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$AEC

Fun With Twisters

Excuse the lapse of writing, particularly during such an eventful day as yesterday. A family member realized some damage to their house from the wind storms that struck Wednesday; missing shingles, broken trees, some little things like that…and I said I’d help them out.

Today, I’m rather tired and, since I forgot to apply sunscreen, baked like a manicotti.

My outlook on equities remains cautionary. I have a large cash position and ample shorts with SCO and EUO that give me, I feel, a 50/50 cash/invested stance. My longs are AEC, CLP, CCJ, BAS, RGR and silver.

AEC was hammered yesterday, one of the top losers in the market. They announced another secondary, which they’re using to get their debt lower. AEC executives I believe are very concerned about the ability of interest rates to hold. They have been for over a year now. And not just for interest rates from treasury yields, but also there have been subtle drops of fear about what would happen if a push to reform Freddie and Fannie upended the new loan origination process. So possibly expect more dilution. But, earnings are set to improve from the move, FFO remains strong, and as long as they keep pushing the business towards expanding operations (California is their big push at the moment), I will be willing to stomach some stock sales.

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Multifamily Still Doing Just Fine

I’m busy, and have been for a week. So I thought I’d leave you with some light reading:

The rental vacancy rates for the nation declined from 8.4 percent in 2009 to 7.4 percent in 2011, according to one of two American Community Survey briefs covering the housing market released today by the U.S. Census Bureau. Approximately four times as many metro areas experienced declines in rental vacancy rates as those that experienced increases. The share of U.S. households that rent rather than own increased from 34.1 percent in 2009 to 35.4 percent in 2011. Nearly a quarter of the nation’s metro areas saw a rise in renting households, while less than 3.0 percent of the nation’s metro areas saw a decline.

Rental Housing Market Condition Measures: A Comparison of US Metropolitan Areas examines four characteristics of the rental housing stock using American Community Survey data collected in 2009 and 2011. The characteristics are gross rent, gross rent as a percentage of household income, rental vacancy rates, and renter share of total households and describe changes comparing 2009 with 2011.

The brief found that more renters are spending a high percentage of their household income on rent. Policymakers use gross rent as a percentage of income as a measure of housing affordability, and it is often used to determine eligibility for housing programs. In this report, renters spending 35 percent or more of household income on rent and utilities are considered to have high rental costs.

The share of renters with high housing costs in the United States rose from 42.5 percent in 2009 to 44.3 percent in 2011. However, average rental rates in the United States declined from 2009 to 2011.

“While we saw a decrease in rental vacancy rates and pricing in some areas, the burden of rental costs on households increased across many parts of the nation,” said Arthur Cresce, assistant division chief for housing characteristics at the Census Bureau. “Factors such as supply and demand for rental housing and local economic conditions play an important role in helping to explain these relationships.”

Nationwide, only 11 metro areas reduced their shares of renters with high housing costs, while 62 metro areas increased their shares.

Among the 50 most populous metro areas, some of the heaviest rental costs were borne by renters in metro areas in Florida, California and Louisiana in 2011, despite rent declines between 2009 and 2011. These include Miami with 55.7 percent of renters experiencing heavy rental costs. Orlando, Fla. (52.9 percent); Riverside, Calif. (52.2 percent); and New Orleans (51.3 percent), whose shares did not differ significantly from one another, followed closely.

Among the 50 most populous metro areas, only two became affordable for more renters — Richmond, Va., with a decline of 3.2 percentage points in the share of renters with high rental costs from 42.7 percent to 39.5 percent between 2009 and 2011, and Buffalo, N.Y., with a decline of 3.0 percentage points from 45.6 percent to 42.6.

$AEC and $CLP and the renting class are still in effect.

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CLP’s End Of Year Materials Were Excellent

I just finished up looking over CLP’s end of year materials and voting my shares. They did a fabulous job – the multifamily theme continues to have powerful undercurrents carrying the REITs to success. Occupancy is so high right now; money is flowing freely and AEC and CLP are both pushing through massive expansions in the pipelines.

I continue to see good things coming from this sector. I will be maintaining my investment in both AEC and CLP.

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Deafening Silence

Alright, so the instant I switched over from “merely rapaciously expectant” to “full blown, mind numbingly jubilant”, the market turned on a dime and started punching participants in the face. That should have been clear before I did it. It always happens like that.

So on behalf of everyone whose kids can’t attend college now, I’d like to say, “I’m sorry.”

In times like this, it can always be difficult to answer that most important of questions. No not, “am I properly managing risk.” I’m talking about the even more important inquiry…”Whose fault is this?”

Now, there are several ways you could play this. Personally, I’ve decided to blame it on people using trailing stops. Dicks…littering their homes with half eaten burgers strewn around in McDonald’s bags all over the floor…all while smoking and ashing right on top of them…just begging to burn their house down…

There, you see how I did that? Make sure you ramble a little and trial off at intervals, to really get the “I’m-slightly-unhinged-talking-almost-to-myself” effect.

At any rate, the markets are getting lit up, and all is despair. If you’ve been living the Pisani lifestyle, I’m afraid you’ll be made to eat your hat by a short seller, who will watch you doing it while flinging small handfuls of sand in your eyes. It hurts, I understand. You have my sympathy.

Thankfully, I had the foresight to sell into the strength as opposed to throwing weight on the downdraft and cutting myself down by 5%+ all in one go.

My anticipation, for the moment, is that we will finish this selloff quickly and then surge higher.

I made a (now obviously) misguided purchase of AGQ a few days ago, but other than that I’ve been very good about holding that cash and keeping my hands off it. EUO, my hedge, is running, as this selloff seems to be driven as much by dollar strength as anything else.

The REITs are holding up decently well; AEC and CLP having nothing but cash and sterling operations.

BAS is not so fortunate.

If you owned BAS and didn’t know this quarter was going to be hard: please dispatch yourself in a grueling fashion. That was the most obvious loss in the history of loss-taking. Still BAS is way up from last year and I will consider adding on dips.

CCJ got hit yesterday as well, and RGR seems to be collapsing predominantly on profit taking. Both are buys; both will see much higher prices.

Finally, silver. Silver is the butt of jokes being told on Twitter; that place where everybody sees everything coming and makes 500% annually. Well, the jokes going to be on all of you. Silver is going to explode higher when you least expect it. I remember the circus at $15 /ounce. How it was going single digits. Then it lit you up.

I remember when it went from $50 to $25, and the same people were guffawing how it was going back to $15. Then it lit you up again.

Now it’s off to below $30 (meanwhile the Fed is dropping money like it’s worthless), and the same folks are howling that it’s all done for.

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Embrace The Rally, But Plan Ahead (Scaled Back AEC)

The walls of the room irradiate a faint heat absorbed from the hearth where a raging fire keeps back the winter tempest outside. Six stories below a fog is rising from the window panes. And the ground floor two beneath that is completely covered in a thick blanket of snow.

Going into the afternoon, I took the time to lighten up AEC. It had a great quarter, and taking advantage of the punch higher over the last six months, I took profits on everything I purchased when it undeservingly sold off last year. I’m back to holding my core position – which is about 10% of equity assets.

I now have core positions built in AEC, CLP, BAS and RGR. I have an equal sized hedge in EUO. All are equal to about 10% of assets. I have an oversized position in CCJ of almost 30%. Roughly 20% of my account is in cash.

This doesn’t count the silver I hold, which is about 15% of net value. Add that back in and all the position sizes drop a little bit; but not much.

I’m going to be very reserved about making purchases here. I’m rooting on the upside, but I’m keenly perceptive that this is the same old game being played. As prices offer me relief, I’ll just keep taking money off the table, a little at a time.

Winter has been very good to me so far. I’d be remiss to blow that.

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AEC Provides What Matters

For all the analyst pessimism; for all the downtrodden complaints about cap rates and cash flow; for all the smirks that a company would ever bother “repaying what it owes” rather than leveraging up (more); AEC once again smashed earnings.

FFO gorged itself, plus >30%. Profits swelled. The operations of this multifamily improved considerably. And their flashy new credit rating shows off those improvements.

And through it all, occupancy held 96%.

It’s time for the REIT analysts to face the music – they were wrong. They were wrong about the company. They were wrong about the profitability of AEC being hindered by a paltry few percent in cap rates. They were wrong about an Exodus of renters leaving the market.

None of those things happened.

Or you can keep your head in the sand. I’ll just keep watching FFO build at a 30% clip, add at these ridiculous prices, and take a fat payday down the road.

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