Wednesday, September 18, 2019

Observations and Sample of Recent Trades: KBWY, NMFC, T, TERP


U.S. consumer sentiment rebounds modestly in September- MarketWatch (reading of 92 in September, up from 89.8 in August which was a 3 year low)

Saudi Arabia shuts down about half its oil output after drone strikes spark fires - MarketWatchIran denies carrying out crippling attacks on Saudi oil facilities Iran would certainly be the most likely ultimate source for the attack. Saudi Oil Attack Photos Implicate Iran, U.S. Says; Trump Hints at Military Action

Oil infrastructure facilities in the Middle East are susceptible to destruction in asymmetric warfare. The attack on Saudi's largest oil processing site at Abqaiq was carried out by a few drones and/or missiles. Even if Saudi Arabia is able to restore production and processing in a few days, the vulnerability of oil infrastructure facilities to drone attacks remains.  

Longer term, the vulnerability of crude oil supplies sourced from the Middle East will likely have critical U.S. economic and national security implications.     

U.S. official says Washington believes Saudi attacks came from southwest Iran - Reuters

Oil ends sharply lower as Saudis project early return to normal for damaged facilities - MarketWatch

Oil supply fully back by end of Sept, Aramco IPO on track, Saudis say

Fascinating to watch: U.S. National Debt Clock-Real Time (federal government debt per
taxpayer is now over $183K)

Markets and Market Commentary

The attack on the Saudi energy facilities did contribute to a reversal of the rise in intermediate and longer term treasury yields. 

The S&P 500 should be 13% lower because a recession is coming, warns Deutsche Bank - MarketWatch This call comes from Binky Chadha, Deutsche Bank’s chief global strategist. The Stock Jocks are accentuating the positives and eliminating the negatives. ACCENTUATE THE POSITIVE ~ Johnny Mercer & The Pied Pipers (1945) - YouTube

'The most important chart in the world' offers a warning sign

Apple says $14 billion EU tax order 'defies reality and common sense' - Reuters

Brent crude oil spikes the most in history after Saudi attacks

How low interest rates can discourage competition, leading to slower growth - MarketWatchHow low interest rates can hurt competition, and the economy-Chicago Booth Review (The paper can be downloaded  

The consensus opinion now is that lower interest rates will produce GDP growth. Context matters when analyzing this issue.

When central banks lower interest rates in response to a recession (e.g. the U.S. federal reserve going from a 4% federal funds rate to zero) and/or engages in other abnormal monetary policies like QE, there will likely be a positive stimulus impact. I am assuming here that those monetary policies are temporary and do not last 11 years with no end in sight which is what has happened since 2008. I view it as important that the central banks are telegraphing that those policies will continue indefinitely. 

The consensus opinion has not been reconsidered based on what has actually happened in Europe and Japan over the past decade. 

Even if negative nominal rates fail to work as contemplated for another decade, I doubt that the consensus opinion will change since it is so firmly embedded in group think now. 

Some ideas and opinions are just impos
sible to kill with facts, like the GOP's representation that their tax cuts will pay for themselves or the widespread belief among republicans that global warming is not a problem.  

When interest rates are manipulated for an extended period to abnormally low levels (negative real returns before taxes), the end result is not economic growth resulting from the low rates but the creation of an unnecessary disinflationary force which can combine with other growth headwinds to produce anemic GDP growth and low inflation. 

Stephen Williamson: New Monetarist Economics: Neo Fisherism: Look, it Works!



Kellyanne Conway Suggests Trump Is Better Because He Doesn't 'Study' Situations Before Making Decisions Donald proudly relies on his gut when making decisions. Trump says his 'gut' can tell him more than 'anybody else's brain can ever tell me' That may very well be true for someone with a reptilian brain who actively avoids facts and knowledge. 

Donald says that he is "locked and loaded" for a military response, but was waiting for Saudi Arabia to tell him "under what terms we would proceed". 

When Iran shot down a U.S. drone, Donald let it be known that he was "cocked and loaded":

I do not know whether "cocked and loaded" is different from "locked and loaded".   

Of course, threatening a war via a tweet is reckless and juvenile. Since Donald makes these threats without resorting to military action, the natural response for countries targeted with Donald's bluster is to ignore him as just a loud mouth paper tiger, which can lead to miscalculations. 

I doubt that Donald will respond with a military strike against Iran, even if there is no doubt that Iran was responsible for the attack against Saudi Arabia, a
s noted in my comment published yesterday. 

If Donald wanted to make a case that Iran was responsible, there will be widespread skepticism since he has no credibility except among Trumpsters (about 90% of republicans).  

One question is why would the U.S. respond with proportional military strikes for an attack on Saudi Arabia? If the SA wants to attack Iranian installations, let them do it. Maybe Donald needs to read his 2014 tweet on this subject: 

Before the SA attack, the Fake News President lambasted the media for reporting that he would meet with Iran with no pre-conditions: 

Donald will lie even where there is a tape proving that he is lying and will frequently repeat the lie over and over notwithstanding that incontrovertible proof.   

During a recent Meet the Press interview with Chuck Todd, Donald stated that he would meet with "No preconditions"Trump lashed out at the media for reporting he would meet with Iran with ‘no conditions.’ He’s said as much on camera twice. - The Washington Post 

This is statement made by the Secretary of State last week: "The president has made very clear he is prepared to meet with no preconditions,"  Trump denies reports he's willing to meet with Iran with 'no conditions' | TheHill

Is "Very Stable Genius" a downgrade from "
Extremely Stable Genius"? 

'Extremely stable genius': Trump defends his mental fitness as he tears into Pelosi - POLITICO

Appeals court revives foreign corruption suit against Trump - POLITICO

8 Years of Trump Tax Returns Are Subpoenaed by Manhattan D.A.

Clueless Don continued to attack the Federal Reserve with this rant: 

Donald may want to mention to his cult members that Germany has a budget surplus while the U.S. is generating around a trillion dollars per year in budget deficits. There are reasons other than central bank policies that contribute to lower interest rates in Germany. 

1. Elimination:

A. Sold 52+ TERP at $16.96-Used Commission Free Trade:

Quote: TerraForm Power Inc. Cl  A (TERP)

Closing Price Yesterday: TERP $17.58 +$0.68 +4.02% 

Website: TerraForm Power

TERP SEC Filings

2018 Annual Report

Profit Snapshot: +$316.21

Item 1.A. Bought 100 TERP at $11.19 and Sold 50 at $11.5)-Used Fidelity Commission Free Trades

The reportable profit will increase when TERP classifies the dividend payments for tax purposes. The dividends paid in 2019 are likely to classified as ROC, which will reduce my cost basis and increase the profit shown in the preceding snapshot. 

Dividend: Quarterly at $.2014 per share (the entire 2018 dividend was classified as ROC)

TerraForm Power | Investors | Distribution Information

Last Ex Dividend Date: 8/30/19 (after sell)

Last Earnings ReportTerraForm Power Reports Second Quarter 2019 Results | Terraform Power, Inc.

Prior Round TripItem # 3.B. Pared TERP-Sold 51+ at $13.63 (4/27/19 Post)-(profit snapshot = $138.51, likely to be increased when dividends are classified during tax season)- Item # 1.A. Bought 50 TERP at $11.18-Used Schwab Commission Free Trade (9/16/2018 Post)

TERP Profits to Date (before 2019 ROC adjustment to tax cost basis) = $454.72

2. Small Ball-Income Generation and Trading Using Small Ball Rules (all commission free trades):

A. Bought 100 NMFC at $13.37:

Quote: New Mountain Finance Corp.   (NMFC)

Website: New Mountain Finance Corporation

Closing Price Yesterday: NMFC $13.51 -$0.06 -0.44% 

SEC Filings

Dividend: Quarterly at $.34 per share ($1.44 annually)

Dividend Yield at $13.37 Total Cost Per Share = 10.77%

Last Ex Dividend Date: 9/12/19  (after purchase):

Goal: Total Return in Excess of the Dividend yield.

Sell Discussions:

Item # 1.B. Eliminated NMFC-Sold 60 at $13.96 and 50 at $13.94  (2/9/19 Post)(profit snapshots = $42.77); Item # 1 A. Sold 50 NMFC at $14.06 (8/19/18 Post)(profit snapshot = $61.44); Item # 1 Sold Remaining 50 Shares of NMFC at $14.63 (11/1/14 Post)($5.88 profit on the shares); Sold 100 of 150 NMFC at $14.4773 (10/23/14 Post)($3.79 profit on the shares + 7 dividend payments); Item # 8 Sold Highest Cost NMFC Lot at $15.37 (9/14/2014 Post)($2.99 profit on the shares + 7 quarterly dividend payments/sold lot on 9/11/14) 

I have exited all prior position by selling the shares profitably, but that has been difficult.

NMFC Trading Profits to Date: $116.87

Most Recent Buy DiscussionsItem # 1.C. Added 10 NMFC at $12.6 Used Commission Free Trade (1/13/19 Post)Item # 1.A. Bought 50 NMFC at $12.84 (3/5/18 Post)

Net Asset Value Per Share History:

6/30/19:      $13.41 10/Q at page 4

12/31/18:    $13.22
6/30/18:   $13.57
3/31/18:    $13.60 10-Q at page 3
12/31/17:   $13.63
12/31/16   $13.46
9/30/15    $13.73
12/31/14   $13.83
9/30/14    $14.33
12/31/13   $14.38
6/30/13    $14.32
12/31/12 $14.06 Sourced from 10-Qs

IPO Price: $13.75 Prospectus (filed 5/23/11)

Recent Stock Offering: "On July 11, 2019, the Company completed a public offering of 6,900,000 shares of the Company’s common stock at a public offering price of $13.68 per share. The Company’s Investment Adviser paid a $0.39 per share portion of the $0.42 per share underwriters' sales load such that the Company received net proceeds of $13.65 per share in this offering. All payments made by the Company’s Investment Adviser are not subject to reimbursement by the Company. The Company received total net proceeds of approximately $94.2 million in connection with this offering."

5 Year Annual Average Total Return (9/4/19) = 7.35%

DRIP Returns Calculator | Dividend Channel

Whenever I see an annual average total return well below the dividend yield, that fact suggests that a trading strategy needs to be used if the investor does not want to lose part of the dividend's value.   

Last Earnings Report (Q/E 6/30/19): SEC Filed Press Release 

Net income income was reported at .35 per share. 

"As of June 30, 2019, all investments in our portfolio had an investment rating of “1” or “2” with the exception of one portfolio company that had an investment rating of “4”. The Company’s investment in this portfolio company had an aggregate cost basis of approximately $1.5 million and an aggregate fair value of approximately less than $0.1 million."

I am still concerned about the level of non-first lien debt: 

B. Pared Highest Cost AT & T Shares-Sold 20 at $35.47:

Quote: AT&T Inc. (T)

Investor Relations | AT&T
T | AT&T Inc. E.P.S. Analyst Estimates (as of 9/4/19):
2019: $3.55
2020: $3.62

Closing Price Yesterday: T $37.16 -$0.15 -0.40% 

This is typical small ball trading. I kept averaging down with the lowest price lot bought at $26.95. 

With the recent surge in price, I sold my highest cost lots profitably which reduces my average cost per share and increases my dividend yield. 

I included in this sell the 1+ share bought with the last dividend, which was the highest cost lot bought with a dividend.  

Subsequent to this pare, Elliott Management released sent a letter to AT  & T outlining several potential changes that could cause the stock to rise 65%. Elliott Management Sends Letter to Board of Directors of AT&T | Business Wire 

Profit Snapshot = $17.47

Item # 1.B. Bought 10 AT & T at $35.82 and 2 at $34.66-Used Commission Free Trades (4/2/18 Post)Item # 2.A. Bought 8 T at $33.44 (5/3/18 Post)

Position Before Pare: Average Cost Per Share = $31.26

Position After Pare: Average Cost Per Share = $30.19

Dividend: Quarterly at $.51 per share ($2.04 annually), raised from $.5 effective for the 2018 4th quarter payment

AT&T Increases Quarterly Dividend

Dividend Yield at $30.19 Total Cost Per Share = 6.76%

Last Ex Dividend: 7/9/19

10 Year Chart: Uninspiring (indicates trading will probably be necessary to secure a 2+% total return in excess of the dividend yield unless purchases are timed almost perfectly)

5 Year Annual Average Return Through 9/3/19= 5.89%

DRIP Returns Calculator | Dividend Channel

This calculation assumes that dividends are used to buy additional shares. The 5.89% annual average total return was slightly less than the aggregate dividends.

Last Earnings Report (Q/E 6/30/19):

Last Discussions (all commission free trades): The purchases reflect the small ball purchase restriction with one inadvertent exception. Item # 4.A. Bought 5 T at $27.7 and 10 at $26.95-Used Commission Free Trades(1/16/19 PostItem # 1.C. Bought 3 AT & T at $29.23-Used Commission Free Trade (11/18/18 Post)Item # 1.B. Bought 5 AT & T at $31.14 (7/25/18 Post)Item # 4.B. Bought 10 AT& T at $30.17-Used Commission Free Trade (7/29/18 Post)Item # 1.B. Bought 5 AT & T at $31.14 (7/25/18 Post)Item # 2.A. Bought 10 T at $32.8; 2 at $32.29 and 3 at $31.97 (5/3/18 Post)

Lowest Cost Lot in Chain: 10 shares at $26.95  (12/26/19)

Current Position: 54+ shares

Maximum Position: 100 shares + shares purchased with dividends

Purchase Restriction: Small Ball Rule

C. Bought 10 KBWY at $29.72

Quote: KBWY | Invesco KBW Premium Yield Equity REIT ETF Overview

Closing Price Yesterday: KBWY $30.99 $0.00 0.00% 

Sponsor's Website: Invesco (recent shareholder reports are linked)

This deservedly out of favor ETF can be bought commission free by Vanguard and Fidelity customers. This is my first purchase. This purchase is a dumpster dive. 

Category: Lottery Ticket Basket

Morningstar: Currently rated at 1 Star which is deserved IMO

Info Day of Purchase (9/5/19): 

I would emphasize the 52 week decline of -15+%

Compare that return with the Vanguard REIT ETF: Vanguard Real Estate ETF (VNQ) Performance (1 year total return through 9/5/19 at +16.47%) I have emphasized in the past that investors need to look at total return for high yield investments, where price depreciation frequently wipes out the value of dividends.

Dividends: Monthly at a variable rate 

Last Ex Dividend: 8/19/19

Next Ex Dividend: 9/23/19

Invesco KBW Premium Yield Equity REIT ETF (KBWY) Dividend History | Nasdaq

Holdings: This ETF owns high yielding equity REITs which include many high risk names

The largest position as of 9/4/19 was Washington Prime Group Inc. (WPG) which I have never owned and have yet to be tempted to buy a Lottery Ticket even with the devastation already reflected in this chart: 

Some of the holdings have been doing well as of late including BRG, IRT and OHI, but the performance has been weighted down by disasters like WPG; Pennsylvania Real Estate Investment Trust (PIE)Senior Housing Properties Trust (SNH) and the hotel REITs. 

Goal: Harvest several monthly distributions and sell the shares at a profit 

Current Position: 10 shares

Maximum Position: 30 Shares

Purchase Restriction: Small Ball Rule (each purchase, other than through dividend reinvestment, has to be at the lowest price in the chain)  

3. Short Term Bond/CD Basket Ladder Strategy:

A. Sold 1 Deere Capital 2.55% SU Maturing on 1/8/21-In an IRA Account:

Profit Snapshot: $19.34

Item # 3.B. Bought 1 Deere Capital 2.55% 2021 SU at a TC of 98.739-In a Roth IRA Account (11/18/18 Post) YTM was then at 3.16%.

Finra Page: Bond Detail

Issuer: Wholly owned subsidiary of Deere & Co. (DE) who does not guarantee the notes.

Sold at 100.733

YTM at  = 1.972%
Proceeds at 100.633 (after $1 commission)

B. Sold 1 Wisconsin Electric Power 2.95% SU Maturing on 9/15/21:

Profit Snapshot: +$18.07

Item # 2.C. Bought 1 Wisconsin Energy 2021 SU at a TC of  99.973 (4/30/18 Post)  YTM was then at 3.014%.

FINRA Page: Bond Detail (prospectus linked)

Issuer: Wholly owned subsidiary of WEC Energy Group Inc. (WEC)

WEC Analyst Estimates
WEC SEC Filings

Sold at 101.7

YTM at 101.7 = 1.99%
Proceeds at 101.6 (after $1 commission)

I still own 1 bond in a Roth IRA account which I will keep until maturity or early optional redemption by the issuer Item # 2.B. Bought 1 Wisconsin Electric Power 2021 SU at a TC of 99.303 -In A Roth IRA Account (10/14/18 Post)

C. Bought at Auction 5 Treasury 56 Day Bills Maturing on 11/5/19:


Auction Results:

4. Intermediate Term Bond Basket Strategy

A. Sold 1 Ventas 3.5% SU Maturing one 2/1/25:  

Profit Snapshot:  +$72.99

FINRA Page: Bond Detail (prospectus linked)

Issuer: Operating entity for Ventas (VTR) who guarantees the notes

Sold at 104.958
YTM at 104.958 = 2.496%
Proceeds at 104.858 after $1 IB commission

B. Sold 1 Ventas 4.125% SU Maturing on 1/15/26

FINRA PAGE: Bond Detail (prospectus linked) 

Sold at 108.08
YTM at 108.08 = 2.69%

DisclaimerI am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.