Wednesday, March 22, 2017

Observations and Sample of Recent Trades: 3/22/17 (AEG, SFLNX)/Trump: The Democrats Invented The Fake News Story About Russian Interference in the U.S. Election

Russian Interference in the Election-Invented by the Democrats to Explain Losing the Election:

Donald's Tweet 3/20/17:

"The Democrats made up and pushed the Russian story as an excuse for running terrible campaign. Big advantage in Electoral College & lost!"

Now we know. The Russians did not interfere in the election to boost Trump's chances of winning. No way Jose. Trump has facts to prove that the entire intelligence community has conspired with the Democrats after the election to concoct this Russian story to explain why they lost to Donald. 

FBI Director James Comey: Trump campaign, Russia ties investigated, no wiretap evidence - CNN

Comey Deals Trump a Political Blow When He Can Least Afford It - Bloomberg

Trump's False tweet that NSA, FBI said 'Russia did not influence electoral process' | PolitiFact

I only watched segments of Comey's testimony on television. Whenever a republican was questioning him, the subject was not Russian interference in the U.S. election, but the leak of classified information that proved that Flynn had lied about his contacts with the Russian ambassador.

Maybe the republicans will be concerned about Russia's interference when its attack is directed at the GOP's nominee.


Possible Coordination Between Trump Campaign and Russia To Interfere In U.S. Election as a Potential Negative for the Stock Market:

This entire subject has the potential for being a major negative for stocks.

While there is no publicly disclosed proof that Trump associates coordinated with Russian intelligence officials, there is smoke and a cast of characters that no presidential candidate should allow anywhere near a campaign including Trump's former campaign manager Paul Manafort.

Paul Manafort’s plan to ‘greatly benefit Putin government'-USA Today

The Alternate Fact Guy, Sean Spicer, recently claimed that Trump's former campaign manager had no important role in the campaign. Sean Spicer says Trump campaign chairman Paul Manafort actually played 'limited role' in campaign - CNN

Manafort will be called as a witness in the ongoing House and Senate investigations. Do not be surprised if he and possibly one or more others plead the Fifth Amendment and refuse to answer questions.

Information is just dripping into the public domain on a continuous basis. The drips may turn into a flood. This subject could turn very toxic for the GOP and their agenda.


Trump's New Labor Secretary Nominee Alexander Acosta:

Trump's first nominee for Labor Secretary, Andrew Puzder, had to withdraw since too many Senate republicans refused to support him. You would think that Trump would be very careful with his second choice. That assumption would be incorrect.

When Trump's new Labor Secretary nominee was a federal prosecutor, he cut a non-prosecution deal with a former hedge fund manager, Jeffrey Epstein, who was accused of sexually abusing 40 minor girls mostly between 13 and 17. Trump called Epstein a “terrific guy” back in 2002, saying that “he’s a lot of fun to be with. It is even said that he likes beautiful women as much as I do, and many of them are "on the younger side".

Why would any sane President nominate the prosecutor for Labor Secretary who refused to prosecute this guy or cause to be made public again Trump's comments about Epstein? At a minimum, this highlights Trump's poor judgment.


1. Intermediate Term Bond Ladder Basket Strategy:

A. Bought 1 JPM 3.375% Senior Unsecured Bond Maturing on 5/1/23

Issuer:  JPMorgan Chase & Co. (JPM:NYSE) 
JPM Page at Morningstar
Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at Baa1
S & P at BBB+
Fitch at A

YTM at Total Cost = 3.468%

JPM SEC Filings

2016 4th Quarter Earnings Report

B. Bought 1 Laboratory Corporation 3.6% Senior Unsecured Bond Maturing on 2/1/25:

Issuer: Laboratory Corp. of America Holdings (LH:NYSE)

LH Page at Morningstar
Laboratory Corporation of America - Investor Relations 
Finra Page: Bond Detail
Credit Ratings:
Moody's at Baa2
S & P at BBB

YTM at Total Cost (98.088 ) = 3.884%

2016 Annual Report (debt listed at page F-22)

Laboratory Corporation of America® Holdings Announces Record 2016 Fourth Quarter and Full Year Results and Provides 2017 Guidance 

C. Bought 1 Xcel 3.3% Senior Unsecured Bond Maturing on 6/1/25:

Issuer: Xcel Energy Inc. (XEL:NYSE)-Utility Company

XEL Page at Morningstar 
Credit Ratings | Xcel Energy
Finra Page: Bond  Detail (prospectus linked)
Credit Ratings:
Moody's at A3
S & P at BBB+
Fitch at BBB+

YTM at Total Cost (99.255 ) = 3.404%

2016 Annual Report (debt listed at page 91)

Xcel Energy 2016 Year End Earnings Report 

D. Bought 1 Wisconsin Power & Light 2.25% Senior Unsecured Maturing on 11/15/22

The "Ask Price" of 96.785 shown above is the ask price plus a $1 Fidelity commission. 

Issuer: WPL is a wholly owned subsidiary of Alliant Energy Corp. (LNT:NYSE) 

Finra Page: Bond Detail (prospectus linked)
Credit Ratings: 
Moody's at A2
S & P at A
Moody's downgrades Alliant to Baa1, Interstate Power and Light to Baa1, and Wisconsin Power and Light to A2
YTM at Total Cost (96.785 ) = 2.87%% 

Dollars in Millions: 2016

Page 29 Alliant Energy 2016 Annual Report 

E. Bought 1 Federal Realty 2.75% Senior Unsecured Bond Maturing on 6/1/23

I bought this bond in a Roth IRA account. 

Issuer: Federal Realty Investment Trust (FRT:NYSE)-REIT 

FRT Page at Morningstar  
Home | Federal Realty Investment Trust
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings: 
Moody's at A3
S & P at A-
Fitch at A-
Credit Ratings | Federal Realty Investment Trust
YTM at Total Cost (96.977 )= 3.292%

2016 Annual Report (debt listed at pages F-19 and F-20)

Federal Realty Investment Trust Announces Fourth Quarter and Full Year 2016 Operating Results

2. Continued to Pare Stock Allocation

A. Sold 200 AEG at $5.69

Quote: Aegon N.V. ADR (AEG:NYSE)

Profit Snapshot: +$136.09

My prior round trip was in 2015: $234.19

2015 AEG 283+ Shares +$234.19
It has been difficult to generate an adequate return on the USD priced Aegon ADR given the decline in the EUR/USD and the overall poor performance of the ordinary shares price in Euros. 

I drew a three year chart comparing the performance of the Euro priced ordinary shares and the USD priced ADR to highlight the previous point: 

Aegon N.V. Interactive Stock Chart 

This chart illustrates what I call the Double Whammy in international stock ownership. The ordinary share price has fallen about 10% but the ADR has dived over 30% due to the decline in the Euro's value against the U.S.D. 

The trend recently has been up in price due solely to better performance of the ordinary shares priced in Euros and traded on the Dutch stock exchange.  

I have had more luck with the USD priced Aegon Hybrids. Those shares are U.S. issued securities whose prices are not influenced by the Euro/USD exchange rates and are in effect junior bonds. I never devoted much money to them but have managed to generate $4,512.81 in realized gains so far. 

I recently nibbled on two of them: AEGON N.V. 6.375% Perpetual Capital  (AEH:NYSE) and AEGON N.V. Floating Perpetual Capita (AEB:NYSE) 

I discussed those recent purchases in my SeekingAlpha comment blogs. 

AEB was bought at $21.9. AEB is a hybrid security that quarterly "dividends" for a U.S. taxpayer at the greater of 4% or .875% above the 3 month Libor rate on a $25 par value. AEG may call at anytime at par value. The 3 month Libor rate has been trending up in yield but is unlikely to surpass IMO 3.125% prior to 2019, the trigger point for increasing the coupon above the 4% minimum. 3-Month London Interbank Offered Rate (LIBOR) Chart-St. Louis Fed That rate will be higher than the federal funds rate set by the Federal Reserve: Effective Federal Funds Rate Chart-St. Louis Fed

Aegon's subordinated debt is rated Baa1 by Moody's and BBB by S & P. 

This unusual security is a junior bond on the balance sheet and in effect an equity preferred stock for regulatory capital purposes. Its potential perpetual character makes it analogous to U.S. equity preferred stocks but it is superior in Aegon's capital structure to equity preferred stocks. The hybrids rank below all senior debt. Distributions have been treated as qualified dividends for U.S. taxpayers in the past, but would be classified as interest in European countries. Quantumonline still shows the qualified rate as still being applicable for U.S. taxpayers. 

My first discussion of an AEB buy was back in October 2008 when I bought 50 shares at $5.5:

AEB AND JQC (10/8/2008 Post)

I bought AEH at $24.81. This security pays dividends at the fixed coupon rate of 6.375% on a $25 par value. There is no maturity date. Aegon can call the security at par now. Given the recent rise in rates, Aegon may not be able to refinance at a more favorable rate unless it used an intermediate term senior bond to refinance.

B. Eliminated SFLNX: Sold 84+ at $15.76

Quote: Schwab Fundamental US Large Company Index Fund 

SFLNX- Rated 4 Stars by Morningstar 

Profit Snapshot: +$112.49

I started a small position in this Schwab fund last year and never built it up. Since I do not want to buy additional shares now, I just decided to eliminate the small position as part of my stock allocation reduction.  

Small stock and stock fund positions are targets for disposal now. 

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


  1. South Gent,

    SWZ announced today that its Board of Directors has approved a one-time tender offer to acquire, in exchange for cash, up to 10% of the Fund's outstanding shares of common stock at a price equal to 98% of the Fund's net asset value ("NAV") per share.

    The current price of SWZ is at 10.36% discount to its NAV, not too far from its 1yr, 3yr, and 5yr range of close to -13%. The Fund is thinly traded so if they do a stock buyback in the open market, the price will certainly go up. I read the factors considered by the Board in the announcement and wonder if there is any other peculiarity beyond what was stated. In some cases in the past it was easier to take control of a company with less shares after the tender. From a small holder's perspective is it worth going through a 10% tender offer of a small position for maybe a 8% price difference (-2% vs. -10.36%)?

  2. Y: This kind of offer occurs from time to time among CEFs. A similar offer was made by ZTR late last year:

    The SWZ shares will not be purchased in open market transactions. Instead, shareholders who respond to the offer tender their shares to the company's agent. If more than 10% tender, which invariably happens, then the company will prorate the purchase shares.

    You can see from the ZTR announcement that 7,861,481 shares were tendered and only 17.19% were accepted for purchase under the offer. So if someone bought 300 shares now, and tendered them, maybe 30 to 50 shares will be purchased and the rest returned, and the investor loses access to the shares after tendering them and has no control on what the net asset value per share will be when the tender is accepted.

    I do not like this kind of offer. It uses up cash to buy shares at 98% of net asset value per share, as opposed to using the cash more gradually to buy up shares at a greater than 10% discount to par value which would be more beneficial to shareholders. The discount will typically narrow some after the tender offer is announced but that will often be temporary and will likely disappear when the tender offer results are later announced with shares returned to arbitrage funds attempting to capture the price differential between 98% of net asset value and the current market price.


  4. The sensation in my stomach has grown to a small knot. This is like watching a very slow puzzle putting together, with waving of pieces in the palm of hands.

    I love Schiff's explanation of circumstantial can be seeing snow on the ground the next morning.

    I do not understand how, in all this time, no one had figured out what they wanted to do for health care. "Repeal" is not a plan.

    The other day, as I do sometimes, I took a break by putting a random word into google. Up came this fun book. It appears to be an old standard-bearer classic:

    I've gotten about half way through. I'm wondering if there are clues on this time period of as parallel to the book's time period of in the industrial age. I thought I'd share it with you.

    Any specific thoughts on monday's drawdown... or just the same as usual? that the rally has to pause sometime.

    I've been wondering if the Russia stuff will effect this market at all. As of this evening, futures are back up even with today's odd mix of elusive revelations. I "understand" that economic numbers are looking good, and that even if Trump is creating imaginary worlds we are required to live in, his economic policies are popular. But wouldn't about 1/2 of even big money investors would be non-Trump supporters and be at least a little baffled and even rattled? I've been puzzling this for a while. You'd think everyone was a diehard Trump supporting post-Republican-party publican?

    If you were putting money into the market, are there any subsectors you'd point someone to look at for deals?

    Oh and I had a theory and wondered your thoughts. With Holland rejecting populism (I heard interviews that they saw how it's gone with Trump and came out to vote "Not that!".)... and French polls are putting Le'Pen lower. So EU fear of breakup recedes. Post brexit the US ran up as EU money poured in here. If EU looks better, is US likely to get less money as investors move back to EU? I asked around and got one thought that when things go well, all boats rise, so that's not likely, and instead everything will be lifted by that news.

    1. LMH: It is easy to complain. The GOP has been whining and howling at the moon about Obamacare for seven years.

      It is hard to put together a coalition on major healthcare legislation.

      A majority of Democrats want a single payor system-Medicare for everybody- but even in 2008 they did not have the votes to implement that legislation.

      Instead, they had to settle for Obamacare, what used to be a republican plan that melded a free market system with government premium support.

      The slow trickle of information about Russia's interference in the election process reminds me of Watergate where material information just dripped out slowly.

      Trump is trying to distance himself further and further away from Manafort, who was his campaign manager, which tells us something.

      "Obviously there’s been discussion of Paul Manafort, who played a very limited role for a very limited amount of time."

      Stock investors are not showing signs-yet-that they are seriously questioning their future rosy economic assumptions. More inconsistent information will probably be needed before the bullish herd starts to question their future assumptions.

      As to sectors, I am still in a paring mode. In my posts over the past several weeks, almost no stock purchases have been discussed. I have rotated over $500K out of cash earning zilch or close to it and into short and intermediate term bonds/CDs. In the event of a major stock sell off, I will consider using proceeds from maturing securities to reallocate back into stocks, but see no reason for to do so now or anytime soon.

      I am probably done paring my regional bank basket after eliminating FFBC and paring BBT, two trades that I will discuss in future posts.

      I am nibbling some in the lower quality REITs where the price has declined significantly and fallen back into my consider to buy range. The 50 share purchase of SNR discussed in this 3/16 blog is an example.

      After I bought those shares, the shares went up and have come back down after Morgan Stanley initiated coverage with an underweight rating.

      Analysts hate the stock:

      I eliminated most of positions in Hotel REITs, keeping only a 100 share lot of APLE. That sector has come back down to my consider to buy ranges. In addition to APLE, I previously owned XHR and HT.

      These lower quality REITs are risky and that is reflected in their higher dividend yields. I will trade them within price bands. The lower price band reflects my judgment of a reasonable price range based on what I know now about the economy and the company.

      I am looking to buy small cap biotech stocks and bought back one yesterday that was previously sold at a higher price. This is entertainment for me. I am not getting much of a buzz buying high quality bonds.

      I have been nibbling on gold mining stocks. Gold is viewed by me as one potential hedge against chaos.

      I have added to GG during the recent price dip. In my last purchase, I bought the USD priced shares at $15.37 (3/17/17). I am up to 60 of those shares. I have discussed in the blog buying 50 shares of the CAD priced shares:

      Item # 5. B. Bought 50 Goldcorp at C$19.23:

    2. Oh now I see. I must have missed this somehow, but it's where you described those various moves with Reits, and gold, and etc. in detail.

      "These lower quality REITs are risky"

      Good to know and makes them a lot less appropriate for me, since I still hang out a lot on the bunny trail.

      Rachel Maddow is reporting again on Manafort tonight. There appear to be more reg flags with bank accounts in Cyprus.

      Today Trump tweeted "Russia is hoax" (paraphrased, I'm not taking time to look up). That answers. It's in his opposite-comment style. He has to feel pretty desperate to be addressing the topic directly.

  5. South Gent,

    Another company maneuvering is rights offering. DB announced its deep discounted rights offering two days ago at a multi-decade price low point. PARR (formerly DPTR) completed a rights offering last year and it also turned out to be the low point of its stock price. Is rights offering a typical capital raising strategy when the stock price is low? I am skeptical that large stockholders or people in the know always take advantage of it at the expense of small investors.


      Rights offerings occur in the CEF universe as well:

    2. Thanks for the links. They are very helpful. I am not sure I will be able to make a better return but I am certainly learning to be better informed.

  6. South Gent,

    Impeccable timing on the sale of AEG.

    Aside from the strong dollar was the distressed AEG price trend during the past 3 years (and especially summer 2016) an indicator of some fundamental issues with the company?

    1. Y: I never expect much from the common stock. The dividend yield is good. I simply try to capture a few dividend payments and to exit the position at a profit.

      AEGON needed life support from the Dutch government during the financial crisis. Its hybrids went into the low single digits late in 2008-2009.

      The strength of the USD helps when reporting earnings from Transamerica back into Euros but the ADR share price is hurt by the EUR/USD decline over the past 5+ years.

      The company has disappointed in their earnings announcements from time to time. There always seems to be some problem.

      This is an excerpt from the Morningstar report on AEG:

      " But we feel these measures do not fully address the current low profitability of a business that is forced to make divestments to further its solvency position, and we believe the firm will continue to destroy shareholder value for the foreseeable future."

      The measures that are referenced are expense reductions, disposing of high capital requirement businesses and focusing more on asset management.

      Like other insurance companies, AEG needs a better interest spread. While there was euphoria about spreads expanding after the election, the opposite is happening now. Intermediate and longer term rates are coming down some as short term rates rise. That factor was probably the primary one precipitating the sell timing decision.

      Aegon was down 4.69% today, closing at $5.28. I will consider buying back some shares at <$4.9. The shares went ex dividend on 5/22/17 which accounts for some of the decline ($.14) since I sold shares.

      I am also paring my stock allocation gradually small trading positions which are profitable are near the top of my disposal list.

  7. I have published a new post:

  8. My comment is missing the main reason I wrote... I wanted to thank you very much for writing this all up and​ providing so much detail. It's so helpful, and so appreciated.. !!!