Tuesday, October 31, 2017

Observations and Sample of Recent Trades: BDGE, BRG, GIS, T/ Middle Income Taxpayers As the GOP's Tax Revenue Increase Source

Housekeeping: 

There is a reason why I require my approval before a comment can be posted. I receive anywhere from 5 to 15 spam comments per day that basically first tell me that my blog is great and then try to sell some product with a link. All of those comments are deleted.  


The next post will be published next Monday. 


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Portfolio Management:


T. Rowe Price Stock Mutual Funds Basket Strategy:


I manage this portfolio of fund by doing nothing. The management strategy is to buy and then hold until the DOD.


Once shares are bought, my only option is to reinvest dividends or to take the distributions in cash.


Last year, I changed all of the dividend options to payment in cash and will continue with that option until there is a stock market Catastrophic Event, which I define as a 45%+ decline in the S & P 500. Since I started to invest, I have been through three of those events.


Two of the following funds, PRWCX and RPGAX, are balanced funds weighted in stocks.The rest are pure stock funds. The following links provide performance information:   


The two Spectrum funds are fund of funds.







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Economy:


The government reported that real disposable personal income fell .1% in September while real personal consumption expenditures rose .6%. That is just a disconnect. The personal savings rate was 3.1%. 




News Release: Personal Income and Outlays

Why Americans have cut their savings to a 10-year low - MarketWatch


Personal Saving Rate  Chart-St. Louis Fed


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Market Commentary:


Warren Buffett’s favorite market metric suggests investors are ‘playing with fire’ - MarketWatch


ECB has won this battle, but it’s out of ammo for the next one - MarketWatch


Long-time bull sees no sign of an end to the stock market rally - MarketWatch


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Home Ownership Trends:

Home ownership has been trending down since 2004, with a small bounce starting in 2016:



Census Bureau Quarterly Homeownership (7/27/17).pdf

The downtrend has occurred notwithstanding low interest rates and with homeowners able to deduct both property taxes and mortgage interest. New York Lawmaker Says Proposal to Keep Property Tax Break Is ‘Gaining Traction’ - Bloomberg I am assuming in the following calculations that property tax payments can still be deducted for those who itemize. 

Under the GOP's tax plan, it is crystal clear that millions of middle class homeowners will lose the deductibility of both property taxes and mortgage interest payments due to an increase in the standard deduction amount. Then the GOP takes away most of the SD increase by eliminating all exemption deductions currently valued at $4,050 per exemption.  


Then, it is obvious that another large segment, possibly smaller, will still be able to deduct mortgage interest and property taxes after losing the state and local income tax deduction, but the net effect will be an increase in taxable income arising from less deductions. This is just a simple example of how this works: 


Couple with No Children: 

Current Law: 
State and Local Income Tax $15K
Property Tax  $15K
Mortgage Interest $10K
Exemptions: $8.1K
Total Deductions $48.1K 

GOP Plan: 

State and Local Income Tax $0
Property Tax $15K 
Mortgage Interest $10K
Exemptions $0
Total Deductions $25K (barely over the new SD of $24K)

Couple loses $13.1K in deductions


Same Numbers as Above Except the 

Couple has 2 Children and are ineligible for the child tax credit 
Current Law Deductions: $56.2
GOP Plan Deductions: $25K

I would suggest looking at your 2016 tax return and plug in the numbers.  It is obvious that the GOP is using the middle class to fund tax cuts for the uber wealthy and corporations. Then ask yourself a simple question. How does the GOP plan to offset in part the lost tax revenue caused by slashing the tax obligations of the uber wealthy and corporations? 


The negative impact will be largely felt in states where there is a meaningful state and local income tax that could no longer be deducted and where the combined total of property tax and mortgage interest rate payments is less than the increased SD. State Individual Income Tax Rates and Brackets for 2017-PDF-UPDATE.pdf 


I am assuming that media reports about the republicans changing their minds by keeping the property tax deduction are accurate. House GOP concedes on property tax deduction - Oct. 29, 2017


The GOP's intent is clearly revealed by the result which is not difficult to understand. It is purposeful because it is so blatantly obvious. 


The negative impact on home prices from the GOP's tax plan, as currently outlined, is a clear cut issue as well. Demand for home purchases will be curtailed and prices will decline in localities most impacted by the removal of tax incentives connected to home ownership.  


Then the affordability issue is further negatively impacted by taking away most of the increased SD through the exemption deduction elimination. The plan could not possibly be clearer on its intended negative impact on the middle class.  


Related Issue: U.S. Household Formation Weakens to Slowest Pace in Seven Years - Bloomberg


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Russia-backed content reached 126 million Americans, Facebook now says - MarketWatch


Ex-House Speaker Boehner unloads on former Republican colleagues - MarketWatch


Secret Guilty Plea of Ex-Trump Campaign Adviser George Papadopoulos Reveals Russian Ties - NBC News


Papadopoulos' guilty plea is much bigger problem for Trump than the Manafort indictment - CNN 


Why George Papadopoulos Is More Dangerous Than Paul Manafort - The New York TimesTrump Campaign Adviser Met With Russian to Discuss ‘Dirt’ on Clinton - The New York Times


George Papadopoulos: The Mueller Probe's First Guilty Plea - The Atlantic ("The biggest revelation in the plea agreement concerns an April 26 meeting in London. Papadopoulos met with the Professor, who told him that the Russians had “dirt” on Democratic candidate Hillary Clinton. The government filing says the Professor said that “the Russians had emails of Clinton,” and in fact “thousands of emails.”") It was not until June 14, 2016 that the DNC disclosed it had been hacked. 

Text of Grand jury indictment against Manafort, Gates


Maryland investigating Kushner Companies over apartments - Oct. 29, 2017


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GOP's Tax Plan Will Likely Raise My Tax Obligation


The GOP's detailed tax plan is scheduled to be released tomorrow. State, local income tax deductions to be repealed in House bill, Brady says - MarketWatch Note that Mr. Brady, as do all republican politicians, mentions only the increase in the standard deduction without mentioning the offset caused by eliminating the exemption deductions. If the exemption elimination is kept, Mr. Brady is deceiving the public by mentioning the SD increase and "forgetting" to mention the exemption elimination that takes away most of the SD increase. I have not heard a single republican mention the exemption eliminations which was in their draft plan released last month. 


I expect that the republicans will be raising my federal tax obligation some, but nowhere near as much as upper middle income households in high tax states.  

I am over 65 so I will lose the extra Standard Deduction for my age, the regular standard deduction and my personal exemption. Altogether those deductions are currently worth $11,900. I will receive an increase in the SD to $12K, netting a benefit of a $100 deduction.   


I am currently single and retired with no debt and live in a low tax state. My 2017 property tax on my home was about $2,200 (over $420K in FMV) and my only state income tax is the current 5% levy on reportable interest and dividend income after a $1,250 SD. Reportable income excludes interest paid on Tennessee Municipal Bonds, U.S. government interest payments,  interest paid by CDs/savings accounts, etc. What are examples of nontaxable dividends and interest?-Tennessee Department of Revenue There is no individual income tax on earned income, retirement account withdrawals, pension income, profits from security and asset sales, etc.  


If the GOP keeps the proposal of raising the bottom rate to 12% from 10%, that will hit me as well, likely causing a tax increase since I am currently in a low tax bracket and have no earned income. (e.g. 2% of $40K is $800). My only pension is SS. I would also take a $1K+ hit in the event the GOP eliminates the foreign tax credit for individuals. I expect nothing positive and anticipate paying more.  


The GOP will try to sell their plan to the  middle class by arguing that their wages will increase by at least $4K per year as corporations trickle down their tax savings to workers. Sure, that is garbage but many Trump supporters will buy into it for now. Wait 4 years after the GOP passes this bill and ask them again, maybe some will remember the pledge and will compare the promise with the actual results. 


The willingness to share income with worker bees is proven by republican and business support for unions seeking higher wages over the past 100+ years and workers' increasing share of income generated by their labor over the past 50 years. Maybe I got my history wrong there with my brain being polluted by too much GOP jive. 

The GOP and businesses have been vehemently opposed to unions seeking higher pay over my entire lifetime and businesses are increasing their share of income generated by workers' productivity. 




The Productivity–Pay Gap | Economic Policy Institute

Hopefully, I will know more tomorrow. 



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1. Small Ball:

Small Ball is a baseball term that I use to describe the investing equivalent: What is Small Ball? Definition from SportingCharts.com


A. Bought 10 AT & T at $33.5-Used Commission Free Trade


As with my other 10 share purchases, I will average down in 10 share lots using commission free trades, but will not average up. 

This purchase was made on the first trading day after AT & T reported its third quarter results which was not well received by investors: 

Closing Price Day of Purchase  (10/25/17): T $33.49 -$1.37 -3.93% 
Volume 96.165+ M
Average Volume 26.675+ M
52 Week Range: $33.33 to $43.03

The stock was trading below its 50, 100 and 200 day SMA lines when I made this purchase. Chart In early October 2017, the stock was trading at over $39 and closed at $39.51 on 10/5/17, the day before the quarterly ex dividend date. 

At the current quarterly rate of $.49 per share, the dividend yield at a total cost of $33.5 is about 5.85%. 

I currently own 70 AT & T shares, a totally immaterial allocation. 

In September, I used the proceeds from selling 2 AT & T SU bonds in part to buy 30 AT & T common shares. The common shares yield more than the bonds.  Stocks, Bonds & Politics: Item # 1.A. Sold 2 AT & T 3.4% SU Bonds at 100 and Item # 7 Bought 30 AT & T common at $35.95 


That bond will go down with a rise in interest rates. 

The stock may go down for that reason and others including the problems highlighted in the last earnings report. As to interest rate sensitivity, the AT & T common shares are in part a bond substitute; and its debt is huge and in need of constant refinancing.

B. Bought 10 GIS at $50.7-Used Commission Free Trade:




Closing Price Day of Trade 10/30/17): GIS $50.66: -$0.91 -1.76% 


Packaged food stocks were generally down that same day: 


K $58.87 -$1.39 -$2.31%: Kellogg Company (new 52 week low set)

CPB $46.36 -$1.77 -3.68% : Campbell Soup Company 
POST $81.57 -$1.09 -1.32% : Post Holdings, Inc. 
KHC $75.27 -$2.03 -2.63% : The Kraft Heinz Company 
THS $66.19 -$2.15 -3.15% : Treehouse Foods, Inc. 

Trades Since 1/1/2006: 


I eliminated my GIS position in 2016 and have not bought a share back prior to this 10 share buy.


2016: 52+ Shares +$1,285.31



2009: 30 Shares +$342.45



2007: 200 Shares +$182.23




When I discussed selling 2 GIS SU bonds maturing in 2027, I indicated than an intent to buy the common shares  "provided the price declines below $52 and preferably below $50. Stocks, Bonds & Politics: Item # 4.B. I compromised by buying 10 at $50.7 and then averaging down in 10 share lots using commission free trades. The next 10 share buy range would be between $48 to $49.5. 


GIS is a dividend aristocrat, having raised its dividend every year for 25 or more consecutive years. The company has paid a dividend continually without interruption for 119 years. General Mills - Dividends and Stock Splits


The current quarterly dividend is $.49 per share and was last raised from $.48 last July. The yield would be about 3.87% at a total cost per share of $50.7. 


The stock is trading below its 50, 100 and 200 SMA lines, using a two year YF chart, and has been in a waterfall decline since 7/3/16 when the stock closed at $72.46. GIS Interactive Stock Chart The five year chart shows support in the $49-$50 during 2013-2014. 


Given the dramatic slowdown in earnings growth, future dividend increases will likely be in much smaller percentage increments than in the past. For example, GIS more than doubled its penny rate from between July 2007 ($.195) to April 2014 ($.41). I would not expect that to happen again in the ten year period ending in April 2024 or even come close. 


GIS is in disfavor now, as are other packaged food companies, and recent earnings reports have served only to reinforce the negativity. 


The last GIS report was met with discernible negative reactions by institutional investors. 


First Fiscal Quarter Earnings Report Q/E 8/27/17: General Mills Reports Fiscal 2018 First-Quarter Results - Sep 20, 2017


Look at the negative Y-O-Y numbers: 



2018 Fiscal Year Forecast: 



Possibly the worst part of this report was in the North American segment: 


"First-quarter net sales for General Mills' North America Retail segment totaled $2.44 billion, down 5 percent from the prior year, reflecting low single-digit declines in contributions from volume and net price realization and mix.  Organic net sales also declined 5 percent. Net sales were down double-digits in the U.S. Yogurt operating unit, driven by continued declines for Yoplait Greek and Yoplait Light products, partially offset by benefits from the new Oui by Yoplait product launch. Net sales in the U.S. cereal operating unit were down 7 percent, reflecting a reduction in customer inventory levels and unfavorable trade expense phasing, though cereal retail sales performance was much stronger, with sales in Nielsen-measured outlets down 1 percent. U.S. Snacks net sales declined 2 percent in the quarter, with declines on Fiber One partially offset by growth on Lärabar and Nature Valley. Segment operating profit of $533 million was down 15 percent due primarily to lower volume, unfavorable trade expense phasing, higher input costs, and an increase in advertising and media expense."


In prior comments, which I will not repeat here except in summary, I have noted that GIS has used more cash to pay dividends and to buy back stock than its free cash flow. Cash Flow for General Mills Inc (GIS) from Morningstar.com 


I doubt that the Oui Yogurt will be a barnburner product after trying all of the varieties and taking into account the cost. 


IMO, GIS is doing what it can to prosper, principally in acquiring other companies that have organic products like Cascadian Farms and Annie's.


Other Major Brands: Cheerios, Wheaties, Pillsbury, Haagen-Dazs, Old El Paso, Totinos/Jeno's pizza, Fiber One,  Nature Valley, Gold Metal, Betty Crocker, Chex, Yoki


General Mills: Brands overview


The better than expected earnings report from Kellogg this morning has caused packaged food company stocks to rise in price today.  



2. REGIONAL BANK BASKET STRATEGY:


A. Sold 109+ BDGE After Earnings Report:




Profit Snapshot: +$1,782.46





9+ Shares purchased with dividends with the last being in 2013

two 50 Share lot purchases (1) 50 shares bought on 8/14/12 and (2) 50 shares bought on 10/21/11 

Stocks, Bonds & Politics:  Item # 1 BOUGHT 50 BDGE AT $18 (10/25/11 Post)


Stocks, Bonds & Politics: Item # 4 Bought Back 50 BDGE at $19.65 (8/17/2012 Post)


Quote: Bridge Bancorp Inc.


Last Discussion: Stocks, Bonds & Politics: Item # 2.A. Sold 50 BDGE at $35.03 (4/23/17 Post)(profit snapshot = +$372.06).


BDGE Trading Profits to Date: +$2,512.37   (prior trades = +$729.91-see snapshots at  REGIONAL BANK BASKET STRATEGY GATEWAY POST 


I did not like the 3rd quarter earnings report: Bridge Bancorp, Inc. Reports Third Quarter 2017 Results 


My two primary concerns was the flatlining in E.P.S. Y-O-Y and the issues highlighted in this excerpt:


While net interest income increased, the quarterly net interest margin, reported on a GAAP basis, declined to 3.29% from 3.57% for the comparable quarter last year. Factors affecting the margin include Fed Fund rate increases, lower purchase accounting accretion income on acquired loans, loan pricing floors on a portion of floating rate loans, and the elimination of costs associated with the junior subordinated debentures. While increases in rates have, to date, impacted the margin negatively this compression has been somewhat amplified by the impact of the aforementioned purchase accounting accretion. The tax equivalent margin, excluding this accretion, was 3.14% in the third quarter of 2017 versus 3.31% in comparable period in 2016." (emphasis added)


E.P.S. was reported at $.49 per share down from $.5 in the 2016 third quarter. While there were more shares in the 2017 third quarter, the bulk of those shares were from a share offering completed in November 2016. 


Another problem was the increase in non-interest expenses: "Non-interest expense for the third quarter of 2017 increased to $21.3 million from $19.2 million in 2016.  The increase reflects growth in salaries and benefits expense, other operating expenses, and occupancy and equipment".


While still excellent, there was a notable percentage increase in the NPL ratio to .26% from .08%. 


BDGE had been adding some branches through acquisition. The company announced a "branch rationalization" plan to close a number of locations that will result in a pre-tax charge in the 2017 4th quarter of "no more than $6.6 million". Given the history, I did not care for that either. 


ROA and ROE remain below the national averages at .88% and 8.41% respectively. 


Return on Average Assets for all U.S. Banks-St. Louis Fed = 1.07%

Return on Average Equity for all U.S. Banks-St. Louis Fed = 9.56%

And, lastly, the dividend has not been increased since I first bought shares.

My consider to repurchase price would be less than $27.65, the price paid for my last purchase made on 10/26/16. That lot was later sold at $35.03.  


Regional Bank Basket Net Trading Profits since 2009 = $40,480.12 (all small lots)


3. Equity REIT Common and Preferred Stock Basket Strategy:

A. Sold Remaining BRG-50 Shares at $11.45



Profit Snapshot: $150.85



Quote: Bluerock Residential Growth REIT



The price will have to fall below $9 before I will consider repurchasing shares.


Over the short and intermediate term, I do not view the management internalization to be a positive simply because a boatload of stock will be paid to the current external manager to relinquish their management agreement. Bluerock Residential Growth REIT (BRG) Announces Agreement to Internalize Management


Of course, there are no proceeds realized by the company which would be the case for a stock offering sold to the public, and consequently no proceeds can be used to buy more properties to generate cash flow to support the current dividend, let alone dividend growth.  


As a result of more shares and no cash paid for those shares that could be used to buy properties, the dividend will be reduced in 2018 to an anticipated range of $.65 to $.75. Bluerock Residential Growth REIT (BRG) Announces Potential Range of Anticipated Class A Common Stock Dividend for 2018 I would go with the low end number until proven otherwise. The current annual rate is $1.16 per share paid in monthly installments of  $0.096667 per share .


I discussed reducing that common share position in three posts from 2016: 


South Gent's Comment Blog # 4: Sold Another 100 BRG  


Item # 5. Eliminated BRG in One Taxable Account-Sold 220+ at $13.22Update For Equity REIT Basket Strategy As Of 8/27/16 - South Gent | Seeking Alpha


Item # 5. Sold 100 BRG at $13.52 Update For Equity REIT Basket Strategy As Of 7/28/16 - South Gent | Seeking Alpha


The remaining 50 common shares were bought at $9.36 in my IB account on 2/16/16: Item # 2 Update For The Equity REIT Basket Strategy As Of 2/22/16 - South Gent | Seeking Alpha


I doubt that individual investors are attuned to the upcoming common share dividend slash.


Total BRG Trading Gains To Date: $963.77  (prior trades = $812.92)


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


4. Short Term Bond/CD Ladder Basket Strategy


A. Bought 2 Wells Fargo 1.7% CDs (monthly interest payments) Maturing on 11/8/19





In my Schwab account, I had $4K in treasury bills mature on 10/31/17 and $9K in short term CDs maturing on 10/30 and 10/31. I elected to buy this CD with some of the $13K in proceeds. The WFC CD pays more than any of the maturing CDs.  The T Bills had a .75% coupon. 


B. Bought 2 ZB Bank 1.55% CDs (semi-annual interest payments) Maturing on 2/4/19 (16 month CD)



In this account, I received $8K in redemption proceeds from short term CDs and a treasury bill between 10-27 and 10-31: 



More redemption proceeds was received on 11/1. 


I am waiting for higher rates on shorter maturities. About 25% of the redemption proceeds from short term bonds and CDs are currently being reinvested in higher yielding CDs. About 10% of the proceeds are being used to fund my 10 share lot buying spree of out-of-favor stocks, with the remainder remaining in a sweep fund for later disposition. 


Notwithstanding my statements made in my last post, I bought two separate Tennessee Municipal Bonds this morning, buying $10K in principal amount (Aa2 and AAA rated), and spending $4,370 for one $5K lot and $4,788 for the other. I will discuss those trades later. These purchases are being financed with proceeds from stock dispositions.    


In making those purchases, I am looking at my personal financial situation and a lack of any need to grow capital. So I decided to place a little more emphasis on high quality Tennessee municipal bonds that generate a current tax free yield of 3.02+% in the aggregate. I will be using the income generated by those bonds solely to buy more. The current principal amount is now at $260K.  


DisclaimerI 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. 

17 comments:

  1. If anyone hears a republican politician mention the exemption deduction elimination when talking about the SD increase, please provide me with a link.

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    Wage growth has been accelerating,using the BLS statistics, and is likely to continue moving up due to tightening labor conditions without any tax cut for corporations.

    " In September, average hourly earnings for all employees on private nonfarm payrolls rose by 12 cents
    to $26.55. Over the past 12 months, average hourly earnings have increased by 74 cents, or 2.9 percent."

    https://www.bls.gov/news.release/empsit.nr0.htm

    The alternative measure of wage growth developed by the Atlanta Fed, using BLS data, presents a more accurate picture. The Atlanta FED uses a "matched sample" approach which uses only workers in the year ago sample and the present one. Given the increasing number of higher wage baby boomers retiring, which creates "negative composition" effects, the BLS shows a distorted picture of wage gains for the existing workforce.

    The rate of wage growth is 3.6% using their measure and has been accelerating with some jiggles up and down since 2010:

    https://www.frbatlanta.org/chcs/wage-growth-tracker.aspx?panel=1

    +++++++

    Omega (OHI) did recover some off its intra-day low to close at $28.96, down 6.81%. The intra-day low was $27.87 which is also a new 52 week low. I consider the stock to be dangerous.

    Transcript of Earnings Call:

    "During the third quarter, we cooperatively completed the transition of Orianna’s Texas facilities to another Omega operator, and we completed the sale of the Northwest facilities to two buyers. Unfortunately, the remaining portfolio continues to underperform and Orianna continues to apply free cash flow to pay down past due vendors and other obligations."

    "We remain confident in our ability to pay our dividend, increasing our quarterly common dividend by $0.01 to $0.65 per share."

    Management discusses the adverse impacts that would have resulted from passage of the GOP's repeal and replace bills at page 3. The negative effects are obvious but it is helpful to have dollar amounts attached to some of those impacts.

    The company also reported that its "second top 10 operator, Signature Healthcare, has also fallen further behind on rent in the third quarter predominantly as a result of anticipated tightening restrictions upon their borrowing base by their working capital lender, thus reducing availability."

    Then there is the Genesis Healthcare issue discussed at page 9 and the Daybreak operator issues discussed at page 10.

    https://seekingalpha.com/article/4118814-omega-healthcare-investors-ohi-ceo-taylor-pickett-q3-2017-results-earnings-call-transcript

    I will not be buying 10 shares north of $26.

    ReplyDelete
  2. GE: This stock may decline below $20 today as the JPM analyst decided to kick the stock when it was laying on the ground and begging for mercy.

    The JPM analyst cut his price target to $17:

    https://www.marketwatch.com/story/ges-stock-keeps-falling-heads-for-8th-straight-loss-after-analyst-cuts-target-2017-11-01

    ReplyDelete
  3. The GOP has postponed the release of its secret tax plan until tomorrow. The purported reason is that finishing touches need to be made. Most politicians are largely in the dark about what is in the plan.

    There is some difficulty in reaching a consensus within the GOP which is necessary since no Democrat is going to vote for raising taxes on the middle class to fund corporate tax cuts.

    I suspect that that all hell will in fact be unleashed on the republicans when and if the bill is released for public scrutiny.

    The flake from Democrats is to be expected, but the main problem for the GOP will be major corporate interest groups and donors who see their ox being gored and GOP politicians in high tax states seeing their re-election being placed at risk.

    https://www.bloomberg.com/news/articles/2017-11-01/tax-bill-delay-deals-gop-setback-even-before-hell-breaks-loose

    The middle class is blissfully uninformed or misinformed about the impact on them IMO, due to a variety of reasons, including disinterest, an unwillingness to read credible reports which is always the case with True Believers, and a poor job by the mainstream media to explain what may happen to them.

    Going to Columbia's journalism school does not provide knowledge about tax law. And, no GOP politician is being honest about the impact either, given that it is difficult to honestly explain to those white middle class voters who put them in power why they taxes are being raised to fund tax cuts for the uber wealthy and corporations.

    ReplyDelete
  4. House Republicans, White House reportedly compromise on reducing 401(k) cap

    https://www.marketwatch.com/story/house-republicans-white-house-reportedly-compromise-on-reducing-401k-cap-2017-11-01

    The report says the House republicans and Trump agreed to reduce the cap halfway between $2,400 and the current $18,000. If my math is right that would lower the cap to $7,800.

    There is also a report that the GOP will keep the top 39.6% rate which is close to being meaningless given the 25% cap on income received from pass through entities. Just conduct a business through an LLC or similar pass through structure.

    The GOP's plan is still secret but the great unveiling is scheduled for tomorrow.

    The report on the 401(K) deal originates from ABC:

    http://abcnews.go.com/Politics/house-tax-plan-lowers-caps-401k-cuts-state/story?id=50861872

    ReplyDelete
  5. Medical Properties Trust (MPW)(own):

    This hospital REIT reported results this morning. Normalized FFO ("NFFO") for the 3rd quarter was $.33 per share, up from $.3 in the year ago quarter. AFFO was $.28, up from $.27.

    http://www.businesswire.com/news/home/20171102005807/en/

    AFFO correctly excludes from FFO the non-cash revenue generated by the "straight-line rent revenue" accounting convention.

    MPW updated its 2017 NFFO projection to a range from $1.30 to $1.32 per diluted share. The company estimates 2018 NFFO to be in a range between $1.42 to $1.46 per diluted share.

    The press release also mentions that the reorganized Adeptus, now owned by affiliates of Deerfield Management Group, emerged from BK on 10/2/17.

    This REIT continues to be a hold for me. My consider to sell range is above $14.

    My last purchase was at $12.66 and was discussed in Item 2.A.:

    https://tennesseeindependent.blogspot.com/2017/08/observations-and-sample-of-recent_29.html

    I last sold shares at $13.93:

    Item # 3.A.
    https://tennesseeindependent.blogspot.com/2017/05/observations-and-sample-of-recent_15.html

    Total MPW Trading Profits to Date: $1,334.83

    ReplyDelete
  6. I mentioned in a recent post that I do not own any BDC stocks. The discussion was in connection with a 40 share purchase of BDCL at $17.08, which has proven so far to be less than optimal timing:

    Item 1.A.
    https://tennesseeindependent.blogspot.com/2017/10/observations-and-sample-of-recent_26.html

    In that post, I discussed that the BDC TCAP, which is internally managed, would cut its quarterly dividend rate. I have never owned shares and am not that familiar with this BDC.

    Triangle Capital Corporation (TCAP)
    $9.34-$2.91 (-23.80%)
    As of 9:55AM EDT.

    TCAP reported after the close yesterday and yes the quarterly dividend was cut to $.3 per share from $.45. That is the third dividend cut from the $.59 rate paid for the 2015 4th quarter.

    IMO, the decline today is due only in part to that dividend cut. The remainder is due to these revelations:

    "Non-Accrual Assets as a Percentage of Total Portfolio Cost and Fair Value: 13.4% / 4.7%"

    Net Asset Value at $13.2 down from $15.13 as of 12/31/16


    "Net investment income during the third quarter of 2017 was $17.2 million, compared to net investment income of $19.4 million for the second quarter of 2017. Net investment income per share during the third quarter of 2017 was $0.36, based on weighted average shares outstanding during the quarter of 47.7 million, compared to $0.41 per share during the second quarter of 2017"

    "The Company’s net decrease in net assets resulting from operations was $57.5 million during the third quarter of 2017"

    https://globenewswire.com/news-release/2017/11/01/1172615/0/en/Triangle-Capital-Corporation-Reports-Third-Quarter-2017-Results-Announces-Quarterly-Cash-Dividend-of-0-30-per-Share-and-Announces-Exploration-of-Certain-Strategic-Alternatives.html

    I may look into what is causing the problem and how far along the company may be in addressing the problem, just to see whether I will buy a Lotto Ticket in the shares.

    The company alluded to the problems as follows:

    “The third quarter was a challenging quarter for Triangle as we experienced meaningful unrealized depreciation associated with certain assets which previously had been valued below cost..."

    "certain legacy investments, predominantly associated with investment vintages 2014 and 2015, are under-performing from a credit perspective."

    " In addition, as we continue to transition our investment portfolio from historic mezzanine-centric investments to more secure, senior-oriented investments, our Board of Directors has elected to pursue the exploration of certain strategic alternatives, including the potential sale of certain investments, the potential benefit of partnering with another organization to accelerate our corporate initiatives, as well as other alternatives. Our Board is engaged in discussions with several investment banking firms and expects to announce the formal engagement of an advisor in the near future.”

    ReplyDelete
  7. The downdraft today in Viacom may be connected with the unfavorable response given to the DISCA earnings report released today:

    Discovery Communications, Inc. (DISCA)
    $17.87-1.29 (-6.73%)
    As of 10:36AM EDT

    https://www.thestreet.com/story/14372230/1/discovery-communications-offers-mixed-q3-earnings-following-scripps-deal.html

    I recently bought 50 shares of VIAB and am in the hole.

    Item # 7. Deeply Contrarian Value Basket Strategy-Used Commission Free Trade:

    A. Bought 50 Viacom at $25.35:
    https://tennesseeindependent.blogspot.com/2017/10/observations-and-sample-of-recent_11.html

    I do not own DISCA, having sold a 100 share lot at $26.28 on 9/27/16 and have avoided the stock since then. I have now added the stock to my monitor list for the Lotto Ticket basket strategy which allows for a purchase of up to $1,000.

    In a related development, the Justice Department is reportedly considering an antitrust suit to block AT & T's acquisition of Time Warner.

    I would hope that this merger is abandoned by AT & T given the long term issues that are negatively impacting stocks like DISCA and VIAB. TWX's Warner Brothers is a far, far better movie studio than VIAB's Paramount. TWX owns several cable properties including HBO, TNT, CNN, Cartoon Network, Turner Classic Movies, TBS and several sports channels.

    AT&T Inc. (T)
    33.62+0.07 (+0.21%)
    As of 11:02AM EDT.

    Time Warner Inc. (TWX)
    $93.18-5.21 (-5.30%)
    As of 11:03AM EDT.

    ReplyDelete
    Replies
    1. DISCA reported a 5% decline in total portfolio subscribers:

      https://www.marketwatch.com/story/discovery-shares-plummet-10-after-company-reports-subscriber-declines-q3-profit-below-forecasts-2017-11-02

      Delete
  8. Some details of the House GOP plan are now available

    The top corporate tax would be reduced from 35% to 20%.

    SD raised from $6,350 to $12,000 for individuals and $12,700 to $24,000 for married couples

    All personal exemptions will be eliminated.

    This will generate $1.56T in additional revenues over 10 years using the JCT estimate. Do corporations or individuals reduce tax liability through personal exemptions?

    The mortgage interest deduction is preserved but the cap on deductibility for first and second homes is reduced from $1M to $500K.

    State and local income taxes will not be able to be deducted, as expected.

    State and local property taxes could be deducted up to $10,000 for those who itemize. The cap on property taxes will be a material negative item in high tax states, causing taxpayers to lose the deductions for state and local income taxes, mortgage interest and property taxes since the upward revision in the SD would be higher than the mortgage interest and property tax payments combined.

    The alternative minimum tax is repealed, as expected. (primarily benefits the wealthy but many upper middle income households in high tax states have been caught in recent years)

    The estate tax exemption will be doubled, and in six years, will be repealed. Only a limited number of large estates pay any estate tax now. This change is for the uber rich.

    The lowest tax rate is raised from 10% to 12%, while the top tax rate is kept at 39.6% but applied to taxable income over $500K for singles and $1M for married taxpayers filing jointly.

    For singles, the new 12% rate would apply to taxable income up to $45K with a 25% rate applicable to income over $45K up to $200K and 35% over $200K up to $500K.

    Under current law, 10% is applied to first $9.325K, 15% from that level to $37,950; 25% from $37.95K to $91.9K; 28% from $91.9K through $191.65K; and 33% from $191.650 K through $416.7K.

    The benefit of the change at first glance appears to be in the $91.9 to $200K range without taking into account any other change. I only looked at the single brackets since that is my category.

    The must important benefit to the middle class would be an increase in the child tax credit to $1,600 from $1,000 per child The phase out is increased

    The 25% cap on pass through income would exclude those providing professional services so the doctors, lawyers, accountants and engineers are left out.

    This loophole will allow other business owners to reduce some of their taxable income from brackets higher than 25% down to 25% however.

    The following limitation would exist for the 25% cap:

    1. Categorize 70 percent of their income as wages -- and pay their individual tax rate on it -- and 30 percent as business income, taxable at the 25 percent rate. Or 2. Set the ratio of their wage income to business income based on the level of their capital investment."

    The loophole created in that limitation would be to simply reduce the wage component taxed at the individual tax rate.

    The other loophole is that "passive income" received from a pass through entity would be subject to the 25% cap.

    There is no change in 401(K) contribution caps.

    Elimination of the medical expense deduction, as expected.

    Elimination of the casualty loss deduction, as expected, except for personal losses due to hurricanes.

    Elimination of the deduction for tax preparation, medical savings accounts, and moving expenses.

    Elimination of deduction for alimony payments for divorce decrees entered after this year. (see section 1309)

    A new tax of 1.4% would be applied to income received by large university endowments ( schools with assets of more than $100,000 per student) That will piss off some people.

    Repealed exclusion from income dependent day care program (section 1404)

    This discussion is based on the summary provided by the GOP which can be found at several website including this one:

    http://www.npr.org/2017/11/02/561555257/republican-tax-plan-would-slash-corporate-taxes-cap-some-popular-breaks

    ReplyDelete
    Replies
    1. One part of the tax bill, which applies to the business deduction for interest, will require some study. It seems to hit large banks but I can not make any statement on the matter until experts provide guidance.

      Corporations "could only deduct interest worth up to 30 percent of earnings before interest/taxes/depreciation/amortization. But real estate firms would be exempt from that limit."

      One other provision appears to be limited from earlier proposals. "Instead of having companies “depreciate” investments by deducting them over several years, companies could immediately expense all their investments. This benefit expires after five years" The change is the expiration of the benefit after five years.

      "A tax credit that drug and biotechnology companies can claim for 50 percent of the costs of clinical testing expenses for treatments for rare diseases and conditions would be eliminated"

      I will need to study that one since I have small positions in a number of small clinical stage biotechs.

      The GOP bill substitutes "chained CPI" for CPI as the inflation measure for increasing thresholds, etc

      "Chained CPI is a formula that would subject more income to higher tax rates than under the regular consumer price index."

      Chained CPI will grow at a slower rate than the current inflation measure used in the tax code.

      That is a negative for individual taxpayers.

      The GOP provides these estimates:

      Individual Tax Increases: $3 trillion
      Individual Tax Decreases $3.3 trillion
      Net $300B cut over 10 years or $30B per year

      Business Tax Cuts: 2.2 Trillion
      Business Tax Increases: 1.2 Trillion
      Net +$1T

      Estate Tax Elimination-Side Item: Revenue Decrease of $172 B



      Sourced:

      https://www.vox.com/2017/11/2/16596896/house-republican-tax-reform-cuts-trump-ryan-explained

      https://www.bloomberg.com/news/articles/2017-11-02/how-house-republicans-want-to-rewrite-tax-law-a-user-s-guide

      Delete
    2. Judging just from the reaction in MLP infrastructure stocks, there is something that investors do not like in the GOP's tax plan, possibly it is the limit on interest deductibility.

      JPMorgan Alerian MLP ETN (AMJ)
      $26.91-0.58 (-2.13%)

      Enterprise Products Partners L.P. (EPD)
      24.39-0.63 (-2.52%)
      As of 3:23PM ED

      Magellan Midstream Partners, L.P. (MMP)
      $66.58-1.69 (-2.48%)
      As of 3:23PM EDT.

      Delete
  9. Hello South Gent,

    I looked at the dividend income levels. I looked at the tax paid each level.

    I don't think I understand clearly how dividend income fits into the tax brackets.

    Let's say you have a substantial amount of your income coming from dividends, how does that fit into the new tax brackets?

    Thanks

    ReplyDelete
    Replies
    1. I did not see any change to dividend taxation. For most individuals, the qualified dividend is subject to a cap of 15%.

      This Schwab article shows how the rate applies using the 2017 tax brackets:

      https://www.schwab.com/resource-center/insights/content/taxes-whats-new

      This is cap on the tax applicable to dividends.

      The tax bracket and other changes may effect whether some individuals will hit the cap rate or fall below it.

      Under current law, a single person would pay no tax on qualified dividends with taxable income under $37,950. Between that amount and $418,400, the rate would be 15% even though the individual is in a higher tax bracket than 15%.

      Under current tax law, single filers who make between $37,951 and $91,900 pay the 25 percent rate, but the plan would change the 25 percent tax bracket to cover single filers earning between $45,001 to $200,000.

      It is possible that the new tax bracket and other changes could cause some taxpayers to fall from a 15% tax to no tax, but I have not done any calculations. Note the increase from $37,951 to $45,001 for the 25% rate.

      +++++++

      I missed in my original discussion that there would be a $18,000 SD for a single parent with at least one child rather than 12K. As I understand it, having three kids and being a single filer would still get the taxpayer a $18K SD. The single parent may qualify for the child tax credit.

      As far as I can tell, this plan will be a nothing burger for me. I would expect a faster rate of growth in dividends for those companies who see their effective tax rate lowered by several percentage points from current law. That may be my only plus. I am losing the extra SD for being over 65 and one exemption which cancels out the increase in the SD, except for $100.

      Delete
  10. The National Federation of Independent Business, representing 350K small business owners, came out against the GOP's tax bill today:

    "The National Federation of Independent Business is unable to support the House tax reform plan in its current form. . . This bill leaves too many small businesses behind. We are concerned that the pass-through provision does not help most small businesses. Small business is the engine of the economy. We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs.”

    http://www.nfib.com/content/press-release/national/nfib-unable-to-support-tax-bill-in-current-form/

    I would just note that, according to the GOP's estimates, the total tax savings for individuals is $300B over 10 years, hardly sufficient to move the needle. The wealthy will receive most of those benefits and they spend far less of their disposable income than lower and middle class taxpayers.

    The Committee on a Responsible Federal Budget estimates the super rich will save about $20B per year just on the estate tax elimination compared to $30B for individual taxpayers (mostly to the rich)

    " Of the $1.5 trillion cost, roughly $1 trillion comes from business tax cuts. Individual tax cuts make up another $300 billion, and the ultimate repeal of the estate tax accounts for the remaining $200 billion."

    There will be both winners and losers in the middle class and more losers as time passes due to the change in inflation indexing and the end of the $300 credit after five years. The TPC will come up with a good estimate soon.

    Some initial TPC comments:
    http://www.taxpolicycenter.org/taxvox/house-gop-tax-bill-mostly-business-tax-cut-will-create-both-winners-and-losers


    There is current a deduction for student loan interest payments up to $2,500 and that is being eliminated as well.

    http://money.cnn.com/2017/11/02/pf/college/house-tax-bill-student-loan-interest-deduction/index.html

    The additional $600 in tax credit will not be refundable:

    " But that $600 increase won't be available to the lowest-income families if they don't end up owing federal income taxes. That's because unlike the first $1,000, the extra $600 won't be refundable."

    So no help at all for the poor and lower middle income families who currently do not pay any federal income tax/

    ReplyDelete
  11. Trump's Daily Approval rating has gone up 4% subsequent to the Mueller indictments and stands at 38% as of 11/1/17.

    http://news.gallup.com/poll/201617/gallup-daily-trump-job-approval.aspx

    The indictments contained a newly disclosed link between the Trump campaign and the Russians relating to the acquisition of stolen Hillary emails.

    That evidence involved Sam Clovis who is now cooperating with Mueller and George Papadopoulos who reported to Clovis.

    https://www.usatoday.com/story/news/2017/11/02/timeline-many-times-george-papadopoulos-tried-connect-trump-campaign-russia/820951001/

    Clovis had been nominated by Trump to be the Chief Scientist for the Department of Agriculture, even though he was not a scientist of any kind.

    After the Democrats making it cleat that questions would be asked about his contacts with Russia in his confirmation hearing, Trump withdrew the nomination. It probably did not help Clovis for Trump to find out that he was cooperating with the FBI now.

    ReplyDelete
  12. Aratana Therapeutics, Inc. (PETX)
    $ 6.605 ++1.14 (+20.971%)
    As of 1:58PM EDT
    Day's Range 5.520 - 6.630
    52 Week Range 4.970 - 8.630
    Volume 726,551
    Avg. Volume 272,585
    Market Cap 284.03M

    This pop brings me back into profit territory, but just barely.

    PETX released its "earnings" report for the third quarter after the bell yesterday.

    https://www.prnewswire.com/news-releases/aratana-therapeutics-reports-third-quarter-2017-financial-results-300548612.html

    On what I would view as a positive note, PETX received a
    "$1.0 million one-time payment for the transfer of manufacturing responsibility to Elanco" for GALLIPRANT. I would much prefer Eli Lilly's Elanco unit manufacture this product.

    $5.4M in revenues were received during the third quarter of which included $2.2 million in GALLIPRANT licensing and collaboration revenue from Elanco (of which $1M was related to that manufacturing transfer)

    "Aratana continues to anticipate that the European Medicines Agency (EMA) will issue a positive opinion for GALLIPRANT in dogs in the European Union (EU) in late-2017"

    "Aratana continues to anticipate U.S. Department of Agriculture (USDA) conditional licensure in 2017 for its Canine Osteosarcoma Vaccine (AT-014) for the treatment of dogs diagnosed with osteosarcoma."

    "Aratana's collaboration partner, VetStem BioPharma, submitted the chemistry, manufacturing and controls (CMC) technical section for AT-016, an adipose-derived allogeneic stem cell therapeutic candidate for osteoarthritis pain in dogs in late-October 2017. Aratana continues to expect pivotal field effectiveness and safety study results in 2017."

    "Aratana recorded NOCITA® (bupivacaine liposome injectable suspension) net product sales of $717 thousand in the third quarter of 2017 as compared to $637 thousand in the second quarter of 2017."

    The company expects to have a label expansion to include cats next year.

    " As of September 30, 2017, Aratana had approximately $70.7 million in cash, cash equivalents, restricted cash and short-term investments, which the Company believes will allow it to fund the current operating plan and debt obligations through at least 2018."

    As previously discussed, PETX finally launched its appetite stimulant drug for dogs, ENTYCE, in late October after a long delay due to manufacturing issues which brought a number of class actions suits filed against this micro cap company. I read in a Credit Suisse report, available to Schwab customers, that the analyst "conservatively" estimates $25M in annual sales for that drug.

    CS has a buy rating and a $9 price target. That brokerage has a "blue sky" PT of $15, sort of everything goes right for existing and pipeline products. The Grey Side PT is $2.5 which is based on lower than peak sales estimates, nothing meaningful from the pipeline, potential liquidity and profitability issues.

    No one expects a profit anytime soon. I think that I own 150 shares but am a little foggy now on that.

    ReplyDelete
  13. I have published a new post:

    https://tennesseeindependent.blogspot.com/2017/11/observations-and-sample-of-recent.html

    ReplyDelete