Monday, February 12, 2018

Observations and Sample of Recent Trades: BRG, CYS, DOC, IMGN, MPW, SBRA, SCM, VNQ

Economy

Sharp, deep and quick declines in the stock market can restrain consumer and business spending, thereby slowing down GDP growth. The decree is dependent on the duration and severity. I do not view the current decline and its duration as sufficient to materially change consumer spending.  

The October 1987 crash did not result in a recession, nor did the stock market declines during the Asian Contagion in 1997-1998. 


Possibly those events had some connection with a subsequent recession, but no definitive statement can be made linking those stock market declines to the subsequent recessions. 


Dates of U.S. Recession Cycles Since 1854 


I do not attribute the 2008 stock market decline as a contributing cause to the Near Depression, which was set in motion by other causes primarily related to housing.  The stock market's decline helped to make that recession deeper and more problematic as to its outcome. The world came very close to another Great Depression.  


The clearest case where a stock market decline was one precipitating cause of a depression or recession was the 1929 stock market crash. 


Possibly the Great Depression could have been avoided with far better policy responses from central banks and governments. Lessons Learned? Comparing the Federal Reserve’s Responses to the Crises of 1929-1933 and 2007-2009The lessons of 1937 | The Economist


The fundamental destabilizing problem now and in the future, as in the past, is debt. 


The underlying instability in the financial system starting with the Asian Contagion in 1997 results from too much debt.   


Jim Rogers Says Next Bear Market Will Be Worst in His Life - Bloomberg


I believe that excessive debt will be the underlying cause of the next Great Depression. 

The U.S. government's debt, which will be fueled by years of $1+ trillion in deficit spending and increasing interest costs, will likely be at the epicenter, given the size of the debt and the nation's lack of any fiscal responsibility or restraint. 


There will be a time, soon enough, when lenders will want a lot more in yield to continue financing the beast. The last 20 years in treasury yields will not be repeated in the next 20. 


The next major debt crisis will not be alleviated by issuing vast amounts of new debt, but by the incineration of debt obligations in mind-numbing amounts far exceeding what happened in the Near Depression. 


All of this is inevitable IMO. 


The End Game for the U.S. government, however, is likely far enough into the future that the world can continue its debt fueled party for many years to come, possibly as many as 15-20 more years. Perhaps the foreigners will grow tired of watching the U.S. spend their savings sooner.  


The Day Reckoning is moving rapidly closer however, so take another hard look at the timing in about 3-4 years.


It is mind boggling to me that U.S. voters are so complacent, but then it is easy to spend other people's money recklessly and without regard to the long term consequences. 


The total U.S. government debt was less than $1 trillion in 1979, accumulated since the founding of the country, and now we are pumping out $1 trillion in new debt a year and financing the interest costs by issuing more debt. 


Debt and (not much) deleveraging | McKinsey & Company (report dated February 15, 2015-much worse now)

++++++

Market Commentary and Markets:


2/1/18 Closing Prices: 

S & P 500 2,821.98

VIX  13.47
IEF  $102.22  iShares 7-10 Year Treasury Bond ETF 
TLT $120.71   iShares 20+ Year Treasury Bond ETF 

2/9/18 Closing Prices: 

S & P 500  2619.55

VIX  29.06
IEF $102.62
TLT $117.94

What do those numbers tell me? 


Normally, the kind of market turmoil experienced since 2/1/18 would cause investors to drive up the prices for treasuries. This did not happen. Instead, treasuries rose in yield and declined in price.  


There was a similar abnormality during the October 1987 crash. 

Ten Year Treasury Yields: 





S & P 500 Closes: 




10/13/87  314.52    9.9%
10/14/87  305.23  10.13%
10/15/87  298.09  10.18%
10/16/87  282.07  10.23% Crash 10 Year Treasury Goes Up in Yield
10/19/87  224.85   10.15%    

The rise in treasury yields occurring with a volatile and significant downdraft in stocks suggests to me that both the Stock Jocks and Bond Ghouls are concerned about the future path of interest rates and inflation. 


I have pointed out some other similarities to October 1987 previously including the Reagan Administration talking down the USD. Lessons From The 1987 Market Crash - Nasdaq.com  One year before that crash, the Tax Reform Act of 1986 was passed into low significantly cutting taxes. The DJIA thereafter rose over 50% until the Crash. 

Valuations were high then as well after a tremendous move up from the August 1982 lows, with the S & P 500 going from 102 to a closing high of 328, or +221%, with no intervening bear market: 



The current concerns about the direction of interest rates are based on the steady rise in rates throughout the maturity spectrum since September 2017 as well as recent economic reports, fiscal stimulus actions recent undertaken by the U.S. government, and predicted U.S. budget deficits likely to require $1 trillion or more in additional borrowings for each of the next three fiscal years due to lower taxes, increased spending and a rise in interest costs.  

I do not believe that anything was resolved by the market's positive close last Friday, which was based on a late day surge. If the market had remained open for another 2 or 3 hours, the averages could have easily ended down as much as they gained. 


The S & P 500 range last Friday was 2,532.69 to 2,638.67, a 105.98 point bottom to top move, with a prior close last Thursday at 2,581 and a Friday close at 2,619.55.


Pre-Market action today points to a decent rally in stocks accompanied by a minor uptick in interest rates. As of 7:05 CST this morning, the U.S. 10 Year Treasury Note is up .022% at 2.876%. 

The concern about rising rates is IMO more of a perception issue as investors have become accustomed to abnormally low rates and have been told that this is the "new normal." 

For the Old Geezer crowd who have been around for 60+ years, worrying about the economic impact of a 2% federal funds rate and a 4% ten treasury yield seems silly, based on past history where the economy has fared well with those rates which are benign. Those yields only look menacing now because CBs have manipulated rats to extremely abnormal levels for a decade. 





10-Year Treasury Constant Maturity Rate-St. Louis Fed

Going back to 1981, the investor can see in the preceding chart when the current long term bull market in bonds started with a series of lower low yields and lower high yields. 

I would say a close above 3.04% would be the first higher high just looking at the chart. After downloading the date into excel and looking at it for a few seconds, I can confirm that the most recent higher high was 3.04% on 12/31/13:



Effective Federal Funds Chart: 



Effective Federal Funds Rate-St. Louis Fed 

What is abnormal in the federal funds yield is the return to Great Depression levels by the Federal Reserve through most years starting in 2002 to the present, except for a brief spurt up in 2004-2007. 

With central banks, particularly the ECB, continuing their Jihad against the savings class, it does not seem reasonable over the short term to predict either a steep climb in interest rates to problematic levels or problematic inflation. Those issues are in the more distant future for the U.S.  Just give it more time.   


The pressing near term issues IMO are that investors have overestimated the real economic impact of the tax legislation and have underestimated the growing financial strain of millions who do not own risk assets and whose spending remains critical for longer term U.S. growth.  


About 84% of the stock wealth, owned by Americans, is concentrated in the top 10% with about 1/2 of American households having no direct or indirect stock ownership. Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered? (report has to bought for $5) That data is confirmed in reports from the Census Department and the Federal Reserve. 

You need to own bonds-so here’s how to overcome your fear-MarketWatch (I am keeping my weighting concentrated in short term bonds and CDs)

Annual W&AM Millionaires Study: GOP Tax Bill Will Hit Blue States The Hardest

The recently passed tax legislation will be a credit negative for many public companies. 


Tax overhaul is a credit negative for tech sector, S&P says-MarketWatch


Tax overhaul will lead to as many ratings downgrades as upgrades, says S&P - MarketWatch


The market's wild ride is telling us something really important 


Should the bond market freak out about a $1.1 trillion deficit?-MarketWatch ($1.07 trillion estimate for the F/Y ending 9/30/19)


Cramer blames this week's crazy market on 'a group of morons': CNBC


Here's why the stock market is in turmoil: CNBC 


Dick Bove: A fundamental change is underway in the financial markets: CNBC


Trump's Soaring Budget Deficit Risks Intensifying Market Frenzy - Bloomberg


Fed’s George says three rate hikes this year is ‘reasonable baseline’ - MarketWatch


Nearly one-fifth of S&P 500 stocks are in a bear market - MarketWatch


History suggests the correction isn’t near over, as this chart demonstrates - MarketWatch


++++++

TRUMP

Trump will not allow the release of the Democrat's memo rebutting the allegations made in the GOP memo until rebuttal information is taken out of the document. While making a decision to hide the memo from public view, Trump called the Democrats' rebuttal memo 
"very political".  


Adam Schiff's repsonse: 



Trump won't declassify Democratic memo, sends back to committee - CNN;  


The White House’s broken promise on the Democratic memo - The Washington Post


Dems respond to Trump by telling him to #ReleaseTheMemo


Trump stated that he would release the GOP's memo, without redactions, before Trump was even given the memo and over the FBI's very public objection which was ignored by Trump. 


Statement by the FBI Director Christopher A. Wray Who Was Appointed by Trump:   


“With regard to the House Intelligence Committee’s memorandum, the FBI was provided a limited opportunity to review this memo the day before the committee voted to release it. As expressed during our initial review, we have grave concerns about material omissions of fact that fundamentally impact the memo’s accuracy.”


The FBI was also concerned that it would be necessary to release classified information to correct the material omission of fact made in the GOP's memo. 


Possibly within a week or two, we will know more about whether the rebuttal memo will be released and whether the redactions undermine the the memo's substance.

The GOP is far more willing to attack Steele, who acquired information about Russia's efforts to interfere in the U.S. election, than to investigate either that interference or any cooperation between Russia and the Trump campaign.  GOP politicians are dong whatever they can to protect and nurture Trump and to facilitate his Alternate Reality views. 

The memo released by Senators Grassley (R-Iowa) and Graham (R-SC) provide further evidence of the GOP's desire to smear Steele for political purposes using false and misleading information. Memo from Senator Feinstein: Analysis Refutes  Graham and Grassley Memo 


+++++++ 

Trump's attacks on the FBI and DOJ continue:  



Woodward and Bernstein: Trump's Mueller response 'eerily similar' to Nixon's Watergate confrontation - CNN 

Analysis: The DOJ just lost another top lawyer. Why that matters to Robert Mueller.


CIA calls report of $100K payment to Russian "fictional" - CBS News

+++


U.K. leaders across the political spectrum lambasted Donald for this tweet




Donald Trump attacks the NHS, and Britain hits back-CNN 

The U.K. citizens were not protesting, as claimed by our Dear Leader, Britain's National Health Service. 


Britain's conservative party Health Minister replied to Trump by criticizing the U.S. failure to provide health services to all of its citizens:



Why do the fact checkers even bother now? Trump on Britain's Universal Health Care - FactCheck.orgDonald Trump wrongly suggests British don't love their health care system | PolitiFact

Voters just need to assume that Trump is lying or engaged in deception  designed to mislead, until proven otherwise beyond a reasonable doubt. 

++++

Senator Ron Johnson's Fraudulence:    


Senator Johnson (R-WIS) could care less about the accuracy of his statements. Ron Johnson Is Very Bad at McCarthyism


Yet, the good people of Wisconsin re-elected this Trump acolyte in 2016. 


The most recent fraud perpetrated by Johnson on the American public is his contention that an email exchange between two FBI former lovers prove that Obama was mixed up in the FBI's investigation of Hillary's emails and her server. The WSJ, who has access to the emails, replied to Johnson's fraudulent accusation as follows: 



I do believe that the modern day republican party has resurrected Joseph McCarthy (R-WIS) as someone that they want to emulate. Making stuff up was the essence of McCarthy's character assassinations and mudslinging. 

McCarthy would be proud of his fellow Wisconsin Republican Senator Johnson. Maybe there is something in the Wisconsin water. Somebody needs to check. 


+++++


General Kelly-Praise for an Alleged Wife Abuser


I am referring to a key player in the Trump White House, Rob Porter, who as White House Secretary handled top secret communications for Donald. 


While Trump and Kelly had a detailed FBI report since last November about Porter, and knew that the FBI would not give Porter a permanent security clearance, General Kelly nonetheless praised him as a "man of true integrity and honor, and I can't say enough good things about him,”  Kelly continued to allow Porter access to classified information without a permanent security clearance and knowing that Porter was at least vulnerable to blackmail by a foreign intelligence service.   


It is reported that the 29 year old Hope Hicks, Porter's girlfriend and a former Ivanka Trump model, who is now the WH Communications Director, drafted that statement. 


Ms. Hicks became WH Communications Director after Trump fired the Mooch, Anthony Scaramucci, who lasted 10 days in that job.  

Porter calls the allegations made by his ex-wives "vile" and "simply false". One wife posted a photograph of a black eye allegedly caused by Porter. 


Trump and his supporters frequently claim that Donald has hired the best people possible to work in the WH. That may even be true, since no one worth a damn wants to get within ten miles of Donald. 


It was Donald's decision to allow Porter access to classified information without a permanent security clearance. Kushner does not have that security clearance either, but nonetheless has access to classified information. 


Sourced: 


Rob Porter's wife: I told FBI about abuse, potential for blackmail: USA Today 


Here’s why Rob Porter was able to get security clearance (because it is up to Donald Trump, not the FBI) 


Top White House officials knew of abuse allegations against top aide for months - The Washington Post ("White House Counsel Donald McGahn knew one year ago that staff secretary Rob Porter’s ex-wives were prepared to make damaging accusations about him. . . Chief of Staff John F. Kelly learned this fall about the allegations of spousal abuse and that they were delaying Porter’s security clearance amid an ongoing FBI investigation. But Kelly handed Porter more responsibilities to control the flow of information to the president.")


Trump Reportedly Questioned the Credibility of Rob Porter’s Accusers


Ex-wife of Rob Porter pushes back against Donald Trump's defense - NBC News-Porter Ex-Wife on President Trump and Domestic Violence | Time

Abuse and Security Issues Raised as Aide Resigns - The New York Times


Former Wives of Top White House Aide Rob Porter Both Told FBI He Abused Them: The Intercept


Senior White House official to resign after ex-wives’ allegations of abuse - The Washington Post


Rob Porter ex-wife: I told FBI about the abuse: NBC News


Rob Porter’s domestic violence scandal, and what it means for Trump’s White House, explained - Vox


Rob Porter's resignation: What did the White House know and when did it know it? - CBS News


Ex-wife of Trump aide Rob Porter tells of abusive marriage | Daily Mail Online


Trump's support for accused abuser fits pattern


+++++++++

I am continuing to use current cash flow from dividend and interest payments and up to $5K in proceeds from maturing bonds and CDs to buy out of favor BDCs, MREITs and equity REIT common stocks. I am using commission free trades to buy in small lots and will probably average down provided prices continue to fall.    



1. SMALL BALL-Disfavored High Yielding BDC and MREIT Common Stocks:  


A. Bought 50 SCM at $11.95 (used commission free trades):  




I have already averaged down with a 10 share lot purchase at $11.38:




Quote: Stellus Capital Investment Corp. (SCM)


Risk Factors Summarized: SEC Form 10-K pages 29-56!!!!!!


SCM is an externally managed BDC with less than $200M market cap. I will own up to 200 shares as trades. I currently own only 60 shares and do not anticipate going over 100 currently.


Dividends: Paid monthly at $.1133 per share


Stellus Capital Investment Corporation Declares First Quarter 2018 Regular Dividend of $0.34 Per Share


Dividend Yield: 11.47% at a TC of $11.85 per share (60 shares)


My last trades were to sell shares:


Item 2.B. Sold 100 SCM at $14.23 (2/27/17 Post)(profit snapshot=$285.96)


Item # 2 Sold 100 SCM at $13.02 (1/12/17 Post)(profit snapshot= $141.96)


Total SCM Trading Profits To Date = $427.92


Last Earnings ReportStellus Capital Investment Corporation Reports Results for its Third Fiscal Quarter Ended 9/30/17




As of 9/30/17, net asset value per share was $13.85. At $11.85 per share, the discount to net asset value per share would be 14.44%. 


"For the quarter ended September 30, 2017 and 2016, the Company had a realized gain of $5.2 million and a realized loss of $0.9 million respectively. The Company's investment portfolio had a net change in unrealized depreciation for the quarter ended September 30, 2017 of $4.1 million".


I would characterize the blend of investments as being riskier than other BDCs that have a higher concentration of first lien debt: 


"As of September 30, 2017, our portfolio included approximately 35% of first lien debt, 43% of second lien debt, 16% of unsecured debt and 6% of equity investments at fair value. Our debt portfolio consisted of 77% floating rate investments (subject to interest rate floors) and 23% fixed rate investments. The average size of our portfolio company investments was $8.5 million at fair value, and our largest aggregate investment in a portfolio company was approximately $21.4 million at fair value. The weighted average yield on all of our debt investments as of September 30, 2017 was approximately 11.0%." (emphasis added)


Stellus will not release its 2017 4th quarter results until Tuesday 3/6/18: 


Stellus Capital Investment Corporation to Report 2017 Annual Financial Results and Hold Conference Call

This tiny BDC's stock can be very volatile after a earnings report. I will wait to review that report before buying additional shares. I will only average down in small lots using commission free trades.

Recent Capital Raises


Senior Unsecured Exchange Traded Bond


"On August 21, 2017, the Company issued $42.5 million in aggregate principal amount of 5.75% fixed-rate notes due 2022 (the "2022 Notes"). On September 8, 2017, the Company issued an additional $6.38 million in aggregate principal amount of the 2022 Notes pursuant to a full exercise of the underwriters' overallotment option" 


The entire proceeds were used to redeem a $25M 2019 note with a 6.5% coupon and to repay part of SCM's credit facility. 

Prospectus for 2022 Note

Stellus Capital Investment Corp. 5.75% Notes due 2022 (SCA) 


Stock:


"For the nine months ended September 30, 2017, the Company issued 3,374,456 additional shares of common stock in connection with an equity capital raise in April 2017 and an At-the-Market offering (the "ATM) program which began during the quarter. Gross proceeds resulting from the issuances totaled $47.5 million, and underwriting and other expenses related to the offering totaled $1.6 million."


The stock offering was priced at $14.1 to the public: Prospectus


Historical Net Asset Values Per Share and Financial Data:




Sourced: Page 61 10-K


B. Added 10 CYS at $6.51 (used commission free trade)




Quote CYS Investments Inc.  (CYS)


This is my first average down from a recent 50 share buy: Item # 5 Bought 50 CYS at $6.93 (2/1/2018 Post)


My average cost per share for 60 shares is now $6.86. Assuming continued payment of the current quarterly dividend payment of $.25 per share, which I would not do, the dividend yield at that TC number is about 14.58%.


I may buy up to 100 shares at lower prices. Before buying more shares, however, I want to review the 2017 4th quarter report that is scheduled to be released later this week: CYS Investments, Inc. Announces Conference Call to Discuss Fourth Quarter 2017 Results 


I have nothing to add to that post. 


Closing Price 2/9/18: CYS $6.37 -$0.02 -0.31% 


2. Small Ball- 
Equity REIT Common and Preferred Stock Basket Strategy:


A. Bought 50 BRG at $7.6-Used Commission Free Trade




Quote: Bluerock Residential Growth REIT Inc. (BRG)


Property Portfolio | Bluerock Residential Growth REIT


Closing Price Day of Trade (2/5/18):  BRG $7.53 -$0.43 -5.40%


The market cap at that closing price was approximately $184+M.  


BRG has three equity preferred stocks outstanding. 


The preferred shareholders have a superior claim to income compared to the common shareholders. 


Bluerock Residential Growth REIT Inc. 8.25% Cumulative Preferred Series A Stock; I have eliminated my position. Item 6.A. Eliminated BRGPRA-Sold 50 at $26.58 (10/17/17 Post) I may buy back that lot or one of the other equity preferred shares when and if there is a meltdown in prices. 


Bluerock Residential Growth REIT Inc. 7.625% Cumulative Preferred Series C Stock


Bluerock Residential Growth REIT Inc. 7.125% Cumulative Preferred Series D Stock


BRG is a disfavored stock among equity REIT stocks and deservedly so IMO. 


I discussed the reasons for selling my last remaining 50 share lot here: Stocks, Bonds & Politics: Item 3.A. Sold Remaining 50 BRG at $11.45  (10/31/17 Post) 


I will drag and drop that prior discussion here: 


Quote from 10/31/17 Post


"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"


End of Quote


The amount paid to the external manager was extremely absurd IMO given the market capitalization of this tiny apartment REIT. 


The Board did cut the dividend to a quarterly payment of $.1625, a necessity IMO given the amount of additional stock paid to the external manager as part of the internalization process. The current dividend represents a 43.97% reduction from the prior monthly rate which was $.29 per share on a quarterly basis.   


Bluerock Residential Growth REIT (BRG) Announces 2018 Dividend Rate, Declares First Quarter 2018 Common Stock Dividend


The price had to fall to fall a lot before I would digest a crumb of BRG's stock. 


At a $7.6 total cost per share, the current dividend yield at the reduced quarterly rate is about 8.55%. This small apartment REIT needs to be acquired by a larger one. 


Since BRG first went public, it has been aggressive in managing its portfolio. I have discussed the frequent shuffling in prior posts. 


A more recent transaction is discussed in this press release. 




Bluerock Residential Growth REIT Deploys $189 Million Of Equity Into $509 Million Of Real Estate


Given the recent changes in the portfolio, I see no good reason to even discuss the last earnings report available when I made this 50 lot purchase, which was for the Q/E 9/30/17: Bluerock Residential Growth REIT Announces Third Quarter 2017 Results


Closing Price 2/9/18: BRG $7.33 +$0.09 1.24% 


My first average down price is <$7.  


B. Added 10 DOC at $15.31-Used Commission Trade:




Quote: Physicians Realty Trust (DOC)


I am starting a "buying program" in ten share lots in this account. I switched to this trading strategy since the stock is in free fall at the moment. Physicians Realty Trust Interactive Chart


I currently own 100 recently bought shares in my IB account:


Item 2.A. Averaged Down-Bought 50 Shares of DOC at $16.55 (1/18/18 Post)


Dividends:  Quarterly at $.23 per share


Yield at $15.31 = 6%


I have nothing to add to that recent post.


2/9/18 Close: DOC $15.39 +$0.48 +3.22% 


C. Added 10 MPW at $12-Used Commission Free Trade:


2 Year History This Account:




Quote: Medical Properties Trust Inc. (MPW)


DIVIDEND: Quarterly at $.24 per share


Current AVERAGE COST PER SHARE (61+ shares) = $12.51


DIVIDEND YIELD at $12.51 TC  per share = 7.67%


Last DiscussedItem 1.A. Sold 50 MPW at $14.05 (12/30/17 Post)


2016-2017 Purchase Discussions:


Item # 2.A. Bought 50 MPW at $12.66 (8/29/17 Post)


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



Item # 4. Added 50 MPW at $9.84-Satellite Taxable Account: UPDATE For Equity REIT Basket Strategy As Of 2/12/16 - South Gent | Seeking Alpha
Item # 3. Averaged Down: Bought 100 MPW at $10.42: Update For Equity REIT Basket Strategy As Of 1/21/16 - South Gent | Seeking Alpha


Item # 3. Averaged Down: Bought 50 MPW at $11.4-Satellite Taxable: Update For REIT Basket Strategy As Of 9/8/15 - South Gent | Seeking Alpha

2016-2017 Sell Discussions:
Item # 3 Sold 50 MPW at $13.93 (5/15/17 Post)


Item # 3. Sold 52 MPW-Highest Remaining Cost Lot in a Satellite Taxable Account: Update For Equity REIT Basket Strategy As Of 6/24/16 - South Gent | Seeking Alpha

Trading Profits To Date: $1,395.2

Recent Earnings Report: This report was released after my 10 share purchase. Medical Properties Trust, Inc. Reports 2017 Fourth Quarter and Annual Results




There was a good pop in the AFFO or FAD number from $.27 per share in the 2016 4th quarter to $.31 in the 2017 4th quarter. 


The AFFO calculation excludes from "normalized FFO" pretend revenues created by the straight line rent accounting adjustment and is closer to a real cash flow number than FFO. 


Note that the straight line rent adjustment reduced normalized FFO by 8 cents per share. 


"The Company reaffirms its estimate of 2018 net income to a range from $1.02 to $1.06 per diluted share and 2018 NFFO to a range from $1.42 to $1.46 per diluted share. 
This estimate assumes no additional acquisitions or investments, no asset sales and no material capital transactions."


Closing Price 2/9/18: MPW $12.44 +$0.56 +4.71% 


D. Added 10 SBRA at $16.21-Used Commission Free Trade




In my last post, I discussed buying 5 shares at $17.13 (2/5/18 trade): Item 2.C. (2/8/18 Post) This brings me up to 25 shares in the Fidelity account.


Dividend: Quarterly at $.45 per share


Dividend Yield at a TC of $16.21 = 11.1%


The stock is a falling knife. Chart


I have nothing to add to my discussion in Item 3.B. (1/21/18 Post), except that the stock is confirming daily that the path of least resistance is down, though the stock did rally into the close last Friday.


The next add would be 10 shares at less than $15.7.


SBRA $16.66 $0.23 1.40%


The intra-day low was at $16.02. The high was at $16.82. Volume was 2.918+M shares vs. the 1.662M average. The stock hit an intra-day high at $29.1 on 4/21/17 and it has been downhill since then. SBRA Historical Prices


E. Continued to Buy 5 Share Lots in the Vanguard REIT ETF (commission free for Vanguard brokerage customers):

I am up to 25 shares and will only average down with new purchases. I will reinvest the quarterly dividend.

This snapshot shows the steady decline in REIT stocks over the past few days. The only 5 shot that is currently profitable was the last buy.



Sponsor's Website: Vanguard Real Estate ETF (VNQ)(expense ratio at .12%)
VNQ Vanguard Real Estate ETF ETF Quote | Morningstar
VNQ Fund - Vanguard Real Estate ETF Overview - MarketWatch

3. Sold 50 IMGN-Small Cap Biotech Lottery Ticket Basket Strategy




Quote: Immunogen Inc.  (IMGN)


CHART


Closing Price Day of Trade (2/1/18): IMGN $9.43 +$0.25 +2.72%


Profit Snapshot:  +$383.48





I last sold a 100 share lot at so the stock had a huge percentage move after that pare. Item # 3.C. Sold 100 IMGN at $3.55 (profit snapshot = $77.48)


I discussed the reasons for selling this last 50 share lot in a previous comment.  I have zero background, meaning zero education and zero experience,  in assessing pipeline drug candidates. I just buy some small stock lots as an alternative to playing blackjack at a casino. 


Closing Price 2/9/18: IMGN +$8.91 +0.15 +1.71% 


3. Short Term Bond/CD Ladder Basket Strategy

A. Bought 2 Emera U.S. Finance 2.15% SU Bonds Maturing on 6/15/19


FINRA Page:  Bond Detail(prospectus linked)

Credit Ratings: 
Moody's at Baa3 

Issuer: Indirect, Wholly Owned Subsidiary of Emera Inc. (Canada: Toronto)

Guarantees: 



Organizational Structure:  


Bought at a Total Cost of 99.723
YTM at TC Then at 2.351%
Current Yield at TC = 2.156%

In the past, I have owned Emera reset equity preferred stocks. 


B. Bought 2 Southern Power Company 1.95% SU Bonds Maturing on 12/15/19


Finra Page: Bonds Detail (prospectus linked)

Issuer: Wholly Owned Subsidiary of  Southern Co. (SO) 



Credit Ratings: 


BOUGHT at a Total Cost of 99.193
YTM at TC Then at 2.385%
Current Yield at TC = 1.9659%

C. Bought 2 Marsh & McLennan 2.35% SU Bonds Maturing on 3/6/2020:



Finra Page: Bond Detail (prospectus linked)

Credit Ratings:



Bought at a Total Cost of 99.864
YTM at TC Then at  2.401%
Current Yield at TC = 2.3532

D. Bought 2 Celgene 2.25% SU Bonds Maturing on 5/15/19




Finra Page: Bond Detail (prospectus linked)


Credit Ratings: 




Issuer: Celgene Corp. (CELG)

CELG Analyst Estimates 

Bought at a Total Cost of 99.965

YTM at TC Then at 2.276%
Current Yield at 2.2508

E. Bought 2 Gilead 1.85% SU Bonds Maturing on 9/4/18


This is the next GILD bond to mature.  




Finra Page: Bond Detail (prospectus linked)


Issuer: Gilead Sciences Inc. (GILD)

GILD Analyst Estimates

Credit Ratings: 




Moody's assigns A3 to Gilead's new sr. notes; stable outlook 

Bought at a Total Cost of 100
YTM and Current at TC = Coupon Rate of 1.85%

This is another example where I was able to buy a short term bond and secure a few extra basis points in yield, compared to similar bonds maturing in September, by my willingness to accept a par value all-in purchase price. My total return is the coupon rate. This is of course small ball play in Bond Land. 


Hopefully, rates will be higher when this bond matures.  


F. Bought 2 General Mills 2.2% SU Bonds Maturing on 10/21/19-A Roth IRA Account:




Finra Page: Bond Detail (prospectus linked)


Issuer: General Mills Inc.  (GIS)

GIS Analyst Estimates
General Mills Reports Fiscal 2018 Second-Quarter Results

Credit Ratings:




Moody's affirms General Mills' A3 rating; revises outlook to negative

Moody's assigns A3 to General Mills $500 million notes offering

Bought at a Total Cost of 99.918 (includes $4 Vanguard Commission)

YTM at TC Then at 2.247%
Current Yield at TC = 2.2018%

G. BOUGHT 2 Wells Fargo 1.9% CDs (monthly interest payments) Maturing on 3/1/19 (13 month CDs)





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. 

14 comments:

  1. One abnormality today is that the ten year treasury yield started to decline in yield earlier this morning after hitting a double top near 2.89% and is currently near 2.84% as of 9:20 C.S.T. As interest rates declined, the equity REIT sector accelerated price declines.

    Vanguard REIT ETF (VNQ)
    $72.56-1.60 (-2.15%)
    As of 9:22AM CST.
    https://finance.yahoo.com/quote/VNQ?p=VNQ

    iShares 20+ Year Treasury Bond ETF (TLT)
    $118.82+0.88 (+0.75%)
    As of 9:22AM CST
    https://finance.yahoo.com/quote/TLT?p=TLT

    ReplyDelete
  2. In the morning, equity REIT stocks were tanking for no apparent reason. Interest rates were relatively stable throughout the day, and were down a tad when the losses in this sector started to accelerate as if a black hole had formed to swallow them into nothingness.

    At close to the moment of maximum price carnage, I did become slightly more aggressive in my buying, not in terms of the number of shares being bought but in the total dollar value that went over $1K, sprinkled around into several 5 and 10 share buys.

    As noted in this post, I have been buying 5 VNQ shares during its steady decline in price starting with my first buy at $79.62 (1/25/18). I bought another 5 at $72.4 this morning bringing the position up to 30 shares.

    VNQ closed at $74.18, up $.03
    https://www.marketwatch.com/investing/fund/vnq

    I also bought 5 or 10 share lots in a number of individual equity REIT stocks using commission free trades at about the same time.

    I would still say that this sector remains under selling pressure. The yields have become more attractive with that decline however.

    Intermediate treasury yields rates were close to unchanged for the day.

    iShares 7-10 Year Treasury Bond ETF
    $102.19 -0.03 -0.03%
    DAY RANGE
    $102.08 - $102.36

    iShares Investment Grade Corporate Bond ETF (intermediate duration)
    $117.22 unchanged
    DAY RANGE
    117.20 - 117.62

    Longer term treasuries rose in price and declined in yield:

    iShares 20+ Year Treasury Bond ETF
    $118.46 +0.52 +0.44%
    https://www.marketwatch.com/investing/fund/tlt

    The concern is that interest rates will rise and will consequently cause equity REIT stocks to decline further.

    +++++++++

    The VIX closed below 26:

    CBOE Volatility Index
    25.61 -3.45 -11.87%
    https://www.marketwatch.com/investing/index/vix

    Today does NOT qualify as a day in the ongoing Trigger Event count.

    ReplyDelete
  3. Omega Healthcare (OHI) reported after the close. At first glance, I did not see any new bombs in the report.

    https://www.businesswire.com/news/home/20180213006520/en/Omega-Announces-Fourth-Quarter-2017-Financial-Results

    In one of my recent equity REIT sprinkle buys, using commission free trades, I did buy 5 OHI at $25.62 which was close to an automatic buy when the price slid below $26.

    The stock is trading down in after hours by -$1.06 per share and is currently at $25.9. The shares closed at $26.96, up $.58, in regular hours trading.

    https://www.marketwatch.com/investing/stock/ohi

    I view OHI as a high risk REIT. My total position is close to 55 shares with an average cost per share of $28.01, so I am slightly in the hole. The quarterly dividend will be received on the 15th and will be reinvested to buy more stock.

    ReplyDelete
    Replies
    1. OHI: The downdraft after hours is probably due to the Board's decision to freeze the dividend at current levels through 2018:

      Mr. Pickett commented, “As a result of our strategic repositioning activities, 2018 will not be a growth year, and therefore, we do not expect to increase the dividend during 2018. However, I want to be very clear that we are confident in the payout percentage coverage and sustainability of our current quarterly dividend.”

      I view that as prudent given this REIT's current difficulties. There could easily be more weakness tomorrow:

      Omega Healthcare Investors Inc
      AFTER HOURS
      $25.82 -1.14 -4.23%
      https://finance.yahoo.com/quote/OHI?ql=1&p=OHI

      My next 5 share add requires a price in the $24.75-$25 range or lower. It looks like I will be averaging down with the dividend reinvestment scheduled for Thursday.



      Delete
  4. The VIX closed today at 24.67, down 2.5%. Overall, I thought the tone in the bond and stock markets was good today. Stocks were not in a rapid whipsaw motion. Interest rates ticked down some.

    iShares 20+ Year Treasury Bond ETF (TLT)
    $118.99 +$0.53 (+0.45%)

    iShares 7-10 Year Treasury Bond ETF (IEF)
    $102.36 +$0.17 (+0.17%)

    The DXY resumed a downtrend after a brief spurt up:

    https://www.marketwatch.com/investing/index/dxy/charts

    ReplyDelete
  5. Journalists are attributing the abrupt downturn in stock indexes to the higher than expected increase in CPI released at 7:30 A.M. C.S.T.

    That report may have something to do with the decline. A more troubling report IMO is the downturn in January retail sales and a revision to sales in December to no gain.

    https://www.census.gov/retail/marts/www/marts_current.pdf

    This report was released at the same time as the CPI report.

    The U.S. economy is dependent on consumer spending. It is just that simple. I have been pointing out that financial stress was growing for large segments of the population who were increasing their debt to make ends meet. There is a potentially toxic mixture when those debt increases finally meet up with meaningful increases in debt servicing costs.

    The NY FED reported yesterday that consumer debt hit an all time record last quarter at over $13 trillion.

    S&P 500 Index
    2,651.25 -11.95 -0.45%
    Last Updated: Feb 14, 2018 at 9:32 a.m. EST

    U.S. 10 Year Treasury Note
    2.871% + 0.042%
    Last Updated: Feb 14, 2018 at 9:33 a.m. EST

    ReplyDelete
  6. While the S & P 500 was declining this morning, the VIX was making a non-confirming move in that it was positively correlated with SPX.

    CBOE Volatility Index
    20.76 -4.21 -16.86%
    Last Updated: Feb 14, 2018 at 8:59 a.m. CST

    The low today was at 20.21. I would anticipate the VIX will close above current levels.

    The S & P 500 is now positive, restoring the normal negative correlation with the VIX:

    2,666.40 3.46 0.13%

    However, the percentage decline in the VIX is not consistent with the minor uptick in SPX.

    ReplyDelete
  7. South Gent,

    It will be interesting to see how the VIX probe will turn out. How would it impact your VIX model?

    ReplyDelete
    Replies
    1. Y: It depends on the results of the probe. I doubt that the VIX can be manipulated either significantly or over a non-temporary duration.

      I believe there is a great deal of minor, short term price manipulations in stocks, due in part to spoofing and front running through computer programs and high frequency trading.

      https://www.investopedia.com/articles/active-trading/042414/youd-better-know-your-highfrequency-trading-terminology.asp

      Delete
  8. I think that I may be hearing now the Bond Ghouls crying for their mamas.

    Given the significant spike in interest rates today, I am now able to buy lower tier "A" rated bonds maturing in November and December 2018 with greater than 2% YTMs and some closer to 2.2% than 2%.

    One example, which was just bought, is the Northwest Natural GAS 1.545% SU bond maturing on 12/5/18. The YTM at my total cost is 2.193%.

    This bond has a AA- ratings from S & P and A1 from Moody's.

    http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?symbol=NWN4432014&ticker=C758676

    Another example is a CAT 1.8% SU bond maturing on 11/13/18 bought earlier this morning with a 2.137% YTM.

    http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C718652&symbol=CAT4310082

    I am just redeploying proceeds received from maturing short term bonds and CDs rather than adding to my overweight position in that maturity spectrum. I will receive $23K more in proceeds prior to the end of February of which $5K will be received tomorrow. I will generally put those funds back to work on the same day. The dollar amount of short term bond/CD maturities each month varies from month to month some, but is generally around $40K-$50K. So, based on my low total return expectations from this particular strategy, it is working as long as short term rates continuing to go up which I anticipate happening through 2018.

    ReplyDelete
  9. I am not sure what the Stock Jocks saw in the inflation and retail sales that caused them to celebrate with their happy dancing. Maybe they are starting to see things that are not there again.

    The ten year treasury responded to the CPI spike by rising .085% in yield to close at 2.914%:

    https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx

    A break above 3.04% may occur this week.

    Equity REITs are likely to remain under selling pressure as long as intermediate term interest rates continue to move higher.

    The S & P 500 gained 1.34% today while the Vanguard REIT ETF (VNQ) declined .72%:

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

    Another bond like common stock sector-utilities- are also declining in price:

    Vanguard Utilities ETF
    $107.49 -$1.16 -1.07%
    52 WEEK RANGE
    $104.82 - $125.54
    https://www.marketwatch.com/investing/fund/vpu

    A sector that is frequently negatively correlated with REITs is regional bank stocks.

    SPDR S&P Regional Banking ETF
    $62.41 +1.67 +2.75%
    https://www.marketwatch.com/investing/fund/kre

    As explained generally in a March 2014 post, I will use those two sectors as natural hedges for one another.

    https://tennesseeindependent.blogspot.com/2014/03/reit-and-regional-bank-baskets.html

    +++

    I wonder when and if Brad Thomas will admit to error regarding his extreme OHI bullishness and calling that REIT a blue chip which is just absurd to me.

    Omega Healthcare Investors Inc
    $25.61 -$1.35 -5.01%

    ReplyDelete
  10. South Gent,

    I agreed with you on your assessment of OHI. As its price continues to decline there will be an entry point somewhere.

    ReplyDelete
    Replies
    1. Y: OHI is currently guiding 2018 funds available for distribution to a range between $2.64 to $2.74 per share.

      With an unchanged quarterly dividend at $.66 per share, the annual dividend number is at $2.66, above the lower end of the FAD guidance.

      That assumes nothing else goes wrong and a lot went wrong last year.

      That fact that the dividend is barely covered by FAD at the mid-point of the current guidance tells me that the current dividend level is not safe unless there is a material turn higher in real cash flow rather than pretend cash flow that includes the straight line rent adjustment.

      If there is another major tenant problem, and FAD per share falls below the quarterly dividend rate, then the Board will have to cut the dividend or use borrowed money to support the dividend or use cash generated from property sales that then could not be used for reinvestment in income producing assets. The prudent thing to do in those circumstances is to cut the dividend.

      The optimism expressed in SA articles, particularly those written by Brad Thomas, has not been justified by facts or the risks associated with many nursing home operators. Calling any REIT owning nursing homes a "blue chip" is just outrageous IMO. I wrote a comment three years ago disagreeing with his characterization of this REIT as a blue chip and I might as well being talking to myself.

      I have a "buying program" for OHI where I buy 5 share lots using commission free trades. I only buy 5 after the price has fallen below the previous buy and within a pre-determined target range or lower. I am just being as usual a very cautious contrarian but I have been successful in getting out of this stock profitably, though I may be on the losing side of this minor excursion into it again.

      My last buy which was discussed was 5 shares at $26.6:

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

      That post has links to my prior sell discussions and total realized gain number.

      I recently bought another 5 shares at $25.62, which I will discuss in a week or so. At the current price levels, I will reinvest the dividend.

      Delete
  11. I have published a new post:

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

    ReplyDelete