Thursday, January 11, 2018

Observations and Sample of Recent Trades: HOPE, M, STWD, SZEVY, WMT

Economy:

The New York Fed's real GDP forecasting model estimates 3.97% growth in the 2017 4th quarter and 3.4% for the 2018 first quarter as of 1/5/18. Nowcasting Report - FEDERAL RESERVE BANK of NEW YORK

As of 1/10/18, the Atlanta Fed's GDP forecasting model estimates real GDP growth of 2.8% in the 4th quarter. GDPNow - Federal Reserve Bank of Atlanta


++++++++++

Market Commentary and Markets


There were a couple of potentially worrisome developments yesterday. I say "potentially" since neither has yet occurred and may not occur anytime soon. 


Bloomberg reported that China was weighing slowing down or halting its purchase of U.S. treasuries. If that occurs, the ostensible reason given by China may be that U.S. treasuries are less attractive than other assets. The real purpose may be a push back on Trump's trade demands. Yes, I know that Ivanka claimed that the tax cuts would create a U.S. budget surplus, but I am not going to allocate my money based on that prediction. The U.S. budget deficits will soar in the coming years; and China will be needed to help finance the parabolic rise in U.S. debt. 


Today, China's foreign exchange regulator pushed back on that story: China regulator says report country wants to pare U.S. bonds may be ‘fake news’ - MarketWatch 

Major Foreign Holders of U.S. Treasuries 


Report Chinese could stop Treasury buying seen as political but hits raw nerve: CNBC 


Both Bloomberg and Reuters reported yesterday that Canada believes that Trump is about to terminate the NAFTA agreement. The chaos monkey will more likely than not IMO make an attempt to terminate, which will be challenged in court. The treaty states that the United States may terminate. While Donald believes he is the United States as our Supreme and Dear Leader, that is still not the case currently. Congress approved the treaty and arguably will have to join the President in seeking its termination. 


The story about China cutting back on Treasury purchases added to bond woes early yesterday, but the news about NAFTA being potentially terminated by Donald likely caused bonds to rise off their lows as part of a flight to safety trade. The ten year treasury yield touched 2.6% in early trading and closed basically unchanged at a 2.555% yield.  


Bill Gross says bond bear market ‘confirmed’ amid Treasurys selloff - MarketWatch


Jeff Gundlach predicts the stock market’s 9-year winning streak will end in 2018 - MarketWatch


Dimon thinks even his own economist at J.P. Morgan is dead wrong about GDP, predicts 4% U.S. growth - MarketWatch

Retail investor exposure to stock market is at an all-time high: TD Ameritrade - MarketWatch


Stock optimism swells as S&P 500 hits most overbought level in 22 years - MarketWatch


Investors should be pessimistic about the rise in stock-market optimism - MarketWatch


Warren Buffett says cryptocurrencies headed for a 'bad ending' - MarketWatch


Euro spikes higher as ECB minutes suggest possible hawkish shift toward monetary policy - MarketWatchEuro - EURUSD 

A retreat by the ECB in its extremely abnormal monetary policies will likely cause IMO interest rates to rise in the U.S. The German 10 year bond is rising in yield today:  Germany 10 Year Government Bond 

The USD remains in a downtrend: DXY: U.S. Dollar Index (DXY)BUXX - WSJ Dollar IndexBloomberg Dollar Spot Index - Bloomberg Markets

The Bloomberg spot dollar index has a far lower weighting in the Euro than the DXY and includes more currencies. 



Sourced: Currency | Bloomberg Indices | Bloomberg Finance LP

DXY Weightings: 



++++++++

Trump


In his recent NYT interview, Trump made the following statement: "I have absolute right to do what I want to do with the Justice Department."

I found it interesting watching Donald's negotiating "skills" in action last Tuesday. To be charitable, his statements were a jumbled mess of inconsistencies and had to frustrate both Republicans and Democrats who had to listen to his ramblings. Trump Deals on DACA With the Cameras On - The Atlantic    


White House transcript fails to include line from Trump on clean DACA bill | TheHill (Trump probably does not even know what is meant by a "clean DACA bill")


The GOP got what they really wanted with the tax cuts. It was only necessary to have a republican president, anyone would do, to sign the bill rather than to veto it which would have happened with Hillary as President. 


Donald's capacity for chaos and mischief is still omnipresent and remains a major potential risk for the stock market and the economy this year.    

+++++++++++

1. Small Ball-Profit Taking:


A. Sold 25 Macy's at $25.93-Used Commission Free Trades:




Profit: $201.89




Quote: Macy's Inc. (M)

M Analyst Estimates

Department store stocks are not viewed here at HQ as worthy of any investment approach other than as a short term trade with meagre dollar amounts put at risk.


Macy's holiday sales stronger, but not enough to ward off dismal 2017: CNBC


Closing Price 1/10/18: M $25.60 +$0.91 +3.69% : Macy's Inc 


B. SOLD 10 WMT at $99.75-Used Commission Free Trade:




Profit Snapshot: $208.27





Closing Price Day of Trade (1/3/18):  WMT $99.45  +$0.86 0.87%
WMT Analyst Estimates

I am just surprised that this stock performed so well since my purchase. Since I have zero interest adding to the position anywhere near current price levels, and my free trades expire in a few months, I decided to harvest a decent percentage gain in this mega cap stock.


C. Bought 10 STWD at $21.19 and 10 at $20.91-Used Commission Free Trades:






Last Discussed: Stocks, Bonds & Politics: Item 3.A. (8/13/17 Post)


Quote: Starwood Property Trust Inc.  (STWD)


Website: Starwood Property Trust-Providing Innovative Financial Solutions


Dividend: Quarterly at $.48 per share Dividends Investor | Starwood Property Trust


Dividend Yield at a Total Cost of $21.05 per share = 9.12%


Last Ex Dividend Date: 12/28/17 (bought this lot shortly thereafter)


Recent Earnings ReportStarwood Property Trust Reports Results for the Quarter Ended September 30, 2017


STWD recently sold $500M of 4.75% senior notes maturing in 2025. Starwood Property Trust Prices Private Offering of Unsecured Senior Notes STWD's senior unsecured debt is rated in junk territory by both Moody's and S & P: Credit Ratings Investor | Starwood Property Trust


Moody's rates Starwood Property Trust's senior notes Ba3


I will average down in 10 share lots until I own 50 shares in this account. I suspect that this stock's recent weakness is related to the  interest rate rise.


2. REGIONAL BANK BASKET STRATEGY:


A. Bought Back 50 HOPE at $18.04-Used Commission Free Trade:




Quote: Hope Bancorp Inc. (HOPE)

Consensus Analyst E.P.S. Estimates day of trade:
2017: $1.21
2018: $1.43
P/E at $18.05-2018 Estimate = 12.62
E.P.S. Estimated Growth Rate Y-O-Y = 18.18%
HOPE Analyst Estimates

Last Discussed Item 1.A. Sold  50 HOPE at $19 (11/4/17 Post)(profit snapshot=$169.97)-Item 1.B. Bough 50 HOPE at $15.6 (9/14/17 Post) 


I discussed HOPE's third quarter earnings report here.


Hope Bancorp Reports Record Net Income of $44.6 Million, or $0.33 EPS, for 2017 Third Quarter


I would just add some material about taxes to those prior discussions:




The balance sheet also shows a deferred tax asset of $83.2+M that will need to be revalued down due to the slash in the federal corporate income tax rate.


Closing Price 1/10/18: HOPE $18.54 +$0.23 +1.26%: Hope Bancorp, Inc. 


3. Added 100 Suez ADR at $8.73 (SZEVY): The general idea is to harvest the annual dividend and to make a 5% to 10% profit on the shares.  
This one is not working for me yet. 




Position after Add:





Last Discussed: Item # 6.A. Bought 100 at $9.08 (10/26/17) 

Last Sold: Sold SZEVY at $9.23 (6/7/17 Post)-Item # 5 Bought 50 SZEVY at $7.24 (1/15/17 Post)


USD Priced ADR: Suez S.A. ADR (pink sheet exchange)

Euro Priced Ordinary Shares Traded in Paris: Suez S.A. (France) 

EUR / USD Currency Chart


1 ADR = .5 Ordinary Share


Dividend: Annual at €.6 per share for ordinary shares and €.325 for each ADR share (past history)  Dividends


I did not find any significant news since I last discussed this company.


Closing Price 1/10/18: SZEVY $8.41 -$0.23 -2.66%: SUEZ 


4. Short Term Bond/CD Ladder Basket Strategy


With the short term bonds that I am buying, a rise in short term rates, which is expected, will cause these bonds to go down slightly in price. 


The loss in value will be short term and will be gained back as the bond approaches maturity. 


In the meantime, I receive a higher yield than available in money market funds and have no concerns about credit risk for these issuers. 


I will be able to take advantage of a continuous rise in short term rates by redeploying proceeds from maturing securities. I will have multiple maturities each week-most of the time. 


I am also experiencing some early redemptions as well. For example, Charles Schwab called its 1.5% SU bond maturing on 3/10/18 for redemption on 2/8. The bond prospectus allows for a redemption on or after 2/8 at par value plus accrued and unpaid interest.    

A. Added 1 Anheuser Busch 1.9% SU Bond Maturing on 2/1/2019

I now own 5 bonds. 

FINRA Page: Bond Detail

Bought at a Total Cost of 99.944
YTM at TC Then at 1.95%
Current Yield at 1.901
Bought at 89.844 (YTM at 2.039%)

B. Bought 2 J P Morgan 1.85% SU Bonds Maturing on 3/22/19-A Roth IRA Account


FINRA Page: Bond Detail


Credit Ratings: 


Bought at a Total Cost of 99.97
YTM at TC Then at 1.873%
Current Yield at TC = 1.8506%

A 1.873% YTM for a high quality bond maturing in about 15 months, which becomes tax free when owned in the Roth IRA, is viewed as satisfactory given my strong capital preservation objectives for my Roth IRA accounts. I do not anticipate ever withdrawing any money from them since they will be the very last source to pay expenses. All other assets will have to be  exhausted before drawing any money out of the Roth IRAs. They are my last line of defense. If I reach the point where I need those funds, viewed as exceedingly unlikely now, then the money needs to be there rather than in money heaven. 

C. Bought 2 Chevron 1.686% SU Bonds Maturing on 2/28/19:



FINRA Page: Bond  Detail (prospectus linked)


Issuer: Chevron Corp. (CVX)

CVX Analyst Estimates
Chevron Announces $18.3 Billion Capital and Exploratory Budget for 2018
Chevron Reports Third Quarter Net Income of $2.0 Billion

Credit Ratings:




Moody's downgrades Chevron to Aa2; stable outlook 


Bought at a Total Cost of 99.863

YTM at TC Then at 1.801%
Current Yield at 1.6883%

D. Bought 2 Cathay Bank 1.45% CDs (monthly interest payments) Maturing on 3/28/18:



Holding Company: Cathay General Bancorp (CATY)
CATY Analyst Estimates
Cathay General Bancorp Announces Third Quarter 2017 Results

Cathay has a five star rating from Bankrate: Cathay Bank Bank Reviews and Ratings - Bankrate.com


E.  Bought 2 Kroger 2% SU Bonds Maturing on 1/15/19:




FINRA Page: Bond Detail


Credit Ratings:




Issuer:  Kroger Co. (KR)

KR Analyst Estimates
Kroger Reports Third Quarter Results

Bought at a Total Cost of 100

YTM at TC Then at 2%
Current Yield at 2%

F. Bought 1 Caterpillar 1.8% SU Bond Maturing on 11/13/18


Finra Page: Bond Detail (prospectus linked)


Credit Ratings:




Moody's Downgrades Caterpillar ratings to A3/Prime-2; outlook is stable.

Fitch Rates Caterpillar Financial Services Limited 'A'

Issuer: Caterpillar Financial Services


Bought at a Total Cost of 99.9

YTM at TC Then at  1.911%
Current Yield = 1.8018%

G. BOUGHT 1 More Caterpillar 1.8% SU Bond Maturing on 11/13/18:


This is the same bond discussed in Item F above.


I will frequently buy the same bond in a different account when I am reinvesting proceeds from maturing securities received in that account.


This CAT bond was bought in my Fidelity account where I pay a $1 per bond commission. The same bond discussed in Item F was bought in my IB account, where I also pay a $1 per bond commission, and where I recently received proceeds from 2 BB&T 1.45% SU bonds called one month early by the issuer.


I paid slightly more for the CAT bond bought in the Fidelity account which had a .095% negative impact on YTM and a -.0015% on current yield: 




Bought at a TC of 99.985

YTM at TC Then at 1.816%
Current Yield at TC = 1.8003%

H. Added 2 Autozone 1.625% SU Bonds Maturing on 4/21/19:




FINRA Page: Bond Detail (prospectus linked):


Credit Ratings:




Fitch Affirms AutoZone, Inc.'s IDR at 'BBB'; Outlook Stable


Issuer: AutoZone Inc. (AZO)

AZO Analyst Estimates
AutoZone 4th Quarter Same Store Sales Increase 1.0%; 4th Quarter EPS Increases 6.8% to $15.27; Fiscal 2017 Sales of $10.9 Billion; Fiscal 2017 EPS Increases 8.3% to $44.07

Bought at a Total Cost of 99.382

YTM at TC Then at 2.094%
Current Yield at TC = 1.6351%

I now own 4 bonds.


The first two bond lot was bought at a slightly lower price in December 2016.


Even though the purchase prices was lower, the YTM was lower at 1.943% than the purchase made about 1 year later since the bond is closer to maturity and the price paid was only slightly higher than my first purchase.


I also had to pay $2 more in Commission for this earlier purchase:




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. 

10 comments:

  1. South Gent,

    STWD's dividend is attractive and it seems it can cover the dividends with its operating cash flow. However, I thought you would normally stay away from an mREIT notwithstanding its high dividend yield.

    ReplyDelete
    Replies
    1. Y: I will trade both MREITs and BDCs, both disfavored by me, in small quantities. The goal is simply to harvest the dividend and to sell the shares at some point for whatever profit is available.

      STWD is not a pure MREIT. It does own property and has a servicing business.

      See Pages 63-66 and chart on page 67


      https://www.sec.gov/Archives/edgar/data/1465128/000155837017008478/stwd-20170930x10q.htm

      Delete
  2. My last MREIT trade involved multiple AGNC small lots. In my Roth IRA, I realized a gain of $117.57 by selling 104.29 shares and received 6 dividend payments altogether on a varying number of shares.

    I also profitably traded AGNC in a taxable account.

    See Items 5.B. Pared AGNC Roth IRA: Sold 50 Shares at $19.94 and in the same post 5.C. Sold 50 of 103+ AGNC Held in a Taxable Account Shortly After Monthly Ex Dividend Date:

    https://tennesseeindependent.blogspot.com/2017/04/observations-and-sample-of-recent_14.html

    Item # 3.A. Sold 54+ AGNC at $20.71-A Roth IRA Account and in the same post Item # 3.B Sold 53+ AGNC at $20.71-Used Commission Free Trade Taxable Account:

    https://tennesseeindependent.blogspot.com/2017/05/observations-and-sample-of-recent_23.html

    I was tempted to buy 50 shares using a commission free trade when the price fell close to $19.3 on 1/10 but passed on it.

    ReplyDelete
  3. South Gent,

    OHI sets a new multi-year low this morning. You bought a small position back in November. Recently a value investor also initiated a position in OHI

    https://seekingalpha.com/article/4137168-omega-downgraded-duck?app=1&uprof=46&isDirectRoadblock=false

    Notwithstanding all its headwinds this might be the time to start building a position in OHI.

    ReplyDelete
    Replies
    1. Y: I discussed OHI some in my comment below.

      The short interest has expanded to 27.02% of the float based on the last report:

      https://finance.yahoo.com/quote/OHI/key-statistics?p=OHI

      While I can not read their minds, the shorts are basically saying that more bad news will arrive, possibly followed by a dividend cut. Pessimism is certainly thick and overflowing which is one criteria that I use in making a contrarian bet.

      Ultimately, it will come down to whether OHI can limit the harm flowing from defaulting tenants so that its AFFO remains above the existing dividend amount. The company probably needs to stop raising the dividend, since it may need the cash and is no longer being given any credit for such a high rate anyway.

      Individual investors have been far too sanguine about this stock and have sought to minimize the serious problems. Brad Thomas is the leading culprit in that undertaking. When I was leaving comments to SA articles, I took issue with Brad calling this company a "blue chip", believing that was a ridiculous characterization.

      Institutional investors have apparently abandoned the name as have most analysts judging by the spat of recent downgrades. Cantor Fitzgerald did upgrade OHI to overweight on 12/2/17.

      The major holders are index funds led by the Vanguard REIT Index at 14,836,548 shares as of 4/29/17.

      The chart does not indicate yet that a bottom is in the stock IMO. It is a typical waterfall type decline which may in a the diver hitting rocks covered by a thin layer of water.

      I am not saying that I would avoid the stock altogether but I am certainly limiting my exposure to small amounts. Using Schwab commission free trades, I may buy 5 more shares when the price sinks below $26 and another 5 in the event the 4th quarter report is another disaster. I have reduced my consider to sell range to $30+ which would allow me to profitably sell my highest cost lots:

      11/11/2016 10 shares Cost per share $28.39
      11/02/2016 30 shares Cost per share $29.75

      I only own 50.27+ shares. That approach means that I am down to managing a small position to generate a total return only in excess of the dividend yield which is what I do for MREITs and disfavored high yielding stocks.

      Delete
  4. REITS: It looks to me like equity REIT stocks are being used as a source of funds. The downtrend in this sector is particularly notable today as the major indexes soar as the REIT sector continues to decline.

    $78.79 -$0.46 (-0.59%)
    52 Week Range 78.75 - 86.16
    Volume 1,608,280
    As of 10:59AM ES
    https://finance.yahoo.com/quote/VNQ?p=VNQ

    S&P 500
    $2,782.60 +15.04 (+0.54%)
    As of 10:59AM EST

    The nursing home REIT sector is leading the downdraft with OHI hitting a new 52 week low this morning:

    Omega Healthcare Investors, Inc. (OHI)
    $26.27-0.33 (-1.24%)
    Day's Range 26.13 - 26.64
    52 Week Range 26.13 - 35.14
    Volume 877,892

    The regional bank sector is rising more than the S & P 500 again:

    SPDR S&P Regional Banking ETF (KRE)
    $62.76 +$0.54 (+0.86%)
    As of 10:59AM EST
    https://finance.yahoo.com/quote/KRE/?p=KRE

    The section rotation described above is only partly due IMO to a rise in intermediate term rates. The ten year treasury is still having difficulty breaking above 2.6%. The rise in interest rates and the perception that longer term rates will increase is a factor. The more important underlying theme is that other sectors will benefit far more from the corporate tax cuts and the overall trend toward deregulation.

    Equity REITs are becoming slightly more attractive due to their declining prices.

    As readers know, I have been issuing warnings about OHI, though I still have a small position.

    The lack of enthusiasm was expressed in a recent post where I bought only 5 shares using a commission free trade at $26.6 which now appears to be too much.

    Item 1 B https://tennesseeindependent.blogspot.com/2017/11/observations-and-sample-of-recent_26.html

    ReplyDelete
  5. Relating to a recent news item, this is a quote from Ronald Reagan's 1980 acceptance speech at the Republican convention:

    "Can we doubt that only a Divine Providence placed this land, this island of freedom, here as a refuge for all those people in the world who yearn to breathe freely: Jews and Christians enduring persecution behind the Iron Curtain, the boat people of Southeast Asia, of Cuba and Haiti, the victims of drought and famine in Africa, the freedom fighters of Afghanistan and our own countrymen held in savage captivity."


    http://www.presidency.ucsb.edu/ws/?pid=25970

    If a republican politician expressed those same sentiments today, they would become persona non grata in the modern day GOP which has become a White Nationalist party.

    ReplyDelete
    Replies
    1. Fortunately there are still some of us who, as schoolchildren, memorized Emma Lazarus's stirring poem on the Statue of Liberty. "Send these, the homeless, tempest-tossed to me/I lift my lamp beside the golden door." This is the America I believe in.

      Delete
    2. C: If you expressed those sentiments as a republican now, you would be toast in the next primary.

      Stephen Miller, the winner of my look like Reinhard Heydrich award, downplayed those words as unimportant.

      http://www.cnn.com/2017/08/02/politics/emma-lazarus-poem-statue-of-liberty/index.html

      The sonnet was titled "The New Colossus and was written by Lazarus to raise funds for the statue's pedestal in 1883.

      Entire Text:
      Not like the brazen giant of Greek fame,
      With conquering limbs astride from land to land;
      Here at our sea-washed, sunset gates shall stand
      A mighty woman with a torch, whose flame
      Is the imprisoned lightning, and her name
      Mother of Exiles. From her beacon-hand
      Glows world-wide welcome; her mild eyes command
      The air-bridged harbor that twin cities frame.
      “Keep, ancient lands, your storied pomp!” cries she
      With silent lips. “Give me your tired, your poor,
      Your huddled masses yearning to breathe free,
      The wretched refuse of your teeming shore.
      Send these, the homeless, tempest-tost to me,
      I lift my lamp beside the golden door!”

      https://www.poetryfoundation.org/poems/46550/the-new-colossus

      Delete
  6. I have published a new post:

    https://tennesseeindependent.blogspot.com/2018/01/observations-and-sample-of-recent_15.html

    ReplyDelete