WASHINGTON, August 18, 2017 – We’ve outlined the latest barrage of domestic and international news in our companion column – a lethal combination of fake and terrifyingly real news that has the world on edge. Investors bailing out of stocks and heading for U.S. government securities and adding to their penchant for buying gold and silver (either the real thing or ETFs) as a hedge against disaster.
As a result, markets remain highly treacherous Friday, even as an oversold bounce is looming. That will likely happen some time next week, though a false start in a temporary bull move was attempted Friday afternoon. As of 2 p.m. ET, that attempt is beginning to falter. The fact that it’s options expiration day today doesn’t exactly help, either.
As for us, we’re continuing to play this one defensively, bailing out of stocks where we have considerable profits rather than giving that money back to the house in this negative environment.
Today, we parted (briefly, we hope) from our winning position in Micron Technology (symbol: MU) for roughly a 15 percent profit. We pared a measly 50 shares from our (sinking) position in Master Limited Partnership (MLP) AMLP, an ETF that tracks oil and gas limited partnerships, collects their massive dividends, and passes them on to us, the shareholders.
Another key attraction of this ETF: Since they handle the paperwork, you and I don’t have to fill out those irritating and indecipherable K-1 forms each MLP has to mail out to us each year, delaying the filing of our tax returns into late summer, since those K-1s don’t have to arrive early like those W-2s.
But AMLP has been under trading assault lately, so we decided to lighten up modestly for now. Ditto our large position in IRT (IRT), a REIT largely involved in apartment rentals. We’ve been in and out of this one before and have (fingers crossed) always made money in this issue. This time, we made roughly 18 percent. Nice.
We also backed out of another REIT favorite, Two Harbors (TWO), a high-dividend paying REIT that remains in the S&P Financials sector. Actually, the reason we exited IRT and TWO is because the Financials and quite a few REITS of all stripes have fallen out of favor recently, which tends to happen as autumn approaches. We suspect we’ll get back in these two once again, if the right price comes our way. Ditto NRZ (NRZ), yet another multiform REIT we’ve owned before. Great companies. But perhaps not just this minute.
Finally, we dumped a small position in Cohen & Steers Quality Income Realty Fund, an ETF that invests in major property-owning and mortgage REITs and has a sterling long-term record for over-all returns. It hasn’t been going anywhere – a casualty of the current REIT and Financial Sector malaise, so we bid these high-yielding shares adieu. For now.
What has us mightily perturbed is the disastrous performance of our RAIT Financial Trust 7.625% notes (RFT). It’s a large position for us, but it’s off nearly 19 percent as we write this. The reason is simple. It’s poorly-performing parent, RAIT Financial Trust (RAS) has, under some goading by a hostile investor, been restructuring its portfolio extensively, meaning lousy earnings for X quarters, with X being entirely unknown to regular investors.
This seems to be a pretty good plan in the long run. But the quarterly losses in the past quarter were huge, sending this already cheap stock down into “penny stock” territory, where it currently sits at $1.03 per share and perhaps headed lower.
This has a bad effect on our RAIT notes, for obvious reasons, as many investors fear an eventual dividend cut, taking away the main reason why income-oriented investors (like us) routinely buy this kind of stuff.
We’re experiencing similar issues with another set of notes, this time from Travel Centers of America (TA). The issue here is the same thing as with RFT, although the Travel Centers issue (TANNL). We continue to hold these large positions, but they make us nervous, given the underlying weakness in the parent stocks.
We also continue to hold our massive position in Allergan Convertible Preferred “A” shares (AGN/PRA, your broker’s symbol may vary). As always, after its ex-dividend date (this time, August 11), the stock quickly proceeded from a yearly high of $900+ per share down to $798.77 this morning before stabilizing (at the moment) at $803.
We also put on a 200 share short hedge, using our usual double-short S&P 500 ETF, symbol SDS. As usual, whenever we insure ourselves against disaster with these shares, the market ticks up. But we’ll hold these shares anyway until the market proves to us it’s shaken off its current bearish fears.
Have a good weekend, and we’ll be back early next week to give you the latest blow-by-blow account of our trading and investing victories and disasters.