT own numbers but once the toll goes up the business on I-95 will drop at least 30%. When that drop occurs the sales tax revenue and property tax receipts from I-95 based business will drop at least 30%. That 30% of tax revenue will have to be made up in counties and towns along the corridor. If you live in those areas you can expect your property taxes to increase as elected officials are going to get that lost tax revenue from somewhere. You can also expect those same local officials to ask the NC General Assembly for sales tax increases to alleviate the tax revenue losses.  Now you can keep saying Yankees are paying for it or get real and know YOU will eventually be the one paying for the toll road one way or another. 

Reelecting Obama means leaving no debt behind.

First off let's be honest this idea is not something we thought of on our own, No siree we watched too many other people do this for a long time and after trying to convince others. notably progressive types, that it was just plain morally wrong we finally found it was useless to try convincing them.  You see the poor, as defined by Obama those making under $88000 ( look it up if you do not believe me as to how poor you have to be to get health care premium assistance under Obamacare, I will wait here for you to look it up ) are getting some real help in this country. 

On the other hand we have watched the very wealthy, such as the soon to be extremely rich Mark Zuckerburg of Facebook, find ways to get completely off the tax rolls by not taking a salary and just piling up debt to be assumed by lenders and taxpayers after they have passed on. Movie stars. rich liberals,  and pro athletes have been using this debt planning all along with tax dodging personal foundations on the side to accumulate wealth and pass on to their children and at the same time dump debt on the taxpayers later. Trust us on this one too that most of these rich people are doing it with the blessing of the Obama administration since they plan on doing it themselves, after all Obama is an elite like them.  So we figured to heck with it let's join the party so my friends below is a way you the middle class American can get in on this party too.  Note if you have concerns about screwing your kids and grandchildren then read no further. 

Honestly here is that we work the angles. God blessed us with a gift of seeing every angle every loophole in a situation and how to take advantage.  Maybe it is why we run a personal hedge fund, helps to be able to see angles where others see nothing.  Applied for a job position back in 1992 with a national brokerage and took a couple of tests to see if we could make the grade. Tests came back with two notes, applicant is supremely talented to do this work, but could be a compliance risk.  The person who was trying to hire us said if I did not know you personally to be a honest person they could not overlook that last part of the results. Offered us the position anyway, but we went on to other employment at the time. 

All this is to say our latest and maybe greatest angle is leaving no debt behind.  We are currently in process of buying a home and for the first time in our lives with a 30 year mortgage. Again the angles.  We have bought three houses in our lifetime, in two we persuaded the seller to self finance and one with a no interest loan for the purchase. The next one was a 10 second swap of documents moving a check to pay for the home into a interest only home equity loan.  The rule for most of our life was to keep assets liquid, make cash payments for most everything to avoid interests costs, and maximize cash flow. Times they are a changing however. 

Having a shall we say a very ideology bound US President and the possibility of that person being reelected offers more significant angles.  As someone who just took out a 30 year loan which barring medical science discovering the youth gene we will not be alive to pay off this loan is new ground.  Yes, the interest rates are dirt cheap, but there is more here than meets the eye. Obama's policy here is simple.  Obama is trading the power to take away the ability to rise as a person economically in this country for a lifetime of security, at least supposedly security. So in essence he will pay off the older generation to get out of the way and let him do it.  Well we are standing in line here for the payoffs. The payoffs are taking on significant debt in houses, vehicles, credit cards, and living the good life knowing Obama will be there to mop up the mess, take on the debt, and pass it on via now wholly owned government banks and the federal government to the younger generation. 

Housing debt under Obama offers the chance to get homes that are already at discount pricing and in places you would really like to live, but would normally be beyond your budget,  knowing that once you grow tired of living there or no longer desire to pay the debt you simply walk away.  No sweat, no regrets, and for the first time ever in America no stigma from taking on and not making the payments. Under Obama it is now the fault of the lender who made you the loan, heck you can even sue the lender now and make a buck. Is America a great country now or what?  Ditto on credit cards, load up on electronics, new furniture, and when you can not pay blame the creditor and walk away. Yes, we know you are asking, but what about your credit score?  Trust us at my age now who cares, we are not going to be buying any big items anymore so why does it matter if our credit score is in the toilet at 500. Besides if we do really need to buy something we need Obama is right there to make it happen via some government program. 

Maximizing consumerism to the extreme is the angle here.  Lots of social security going forward, lots of taking on bankrupt companies pensions via the Pension Guaranty protection of the federal treasury, and lots of life lengthening expenses via Obamacare and Medicare before that healthcare Ponzi scheme runs it's course too. Makes one wonder which Ponzi scheme goes down first Social Security or Medicare/Obamacare, but who cares we will not be here to worry about it anyway. Does it threaten to bankrupt the younger folks, you bet.  But if these younger folks and liberals are going to do it by voting Obama a second term anyway then why not take them up on the deal.  If my thinking and financial figuring is correct the entire national pile of trillions dollars of debt will collapse about the time we begin pushing up daises. 

 Might even consider voting for Obama, but have problems with that since we will in essence be voting to screw younger generations for our current enjoyment.  We would rather take advantage of the fool voters than do it ourselves.  Makes it easier to laugh at such voters when they realize about three or four years from now they have been had. 

Anyway let's keep on the buying spree with no concerns about paying off any debt, just defaulting as we need to at the time. Hope you people who are going to vote for Obama do not catch on and vote for someone else in November 2012 since then we be in one heck of a debt laden mess.  The thing that amazes us is that there are people out there who are willing to follow this piped piper off the cliff.  Anyone know where to get one of those state of the art 72 inch HDTV's, of course we are not concerned about the price.

                 

 

Pain in the Portfolio

Several weeks into the April options period there are points of pain in the portfolio. Much of this pain is from the moderate sell off going on in the market right now.  We are slightly under water in JNK, BCE, and DUK. Each of these are solid blue chip companies with bounce back potential when the market recovers.  We are down less than $1.00 per share in each and expect it would take a serious downturn in the market to make these stocks sell off seriously. This is the very reason we selected these securities as well as many of the ones where we are still in the money.   AGNC, CTL, LO, NNN, O, and T are all still safely in the black currently.  FTR where we have two long term options is higher since we sold both option positions at almost the perfect price. 

The pain in the portfolio comes from two stocks where we sold positions and we are currently down over $1 per share

We are down just over $1 per share in GG. But since the underlying asset for Goldcorp is gold and they are the best of breed we still feel good about this position. Unless the federal reserve stops printing money and Obama stops his spending spree we believe gold still is a solid future for investors and traders.  Besides $2 per share in GG is a day's movement sometimes in the security. Nevertheless the fact that gold prices can be quite volatile we are keeping a close watch on GG.   

The stock where we find ourselves down significantly is ERF.  We have likely made more money in ERF than any other trading stock in the history of the fund.  The current position was taken right after a stock offering where ERF sold stock to gain capital to pursue additional opportunities and considered the buy position a good entry point.  However since then ERF delivered their annual report and the cash flow presented a picture of a company that might not be able to continue to pay the current dividend without incurring debt. The CEO has said that the dividend is safe and that the recent capital raise gives the company adequate cash flow to continue the dividend while spending on projects. Examination of the current budget makes it clear he is technically correct. But others look at the capital raise and see that being used for dividend payments. Highly regarded analyst Kurt Wulff agrees with the CEO. So take your pick here.  Our opinion on the situation is that with the current capital raise the cash flow is there for the time being. It there is a need for additional capital and share dilution then the current dividend payout is suspect.  Simply put the projected 2012 cash flow is $849 million and distributions are $423 million of that. There is around $300 million available for capital projects out of cash flow.  ERF is spending more than the $800 million in capital projects during 2012 aided by the stock sale earlier this year, but less than that going forward. 

The stock is being driven down by relentless short selling who believe this scenario makes it clear the dividend must be lowered. We are down over $4 in the stock with a large 4800 share position.  Several stock brokerages now believe ERF has entered bargain territory and even if the dividend is cut the stock price compensates for the reduction. 

We have reached the point where we will begin selling option positions going forward in the money on ERF if we remain this deep in the money by April options expiration.   The idea for the fund will be to continue to produce the maximum cash flow and accept any loss we have in ERF to open this trading position going forward.  If we do sell out of the position at that point we would reevaluate our consideration of ERF for continued inclusion in the portfolio this year.  ERF is an excellent Canadian oil producer, but the weakness in the shares makes us wonder about ERF as a trading vehicle in this environment.  Fighting the shorts long term can be a tough job. 

               

Back Home. Down Home. Down East.

Like the loggerhead turtles, like the spot runs in the fall, like many of my longest known friends and family before me, I am back home, down home, down east.  It has been just over three decades since this Coastal North Carolina boy got to wake up with the ocean waves lapping at his ear right over the sand dunes from a place I could call my home. Now I have those waves again just a few steps from my front door.  Having spent many years chasing my dreams and fortunes in places like Clinton, Fayetteville, Lumberton, Smithfield, and Raleigh I get to spend much of my last years of life on the coast of North Carolina.  It is as it should be. 

What is it that binds us to this place, this place called Eastern North Carolina and especially Coastal North Carolina.  Those of us born and raised in the counties adjacent to and close by the Atlantic Ocean in this state find ourselves drawn towards this area all our lives.  Is it the ocean? Is it the old friends? Is it the memories? What ever it is, it is a feeling in all of us from Coastal North Carolina that we find Sweet Southern Comfort when we return there.  It is a life long love we can never fully explain. 

 

Oh, do not get me wrong I love all the places I have called home over the last three plus decades. In towns along Interstate 95 is where I have spent most of my working years like my fathers and grandfathers before me who spent their lives along then paths of commerce such as Clear Run, Calypso, and Turkey.  Even now I continue to take in the enjoyment of visiting with friends, dining at favorite restaurants, and reminiscing in these places where I once called home.  

But in the end back home is where I spent much of my early life and as my life begins it's likely last couple of decades I find my myself blessed by God to return to having a home down east.  Remembering going fishing at The Scotch Bonnet pier with my father and mother, remembering driving down to the north end of Topsail Island when there were no lights to be found, remembering the old Atlantic Beach Circle where I first heard the Embers and learned about beach music.  Unlike people who go to the beach for pleasure, unlike those who have second homes there for enjoyment, my new home there is really going back home. 

 

I look forward to walking the beach and pier with my wife.  I look forward to fresh seafood especially from the Riverview, where I have not dined in years and my new found love Nickys of Swansboro. I look forward to shopping in Jacksonville again, where I spend many days with my mother learning how to shop for bargains. Having the opportunity to be close enough to Richlands so I can take in lunch at Arnolds and attend my home church occasionally . The regular enjoyment of knowing my highest elevation point during the week will be trips over the high rise Emerald Isle bridge where I can enjoy the wondrous beauty of my Eastern North Carolina sounds. Enjoying the quiet solitude at the end of a long fishing pier.  Regular trips over the White Oak river bridges at Swansboro where the breathtaking view rivals any in North Carolina.   Being in the daily presence of some of the finest people on this earth, US Marines.  Finally this flat lander is where he wants to be "whatever the phase for the rest of my days".  

 So excuse me if I am distracted as I take in the salt air and peace of the my beloved eastern North Carolina beaches and sounds. I am as much a natural part of them as the loggerheads and spots who return home here too and here it is hoped that I will breathe my last breath and be buried in sight of the New River overlooking Onslow Bay. 

 Have you ever stepped on a sandspur barefooted? Then you must be from down home!

                

Small Town Investor First Quarter Report

Another excellent month with our reduced exposure portfolio. GG, NNN, and ERF were our biggest profit makers this month producing solid premium income. We traded only 9 positions this month which is down from last month  Since this the quarter end we will report only quarterly results. The net result for the quarter was goosed by another large long term put option position opened this month in FTR.  As with our last long term FTR option we placed it off balance sheet since it is a long term position. Our quarterly results also include our carry forward loss in ERF since we own the stock and have the loss on our balance sheet. It is not a realized loss and could recover before year end when we normally cull losses from the portfolio.  Our first quarter annualized net yield was 17.69% or just under our stated goal of 18%.  Slow and steady with low risk exposure is winning the race this year as we had expected.  Actual results without the deficit in ERF was 20.60%.  The first quarter of 2012 was the largest net cash flow in the fund's history.  Not bad for our low exposure positions. 

We had no realized losses this month and only a small one for the entire quarter, much lower margin interest and lower fee expense than normal helped make the month and quarter a success as well.   During March the positions we opened again for the most part were in the money enough to give us some margin for error during the coming 5 week trading period. We feel confident in our approach and will continue this path for the foreseeable future. Since our portfolio remains exactly the same as posted for the first quarter 2012 we will not be posting an update going into the second quarter.  

Looking to April trading we will have all 9 trading positions open. That should offer continued opportunities for cash flow and profits. As noted in earlier reports we continue to look for long term option opportunities as well.  Our long term option scenario is 6 to 8 annually going forward. We consider an long term option generally 6 months out of more.