Sunday, April 19, 2015

Pared 95 of 200+ CHN Owned in a Taxable Account at $21.73-Still Own Recent ROTH IRA 100 Share Purchase at $18.94/ Added 30 IDV at $34.55-Comission Free at Fidelity

Stable Vix Pattern (Bullish):
Links to SeekingAlpha Instablog, Articles and Comments:

South Gent's Instablog | Seeking Alpha

South Gent's Articles | Seeking Alpha

South Gent's Comments | Seeking Alpha


Recent Developments:

The market got the shakes as investor's drank the crazy juice and started to hyperventilate about Greece again with some regulatory changes in China contributing to the downdraft apparently.

Journalists also attributed the selloff to China's new regulations designed to curb "shadow financing" for stock purchases and to expand the "supply of shares for short sellers".  Bloomberg

The Cleveland Fed's median CPI rose .2% in March or at a 2.6% annualized pace. Over the past 12 months ending in March 2014, the median CPI is up 2.2%. Current Median CPI

The BLS reported that the seasonally adjusted CPI and core CPI rose .2% in March. Consumer Price Index Summary Before seasonal adjustment, CPI decreased .1% over a 12 month period largely caused by the crash in energy prices.

Apartment market conditions are becoming stronger for owners. NMHC Quarterly Survey of Apartment Conditions (April 2015) |

The rent to mortgage ratio clearly favors buying rather than renting. - Rent vs. Buy Report

An indicator for future new housing demand-new household formation, has turned sharply up. Reuters

Freddie Mac reported that the 30 year mortgage was at 3.67%. Mortgage Rates Little Changed Remain Near 2015 Lows Holy cow. When I built my current home in 1982, the average 30 year mortgage rate was 16.04% with 2.2 points. Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac I had no choice really other than to pay cash for everything.

China'a central bank cut bank reserve requirements by 100 basis points over the weekend. This move is designed to spur more bank spending and is commonly viewed as a central bank stimulus measure.

SVNLY: Incorrect Tax Withholding by Fidelity

I received the annual dividend for SVNLY last week, minus a 30% Swedish withholding tax and the $2.5 annual ADR fee that is paid out of the dividend:

I believe that the correct withholding tax is 15% and have already pointed that out to Fidelity. I previously incorrectly noted that the recently paid Nordea dividend had a 15% Norwegian tax withheld, but that is incorrect.  For some reason, I occasionally start to believe Nordea is based in Norway probably because the first three letters are the same. Nordea is a Swedish company subject to Sweden's 15% dividend withholding tax.

See Article 10:

Treaty Rates | Deloitte International Tax Source

A reader notified me recently that a Fidelity representative claimed that a 15% tax would be withhold for a Toronto Dominion dividend payment into an individual IRA account, which is clearly erroneous. Dividend Growth And Large Cap Valuation Strategies: Bought Toronto Dominion Bank - Toronto-Dominion Bank (NYSE:TD) | Seeking Alpha The mistakes that are made by brokerage firms are significant.

Nordea is a bank domiciled in Sweden and the ordinary shares are priced in SEKs rather than NOKs.


1. Sold 95 out of 200+ CHN at $21.73-Taxable Account (see Disclaimer): The China Fund Inc. (CHN) is a stock closed end fund.

CEFConnect Page for CHN

Since I have discussed this CEF in at least two fairly recent posts, I am not going to discuss it here. Instead, I will simply explain what I doing with this pare as a total return investor who places an emphasis on capital preservation and income generation.

I am going to produce several snapshots to reveal my thought progression on this pare, taking into account the following year end large dividends paid by this fund.

The China Fund, Inc.-Distribution history

I sold my highest cost shares reducing my cost basis from $19.8 to $18.49 without generating much of a taxable gain. 

The name of the game is after tax total returns adjusted for inflation.

CHN's annual distributions go ex dividend in December.

The shares bought in 2011, 2012, and 2013, shown in the snapshots below, would have generated the following per share dividends respectively, provided the shares were purchased prior to the year end ex-dividend date:

Bought Prior to Annual Distribution Ex Dividend Date in
2011 $13.33 per share
2012 $10.33 per share
2013 $  7.08 per share

Ex Dividend Dates: China Fund, Inc. (The) (CHN) Dividend Date & History

The 50 share lot bought on 12/29/14 was after the 2014 ex dividend date for the $3.77 per share distribution. Added 50 CHN at $17.79 and Added to MCDFX (12/30/14 Post) I still own those shares as shown below.

Snapshot of Position Before the Pare: 

Selection of Shares to Be Sold:  

Of the 95 shares sold, only 50.487 was purchased by me in the market. The remainder (44.513 shares) originated from reinvested dividends. I had to sell the fractional shares .487 from a 30 share bought on 5/7/14 simply to get to 95 shares.

Fractional shares can not be sold.

In order to eliminate all of the shares purchased with dividends at between $20.50 through $21.56, the highest cost shares, I had to sell a fractional piece of that lower cost 30 share lot bought at $19.89. (5/24/14 Post). The cost basis is higher for those shares at $20.16 due to the commission cost spread over just 30 shares.

Profit from 95 Shares: 

2015 Taxable Account ST +.72 (fractional shares)-LT +$47.08  
After being hit with 4 consecutive $3 or higher per share year end distributions, mostly long term capital gains, I did not want to create a meaningful tax event selling the shares that contributed to those large, tax inefficient dividends.  I have already paid enough taxes at 15% on those totals.

I managed to sell all shares profitably, thereby harvesting dividends paid in 2011-2013 at a profit.

That simply means to me that the income was harvested at a profit (small taxable gain + dividends=total return).

This pare was a total return harvest that produced insignificant taxable income for 2015.

Given the size of the dividends, the small share profits are an immaterial part of the total return which is significant on a percentage basis given the dividend amounts and the cost of the shares.

The 50 share lot included in this pare was purchased at a total cost, which includes the commission, of $21.36. Added 50 of the Stock CEF CHN at $21.2 (6/2/13 Post)

Taxable Account Position After Pare: 

Taxable Account Position Now at 105+ Shares Average Cost  Per Share=$18.59 

I also still own a 100 share lot, bought recently at $18.94, in my Roth IRA: Added To China Fund (CHN) - South Gent | Seeking Alpha Those shares have popped since my 3/2/15 purchase.

2. Added 30 IDV at $34.55 -Commission Free at Fidelity (see Disclaimer):

Snapshot of Trade:

Security Description: The iShares International Select Dividend ETF  (IDV) owns foreign dividend paying stocks.

I can buy this ETF commission free in my Fidelity accounts.

That is significant for any investor who wants to dollar cost average in small lots. I have bought as few as 5 ETF shares when I am able to do so commission free in one of my brokerage accounts. The low cost Vanguard ETFs are bought in my Vanguard brokerage accounts.

This last purchase brings me up to 50 shares. I am not yet close to being serious about this ETF. iShares ETFs

I decided to buy IDV last year, rather than to keep the ETF DWX for 2 reasons. I liked the holdings in IDV better on a long term basis, and I could average into a position in small lots at Fidelity cost effectively due to the free brokerage commissions.

I eliminated DWX on 4/4/14, which was owned in a Fidelity taxable account, realizing a gain of $235+: Sold: 58+ DWX at $48.75 (4/14/14 Post).

DWX closed last Friday at $44.77, SPDR S&P International Dividend ETF (DWX)

I took a snapshot of the top 10 DWX holdings as of 4/16/15 which highlights IMO the problem:

I took a snapshot of the top 25 IDV holdings:

TOP 25 Holdings as of 4/16/15
Both funds have issues in the weightings and stock selections. The energy weightings have been a drag since the 2014 summer due to the collapse in crude prices. In my opinion, IDV has fewer of those negative issues and I am just more comfortable owning it rather than DWX.

IDV owned 102 stocks as of 4/15/16.

Sourced: Sponsor's Fact Sheet as of 3/301/5.pdf

Currency Risks and Benefits: Both DWX and IDV have also been negatively impacted by the parabolic rise in the USD since last summer which flows into the net asset value of a USD priced fund owning foreign stocks priced in Euros, British Pounds, Canadian and Australian Dollars and other currencies that have declined significantly since the USD parabola started last year.

Parabolic price spikes in any asset category will inevitably collapse upon themselves, taking away a substantial part of gains created during the parabola spike up.

The USD's parabola is clearly shown in a five or ten year Dollar Index (DXY) chart.

I am using my USDs now to buy foreign stocks, which is what I do whenever investors drive my native currency to ten plus year highs against other major currencies based on what exactly. The FED may or may not raise the FF rate by a .25% later this year, or maybe not, and the U.S. did  better in the third and forth quarters of 2014 than many other countries.

Green shoots have been appearing in Europe, particularly as the pick up in export activity accelerates resulting from the Euro's devaluation, as U.S. GDP numbers slow down.

I buy in small lots to build a position after the foreign currency has already suffered a substantial devaluation when converted into USDs. I started to pick up purchases of USD priced ADRs when the local currency had fallen close to 20% or even more in same cases.

USD's Long Term Future: I would simply note that USD strength comes and goes.

Many argue that currency trends are long term. There were in the more distant past some longer trends, perhaps a melt up occurring  over 3 or 4 years and then a meltdown taking 3 or 4 years to find a bottom.

I am not sure what is meant by long term when looking at ten year currency charts.

I can not look at a ten year chart of the Euro per 1 USD and see anything that I would label a long movement. The chart just looks like up and down chop to me, with a parabolic spike in the USD starting last summer clearly shown in that chart.

At page 18 of his annual letter to BRK shareholders, Warren Buffet noted the purchasing power of the USD has declined by a "staggering 87%" during the 1964 through 2014 period. Just looking at the USD's value over the past several decades from a common sense perspective, I see a problem rather than a benefit.

Inflation Calculator: Bureau of Labor Statistics ($7.67 now has the same buying power as $1 in 1964). When discussing what is "gold's fair value", I observed that gold had no intrinsic value that could be determined using standard valuation measures and then conceded that the $20 bills in my wallet do not in "reality have a fixed real value either ...". (introduction section 4/23/13 post:  What is Gold's "Fair Value"?)

Is the newly discovered fondness for the USD take into consideration, for example, the $18.152+ trillion in federal government debt, which amount was less than $1 trillion accumulated since the founding of the nation through 1979, plus the unfunded future liabilities for the baby boomers, and the soon to be reached $1 trillion in annual interest expenses that will be added to the existing debt (interest on that interest then) when rates normalize to something approaching average historical levels.

With historically extremely low rates, the interest cost in the F/Y ending last September was $430.8+ billion A weighted average rate of just 5% on $20T would take us to that $1T in annual interest.

So what am I really saying here.

I am an investor who owns mostly USD priced assets.

I am not enthusiastic about the long term value of the USD.

I am not as pessimistic as David Stockman (e.g. on this topic "Eating The Seed Corn-The Fed’s Calamitous Corruption Of Corporate Finance".)

I find Stockman's comments too full of hyperbole and exaggerations, and some may even  dismiss his warnings as the rantings and ravings of an old man. He is after all a few years older than me. Or, given his popularity at Zero Hedge, which is not held in high esteem among many investors, that linkage has a tendency to diminish what he is saying too.

I am leaning toward the same end result but seeing the end game further into the future. It will likely take more time to undermine what was built over the first 200 years.

The likelihood of a failed series of treasury auctions within 20 years is a significant and growing risk IMO. It is likely to happen when buyers start to cringe at buying treasuries unless the yields significantly increase which adds to the pre-existing problem. That is what some investors call a Black Swan. Sure, the FED may end up buying the debt that can not be sold, but the crater that follows will not be undone by that type of sop up. Might as well hit the U.S. with one of those giant asteroids from outer space.

I am consequently using what other investors are giving me now, until they come to their senses, to buy more assets priced in foreign currencies issued by governments viewed as more responsible than our dysfunctional one. On the one hand, the U.S. will end up spending more than $2 trillion (borrowed of course) on a war of choice (hardly looking so good now either), will likely find another Iraq or Vietnam type endeavor within the next 20 years, and will add costly new programs without bothering to fund long term the ones that we already have. It is a prescription for a train wreck caused by both political tribes in their own ways, each perpetually pointing the finger at the other rather than addressing rationally and fairly the nation's priorities and security interests.  In the last analysts, wearing my investor's hat rather than the one that I wear on election day, I recognize that I have no power to change the likely result and it will not matter when it happens who is to blame. I will just blame the American people for electing the crap now infesting D.C.

Prior Trade: Prior to this purchase, I only owned 20 shares, so I am only gradually moving up to 100+ shares. I am adjusting my purchases based on risk assessment due primarily to valuation, dividends, and currency issues inherent whenever a U.S. investor buys a USD priced fund that owns foreign securities.

I generally do not discuss commission free ETF purchases until I am at 50 or more shares.

Dividends: This ETF makes quarterly dividend payments that are variable. The dividend yield will be decent, but is not capable of being measured due to the variations in quarterly payments.

I have not been reinvesting the dividend and probably will not start doing so until I own at least 100 shares.

Rationale and Risks: I am basically using the current strength of the USD to buy foreign dividend paying securities in anticipation of what I call a twofer down the road. Hard to say when. The twofer is a market price increase due to a rise in foreign currency values against the USD and to rise in value when priced in local foreign currencies.  I may be too early catching that wave.

As shown above, the dividend support is decent.

In addition to the currency risks discussed above, there is the usual assortment of risks associated with stocks, which hopefully needs no further discussion Those kind of risks are summarized in the Prospectus, starting at page S-3. One of the risks mentioned is "industry sector risk" which does not need further explanation for those owning energy stocks over the past several months. A company may reduce or eliminate a dividend. Even a developed nation like Canada has country risks. An example would be what investors call the 2006 Halloween Massacre when the Canadian government announced an end to the favorable tax status of energy royalty trusts in 2011.

The concentration in Australian stocks is another prominent risk. The AUD has been weak against the USD for two years: AUD/USD Chart I noted some other issues relating to Australia's big banks when discussing the purchase of the ADR for Australia & New Zealand Bank Group last February. Since those large Australian pay good dividends, they will generally receive a good weighting in international dividend stock fund, as will the large Canadian banks that have similar issues, as I noted when buying a small lot of Toronto-Dominion Bank (NYSE:TD).


I have been writing an unusual number of long SA comments this weekend, so I cut this post short.

I need to keep abreast of the news too. I noted that the GOP dominated Tennessee legislature recently passed a law declaring the Bible as the official book for the state, beating back an alternative after much debate that Andrew Jackson's bible should be made the official book to overcome those liberal ACLU types who would challenge the new law in court as being unconstitutional. The later alternative was proposed by the deep thinkers.

There are at least two important provisions in the Bill of Rights for many GOP partisans in Tennessee. One is what I would call a liberal view of the Second Amendment and the other is what I would call a new version of religious freedoms that extends to Christianity only as practiced by reactionaries.

Maybe children can start taking fields trips to the Creation Museum in Kentucky, rather than that liberal science museum expressing corrupted concepts generated by the liberal mass media.

Really what did actually happen in human development? As we all surely most know, unless we are a liberal or a communist,  children played with the dinosaurs as shown at the Museum.

A.A. Gill wrote a classic and humorous piece about that museum that was published in Vanity Fair.

Since gaining control of the legislature, the dominant reactionary forces in the modern day GOP have focused a great deal of attention to passing law allowing for guns in bars, guns in state parks,  guns at work, guns just about everywhere. Possibly, the next law will be to reimburse citizens willing to purchase a gun cabinet filled with guns.

As I recall, and my memory is not what it use to be, the argument for guns in playgrounds and parks was based on a bear scaring a little girl. If the adults were packing, they could have shot the bear, hopefully missing each other, and made the bear really angry so it would charge and kill the little girl rather than snarling and going about its business.

Tennessee's GOP has a different view about religious freedom when it comes to non-Christians. Sure, they will beg to differ notwithstanding to opposing permits to build non-Christian churches or making a really big stink when the conservative GOP governor hired a Muslim. woman and "an openly gay" staff member. County GOP chapters circulate resolutions condemning Haslam | In Session I got news for those guys and gals. They are not conservatives at all. A Conservative, meaning the real deal rather than reactionaries masquerading as conservatives,  actually view the Bill of Rights as embodying true "Conservative" values.

The conservative GOP governor opted out of Obama's expansion of Medicaid, preferred instead to create his own market based version which he did and that legislation is supported by hospitals and healthcare providers throughout the state. However, the GOP dominated legislature will not do anything, preferring instead debates about how far to extend gun "rights" or how many unconstitutional bills that can be passed to generate enthusiasm in their evangelical base.  Perhaps, the next bill will require that youngsters learn the bible in its entirety and repeat it while sitting on a mat with their heads bobbing up and down.

I voted for Senators Lamar Alexander (R) and Bob Corker (R) as well as Haslam (R) for governor. I have not voted for any GOP "conservative" running for a position in the state legislature. I just summarized briefly some of the reasons why a true conservative finds them so appalling.

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