Saturday, April 1, 2017

Observations and Sample of Recent Trades (BSCL, NRBAY, APLE )-4/1/17

Unchangeable Opinions Formed Without Accurate Information

There is a large segment of the population who form opinions that are not supported by accurate information. The opinions can not be changed through exposure to accurate information. Trump manipulates that segment of the population with his constant flow of false and misleading statements. 

In a recent CBS News poll, 64% of republicans and 36% of independents believe there was no Russian interference in the last election.

There is no serious question that Russia meddled in the election.

59% of republicans and 30% of independents do not believe that any investigation of Russian interference is necessary.

74% of republicans believe that Trump was the target of  Obama wiretaps during his campaign.

What is the factual basis underlying those opinions? No amount of inconsistent and accurate information will change their opinions.

Trump has had a lot of success among republican faithful with his birther and other fact free conspiracy claims, so why change his approach?

41% of republicans as of August 2016 still believe Obama was born outside of the U.S., according to an NBC poll.

Comey: 'No Information' To Back Trump's Claim Obama Wiretapped Him - NBC News
Former NSA director says Russia was involved in 2016 election - CBS News
Paul Ryan: US has "special responsibility" to protect allies from Russian meddling - CBS News
Intelligence community says Putin ordered campaign to influence election, 'denigrate' Clinton
10 most damning findings from report on Russian election interference - CNN
Comey Confirms Russia Inquiry, Rejects Trump Wiretap Claims - Bloomberg
Dick Cheney: Russian Election Interference Possibly 'Act of War' - NBC News
Russian bots still interfering in U.S. politics after election, says expert witness - CBS News
FBI probing whether Trump aides helped Russian intel in early 2016 - CBS News
Report: 2 White House officials played role in giving Devin Nunes intel reports - CBS News (the alleged incidental collection of Trump associates talking with persons subject to lawful FISA warrants is being used to divert attention away from Russia's meddling in the U.S. election and to confuse the easily confused)

Trump and the Alternate Fact Guy Sean Spicer continue to insist that Trump was wiretapped by Obama, relying on right wing media outlets that deliberately mischaracterize information. Sean Spicer Repeats Trump’s Unproven Wiretapping Allegation - The New York Times

A witness before the Senate Intelligence Committee stated that Trump and his associates have been giving credence to and amplifying fake news created by Russia. Trump's campaign tactics, trolls strengthened Russia's election meddling, expert says - ABC NewsIntel expert: Trump cited Russian fake news


1. Intermediate Term Bond Basket Ladder Strategy

A. Added 50 of the ETF BSCL

BSCL is a term investment grade bond ETF that will liquidate in 2021. 

This ETF can be bought commission free by Schwab customers. 

This purchase was an average down from a prior purchase: Item 1.C. Bought 100 BSCL at $21.14 

Sponsor's Website: BSCL 

Expense Ratio = .24%

Dividends are paid monthly at a variable rate. 

Semi-Annual Report for the Period Ending 11/30/16.pdf (BSCL information at pages 41-42; 108-114; 199)

Closing Price 3/31/17: BSCL $21.15 +$0.03  +0.14% 

B. Bought 2 AON 2.8% Senior Unsecured Bonds Maturing on  3/15/21:

Issuer:  Aon PLC (AON)
AON Aon PLC Page at Morningstar
Finra Page: Bond Detail (prospectus not linked)
Credit Ratings:
Moody's at Baa2
Moody's affirms Aon's ratings (senior Baa2)-outlook stable
S & P at A-
Fitch at BBB+
Fitch Affirms Aon's Ratings; Outlook Stable 
YTM at Total Cost (99.588) = 2.91%

AON Analyst Estimates 

2016 4th Quarter Earnings Report

2016 AON Annual Report (debt listed and discussed starting at page 68)

This bond closed last Friday at 99.69. 

C. Bought 2 Amgen 2.125% Senior Unsecured Bond Maturing on 5/1/20:

Issuer: Amgen Inc. (AMGN) 
AMGN Amgen Inc  Page at Morningstar
Finra Page: Bond  Detail (prospectus not linked)
Credit Ratings:
Moody's at Baa1
S & P at A
Fitch at BBB

YTM at Total Cost (99.555 ) = 2.273%

AMGN Analyst Estimates

Fitch Rates Amgen Inc.'s Notes Offering 'BBB'
Moody's assigns Baa1 to Amgen's new notes

2016 Annual Report (debt discussed starting at page F-27)
2016 4th Quarter Earnings Report

This bond closed last Friday at 99.95.

D. Bought 1 McDonalds 2.2% Senior Unsecured Bond Maturing on 5/26/20:

Issuer: McDonald's Corp. (MCD:NYSE)

MCD McDonald's Corp page at Morningstar
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at Baa1
Moody's downgrades McDonald's unsecured ratings to Baa1; Outlook stable
S & P at BBB+
Fitch at BBB
Fitch Downgrades McDonald's IDR to 'BBB'; Outlook Stable 
YTM at Total Cost (99.961) = 2.212%

MCD Analyst Estimates 

MCD SEC Filings 
2016 Annual Report 
2016 4th Quarter Report  This bond will be moved into the short term basket in two months. 

This bond closed last Friday at 100.18. 

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

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

FRT Federal Realty Investment Trust Page at Morningstar
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at A3
S & P at A-
Moody's affirms Federal Realty's A3 rating; stable outlook
Credit Ratings | Federal Realty Investment Trust

YTM at Total Cost (96.845 ) = 3.317%

FRT Analyst Estimates 

FRT SEC Filings
FRT 2016 Annual Report
2016 4th Quarter Report

I previously discussed buying 1 Federal Reality 2.55% senior unsecured bond maturing in 2021 in Item # 1.C here. 

This bond closed at 97.66 last Friday.

2. Continued to Pare Stock Allocation:

A. Sold 100 NRBAY on Annual Ex Dividend Date-Used Commission Free Trade:

Profit Snapshot: $72.17

NRBAY is the USD priced ADR for Nordea Bank ordinary shares.

I sold on the ex dividend date which was 3/16/17. The penny amount was $.694232 share. Adjusted for the dividend, the shares rose $.33 on the ex dividend day.

I received two annual dividends on this 100 share lot. I will look for an opportunity before the next ex dividend date next year to buy back shares at a lower price than my last purchase.

Closing Price 3/31/17: NRBAY $11.47

3. Equity REIT Common and Preferred Stock Basket Strategy:

A. Added 50 APLE at $18.58-Used Commission Free Trade-Used Commission Free Trade:

APLE Stock Quote - Apple Hospitality REIT Inc

The stock went ex dividend for its monthly distribution shortly after this purchase.

Apple Hospitality REIT is currently paying a monthly dividend of $.1 per share. At that rate, the dividend yield at a total cost of $18.58 per share is about 6.46%. For the dividends paid in 2015, 15% of the total was classified as return of capital: AHR Form 8937 2015.PDF The portion of a dividend classified as ROC is not taxable as a dividend, but does reduce the cost basis by an equivalent amount.

I currently own 150 shares. 

Apple Hospitality REIT "owns one of the largest portfolios of upscale, select service hotels in the United States." The "geographically diverse portfolio consists of 236 Hilton® and Marriott® branded hotels located across 33 states", with over 30,000 guestrooms. Corporate Overview 

Hotel Map - Apple Hospitality Reit

Last Earnings Report:

2017 Guidance: Some investors were disappointed with this flat guidance.

Sourced From SEC Filed Press Release
Q4 2016 Results - Earnings Call Transcript | Seeking Alpha
2016 Annual Report

APLE SEC Filings

Brad Thomas recently published a SA article about this REIT: Spend A Night, Not A Fortune, Collect Monthly Dividends - Apple Hospitality REIT, Inc. (NYSE:APLE)-Seeking Alpha

Cramer recently interviewed APLE's CEO on Mad Money.

I have two round trip transactions.

I have sold 100 shares so far realizing a $81.18 profit: 

I sold 50+ shares in a Roth IRA for a $24.46 profit: 

That lot was sold at $20.24+. 

I will consider repurchasing that lot at less than $18. I am aiming lower on my re-entry point to provide a greater cushion for realizing a total return in excess of the dividend yield.  

4. Owned European Stocks That Pay Annual Dividends

The following snapshots are taken from Schwab's website. 

A. Svenska Handelsbanken AB ADR (SVNLY:OTC) 

SVNLY went ex dividend for its annual distribution on 3/29/17. 

I own 200 shares.

I last discussed buying 50 shares here. I bought that lot in my IB account to discover how well IB handles Sweden's withholding tax claim.

As a U.S. citizen, I am entitled a 15% tax rate, but the broker must claim my U.S. citizenship to secure that rate.

A failure to do so results in Sweden withholding 30%.

Last year, 30% was withheld from the SVNLY annual dividend for the 150 shares held in my Fidelity account. Fidelity blamed SVNLY. After complaining, Fidelity did something to reclaim the 15% wrongfully withheld, but the cost to retrieve ate up about 90% of the remaining sum. I wanted to see whether IB has the same issue. I do know that Sweden has withheld in the past 15% of my Nordea Bank annual dividend, which is correct under Sweden's tax treaty with the U.S., and those shares were held in my Fidelity account.


C. Vivendi S.A. ADR  (VIVHY:OTC) 

I currently own 130 shares. I discussed buying 100 share in this post: Item # 4

I later averaged down with a 30 share purchase using a commission free trade. 

This stock sank after my purchase but has been in a rally mode for several days. The stock has crossed back above its 50, 100 and 200 day SMA lines using a Yahoo Finance 1 year chart: VIVHY $19.38 +$0.58 +3.09% 

D. Novartis AG ADR (NVS)

I own 130+ shares.

E. Roche Holding AG ADR (RHHBY:OTC)

I owned 130 shares on the ex dividend date and then sold 100 shares.

F. Zurich Insurance Group AG ADR  (ZURVY:OTC)

I own 100 shares.

Since my purchase before the 2012 ex dividend date through 2016, the dividend has been sourced from capital surplus rather than earnings and has consequently been classified as a return of capital which lowers my cost basis and avoids the 15% Swiss withholding tax. The 2017 dividend will only be partly sourced from capital surplus. Dividend Payments per year | Zurich Insurance

So far 5 years, I did not pay the Swiss withholding tax or U.S. federal income tax on the Zurich annual dividend. That will change this year to the extent the dividend is not sourced from surplus capital.

G.  Suez S.A. ADR  (SZEVY:OTC):

Suez has not yet declared a 2017 dividend, noting in its last earnings report that the dividend would be equal to or greater than €.65 per share, which was the amount paid last year. Suez-2016-annual-results.pdf

1 ADR =  .5 ordinary shares

Dividend on ADR at €.65 = €.325 per ADR share before withholding tax and ADR fee to custodian

I discussed buying a 50 share lot in Item # 5.

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,

    European Stocks:
    I sold my NRBAY, ORKLY and SVNLY in 2015 due to the withholding tax issues that you had detailed in your blog, but bought back NRBAY at $8.42 in 2016. I still have VIVHY and RHHBY. I might buy some more VIVHY for its dividend. I bought some BBVA last week.

    Just a few years ago you had a threshold of 7~8% dividend yield for a buy candidate and a drop below 6% to be a sell candidate. Do you think we will get back to those good old days any time soon? As you are paring stock allocation does your RE sector weighting go up (relatively)? My RE allocation is more than 2 times that of S&P.

    1. Y: At Fidelity, I have only run into an incorrect foreign tax withholding with SVNLY.

      NRBAY (Sweden) and ORKLY (Norway) have up to now been correct at 15%. I have been able to take a credit for the foreign dividend taxes paid.

      I took my REIT allocation down, starting last summer, in response to what I perceived as a directional shift in interest rates.

      I would have to buy over $20K in equity REITs to bring myself back to my pre-July 2016 level.

      I am buying back some lots that were sold at higher price levels when the price falls back into my consider to buy range. Also, it appears that the directional up move in interest rates stalled again when the 10 year treasury yield hit 2.6%. The stalling in that uptrend, at least temporarily, removes a negative issue for REITs.

      For SNR, I bought just 50 shares and will no longer buy at >$10 per share. The dividend yield at my last purchase price was over 10%.

      APLE was a 50 share buy. For me to buy more, the price will probably have to fall below $18.

      There was a time when 8%+ yields were readily available. There was an abundance of low hanging fruit in 1982 and in 2008-2009. Now, you have to have to go with riskier securities like BDCs and Mortgage REITs which I am not inclined to do except in small amounts.

  2. good morning Southgent,

    I read with interest your
    article relating to recessions.

    What I am trying to understand is the difference between potential and actual output. This refers to the maximum I think GDP that the economy can produce without inflation.

    In the article it references an economist who says that the labor markets are behaving as if the gap has disappeared. This is I believe related to the amount of job growth and jobless claims.

    I wonder if you could comment on this and explain to me a little more clearly.

    Also the Fed seems to be stuck between a rock and a hard place in terms of rates. Since recessions apparently come out of nowhere (according to the article) or some external shock unexpected, i.e. Trump, then what do you think is the best way for the Fed to manage raising rates in order to have a cushion without sparking inflation?

    Thank you

    1. Sam: I would not delve into the theoretical concept of output gap. It has a lot of mushy variables that economists debate endlessly and the theory is important only to them.

      "Economists define potential output as what can be produced if the economy were operating at maximum sustainable employment, where unemployment is at its natural rate. Therefore, actual output can be either above or below potential output."

      It does not involve the common sense approach of looking at the economy's capacity to produce and its utilization of that output.

      Capacity Utilization Chart:

      As to the labor issue, think of it in simple terms. Why did the large companies like WMT "voluntarily" raise the minimum starting salary for unskilled labor above the minimum wage rate.

      Was it due to their concerns about their employees have a living wage?

      Or, was their motive due to a shrinking labor pool where even unskilled employees have some bargaining power over their wage level and can exercise that power by leaving a federal minimum wage job and accepting another that pays $10 or more per hour.

      The NY Fed governor recently stated that the FED will not be taking the "punch bowl" away anytime soon but will simply be adding a bit more fruit juice.

      That is probably a good way to look at measured .25% increases that started with ZIRP. Other FED rate increase cycles started from far higher levels or the raises started at higher levels (1% as in 2004) and were increased at a fast and significant pace (e.g. 1% to 5.25% in 2004-2006)

  3. The S & P 500 did come close earlier today to piercing its 50 day SMA line to the downside. The low was hit around noon E.S.T. at 2,344, and the remainder of the day was spent in rally mode.

    Nonetheless, I expect this average will significantly pierce its 50 day SMA line soon enough.

    I also am staying with my prediction that the S & P 500 would hit its 2017 high in the first quarter. That number was 2,400.98 hit intra-day on 3/1/17:

    The auto sales number for March was meaningfully below expectations.

    I mentioned this issue relating to the economic recovery in a recent post. The problem goes beyond a slowdown in new car sales and extends to accelerating defaults in subprime used car loans that is causing used car prices to decline precipitously.

    While the U.S. manufacturing PMI numbers for March were fine, they do show a slight decline from 57.7 to 57.2 in the ISM report and from 54.2 to 53.3 in the Markit report:

    I would not draw any conclusions yet.

    The bond market had a good day which further illustrates in my opinion that the Bond Ghouls have a substantially different forecast about future economic conditions than the Stock Jocks.

    The Bond Bookies have changed their post-election opinion about Donald while the Stock Jocks are True Believers in the Second Coming of Stock Market Nirvana.

    iShares 7-10 Year Treasury Bond ETF (IEF)
    $$105.95 +$0.52 +0.49%

    iShares 20+ Year Treasury Bond ETF (TLT)
    $121.67 +$1.2146 +1.01%

    The ten year treasury continues to trend down in yield closing today at 2.35%, down from 2.4% last Friday and 2.62% on 3/13/17.

    I have noticed that yields have been ticking down in high quality corporate bonds maturing in the 4 to 9 year range which is where I have been concentrating my buying recently.

    While I have continued to buy generally $3K to $8K in high quality corporate bonds per trading day, I am running out of options even for the meager yields that I have summarized for those securities in my posts here.

    I have shifted some into selling 2019 bonds at small profits and going with longer maturities from the same issuer but that is resulting in diminishing yield spreads as the 2022-2026 bonds go up in price and down in yield.


  5. I do not understand the 36 cents per year and the current price it would take three years just to break even. What am I missing. Would it not mature at $20.00?

    1. RS: BSCL will not pay out $20 per share. A term bond fund is not the same as par value for a bond where the investor receives par value at a time certain provided the issuer is not bankrupt.

      BSCL would throughout its term be buying and selling bonds within in its maturity range as investors buy and sell the ETF. This will cause the net asset value per share to change over time. In addition, another factor impacting net asset value per share would be buying bonds at discounts and premiums to their respective par values.

      The net asset value per share was $21.1. Interest rates started to move up last July. The NAV per share was then hovering in the $21.5 to $21.6. The IPO price in 2013 was $20.

      I do not intend on holding BSCL or any other term bond fund until the liquidation date. I am just parking cash which earns close to zero at Schwab until I find something more suitable to buy.

      BSCL is a very low expectation purchase. The general idea is to simply do better than Schwab's interest rate on funds held in a sweep account for a relatively brief period.

      I would not invest idle funds in my Vanguard accounts in a similar security since its Prime MM fund currently pays .87%.

      I would not buy these term bond funds if I had to pay a commission to buy them either, given their low yields.

      The main advantage to the investment grade term bond funds is that the investor acquires a diversified portfolio while mitigating the interest rate risk associated with bond funds that have no liquidation date.

  6. The market turned up today after Donald said that his infrastructure plan could top $1 trillion:

    Investors apparently have not yet realized that there is a vast difference between Trump's promises and his ability to deliver on those promises.

    The Democrats are Trump's natural allies on a major infrastructure spending plan.

    The GOP blocked Obama's infrastructure plan, which called for $478B in additional spending over 6 years.

    Spending a lot of new money on infrastructure is part of the Democrats' playbook, while GOP representatives are generally cold to at best lukewarm. The Democrats do not seem inclined at the moment to help Donald secure a win.

    While some GOP representatives may go along with a major spending infrastructure initiative over a ten year period, their support may be conditioned on some kind of private/public partnership where private companies are given tax credits and the right to charge the public for using the projects. If too much reliance is place on that kind of approach, Donald will lose a lot of Democrats.

    Tax credits are in effect a form of federal spending. What is the difference when looking at the budget deficit between spending federal money to build an infrastructure project and giving tax credits to private companies that reduce federal revenues?

    The taxpayer though ends up with the same or similar budget deficit and the obligation to pay for using the project!

    It would be worse for the taxpayers if the tax credit was refundable, meaning that the government would have to cut a check to the private company who is unable to use all of the tax credit.


    The GOP has come up with a way to get rid of the pre-existing condition rule in Obamacare. Their revamped TrumpCare proposal would not require coverage for essential benefits and would allow the states to opt out of the requirement that those with pre-existing conditions could not be charge more than healthy individuals, referred to as "community rating".

    That option would result in most states opting out and those with pre-existing conditions would no longer be able to afford coverage.

    All republican controlled states would probably opt out of the pre-existing condition requirement and allow insurance companies to charge whatever for those with pre-existing conditions.

    Any promise which will be made by GOP representatives that they could afford coverage is illusory as noted by the President of Kaiser Foundation:

    "If there is guaranteed access to insurance without community rating, protections for people with pre-existing conditions are illusory."

    There would also be a number of essential services that will no longer be affordable by permitting individuals to opt out of specific essential services.

    I mentioned pre-natal and maternity services and mental health/addition services as two essential services whose coverage costs would skyrocket due to the large number of individuals opting out of policies covering those services. The coverage pool would then be small and would be priced accordingly.

    For investors, the main conclusion that I would draw is to avoid accepting as fact Donald's bluster. After all, he has made according to the Washington Post 338 false or misleading claims in the first 70 days as President:

  7. TRACON Pharmaceuticals, Inc. (TCON)
    $4.10+0.50 (+13.89%)

    I own 50 shares as part of my Small Cap Biotech Lottery Ticket Basket Strategy. I did not see anything specific to cause the rise today other than the company making a presentation yesterday at the American Association for Cancer Research (AACR) annual meeting involving preclinical studies of TRC694. The presentation was titled "Inhibition of NF-kB inducing kinase (NIK) selectively abrogates NIK and TRAF3 mutant multiple myeloma tumor growth"

    The company is scheduled to make a presentation at Needham's investor conference tomorrow:

    2016 4th Quarter Report:

    I am still in the hold having bought my lot at $4.8:

    Item # 6 Small Cap Biotech Lotto Basket Strategy:

    There was a negative event after my purchase that caused the stock to drop:

    2/9/17 Press Release

    TCON's compound was not effective in combination with avastin for the indication being studied.

    The stock closed at $4.85 (2/9) and at $4.1 the next day. Another downdraft started after a $4.25 close on 3/28/17:

    I am unaware of anything specific that cause that downdraft.

    The market cap at today's closing price was only $66+M, so investors are not pricing any meaningful revenues from TCON's pipeline.

    There is one SA article on this company published over a month after my purchase:

  8. I have published a new post:

  9. Larry Fink, CEO of Blackrock, believes there is a 51% chance that the ten year treasury will fall below 2%.


    U.S. has launched more than 50 missiles at Syria according to NBC news and the Washington Post:

    My quote for electronic gold trading is delayed but there was the start of a spike up at 9:08 E.S.T.:

    The spot price is also spiking up:


    The NYT reported today that the CIA knew in the 2016 Summer that Russia was attempting to interfere in the U.S. election to help Donald.

  10. 51%? That's very certain by Larry Fink!