Observations and Sample of Recent Trades: Another CAD/USD Exchange, NWHUF/Discussion of HOPE Bancorp Earnings Report and Accretion Income in Bank Accounting

Economy: 

A half-million flooded cars and trucks could be scrapped after Harvey: CNBC

The government revised its estimate of second quarter real GDP growth to a 3% annual rate from 2.6%. The increase was driven by an increased estimate of consumer expenditures which was revised to  a +3.3% rate from 2.8%. However, the savings rate declined to 3.7% from 3.9%. US revised second-quarter GDP up 3.0% vs 2.7% rise expected: CNBC 

News Release: Gross Domestic Product

ADP released its private payrolls report for August on the same day. ADP estimated that 237K private jobs were added in August. ADP National Employment Report | August 2017

Case Shiller reported last Tuesday that its home price index for twenty metropolitan areas rose 5.8% Y-O-Y through July 2017. 

Overall, these economic reports were good ones. 

The Labor Department's jobs report for August will be released on 9/1/17, with the current consensus estimate at +175K. August jobs data marks crucial test for U.S. dollar - MarketWatch

Hurricane Harvey will have a short term adverse impact on jobs and GDP but those numbers will not start to show up until September. 

The government released this morning the Personal Income and Outlays report for July. 

Updates for May and June: 

Inflation remains muted and continues to decline from numbers earlier in the year. Note that both real disposable income and real personal consumption expenditures rose by .2%. 

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Market Commentary: 

The bond ghouls barely reacted to the ADP jobs report and the upwardly revised second quarter GDP estimate. 

Closing Price 8/30/17: IEF $108.07 -$0.09 -0.08% : iShares 7-10 Year Treasury Bond ETF 

Nor are they concerned about the economy being near or at full employment with a 4.3% unemployment rate. 

This data, however, did cause me to press down on the gas as I slightly accelerated my ongoing reallocation out of  intermediate term bonds. This is based on a possibly correct forecast, or possibly wrong, that interest rates will reverse course soon and rise some, giving me an opportunity to buy back those bonds at lower prices. My time period for that to happen is prior to year end. The Bond Ghouls are not cooperating at the moment. U.S. 10 Year Treasury Note-MarketWatch

Given my capital preservation objective, I try to anticipate future events that would cause losses and respond accordingly before the events happen. 

Government shutdown could be “more catastrophic” than Lehman collapse, says S&P - MarketWatch 

S & P lowered its debt rating for U.S. treasuries to AA+ in 2011 after Congress barely averted a default on U.S. debt obligations. U.S. triple-A debt rating cut by Standard & Poor’s-MarketWatch S & P was the only ratings agency to lower U.S. debt from AAA in response to that self-inflicted dust up.   

Personally, I view U.S. government debt to be at best an "A+".  There is just too much of it and the problem is becoming worse at an accelerating rate. 

Another useful market report is published by the Canadian firm CIBC Wood Gundy: August Monthly Report

While I have reduced my exposure to Canadian reset equity preferred stocks, the same firm publishes a report on all Canadian preferred stocks including the resets. This one was published in February: Canadian Preferred Shares Report

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1. Canadian Dollar Strategy: 

A. Bought USD$15K Using C$18,747.15 ($2 IB conversion fee built into rate): 

C$1.2491 bought $1 USD

In my IB account, the realized gain for CAD currency exchanges is currently at $1,123 (consisting of a ST profit of $1,206.93 and a LT loss of $85.78), with a current unrealized gain of  almost +$500. Most of the realized gain this year was from this trade using FIFO accounting.  

I still have a meaningful CAD position. 

This kind of trade was precipitated by what I viewed as a short term reversal underway in the CAD/USD. I discussed the reasons in a prior comment. 

The general thrust of my reasoning involved three factors occurring at the same time, plus a low commission rate charged by IB for currency conversions which was a factor as well: 

1. The CAD/USD failed to stay above .8, a resistance level hit after one prior upswings within the past two years. XE: CAD / USD Currency Chart (use two year chart) The recent spurt from May 2017 in the CAD/USD appeared to me to hit the same resistance level before starting a drift down. 

2. The CAD is viewed as a commodity currency, particularly influenced by directional changes in crude oil prices. WTI prices have turned down meaningfully after closing at $50.21 on 7/31/17. That move to the downside has been exacerbated by Hurricane Harvey that has shut down a significant number of refineries and the seasonally slower demand period already here. Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

3. Trump is making noises again about terminating NAFTA. While I do not expect that he will do so anytime soon, and probably lacks the legal authority to do it without congressional approval, he may actually try to do it, being the Know Nothing Demagogue that he is,  and the mere attempt would likely cause the CAD to lose value even if nothing happens right away.  

I may not have done this conversion if I had to pay a 1% commission which is what Fidelity would charge me. Instead, I paid only $2 to IB and can later purchase those CADs back at the same commission rate.  This low cost alternative to Schwab and Fidelity, both of whom charge 1%, allows me to focus more on pure currency trades in addition to earning income and hopefully profits on my foreign stock purchases in local currencies. 


B. Sold 100 NWHUF at USD$8.79: 

Profit Snapshot: +$106.98

Stocks, Bonds & Politics: Item 5.A. Bought 100 at $7.72 

This trade is related to the CAD disposition discussed above. 

NWHUF is the USD priced ordinary shares traded in the Grey Market. Volume is sporadic in that market and limit orders have to be used after converting the CAD ordinary share price into USDs. A symbol ending in "F" indicates ordinary shares rather than an ADR. 

Ordinary Shares Traded in Toronto: Northwest Healthcare Properties Real Estate Investment Trust (Canada: Toronto)

I still own 300 shares of the CAD priced shares after buying 100 recently. Stocks, Bonds & Politics: Item # 6.A. Those shares are owned in my IB account.

I have recently sold 1000 CAD priced shares in my Fidelity account and immediately converted the proceeds into USDs. Stocks, Bonds & Politics: Item # 1.A. (USD profit snapshot = $606.31).

When purchasing a Canadian stock priced in USDs rather than using my CADs to buy the same stock in Toronto, I am most likely engaged in a short term trade that is in part based on my short term forecast for the CAD/USD conversion rate. 

3. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Bank of Hope 1.45% CDs (monthly interest) Maturing on 8/24/18 (1 Year CD): 

In this section, I will be discussing HOPE's second quarter report to highlight some matters that can be important in evaluating regional bank common stock purchases.  

Hope Bancorp Reports 2017 Second Quarter Financial Results:

The holding company, Hope Bancorp, is on my monitor list for a potential common stock purchase. However, I currently have a general negative opinion about regional bank stocks given what I view as the market's incorrect assessment, made starting immediately after the election, that net interest margins would expand significantly due to expansionary fiscal policies advocated by Trump. 

One issue with HOPE's report is that additional income was created through what is called purchased loan accounting and the accretion of income based on the revaluation of acquired loans. Purchased Loans and Financial Institution Acquisitions: CliftonLarsonAllen The topic is discussed more simply in this 2014 Barron's article: Regional Banks That Face EPS Headwinds - Barron's This is a complex accounting topic and is generally caused by a recent bank acquisition. The bottom line is that HOPE created additional accounting income through accretion of those purchased loans, but the accretion income will decline over a relatively short period of time. 

Another issue is the dependence on selling loans profitably to generate income. Income derived from banking operations is more reliable. HOPE realized a net gain of $3.267M in the quarter by selling SBA loans. That source of income can dry up with a rise in interest rates. 

To arrive at recurring operating earnings, I would back out merger related expenses, accretion income created by the accounting profession, and profits from security transactions. 

Margins are actually stable to down for most regional banks.  Another hike in the short term federal funds rate in December may serve only to contract NIM even more given how intermediate rates have responded to the hike earlier this year. 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity-St. Louis Fed Deposit costs are already repricing to higher levels. 

Holding Company: Hope Bancorp Inc. (HOPE)
HOPE Analyst Estimates

The stock price has almost returned to where it was on 11/8/16: Hope Bancorp Inc. Interactive Chart 

The stock has been drifting down some since the earnings report released after the close on 7/25. The  closing price on 7/25 was $18.57 and the close on the next day was $17.44. That would indicate that some investors were ignoring the $.30 per share net income number and looking under the hood on how that number was generated by the bank.

B. Bought 2 American Express 1.6% CDs (semi-annual interest) Maturing on 11/29/18 (15 month CDs):  

C. Bought 2 New York Community Bank CDs Maturing gon 5/30/18 (9 month CDs):

I also own the common shares, my only loser in the few remaining stocks held in my regional bank basket.

Holding Company: New York Community Bancorp Inc.  (NYCB)

NYCB Analyst Estimates

Bankrate assigns a 3 star rating to this bank: NEW YORK COMMUNITY BANK Review

D. Bought 2 GNB Bank 1.1% CDs (monthly interest) Maturing on 12/5/17 (3 month CDs):

This bank has a 4 star rating from Bankrate: GNB BANK Review

The bank holding company is privately owned.

E. Bought 2 Synovus 1.1% CDs Maturing on 11/30/17 (3 month):

This bank has a 4 star rating from Bankrate:

Holding Company: Synovus Financial Corp. (SNV)
SNV Analyst Estimates
Synovus Announces Earnings for the Second Quarter 2017

$10K Inflow into Short Term Bond/CD Basket

3. Intermediate Term Bond/CD Ladder Basket Strategy:

I am lowering my exposure slightly to low coupon corporate bonds maturing in the 2023-2026 range. The spread between the current yields of those bonds and the Vanguard Prime MM fund is narrowing and likely to narrow further. So, I am taking slightly less income now in exchange for cash that can be redeployed later in bonds with higher YTM and current yields.

Some of these trades are tied to the directional movement of the ten year treasury. In the past year, that yield has topped at twice near 2.6%. YTD, the bottom range is near 2.15%. U.S. 10 Year Treasury Note Interactive Charts-MarketWatch While that range bound parameter will eventually change, the general idea to lighten up on corporate bonds slightly in the 2.15% to 2.25% range and then wait to buy what was sold when the yield moves back up to 2.5%-2.6% and more between 2.6% to 3%. For whatever is purchased, I am financially capable of holding until maturity.

A. Sold 1 Anheuser Busch 2.625% SU Bond Maturing on 1/17/23-ROTH IRA:

Profit Snapshot: +$16.18

FINRA Page: Bond Detail (Prospectus linked)

Sold at 100.392
YTM Then at 2.586%
Current Yield at 2.618%

Bought a Total Cost of 98.476
Stocks, Bonds & Politics: Item # 1.C.
YTM Then at 2.91%
Current Yield at 2.67%

I still own 1 bond in a taxable account that was bought at a total cost of  98.5 on 1/30/17. 

B. Sold 1 Diageo 2.625% SU Bond Maturing on 4/29/23-Roth IRA: 

Profit Snapshot: +$25.76

Finra Page: Bond  Detail (prospectus linked)

Issuer: DEO Stock Price - Diageo PLC ADR (U.S.: NYSE); DGE Stock Price - Diageo PLC  (U.K.: London)
DEO Analyst Estimates

Sold at 101.544
YTM Then at 2.32%
Current Yield at 2.61%

Bought at a Total Cost of 98.768
Stocks, Bonds & Politics: Observations and Sample of Recent Trades: Item # 1.C. 
YTM Then at 2.844%
Current Yield at 2.66%

C. Sold 1 More Diageo 2.625% SU Bond Maturing on 4/29/13: IB Taxable Account ($1 Commission):

Profit Snapshot: $21.79

FINRA Page: Bond Detail

Sold at 101.56
YTM Then at 2.317%
Current Yield at 2.58%

Bought at a total cost of 99.206
Stocks, Bonds & Politics: Item 1.C. 
YTM Then at 2.766% 
Current Yield at 2.646%

D. Sold 2 Campbell Soup 2.5% SU Bonds Maturing on 8/2/22: 

Profit Snapshot: $32.46

Finra Page: Bond  Detail (prospectus linked)

Sold at 100.7
YTM Then at 2.348%
Current Yield at 2.48%

Bought at a Total Cost of 98.997
Stocks, Bonds & Politics: Item # 1B. 
YTM Then At 2.707%
Current Yield at 2.53%

Campbell Soup released another disappointing earnings report this morning. Campbell Reports Fourth-Quarter and Full-Year Results;  Campbell Soup says 2018 to remain difficult, warns of sales drop: Reuters 

The packaged food industry is in a world of pain now. 

I own 30 shares of the common recently bought at $51 and made a mistake by not selling at $54 a few days ago. Stocks, Bonds & Politics: Item 2.A. I titled that section "100% Contrarian Strategy-Though With No Conviction as to Near Term Positive Catalysts". 

As I mentioned in the preceding linked post, there is a faction in the Dorrance family, who controls CPB, that wants to sell the company. This kind of result may start other members to consider more seriously the possibility of letting go. 

E. Sold 1 Consolidated Edison 2% SU Bond Maturing on 5/15/21-A ROTH Account:

Profit Snapshot:  +$15.2

FINRA Page:  Bond Detail (prospectus linked)

Sold at 99.7
YTM Then at 2.084%
Current Yield at 2%

Bought at 98.08
Item # 3.A
YTM Then at 2.472%
Current Yield at 2.04%

$6K Outflow from Intermediate Term Bond/CD Ladder Basket

It just seems to me that the recent decline in intermediate term yields has gone too far, too fast and is not warranted by reasonably forecasted future events.  

4. Long Term Bond Basket: High Quality Tennessee Municipal Bonds: 

A. Bought 5 City of Knoxville, TN. 2.75% Electric Revenue Bonds Maturing on 7/1/41: 

This purchase was made in a Vanguard Taxable Account. Vanguard charges $2 per bond.  

EMMA PAGE

Credit Ratings:
Moody's at Aa2
S & P at AA+

Bought at 91.25
Total Cost at 91.45
Current Tax Free Yield: 3.% at Total Cost
YTM 3.269% at Total Cost

Optional Redemption: At Par Value on or after 7/1/23 (which is fine with me given the purchase at a discount to par value)  

Security: 

Tax Matters: Free From Federal Income Tax and AMT Free per

While this bond has significantly more interest rate risk than the intermediate term corporate bonds mentioned above, I view the credit risk to be better. 

The current yield is also higher than the taxable yields referenced above for the corporate bonds, and the interest income is double tax free for me. 

Tennessee does levy a tax, which is gradually being phased out, on interest and dividend income, but that tax does not apply to interest income paid by Tennessee municipal bonds or U.S. treasuries. There never has been an individual state income tax on other sources of income.

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.

Observations and Sample of Recent Trades: APLE, MPW

Market Commentary:

Since late June, investors have pulled approximately $30B out of stock funds which is the largest outflow since 2004: U.S. Equity Funds Post Longest Run of Outflows Since 2004 - Bloomberg; Investors pull billions from US stocks in longest streak since 2004: CNBC

U.S. Corporations have reduced their stock buybacks by approximately $100 billion over the past 12 months. Over the past six years, stock buybacks have been an important source for demand and has shrunk market capitalization by about 17.5%. The Stock Market: the Best Defense Against a Shutdown-Barron's (subscription publication) A large number of corporation are funding buybacks and dividend payments, at least in part, by borrowing money. When those uses of cash are combined, the total will exceed free cash flow in many cases.    

U.S. Stock Buybacks Are Plunging - Bloomberg

In the FactSet report published last December, shareholder distributions of the S & P 500, which is the total cash used to pay dividends and to buy back stock, were 117% of aggregate earnings over the trailing twelve months ending in the 2016 third quarter. Buyback Quarterly Q3 2016_12.19.pdf This kind of financial engineering indicates a short term share price focus among many publicly traded U.S. corporations, doing nothing for growth in future earnings and will become a drag on earnings when debt servicing costs rise to even normal historical levels.

Interest rates continue to be supportive for stocks. While interest and inflation rates are currently below long term historical norms, it is more important for stocks IMO that the long term forecasts call for a continuation of those abnormally low numbers. 

The average U.S. inflation rate from 1914 through 2016 was 3.28%. United States Inflation Rate 

Recent Annual CPI Numbers Starting with the Near Depression: 

Consumer Price Index, 1913- | Federal Reserve Bank of Minneapolis

The market is currently projecting an annual average U.S. inflation rate below 2% over the next ten years which has been the case continuously for about 3 years:     

10-Year Breakeven Inflation Rate -St. Louis Fed

Importantly IMO, the market believes that the annual average U.S. inflation rate will be below 2% for the next 30 years: 

30-year Breakeven Inflation Rate-St. Louis Fed

The underlying tendency is to take recent historical data and to project more of the same into infinity. 

The inflation numbers since the Near Depression are similar to what happened in the long term secular bull market that started in 1950, but those inflation numbers occurred in the context of much higher real GDP growth than now: 

The onset of the Korean War in the later part of 1950 caused CPI to jump in 1951.  

Real GDP Growth: 

US Real GDP Growth Rate by Year

The U.S. economy is now too large to grow anywhere near the annual average rate of  4.63% during that earlier period. 

Without a doubt, recent trends in historical interest rates and inflation have been impacted by the Near Depression and the extraordinarily abnormal central bank monetary policies that have been in place for an extended period.

Interest rates are falling today in a flight to safety: 2.094%, down .062 as of 8:31 A.M. on 8/29/17- U.S. 10 Year Treasury Note - MarketWatch. 

Precious metals are rising in price as well. The recent spike in gold, however, started on 7/10/2017, when the A.M. London fix was at $1,207.55, and has been gaining in momentum since then: Historical London Fix Prices 2017 Today's A.M. London fix was at $1,323.4, up from yesterday's $1,287.05. 

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Economic Reports:

Durable good orders declined 6.8% in July. That followed a 6.4% increase in June.

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J P Morgan Guide to the Markets 2017 Third Quarter as of 6/30/17:

This report as usual has a lot of useful information. 2017 3rd Quarter PDF. 

Reports can be downloaded at Guide to the Markets - J.P. Morgan Asset Management.

As I noted in an earlier comment, JPM has different time duration measurements for bull and bear market cycles than several other firms. 

The bear cycle starts with a 20% decline from a previous market high (see page 14):  

Using JPM's calculations, the current U.S. bull stock cycle is the second longest in history at 99 months through June 2017. The average duration is 54 months. 

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Trump, Mexico Will Pay For the Wall or Else, Threatens to  Terminate NAFTA Again:  

Mexico and Canada are not rolling over for Donald which has made Trump throw another temper tantrum. 

Trump reiterated that threat yesterday in a news conference stating that he may initiate termination of the NAFTA agreement and reiterated that Mexico will pay for the wall. Trump further stated that Mexico has "been very difficult" in the negotiations that just got underway on August 16th. Is Donald Trump Right About NAFTA? Forbes

As I have stated in the past, both the Senate and House approved the NAFTA trade treaty. It is certainly questionable whether Donald can terminate the agreement without the consent of Congress. The provision in NAFTA, Article 2205, that governs termination does not refer to the U.S. President but to the parties to the agreement. The Government of the United States is the party to the treaty. Preamble 

More republican voted for that trade agreement than Democrats who traditionally were not in favor of these free trade agreements which were pushed by republicans. 

U.S. Senate: U.S. Senate Roll Call Votes 103rd Congress - 1st Session
Final Vote Results for Roll Call 575: House of Representatives

The North American Free Trade Agreement: Ronald Reagan's Vision Realized | The Heritage Foundation

Canada and Mexico are the two largest importers of U.S. products.

2017 YTD: 

Foreign Trade - U.S. Trade with .

In 2016, U.S. exports to Mexico and Canada amounted to 34.22% of all U.S. exports:

2016 Foreign Trade - U.S. Trade with .

After threatening to shut down the government during his Phoenix rants unless Congress appropriated funds for the wall, Trump insisted again in a tweet last Sunday that Mexico will pay for the wall: 

Mexico replied again that it will not pay for the wall "under any circumstances". Mexico reiterates it won't pay for the wall - CNN 

In his first conversation with the Mexican President after his inauguration, Trump went off script and started to threaten the imposition of tariffs on Mexico's exports to the U.S., which would of course start a trade war. Career employees of the State Department were probably aghast at Trump's threats and someone leaked the transcript.  

Transcripts of Trump’s calls with Mexico and Australia - Washington Post (Trump: "I just wanted to very simply – and with a high level of precision – we put on a border tariff so that products coming in from Mexico to the United States would be taxed at a rate to be determined. But you know, it could be 10 percent or 15 percent or it could be 35 percent for some products . . Now, Mexico may in turn try to do something like that to us. . . So if Mexico adds a tax, we will add a tax."; Mexico's President replied   "to tell you the truth Mr. President, I feel quite surprised about this new proposal that you are making because it is different from the discussion that both of our teams have been holding")

The Stock Jocks pay no attention to Trump's threats to terminate NAFTA by Executive Order, which is questionable legally since Congress approved that trade treaty and arguably must approve a termination notice as well. 

Nonetheless, given the fact that the President of the U.S. is an ignorant and mentally unstable demagogue, there is a definite and significant risk that Trump will actually do something that the Stock Jocks can no longer ignore since the adverse economic repercussions would inevitably soon follow. 

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Trump and Russia: 

Trump’s business sought deal on a Trump Tower in Moscow while he ran for president - The Washington Post  

Felix Sater, Trump Associate, Boasted That Moscow Business Deal ‘Will Get Donald Elected’ - The New York Times (Felix Sater, a Trump business associate, "said he had lined up financing for the Trump Tower deal with VTB Bank, a Russian bank that was under American sanctions for involvement in Moscow’s efforts to undermine democracy in Ukraine." Quoting from a Sater email to Trump's attorney Richard Cohen, Sater reportedly stated he will "Putin on this program and we will get Donald elected." Later in January 2016, Cohen wrote to Putin's spokesman requesting Putin's help in restarting a Trump hotel project in Moscow. The project did not get off the ground apparently, at least for now) Remember that Jared sat down for a private with VTB's Chairman and a close Putin associate on 12/13/2016.

Trump Organization attorney admits pursuing Moscow tower deal during campaign - MarketWatch
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Trump and Tillerson: 

Scoop: Trump frustration with Tillerson rising fast - Axios 

In an interview last Sunday, the following exchange occurred between Tillerson and Chris Wallace where Tillerson clearly distanced himself from Trump on American values:  

Secretary Tillerson-Fox News

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Hurricane Harvey and GOP Politicians in Texas:


All but one GOP representative in Congress voted against the Sandy hurricane relief package in 2013.  More than 20 Texas representatives and senators voted against Sandy aid. How will they vote on Harvey? - LA Times

Texas lawmakers, now bracing for Harvey, voted against Sandy spending -Dallas News

H.R. 152 (113th): Disaster Relief Appropriations Act, 2013 -- GovTrack.us

Cruz claims that the Sandy relief package included unrelated pork projects such as repairing damage to the shoreline, repairing commuter rail systems, bridges and tunnels damaged by that hurricane and to reimburse local governments for emergency spending. All of those "pork" type projects will be supported by the Texas GOP delegation when the money flows into their state.

Ted Cruz’s claim that two-thirds of the Hurricane Sandy bill ‘had nothing to do with Sandy’ - The Washington Post ("The Congressional Research Service issued a comprehensive report on the provisions, and it’s clear that virtually all of it was related to the damage caused by Sandy. There may have been some pork in an earlier Senate version, but many of those items were removed before final passage. There were also some items that appear to have been misunderstood.")

In 2005, Congressman Mike Pence led a GOP effort to deny funding for Katrina unless the Democrats agreed to Medicare spending cuts and cuts to other social programs.

After the Joplin, Missouri tornado disaster, Eric Cantor (R-VA), then the House Majority Leader, led a GOP effort to deny disaster relief unless the Democrats agreed to cut funding elsewhere. Cantor Says Congress Won’t Pay For Missouri Disaster Relief Unless Spending Is Cut Elsewhere;  Politics and the Joplin Tornado: Eric Cantor Comes to the Unrescue. Is the Tea Party Happy Now? - St. Louis Magazine

I do anticipate that the GOP will have a different attitude when a predominately GOP region is hit by a disaster rather than blue states like NY and NJ and Democrat strongholds like New Orleans (Orleans Parish voted 80.8% for Hillary with Donald capturing just 14.7%-Louisiana Election Results 2016 – The New York Times) Hillary did carry Harris County 54% to 41.6%. 

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North Korea: Another Ballistic Missile Test: 

Yesterday, a NK ballistic missile flew over Japan's Hokkaido Island. NK said the missile landed 733 miles east of Cape Erimo Japan. SK claimed that the missile hit a maximum altitude of 348 miles and traveled 1678 miles. North Korea Fires 'Unidentified Ballistic Missile' Through Japanese Airspace, South Korean Official Says - NBC News  NK launched non-ballistic missiles over Japan's territory in 1998 and 2009. 


What will Donald say now? More lock and loaded comments? What comes after lock and loaded"?  His reply was to say all options are on the table, a meaningless and empty phrase that has been in vogue for a few decades.   

I do not believe that anything has been done to date, including the recently passed U.N. sanctions that will change North Korea's accelerated development of ICBM's with nuclear payloads. Possibly, NK can be brought to its senses by reducing oil exports to NK by certain percentages whenever NK tests an ICBM or detonates a nuclear bomb.  

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1. Continued to Pare Canadian Reset Equity Preferred Stock Allocation:  

A. Sold 100 TRPPRD at C$21.75:

Profit Snapshot: +C$359

I discussed buying this lot at C$18.14 here. 

Quote: TRP.PR.D Stock Price - TransCanada Corp. Pfd. Series 7  (Canada: Toronto)

Issuer:  TransCanada Corp. (U.S.: NYSE); TransCanada Corp.  (Canada: Toronto)

TRP Analyst Estimates

This security currently pays a cumulative dividend at the fixed coupon rate of 4% on a C$25 par value.  

The fixed coupon rate remains in effect to but excluding April 30, 2019. The coupon is then set for five years at a 2.38% spread to the five year Canadian bond and every five years thereafter at the same spread. TRP has the option to redeem at par value on each reset date. The owner has the option to convert their shares on the reset date into Series 8 shares that pay a 2.38% spread to the 3 month Canadian T. Bill.

TransCanada  Prospectuses

The problem as I see it is that April 30, 2019 is not that far away and the five year Canadian treasury note is currently range bound near 1.55%: Canada 5 Year Government Bond If that rate was in effect on the April 2019 reset date, the coupon would actually decline from the current 4% for five years thereafter. (2.38% spread+ 1.55% = 3.93%)

2. Stocks, Bonds & Politics: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy:


A.  Added 50 MPW at $12.66 (Used Commission Free Trade): 

My last purchase in this account was at $12.85: Stocks, Bonds & Politics: Item # 5.A. (8/3/17 Post) That purchase was made on 7/24/17.

Thereafter, MPW released its second quarter report. I view the report as sufficiently satisfactory to buy another 50 shares pursuant to my usual risk/reward type analysis given my investment objectives.

Guidance:

"Based on management’s present investment, capital and operating strategies, and the expected timing of each, management estimates 2017 net income as a range of between $0.87 and $0.89 per diluted share and 2017 Normalized FFO between $1.29 and $1.31 per diluted share. This range is based on management’s estimate of the likely timing of closing of the $1.4 billion Steward investment and the timing and interest rate related to the anticipated debt financing of such investment.

The Company today is also introducing its estimate of 2018 net income as a range of between $1.02 and $1.06 per diluted share and 2018 Normalized FFO between $1.42 and $1.46 per diluted share. This estimate assumes no additional acquisitions or investments and no asset sales." (emphasis added)

The midpoint of the 2018 estimated normalized FFO range is $1.44 per share or about a P/AFFO ratio of 8.79 based on a $12.64 total cost per share. 

The current quarterly dividend is $.24, with the next ex dividend date in September. Medical Properties Trust, Inc. Declares Regular Quarterly Dividend of $0.24 Per Share At that rate, the dividend yield is about 7.58% at a $12.66 per share total cost. 

FFO and AFFO Calculations:

Medical Properties Trust, Inc. Reports Second Quarter Results; Provides Net Income and FFO Estimates for 2017 and 2018

Form 10-Q for the Q/E 6/30/17 (debt is discussed starting at page 22(

MPW needs to quit being an empire builder IMO. When the share price pops over $14, I expect MPW to make another large acquisition and to fund it in part with a significant share offering that knocks down the price. Significantly more debt is incurred as well. 

Last April and to fund some acquisitions, MPW sold 43.125 shares to the public at $13.25, netting $12.72 after the underwriter's discount. Net proceeds before MPW's own expenses connected to the offering were approximately $548M: Prospectus

Just prior to the announcement of that share offering, the shares were trading at over $14 and has been drifting down since then. MPW Historical Prices

Have the shareholders benefited from the frequent large transactions financed with debt and stock offerings The five year chart provides the answer:

Medical Properties Trust, Inc. to Invest $1.4 Billion in Ten Acute Care Hospitals and One Behavioral Health Facility

Bigger does not necessarily mean better.

MPW did run into some problems with a major tenant as described in this excerpt from the most recently filed 10-Q:

MPW SEC Filings

MPW Trading Profits to Date: $1,334.84 (snapshots can be found in Stocks, Bonds & Politics: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy)

B. Averaged Down: Added 50 APLE at $17.92 (used commission free trade):

Apple Hospitality REIT Inc. (APLE) 


In this account, I am averaging down from a 50 share purchase made at $18.58: Stocks, Bonds & Politics: Item # 3.A. 

My last purchase was at $18.15: Stocks, Bonds & Politics: Item # 1.B. 

Apple Hospitality REIT is currently paying a monthly dividend of $.1 per share. Apple Hospitality REIT Announces September 2017 Distribution

At that rate, the dividend yield at a total cost of $17.92 per share is about 6.7%. 

For the dividends paid in 2016, 24% of the total was classified as return of capital which resulted in a $.29 per share adjustment to the cost basis: APLE IRS Form 8937.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. (different rules may apply for non-U.S. individual taxpayers). 

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 

Last Earnings Report: Apple Hospitality REIT Reports Results of Operations for Second Quarter 2017

2017 Guidance: Stagnant RevPar Growth

Hotel Map - Apple Hospitality Reit

APLE SEC Filings

Brad Thomas published a SA article about this REIT: Spend A Night, Not A Fortune, Collect Monthly Dividends --Seeking Alpha

Cramer interviewed APLE's CEO on Mad Money.

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. 

I have sold shares profitably at $19.75 (12/12/16); at $20.24 (1/4/17), and at $19.42 (4/26/17).

Hotel REITs are at the moment in disfavor. The Dow Jones U.S. Hotel & Lodging REITs Index closed at 122.88 on 6/19/17 and at 112.78 last Friday.

APLE is currently trading below its 100 and 200 day SMA lines: Apple Hospitality REIT

The 52 week range is currently at $17.32 to $20.68 with the high hit in January 2017. Among REIT sectors, hotel REITs will probably be the worst or close to the worst performing sector during a recession. In early March 2009, the Hotel REIT index was hovering around 22.

APLE closed at $17.75 yesterday (8/28), down .78% for the day. 

2. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 BMW Bank 1.6% CDs (semi-annual interest) Maturing on 2/19/18: 

This bank has a 4 star rating from Bankrate:  BMW BANK OF NORTH AMERICA Review 

B. Bought 1 Compass Bank 1.25% CD Maturing on 1/25/18-Roth IRA: 

Compass Bank has a 3 star rating from Bankrate: COMPASS BANK Review

Holding Company: BBVA Compass Bancshares, a wholly owned subsidiary of Banco Bilbao Vizcaya Argentaria S.A. ADR (BBVA)

The Fidelity Government MM yield was .63% when I bought this CD in a Roth IRA and paid for it out of that MM account.  

SPAXX - Fidelity ® Government Money Market Fund | Fidelity Investments

I have entered a more conservative preservation of capital phase for the Roth IRA accounts while continuing to pick up some yield in high quality corporate bonds (both exchange traded with $25 par values and $1K par value bonds including several first mortgage bonds), TIPs, several REITs and a broad assortment of other higher income producing securities.  

I own one Compass Bank junior bond that was bought in 2012. Stocks, Bonds & Politics: BOUGHT 1 Compass Bank 5.9% Subordinated Note Maturing in 2026 at 76.75 (7/11/2012 Post); FINRA Page .

C. Bought 2 Compass Bank 1.4% CDs Maturing on 5/25/18 (9 month CD): 

D. Bought 2 Customers Bank 1.35% CDs Maturing on 2/28/18: 

The holding company is publicly traded as Customers Bancorp Inc. (CUBI)

CUBI Analyst Estimates

This bank has a 4 star rating from Bankrate: CUSTOMERS BANK Review

E. Bought 2 Sterling Bank 1.65% CDs (monthly interest) Maturing on 4/29/18 (20 month CDs):

This bank has a five star rating from Bankrate: STERLING BANK Review

$9K Inflow into Short Term Bond/CD Ladder Basket

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.