Saturday, December 30, 2017

Observations and Sample of Recent Trades: MPW, PRISX, TRST

The GOP tax overhaul kept this $1,300 tax break for seniors (most retirees need that extra standard deduction)

Trump officials preparing for harder 'America first' line on China - The Washington Post

Incomes Grew After Past Tax Cuts, but Guess Whose - The New York Times ("those in the bottom half of the income pile — income actually shrank on Reagan’s watch. In 1980, the year he was elected, they earned $16,371 a year on average, in today’s dollars, according to the World Wealth and Income Database. By 1988, Reagan’s last year in office, they had to make do with $16,268.")

Nashville TN Home Prices & Home Values | Zillow (up 12.3%-1 year change)


Market Commentary and Markets


Nasdaq Index +28%

S & P 500 Index +19%
DJIA +25%
VIX at 11.04 Stable Vix Pattern (Vix Asset Allocation Model)  

If markets start out next year with a pop, I may do some selling of short term holdings that were bought as a trade. It remains to be seen whether other individual traders delayed taking profits until 2018 due to somewhat lower taxes on short term profits.     

T. Rowe Price tech-fund manager says cloud stocks’ big gains are yet to come - MarketWatch

Individual stock selections may work better than a cloud ETF. For those who do not want to pick a stock, there is the First Trust Cloud Computing ETF (SKYY), which I have owned in the past.  

Analysts Cut iPhone X Shipment Forecasts, Citing Lukewarm Demand - Bloomberg

China to Overtake U.S. Economy by 2032 as Asian Might Builds - Bloomberg

I do not buy individual stocks issued by companies domiciled in mainland China. I have bought individual stocks issued by companies based in Hong Kong, but do not have any current positions.

I do own two mutual funds that own stocks issued by companies located in China.

MCDFX Matthews China Dividend Investor Fund

MAPTX Matthews Pacific Tiger Investor Fund


Interest Rates and The Compression of the Yield Curve

Flattening U.S. Yield Curve Nears Decade Lows in Final 2017 Push - Bloomberg

Bond Giants Lay Out Their Top Trades for 2018 - Bloomberg

As the FED increased the Federal Funds rate by .75% this year, and 1% since the December 2016 meeting, the ten year treasury yield ended 2017 at 2.43%, having closed out 2016 at 2.45%. 2017 Daily Treasury Yield Curve Rates

The flattening of the yield curve is a major negative for regional banks. Further the flattening has caused me to reallocate out of intermediate term bonds into short term securities. 

The narrowing yield spread is highlighted by a recent Goldman Sachs SU bond purchase which has not yet been discussed here. I bought 2 Goldman Sachs 2.3% SU bonds maturing on 12/13/19 at a total cost of 99.957, creating a YTM of 2.322%. Bond Detail This bond closed last Friday at 99.83. A 3.5% GS SU bond maturing on 12/15/27 closed last Friday at par value. Bond Detail So extending the maturity by about 8 years increases my yield by only 1.178%. In the past decade, it made some sense to go further out in time since short term rates were near zero and higher quality intermediate term bonds had a yield advantage and provided some capital gain opportunities. The situation is different now. Short term rates are rising which causes the intermediate term yield advantage to shrink and capital gains are hard to generate and may soon lead to realized or unrealized capital losses.



"You all just got a lot richer," Trump tells friends, referencing tax overhaul - CBS NewsTrump Tells Rich Mar-a-Lago Friends “You All Just Got a Lot Richer” After Tax Bill

Mar-a-Lago membership fee doubles to $200,000 (Trump increased the fee from $100K to $200K after the election. Those who wish to lobby him personally during his frequent visits to his resort would view that additional $100K fee to be worth that direct access.)  

In his own way, Trump wished CNN and the FBI Merry Christmas with two of his Christmas tweets. 

In a Christmas Eve Tweet, there was a photo of Donald riding in a limousine, with that standard smug and arrogant look, with a raised shoe showing CNN's blood. 

He even thanked on Christmas Eve the Deputy Director of the FBI for his 20+ years of government service: 

He really wanted to send Deputy Director McCabe several of his Merry Christmas salutations: 

The GOP is engaged in repeated attacks on the FBI for the sole purpose of devaluing their Russian investigation and to protect Trump. 

Trump has proven beyond doubt how easy it is for a Demagogue to manipulate tens of millions with demonstrably false statements and to undermine the foundations of a properly functioning Democracy.   

How Sen. Pat Toomey (R-PA) turned the Republican tax bill away from populism - The Washington Post I regard Toomey as a Trump Clone. He was re-elected in 2016.     

Trump would very much like to punish Amazon since Jeff Bezos owns the Washington Post and the WP persistently points out Trump's many undesirable characteristics such as lying.  (e.g. In a 30-minute interview, President Trump made 24 false or misleading claims - The Washington Post or one every 75 seconds; 
Trump sounded delusional in his New York Times interview: CNBC)

This is just an idiotic statement from Donald. The U.S. Post Office does not deliver many packages for Amazon, usually just small packages that would fit in a mailbox like a DVD. Most of the packages are delivered by U.P.S. or increasingly to me by Amazon's own delivery service. Some third party sellers use Federal Express. If the U.S.P.S. raised prices as Donald suggested, they would lose volume from Amazon and other shippers and would be in worst shape than it is now. 

This tweet and countless others demonstrate Donald's strong authoritarian impulses and his persistent and increasingly successful efforts to undermine the pillars of a properly functioning Democracy. It is unfortunate that millions support his efforts. 


1.  Equity REIT Common and Preferred Stock Basket Strategy:

A. Pared MPW-Sold 50 at $14.05-Used Commission Free Trade:

Two Year History This Account:

Using FIFO accounting, I sold the highest cost lot bought at $12.84+ (used commission free trade). I reinvested one dividend and have now quit since I would not make an open market purchase at the current price. I am a seller at >$14.  

MPW has a bad habit of selling stock when the price peeks over $14. The five year chart also reveals an inability to stay over that price for long. MPW  Chart A price over $15 will trigger an automatic sell.

Closing Price Day of Trade (12/15/17): MPW $13.99 0.23 1.67%: Medical Properties Trust, Inc.

The enthusiasm that day was apparently based on JPM upgrading MPW from an underweight to an equal weight.

Profit Snapshot+$60.37

Item # 5.A. Reinitiated Position in MPW with a 50 Share Buy at $12.85 (8/3/2017 Post)

I will also receive the quarterly dividend for this 50 share lot that went ex dividend a few days prior to selling the lot.  

Trading Profits To Date$1,395.2 (prior at $1,334.83)

Last Discussed a PurchaseItem # 2.A. Bought 50 MPW at $12.66 (8/29/17 Post)

Last SellItem # 3 Sold 50 MPW at $13.93 (5/15/17 Post)(post contains links to prior discussions)

Dividends: Quarterly at $.24 per share Dividend History-Medical Properties Trust (that link provides information on the classification of dividends. There was some ROC support in 2016) 

Last Earnings ReportMedical Properties Trust, Inc. Reports Third Quarter Results 

Unlike OHI, MPW correctly computes the AFFO number by excluding non-cash revenues created by the straight line rent accounting method. Note that AFFO declined $.02 per share for the first nine months in 2017 compared to 2016. 

When providing investors with a forecast, MPW uses "normalized funds from operations" rather than AFFO: 

Given the significant differential between FFO/NFFO and AFFO, I would use only the AFFO number in assigning a multiple to cash flow and dividend coverage.  

Medical Properties Trust's (MPW) CEO Edward Aldag on Q3 2017 Results - Earnings Call Transcript | Seeking Alpha

Other Press Releases

Medical Properties Trust Transitions Adeptus Leases to UCHealth (12/7/17 Press Release)

Medical Properties Trust Announces Pricing of Public Offering of Common Stock (4/25/17 Press Release)

Medical Properties Trust, Inc. Completes $1.4 Billion Investment in Eleven IASIS Hospitals Now Operated by Steward Health Care (9/29/17 Press Release)

Medical Properties Trust Announces Upsizing and Pricing of $1.4 Billion of 5.000% Senior Notes Due 2027 (9/7/17 Press Release)


A. Bought 50 TRST at $9.2-Used Commission Free Trade:

Quote: Trustco Bank Corp. (TRST)

"TrustCo Bank Corp NY is a $4.9 billion savings and loan holding company and through its subsidiary, Trustco Bank, operated 144 offices in New York, New Jersey, Vermont, Massachusetts, and Florida at September 30, 2017."

Only one analyst provides an E.P.S. estimate. TRST Analyst Estimates The estimate for 2018 is $.63, up from $.5 this year. I do not know whether the 2018 includes an increase in net income resulting from a lower tax rate. The last quarterly E.P.S. was $.131 or $.524 annually at that rate. As noted below E.P.S. increased by 15% Y-O-Y in the third quarter.

Recent Earnings Report: 2017 Third Quarter SEC Filed Press Release

Net income increased 15% to $12.596M compared to $10.93M in the 2016 third quarter. E.P.S. increased to $.131 from $.114.

The efficiency ratio is good at 52.79%. 

The coverage ratio is at 180%. I view any number over 100% as good when making an initial purchase. 

The NPL and NPA ratios are below average levels for U.S. banks. 

Nonperforming Loans (past due 90+ days plus nonaccrual) to Total Loans for all U.S. Banks-St. Louis Fed

ROA and ROE are close to average national numbers, but did increase Y-O-Y. 

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

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

The dividend payout ratio is high at 52.82%. When over 50%, I would not view it as prudent to raise the dividend.  With a major decrease in its tax rate, the bank may be in a position to increase the dividend in 2018 or 2019.

Loans were up: "Average loans were up $171.0 million or 5.1% in the third quarter of 2017 over the same period in 2016."  

Dividends: The quarterly rate has been stuck at $.065625 per share since the 2009 third quarter. The dividend was reduced to that level from $.11 per share. Both the dividend slash and the lack of any increase thereafter are both major negatives IMO.   

Assuming a continuation of $.06562, which results in an annual rate of $.2625 per share, the dividend yield at a total cost of $9.2 per share is about 2.85%.

Chart: Over the past month through 12/22/17 (date of purchase), TRST had gained .55% compared to KRE's +7.23%. TRST did have a spike in price that ended on 11/29/17. TRST Stock Chart 

Trading Profits to Date: $934.27 (snapshots at REGIONAL BANK BASKET STRATEGY GATEWAY POST)

Effective Tax Rate: This is another minor trade made primarily on the new tax law and reasonably anticipated favorable changes in bank regulation. 

Latest Quarter: Page 56 10-Q 


Sourced at Page 27 Exhibit 13 to 10-K

Discussions of Most Prior Trades Linked HereSold 315+ TRST at $6.92 (1/11/15 Post)-Item # 2. Sold 100 TRST at $6.69: Update For Regional Bank Basket Strategy As Of 7/26/16 - South Gent | Seeking Alpha-Item # 2. Bought 100 TRST at $5.9: Update For Regional Bank Basket Strategy As Of 9/4/15 - South Gent | Seeking Alpha

2015 Agreement with the Office of the Comptroller

In the last linked post from SA, I discussed a problem that had knocked the share price down and involved an agreement reached with TRST's primary regulator (Office of the Comptroller of the Currency). 

Quote from 9/14/15 Post 

"The earnings were okay, but the bank announced that its regulator found issues in need of repair that would cost an annual estimated $2.5 to $5M to fix according to TRST. The after tax impact on net income would be less depending on TRST's tax rate. In addition to the after tax impact on net income, the market is assuming that the additional annual costs can not be offset, at least in part, by cutting operating costs elsewhere. . .. I would estimate that this annualized additional cost issue has cut the price from $6.81 to $6.05 or $.76 per share, with the market meltdown contributing to the remaining decline. When I multiply $.76 by the number of shares outstanding as of 6/30/15 which was 95.132M, the net market capitalization lost was about $72.3 million for an annualized increased expenditure between $2.5 to $5m, assuming TRST's management is being forthcoming in its future estimates."

End of Quote 

The bank is still subject to requirements of that agreement:

Page 35 10-Q for the Q/E 9/30/17 

Capital Ratios are good (sourced from page 57 10-Q)

3. Intermediate Term Bond/CD Ladder Basket Strategy:

A. Sold 2 SVB Financial 3.5% SU Bonds Maturing on 1/29/25:

Profit Snapshot: +$13.5

Issuer: SVB Financial Group (SIVB)

SIVB Analyst Estimates

Finra Page: Bond Detail

Sold at 100.416

YTM Then at 3.433%
Current Yield at 3.486%

Bought at a TC of 99.941

Item #1.A.
YTM Then at 3.553%
Current Yield at 3.502%

B.  Sold 2 Old Republic 3.875% SU Bonds Maturing on 8/26/26:

Profit Snapshot: +$18.6

Issuer:  Old Republic International Corp. (ORI)

ORI Analyst Estimates

FINRA Page: Bond Detail

Credit Ratings:

Sold at 101.074     
YTM Then at 3.741%
Current Yield at 3.834%
Net at 100.974 (adjusted for $2 commission/$1 per bond)

Bought at a TC of 99.944

Item # 2.C.
YTM at TC Then at 3.882%
Current Yield at 3.88%

4. Short Term Bond/CD Ladder Basket Strategy

A. Bought 1 Washington Federal 1.4% CD (monthly interest) Maturing on 6/20/18 (6 month CD):

B.  Bought 1 Bank of China 1.35% CD Maturing on 3/15/18 (3 month CD):

Since this purchase on 12/4, the top three month CD rate at Fidelity and Schwab had moved up to 1.5%.  

C. Added 1 Royal Bank of Canada 1.625% SU Bond Maturing on 4/15/19:

FINRA Page: Bond Detail

Issuer: Royal Bank of Canada (RY)

RY Analyst Estimates

Credit Ratings:

Debt Investors

Bought at a Total Cost of 99.65

YTM at TC = 1.887%
Current Yield at TC = 1.63%

I now own 3 bonds.

I have 2 RY 1.5% bonds maturing on 1/16/2018:

D. Bought 3 BNY Mellon CDs-Staggered Maturities:

One 1.3% CD Maturing on 3/12/2018

Two 1.4% CDs Maturing on 5/11/2018

Issuer: Bank of New York Mellon (BK)

BK Analyst Estimates
BNY Mellon Reports Third Quarter Earnings Of $983 Million Or $0.94 Per Common Share

E. Bought 1 Citigroup 2.05% SU Bond Maturing on 6/7/19:

FINRA PAGE: Bond  Detail

Credit Ratings:

Moody's at Baa1
S & P at BBB+

Bought at a Total Cost of 99.847

YTM at TC = 2.154%
Current Yield at TC = 2.053%

F. Bought 2 Cisco 1.6% SU Bonds Maturing on 2/28/19:

Finra Page: Bond Detail

Issuer:  Cisco Systems Inc. (CSCO)

CSCO Analyst Estimates
Cisco Reports First Quarter Earnings (Q/E 10/28/17)

Bought at a Total Cost of 99.771

YTM at Total Cost = 1.789%
Current Yield at TC = 1.604%

I also own 50 Cisco common shares.

G. ADDED 1 Anheuser 1.9% SU Bond Maturing on 2/1/19:

Finra Page: Bonds Detail
Bought at a TC of 99.961
YTM then at 1.934%

This brings me up to 3 bonds as of the purchase date. I am basically replacing the 4 BUD 1.25% SU bonds that were redeemed early by the issuer. Item # 4.D.

5. Added $250 to the T. Rowe Price Financial Services Fund (PRISX)

This fund paid a year end distribution of $1.31 per share which I took in cash as with all other owned Price stock funds. PRISX T. Rowe Price Financial Services Fund 

T. Rowe Price Financial Services Fund (PRISX) Top Portfolio Holdings

I have decided to reinvest only $500 of the $8.5K+ in cash dividends received in December from my T. Rowe Price stock mutual funds. The total cash dividends was higher than my previous estimate due to the higher than expected dividend amount paid by the T Rowe Price Spectrum Growth Fund (PRSGX)($1.96 per share) 

There will be a lot of noise relating to bank earnings due to tax reform. The large banks will be hit with a mandatory repatriation tax on accumulated foreign earnings that have not been repatriated back to the U.S. Those banks and regional banks will be impacted in various ways by the lowering of the corporate tax rate. 

While I may discuss in some detail later the impact on revaluing "deferred tax assets" and "deferred tax liabilities" due to the reduction to 21%, the banks with deferred tax assets will be taking a charge and those with deferred tax liabilities will be recording a gain.  

One of the few banks with deferred tax liabilities is NYCB which will record an approximate $25M gain due to revaluation of those liabilities in the 4th quarter. In other words, the reduction in the tax rate means that this bank will owe less in future tax liabilities that are currently in deferral for one reason or another. New York Community Bancorp, Inc. Announces Benefits from Enactment of Tax Cuts and Jobs Act This benefit will be accretive to the bank's capital ratios. I do not yet understand why NYCB is predicting a 27% effective tax rate in 2018. 

Old National, a regional bank with a tax deferred asset, will record a charge since that asset will be worth less at a lower tax rate. Old National Bancorp (Form: 8-K)(" The Company performed an analysis to determine the impact of the revaluation of the deferred tax asset using its September 30, 2017 balance of $138.0 million and included an estimate of the impact from the recently acquired Anchor Bancorp, Inc.’s ("Anchor") deferred tax position. It is estimated that the value of the deferred tax asset will be reduced by approximately $41 million (including the impact of Anchor), less the amount of tax deferral utilized in the fourth quarter. Under this methodology, the estimated fourth quarter earnings impact would be approximately ($0.28) per share and the estimated tangible book value impact would be approximately ($0.27) per share based on estimated fourth quarter weighted average diluted shares of approximately 147 million and total shares outstanding of approximately 152 million at year end.")

I do own NYCB, but no longer own ONB. I will consider buying back ONB on a decline below $17. I last eliminated my position by selling 50 shares at $18.55: Item 2.A. (2/27/17 Post) 

I believe that sophisticated investors will simply ignore those one time accounting benefits and charges related to revaluing deferred tax assets and liabilities.  

Goldman Sachs estimated that the repatriation tax and the revaluation of its deferred tax assets will result in about a $5B charge. The repatriation tax will account for about 2/3 of that charge. Goldman taking $5 billion hit in Q4 earnings from new tax law Regional bank by and large would not have any foreign earnings to repatriate.  

The same issues apply to non-financial multinationals: Amgen estimates its U.S. tax bill at over $6 billion as it repatriates cashForm 8-K

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. 


  1. Hi!

    These past few months, a "senior loan" or "floating rate" CEF I own - TLI - has been reducing its dividend every few months. Can you think of any reason for this?


  2. David: TLI is a leveraged CEF that borrows short term. The spread between short term borrowing costs and the yields on securities bought with those borrowed funds will narrow as the FED raises the federal funds rate. That will cause a decrease in net income and the distribution rate, unless the fund sources the lower interest spread by supporting the dividend with return of capital.

    Quote Last Shareholder Report
    " For the period ended September 30, 2017, based on the number of days during the reporting period that the Fund had an outstanding balance under the Credit Agreement, the Fund had an average daily loan balance outstanding of $54,085,470 and the weighted average interest rate was 1.76%. At September 30, 2017, the Fund had $53,000,000 of borrowings outstanding per this credit agreement."

    Page 37

    The FED has increased the FF rate by 1% over the past year, starting with a .25% increase in December 2016 and two increases can be reasonably anticipated in 2018, possibly as much as .75% in total. There were three .25% increases this year.

    Other factors that could be contributing to a lower dividend are bankruptcies and less favorable yields on new securities bought to replace the ones that have matured.

    I have discussed those dynamics in several posts.

    While this type of fund mostly owns invests in first and second lien loans, the borrowers are financially stressed and usually highly leveraged. If the loans were rated, they would be deep into junk territory.

    There is a provision in the new tax law that may contribute to bankruptcies over the next several years. I have discussed that provision in my previous posts and comments. There are some limits on the deductibility of interest that may come into play with some of the highly leveraged debtors. Limiting interest deductions is potentially the straw that breaks the camel's back for some of these highly leveraged junk debtors.

    You need to read this synopsis:

    I no longer own any leveraged bond CEFs, having sold out of my remaining positions over the past several months. That is primarily due to the narrowing interest rate spreads discussed above and my concerns that the owned securities will go down in value which is made worse when a substantial number of them are bought with borrowed money.

  3. Thanks.

    It's not easy to be a conservative investor right now.

    In most worlds, the behavior of financial markets in the past can be expected to inform to some degree their behavior in the future.

    We now seem to be living in a world where no precedents apply: We are coming out of a period in which there was an enormous and innovative intervention in the United States, and are still in a period of negative interest rates in much of the developed world.

    Thanks again.

  4. South Gen,

    "It remains to be seen whether other individual traders delayed taking profits until 2018 due to somewhat lower taxes on short term profits."

    Buffett says he was holding off selling his profitable positions for the lower tax rates in 2018. The market performance in 2017 is amazing, but we might see the sell-off in 2018.

    Thank you again for your voluminous blogs and insights. Have a healthy and prosperous New Year!

  5. Hersha Hospitality (HT): I recently discussed buying 50 shares in this hotel REIT which is currently out-of-favor among investors.

    Item # 5.B. Bought 50 HT at $17.41

    The stock is up some today after the company announced that the Board has authorized the purchase of up to $100M in stock.

    As noted in that press release, the company bought back $35.1 million in 2017, at a volume-weighted average price of $17.65, representing 4.5% of common shares outstanding.

    Hersha Hospitality Trust (HT)
    $17.85 +$0.34 (+1.94%)
    As of 11:50 AM EST.

  6. I have published a new post: