Last Friday's Closing Prices:
S & P 500 1,877.86 +7.01 (+0.37%)
VIX: 12.44 -0.73 (-5.54%) : VOLATILITY S&P 500
TLT: $113.54 -0.32 (-0.28%) : iShares 20+ Year Treasury Bond ETF
VNQ: $74.64 +0.68 (+0.92%) : Vanguard REIT ETF
KRE: $37.31 -0.08 (-0.20%) : SPDR S&P Regional Banking ETF
GLD: $124.50 -0.27 (-0.22%) : SPDR Gold Trust
SLV: $18.60 -0.14 (-0.75%) : iShares Silver Trust
I sold junk silver near the recent top back in September 2011: The Road to Political Power: Lying Works/Recent Gold and Silver Sales I had refused to sell back in the late 1970s, when the Hunt brothers were trying to corner the silver market, hoping for a better price than $42 per ounce. Recognizing that obvious mistake as silver plunged in price over the ensuing years, hard to explain that doufus decision in retrospect, I made a commitment to myself to sell those coins whenever the price went back over $40, which just happened to be near the top price hit back in September 2011-in other words, my timing was impeccable due to coincidence.
I basically got the same price in September 2011 that I could have received about 30+ years earlier. I started to take those 90% silver coins out of circulation in 1964 when I was much younger than now, and possibly had more sense back then too.
I subsequently found some more junk silver coins and unloaded the remainder in January 2012 Snapshots of Coin Sales In January 2012 I last bought the American Silver Eagle Coins in 1995 when they cost $7 each. Silver Coins (snapshot of bill of sale)
Silver and gold are in a bear market of unknown duration, which is generally defined as a 20+% decline in price which has unquestionably already happened to both gold and silver prices. Historical London Fix Price I only know that the last bear market in those PMs lasted about 22 years. I am certainly in no hurry to use the proceeds from those prior sales to buy back bullion.
I will at some point take the proceeds from those junk silver sales and buy those pretty American Silver Eagles with the old Walking Liberty design on the front. Currently, I am not considering that option until I see silver fall below $15 per ounce, but I would like to ask that 13 year old what to do now, the one who had enough sense to take the junk silver coins off the market at face value in 1964.
I also sold some gold at the same time as those junk silver sales and will buy those pretty American Gold Eagles using the old Saint-Gaudens design when and if gold falls below $900.
Big Picture
S & P 500 1,877.86 +7.01 (+0.37%)
VIX: 12.44 -0.73 (-5.54%) : VOLATILITY S&P 500
TLT: $113.54 -0.32 (-0.28%) : iShares 20+ Year Treasury Bond ETF
VNQ: $74.64 +0.68 (+0.92%) : Vanguard REIT ETF
KRE: $37.31 -0.08 (-0.20%) : SPDR S&P Regional Banking ETF
GLD: $124.50 -0.27 (-0.22%) : SPDR Gold Trust
SLV: $18.60 -0.14 (-0.75%) : iShares Silver Trust
I sold junk silver near the recent top back in September 2011: The Road to Political Power: Lying Works/Recent Gold and Silver Sales I had refused to sell back in the late 1970s, when the Hunt brothers were trying to corner the silver market, hoping for a better price than $42 per ounce. Recognizing that obvious mistake as silver plunged in price over the ensuing years, hard to explain that doufus decision in retrospect, I made a commitment to myself to sell those coins whenever the price went back over $40, which just happened to be near the top price hit back in September 2011-in other words, my timing was impeccable due to coincidence.
I basically got the same price in September 2011 that I could have received about 30+ years earlier. I started to take those 90% silver coins out of circulation in 1964 when I was much younger than now, and possibly had more sense back then too.
I subsequently found some more junk silver coins and unloaded the remainder in January 2012 Snapshots of Coin Sales In January 2012 I last bought the American Silver Eagle Coins in 1995 when they cost $7 each. Silver Coins (snapshot of bill of sale)
Silver and gold are in a bear market of unknown duration, which is generally defined as a 20+% decline in price which has unquestionably already happened to both gold and silver prices. Historical London Fix Price I only know that the last bear market in those PMs lasted about 22 years. I am certainly in no hurry to use the proceeds from those prior sales to buy back bullion.
I will at some point take the proceeds from those junk silver sales and buy those pretty American Silver Eagles with the old Walking Liberty design on the front. Currently, I am not considering that option until I see silver fall below $15 per ounce, but I would like to ask that 13 year old what to do now, the one who had enough sense to take the junk silver coins off the market at face value in 1964.
I also sold some gold at the same time as those junk silver sales and will buy those pretty American Gold Eagles using the old Saint-Gaudens design when and if gold falls below $900.
Big Picture
Stocks:
Stable VIX Pattern (Bullish)
Short Term: Market Needs 15% Correction
Intermediate Term: Slightly Bullish
Long Term: Bullish
Both the S & P 500 and the DJIA hit new all times highs last week.
The madness of crowds is one of my favorite topics. Charles Mackay's seminal book about money manias, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, was first published in 1841 and can be downloaded free into Kindle.
A NYT's Editor, David Leonhardt, wrote an article titled "Time to Worry About Stock Market Bubbles". NYT The article relies on the Shiller P/E 10 to justify the title. An Alliance Bernstein strategist responded to that article with one published in Barron's.
Bonds:
Short to Long Term: Slightly Bearish Based on Interest Rate Normalization:
The Difficult Path to Interest Rate Normalization
Rates continued to trickle down last week, even though inflation expectations remained about the same. The government reported a higher than expected PPI number for April (Producer Price Index Up .6%) last Wednesday, and bonds responded with another rally. TLT: 112.96 +1.21 (+1.08%)
10 Year TIP Break-even: 2.18% as of 5/16/14, same as on 5/9/14.
Last Thursday, the government reported that CPI increased .3% in April, seasonally adjusted and was up 2% over the last 12 months before seasonal adjustment. Consumer Price Index Summary The Y-O-Y number was up from 1.7% in March.
The Cleveland Fed's median CPI index is running a little hotter at 2.2% Y-O-Y. Current Median CPI- Federal Reserve Bank of Cleveland
It is my view that intermediate and long term treasuries are being driven up in price due to supply and demand factors unrelated to inflation and inflation expectations. On the supply side, the FED has withdrawn from the market through its asset buying sprees more than 50% of most issues maturing after 2023. System Open Market Account Holdings - Federal Reserve Bank of New York (click tab for "T-Notes and T-Bonds" and then look under the column "% of total outstanding".
Rates continued to trickle down last week, even though inflation expectations remained about the same. The government reported a higher than expected PPI number for April (Producer Price Index Up .6%) last Wednesday, and bonds responded with another rally. TLT: 112.96 +1.21 (+1.08%)
10 Year TIP Break-even: 2.18% as of 5/16/14, same as on 5/9/14.
Last Thursday, the government reported that CPI increased .3% in April, seasonally adjusted and was up 2% over the last 12 months before seasonal adjustment. Consumer Price Index Summary The Y-O-Y number was up from 1.7% in March.
The Cleveland Fed's median CPI index is running a little hotter at 2.2% Y-O-Y. Current Median CPI- Federal Reserve Bank of Cleveland
It is my view that intermediate and long term treasuries are being driven up in price due to supply and demand factors unrelated to inflation and inflation expectations. On the supply side, the FED has withdrawn from the market through its asset buying sprees more than 50% of most issues maturing after 2023. System Open Market Account Holdings - Federal Reserve Bank of New York (click tab for "T-Notes and T-Bonds" and then look under the column "% of total outstanding".
Bloomberg (on the shortage/demand equation)
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Recent Developments:
Retail sales were up .1% in April, compared to March which was revised from +1.1% to +1.5%. census.gov/retail.pdf
The NY FED reported that total household debt rose 1.1% to $11.65 trillion as of 3/31/14, compared to year end levels. The overall delinquency rate declined to 6.61% in the 2014 first quarter, the lowest level since the 2007 third quarter. newyorkfed.org/householdcredit/2014-q1/data/pdf
The N.Y. FED's Empire manufacturing business conditions index rose to 19, the highest in 4 years. Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York
Walmart reported a 3.5% decline in the F/Y fiscal first quarter results compared to the previous year's first quarter and gave a tepid outlook for the current quarter. WMT's current estimates an E.P.S. range between $1.15 to $1.25 for the current quarter vs. last year's $1.25. For the 13 week's ending 5/2/14, U.S. same store sales declined by .2%. I do not own WMT. I just use it as a barometer for spending by certain segments of the American population.
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Performance Numbers YTD Fidelity Accounts Through April 2014:
A few weeks ago, I published a snapshot of my performance numbers calculated by Fidelity. Portfolio Management Goals-Snapshots of Performance Numbers That prior post also contains snapshots of 5 year cumulative returns through March 2014, and links another post showing cumulative returns through October 2011.
Through March 2014, the year to date numbers were then as follows:
+4.17%
+5.65%
+4.91%
+6.91%
The first two numbers are large taxable accounts. The last two are much smaller IRAs.
Fidelity recently calculated the number through April:
This is the benchmark numbers through April 2014:
So far, bonds, leveraged bond CEFs, preferred stocks and bond substitutes have contributed to my performance numbers this year after being somewhat of a drag last year. My large cash allocation continues to be a major drag given that bonds and stocks are both up this year and the MM accounts pay about .01%.
I have to calculate the YTD return on my Roth IRA held at Vanguard. The return YYD in that IRA through 4/30/14, my largest, was +7.48%. I did not calculate returns in smaller taxable accounts held at other brokerage firms.
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Dream Global REIT
Dundee International REIT changed its name and stock symbol. Dream Global REIT Reports Change in Stock Symbols The new name is "Dream Global REIT (DRG_UN:CA)
Dundee International REIT reported first quarter FFO of $.23 per share and AFFO at $.21. This new REIT is still deploying cash. Excluding cash, the AFFO was $.23 per share. Occupancy improved to 87.7% as of 3/31/14, up from 84.7% in the year ago quarter.
Bought: 300 Dundee International REIT at C$9.27 (3/17/14 Post)
Yahoo Finance does not currently have the correct symbol for this REIT. Dream Global Real Estate Investment Trust Stock (DRG.UN:TOR) - MarketWatch
Dundee International REIT - Distribution History (current monthly dividend is C$.06667 per unit, or about C$.8 per share annually).
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Dundee REIT (own):
Dundee REIT changed its name to Dream Office REIT. I believe that the symbol at Fidelity remained the same at D_UN:CA.
Dundee REIT reported 1st quarter FFO per share of C$.73 and AFFO at C$.62. Distributions during the quarter were C$.56. Occupied and committed space was reported at 94.2%.
Bought: 100 Dundee REIT at C$29.35 (3/3/14 Post)
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Canadian Apartments (own):
The market reacted favorably to the quarterly results released by Canadian Apartments. CAPREIT Announces Record First Quarter Results
5/15/14: CAR-UN.TO: C$22.31 +0.95 (+4.45%)
I had not received much price appreciation until that announcement.
Bought 200 Canadian Apartments at C$20.67
Closing Price Last Friday: CAR-UN.TO: C$23.45 +1.14 (+5.11%)
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Santander (SAN) and Santander Brazil (BSBR)(own both):
To avoid Spain's withholding tax, I have been reinvesting the SAN dividend. This is a snapshot of my last reinvestment:
Performance Numbers YTD Fidelity Accounts Through April 2014:
A few weeks ago, I published a snapshot of my performance numbers calculated by Fidelity. Portfolio Management Goals-Snapshots of Performance Numbers That prior post also contains snapshots of 5 year cumulative returns through March 2014, and links another post showing cumulative returns through October 2011.
Through March 2014, the year to date numbers were then as follows:
+4.17%
+5.65%
+4.91%
+6.91%
The first two numbers are large taxable accounts. The last two are much smaller IRAs.
Fidelity recently calculated the number through April:
This is the benchmark numbers through April 2014:
So far, bonds, leveraged bond CEFs, preferred stocks and bond substitutes have contributed to my performance numbers this year after being somewhat of a drag last year. My large cash allocation continues to be a major drag given that bonds and stocks are both up this year and the MM accounts pay about .01%.
I have to calculate the YTD return on my Roth IRA held at Vanguard. The return YYD in that IRA through 4/30/14, my largest, was +7.48%. I did not calculate returns in smaller taxable accounts held at other brokerage firms.
**********************************
Dream Global REIT
Dundee International REIT changed its name and stock symbol. Dream Global REIT Reports Change in Stock Symbols The new name is "Dream Global REIT (DRG_UN:CA)
Dundee International REIT reported first quarter FFO of $.23 per share and AFFO at $.21. This new REIT is still deploying cash. Excluding cash, the AFFO was $.23 per share. Occupancy improved to 87.7% as of 3/31/14, up from 84.7% in the year ago quarter.
Bought: 300 Dundee International REIT at C$9.27 (3/17/14 Post)
Yahoo Finance does not currently have the correct symbol for this REIT. Dream Global Real Estate Investment Trust Stock (DRG.UN:TOR) - MarketWatch
Dundee International REIT - Distribution History (current monthly dividend is C$.06667 per unit, or about C$.8 per share annually).
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Dundee REIT (own):
Dundee REIT changed its name to Dream Office REIT. I believe that the symbol at Fidelity remained the same at D_UN:CA.
Dundee REIT reported 1st quarter FFO per share of C$.73 and AFFO at C$.62. Distributions during the quarter were C$.56. Occupied and committed space was reported at 94.2%.
Bought: 100 Dundee REIT at C$29.35 (3/3/14 Post)
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Canadian Apartments (own):
The market reacted favorably to the quarterly results released by Canadian Apartments. CAPREIT Announces Record First Quarter Results
5/15/14: CAR-UN.TO: C$22.31 +0.95 (+4.45%)
I had not received much price appreciation until that announcement.
Bought 200 Canadian Apartments at C$20.67
Closing Price Last Friday: CAR-UN.TO: C$23.45 +1.14 (+5.11%)
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Santander (SAN) and Santander Brazil (BSBR)(own both):
To avoid Spain's withholding tax, I have been reinvesting the SAN dividend. This is a snapshot of my last reinvestment:
I also own BSBR. There was some kind of recapitalization earlier this year that involved BSBR paying out a large cash dividend. Banco Santander Brasil SA (BSBR) Dividend History Santander owns about 75% of BSBR's common and has made an offer to acquire the remainder. 6-K The current offer is to exchange .7 SAN shares for each 1 BSBR ADR. Assuming this happens at some point, I will just take the SAN shares.
Closing Prices Last Friday:
SAN: $10.03 +0.18 (+1.83%) : Banco Santander
BSBR: $6.76 +0.05 (+0.75%) : Banco Santander Brasil
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Artis REIT (own):
Artis sold 6.215M trust units at C$16.1 to fund future acquisitions including the following: (1) a 15 story office building in Minneapolis purchased for $75M and a going-in capitalization rate of 7.5%, currently 99% leased; (2) a 50% interest in Hudson's Bay Centre, a 20 story office building in Denver for $20.8M and a 6% capitalization rate, which is currently 96.4% leased; and (3) Estevan Shopping Mall for $10.1M and a going-in capitalization rate of 8.25% which is currently 96.2% leased.
This offering knocked the share price down some on 5/13/14: AX-UN.TO: C$16.02 -0.34 (-2.08%)
Artis also announced a 6.4% increase in first quarter FFO to C$47.6, or $.36 per share, and a 4.1% increase in AFFO to C$40.5M or C$.31 per share. The payout ratio was 87.1% of AFFO. Occupancy stood at 95.5% (96.3% including commitments for vacant space) Same property operating income grew 2.8%. The weighted average interest rate on mortgages and other loans was 4.27%, with an interest rate coverage ratio of 2.83 times. Total debt/loans to gross book value was at 50%.
Bought 300 of Artis REIT at C$14.36
Closing Price Last Friday: AX-UN.TO: C$16.07 -0.02 (-0.12%)
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Closing Prices Last Friday:
SAN: $10.03 +0.18 (+1.83%) : Banco Santander
BSBR: $6.76 +0.05 (+0.75%) : Banco Santander Brasil
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Artis REIT (own):
Artis sold 6.215M trust units at C$16.1 to fund future acquisitions including the following: (1) a 15 story office building in Minneapolis purchased for $75M and a going-in capitalization rate of 7.5%, currently 99% leased; (2) a 50% interest in Hudson's Bay Centre, a 20 story office building in Denver for $20.8M and a 6% capitalization rate, which is currently 96.4% leased; and (3) Estevan Shopping Mall for $10.1M and a going-in capitalization rate of 8.25% which is currently 96.2% leased.
This offering knocked the share price down some on 5/13/14: AX-UN.TO: C$16.02 -0.34 (-2.08%)
Artis also announced a 6.4% increase in first quarter FFO to C$47.6, or $.36 per share, and a 4.1% increase in AFFO to C$40.5M or C$.31 per share. The payout ratio was 87.1% of AFFO. Occupancy stood at 95.5% (96.3% including commitments for vacant space) Same property operating income grew 2.8%. The weighted average interest rate on mortgages and other loans was 4.27%, with an interest rate coverage ratio of 2.83 times. Total debt/loans to gross book value was at 50%.
Bought 300 of Artis REIT at C$14.36
Closing Price Last Friday: AX-UN.TO: C$16.07 -0.02 (-0.12%)
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1. Sold 100 PFE at $31.68 (see Disclaimer):
Snapshot of Trade:
Snapshot of Profit:
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| 2014 Sold 100 PFE +$282.12 |
As noted when I discussed this purchase, I have a negative opinion of Pfizer's history of internal drug discoveries after spending billions in research. Most of the well known Pfizer drugs, including Lipitor which has lost patent protection, were discovered elsewhere and acquired by PFE through mergers (Warner-Lambert, Wyeth, Pharmacia, etc.)
Rationale: There is nothing that I like about Pfizer pursuing a $100+B acquisition of AZN which smacks of nothing other than financial engineering. One purpose is avoid U.S. taxes by becoming a U.K. corporation. It is not like PFE's U.S. tax rate is onerous at 27%. NYT I understand that large corporations would like to pay no taxes at all.
AZN's recent profits have plunged based on patent expirations. AZN's E.P.S. for the 2013 4th quarter declined 28% to $1.23 on a 4% decline in revenues based on constant currency. AZN predicted that patent expirations will cause a low-to-mid single decrease in revenues during 2014 and an E.P.S. decline in the teens. AstraZeneca PLC fourth quarter and full year results 2013 The patent on AZN's main drug, Crestor, is set to expire at the end of 2016 WSJ.com Patent protection for another major drug, Nexium, will be lost this year, and AZN has sold to PFE the OTC rights for that drug. Seroquel's patent expired in 2012.
Although PFE was initially rebuffed, there are several news reports that it is still interested in acquiring the company. While some analysts were quoted as saying that a deal can be done in the $105B range, AZN thereafter reportedly rejected a $106B offer. Reuters
Another issue with PFE is declining revenue. After I sold my shares, Pfizer reported that first quarter revenues declined by 9% to $11.35B, or about $730M below the consensus estimate. PFIZER REPORTS FIRST-QUARTER 2014 RESULTS
Lastly, if PFE acquires AZN, and relocates to the UK to reduce taxes, it will trigger a tax event for U.S. PFE shareholders who would have to treat that conversion as a sell even though they continue to own the shares. WSJ.com I ran into a similar problem several years ago when Canadian trusts converted into regular corporations. A U.S. taxpayer had to treat the exchange as a sell of the trust shares and a buy of the regular corporation shares.
Closing Price Last Friday: PFE: $29.12 +0.06 (+0.21%)
AZN's recent profits have plunged based on patent expirations. AZN's E.P.S. for the 2013 4th quarter declined 28% to $1.23 on a 4% decline in revenues based on constant currency. AZN predicted that patent expirations will cause a low-to-mid single decrease in revenues during 2014 and an E.P.S. decline in the teens. AstraZeneca PLC fourth quarter and full year results 2013 The patent on AZN's main drug, Crestor, is set to expire at the end of 2016 WSJ.com Patent protection for another major drug, Nexium, will be lost this year, and AZN has sold to PFE the OTC rights for that drug. Seroquel's patent expired in 2012.
Although PFE was initially rebuffed, there are several news reports that it is still interested in acquiring the company. While some analysts were quoted as saying that a deal can be done in the $105B range, AZN thereafter reportedly rejected a $106B offer. Reuters
Another issue with PFE is declining revenue. After I sold my shares, Pfizer reported that first quarter revenues declined by 9% to $11.35B, or about $730M below the consensus estimate. PFIZER REPORTS FIRST-QUARTER 2014 RESULTS
Lastly, if PFE acquires AZN, and relocates to the UK to reduce taxes, it will trigger a tax event for U.S. PFE shareholders who would have to treat that conversion as a sell even though they continue to own the shares. WSJ.com I ran into a similar problem several years ago when Canadian trusts converted into regular corporations. A U.S. taxpayer had to treat the exchange as a sell of the trust shares and a buy of the regular corporation shares.
Closing Price Last Friday: PFE: $29.12 +0.06 (+0.21%)
2. Added 50 TICC at $9.55 (see Disclaimer):
Snapshot of Trade:
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| 2014 Added 50 TICC at $9.55 |
Security Description: TICC Capital (TICC) is a small BDC.
TICC sold 6M shares in March at $10.14, realizing proceeds of $9.86 per share after underwriting discounts and commissions. After reducing the proceeds further by TICC's expenses, the net would be about $9.805 which would be below the 12/31/13 book value of $9.85 per share.
During 2013, TICC sold 6.325M shares in a February public offering at $10.36 per share. Another 3.45M shares were sold in March at $10.2. The company also has a "at the market" share issuance plan, managed by Barclays, that resulted in 1,917,173 shares being sold.
Page 75 2013 Annual Report SEC Form 10-k
A list of the top ten portfolio holdings can be found at page 13. TICC also describes those companies and its investments in each one starting at page 13, 10-k.
TICC sold 6M shares in March at $10.14, realizing proceeds of $9.86 per share after underwriting discounts and commissions. After reducing the proceeds further by TICC's expenses, the net would be about $9.805 which would be below the 12/31/13 book value of $9.85 per share.
During 2013, TICC sold 6.325M shares in a February public offering at $10.36 per share. Another 3.45M shares were sold in March at $10.2. The company also has a "at the market" share issuance plan, managed by Barclays, that resulted in 1,917,173 shares being sold.
Page 75 2013 Annual Report SEC Form 10-k
A list of the top ten portfolio holdings can be found at page 13. TICC also describes those companies and its investments in each one starting at page 13, 10-k.
Prior Trades: In November 2013, I sold my highest cost 100 shares, held in a taxable account, at $10.5. Item # 7 Sold 202+ TICC at $10.5 (102+ Roth IRA & 100 in a Taxable Account)
This left me with 59.209 shares held in a taxable account, with an average cost per share of $9.94. Of those shares, I bought 50 at $9.85 and the remainder were bought with dividends.
I bought another 100 shares last April: Added 100 TICC at $9.75-Main Taxable
I also eliminated my TICC position in the ROTH IRA during November 2013. Item # 7 Sold 202+ TICC at $10.5 (102+ Roth IRA & 100 in a Taxable Account (11/27/13 Post)(the total return on that round trip was 25.13%)-Item # 1 Bought 100 of the BDC TICC at $9.8-ROTH IRA (February 2012)
I bought 100 shares back in the Roth last February: Item # 1 Bought: 100 TICC at $9.97
This left me with 59.209 shares held in a taxable account, with an average cost per share of $9.94. Of those shares, I bought 50 at $9.85 and the remainder were bought with dividends.
I bought another 100 shares last April: Added 100 TICC at $9.75-Main Taxable
I also eliminated my TICC position in the ROTH IRA during November 2013. Item # 7 Sold 202+ TICC at $10.5 (102+ Roth IRA & 100 in a Taxable Account (11/27/13 Post)(the total return on that round trip was 25.13%)-Item # 1 Bought 100 of the BDC TICC at $9.8-ROTH IRA (February 2012)
I bought 100 shares back in the Roth last February: Item # 1 Bought: 100 TICC at $9.97
Recent Earnings Report: I only had the 2013 4th quarter report when I made this last purchase, SEC Filed Press Release, and I have already discussed that report.
Net asset value per share was reported at $9.8 as of 12/31/13, down from $9.9 per share as of 12/31/12.
Last Wednesday, subsequent to my purchase, TICC reported a decline in net asset value per share to $9.78 from $9.85 as of 12/31/13. Core net investment income was reported at $.29 per share, and the company declared a $.29 quarterly dividend. One investment was on non-accrual status with a "fair value" of $3.5M. As of 3/31/14, the weighted average yield of TICC's income producing assets was about 12.9%, down from 13.2% as of 12/31/13.
Earnings Call Transcript | Seeking Alpha
Net asset value per share was reported at $9.8 as of 12/31/13, down from $9.9 per share as of 12/31/12.
Last Wednesday, subsequent to my purchase, TICC reported a decline in net asset value per share to $9.78 from $9.85 as of 12/31/13. Core net investment income was reported at $.29 per share, and the company declared a $.29 quarterly dividend. One investment was on non-accrual status with a "fair value" of $3.5M. As of 3/31/14, the weighted average yield of TICC's income producing assets was about 12.9%, down from 13.2% as of 12/31/13.
Earnings Call Transcript | Seeking Alpha
Rationale: Notwithstanding this BDC's less than commendable history, the recent purchase was made below net asset value per share, and hopefully the managers of this BDC will earn their pay by increasing net asset value per share within the near future rather than demolishing it. The net asset value per share was reported at $13.6 as of 3/31/2007 and at $13.77 as of 12/31/2006: SEC Filed Press Release The net asset value per share was reported at $9.79 as of 3/31/2014, or a 28.9% decline since 12/31/2006. Some of the decline is understandable given what happened during the Near Depression period.
The primary rationale for this purchase, as with all other externally managed BDCs, is to exit the position at a profit after collecting several dividends. The goal is to achieve a 10%+ annualized total return and to get out whenever I can realize that objective.
Assuming a continuation of a $.29 per share quarterly dividend, which is of course far from assured, the dividend yield at a total cost of $9.55 per share is about 12.21%.
I have a very negative opinion about externally managed BDCs and their managers. It is possible to realize a 10% annualize return from the dividend alone provided the share loss is minimal.
The trick is to exit the position before the managers generate a significant downward move in net asset value which causes a market price decline. Most externally managed BDCs will trade slightly below or above net asset value per share. As net asset value per share is diminished over time, the price will go down to reflect that adjustment.
Consequently, given the history of these companies, I would not view any externally managed BDC as a long term hold. And, by buying when the shares slip below net asset value per share, I increase the odds some of being able to exit the position at some profit before the managers work their magic and cause the net asset value to fall materially.
The primary rationale for this purchase, as with all other externally managed BDCs, is to exit the position at a profit after collecting several dividends. The goal is to achieve a 10%+ annualized total return and to get out whenever I can realize that objective.
Assuming a continuation of a $.29 per share quarterly dividend, which is of course far from assured, the dividend yield at a total cost of $9.55 per share is about 12.21%.
I have a very negative opinion about externally managed BDCs and their managers. It is possible to realize a 10% annualize return from the dividend alone provided the share loss is minimal.
The trick is to exit the position before the managers generate a significant downward move in net asset value which causes a market price decline. Most externally managed BDCs will trade slightly below or above net asset value per share. As net asset value per share is diminished over time, the price will go down to reflect that adjustment.
Consequently, given the history of these companies, I would not view any externally managed BDC as a long term hold. And, by buying when the shares slip below net asset value per share, I increase the odds some of being able to exit the position at some profit before the managers work their magic and cause the net asset value to fall materially.
Risks: The risks associated with this BDC are summarized in the last SEC filed annual report starting at page 24, 10-k. Since this BDC is externally managed, there is a significant potential for conflicts of interests, as noted at pages 39-40. The managers are paid a 2% base fee applied to assets, which includes assets purchased with debt, plus an incentive fee.
In my opinion, the managers of this BDC have yet to show that they deserve anywhere near that level of compensation given the historical performance measured by changes in net asset value per share and the dividend slashes.
This BDC has also cut its dividend. TICC Capital Corp. (TICC) Dividend History The quarterly rate was reduced from $.36 to $.3 in the 2008 second quarter, reduced again to $.2 in the 2008 third quarter and cut one more time to $.15 in the 2009 first quarter. The total decline was over 58%, hardly something that anyone would regard as a commendable or manifesting worth. As of 12/31/13, accumulated net realized losses on investments totaled $47.5+M and this BDC had distributed $11+M in excess of investment income. SEC Filed Press Release Earnings for Q/E 12/31/13 Why was there any accrued capital gain incentive fee payable, let alone one of $3.8+M as of 12/31/13.
In light of the foregoing, it would be impossible in my opinion for anyone to justify what is being paid to the managers of this BDC.
In my opinion, the managers of this BDC have yet to show that they deserve anywhere near that level of compensation given the historical performance measured by changes in net asset value per share and the dividend slashes.
This BDC has also cut its dividend. TICC Capital Corp. (TICC) Dividend History The quarterly rate was reduced from $.36 to $.3 in the 2008 second quarter, reduced again to $.2 in the 2008 third quarter and cut one more time to $.15 in the 2009 first quarter. The total decline was over 58%, hardly something that anyone would regard as a commendable or manifesting worth. As of 12/31/13, accumulated net realized losses on investments totaled $47.5+M and this BDC had distributed $11+M in excess of investment income. SEC Filed Press Release Earnings for Q/E 12/31/13 Why was there any accrued capital gain incentive fee payable, let alone one of $3.8+M as of 12/31/13.
In light of the foregoing, it would be impossible in my opinion for anyone to justify what is being paid to the managers of this BDC.
Future Buys/Sells: I will not buy another TICC share unless I sell first the highest cost 150 shares owned in the taxable account. I will consider selling those shares when and if the market price exceeds the net asset value per share by 5%+. I may liquidate those shares when and if I have any profit in them.
Given my unfavorable opinion about TICC's managers, I will keep my exposure small and will trade the position for small profits when and if I have a profit.
I am hoping that BDC prices will improve later in 2014 after they are kicked out of the Russell indexes in June.
Closing Price Last Friday: TICC: $9.41 +0.10 (+1.07%)
Given my unfavorable opinion about TICC's managers, I will keep my exposure small and will trade the position for small profits when and if I have a profit.
I am hoping that BDC prices will improve later in 2014 after they are kicked out of the Russell indexes in June.
Closing Price Last Friday: TICC: $9.41 +0.10 (+1.07%)
3. Sold 50 THGA at $23.46-Roth IRA and 50 THGA at $23.67 (see Disclaimer):
Snapshot of IRA Trade:
 |
| 2014 Roth IRA Sold 50 THGA at $23.56 |
Snapshot of Taxable Account Trade:
Snapshot of History:
 |
| 2014 Sold 50 THGA at $23.67 |
Snapshot of History:
Snapshot of IRA Profit:
Roth IRA: Bought 50 THGA at $21.58 (November 2013 Post)
Snapshot of Taxable Account Profit:
I thought that I owned only 50 shares in an IRA. I could not find any blog reference to the 50 share purchase in a taxable account. Just another senior moment.
Security Description: The Hanover Insurance Group Inc. 6.35% Subordinated Debenture due 2053 (THGA) is an Exchange Traded junior bond issued by the Hanover Insurance Group (THG). Interest payments are made quarterly at the fixed coupon rate of 6.35% on a $25 par value. Prospectus
Rationale: What can I say. THGA is a junior bond maturing in 2053, unless redeemed earlier at the issuer's option, and has a 6.35% coupon on a $25 par value. This long dated junior bond has considerable interest rate risk. At a price above $23.5, I simply do not view the benefit associated with a low yielding security to be worth the risk.
Future Buys: I will simply wait for this one to become more appealing before considering a repurchase. At at total cost of $20, the yield would be 7.9375% which may be slightly tempting depending on the circumstances than existing when and if that price is hit.
Closing Price Last Friday: THGA: $23.94 +0.30 (+1.27%)
4. Sold 50 SGZA at $23.73 (see Disclaimer):
Snapshot of Trade:
Snapshot of Profit:
Bought 50 SGZA at $20.6 October 2013
Security Description: The Selective Insurance Group Inc. 5.875% Senior Notes due 2043 (SGZA) is an Exchange Traded senior unsecured baby bond. Prospectus Selective Insurance has the option of calling this bond on or after 2/19/2018. If not called at the issuer's option, the bond matures on 2/9/20143.
Rationale: The yield on this potentially low yielding long term bonds was about 6.18% at the $23.73 sale's price. While that yield is still above 6%, the marker for potentially selling a long term bond, I elected to sell it anyway given the percentage gain, the huge amount of asymmetric interest rate risk between the issuer and the owner that is lopsidedly in favor of the issuer, and the lower tier investment grade rating. I am more inclined to hold the first mortgage bonds issued by Entergy distribution subsidiaries that yield about the same and are higher quality.
Future Buys: I will want a price below $20 before repurchasing a 50 share lot.
Closing Price Last Friday: SGZA: $23.32 0.00 (0.00%)
5. Pared ADX by Selling Highest Cost Shares: Sold 200 ADX at $13.21-Reduces Average Cost Per share to $10.14 from $10.76 (see Disclaimer):
Snapshot of Trade:
Snapshot of Position Before Trade:
Snapshot of Position After Trade:
Snapshot of Profit:
This 200 share lot was purchased in May 2008 as a potential trade and became a long term holding after Lehman's failure. I subsequently added ADX shares at much lower prices. Some of the trading history is summarized in Item # 4 Bought 100 ADX at $10.14 November 2012.
Rationale: I am becoming more concerned about a market correction and view the mutual fund described in Item # 6 below as a more defensive holding. I am basically offsetting the ADX proceeds against the cost of that mutual fund, keeping my overall allocation to stocks about the same.
I also wanted to pare my ADX holding by selling my highest cost shares profitably which lowers my average cost per share.
While I did not make much on the shares, the 200 shares did generate income that was used to buy more shares at cheaper prices starting in 2008. I calculated that those shares generated $662 in dividends.
Adams Express Company Dividend History
I reinvested both the quarterly income dividends ($.05 per share) and the larger year end capital gains shares until 2013. Starting in 2013, I reinvested the capital gains distributions and took the quarterly income dividends in cash. (see snapshots at 12/31/13 post ADX and Item # 5 CEF Reinvestment Snapshots for 2012)
Future Buys/Sells: I am not likely to make an open market purchase unless the market price falls 5% below my average cost per share number which is $10.14. I may continue to reinvest the capital gains distribution since I have not been able to stop it online yet.
If the market is up 10% to 20% in 2014 before the year end capital distribution, I may sell up to 100 of my highest cost shares.
Closing Price Last Friday: ADX: $13.14 +0.04 (+0.31%)
6. Initiated Position in Vanguard Global Minimum Volatility Fund (VMVFX):
Snapshot of Trade:
Security Description: The Vanguard Global Minimum Volatility Fund;Investor (VMVFX) is a new Vanguard mutual fund that owns stocks globally "that are expected to minimize volatility relative to the global equity market".
Sponsor's Webpage: Vanguard Global Minimum Volatility Fund (expense ratio .3%; 229 stocks as of 3/31/14)
Portfolio Holdings
Rationale: While it remains to be seen, I would view a minimum volatility fund to be more resistant to a downturn. Consumer staple, energy and utility companies will go down in a market correction, but not as much as a broad market average. In the major down days so far this year, several stock sectors with low volatility numbers have even gone up when the momentum stocks and overvalued small caps were hit hard.
Risks are typical for a global stock fund and are summarized by Vanguard here.
Closing Price Last Friday: VMVFX: $10.66 +0.03 (+0.28%)
7. Added 50 CZNC at $18.5 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):
Snapshot of Trade:
Company Description: The Citizens & Northern (CZNC) is a small regional bank holding company headquartered in Wellsboro, PA. and currently has 25 branches in PA and 1 in NY.
Virtually all of the bank's offices are located in the Marcellus Shale region. CZNC notes that a significant portions of its lending opportunities, trust and other services were tied directly or indirectly to from Marcellus Shale related activities. 10-k
The bank recently raised the quarterly dividend to $.26 from $.25 per share. Citizens & Northern Corp (CZNC) Dividend History
The stock is thinly traded, usually with large bid/ask spreads: CZNC Historical Prices
The stock was trading below both the 50 and 200 SMA lines when I purchased this lot, suffering two 10% corrections so far this year: CZNC Interactive Chart
Closing Prices:
12/31/13: $20.63
2/6/14: $18.25
3/10/14: $20.2
5/6/14: $18.11
Prior Trade: I realized a profit on my first round trip: Sold 100 CZNC at $16.53 (September 2011)(snapshot of realized gain=$517.61)-Bought 50 CZNC at $11.77; Added 50 CZNC at $10.46.
I then reinitiated a position in June 2013: Item # 3 Bought 50 CZNC at $19.15
Last Earnings Report: I discussed the last earnings report in a recent post: Update for Regional Bank Basket Strategy; SEC Filed Press Release
As I mentioned in that discussion, this bank has excellent capital ratios.
Page 46, 10-Q
Rationale: I am averaging down from my purchase at $19.15. At a total cost of $18.5, the dividend yield at the current quarterly dividend is about 5.6%.
The current E.P.S. forecast for 2014, made by only one analyst, is $1.46 or a 12.67 P/E based on a total cost of $18.5 per share.
Risks: This bank did slash its dividend rate starting in the 2010 first quarter, going from $.24 per share to $.08 and then started to gradually raise it again to the current rate of $.26 per share. Dividend cuts are always a distinct possibility for banks during or soon after a recession.
E.P.S. started to decelerate for this bank after it reported an E.P.S. of $1.53 in 2005. 2009 Annual Report at page 12. A large loss of $4.4 per share was reported in 2009. That loss was triggered by an after tax impairment charge of $55.849M in securities held for sale. In other words, the loss was caused primarily by bad investment decisions rather than loan decisions. The biggest problem was in something called "pooled trust preferred securities-mezzanine tranches" (page 14). This issue highlights just one of the many things that can go wrong at a bank. I did not follow up on what happened to those securities in the following years. This write-down in 2009 reduced the value by $73.674M bringing the cost basis down to $11.383M.
Even a prudent bank will suffer an increase in loan losses during a recession. The ones making improvident loans will generally be exposed during those economic downturns, with many being seized by the FDIC.
Regional banks are in correction territory. Market participants believe that a decline in intermediate and long term rates will hurt the net interest margin, the primary source of earnings for non-money center banks. It is not surprising that the downdraft in regional bank stocks gathered momentum this year as rates started to move back down.
However, for many of these banks, profits have been crimped in recent quarters due to fewer mortgages being refinanced and lower mortgage rates may bring back some of that business, at least for those homeowners who have not been able to refinance previously. With rates moving back down, mortgage originations may start to move back up for awhile, but the great tsunami of mortgage refinancings is probably mostly in the past. There was a 3.6% increase in mortgage applications for the week ending 5/9/14: Refinance Applications Increase in Latest MBA Weekly Survey
Regional banks have been trending down in price this year.
I would attribute this decline to two primary factors: (1) valuations became stretched last year and (2) market participants view the decline in interest rates to be a negative for this sector due to the net interest margin compression.
Recognizing that ongoing weakness, which is manifested in the SPDR S&P Regional Banking ETF chart, I have nonetheless decided to nibble on some bank stocks that have fallen back into my fair value ranges. The future is not written in stone.
Future Buys/Sells: I am at my limit with 100 shares. I will probably sell the highest cost lot purchased at $19.15 when the price exceeds $20. I may always sell a stock when I see a non-temporary decline in the fundamentals. In the meantime, I will be content harvesting the dividend.
CZNC will normally trade with large bid/ask spreads.
Closing Price Last Friday: CZNC: #18.45 +0.18 (+0.99%)
8. Sold 1 JCP Senior Unsecured Bond at 93 (see Disclaimer): A snapshot is included in the CZNC snapshot above.
I took at $24 loss on this bond since I no longer view the potential downside risk as worth the coupon.
I would be slightly ahead on a total return basis.
After this transaction, investors responded favorably to JCP's last quarterly report, driving the stock up 16.25% yesterday: JCP: $9.73 +1.36 (+16.25%)
9. Sold 50 TCBIP at $24.21 (see Disclaimer):
Snapshot of Trade:
Snapshot of Profit:
Bought 50 TCBIP at $22.64 (October 2013)
Security Description: The Texas Capital Bancshares Non-Cumulative Perpetual Preferred Series A (TCBIP) is an equity preferred stock that pays qualified and non-cumulative dividends at the fixed coupon rate of 6.5% on a $25 par value. Prospectus
Rationale: Under the current trading rules for fixed coupon preferred stocks, I will consider selling the position whenever the yield at the sale's price is less than 7%. This trading policy is meant to balance interest rate risk with current income generation. At a $24.21 price, the current yield is about 6.71%.
Future Buys: I will want at a minimum a 7.5% current yield to buy back this 50 share lot.
Last Friday's Close: TCBIP: $24.71 +0.01 (+0.04%)
I have noted that my exchange traded bond sales have gone up in price after I sold them. Maybe, I need to quit selling them.
Uncle Ben is giving his views about rates to the Masters of the Universe, more appropriately labeled Masters of Disaster, for those willing to pay $250,000 per person for a nice dinner. His views are that rates are going to say low for longer than the market expects according to Reuters. That article notes that the market is not pricing a 4% federal funds rate until 2022. Last September, the market was forecasting that would happen in 2018. This is certainly a relevant consideration, particularly for the floaters whose coupons increase only have going above a 3 month Libor floor amount. A number of them have 4% minimum coupons which have been the applicable rate since the FED started its Jihad Against the Saving Class.
Then again, the current interest rate levels are not consistent with inflation and inflation expectations and are manufactured by the FED.
10. Sold 100 ARCP at $13.35-Roth IRA (see Disclaimer): I am discussing this trade out of order since it relates to my statement about disposing of these shares in last week's post.
Snapshot of Trade:
Snapshot of Profit:
Bought 100 ARCP at $12.74-Roth IRA
Rationale: I mentioned last week that I would be selling this 100 share lot for two reasons Bought 300 ARCP at $12.69
First, ARCP is about to spinoff a company in a month or so that would give me 10 shares for 100 ARCP, and it is not cost effective to sell just 10 shares. I would need almost an $.8 rise in share price after the spin-off just to break even.
Second, when I first looked at ARCP, I placed a cap on my total investments in its securities. That cap was $5,000. This is a risk mitigation technique. I exercise a judgment balancing the potential risks and rewards. While I can exceed the cap temporarily, I need to quickly bring my position back into compliance with that balance, and "balance" is my favorite word.
So, last week, I had to sell 100 ARCPP when I bought 300 ARCP. Otherwise, I would have been too far out of balance.
Total Cost Numbers:
300 ARCP= $3,814.95
100 ARCP Roth IRA= $1,281
100 ARCPP Taxable= $2,283.95
50 ARCPP Roth IRA= $1,068.95
Total Cost= $8,448.85
By selling 100 ARCPP=$6,164.9
By selling 100 ARCP (Back into Compliance with Risk Rule)=$4,883.9
A commenter at SeekingAlpha ask me why I sold ARCPP since it would not have a material impact on my portfolio even if I kept it. I explained the foregoing. This risk/reward balancing occurs with every security in my portfolio. Subsequent events can raise or lower than balance, and increase or decrease the cap amount. I do not make exceptions for any security, even though each security in isolation would not have a material impact even if the price went to zero. (comment exchange Southgent1951 and Gratian at Seeking Alpha)
I was not familiar with the history of ARCP's CEO until yesterday. A person left an inflammatory and potentially libelous comment to this Seeking Alpha article about him. I did some research after reading that comment and left one in response: southgent1951's Comments on ARCP: American Realty Capital Properties Inc | Seeking Alpha
Yesterday, ARCP announced yet another large acquisition: American Realty Capital Properties Announces Agreement to Acquire Red Lobster Real Estate in Approximate $1.5 Billion Sale-Leaseback Transaction
Closing Price Last Friday: ARCP: $13.10 -0.12 (-0.91%)
Politics and Etc.:
1. Cats: I have never liked cats, and have always been a dog person, just like I have always preferred the sugary regular Coca Cola with the bite to it rather than that sweet Pepsi alternative. (own both stocks however, like those salty snacks).
I was amazed to see that cat video last week, the one where a family's cat quickly attacked a dog without a moment's hesitation who was biting a little boy. I would expect a family dog to do that, but not a cat. My Cat Saved My Son - YouTube
 |
| 2014 Roth IRA 50 Shares +$79.76 |
Snapshot of Taxable Account Profit:
 |
| 2014 SGZA 50 Shares +$64.08 |
Security Description: The Hanover Insurance Group Inc. 6.35% Subordinated Debenture due 2053 (THGA) is an Exchange Traded junior bond issued by the Hanover Insurance Group (THG). Interest payments are made quarterly at the fixed coupon rate of 6.35% on a $25 par value. Prospectus
Rationale: What can I say. THGA is a junior bond maturing in 2053, unless redeemed earlier at the issuer's option, and has a 6.35% coupon on a $25 par value. This long dated junior bond has considerable interest rate risk. At a price above $23.5, I simply do not view the benefit associated with a low yielding security to be worth the risk.
Future Buys: I will simply wait for this one to become more appealing before considering a repurchase. At at total cost of $20, the yield would be 7.9375% which may be slightly tempting depending on the circumstances than existing when and if that price is hit.
Closing Price Last Friday: THGA: $23.94 +0.30 (+1.27%)
4. Sold 50 SGZA at $23.73 (see Disclaimer):
Snapshot of Trade:
Snapshot of Profit:
 |
| 2014 SGZA 50 Shares +$140.58 |
Security Description: The Selective Insurance Group Inc. 5.875% Senior Notes due 2043 (SGZA) is an Exchange Traded senior unsecured baby bond. Prospectus Selective Insurance has the option of calling this bond on or after 2/19/2018. If not called at the issuer's option, the bond matures on 2/9/20143.
Rationale: The yield on this potentially low yielding long term bonds was about 6.18% at the $23.73 sale's price. While that yield is still above 6%, the marker for potentially selling a long term bond, I elected to sell it anyway given the percentage gain, the huge amount of asymmetric interest rate risk between the issuer and the owner that is lopsidedly in favor of the issuer, and the lower tier investment grade rating. I am more inclined to hold the first mortgage bonds issued by Entergy distribution subsidiaries that yield about the same and are higher quality.
Future Buys: I will want a price below $20 before repurchasing a 50 share lot.
Closing Price Last Friday: SGZA: $23.32 0.00 (0.00%)
5. Pared ADX by Selling Highest Cost Shares: Sold 200 ADX at $13.21-Reduces Average Cost Per share to $10.14 from $10.76 (see Disclaimer):
Snapshot of Trade:
 |
| 2014 Sold 200 ADX at $13.21+ |
 |
| ADX Position Before Trade/Average Cost Per Share=$10.76 |
Snapshot of Position After Trade:
 |
| ADX Position Just After Trade/Average Cost Per Share=$10.14/Unrealized Gain $2,232+ |
Snapshot of Profit:
 |
| 2014 ADX 200 Shares +$39.37 |
Rationale: I am becoming more concerned about a market correction and view the mutual fund described in Item # 6 below as a more defensive holding. I am basically offsetting the ADX proceeds against the cost of that mutual fund, keeping my overall allocation to stocks about the same.
I also wanted to pare my ADX holding by selling my highest cost shares profitably which lowers my average cost per share.
While I did not make much on the shares, the 200 shares did generate income that was used to buy more shares at cheaper prices starting in 2008. I calculated that those shares generated $662 in dividends.
Adams Express Company Dividend History
I reinvested both the quarterly income dividends ($.05 per share) and the larger year end capital gains shares until 2013. Starting in 2013, I reinvested the capital gains distributions and took the quarterly income dividends in cash. (see snapshots at 12/31/13 post ADX and Item # 5 CEF Reinvestment Snapshots for 2012)
Future Buys/Sells: I am not likely to make an open market purchase unless the market price falls 5% below my average cost per share number which is $10.14. I may continue to reinvest the capital gains distribution since I have not been able to stop it online yet.
If the market is up 10% to 20% in 2014 before the year end capital distribution, I may sell up to 100 of my highest cost shares.
Closing Price Last Friday: ADX: $13.14 +0.04 (+0.31%)
6. Initiated Position in Vanguard Global Minimum Volatility Fund (VMVFX):
Snapshot of Trade:
Security Description: The Vanguard Global Minimum Volatility Fund;Investor (VMVFX) is a new Vanguard mutual fund that owns stocks globally "that are expected to minimize volatility relative to the global equity market".
Sponsor's Webpage: Vanguard Global Minimum Volatility Fund (expense ratio .3%; 229 stocks as of 3/31/14)
Portfolio Holdings
Rationale: While it remains to be seen, I would view a minimum volatility fund to be more resistant to a downturn. Consumer staple, energy and utility companies will go down in a market correction, but not as much as a broad market average. In the major down days so far this year, several stock sectors with low volatility numbers have even gone up when the momentum stocks and overvalued small caps were hit hard.
Risks are typical for a global stock fund and are summarized by Vanguard here.
Closing Price Last Friday: VMVFX: $10.66 +0.03 (+0.28%)
7. Added 50 CZNC at $18.5 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):
Snapshot of Trade:
Company Description: The Citizens & Northern (CZNC) is a small regional bank holding company headquartered in Wellsboro, PA. and currently has 25 branches in PA and 1 in NY.
Virtually all of the bank's offices are located in the Marcellus Shale region. CZNC notes that a significant portions of its lending opportunities, trust and other services were tied directly or indirectly to from Marcellus Shale related activities. 10-k
The bank recently raised the quarterly dividend to $.26 from $.25 per share. Citizens & Northern Corp (CZNC) Dividend History
The stock is thinly traded, usually with large bid/ask spreads: CZNC Historical Prices
The stock was trading below both the 50 and 200 SMA lines when I purchased this lot, suffering two 10% corrections so far this year: CZNC Interactive Chart
Closing Prices:
12/31/13: $20.63
2/6/14: $18.25
3/10/14: $20.2
5/6/14: $18.11
Prior Trade: I realized a profit on my first round trip: Sold 100 CZNC at $16.53 (September 2011)(snapshot of realized gain=$517.61)-Bought 50 CZNC at $11.77; Added 50 CZNC at $10.46.
I then reinitiated a position in June 2013: Item # 3 Bought 50 CZNC at $19.15
Last Earnings Report: I discussed the last earnings report in a recent post: Update for Regional Bank Basket Strategy; SEC Filed Press Release
As I mentioned in that discussion, this bank has excellent capital ratios.
Page 46, 10-Q
Rationale: I am averaging down from my purchase at $19.15. At a total cost of $18.5, the dividend yield at the current quarterly dividend is about 5.6%.
The current E.P.S. forecast for 2014, made by only one analyst, is $1.46 or a 12.67 P/E based on a total cost of $18.5 per share.
Risks: This bank did slash its dividend rate starting in the 2010 first quarter, going from $.24 per share to $.08 and then started to gradually raise it again to the current rate of $.26 per share. Dividend cuts are always a distinct possibility for banks during or soon after a recession.
E.P.S. started to decelerate for this bank after it reported an E.P.S. of $1.53 in 2005. 2009 Annual Report at page 12. A large loss of $4.4 per share was reported in 2009. That loss was triggered by an after tax impairment charge of $55.849M in securities held for sale. In other words, the loss was caused primarily by bad investment decisions rather than loan decisions. The biggest problem was in something called "pooled trust preferred securities-mezzanine tranches" (page 14). This issue highlights just one of the many things that can go wrong at a bank. I did not follow up on what happened to those securities in the following years. This write-down in 2009 reduced the value by $73.674M bringing the cost basis down to $11.383M.
Even a prudent bank will suffer an increase in loan losses during a recession. The ones making improvident loans will generally be exposed during those economic downturns, with many being seized by the FDIC.
Regional banks are in correction territory. Market participants believe that a decline in intermediate and long term rates will hurt the net interest margin, the primary source of earnings for non-money center banks. It is not surprising that the downdraft in regional bank stocks gathered momentum this year as rates started to move back down.
However, for many of these banks, profits have been crimped in recent quarters due to fewer mortgages being refinanced and lower mortgage rates may bring back some of that business, at least for those homeowners who have not been able to refinance previously. With rates moving back down, mortgage originations may start to move back up for awhile, but the great tsunami of mortgage refinancings is probably mostly in the past. There was a 3.6% increase in mortgage applications for the week ending 5/9/14: Refinance Applications Increase in Latest MBA Weekly Survey
Regional banks have been trending down in price this year.
I would attribute this decline to two primary factors: (1) valuations became stretched last year and (2) market participants view the decline in interest rates to be a negative for this sector due to the net interest margin compression.
Recognizing that ongoing weakness, which is manifested in the SPDR S&P Regional Banking ETF chart, I have nonetheless decided to nibble on some bank stocks that have fallen back into my fair value ranges. The future is not written in stone.
Future Buys/Sells: I am at my limit with 100 shares. I will probably sell the highest cost lot purchased at $19.15 when the price exceeds $20. I may always sell a stock when I see a non-temporary decline in the fundamentals. In the meantime, I will be content harvesting the dividend.
CZNC will normally trade with large bid/ask spreads.
Closing Price Last Friday: CZNC: #18.45 +0.18 (+0.99%)
8. Sold 1 JCP Senior Unsecured Bond at 93 (see Disclaimer): A snapshot is included in the CZNC snapshot above.
I took at $24 loss on this bond since I no longer view the potential downside risk as worth the coupon.
 |
| 2014 1 JCP 7.95% Bond Maturing 2017 -$24 |
After this transaction, investors responded favorably to JCP's last quarterly report, driving the stock up 16.25% yesterday: JCP: $9.73 +1.36 (+16.25%)
9. Sold 50 TCBIP at $24.21 (see Disclaimer):
Snapshot of Trade:
 |
| 2014 TCBIP Sold 50 at $24.21 |
 |
| 2014 TCBIP 50 Shares +$62.58 |
Security Description: The Texas Capital Bancshares Non-Cumulative Perpetual Preferred Series A (TCBIP) is an equity preferred stock that pays qualified and non-cumulative dividends at the fixed coupon rate of 6.5% on a $25 par value. Prospectus
Rationale: Under the current trading rules for fixed coupon preferred stocks, I will consider selling the position whenever the yield at the sale's price is less than 7%. This trading policy is meant to balance interest rate risk with current income generation. At a $24.21 price, the current yield is about 6.71%.
Future Buys: I will want at a minimum a 7.5% current yield to buy back this 50 share lot.
Last Friday's Close: TCBIP: $24.71 +0.01 (+0.04%)
I have noted that my exchange traded bond sales have gone up in price after I sold them. Maybe, I need to quit selling them.
Uncle Ben is giving his views about rates to the Masters of the Universe, more appropriately labeled Masters of Disaster, for those willing to pay $250,000 per person for a nice dinner. His views are that rates are going to say low for longer than the market expects according to Reuters. That article notes that the market is not pricing a 4% federal funds rate until 2022. Last September, the market was forecasting that would happen in 2018. This is certainly a relevant consideration, particularly for the floaters whose coupons increase only have going above a 3 month Libor floor amount. A number of them have 4% minimum coupons which have been the applicable rate since the FED started its Jihad Against the Saving Class.
Then again, the current interest rate levels are not consistent with inflation and inflation expectations and are manufactured by the FED.
10. Sold 100 ARCP at $13.35-Roth IRA (see Disclaimer): I am discussing this trade out of order since it relates to my statement about disposing of these shares in last week's post.
Snapshot of Trade:
 |
| 2014 Roth IRA Sold 100 ARCP at $13.35 |
 |
| 2014 Roth IRA 100 ARCP +$45.07 |
Rationale: I mentioned last week that I would be selling this 100 share lot for two reasons Bought 300 ARCP at $12.69
First, ARCP is about to spinoff a company in a month or so that would give me 10 shares for 100 ARCP, and it is not cost effective to sell just 10 shares. I would need almost an $.8 rise in share price after the spin-off just to break even.
Second, when I first looked at ARCP, I placed a cap on my total investments in its securities. That cap was $5,000. This is a risk mitigation technique. I exercise a judgment balancing the potential risks and rewards. While I can exceed the cap temporarily, I need to quickly bring my position back into compliance with that balance, and "balance" is my favorite word.
So, last week, I had to sell 100 ARCPP when I bought 300 ARCP. Otherwise, I would have been too far out of balance.
Total Cost Numbers:
300 ARCP= $3,814.95
100 ARCP Roth IRA= $1,281
100 ARCPP Taxable= $2,283.95
50 ARCPP Roth IRA= $1,068.95
Total Cost= $8,448.85
By selling 100 ARCPP=$6,164.9
By selling 100 ARCP (Back into Compliance with Risk Rule)=$4,883.9
A commenter at SeekingAlpha ask me why I sold ARCPP since it would not have a material impact on my portfolio even if I kept it. I explained the foregoing. This risk/reward balancing occurs with every security in my portfolio. Subsequent events can raise or lower than balance, and increase or decrease the cap amount. I do not make exceptions for any security, even though each security in isolation would not have a material impact even if the price went to zero. (comment exchange Southgent1951 and Gratian at Seeking Alpha)
I was not familiar with the history of ARCP's CEO until yesterday. A person left an inflammatory and potentially libelous comment to this Seeking Alpha article about him. I did some research after reading that comment and left one in response: southgent1951's Comments on ARCP: American Realty Capital Properties Inc | Seeking Alpha
Yesterday, ARCP announced yet another large acquisition: American Realty Capital Properties Announces Agreement to Acquire Red Lobster Real Estate in Approximate $1.5 Billion Sale-Leaseback Transaction
Closing Price Last Friday: ARCP: $13.10 -0.12 (-0.91%)
Politics and Etc.:
1. Cats: I have never liked cats, and have always been a dog person, just like I have always preferred the sugary regular Coca Cola with the bite to it rather than that sweet Pepsi alternative. (own both stocks however, like those salty snacks).
I was amazed to see that cat video last week, the one where a family's cat quickly attacked a dog without a moment's hesitation who was biting a little boy. I would expect a family dog to do that, but not a cat. My Cat Saved My Son - YouTube
