“The Preferred Stocks I pick, based on the CDx3 service newsletter, have enabled me to recover from major losses...I will continue to use this CDx3 stock investing strategy." Randy H., CDx3 Notification Service subscriber MORE>>
In This Issue...
Last Month's CDx3 Investor Results
2010 Update to Preferred Stock Investing Now Available!
Readers of my book, Preferred Stock Investing, Third Edition, are entitled to free periodic updates to the preferred stock tables presented throughout chapter 15 of the book as long as the Third Edition is in print. Providing free periodic updates helps keep readers of Preferred Stock Investing up to date.
The 2010 update to Preferred Stock Investing is now available!
And I am also happy to announce that as a special service to readers, the 2010 update goes beyond an update to the preferred stock tables found in chapter 15. In this update I also take the opportunity to provide you with the results of the "CDx3 Income Engine" (the preferred stock investing method explained throughout the book) as implemented throughout the Global Credit Crisis (2007 - 2009). The nature of the preferred stock market since June 2007 deserves special attention and the 2010 update to the book would not have been complete without wrapping up the method's performance during these historic (extreme) conditions.
Specifically, the 2010 update to the Third Edition of Preferred Stock Investing includes updates to the following chapters:
Preferred Stock Investing, Third Edition is one of the most highly reader-rated books of any kind available for sale in the United States. To receive the free 2010 update to Preferred Stock Investing, Third Edition just follow the instructions on the first page of chapter 15 in the book.
If you have yet to pick up your copy of Preferred Stock Investing, Third Edition you can do so at any of your favorite online retailers (see retailers). Please pick up your copy today then follow the instructions on the first page of chapter 15 to download the free 2010 update.
Just Posted On The Preferred Stock Investing Reader's Forum: Fidelity publishes a report every year that estimates the nest egg that a retiring couple needs to offset the average 6% annual increases in healthcare costs that the company foresees. Many employers use the annual Fidelity report as a basis for determining health benefits for employees. A November 27 article on my blog compares the returns produced by a variety of highly liquid, fixed-return investments to shed light on which is most likely to consistently keep up with the expected increases. (jump to Forum)
The Last Month's CDx3 Investor Results article explains how the Federal Reserve's new and unprecedented $600 billion treasury note purchase program is likely to put significant upward pressure on the market prices of high-quality preferred stocks as the program is implemented over the next several months. 86% of the Fed's purchases will be of treasury notes with durations between 2.5 and 10 years, putting the market prices of other fixed-return securities, such as the highest quality preferred stocks, directly in the crosshairs of this new program. (jump to article)
The Special Announcement article provides you with an updated list of trust preferred stocks (TRUPS) that will be among the first to be affected by Section 171 of the Wall Street Reform and Consumer Protection Act. Remember that subscriber's to the CDx3 Notification Service, my preferred stock email alert and research newsletter service, receive this same list with all of the trading symbols. This month's list identifies eighteen of the highest rated, highest quality trust preferred stocks. Secondly, I have summarized some of the research from my book, Preferred Stock Investing, Third Edition, and am making it available to brokers, financial planners and investment groups for free. (jump to article)
In the CDx3 Company Spotlight article I introduce you to Weingarten Realty, a $2.9 billion Real Estate Investment Trust founded in 1948. During a time of extreme economic pressure, occupancy rates are actually increasing at Weingarten's shopping centers with retail space leading the way. And the Company just acquired four new massive properties within the last four months. What makes Weingarten so different from its competitors? (jump to article)
The CDx3 Question of the Month is presented both here and on the Preferred Stock Investing Reader's Forum. If you visit the Forum you can test your knowledge by clicking on your answer to the question. You will receive an automatic email that provides you with the correct answer and my explanation. Or you can just read the answer in the below CDx3 Question of the Month article. This month's question - "What preferred stock-issuing industry segment tends to benefit from inflation?" (jump to article)
Why wait until next month's CDx3 Newsletter to find out what is going on in the preferred stock marketplace? Throughout the month I post regular research articles on the Preferred Stock Investing Reader's Forum and make them available to you for free. In the Free Special Offer article below I provide you with a link that allows you to receive my posts via an email message rather than having to visit the Forum to see what's new. Any time a new article is posted, you will receive a message in your email inbox automatically - free. (jump to article)
Coming Up For Preferred Stock Investors: If the Federal Reserve's $600 billion QE2 program is successful, we should see upward pressure on the market prices of fixed-return securities here in the U.S. That means that investors contemplating purchasing high-quality preferred stocks are likely to find better prices now rather than later (the program is scheduled to be completed by next summer). As described in the Next Month's Sneak Peek article, if Fed chairman Ben Bernanke has his way, right now is a great time for preferred stock buyers. (jump to article)
I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.
QE2: Preferred Stock Prices In Crosshairs Of New $600 Billion Fed Program
Demand For Shares Likely To Push Prices Higher As Program Is Implemented
During November, the Federal Reserve announced that it is going to be purchasing $600 billion of treasury notes from its member banks over the next several months. Since 86 percent of this money will be spent on treasuries with 2.5 to 10 year maturities, this Fed policy is right in the wheelhouse of preferred stock investors; what happens to the market prices and yields of these treasuries between now and next summer is also likely to happen to high quality preferred stocks.
One of the goals of this unprecedented program (called Quantitative Easing or "QE2") is to spur inflation. If successful at meeting this goal, QE2 has specific implications that preferred stock buyers should be aware of right now.
Ben Bernanke: Head Stone Skipper
Changes in "monetary policy" (adjusting interest rates or the amount of money within the economy) are designed and implemented by the Fed in order to achieve a specific result. All such policy manipulations are aimed at altering the behavior of consumers and investors. But the implementation of monetary policy is a bit like skipping a stone across a river. You're on the near bank with your flat-as-you-can-find stone with your goal being to skip it across the always ebbing and flowing water to a specific spot on the far bank. You study the water, study the wind, study your rock and see what your buddies think, but in the end, once the stone leaves your hand, you are no longer in control. At that point, you are simply hoping for the best.
In November, the stone left Fed chairman Ben Bernanke's hand.
Historically, the Fed's most powerful tool in altering inflation (up or down) has been to change a key interest rate called the federal funds rate (the rate that banks charge each other for overnight loans). As demonstrated repeatedly over many years, former Fed chairman Alan Greenspan used .25% changes in the federal funds rate to control inflation with surgical precision. Lowering the federal funds rate makes money cheaper throughout the economy, hence spurring investment, hiring and, therefore, consumption. This increasing economic activity puts upward pressure on prices, increasing inflation. Skip...........skip......skip...skip.skip.
The increase in hiring (demand for labor) puts upward inflationary pressure on wages as well, so a moderate amount of inflation is healthful for any robust economy. But not too much. The Fed's stated inflation target is an annual rate of 2%.
Pull The Next Lever
But in the wake of the Global Credit Crisis and amid the current Great Recession, the federal funds rate is at zero and has been sitting there since the summer of 2009. And guess what? No inflation. That's unheard of. Money has been essentially free for over a year now and yet stagnation persists, month after month. The levers that worked so well for Greenspan for so long are producing little or no results when pulled by Bernanke.
So what now? How does Bernanke spur economic activity if free money is not getting it done? With the federal funds rate at zero, lowering the federal funds rate to get things going is obviously out.
Answer: pull another lever. Enter QE2.
By purchasing $600 billion of treasury notes (throw stone), the Fed removes them from the market (skip); that is, these notes will no longer be available for other investors to purchase. By reducing the available supply, investors wanting to get their hands on them will have to pay more (skip). By having to invest more of their funds for these fixed-return securities, the yield (the return on the money they have invested) that they earn goes down (skip), taking the yields of all similar term securities with it (more on this in a moment). Lower market yields allow businesses to raise money by issuing new bonds and preferred stocks at lower dividend rates (skip) which, in turn, generates enormous cost savings (skip). This cost savings, the theory goes, allows businesses to hire workers that they may not have otherwise (skip) hence reducing unemployment (skip) and stimulating consumption as payrolls grow (skip). This increase in consumption by newly hired workers represents new demand for products and services throughout the economy (skip) thereby putting upward pressure on prices (skip) and increasing inflation (stone reaches far bank).
It's The Term More So Than The Amount
For preferred stock investors, it is the term of the treasury notes being targeted by the Fed that should make you take notice. The Fed's target is investors looking to invest for 2.5 to 10 years - that's our sweet spot.
As QE2 pushes up the market prices of treasury notes of these maturities, investors will move quickly to other relatively low risk securities with similar durations, namely Certificates of Deposit, Aaa rated corporate bonds and the highest quality preferred stocks. This increase in demand, of course, will put upward pressure on the market prices of these securities as well, beyond what would have been there otherwise. So preferred stock buyers should be paying attention right now.
Take a look at this chart. If Bernanke's stone reaches the far bank and he is successful in stimulating growth and modest inflation, investors will want as much protection as possible from the purchasing power erosion that inflation can bring. If QE2 works, the lines you see on this chart should come down a bit next year as fixed-income prices go up and their yields, commensurately, decrease.
Looking at the chart, where do you think that many investors are most likely to jump once QE2 starts putting upward pressure on prices between now and next summer? The highest quality preferred stocks should be a very attractive alternative to many fixed-income investors looking to maximize inflation protection and dividend yield as QE2 is implemented over the next several months.
Learn To Screen, Buy and Sell The Highest Quality Preferred Stocks
Preferred Stock Investing includes the information, websites and other resources needed for you to be a very successful preferred stock investor. For those who would rather someone else do the research and calculations, I offer the CDx3 Notification Service. Subscribers to the CDx3 Notification Service receive an email alert when there are buying and selling opportunities coming up. Subscribers also receive their own non-promotional preferred stock research newsletter every month, have their own website that hosts the CDx3 Preferred Stock Catalog and have access to the CDx3 Discussion Group, the only online forum just for preferred stock investors.
Invest in the best. Subscribe to the CDx3 Notification Service (see reader comments) today.
UPDATED: This Month's Under $25 Trust Preferred Stock List
These 18 Preferreds Will Be Among The First To Come Under The Wall Street Reform Act
This table presents an updated list of Big Bank-issued trust preferred stocks (TRUPS) that will be among the first affected by section 171 of the Wall Street Reform and Consumer Protection Act, signed into law on Wednesday, July 21, 2010.
Section 171 creates the largest single opportunity for preferred stock investors in history (how's that?). And like most investments, the highest returns will tend to favor those who get in earlier rather than later.
The new law prohibits Big Banks (assets greater than $15 billion) from counting their TRUPS in their "Tier 1 Capital" calculation, a measure regulators watch when assessing the adequacy of a bank's reserves. These Big Banks are therefore likely to retire ("call") their TRUPS. Investors who hold shares of a TRUPS when it is called will receive $25.00 per share, so investors who purchase shares now for less than $25 position themselves for a capital gain on top of the above-average dividend income that they will be earning in the meantime.
The far right column of this table shows you the effect that adding a capital gain onto the regular quarterly dividend income has on your Effective Annual Return...courtesy of the U.S. Government.
By watching this list each month, you will be able to monitor this opportunity as the January 1, 2013 implementation date approaches (expect prices to generally increase toward $25.00 per share).
Since market prices change every day, the list of affected TRUPS selling for less than $25 per share changes as well. So I will provide you with an updated list in this Special Announcement article every month. These are the highest rated, highest quality issues that are going to be first affected by section 171 of the new law that are also selling for less than $25 per share right now.
Subscriber's to the CDx3 Notification Service (my preferred stock email alert and research newsletter service) are provided with this same TRUPS list, including the trading symbols, on page 7 of each monthly issue of the subscribers' newsletter, CDx3 Research Notes. Please consider becoming a subscriber to the CDx3 Notification Service today.
Brokers And Investment Groups: New Meeting Materials Now Available
As the most comprehensive research service available for the highest quality preferred stocks, all of the large, and many smaller, brokerage firms subscribe to the CDx3 Notification Service.
My Preferred Stock Investing Group Materials are intended for brokers with a group of clients or self-directed investment groups that are interested in learning something about preferred stock investing.
The Preferred Stock Investing Group Materials include a slide show (27 slides, PowerPoint Show format) and an accompanying handout that provides my commentary for each slide. The handout is available in color and black and white (PDF format) for easy printing.
The materials include my tips regarding how to select, buy and sell the highest quality preferred stocks and summarize much of the research from my book, Preferred Stock Investing. Specifically, the materials are organized into three parts:
Part 1: Approach and Objectives To Preferred Stock Investing
Part 2: How and When To Buy and Sell Preferred Stocks
Part 3: Preferred Stock Investing Resources
To request the Preferred Stock Investing Group Materials just send an email request to:
You will receive an auto-reply email message with current download instructions.
Who Are These Companies That Issue CDx3 Preferred Stocks?
Weingarten Realty (NYSE: WRI)
Weingarten Realty is a $2.9 billion Real Estate Investment Trust (REIT) headquartered in Houston, Texas and was founded in 1948. At September 30, 2010, the company owned or operated under long-term leases, either directly or through its interest in real estate joint ventures or partnerships, a total of 378 developed income-producing properties and 10 properties under various stages of construction and development.
The total number of properties includes 307 neighborhood and community shopping centers located in 22 states spanning the country from coast to coast. The company also owns 78 industrial projects located in California, Florida, Georgia, Tennessee, Texas and Virginia and three other operating properties located in Arizona and Texas. At September 30, 2010, the Company’s portfolio of properties was approximately 70.6 million square feet.
So at a time when driving down any suburban street offers views of empty retail centers, what makes Weingarten so special? Weingarten just announced its third quarter financial performance on November 1 and posted an overall same property Net Operating Income (NOI) increase of 1.2% over the same period a year ago. But what was really stunning was that the NOI of Weingarten's retail properties was up even more - 2.0% in one of the toughest retail economies in history.
And while others were boarding up storefronts, Weingarten's overall occupancy, which has never be less than 90%, increased to 91.1% with retail occupancy growing 50 basis points to 92.6%.
The secret? If you look over Weingarten's tenant list, you will notice something very specific and consistent about the names: Target, Kroger, Home Depot, Ross. You do not see Tiffany's or Nordstom's and the like. While there are a few recent strategic exceptions, Weingarten specializes in discount retail and locates its properties in high density infill areas with 89,000+ people within three miles of every store.
With this proven strategy, Weingarten has not had any trouble executing acquisitions. During the third quarter the Company made two key acquisitions for $20.5 million:
And even more recently, during the last two months the Company closed on two additional acquisitions which totaled $40.7 million:
“Weingarten is excited to bring four high quality assets located in strategic markets into our portfolio at current returns of around 7%..." says Drew Alexander, Weingarten President and CEO.
Learn more about Weingarten Realty: Company website | Profile | Upgrades/Downgrades | Recent News.
Reader Note: The purpose of the CDx3 Company Spotlight article is to give you a sense of the types of companies that issue CDx3 Preferred Stocks. Companies that appear in the CDx3 Company Spotlight either currently, or in the past, have issued CDx3 Preferred Stocks. Since I am not familiar with your financial goals, resources or risk tolerance, my mention of these companies here should not be taken as a recommendation by me for you to buy, or not buy, securities issued by these companies. Companies can issue multiple series of preferred stocks, some of which may meet the CDx3 Selection Criteria while others do not.
What preferred stock-issuing industry segment tends to benefit from inflation?
As described in the above This Month's CDx3 Investor Results article, one of the the primary goals of the Federal Reserve's new Quantitative Easing program is to stimulate inflation so this question is particularly relevant right now for preferred stock investors.
On the one hand, inflation is the enemy of consumers. But on the other hand, these same consumers are also workers and wages tend to rise during inflationary times along with everything else. While it would be great to have wage inflation without inflation in the price of goods and services, we'll have to leave that blessed combination to someone else's reality.
Economists refer to this mechanism as the "marginal propensity to consume." This is a fancy way of recognizing that, while people will split their income between consumption and savings, their consumption percentage is relatively constant. So as wages go up, so does consumption and, therefore, the prices of the things being consumed.
But job growth and consumption are not necessarily even across all segments of the economy. Depending on conditions, as consumption increases and inflation kicks in some segments benefit more than others. For preferred stock investors, anticipating which industry segments are going to benefit if an inflationary period is on the horizon can be extremely beneficial.
The question this month for preferred stock investors:Of the following choices, what preferred stock-issuing industry tends to benefit from inflation?
(C) Media and Entertainment
The correct answer to this question is (B), Real Estate Investment Trusts (REITs).
The Federal Reserve's new Quantitative Easing program ("QE2") will purchase $600 billion of treasury notes from the Fed's member banks over the next several months. 86% of these notes will be of 2.5 to 10 year durations. Unlike many other industries that issue preferred stocks, REITs often carry the majority of their debt in this same timeframe. What happens to the QE2 program will be felt by many REITs much more and much sooner than it will with several others.
If QE2 is successful in creating inflation, REITs, especially those that issue property leases that are shorter rather than longer, will be able to capitalize as rising prices put upward pressure on rents and therefore company revenue.
Additionally, by their very nature REITs carry a great deal of debt since their primary assets (buildings) are constructed or otherwise purchased with capital paid back over a period of time. The Fed's QE2 program is specifically design to push up the market prices of fixed-return securities with 2.5 to 10 year durations which, in turn, will reduce their yields. Companies that rely on capital of this duration (REITs), will therefore be able to issue new bonds and preferred stocks at lower dividend rates, generating enormous savings for these companies.
So, during a period of inflation and especially inflation as created by the design of the Fed's new QE2 program, REITs stand to receive a double benefit, both of which are reflected directly in improved profitability - increasing rent revenues at the same time as decreasing capital costs, upon which this segment relies particularly heavily.
Quick Note: Subscribers to the CDx3 Notification Service (my preferred stock email alert and research newsletter service) receive their own non-promotional newsletter every month called CDx3 Research Notes. The December 2010 issue of CDx3 Research Notes takes this analysis quite a bit further and not only explains why three specific factors will position a specific REIT sub-segment to benefit the most from QE2, but goes on to identify the highest quality preferred stocks within that sub-segment that are right in the crosshairs. Right down to the specific trading symbols.
You can submit your own preferred stock question: Submit your question.
Preferred Stock Market Research Now Available All Month Long - Free
Automatic Email Delivery Of Preferred Stock Market Research Now Available
Readers do not have to wait until next month's issue of the CDx3 Newsletter to stay plugged into the market for high-quality preferred stocks. Preferred stock research articles, marketplace observations and preferred stock news from the financial press and other information are posted to the Preferred Stock Investing Reader's Forum (my "blog") throughout the month.
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Timing Of Eurozone Financial Turmoil Gives QE2 A Chance To Succeed
Fear Of Investing Overseas Should Help Keep Investors (And Their Dollars) At Home
$600 billion QE2, Wikileaks, Tea Party, turkey day, North Korea, Basel III, currency wars - what a month...situation normal!
Whether or not the Federal Reserve's $600 treasury note purchase program will achieve its goals of lowering borrowing costs, increasing employment, stimulating healthful inflation and making us all look 20 years younger remains to be seen.
For the program to be successful, investors faced with a diminished supply of U.S. treasury notes in which to invest will have to be willing to pay more to get their hands on these securities. If they are, market prices of high quality corporate bonds and preferred stocks should rise as well, making now a good time for buyers.
But another possible outcome is that, rather than pay more (and lowering their returns accordingly), investors could just chase yields overseas rather than invest domestically.
Fragile central banks in other countries find this possible outcome frightening since the healthful inflation that QE2 is suppose to create in the U.S. could devastate a smaller foreign economy and its currency if investors go offshore with their dollars in any significant way.
In what is probably an ironic twist of fate, the headlines regarding turmoil in the Eurozone work in favor of the U.S. in this regard and the timing could not be better for the Fed's QE2 program. Uncertainty surrounding Ireland, Portugal and Spain is raising the fears of investors who might otherwise just take their funds elsewhere rather than face higher fixed-return security prices here.
For the moment at least, the nasty headlines about financial conditions overseas could end up being the secret sauce that allows QE2 to succeed in the U.S.
I look forward to reporting back to you in next month's issue of the CDx3 Newsletter.
to screen, buy and sell the highest
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15 of Preferred Stock Investing
includes a list of all of the CDx3
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readers also receive free periodic
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Chapter 15 of Preferred Stock Investing includes a list of all of the CDx3 Preferred Stocks issued since January 2001 and the investing results you would have achieved had you invested in them using the CDx3 Income Engine.
And readers also receive free periodic updates to the preferred stock lists in chapter 15 as long as the Third Edition of the book is in print.
Please take a look at www.PreferredStockInvesting.com. And if you know someone who might be interested in simple investing for non-experts please have them send an email message to:
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Many Happy Returns,
Doug K. Le Du
Copyright (c) 2010 by Doug K. Le Du
CD Times 3, CDx3, CDx3 Income Engine, CDx3 Investor, CDx3 Portfolio, CDx3 Preferred Stock, CDx3 Perfect Market Index, CDx3 Bargain Table are trademarks of Doug K. Le Du. All rights reserved.
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DISCLAIMER: The content of this CDx3 Newsletter is to be regarded as educational, rather than advisory. There can always be exceptions to trends and/or generalizations that may be discussed herein. Consider your financial resources, goals and risk tolerance before investing. You, and not Doug K. Le Du, are solely responsible for your own investment decisions.