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Non-Tech : Income Investing
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From: brehm2337/1/2014 7:31:19 AM
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from yield hunter



June 30, 2014 5:00 pm

In what has turned into an incredibly dull market income investors should be bathing in their dividends. While the FED continues to 'taper' the 10 year treasury has continued a slow downward move toward the 2.5% area--in spite of every talking head saying for 3 years "individual investors are going to pay dearly for their moves to income investing". Hell--even we have worried off and on the coming (someday) upward move in the interest rate complex--I guess we have to call bullshit on ourselves as well as every other pundit out there.

In general we can't find any economic reason for rates to move sharply higher anytime soon. The final GDP numbers were nothing but a disaster last week--I mean down 2.9%--and it better have been the 'weather' because another negative number will unfortunately prove that the general economy really does suck. And exactly what does the FED have to stimulate the economy? There are more tricks in their bag--but will they use them? We doubt it. Who is to blame? Is there any real question that the do nothing federal government only serves to harm the economy? Why the hell are we not discussing serious legislation to allow corporations to repatriate the trillions they have setting offshore? I am afraid we are rapidly becoming 'Japan'--Japans GDP has trended down for over 50 years and now is at the point of no growth (in fact there has been no real growth there for 20 years). Maybe this no growth, stagnant economy is good for us income investors---it has been in the last year.

This boring market has done wonders for income investors with the 2014 Model Portfolio now having a gain of 9.17% through the 1st half of the year. No real tricks needed to do well thus far this year---being mostly invested of course is always a critical factor. Being invested--not in cash is of the utmost importance--remember we can't win in this game by crawling in a hole with our money and earning .01% in our passbook savings (although we do have a nice savings account with one of our insurance companies that pays us 4%). Preferred stocks (and exchange traded debt) closed at new highs for 2013/2014 today--gains are now just baby steps--but those are adequate for us. Preferred stock CEF's also are at multi year highs. MLP's and REIT's as a group are both at new highs. Of course this can't continue forever, but trying to guess when the party will end is impossible.

We have made decent progress in shortening maturities of our holdings during June, buy selling 2 pertpetual preferred issues and buying 3 issues (2 debt issues and 1 term preferred issue) with maturities that are 10 years and shorter in duration. Given the outlook for interest rates (in our mind) we are in no hurry to shift more money--but we will continue to shorten maturities opportunistically. Additionally we may add 1 REIT and 1 MLP issue in July--we are eyeing some moves in these sectors. The Model is 3.66% in cash (with an additional 4% 'parked' in Tortoise Energy Infrastructure 4.67% preferred), thus we have adequate dry powder if opportunities pop up.

We have the potential for large market moves later this week as we have the ADP employment report on Wednesday and on Thursday we have the Government Employment Situation report. The unemployment rate is expected to remain unchanged at 6.3% and 211,000 new jobs are expected to have been added. The last number of months no one has cared about these numbers at all---and that will likely be the case this month--but no one can predict when these important numbers become relevant again. Of course there are many other reports--none of which will be market moving (we are guessing)--why should they be now--they haven't been for months.

Lastly, just enjoy this market while it is nice and boring--it is sure to change. Double check your issues with nice capital gains and make sure none are getting anywhere near a redemption date (we have checked ours and believe we are in good shape in this area). Do some reading on newer REITs to see if there are opportunities. We really like the newer REIT Independence Realty Trust (ticker:IRT)--a monthly payor--a very small apartment REIT--a nice 7.61% dividend and we believe opportunities to grow (disclosure we own this REIT). IRT is up 5% in the last month.
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