Bulls and Bears and Pigs.

Effective with this week's trading we will be dropping ARCP and KO from our trading portfolio.   ARCP, which we took a position in at $12.50 is now trading above $14.20 per share.   If you had followed us into this security in January you would be sitting on a 14% increase with the monthly dividend over two months.  This triple net REIT is still a great long term holding, but we are traders so we move on.  We believe ARCP is now close to being fully priced, not overpriced, just fully priced.  There is likely some additional gains here to be got upwards to the middle $14 range but we will leave that gain to someone else.  We never take the last penny in a profit.  That rule is simply this bulls and bears make money, pigs get slaughtered.  Other better opportunities await. 

KO which we considered a sold off blue chip has turned into a sold off value trap.  Even with it being one of Warren Buffet's largest holdings we have exited our position in Coke.  We will take a small loss here and move on. We had thought KO was under priced, but the latest earnings report tells us this stock might have some additional down side and very little short term up side.  Again bulls and bears make money and being able to 

 take a loss a move on is part of being a smart trader. 

We will be replacing these two securities from a basket of three stocks which with this posting enter our portfolio. 

The first new stock is CHL, China Mobile, which is to China what AT&T and Verizon is to the US.  With over 700 million customers this mobile phone operator is by far the largest in China and the world.  The PE is around 11 and the stock has sold off a bit recently.  The stability of the business and the addition of Apple products this year should help buoy and push up the price going forward.  The almost 4% dividend adds to the allure.  Strike price of $46.

The next new security is ALL.  Allstate is a mega sized insurance company with a 11 PE as well. This stock has sold off some then back up a bit since the recent cold spell in anticipation of a large number of claims coming from the Northeast US.   The best time to buy insurance companies is when they have sold off due to claims concerns, because once claims are paid, the company raises premiums and recovers their lost asset base which in the end increases overall profits.  We will be targeting ALL at $50 hoping to catch a deal here. 

We also will look at adding more AAPL to our portfolio.  We currently have a half position in Apple, but believe the company is valued right at a 12 PE and the downside is now traded in which offers some opportunities to take positions at a lower strike price to make some profits.   Our current position is at $475, which is safe.  Our new position will be at $500.  If AAPL continues to languish here we likely will consider another half position as well, making us have one and one half positions. 

Lastly updates on two long positions we hold. One NNC, which we bought at $12.01 is now trading at $12.51.  We suggested this security back in early January at $12.  We still expect some additional capital gains into the $13 range.  Add in a 5% tax free dividend.  Two MONIF, Monitise, is a speculative play which just reported interim results which we believe were solid and suggested this company is on the right path towards this stock doubling or tripling in the next year or so.  Maybe more further out.  Still a good buy at around $1.25.

                

A Traders Life.

Ahh.. the life of a stock or stock option trader.  Glamorized in films and on financial television.  Said to produce unheard of wealth in weekend radio shows. Mentioned as an alternative to that commute to work for those who just want to stay home in their pajamas.  Well we have to tell you dreamers it is not like that. 

Stock option trading we have been doing for going on 3 decades now and "full time" for just over 5 years now.  We have yet to have a losing year and even had some 40% plus profit years on at risk capital, but trading is hard work and extremely risky which requires patience, time, and lots of willingness to lose money when necessary.   Yes, we get up from my bed in the mornings and move across the hall to my trading desk, but understand that is normally at 6 AM and for most traders that is a late start.  Below is a typical day in a traders life.

Rise at 6 AM, after going to bed no later than 10 PM.  Get a shower and be at our home trading desk before 6:30 AM. Our desk is a L shaped desk so as to have two different places to view open trading material at any time.  We have a computer but we keep ALL our trading in a written folder for quick reference due to the need for quick info when markets begin to move in my direction. We also back it up online for mobile viewing and a check against our written records. Generally our trades are valued at around $100,000 so one trade a unforced mistake can be lethal to your portfolio so keeping two sets of records virtually eliminates such errors.  Our current computer which straddles the L desk is a 23 inch all in one that keeps desk clutter down and everything we need close by.  On the desk on one side is a 32 inch TV for keeping up with what is being talked about on financial networks.  We favor CNBC Squawk Box in the mornings, but will switch if we find something elsewhere on most useful.  Two lamps, one Android big screen cell phone, good writing pens, legal pad, large sticky pad, and one radio are on the desk. The cell phone is for keeping abreast of stock movements when away from my home office and the big screen phone is most easy for seeing stock pricing info.  

From 6:30 AM until the market opens at 9:30 AM the time is spent reading and getting updated on market and financial activity and news. Some of the web sites we read each morning are listed below. 

Drudge Report..great for breaking national news

Seeking Alpha..absolutely the best financial site online.  Mobile site too. 

CNBC..good for late breaking financial news

Wall Street 24/7..second best site online. fabulous analysis of late news

WRAL..weather info and local news

Stifel Nicolaus.. broker with excellent stock reports

Doug Kass..use his free info from blog and twitter.  permabear with spot on stock picks.  keeps us grounded

Marketwatch...good for instant financial news. Wall Street Journal's free info

Yahoo Finance..good for individual stocks info and best message boards

The Street..keep an eye here just in case something on my stock list pops 

Jennifer Rubin..good political analysis

The Corner...good political info

Town Hall..good political info

Weekly Standard..good political info

Carolina Plotthound..excellent North Carolina based political site

Sampson Independent..local news

Fayetteville Observer...local news

Jacksonville Daily News...local news

The News and Observer...local news 

Carteret County Times News...local news

Wilson Daily Times...local news

Goldsboro News Argus...local news

The Robesonian...local news

NC Press Association...local newspaper news

Business Insider... alternative news source. very young people readership oriented

Carolina Journal..political analysis

JFL Locker Room..political analysis

American Thinker...national political analysis

New Geography...alternative Forbes site with interesting data

Triangle Business Journal...local business news

Morningstar...national stock analysis 

MSN Finance...national financial news in analysis 

Real Clear Markets..good columns on financial news

Real Clear Politics..good columns on political news

Zero Hedge...very alternative financial analysis.  

Twitter..we follow some financial tweets

Opinion Journal...Wall Street Journal opinion page

Carpe Diem..very upbeat capitalism site

McDep Oil...best oil and gas analysis anywhere

Here is where most people would fall short and lose when trading. This activity requires hours and hours and hours of reading. The purpose is quite simple to keep up with market action, financial news, bond news, and of course follow the up to 30 stocks we favor.  In the current environment the need for broad thinking on politics is essential due to the huge impact current policy has on the markets, hence the political reading.  You will always be surprised with the local websites and where you might find some helpful investing info too. 

We know early on if the market is moving in our direction and will either make trades by 10:15 AM or move on for awhile.  If we do not make trades we will go get a quick breakfast at our local Bojangles and return by 11:30 AM to review many of the updating web sites listed above for early news updates. More reading as we said

We will generally keep a close eye on the market until around 12:30 PM when we will take a break and go do something else or run household chores. We will return around 2 PM to check on the market and see if the late market action offers any trading opportunities and continue to update ourselves on financial news. More reading.

If we do not trade we might take some time to get a quick burger at a local joint around 3:30 PM were we get a chance to unwind and a quick 30 minute walk at our local inside walking venue.  Then back to the trading desk. 

We will get back to CNBC around 4:30 PM for after market news and our regular dose of Fast Money at 5 PM.  Add in a few minutes of Jim Cramer at 6 PM and we are done for the time being. We can only stand so much of Cramer, but find his first 15 minutes worth listening. We will check out some local and national news on TV  up to around 7 PM to make sure we have missed no news that might effect the next day's markets. We take a break for an hour here to relax.

Around 8 PM we will get back to the computer to review late market news and overseas action. Then as we noted above we will hit the bed around 10 PM. 

Now does this sound like a traders life you might have envisioned?  If you are considering doing stock or option trading think hard as the time involved is extensive  We even read on the weekend and absolutely Sunday evenings before Monday trading.   As we noted we keep up with around 30 stocks on an ongoing basis and if we add a security it requires many extra hours to research and get up to date. The profits are very good for good traders of course, but a glamorous life it is not.  We make around 12% to 18% on our at risk capital so one must have some significant assets or access to assets via a large margin account to make this work for a living and live the traders life. 

                

Eisenhower Trusts no longer for just the wealthy.

Over 50 years ago the then President Eisenhower signed a just passed bill on cigar taxes as a routine day at the office.  Inside that bill was one of those little sections Congress likes to tuck into these bills to help out some friends. It was about creating a trust for some wealthy families like the Kennedys and Rockefellers so they could better able keep all that lovely money in their families.  The simple purpose was to allow these type families the opportunity to keep their assets without selling them and live off the cash flow without any corporate taxation.  Yes, tax free from the generating assets directly to whatever the wealthy family wanted it to go. Think the Merchandise Mart in Chicago for the Kennedys and Rockefeller Center in New York for the Rockefellers. 

Now of course once the law was passed lawyers and legal beagles got to doing their work on the process and found ways to make what became known as the Eisenhower Trusts more available to lower income people. This is sorta what happened when President Reagan saw that little law tucked into another bigger law and got his legal beagles to find ways to re-apply that section that has become known as the 401-k. 

Before we tell you how you might use this law to your advantage let's check out the opportunity. 

1. All the income from the trust comes to you tax free.  That is take the revenue, subtract the expenses, reinvested capital, and the rest of the cash flow is yours. 

2. The taxation is only at your personal rate or if tucked away into your IRA goes there taxable only when you take it out. 

3. The asset base is rock solid and you can use cash flow to purchase more assets tax free. 

4. The cash flow can be funneled into other trusts that either puts off taxation or avoids future taxation completely. 

4.  These trusts produce 5% to 7% annually year after year after year. More importantly they offer inflation protection for your assets. 

5. In the most recent downturn in 2008 these trusts kept about 90% of their value and kept on producing income with no interruption. As usual even after the downturn they returned to their former values and began moving up again. 

Yes we know you are wondering how you might get in on this game, well you can and today they are known as Real Estate Investment Trusts, or REITS. 

REITS today come in many forms and even more variety.  Apartments, commercial buildings, residential homes, storage units, and the list goes on.  Basically anything that can be classified as real estate. However here we will target the category we believe are the very best of these "Eisenhower Trusts" known as Triple Net Reits. 

Triple net reits are hands down our very favorite stock period. They provide steady income without corporate taxation.  They lease business property that shields the owner from the costs of operating the real estate such as taxes and maintenance.  Therefore more of the cash flow goes directly to the owner.  Most importantly the real estate leased is generally very long term with built in rent increases year over year. Less hassle, less issues, and more cash flow.  Below we will list some of our three favorite triple net reits. 

Realty Income...Without doubt the most shareholder friendly reit, maybe the most shareholder friendly company on the planet. Very transparent information online for one to research their owned properties and financial statements.  The beauty of Realty Income, symbol O, is that they pay monthly dividends, that increase constantly since like forever.  They invest in mostly single tenant commercial property and have a 98% occupancy rate. The current yield is around 5.5% and the stock bought anywhere around $40 or below is a good buy here for long term buyers wanting rising income and stable asset prices.  Realty Income's long history of asset management makes for very good sleep at night. 

National Retail Properties...This reit has the highest value property.  Where Realty Income goes for more properties, this company symbol NNN, has assets in the very highest quality mostly single tenant units.  The quality of this reit shows in the lower dividend yield of around 5%, but like Realty Income they raise their dividend annually year after year.  The asset price of NNN is as solid as it gets, you can count on it almost never going below $30 per share. 

ARCP...The newest of the triple net reits and now the largest as well.  This company has a huge portfolio of properties spread over a large number of business types.  We have been posting on ARCP for over a month now suggesting purchase at the former price of $12.50.   Now nearing $14 per share and with a yield over 7% we expect some additional asset value increase as well as some added dividends too. This company also pays their dividends monthly. Their preferred stock ARCPP is undervalued currently at just over $21 per share with a similar 7% plus yield as well. 

These three triple net reits are our favorites.  One can divide your money among the three and get a 6% payout right now that will rise annually and protect your asset base. That is how wealthy people like the Kennedys and Rockefellers keep themselves wealthy and have plenty of income to keep living the good life. Maybe you do not have that kind of wealth, but certainly you can use this kind of steady rising income and wealth protection for your size portfolio in these "Eisenhower Trusts". 

               

 

Arnold's of Richlands 1966-2014

At the time my being so young I could not grasp the business concept.   The one point I heard was that there would be some of that new soft serve ice cream coming to our small town.  As someone about 12 years old that was something about which to get excited.  What my father Bonner Hugh Jones and Arnold Mobley were discussing in our little living room on Hargett Street in Richlands was the future of our home town to be precise.  You see my father and Arnold Mobley were life long friends living just down the street from each other, both were visionaries and both wanted Richlands to grow. 

Mr. Mobley was building homes in town and had an idea to open a Tastee Freeze on the then just over a decade old Highway 24/258 where lots of cars were starting to drive by who could buy his ice cream and burgers.  Yes Richlanders believe it or not Highway 24/258 has not been here forever.  There was a time the highway went right down Hargett Street and then turned at Ed Whaley's old grocery store and headed back out Wilmington Street towards Jacksonville.  Then the state build one of those new "bypasses"  that went around the downtowns and made trips easier for those new cars everyone was buying in the post war years.  That present route of 258/24 in Richlands was completed in the early 1950's and my father had once owned a small part of the land the new highway had been built on since that was part of his farm inherited from his father. 

My father had ideas too.  He built a Texaco station on the highway that after the reroute cut through his land in the early 1960's which is now the Hess convenience store and eventually sold the land across the street to a local bank called Bank of North Carolina that is now PNC Bank.  "Mr. Arnold" as many of his friends knew him was known as the best home builder in the area and for some time my family was considering having him build us a home if we could find some land to do so around Richlands.  That evening in our living room Arnold told my father he was looking at building a Tastee Freeze I expect because my father had discussed earlier bringing a Hardees to town and Arnold was looking to see if my father was still looking into Hardees.  The Hardees idea had gave way to the Texaco and thus the Tastee Freeze was now a go since there would be no direct competition other than the then local favorite the Toot and Tell It. 

So the Tastee Freeze was built around 1966 and it as expected was a big deal in our small town.  The first building was nothing more than a dirt and gravel lot where cars would pull up, walk up to the window, get your food and go back to the car.  Later on inside seating was added on both sides of the little food prep building, and it seemed almost every few years afterward Arnold would add to the original structure new inside seating and a larger kitchen area. At some point along the way the Tastee Freeze franchise was dropped and the place renamed Arnolds Family Restaurant. Over the decades I doubt there is anyone associated with Richlands who had not dined on a burger from the restaurant. For years it was the place students would gather after ball games and the first stop after Sunday night church services for a soft dip ice cream cone. Arnolds would live on long after the Toot and Tell It closed.  Arnolds eventually became an institution along the highway as people would stop for his fried chicken and home cooked food many on their way to the beach. I was proud when people I knew from other places told me about stopping at Arnolds when I told them I was from Richlands.   The small town was blessed to have Arnold Mobley among it's citizens for many years.  

There was a time I almost went to work full time for Arnold Mobley. Arnold called my father one day and told him to ask me to come by and see him next time I was in town to visit.  I had left Richlands in the mid 1970's for employment but would visit my father and mother at the time almost every weekend.  Upon coming home one weekend my father told me to ride out and talk to Arnold since he had called and asked for me.  I did just that not knowing what Arnold wanted. When I got there Arnold told me he wanted me to come to work for him.  Now I had helped Arnold some years past when I was younger doing unskilled labor part time at the Tastee Freeze.   Arnold told me he wanted me to be his cashier and would pay me quite well.  That pay $300 per week was a princely sum back then and a good bit more than I was making at the time.  I frankly asked Arnold why he would pay me so much and his answer was quite simple.   He said he knew me, he knew my family and upbringing and knew I would not steal from him.  That he was having issues with theft and that I would literally pay for myself by stopping the theft because I was honest.  After some consideration I rejected the offer because I thought at the time I had a bright future career in newspapers.  Today I consider that offer and the reason the most honoring offer for work I ever got because of his trust in me from a man I greatly admired.  Of course as a older man now one gets to think what if.

I got the news this week that Arnolds was closing. Supposedly his daughter has decided to call it quits for whatever reason.  As one gets older you learn that nothing lasts forever, but losing places like Arnolds is like losing a piece of yourself, a piece of your life, and even more a piece of your history you can go back to and remember the good times.   I will miss the Big A burger and standing in the cafeteria line talking to people from Richlands. I will miss remembering going to Arnolds with my father for Saturday lunch. For those of us who grew up in Richlands and those who live there now this is like a death in the family, immediate close family,  and there seems to be the need to have a funeral.  I suppose that is what the is happening this Saturday when most will gather at the restaurant to share memories and say goodbye.  Yes I suppose this is almost a religious experience. 

 Maybe this is the price of progress, but I do not like it.  On the other hand my father and Mr. Arnold would be pleased and proud of the growth Richlands, their little hometown,  is experiencing the last few years which is what they were planning in that living room on Hargett Street now almost half a century ago. 

Eastern North Carolina Municipal Power Agency buyout?

News this past morning brings a leak that Duke Energy has been negotiating privately to buy out the assets of the ENCMPA assets.  I will get back to the reason we believe this news is from an on purpose leak and not a press release from Duke. In the meantime let's consider what this news is and what it could mean. 

The information seems to be that Duke Energy is willing to buy out the assets of the power agency and thus take on the $1.8 billion dollars of debt associated with the deal.  For those not familiar with the ENCMPA back in the 1980's the small cities of the eastern part of NC and the western part of NC became concerned that there towns would not be able to get power down the road and even if at a fair price.  So they went in with the Carolina Power and Light company to help them built power plants for the growing state.  The agency was formed and sold municipal power bonds to finance their share of the plants and debt. ElectriCities, the administration arm of the cities power agency, was formed to handle the buying of power and administration of the debt.  Add in the ElectriCities was to lobby for the cities as well.  The last few sentences are the short version of this arrangement as there is more at play here and if you have interest read our post on  Small Town Investor August 22, 2011 for the rest. 

Anyway this news this morning was obviously not meant to be released just yet as the negotiations could likely more forward quicker is there were not pressure on politicians to tank this deal.  Kudos here to NC Senator Buck Newton who has been a big supporter of getting some deal done here and it appears has been pushing behind the scenes. If this deal was to happen the power plants assets and debt would move from the member towns of ElectriCities to Duke Power.  This is frankly the correct approach and would relieve the towns of what is said to be about 37% of the cost of providing power in the local towns.  To be honest we do not see what Duke Energy gains from this, but give them credit for the willingness to make the plan happen. They only gain more debt since they will continue to provide power to the local towns wholesale as they are now doing anyway. 

So the local towns could be relieved of $1.8 billion dollars in debt and could in effect lower their power bills to customers.  I said COULD lower power prices because we are dealing with politicians here who only see that ratepayers are paying the high rates now so why not keep socking it to them and take the extra profits and use elsewhere to make new friends from all that money.  Personally I think the pressure to reduce bills will be enormous and I think it will happen.  As to reducing the bills the entire debt load reduction I doubt it since in the past town leaders in the effected areas how not been wise stewards of the power revenue.  These bonds should have been paid off about now if the original bonds had been allowed to mature, but of course they reissued the bonds and extended the debt ten years some years ago in order to use all that lovely new revenue from lower interest rates for favorite projects and to reward those in government. 

Let's add another layer to this hopeful buyout and that is why not take the opportunity to not only pay off the bonds and get out of debt, but to also get out of the power business entirely for the towns involved. Wanna bet that any leaders or government employees in the power agency towns cringe when reading that last sentence?  If not you would lose big and here is why.  If the towns did the right thing and looked after the citizens and power customers here they would take the next step past ending the debt and sell off, or even just give Duke, the remaining small assets like power lines and such.   Basically I am saying here that Duke takes the keys, you are in the power business and do it well, so do what you do best.  The towns would be rid of the problems of owning and dispensing power and could concentrate on what they are supposed do and that is provide basic government like police and fire  protection.  The cost to do so would be negligible to the towns and would actually be a plus to Duke and power customers as they could find ways to buy over a larger customer base.  The towns would benefit from having lower power rates and less pressure on property taxes which would in turn add to their ability to attract new business and the associated jobs. 

Why will this not happen?  This goes back to my belief this news was a leak.  Likely from either someone in the towns or someone at ElectriCities who does not want to see this deal happen.  Point is the towns have employees who do not want to work for Duke and frankly might be out of a job as Duke finds ways to operate more efficiently.  ElectriCities highly paid staff would lose jobs too and we all know how bureaucracy likes to live on forever even when not needed.  Maybe we could pray or wish that there are leaders here who understand they work for and should be advocates for citizens and taxpayers but count me as skeptical since being around this game long enough I know where this is likely to play out. 

For full disclosure we own significant bonds in the power agencies so this deal would not be a positive for the writer, but non the less as a NC citizen would like to see it happen since it would be so good for the state going forward in attracting more business and jobs. 

                 

First Quarter Trading Portfolio Update

Some additions to our portfolio included in this update.  We continue to look for value priced stocks.  The sell off has opened up some more opportunities. 

HCN..We believe this heatlhcare REIT has finally hit bottom   Obamacare priced in too. Strike price $52.50. 

AAPL..still offers good trading opportunities.  Recent sell off is overdone and offers good entry point. Strike price $475

C..We are now picking at this large bank due to our belief there is some upside here. Strike price $48

PM..has been way oversold.  Strike price $80

KO..value priced stock.  Strike price $38.

HFC..oil refiner in the sweet spot.  Strike price $42

VZ ...telecom with stable finances offers little downside risk. Strike price $45

SHLD..real estate play with significant upside potential.  Strike price $34, but we will lower that into the mid $20 on next option sale. 

T..telecom with little downside risk.  Strike price $31

O...best REIT on the planet.  Strike price $35

JPM..just keep absorbing bad news and holding share price. Strike price $50

NNN...best triple net REIT stock.  Strike price $25

ARCP..up and coming triple net REIT stock  Lots of upside.  Strike price $12.50

CSCO...good value.  Strike price $38

AFL...good value.  Strike price $60

BP...lowest PE of our portfolio. Strike price $46

IBM..If Buffet likes it we like it at $165. 

MONIF...our only long holding. risk filled pick with huge upside potential. 

NNC..Up over 40 cents since we suggested purchase.  We are long this bond fund. Still a good buy at $12.40

ARCPP..We recently suggested long term purchase of this preferred issue at just over $21 per share.