Thursday, February 1, 2018

Observations and Sample of Recent Trades: AGNC, CYS, ENY, FNSR, NRBAY, PYT

Economy


Personal savings as a percentage of disposable income fell to 2.4%-a  12year low.  

News Release: Personal Income and Outlays

Consumer spending hits 6-year high — as Americans cut savings to 12-year low - MarketWatch (not a good mix for the future)


The personal savings rate is an aggregate number, and it is important to keep that in mind. 


There would be a sizable number of households that would be in negative territory when the aggregate rate is as low as 2.4%. 


Given the infirmities in the way the government reports data, it is impossible to estimate how many households are no longer saving money but spending their savings and/or incurring more debt. 


Those households who are comfortably in the top 1% or even the top 20% have a tendency to believe everything is going super well in the economy since the stock market is booming and their wealth has accelerated at a rapid rate since November 2016. 


Real U.S. GDP increased by 4.7% in the 2007 third quarterBEA: News Release: Gross Domestic Product


ADP reported that the economy added 234,000 private sector jobs last month. ADP National Employment Report | January 2018


This announcement is part of an ongoing problem: Treasury says it will issue additional $42 billion of new bonds, notes this quarter - MarketWatch


This report is not good: U.S. productivity dips 0.1% in fourth quarter, ends 2017 on sour note - MarketWatchConflict between economic growth and inflation | Economics Help



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Portfolio Management


With several high yield sectors getting their clocks cleaned due to rise in interest rates, I am going to use my dividend and interest cash flow over the next several weeks, plus up to $5K in proceeds from maturing short term bonds and/or CDs, to buy a few high yielding securities using commission free trades. Generally, 5K in proceeds is generated in about 3-4 days or less. 


The purchases will likely include some securities that are in sectors disfavored by me, including MREITs and BDC common stocks, as well as high yielding and disfavored by the market equity REIT common stocks.

  
Two such purchases are discussed below in Items # 5 and # 6. This will be a slow process and will involve odd lot purchases.  

Buying securities that are being clobbered is what I do and have done for decades. I was a buyer in March 2009 and throughout 2009-2010, for example. Just about everything was a falling knife when I started to rotate in February 2009 out of short term high quality bonds rated "A" or better and cash into common stocks.  


This falling knife approach has its drawbacks.


Simply put, the knife can continue to fall and many financial advisors will say for that cogent reason "don't even try it". I am now dealing with that issue by buying and averaging down in small lots using commission free trades. I may tire of this process since it requires more work than I am willing to spend when my gut tells me to continue selling stocks.  


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Market Commentary and Markets


+++++++

Trump

White House seeks 72 percent cut to clean energy research, underscoring administration’s preference for fossil fuels - The Washington Post


Trump Says Ice Caps `Setting Records' -- Bloomberg ("Data released this month from the National Oceanic and Atmospheric Administration show 2017 was the third hottest year on record. . . .On ice caps specifically, NOAA, in its annual Arctic Report Card published in December, said the amount of the Arctic Ocean frozen over in the coldest points of winter set a record low in 2017 and is declining faster than at any time in the past 1,500 years." Just more Fake News from Donald. )


Trump's attack on the news media and his Fake News Crusade are fundamentally authoritarian in nature. Asia's strongmen follow Trump's lead on fake news-CNN 


Just more Fake News from Trump enablers: Secret Memo Hints at a New Republican Target: Rod Rosenstein


The FBI stated that it had "grave concerns about material omissions of fact that fundamentally impact the memo’s accuracy." FBI has "grave concerns" about releasing GOP memo-CBS News


Devin Nunes (R-CA), who is IMO totally untrustworthy, replied that the objections made by the FBI and the Justice Department are spurious. F.B.I. Condemns Push to Release Secret Republican Memo - The New York Times 



"Senior FBI officials believe the allegations of abuse are not only inaccurate but unfair, and that the bureau would not be able to effectively counter the memo’s claims because most details of any counterargument would be classified, current and former officials say." Showdown escalates between Trump, Nunes and the FBI - The Washington Post ("Wray and Rosenstein warned Kelly that the memo’s release could compromise intelligence-gathering sources and methods, and threaten national security." Nunes, Trump and their republican compadres could care less about all of that)  

If the GOP's memo is released, as requested by House Republicans and Russian trolls and bots, then in all fairness the written response of the Democrat members of the House Intelligence Committee needs to be released at the same time.  


However, it is my understanding that the republicans voted against releasing the Democrat's response: "I think the FBI is exactly right," Schiff said on Capitol Hill Wednesday. "I have the same grave concerns over it. We set out all the reasons why the majority memo is so flawed in our Democratic response, but that's precisely why they voted against releasing it…"


Trump asked Rosenstein if he was 'on my team' - CNN If true, this would constitute even more evidence that Trump is attempting to interfere in the Russian investigation. 

Schiff accuses Nunes of making secret changes to classified memo before White House review


Nunes and the other republican members of the House Intelligence Committee have debased the function of that Committee and have turned this committee into a purveyor of misleading and false information for purely partisan purposes. 


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Nephew Holding His Grammy: 




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Finisar


My ten share purchase is not working so far as analysts continue to pooh on IPhone X production numbers. 


Finisar leads Apple suppliers lower on concerns of weaker iPhone X demand - MarketWatch


Finisar Corp. (FNSR) 

Item # 1.C. Bought 10 FNSR at $20.38 


I am not yet ready to buy another 10 shares. The stock has accelerated its "falling knife" move. 


Yesterday's closing price: FNSR $17.96 -$0.35 -1.91% 


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1. Small Ball


A. Added 30 ENY at $8.27




I used a Schwab commission free trade. This brings up to 327+ shares in this account. I am reinvesting the quarterly dividend payments. 


Quote: Guggenheim Canadian Energy Income ETF


Sponsor's website: Guggenheim Canadian Energy Income ETF


Partial List of Holdings:




All Holdings 


Note that the holdings include some Canadian infrastructure companies like Enbridge, Pembina and TransCanada.


I sold a 100 share lot held in another account, where I do not reinvest the quarterly dividend payments, last September:



+$14.97 
Last Discussed: 

Item # 1.A. Bought 20 ENY at $8.32 (11/26/17) 


Item # 3.B. Bought 100 ENY at $8.63 (2/10/17 Post)(contains snapshots of prior trades as of that publication date)


I am obviously nibbling. 


This nibble was based on the strengthening in the CAD/USD and the uptrend in this industry sector. My highest cost lot has a total cost basis of $8.97. Assuming I have a commission free trade left when the price exceeds $9, I will consider selling that lot purchased in February 2017. 


Since this ETF trades in USDs and owns Canadian stocks priced in CADs, the ETF's price will benefit from a rise in the Canadian dollar versus the USD.   

2. Bought Back 50 of the Synthetic Floater PYT at $20.9




Last Discussed: Stocks, Bonds & Politics: Item # 2.A. Bought Back 50 PYT at $19.78  (1/29/17 Post) 


This is a thinly traded issue and consequently there is normally a large bid/ask spread. When I bought this odd lot, the spread had narrowed to just 1 cent which was an extremely odd for this security. 


I will drag and drop here some of that prior discussion. 


PYT makes quarterly interest payments at  the greater of a 3% coupon or .85% above the 3 month Libor rate applied to a $25 par value. There is a maximum coupon of 8%. PYT is the Trust Certificate form of legal ownership.  


The current coupon is 3%. At a $20.9 total cost per share, the yield is about 3,59% at that coupon. This security will pay interest. The last quarterly ex interest date was on 11/13/17. 


Since the security pays the greater of 3% or .85% over the 3 month Libor rate, a coupon increase over the 3% minimum will occur whenever the 3 month Libor exceeds 2.15% during the relevant quarterly interest payment computation period. 3 Month LIBOR Rate - 30 Year Historical Chart | MacroTrends


At a 4% 3 month Libor during the relevant computation period, the coupon becomes 4.85% and that would increase the current yield number to about 5.8%. Once the 3 month Libor exceeds 2.15%, the coupon rate becomes variable and will depend on the 3 month Libor rate plus .85% when the quarterly interest rate has to be computed.   


Prospectus  


The underlying bond owned by the Grantor Trust is a Goldman Sachs 6.345% junior bond (a trust preferred) that matures on 2/15/34. That bond has a $1K par value,  trades in the bond market and is owned by that trust administered by an independent trustee. 2034 GS Junior Bond_Finra Page 


The PYT trustee receives the interest payments from Goldman Sachs and swaps that payment with the swap counterparty, the brokerage company who created the Grantor Trust, for the payment due the owners of PYT.


This Trust Certificate is scheduled to mature on that same date as the bond in 2034. Assuming GS pays the trustee the principal amount, the trustee will then redeem the trust certificates at their $25 par value.


The owner of PYT is exposed to the underlying bond's credit risk as the beneficial owner of that bond through the PYT Grantor Trust. If GS pulls a Lehman, I can tell you now what the value of a GS junior bond will be in bankruptcy-zero; and PYT would be a zero as well. In that kind of scenario, senior unsecured bond owners would probably be fortunate to recover 20 to 25 cents on the dollar. The common, equity preferred and junior bond owners will see their money again in either Money Hell or Money Heaven, as the case may be.


Bought 50 PYT at 11.2 April 2009

Bought 50 PYT in Roth at 13.34 August 2009
Pared Trade: Sold 70 PYT at 18.66 & Bought 70 GYB @ 18.49 in Regular IRA March 2010
Pared Trades in Roth: Sold 100 PYT at 19.25 & Bought 100 GYB at 18.98 October 2010
Sold 50 PYT at $17-Roth IRA April 2012
Bought 50 PYT at $16.24- Synthetic Floater January 2013 

Since PYT is a Trust Certificate, snapshot of round-trip trades can be found in my gateway post for TCs: Stocks, Bonds & Politics: Trust Certificates: New Gateway Post.


Realized PYT Gains to Date = $1,033.88


I did not accomplish anything by selling a 50 share lot at $20.94+ last April: 




Stocks, Bonds & Politics: Synthetic Floaters


This security is similar to the synthetic floater GYB: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 7/13/16 - South Gent | Seeking Alpha 


However, as long term readers are aware, I started to flip synthetic floaters in 2009. 


The main difference between now and then is the 3 month Libor rate is moving closer to actually increasing the 3% minimum coupon for this security. On 1/31/18, the 3 month Libor rate was at 1.78%. 
London Interbank Offered Rates - Markets Data Center - WSJ.com


It is my opinion that synthetic floaters need to be avoided by most individual investors. Reassessment of Current Synthetic Floater Positions (7/21/12 Post)Ongoing Reassessment of Synthetic Floaters (7/28/12 Post) As explained in prior posts, there are risks associated with the structure of this security. For anyone willing to venture into this niche exchange traded bond, a lot of time needs to be spent researching their problems and issues and weighting the risks and rewards. 


With this last purchase, I am just playing with my PYT "winnings".  


One benefit to the synthetic floater is that some high inflation and deflation/low inflation protections are built into the same security. 


The deflation/low inflation scenario is addressed by the minimum coupon of 3% paid on a $25 par value. 


The high inflation scenario is addressed by the float over the 3 month Libor rate.


At $20.9, the yield at a 3% coupon is not that attractive at 3.59%. The YTM would be higher assuming (1) GS pays the principal amount to the trustee who in turn pays $25 per TC to the PYT owners; and (2) the security does not blow up before that happens. 


Using Fidelity's Yield Calculator, I came up with a 4.43% YTM assuming no coupon rate change between now and the 2034 maturity date. 


There is an issue of what happens when the 3 month Libor rate is no longer in existence. The current intention is to phase out that rate by the end of 2021. The prospectus deals with that issue in a way that is not entirely crystal clear to me (pages 25-26 to the prospectus attached to the prospectus). I will not be holding this small position when Libor is phased out. I am not likely to hold it for more than one year. A move over $22 would likely prompt a sell. 


3. Short Term Bond/CD Ladder Basket Strategy

A. Bought 2 Wells Fargo 1.8% CDs (monthly interest payments) Maturing on 2/11/19 (13 month CD)


B. Bought 2 Bank of Montreal 1.35% SU Bonds Maturing on 8/28/18:



FINRA Page: Bond Detail


Issuer: Bank of Montreal Stock (BMO)

BMO Analyst Estimates

Credit Ratings:





Bought at a Total Cost of 99.765

YTM at TC Then at 1.721%
Current Yield at TC = 1.3532%

C. Added 1 Treasury 1.25% Coupon Maturing on 12/15/18:

YTM at 1.766%


I now own 3 bonds.

D. Bought 2 Dr. Pepper-Snapple 2% SU Bonds Maturing on 1/15/2020:




Finra Page: Bond Detail (prospectus linked)


Issuer: Dr Pepper Snapple Group Inc.  (DPS)

DPS Analyst Estimates
Dr Pepper Snapple Group Reports Third Quarter 2017 Results

Credit Ratings:




Moody's rates Dr Pepper Snapple notes Baa1; outlook is stable


Bought at a Total Cost of 99.373

YTM at TC Then at 2.319%
Current Yield at TC= 2.0126%

Subsequent to this purchase, DPS agreed to a merger with Keurig Green Mountain.


Dr Pepper Snapple and Keurig Green Mountain to Merge, Creating a Challenger in the Beverage Industry with a World-Class Portfolio of Iconic Brands and an Unrivaled Nationwide Distribution Capability


E. Bought 1 Deere Capital 1.65% SU Bond Maturing on 10/15/18:




FINRA Page: Bond Detail (prospectus linked)


Credit Ratings:




Moody's affirms Deere's A2/P-1 ratings on Wirtgen acquisition; outlook remains negative


Bought at a Total Cost of 99.955

YTM at TC Then at 1.708%
Current Yield at TC = 1.6507%

F. Added 1 Wisconsin Public Service 1.65% SU Bond Maturing on 12/4/18:




FINRA Page: Bond Detail (prospectus linked)


Credit Ratings:




Fitch Affirms WEC at 'BBB+'; Outlook Stable (Wisconsin Public Service is a subsidiary of WEC Energy Group Inc. (WEC) and has a A+ rating)

Moody's downgrades WEPCO, Wisconsin Gas and WPS to A2 from A1, stable outlook; changes outlooks of WEC and Integrys to negative

Bought at a Total Cost of 99.884

YTM at TC Then at 1.779%
Current Yield at TC = 1.6519%

The Wisconsin Public Service and Deere Capital bonds offered slightly higher yields than CDs maturing in October through December. The following is what CD rates looked like when I bought those two bonds:




The best rate in that collage is the First National Bank 1.65% CD that pays monthly interest. I bought that CD in my Schwab account.


G. Bought 2 First N.A. 1.65% CDs (monthly interest payments) Maturing on 10/25/18:




Holding Company: First Bancorp Inc. (FNLC)


I have bought and sold the common shares several times. I currently do not have a position.


4. SOLD 100 NRBAY at $12.39-Used Commission Free Trade:


Quote: Nordea Bank AB ADR (NRBAY)


Profit Snapshot: +$74.97




Bought Back 100 NRBAY at $11.54 (12/11/17 Post)


I thought this earnings report was just awful.




Interim Report Fourth Quarter 2017.pdf


The Board did raise the annual dividend to €.68  from € .65.


Notwithstanding my negative reaction to this last earnings report, I will consider repurchasing this lot at less than $11.37 prior to the ex dividend date.


An uptrend in the SEK/USD accounted for almost all of my entire profit. The SEK/USD was around .1199 when I bought this lot (11/22) and was at about .1275 when I sold it or about a 6.4% increase in the Swedish Krona's value against the USD. The percentage profit based on my cost was 6.5%.  


SEK / USD Currency Chart Swedish Krona to US Dollar Rates


Closing Price 1/31/18: NRBAY $12.48 +$0.10 0.85% 


5. Bought  50 CYS at $6.93 (used commission free trade)  




Quote: CYS Investments Inc. (CYS)


The shares closed at $6.91  on my day of purchase, down $.26 for the day.


CYS is a falling knife:




The shares have continued their falling knife characteristic since my purchase:

Closing Price 1/31/18: CYS $6.74 -$0.13 -1.89%


Investors currently view the uptrend in interest rates as a negative.


CYS is a mortgage REIT and is consequently a disfavored security here at HQ.


Dividend


The current quarterly dividend is $.25 per share which gives me a tax free yield of 14.43% at a total cost of $6.93 per share. That kind of yield is why I am more than content to harvest that dividend a few times and then try to get out with any profit. CYS and other mortgage REITs have been cutting their dividends, just another reason to hold them in disfavor.  


CYS Investments, Inc. - Investor Relations - Dividends & Splits


CYS Investments, Inc. Board of Directors Declares Fourth Quarter 2017 Common Stock Dividend of $0.25 Per Share, and Preferred Stock Dividends


The shares did go ex dividend on 12/21/17.


Trading Strategy for Mortgage REITs:


The idea with high yielding disfavored securities is to harvest the dividend and then escape by selling at whatever profit is available, no matter how small. Or put another way, I endeavor to secure a total return in excess of the dividend yield and that is all.


Why? Take a look at this trade. I bought and sold CYS in 2011 as shown in this snapshot:




I bought this lot in July 2011 at at $12.97 and sold the shares at $13.33 on 12/14/11Item # 1 Sold 50 CYS at $13.33 (12/13/2011 Post)


Apparently I received only one quarterly dividend, having bought that lot at $12.97 on 7/14/11. That was not a favorable trade.


The trade was nonetheless a successful trade as I define success in MREIT trading. It is certainly better than owning now that lot bought at $13.33. If I had bought CYS then at the closing price of $13.35, my average annual total return though 1/29/18  from 12/14/11 would have been 3.73%, or way below the dividend yield.


On 12/22/17, the stock closed at $7.97 and had fallen about 13.3% since that close to the  1/29/18 close. At least that decline makes it easier to generate a profit on the shares. The high close over the past year was near $9 back in June 2017. CYS Investments Inc. Interactive Chart So selling CYS at $9 and collecting 4 or more quarterly dividends would probably be the best possible outcome and not completely outside the realm of possible. The probability is greater than being hit by lightening this afternoon or watching the Sun go supernova sometime this year.


I do not have any particular insights into MREITs other than I do not like them. I do believe that they have to be traded to earn a return equal to or in excess of the dividend yield.


Last Earnings Report:

SEC Filed Earnings Press Release for the Q/E 9/30/17:




CYS Equity Preferred Stocks


I also trade the CYS equity preferred stocks and currently own 50 CYSPRA shares in a ROTH IRA: CYS Investments Inc. 7.75% Cumulative Preferred Stock Series A  (CYSPRA) 


My last transactions in CYS equity preferred stocks were sells.  


Item # 4.A. Sold 50 CYSPRA at $25.33 and Item # 4.B. Sold 50 CYSPRB at $24.99 (9/3/17 Post) 


Item # 2.A. Sold 50 CYSPRA at $24.89 (4/11/17 Post)(contains discussion of why I disfavor Mortgage REIT preferred stocks more than equity REIT preferred stocks) 


The most recent CYSPRB buys were at $23.52 and $23.37. With the uptick in interest rates, I will need lower prices before considering a repurchase.  CYSPRB has a 7.5% coupon paid on a $25 par value. CYS Investments Inc. 7.5% Cumulative Preferred Series B  (CYSPRB) 


CYS SEC Filings


6. Bought 50 AGNC at $18.72 (used commission free trade):


Quote: AGNC Investment Corp. (AGNC)

AGNC INVESTMENT CORP.

The stock price has been trending down with the recent rise in interest rates. AGNC Investment Corp. Interactive Chart


This mortgage REIT is discussed in a recent SA article: AGNC Investment's Q4 2017 Income Statement And Earnings Preview - Part 3 (Includes MBS Pricing) That analysis highlights the many moving parts and complexity. If your eyes do not roll back into your head reading that analysis, then you are a bigger Nerd than I am and I am more than a little bit Nerdy myself. 


Why bother seems like a good question? 


Nonetheless, I will trade to trade this one without having any insight into the likely future direction of price, book value per share or net income.  


Trading History This Account




My last transactions were to sell shares: 


Item 3.A. Sold 54+ AGNC at $20.71- Vanguard Roth IRA Account and Item 3.B. Sold 53+ AGNC at $20.71-Schwab Taxable Account (5/23/17 Post) 


Item # 5.B. Sold 50 AGNC at $19.94 Vanguard IRA Account  and Item # 3.C. Sold 50 AGNC at $20.01 Schwab Taxable Account (4/14/17 Post) 



Dividend: This mortgage REIT currently pays an $.18 per share monthly dividend that went ex dividend shortly before my purchase. AGNC Investment Corp. Declares Monthly Common Stock Dividend of $0.18 per Common Share for January


The dividend yield at a $18.72 total cost per share is about 11.54%.


I will reinvest the dividend for as long as the likely purchase price falls below the last reported book value per share.  


The penny rate has been trending down but has remained at $.18 per share since it was reduced from $.20 effective for the September 2016 payment. 


Earnings were scheduled to be released after the close on 1/31. 


4th Quarter Earnings ReportAGNC Investment Corp. Announces Fourth Quarter 2017 Financial Results

This report just highlights the complexity of MREITs.

Tangible net book value per share declined to $19.69 from $19.78 as of 9/30/17. The $18.72 price represents a 4.93% discount to tangible book value as of 12/31/17.   

Closing Price Day of Purchase: AGNC $18.79 -0.31 -1.62% 


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. 

11 comments:

  1. Referring back to my discussion about PG in my last post, I stated there that the next 10 share buy would occur at <$86.5.

    Item # 1.C. Bought Back 10 PG at $88.33:
    https://tennesseeindependent.blogspot.com/2018/01/observations-and-sample-of-recent_28.html

    I noticed today that the price had fallen below $86 so that triggered an automatic 10 share buy at $85.73 using a commission free trade.

    The next 10 share buy will be at < $82.

    ReplyDelete
  2. Unilever (UL)
    57.72+1.25 (+2.21%)
    As of 10:11AM EST
    https://finance.yahoo.com/quote/UL?p=UL

    UL is the UK listed Unilever shares. No dividend tax is withheld by the U.K. which distinguishes UL from the UN shares.

    UL is one my vintage purchases from March 2009, which I still own. My total cost basis is $18.16 per share.

    The rise today is due to a better than expected sales and earnings growth:

    https://www.unilever.com/news/Press-releases/2018/good-all-round-performance-with-accelerated-value-creation.html

    Report Discussed at

    https://www.marketwatch.com/story/unilever-trumps-us-rivals-with-solid-sales-2018-02-01

    https://www.bloomberg.com/gadfly/articles/2018-02-01/unilever-gains-a-little-breathing-room-but-no-more

    https://www.cnbc.com/2018/02/01/unilever-earnings-consumer-goods-giant-sees-sales-growth.html

    ReplyDelete
  3. I noticed that I had some blank calculations in the CYS discussion which I meant to complete but forgot about it. I have now added them.

    The most important is that the annual average total return, starting on 12/14/11 when I sold a 100 share lot through 1/29/18 when I bought a 50 share lot would have been 3.73%. That return, which includes the reinvestment of dividends, illustrates one reason why I do not like MREITs. I have several others.

    ReplyDelete
  4. The uptrend in interest rates has accelerated in the past hour:

    2.75% +0.044
    Last Updated: Feb 1, 2018 at 12:52 p.m. EST
    https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx

    Over the past few days, the ten year treasury has experienced difficulty breaching the 2.75% level to the upside, having bounced down from that level several times with the last example occurring earlier today.

    SPX has not been impacted so far.

    Equity REIT stocks are reacting to the downside.

    Vanguard REIT ETF
    $78.41 -$1.04 -1.32%
    Last Updated: Feb 1, 2018 at 12:55 p.m. EST
    https://www.marketwatch.com/investing/fund/vnq

    The VIX movement is consistent with a rise in SPX so far:

    CBOE Volatility Index
    12.71 -0.83 -6.13%
    ast Updated: Feb 1, 2018 at 12:41 a.m. EST (TICKER DELAYED)

    ReplyDelete
    Replies
    1. After the 10 year treasury burst through 2.75% with some some conviction, I pulled two short term bond buy limit orders.

      I did go ahead and buy 2 Cardinal Health 1.95% SU bonds maturing on 6/15/2018 at a total cost of 100. So I will earn the coupon rate in interest for slightly more than 4 months.

      The Stock Jocks went into sell mode during that spike in the 10 year yield, but stabilized after the 10 year retreated some from a 2.77% high hit at 2:20 E.S.T. I expect that the resistance short of 3% will prove to be futile.

      The USD continues to be in a downtrend which is causing my foreign currency holdings to rise in USD terms.

      U.S. Dollar Index (DXY)
      88.74 -0.36 -0.41%
      Last Updated: Feb 1, 2018 at 2:23 p.m. EST
      https://www.marketwatch.com/investing/index/dxy

      I went ahead and sold my IMGN position at $9.48.

      Delete
  5. Washington Trust Bancorp, Inc. (WASH)
    $54.90 +1.10 (+2.04%)

    WASH reported earnings for the 4th quarter on 1/29/18:

    http://globenewswire.com/news-release/2018/01/30/1314624/0/en/Washington-Trust-Reports-Fourth-Quarter-2017-Earnings.html

    " Washington Trust's net deferred tax assets were written down by a non-cash charge of $6.2 million, with a corresponding increase to income tax expense. This write-down adjustment reduced fourth quarter and full-year 2017 earnings per diluted share by $0.36."

    I am ignoring that non-cash charge and recognize that it screws up GAAP E.P.S. and performance metrics tied to earnings like return on equity and return on assets.

    Excluding that item, E.P.S. was $.82 per share, up from $.7 in the 2016 4th quarter.

    Nonperforming assets to total assets 0.34%
    Nonaccrual loans to total loans 0.45%
    Allowance for loan losses to nonaccrual loans 174.14%

    The net interest margin was 2.95% for the fourth quarter, up by 2 basis points from the preceding quarter.

    Total loans were $3.4 billion at December 31, 2017, up by 2% in the fourth quarter and up by 4% from a year ago.

    Deposits totaled $3.2 billion at December 31, 2017, up by 3% in the fourth quarter and up by 6% from a year ago.

    Excluding the non-cash charge that was included as an income tax expense, "the effective tax rate for the fourth quarter of 2017 would have been 33.1%, compared to 32.8% for the preceding quarter. Based on current federal and applicable state income tax statutes, the Corporation currently expects its 2018 effective tax rate to be approximately 21.5%."

    I own 50 shares with an average cost per share of $15.34. That lot originates from a 100 share lot purchased on 1/13/2010.
    The dividend rate was $.21 at that time, and WASH has been raising the dividend since that purchase.

    http://www.snl.com/irweblinkx/divs.aspx?iid=100491

    The current quarterly rate is $.39 per share. The dividend yield based on my constant dollar cost is currently 10.17%. I have not reinvested any dividend.

    ReplyDelete
  6. The Bond Bookies are having an anxiety attack this morning that has infected the Stock Jocks.

    The annual wage growth number of 2.9% through January and other economic data are just not consistent with current interest levels.

    The ten year treasury is currently up almost .05% to 2.84%. The DJIA and SPX are down 1.08% and .95% respectively as of 10:17 E.S.T.

    Equity REITs are sliding further but are off their worst levels of the day.

    Vanguard Real Estate ETF
    $77.43 -$0.31 -0.40%
    DAY'S RANGE
    76.44 - 77.60
    Last Updated: Feb 2, 2018 10:17 a.m. EST

    https://www.marketwatch.com/investing/fund/vnq

    Regional banks are bucking so far the downtrend.

    SPDR S&P Regional Banking ETF
    $63.36 + $0.135 +0.21%
    Last Updated: Feb 2, 2018 10:19 a.m. EST
    https://www.marketwatch.com/investing/fund/kre

    The problem today in Stock Land is not entirely related to a rise in interest rates. The results released by both Google and Apple after the close yesterday and by Exxon this morning are viewed as disappointing judging by the price action today and commentary.

    Exxon Mobil Corp.
    $84.76 -$4.315 -4.84%
    Last Updated: Feb 2, 2018 at 10:23 a.m. EST
    https://www.marketwatch.com/investing/stock/xom

    Alphabet Inc. Cl A
    $1,119.17 -$61.95 -5.24%
    Last Updated: Feb 2, 2018 at 10:24 a.m. EST

    The movement in the VIX today is confirming the downside SPX move:

    CBOE Volatility Index (^VIX)
    14.91+1.44 (+10.69%)
    As of 10:10AM EST. (Delayed)
    https://finance.yahoo.com/quote/%5EVIX?p=^VIX

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  7. The bears kicked some ass today.

    S&P 500 2,762.13 -59.85 (-2.12%)
    CBOE Volatility Index (^VIX) 17.31+3.84 (+28.51%)

    Sure, the ten year treasury yield ticked up about .045% to 2.84% but that does not explain what happened.

    https://www.bloomberg.com/markets/rates-bonds/government-bonds/us

    IEF declined today by only .37%:
    iShares 7-10 Year Treasury Bond ETF
    $102.22 -0.38 -0.37%

    I would attribute the decline today to two primary factors.

    First, there was some disappointment over some high profile earnings reports from Apple, Exxon, and Google, which, along with a rise in interest rates, are fundamental events.

    The broad decline and its steepness are more related IMO to what normally happens when a bull herd abruptly changes course and stampedes in a different direction. The later cause is based on internal market dynamics that were set in motion by the fundamental factors, but market dynamics became the primary accelerant for the decline later in the day.

    As to interest rates, the directional trend up was set in motion in September 2017 and yet the Stock Jocks could have cared less until just recently.

    The 10 year treasury yield was at 2.05% on 9/7/17:

    https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2017

    The ten year treasury closed last year at a 2.4% yield.

    The rapid rise to 2.84% as of 2/2/18 has unnerved investors since it represents a major breakout of a prior trading range which creates uncertainty about how far and how fast rates will rise.

    I suspect that rate spike will start to settle down as the ten year approaches 3%, with some backward filling motion.

    If that does not happen, and the ten year treasury yield moves briskly past 3%, then any additional accelerant for a stock market decline could result in yet another steep decline.

    Two possible accelerants would be a government shutdown (another deadline is approaching) or more high profile earnings disappointments. Market dynamics would play a role since more sellers will emerge, fearful of losing their profits, when buyers are in hiding or wanting much lower prices before stepping up to the plate in any meaningful way.

    The CBs are still in the rate manipulation business. The ECB still has a -.4% benchmark rate and is still buying lots of bonds.

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  8. South Gent,

    A few more days like today we will be very grateful that we still have some dry powder left.

    Re. your CYS purchase why not nimble some comparable yielding REITs with hard assets? The whole sector has been hit hard lately and some REITs are getting very interesting, e.g., WPG, CBL, OHI, or GMRE. A few years back you were buying REITs when the yield went over 8% and selling when the yield dropped below 7%. Now MPW and KIM are approaching the buy level.

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  9. Y: I still have 280 commission free trades left at Fidelity and far less at Schwab. Both offers expire in August. I intend to use all of them before expiration.

    I would not call what I am doing with those free trades now nibbling, more like ingesting a microscopic crumb.

    Today, I did buy 10 GMRE at $7.45 and added 10 CYS at $6.51. I did not receive fills today on below market 10 share limit orders on SBRA and LXP.

    Yesterday, I bought 50 shares of the BDC SCM, which pays monthly dividends, at $11.95. My last transactions were to sell 100 SCM share lots at $14.23 (2/27/17 Post) and at $13.02 (1/12/17 Post) for a combined profit of $427.92. I may start averaging down on that one too in 10 share lots.

    My more consequential trades, which have yet to be discussed, were sells that I will be discussing in the next two posts including one that will be published probably on Saturday since it is almost completed and the other next Thursday which requires more work.

    Those sells include the following:

    50 BBT +$1,061.22
    100 HBAN +$254.75
    50 IMGN +$383.48
    30 NVS +$184.26
    101+ BKLN +$7.56
    HT 50+ +$59.07 (intend to redirect to Hotel REIT APLE which pays monthly at lower prices possibly in 10 share lots)

    While I am way behind in discussing bond/CD trades, I am within 7 days discussing stock trades since they are far less numerous. I have increased my short term bond/CD allocation by several hundreds of thousands, focusing on 2018 and 2019 maturities.

    I started to allow the proceeds from maturing bonds and CDs to accumulate in cash late this week and will continue doing that probably for a week or two-maybe longer.

    Banks are not raising their CD rates to market levels, which is par for the course when rates are rising, and the bond sellers are not yet reflecting the recent rise in interest rates in their offers.

    I view a .25% hike in the FF to be a virtual certainty at the FED's March meeting. The probability given by the Bond Ghouls is only at 77.5%.

    I am hoping to see more motivated bond sellers in the weeks ahead.




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  10. I have published a new post:

    https://tennesseeindependent.blogspot.com/2018/02/observations-and-sample-of-recent_3.html

    ReplyDelete