Observations and Sample of Recent Trades: 1/16/17 (Gold, USBPRH, TPVG, SZEVY, CLDX, Tahoe Resources)

1. Gold: 

I did add to my GLD position at $113.98 last Friday. My best guess at the moment is that gold will outperform the S & P 500 this year. 

GLD's price took a dive after the election as part of the herd consensus Trump Trade, closing at $121.64 on 11/8 and at $107.34 (12/15/16). A bottom appears to have formed, at least for the moment, in the $107-$110 range.

I do not subscribe to the herd consensus that Trump is bad for gold. 

I simply do not regard the Orange King as a force for world stability. My general opinion is that virtually every country in the world other than Russia will be mad at the U.S. before year end. 

Today's examples that at least point to areas of potential instability are discussed in this Bloomberg article. Trump Slams NATO The U.S. is clearly aligning itself more with Russia's European foreign policy. Praise Putin while criticizing U.S. European allies is the new mantra. 

The German Economic Minister Sigmar Gabriel responded earlier today to Trump's threat to levy a tax on BMW imports into the U.S. from Mexico: German minister to Trump after tax threat: ‘The U.S. needs to build better cars’ - MarketWatch Will Germany respond to such a levy or sit idly by and just watch it happen?

Putin will be liberal in his phrase for Trump since that is the easiest way to manipulate any egomaniac. The worst thing to do would be to make an accurate criticism. Trump asks if John Brennan (CIA Director) was source of fake news, but cites no evidence - CBS News (The CIA did not prepare the "piss on the bed" memo" which originated from a former British spy hired initially by Trump's GOP opponents-Former MI6 spy known to U.S. agencies is author of reports on Trump in Russia | Reuters-FACTS DO NOT MATTER to Trump)

China is not going to be bullied by our Bully-In-Chief either: Reuters: China will 'take off the gloves'

Conducting international foreign policy through tweets is not going to end well.

The market is currently pricing potential turmoil and economic disruptions at a zero possibility. Being a fact based investor, I do not accept those odds, and gold is one way to make a contrarian "bet" against the herd consensus opinion of smooth sailing ahead into economic nirvana. 

I only need to conclude that the market is probably assessing the odds incorrectly and then the questions involve security selections and their weightings.  

I bought GLD, SLV, and PPLT shortly before the BREXIT vote and sold those ETFs into the rally ensuing after the vote. That event barely moved the instability needle when looked at in perspective. The British public is about to learn, contrary to their certain beliefs held at the time of the vote, that they can not have their cake (free trade with EU) and eat it too (control over immigration/migration from other EU members): U.K. Set to Choose Sharp Break From European Union - The New York Times; Hard Brexit fears crunch sterling ahead of PM May speech (CNBC). The decline in the XE: GBP / USD conversion rate is a negative for U.K. stocks priced in USDs on top of the decline in the ordinary share prices today.

And, to borrow a phrase used by Jim Grant, the fiat currencies are being turned into confetti with printing presses running wild and U.S. government debt spiraling higher in a parabolic and unsustainable fashion, unless one views the next decade or so as the measure of sustainability. 

Federal Debt | FRED | St. Louis Fed

I view gold to be primarily an alternative to fiat currencies.  Stocks, Bonds & Politics: What is Gold's "Fair Value"? A very large number of SA authors are certain that they have the formula for understanding and predicting gold's movements. SPDR Gold Trust ETF | Seeking Alpha

For two decades or so prior to 1980, U.S. household debt to disposable income was close to 60% and started to increase significantly in 1985 until hitting 133% in the 2007 4th quarter:

Household Liability Level to Disposable Personal Income | FRED | St. Louis Fed

The long term U.S. stock bull market, starting in August 1982 and ending in 2000, coincided with massive increases in both the national and consumer debt levels. 

Stocks, Bonds & Politics: What Will Produce Growth after the Age of Leverage? (9/8/2009 Post)

There is no question that spending borrowed money will increase GDP, but the impact will start to slow as the economy grows and more borrowing is needed to move the needle. Eventually, negligible U.S. GDP growth will result even with massive amounts of additional spending, while the cost of servicing that debt becomes a burden too onerous to bear. I am a long term bear on the U.S.D. and consequently I will own precious metals as an alternative to that fiat currency. 

I trade the ETFs and play the long cycles with bullion stored in a bank lock box.   

The main headwind for gold during 2017 may be USD strength, but that may not last for long. 

I will be buying some gold stocks as well for the first time in several years. 

In my IB account this morning, I purchased 100 of Tahoe Resources Inc. (THO:TOR) at C$11.93 which pays a small monthly dividend in U.S. dollars. Tahoe Resources Declares First Monthly Dividend For 2017 The commission is C$1.

I placed a limit order at C$11.93 when the stock was trading at slightly over C$12. The order was subsequently filled after the brief early morning rally petered out. I may discuss that purchase in my next blog. Tahoe's stock also trades on the NYSE under the symbol TAHO. Tahoe has its headquarters in Nevada.

Website: Tahoe Resources Inc., New Leader in Precious Metals


2. Small Cap Biotech Lottery Ticket Basket Strategy: 

When I updated this Lottery Basket strategy, I neglected to include in my table the recent 50 purchase of  Celldex Therapeutics Inc.  (CLDX). Using a commission free trade, this lot was bought at $3.55 on 1/5/17.  These buys are a form of entertainment for the Old Geezer and his faithful companion Right Brain, referred to as the "Unholy Alliance" by Left Brain. So call it one hand of blackjack.  

Quote: Celldex Therapeutics Inc (CLDX)

This small cap has several possible shots on goal that are currently in Phase 1 or Phase 2 trials: Pipeline | Celldex Therapeutics It is a crap shoot to varying decrees with all of my Lottery Ticket buys. The company is burning cash so some good news is needed this year.

I did review some recent press releases, but can only say that I find the science interesting.

Celldex Presents Data on CDX-1140, a Novel CD40 Agonist Antibody for Hematologic and Solid Malignancies, at the American Society of Hematology (ASH) Annual Meeting

Celldex Presents Data on New Product Candidate, CDX-1140, a Novel CD40 Agonist Antibody

Phase 2 Study of Single-agent Glembatumumab Vedotin in Patients with Checkpoint-Refractory Metastatic Melanoma Meets Primary Overall Response Endpoint and Demonstrates Clinically Meaningful Duration of Response 

Celldex Therapeutics’ CDX‑1401, CDX‑301 Combination Generates Potent NY-ESO-1 Immune Responses in Patients with Melanoma

The firm is of course losing money. I reviewed the third quarter report and noted that cash and cash equivalents stood at $203.2M as of 9/30/16, down from $220.1M as of 6/30/16: Celldex Reports Third Quarter 2016 Results The need to raise capital through stock offerings in order to fund research and trials is frequently a negative since those offering tend to deflate the share price to lower and lower levels as they occur over time.

Celldex SEC Filings

10-Q for the Q/E 9/30/16

KLP Enterprises filed a Schedule 13G claiming ownership of 5.7% of the stock as o 12/6/16.

2015 Annual Report SEC Form 10-K  

The last public share offering was in February 2015 when the company sold 7.25M shares at $24: Prospectus

A December 2013 public offering was priced at $24.5 per share.

Investors were less enthusiastic in February 2013 share offering priced at $7.5.

So this stock has been a Widow Maker for several years. Since my first buy was at $3.55,  I am at least closer to zero than those purchasers at previous public offerings.   

Celldex was among the worst performers in 2016 after the failure of its lead drug candidate: Why Celldex Therapeutics Imploded in 2016 -- The Motley Fool; 2017 bargains? Here were the Russell 2000's 25 worst performers in 2016-Seeking Alpha I can only hope that I am not looking at that list for "investments".

Needless to say, brokers downgraded the stock in droves. Another MF article has a more positive uptake.

Closing Price 1/13/16: CLDX $3.64 0.02 0.55%  Market cap  $435M

I am not planning to pay my nursing home expenses with my "winnings" from CLDX. One of my cousins told me that the average monthly expense in my county was over $8K for a private room. He had to check out the prices for his mother.

3. Sold 50 of 100 the BDC TPVG at $12.33:

Quote: TriplePoint Venture Growth BDC Corp. (TPVG)

Profit Snapshot: +$83.48

I discussed purchasing another 50 share lot at $10.61 in Comment Blog # 3-South Gent | Seeking Alpha. I still own that lot and used a commission free trade to buy. 

I sold the 50 share lot bought in my IB trading account.  

I will drag and drop here my earlier discussion in Comment Blog # 3 that is relevant to this stock. 

"The current quarterly dividend is $.36. At that penny rate, the dividend yield is about 13.57% at a $10.61 total cost per share.

Needless to say, there is no free lunch when a stock pays 13.57% at that constant cost per share number. 

As explained many times in blogs and comments, I do not like externally managed BDCs, viewing the external managers as tremendously overpaid given their results and frequent long term destructions of net asset value per share. Some are far worse than others.

Recognizing their many issues, I will trade them in small lots and attempt to harvest a total return in excess of their dividend yields. That has historically been easier said than done given the trends in asset destruction, frequent public offerings until recently, and the extremely generous and high fees paid to the external manager.

This BDC had its IPO in March 2014. The offering price was $15. 

TPVG SEC Filings 

2015 Annual Report SEC Form 10-K 

The risk factors are summarized starting at page 35 and that discussion continues to page 63. Longer is not better when evaluating risk.

2016 3rd Quarter Report 

"Four portfolio company exits during the quarter including the acquisitions of Dollar Shave Club and Jet.com, the initial public offering of Nutanix, and the announced acquisition of Endochoice."

"Net increase in net assets resulting from operations of $11.4 million, or $0.71 per share."

"Net asset value per share increased by $0.39 to $13.44 per share, as of September 30, 2016."

"Total investment portfolio fair value at September 30, 2016 of $308.9 million, includes 36 warrant and equity investments with a fair value of $16.3 million.

"15.1% weighted average annualized portfolio yield on debt investments for the third quarter."

" Repurchased 295,744 shares of common stock for an aggregate $3.4 million."

"For the third quarter of 2016, the Company recorded net investment income and core net investment income of $6.5 million, or $0.40 per share, as compared to $4.7 million, or $0.28 per share of net investment income and $4.9 million, or $0.29 per share of core net investment income for the third quarter of 2015. The Company’s net investment income and core net investment income were both $18.2 million, or $1.12 per share during the nine months ended September 30, 2016. This compares to $15.9 million, or $1.10 per share of net investment income and $15.8 million, or $1.09 per share of core net investment income during the nine months ended September 30, 2015.

For the third quarter of 2016, the Company recorded net realized and unrealized gains of $4.9 million, or $0.31 per share, as compared to net unrealized gains of $1.0 million, or $0.06 per share, for the third quarter of 2015."

The estimate for core investment income was $.35 with 3 analysts contributing to that estimate: Analyst Estimates | TriplePoint Venture Growth BDC 

The estimates for BDC's are based on projected net investment income per share. The net investment number shown at YF for September 2015 is $.28 and that was the net investment income per share number for that quarter:

I would call $.4 in net investment income a five cent per share beat plus there was another $.31 per share in realized gains.

The same conclusion was reached by this Seeking Alpha editor. 

Link to SA article published about TPVG:  Seeking Alpha

I would agree with the author that the stock warrants taken as additional compensation for the loan can prove beneficial when there is an acquisition and there were several in the last quarter.

I knew about the Dollar Shave club acquisition since I own shares in the acquirer Unilever that were originally purchased at $18 back in March 2009 and are still owned.

Dollar Shave Club Sells to Unilever for $1 Billion - The New York Times

Current Portfolio Companies: TriplePoint 

This company also has a 6.75% senior unsecured bond traded on the stock exchange which matures in 2020:  TriplePoint Venture Growth BDC Corp. 6.75% Notes  07/15/2020  (TPVZ) 

Prospectus 

"We may redeem the Notes in whole or in part at any time or from time to time on or after July 15, 2017, at the redemption price of par, plus accrued interest"

This language identifies the bond as a senior unsecured bond:

"The Notes will be our direct unsecured obligations and rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by TriplePoint Venture Growth BDC Corp."

End of Quote From Comment Blog (minor revisions made in quote)

4. SOLD 50 USBPRH at $23.59:

Investment Category: Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities (contains trade snapshots)

Quote:  U.S. Bancorp Non-Cumulative Equity Preferred Floater With Minimum Coupon Series B (USB.PH) 

Profit Snapshot 

Profit Snapshot: 

2017 USBPRH 50 Shares +$129.59

I will receive one quarterly dividend payment of $.2236 per share that went ex dividend on 12/28/16.

Total Return = $140.77 or 13.4% (holding period 38 days) 

This security pays qualified and non-cumulative dividends at the greater of 3.5% or .6% over the 3 month Libor rate on a $25 par value. USB may redeem at anytime now at par plus accrued and unpaid dividends. It may choose to do so when and if the 3 month Libor rate reaches a level that would make it advantageous to replace USBPRH with a fixed coupon security including senior debt.

Prospectus

The Libor rate would consequently have to exceed 2.9% during the relevant computation period to trigger an increase in the coupon.

Fitch rates the USB preferred stock at BBB+. Press Release

S & P has a BBB rating on USB's preferred, and Moody's is at A3 according to Quantumonline.

For comparison purposes, USB has a 3.7% senior unsecured bond maturing in 2024 whose last trade was at 103.99 last Friday, creating at that price a YTM of 3.058%. Bond Detail

Senior Debt Ratings According to Finra

Moody's Rating A1 (05/14/2015)

Standard & Poor's Rating A+ (01/29/2014)

Fitch Rating AA (10/04/2016)

USB's preferred stock is rated higher than other financial company issuers of equity preferred floaters including Goldman Sachs, Bank of America, Zions, Suntrust, Santander, and Morgan Stanley. Consequently the minimum coupon is not has good, but the float is better than several less favorably rated equity preferred stocks (ZBPRA, SANPRB, STIPRA but those have 4% minimum coupons)

As discussed many times previously, it is not unusual for an equity preferred floater to do down in value when competitive interest rates rise and there is no near term prospect of a coupon increase above the minimum level.

As shown by a one year chart, this security was trading near $24.5 as late as early November prior to the election. The trades were frequently above $24.5 between August 2018 through early November. The price then collapsed as interest rates spiked up after the election: USB.PH Stock Chart 

I have bought and sold this one several times. I view equity preferred floaters as trades at least until I see on the horizon the potential for coupon increases.

The last trade that I could find was to sell 50 shares at $20.55:

Monday, March 3, 2014

Item # 2 Sold 50 USBPRH at $20.55 at Stocks, Bonds & Politics. 

I had bought those shares in the early stages of the 2013 interest rate spike:

Saturday, September 7, 2013

6. Bought 50 USBPRH at $18.83 at Stocks, Bonds & Politics 

I held onto a 30 share lot for a few days in August 2011 when equity preferred stocks and exchange traded bonds were going through one of their bungee jumping routines:

Item # 1 Sold at $21.84 at Stocks, Bonds & Politics 

The lowest purchase price was probably in 2009:

Item # 5 Bought at $17.49 at Stocks, Bonds & Politics-Item # 2 Sold at $20.35 June 2010 at Stocks, Bonds & Politics 

So, I have not missed much by flipping lots at $21.84 and $20.35 several years ago, taking into account that my last buy was at $21 last December and the fact that the coupon has not increased over the minimum level since I first purchased USBPRH in 2009. Maybe we are moving closer to an increase, possibly in 2018 or 2019. 

USBPRH Trading Gains to Date = $453.44

Given the low minimum coupon, and a Libor rate sufficiently low that no increase in the coupon is likely anytime soon, I am not interested in this security other than as a possible trade.  

5. Contrarian Buy: Suez 

I bought 50 SZEVY shares, an ADR traded on the pink sheet exchange, at $7.24:

SZEVY Stock Quote - Suez S.A. ADR  (SZEVY:OTC)

Suez provides drinking water, waste treatment and waste management services. Website The stock will be a holding in a global Water ETF. PowerShares Global Water ETF (PIO)(weighted at 3.47 as of 1/13/17); Guggenheim S & P Global Water ETF (CGW)(weighted at 3.14% as of 1/13/17).  

The ordinary shares are priced in Euros and closed at €13.66 last Friday:  Suez S.A.

Paris Stock Quote - Suez - Bloomberg Markets (P/S Ratio .48/TTM P/E 17.49)

SZEVY Analyst Estimates 

1 ADR = .5 Ordinary shares: SZEVY-OTCMarkets.com

Before I entered a limit order Friday morning, I did a conversion of €13.66 into USDs. 

I then had to dividend $14.4135 by 2 and arrived at $7.26, so I entered a limit order at $7.24. 

3 Year Comparison Chart: Ordinary Shares Priced in Euros vs. ADR Priced in USDs 

The ordinary shares are down over 35% since peaking early in 2015, while the ADR has underperformed the ordinary shares by about 25% due to the decline in the Euro/USD exchange rate.  
  

Dividends and Dividend Yield: The current dividend yield before France's withholding tax will fluctuate at my constant cost number due to currency conversion rates from Euros into U.S. Dollars. 

Since Suez was first listed for trading in 2009, it has paid an annual dividend of €.65 per share.  Dividends That would be €.325 per ADR share. The dividend will be converted from Euros into USD at the then prevailing exchange rate.

Assuming that the EUR/USD conversion rate is 1.06, near where it is now, that would generate before France's withholding tax a dividend of $.348 per ADR. Dividing that amount by a total cost of $7.2 per share, I arrive at a dividend yield at that conversion rate of 4.763%. At a EURO/USD of 1.3, the dividend penny rate per ADR becomes $.4225 and the dividend yield increases to 5.84%.

I will consider buying another 50 shares after the next ex dividend, provided (1) the price is lower and (2) Interactive Brokers secures the 15% tax rate by asserting to France's tax authority my U.S. citizenship. Under France's tax treaty with the U.S., a U.S. citizen is entitled to a 15% tax rate, but someone has to asset treaty rights to that authority. 

Tax Treaty Rights: If the broker fails to make a relief at source claim, then 30% will be withheld by France. 

Article 10 (15% Dividend Tax Rate): U.S.-France Income Tax Treaty.pdf

Many brokers fail to make that mass filing on behalf of their customers, telling them to make that filing for themselves. (e.g. Item # 3  Stocks, Bonds & Politics) 

When I test the water for a new broker for a particular country, and find out that it does not assert tax treaty benefits for that country, I quit buying the relevant foreign securities using that broker.  

All of my brokers will asset tax treaty rights on behalf of their individual customers for dividends paid by Canadian companies. The failure to asset tax treaty benefits generally start with other countries. Dividends paid by companies based in France will frequently be one of those failures. Vanguard and Fidelity will claim treaty benefits in France but others do not.   

Recent Earnings Report: 

9M-16.pdf

6. Purchases Short Term Bond/CD Ladder: 

Bought 1 Wells Fargo 2.05% CD (monthly interest payments) maturing 1/20/21 

Bought 1 Wells Fargo 2.25% CD (monthly interest payments) maturing on 1/20/22

Bought 2 JPM 1.8% CD (monthly interest payments) maturing  1/20/20 (continuously callable)

Added 1 Citigroup 1.7% Senior Unsecured Maturing on 4/27/2018 Bond Detail (YTM=1.776%)

I would not mind if JPM called the CD referenced above. It is impossible for me to generate positive vibes for a 1.8% CD other than in furtherance of capital preservation, which is my prime objective now, and more income than the Fidelity Government MM fund. It is more of a choice for me between two bad alternatives. 

This is a snapshot of some interest payments received today from recent short term bond purchases and other owned securities. 

A majority of the securities now owned as part of this ladder basket strategy will make interest payments on the first or last business day of a month, or on the 15th or the first business day thereafter. The first semi-annual payment for a $1K par value bond will reimburse me for the accrued interest paid to the seller at the time of purchase which will require my CPA to make an accounting adjustment in my Schedule B.  

However, a significant number of securities will make payments at other times during the month. For the $1K par value bonds, that can be seen by looking at the maturity dates. The CNQ 1.75% note matures on 1/15/18, and I received the semi-annual interest payment today. The BBT note bought on the same day matures on 1/12/18, so the first interest payment will be on 7/12/18.  

Along with other owned securities, I am receiving a constant cash flow stream.