Observations and Sample of Recent Trades: ARCC, GDO, ORIT

Economy:

Existing-home sales tumble at the fastest pace in more than 3 years as supply crunch deepens - MarketWatch

Existing-Home Sales Slip 3.2 Percent in January | www.nar.realtor

A continued rise in mortgage rates will negatively impact home sales and banks who provide those loans. 

Sourced: Mortgage Rates Continue to Climb - Freddie Mac

Note that the upswing started in early September 2017 when the dominant directional interest rate movement went from down to up. 

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Markets and Market Commentary:

The ten year treasury is falling in yield in early morning trading today: U.S. 10 Year Treasury Note 

Here’s the ‘real’ reason stock-market investors are worried about bond yields-MarketWatch (“Real rates are now at a point where further…increases will impinge on risky asset market performance in the absence of economic data that meets or beats elevated expectations,” said Matthew Hornbach, global head of interest rate strategy for Morgan Stanley"); Morgan Stanley Says Stock Slide Was Appetizer for Real Deal - Bloomberg 

Chart 5-Year Breakeven Inflation Rate-St. Louis Fed
Chart 7-year Breakeven Inflation Rate-St. Louis Fed
Bond Economics: Primer: What Is Breakeven Inflation?

I would not characterize those charts as showing an upside breakout in the market's intermediate term inflation forecasts, even though there is currently a modest upward trend in the forecasts. 

BlackRock raises U.S. equities to overweight on earnings momentum
Weekly Commentary - Insights | BlackRock
So after a parabolic move up in U.S. stock indexes, Blackrock goes to overweight. I would pay more attention to an analyst who said back up the truck and buy stocks in March 2009 and who correctly predicted a surge in the market indexes after Trump's election. Telling me to back up the truck now is a recommendation that I will simply ignore.  

Ethereum chief warns cryptocurrencies could ‘drop to near-zero at any time’-MarketWatch

Sorry, America, but you have to pay taxes on your bitcoin — here’s how - MarketWatch

I would never buy bitcoin or any other cryptocurrency. 

If I bought and sold a position, I would personally treat the transaction for tax purposes in the same way as I have done in past for currency trades and PM bullion sales. 

I report transactions where a 1099 is not sent by a financial institution on the IRS Form 8949 and will check Box C.  

For example, I have so far filled in my IB currency trades on that form, checking box C since those transaction are not reported to the IRS. I had a total realized short term gains from currency trading of over $1900 in that account, mostly in Canadian Dollars but some profits in Swiss Francs and Australian Dollars as well. IB provides the details.

I am going back to self-preparation of my tax returns after paying a CPA over $1800 last year. Let's just say I had serious problems with his knowledge about several matters including those related to bond accounting and consequently spent way too much time working with him. I may have been able to do my own return with TurboTax in less time.

Most cryptocurrency traders are probably not reporting their transactions to the IRS.

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Portfolio Management: 

For the next few weeks, I will continue to average down only with small ball buys in equity REITs and BDCs, possibly nibbling less frequently on an MREIT or two. 

I am using cash flow and a very minor amount of proceeds from maturing short term CDs and bonds. I am using commission free trades to catch these falling knives. So far, the only benefits are that my average cost per share is declining and my dividend is consequently increasing. 

I am not having to wait long before my next lower price is hit. 

Most of the proceeds from maturing bonds and CDs are being used to buy more of the same. I have run down my idle U.S. dollar cash at Fidelity, IB and Schwab to less than $5K since it is now worthwhile to use that cash to buy short term bonds and CDs. 

That is not the case in my Vanguard accounts where the Vanguard Prime MM fund is currently yielding 1.49%: Vanguard Prime Money Market Fund That fund can no longer be used as a sweep account. Instead, I am using for that purpose Vanguard's Federal MM fund that currently yields 1.33%. Vanguard -Vanguard Federal Money Market Fund I can shift online from the Prime fund to the sweep account when the need arises which has not been necessary yet. 

At the moment, short term treasury bills, defined as those maturing in 1 year or less, provide more interest than most bank CDs offered by brokers. The problem, as usual, is that banks are reluctant to raise deposit rates. That situation is aggravated IMO by the still narrow spread between short term deposit rates and loan yields.  Treasury bills are liquid which is not the case for CDs though there is a secondary market for CDs. 


For example, the 1 year treasury currently provides a higher yield than all of these CDs maturing in late February 2019: 

U.S. 1 Year Treasury BillMarketWatch (2% as of 9:18 E.S.T. on 1/22/18)

No CD being offered at Fidelity or Schwab provides a higher yield than the 1 year treasury bill, which is auctioned weekly along with the 1, 3 and 6 months and can be bought at a auction through those brokers commission free. If I go out another month, I can find one CD offering that provides the same yield now as the 1 year treasury bill.  

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Trump and Oprah: 

Donald spews his venom on Oprah: Trump Spent His Sunday Night Watching ’60 Minutes’ And Hate-Tweeting About Oprah

Trump did not like this segment of 60 minutes: Minutes: Oprah follows up with the partisan voters in Michigan about Donald Trump - CBS News (includes transcript; the GOP voters interviewed by Oprah would vote for him again which is the norm nationwide)

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Rachel Crooks and Trump: 

The WP recently published a lengthy article about Rachel Crooks, one of the 19 women who accused Trump of sexual assault before the election. Trump accuser keeps telling her story, hoping someone will finally listen - The Washington Post She has had to undergo a tremendous onslaught from Trump trolls and supporters for sticking to her account. When listening to Trump supporters discussing the charges made those women, which is confirmed by Trump's admissions made during the Access Hollywood tape, the most common response is that all 19 women are lying and Trump is telling the truth. Another common refrain is to direct attention away from Trump to Bill Clinton as if Clinton's conduct makes Trump's actions acceptable. 

Donald called Ms. Crooks a liar: 

Ms. Crook said that Trump kissed her intermittently near the elevator outside of Ms. Crook's office on the 24th floor, rather than in the lobby of Trump Tower. So Trump is lying again just in providing the details of Ms. Crook's actual claim against him. Those details are in the WP story that he references and in other articles summarizing Ms. Crook's account of this incident. 

Remember Trump's admission made in the Access Hollywood Tape: 

“I’m automatically attracted to beautiful - I just start kissing them. It’s like a magnet. Just kiss. I don’t even wait. And when you’re a star, they let you do it. You can do anything.”

Donald Trump, the Playboy Model Karen McDougal, and a System for Concealing Infidelity | The New Yorker

Trump Allies Covered Up Affair With Ex-Playboy Model, Report Says - Bloomberg

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Trump Constantly Demonstrates His Repulsive Personality Traits:

Trump says FBI missed signs on Florida shooting due to Russia probe, draws criticism: Reuters Trump's comment on this matter highlights his repulsive character as do many of his actions and words. There is no escape from that conclusion. He is one disgusting excuse for a human being, which was apparent to anyone paying attention before 62,980,160 Americans voted for him.    

I am not talking about Trump's policies when commenting about Trump the Man. 

Trump's constant attacks on the FBI and U.S. intelligence agencies have no parallel in U.S. history.  

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Trump and Russia's Election Interference on His Behalf: 

Politifact gives Donald another "Pants on Fire" rating for his statement "I never said Russia did not meddle in the election." Donald Trump falsely says he never denied Russian meddling | PolitiFact

In His Own Words: Trump on Russian Meddling - FactCheck.org

Spinning the Russian Indictment - FactCheck.org

Trump challenges Sessions to investigate Obama, Democrats on Russia

What would have happened if Obama had publicly said before the election that the Russians were trying to elect Donald?

So far, Trump has not demanded that Sessions investigate South Gent, but then there are almost three more years left in his term. Trump was already saying that the Democrats were trying to steal the election from him. A guide to Donald Trump's 'rigged' election - POLITICO

Did I miss the conversation that Trump had with the voters where he summarized the steps that the nation needs to take to minimize Russian interference in the midterm elections.

Trump cites a misleading Obama quote to say Russia didn’t interfere in the election - Vox  

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Florida School Shooting:  

Trump's note card for Parkland shooting discussion: 'I hear you' - CNN (Trump had to remind himself to say "I hear you" by writing it down on a card which he held in his hand) 

Florida Teachers’ Pension Fund Invested in Maker of School Massacre Gun - Bloomberg

Florida school shooter obtained 10 firearms - CNN

The Republican intellectual Rush Limbaugh lambasted the Florida high school students for speaking out about guns. The republican solution is to arm the teachers. Trump suggests arming teachers as a solution to increase school safety: CNN. Their solution never involves banning assault weapons as the first step. 

Let's hope that an armed teacher then does not go berserk; or uses the gun inappropriately for the situation at hand; or accidentally shoots one or more students in a tense confrontation with an active shooter; or is overpowered by a student who then turns the gun on the teacher and/or other students; or just manages to fire a few shots that miss and the active shooter then hones in on the teacher and that teacher's students. 

The better approach is to have at least one law enforcement officer on patrol and a far more reliable system for notifying the officer quickly of an active shooter's location. One thing that I have noticed over the years is that the police rarely enter the building right away even with an active shooter present. I do not see the wisdom in police delaying entry under those circumstances. The first police officers on the scene need to put on their vests and enter the school as quickly as humanely possible. 

David Hogg, Florida school shooting survivor: 'I'm not a crisis actor' - CNN

How a survivor of the Florida school shooting became the victim of an online conspiracy

Trump is an enabler of right wing conspiracy theories.

Aide to GOP Florida Rep. Shawn Harrison fired for calling Parkland survivors crisis actors - The Washington Post (a republican of course)

The right-wing sliming of Douglas High students can’t be ignored. It’s too disgusting for that. - The Washington Post (disgusting is far too kind of a word) 

Dinesh D'Souza: “Worst news since their parents told them to get summer jobs.”

Souza is one of the "conservatives" favorite commentators along with the bomb throwing Ann Coulter. 

Trump Jr. ‘likes’ tweets attempting to undermine the credibility of Florida school-shooting survivors - MarketWatch( "Donald Trump Jr. “liked” a pair of tweets attacking a teen survivor of the mass school shooting in Florida that left 17 people dead — including one that suggests the boy was a fabrication of the “mainstream media.”)

One of Donald Trump's favorite commentators, Alex Jones, maintains that Sandy Hook never happened either. 

A Guide To Donald Trump’s Relationship With Alex Jones; 

Sandy Hook denier Alex Jones' show to be beamed from Chicago's Trump Tower - Chicago Tribune

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Facebook V-P Rob Goldman:

Rob Goldman, Facebook's vice president for ads, has misled the American public about Russia's efforts to interfere with the U.S. election and Facebook's role in assisting that effort. 

Trump picked up on Goldman's misleading statements that supported his Alternate Reality Creation that Russia did not intervene to help him win. Goldman also focuses his attention solely on Facebook ads, a small part of Russia's interference and ignores the use of Facebook posts by the Russians.  
  
Fact-Checking a Facebook Executive’s Comments on Russian Interference - The New York Times

What Trump left out of his tweets about Facebook and Russia - The Washington Post

Why Facebook is afraid of Robert Mueller - The Washington Post ("In a short string of tweets, in other words, Facebook’s vice president for advertising twisted and obfuscated the issues almost beyond recognition. For one, the indictment states clearly that the Russians were not merely buying ads: It alleges that they used fake American identities, fraudulently obtained PayPal accounts and fraudulent Social Security numbers to set up Facebook pages for groups such as “Blacktivist,” “Secured Borders” and “Army of Jesus.” They did indeed use those pages to spread fear and hatred, reaching tens and possibly hundreds of millions of people.") In short, Goldman, on behalf of his employer, did in fact deliberately twist, mislead, and obfuscate Facebook's involvement in the Russian campaign.  

Facebook itself is now part of the disinformation campaign. 

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1. Small Ball-BDCs:

I can only tolerate BDCs in small lots. The goal has been and will always be harvesting a total return in excess of the dividend yield. I will be discussing more small BDC purchases in an upcoming posts, where I will not be repeating the general discussion about this niche category that can be found below. 

A.. BOUGHT 50 ARCC in Roth IRA at $15.44: 

History This Roth IRA Account: 

As with all externally managed BDCs, the goal is to harvest the dividends without losing money on the shares. 

This lot was bought in my Vanguard Roth IRA where I pay a $7 brokerage commission. There will not be another purchase. I doubt that there is much upside since the discount to the net asset value per share is not large and externally managed BDC's no longer trade at premiums. 

Quote: Ares Capital Corp. (ARCC)

ARCC Website

2017 Annual Report (risk summary starts at page 29 and ends at page 50!!!!; list of positions starts at page F-6)

Ares Capital is a Business Development Corporation which has a similar tax status to a REIT. Unlike regular "C" corporations which pay dividends to their shareholders, the BDC will avoid double taxation by paying out as dividends 90+% of its net income. That requirement can generate a nice dividend yield, but there are major downsides that can be generally described as follows.

BDCs loan money to risky borrowers, and the BDC will be continually selling stock to raise new capital. Stock can be sold through an ATM offering where a broker sells the stock in the market or through a stock offering. I did not see any recent stock offerings from ARES. In February 2018, the Board authorized the purchase of up to $300M in ARES' stock.  

BDCs make investments throughout the capital structure mostly to private companies. Most of the investments are generally loans that are either first and second lien loans similar to the bank loans that are bought by funds specializing in that area including mutual funds, closed end investment companies and ETFs.

One important characteristic found in many of these junk loans is an increase in the coupon tied to a short term rate, mostly the 3 month Libor. Most of the loans of recent origin have a Libor floor that must be exceeded before the coupon can be increased through that floating rate mechanism. A typical floor would be in the 1% to 1.5% range and most of the floors have now been exceeded with the current 3 Libor rate. 

Rising Libor: Generally Good for the Loan Market, But It’s Complicated | PIMCO Blog

Guggenheim Q1 2018 High-Yield and Bank Loan Outlook: Be Wary of Eroding Investor ProtectionsGuggenheim Investments assesses the risks of covenant-lite loans, 0% Libor floors, tax reform 

Floaters vs. Bank Loans: What You Should Know as Rates Rise | Charles Schwab

BDC's loans would generally fall into my junk categories of high risk and extreme high risk which are reflected in the interest rates paid by the borrowers. 

I view that business structure as inherently flawed with significant actual conflicts of interest involving external management and their compensation scheme. (see Risk Factor summary starting at page 33 in the ARES 2016 Annual Report particularly the discussion at page 43 under "There are significant potential conflicts of interest that could impact our investment returns")(bold letters supplied)

ARCC is probably the best externally managed BDC IMO. The returns from this BDC are better than other ones that were in existence prior to 2008 as shown below. The past may not be prologue however.

Total Average Annual Total Returns From 1/3/2005 (pre-Near Depression) through 2/12/18 (total return includes dividend reinvestment):

ARCC 9.94%

PSEC  7.16%

TICC  4.82%

AINV 3.43%

GLAD 1.97%

S & P 500 ETF SPY 8.27%

Used the DRIP Returns Calculator | Dividend Channel

Note particularly that ARCC outperformed SPY on a total return basis. 

Two Other Externally Managed BDCs with IPOs Prior to the Near Depression

BKCC Start Date of 6/27/27 2.43%

PNNT Start Date of 4/19/17 5.05%

The other externally managed BDCs have not been tested yet by a recession. 

The economy has been generally favorable since the recent Near Depression measured by job and GDP growth. A recession will happen and loans losses will accelerate raising the specter of dividend cuts and many externally managed ones have already cut their dividends in an expansion. 

Dividend: Quarterly at $.38 

ARCC-Dividends

A $.05 per share special dividend was paid in 2015 and 2016. 

Ares Capital Corporation Announces Tax Reporting Information for Calendar Year 2017 

Dividend Yield at a $15.44 TC per share = 9.84%

Last Earnings Report:  

ARCC reported results for the the 2017 4th quarter after my purchase. Ares Capital Corporation Declares First Quarter 2018 Dividend of $0.38 Per Share and Announces December 31, 2017 Financial Results 

As of 12/31/17, the "total portfolio investments at fair value were comprised of approximately 44% of first lien senior secured loans, 32% of second lien senior secured loans, 4% of subordinated certificates of the SDLP (the proceeds of which were applied to co-investments with Varagon and its clients in first lien senior secured loans through the SDLP), 8% of senior subordinated loans, 1% of collateralized loan obligations, 4% of preferred equity securities and 7% of other equity securities. As of December 31, 2017, the weighted average yield of debt and other income producing securities in the portfolio at amortized cost and fair value was 9.7% and 9.8%, respectively, the weighted average yield on total investments in the portfolio at amortized cost and fair value was 8.7% and 8.7%, respectively, and 81% of the total investments at fair value were in floating rate securities." (emphasis added)

Significant New Commitment During the 4th Quarter:

"As of December 31, 2017 and 2016, the weighted average grade of the investments in Ares Capital’s portfolio at fair value was 3.1 and 3.1, respectively, and loans on non-accrual status represented 3.1% and 2.9%, respectively, of total investments at amortized cost (or 1.4% and 0.8%, respectively, at fair value)."

Prior Trade Discussions:

Item 2.A. Eliminated ARCC-Sold Remaining 50 Shares at $17.25  (2/15/17 Post)(profit snapshot =$160.51)

Item #1: Bought 50 ARCC at $14-Update For Portfolio Positioning And Management As Of 7/9/16 - South Gent | Seeking Alpha

Item # 1. Sold 102+ ARCC at $15.32-Taxable Account and 50 at $15.26-Roth IRA-Update For Portfolio Positioning And Management As Of 8/21/16 - South Gent | Seeking Alpha (profit snapshots = $62.72)

Sold 100 ARCC at $17.195 (4/28/15 Post)(profit snapshot=$116.36)-Bought 50 ARCC at $15.41-A Typical Small Lot Purchase Of An Externally Managed BDC Stock - South Gent | Seeking Alpha and Item # 3 Bought: 50 of the BDC ARCC at $16.17 (1/21/11 Post)

Sold 100 ARCC at $17.54-IRAs in Two 50 Share Lots (9/13/12 Post)-Item # 4 Added 50 ARCC at $16.9-Regular IRA (5/21/11 Post) and Item # 3 Bought 50 ARCC at $16.89 (12/3/2010 Post); Item # 3 Sold 100 ARCC Roth IRA at $17.05 (2/25/15 Post)(profit snapshot=$17.05 plus $157 in dividends).

I also sold my Roth IRA in August 2016 in this Vanguard Roth IRA for a +$105.57 profit: 

Total ARCC Trading Profits to Date = $462.17

ARCC Net Asset Value Per Share Trends (Better than most externally managed BDCs and some internally managed ones):

I view the historical net asset value per share numbers as material. For some BDCs, the elevator is moving slowly and persistently down, possibly to zero given enough time.  

ARCC has been able to maintain a relatively stable net asset value per share for the past five years.  

12/31/17: $16.65 

9/30/17: $16.49  10-Q

6/30/17: $16.54  10-Q 

12/30/16: $16.45

9/30/16: $16.59

6/30/16: $16.62

3/31/16: $16.5

12/31/14: $16.82

9/30/13: $16.35

3/31/12: $15.47

6/30/2010: $14.11

6/30/2008: $12.83 10-Q

9/30/2007: $15.74

3/31/05: $14.96

Sourced: ARCC 10-Qs (usually found at page 3)

Closing Price 2/21/18: ARCC $15.92 -$0.10 -0.62% 

Ares Capital Corporation Prices Public Offering of $600.0 Million 4.250% Notes Due 2025 

Ares Capital Corporation Prices Public Offering of $750.0 Million 3.500% Notes Due 2023 

2. Bought 50 GDO at $17.01 and 10 at $16.82-Used Commission Free Trades: 

The ten share lot was purchased after the monthly ex dividend date. 

Quote: Western Asset Global Corp Defined Opportunity Fund Inc. (GDO)

There is now a "buying program" for this leveraged bond CEF using the standard playbook. Shares can only be bought at lower prices in small lots using commission free trades. 

GDO is a leveraged world bond fund that will terminate on or about 12/2/24 and return the proceeds from its investments at that time to its shareholders. WA Global Corporate Defined Opportunity Fund Inc. | Legg Mason

Data as of Date of Trade: 2/12/18
Closing Net Asset Value Per Share = $18.67
Closing Market Price = $17.05
Discount to Net Asset Value Per Share = -8.68%
Average Discounts: 
1 Year    -6.21%
3 Years  -8.66%
5 Years  -9.04%

Sourced:  GDO -CEF Connect

Dividends: Currently, monthly at $.1085 per share ($1.302 annually), recently reduced from $.1135 per share ($1.362 annually)

Legg Mason Partners Fund Advisor, LLC Announces Distributions for the Months of March, April and May 2018 

I would expect the dividend to go down as time moves closer to the termination date, but that depends on how the manager invests proceeds from bonds maturing near the termination date and other factors.

The other factors are issues that would normally impact a leverage bond CEF's dividend level: (1) willingness to use return of capital to support a dividend; (2) level of capital gains, if any, used to support the dividend payment; (3) the cost of borrowed money; (4) the net interest spread between the cost of funds and bonds bought with borrowed money;  and (5) the manager's willingness to buy more higher risk investments to support the dividend amount. 

Dividend Yield: 7.67% at a TC of $16.98 per share for current 60 shares using the recently reduced monthly rate 

The ten share lot was purchased at a slightly larger discount to net asset value per share. The shares closed on 2/16/18, the day of purchase of that lot, at $16.85 . The net asset value per share was $18.66, creating then using that data a discount to net asset value of -9.86% for the purchase at a TC of $16.82 per share. Bonds rallied on the day of this 10 lot purchase causing the net asset value per share to increase 3 cents from the prior day (Thursday 2/15/18).

By clicking the "Pricing Information" tab at CEF Connect, the investor can see a chart showing the discounts over several time periods. The chart highlights an expansion of the discount starting earlier this year, but the dominant trend has been for an expansion of the discount since early September 2017 when the ten year treasury bottomed in yield and started tor rise.

Fund Data as 12/31/17:

The duration was then at 6.06 years. The fund was then leveraged at 22.54%.

While the fund is weighted in investment grade rated bonds, it will generally have a significant exposure to junk rated bonds.

Last SEC Filed Shareholder Report: WA Global Corporate Defined Opportunity Fund Inc (period ending 10/31/17)

Page 44: Leverage Terms

Eliminated GDO Last Year:

I eliminated my GDO position in this account last year, selling 624+ shares for a net profit of $90.97: 

I had previously eliminated my GDO position in this account by selling 436+ shares in 2012, realizing a $310.24 profit:

I mention the foregoing for several reasons. 

First, it is noteworthy that I bought back only 50 shares after selling shares in 2017 at $17.96, $18 and $17.87. I will explain my temerity below. 

Second, the goal for this leveraged bond CEF is to harvest dividends and to escape with a share profit. 

Third, I have not bought more than 100 shares in a single order and my entry points are all over the map, with frequent average downs. 

Problem With Leverage Bond CEFs During a Period of Rising Rates: 

The main problem with leverage bond ETFs now, as I have previously noted, is that their cost of borrowing is going up as the bonds bought with borrowed money go down in price. 

Leverage is fine when the value of the bonds bought with borrowed money are going up in value. 

When short term money has been extremely cheap, which has been the case for almost a decade, the use of that cheap borrowed money to buy higher yielding bonds increases the fund's dividend compared to a hypothetical unleveraged fund that owns the same securities.  

With short term rates moving up, the leverage bond fund will have to cut the dividend rate due to the narrowing net interest spread between the cost of borrowed funds and the income generated by using those borrowings to buy higher yielding bonds. 

While there may be some offsetting benefit by buying bonds with higher yields, that scenario assumes that the value of bonds is declining which is what generates the higher yield, and that negatively impacts the fund's net asset value per share.   
  
Unadjusted for the dividend payments, GDO's net asset value per share was at $19.33 (9/7/17) when intermediate term interests rates bottomed and started to move up. 

To the date of my purchase when the net asset value per share was at $18.67, the decline in net asset value was -3.414% The discount to net asset value per share was at -5.38 on 9/7/17 and closed at -8.68% on my day of purchase (2/12/18) or an increase in the discount by 3.3%. 

It is typical for the discount to widen over a period of time when the net asset value per share is declining. The result of those two factors produced a 6.78% decline in GDO's price. In short, the price decline ate the five monthly dividend payments.   

Closing Price 2/21/18: GDO $16.94 +0.02 +0.12% 

3. Short Term Bond/CD Ladder Basket Strategy:

March 2018 Maturities (several bought close to one year ago when rates were much lower)

SU= Senior Unsecured

MI = Monthly Interest

2 Caterpillar 1.3% SU Bonds 3/1/18

1 WFC 1.1% CD (MI) 3/1

1 Metabank 1.4% CD 3/1

2 Bank of New York 1.35% SU Bonds 3/6

2 Exxon 1.305% SU Bonds 3/6
3 Metabank 1.35% CDs 3/7 (one month CD via Schwab)

2 State Bank of India 1.3% CDs 3/8

1 BNY Mellon 1.3% CD 3/12
2 Beal Bank 1.35% CDs 3/14/18 (one month CD via Schwab)

2 WFC 1.1% CD (MI) 3/15

1 Bank of China 1.35% CD 3/15

2 McKesson 1.4% SU Bonds 3/15

3 Volunteer State Bank 1.35% CDs (MI) 3/16

1 Bank of China 1.4% CD 3/20

2 MBank 1.25% CDs (MI) 3/20

2 First N.A. 1.25% CDs (MI) 3/27/18

2 Bank of China 1.4% CDs 3/28

2 Federal Savings 1.35% CDs (MI) 3/28

2 Cathay Bank 1.45% CDs (MI) 3/28

2 Sterling Bank 1.4% CDs 3/29

2 Bank of California 1.5% CDs 3/29

2 BOFI 1.5% CDs 3/29

2 Bank of N.C. 1.1% CDs (MI) 3/29

1 Treasury .75% 3/31

1 Treasury .875% 3/31/18

$45K

It would be relatively easy to more than double the income produced by the proceeding maturing securities yielding more than 1.35% by buying investment grade corporate bonds maturing in 2020-2021. Higher quality investment grade corporate bonds maturing between February to December 2019 would generally be in a 2.4% to 2.8% range now. Some lower tier investment grade corporates maturing in 2024 currently have YTMs between 4%-4.75%. (e.g 2024 Select Income rated Baa3 and BBB-; 2024 Omega Healthcare rated at Baa3 and BBB-) 

In a arising rate scenario, I want to have a constant flow of maturing securities where I can reinvest the proceeds at higher yields while using a ladder strategy that is designed to cope with the many uncertainties of interest rate risk issues, both up and down scenarios. 

A. Bought 2 Disney 1.65% SU Bonds Maturing on 1/8/19:

FINRA Page: Bond Detail

Issuer: Walt Disney Co. (DIS)
DIS Analyst Estimates
The Walt Disney Company Reports Fourth Quarter and Full Year Earnings for Fiscal 2017 (FISCAL YEAR ends 9/30)

Credit Ratings:

Bought at a Total Cost of 99.685

YTM at TC Then at 1.991%

Current Yield at TC = 1.6552%

B. Added 1 Citigroup 2.05% SU Bond Maturing on 6/7/2019:

I now own 2 bonds. 

FINRA Page: Bond Detail

Issuer: Citigroup Inc. (C) 

C Analyst Estimates 

Citigroup Reports Fourth Quarter 2017 Financial Results

Credit Ratings: 

Bought at a Total Cost of 99.617

YTM at TC Then at 2.339%

Current Yield at TC = 2.0579%

This is what CD rates for June-early August 2019 looked like when I bought this bond:

To receive the same YTM, I would have to buy a WFC CD maturing in February 2020. 

Banks are generally slow to raise their CD rates when interest rates are rising whereas the Bond Ghouls are quicker to reprice existing bonds with similar maturities as currently offered CDs. 


C. Bought 1 Wells Fargo 2.35% CD (monthly interest payments) Maturing on 2/14/20 (2 year CD):

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

I now own 6 bonds.

FINRA Page: Bond Detail (prospectus not linked)

Final Prospectus Supplement (issuer Anheuser-Busch InBev Finance guaranteed by Anheuser-Busch InBev, etc.)
Credit Ratings:

Bought at a Total Cost of 99.792
YTM at TC Then at 2.116%
Current Yield at TC = 1.904%

E. Bought 1 Anheuser 2.15% SU Bond Maturing on 2/1/19-Roth IRA:

I used the proceeds from a 1.2% maturing three month CD. The YTM is slightly higher than the 1.9% BUD SU bond discussed above that matures on the same day. The current yield of this bond was higher as well. Neither difference is material. There will be only two more semi-annual interest payments.

Finra Page: Bond Detail (prospectus linked)

Issuer: Anheuser-InBev Finance (guaranteed by Anheuser-Busch InBev S.A. and etc.)

Bought at a Total Cost of 99.960
YTM at TC Then at 2.169%
Current Yield at TC = 2.151%

Since this purchase, the price has drifted down to around 99.6.  

F. Bought 2 Laboratory Corporation of America 2.625% SU Bonds Maturing on 2/1/20: 

Finra Page: Bond Detail (prospectus linked)

Credit Ratings: 

Issuer:  Laboratory Corp. of America Holdings (LH)
LH Analyst Estimates 
LabCorp Announces Record 2017 Fourth Quarter and Full Year Results and Provides 2018 Guidance 

Bought at a Total Cost of 100
YTM and Current Yield at the 2.625% Coupon. 

G. Bought 2 Whitney Bank 1.7% CDs Maturing on 8/14/18 (6 month CD): 

H. Bought 2 Bank of India 1.45% CDs Maturing on 4/11/18 (2 month CDs):

4. Intermediate Term Bond/CD Ladder Basket Strategy: 

A.. Bought 2 HealthCare Trust of America 2.95% SU Bonds Maturing on 7/1/22: 

Finra Page: Bond Detail (not linked)
Prospectus
Healthcare Trust of America, Inc. Reports Fourth Quarter And Year Ended 2017 Earnings

I am just occasionally dipping my toe into 2022 maturities.  

Issuer: Operating Subsidiary of Healthcare Trust of America Inc. (HTA)-A REIT Owning Medical Office Buildings
SEC Filings

Credit Ratings:

Bought at a Total Cost of 98.807
YTM at TC Then at 3.242%
Current Yield at TC = 2.9856%

5. Small Ball- REGIONAL BANK BASKET STRATEGY:

A. ADDED 20 ORIT at $15.88-Used Commission Free Trade:

This purchase brings me up to 70 shares in this account and 160 shares altogether.

Oritani Financial Corp. (ORIT)

The stock went ex dividend for its $.25 per share quarterly distribution on 2/8/18. I will receive that dividend on 130 shares and am currently using the dividend to buy more shares.

This purchase was an average down from a 50 share buy in this account. Item # 1.A. Bought 50 ORIT at $16.73 (12/26/17 Post)

Dividend Yield at $1 per Share Annually (assuming no additional special dividends) = 6.3% at a TC of $15.88 per share

The regular quarterly dividend was raised to $.25 per share effective for the 2018 first quarter from $.175 per share.

Sourced from Oritani Bank : Dividends

I would not count on additional special dividends. The bank had a surplus of capital.

Since my last discussion back in December, ORIT did report its 2017 fiscal second quarter results for the Q/E ending 12/31/17 and announced that dividend raise.

Oritani Financial Corp. Announces Increased Dividend and 2nd Quarter Results

ORIT had to revalue its deferred tax asset tax that required a non-cash charge to this quarter's earnings:

"Results in the 2017 period were impacted by the recently enacted Tax Cuts and Jobs Act (the “Act”).  While the Act will lower the Company’s future tax rate, it also required the Company to revalue its deferred tax assets and deferred tax liabilities to account for the future impact of lower corporate tax rates on these deferred amounts. The analysis resulted in an estimated one-time non-cash charge to the income statement of $10.2 million."

Excluding that non-cash charge, ORIT reported net income of $.28 per diluted share, up from $.26 in the year ago quarter. 

Financial metrics, other than NIM, remain solid: 

NPL Ratio = .4%
NPA Ratio = .35%
Charge Off Ratio = Zero

ROA and ROE numbers are distorted by the one time non-cash charge. 

"The average balance of the loan portfolio increased $279.4 million, or 8.6%, for the three months ended December 31, 2017 versus the comparable 2016 period."

As noted in my prior discussion, ORIT will be a major beneficiary of the corporate income tax reduction:

"The Company reports earnings on a fiscal year basis and the decreased federal income tax rate prescribed by the Act will be recognized by the Company ratably over the course of its fiscal year ending June 30, 2018. Consequently, the Company’s estimated effective tax rate for its fiscal year ending June 30, 2018 has decreased from 37.2% to 30.5%. The Company’s estimated effective tax rate will be lower than its actual tax rate for the periods ended September 30, 2017 and December 31, 2017; and higher than its actual tax rate for the periods ended March 31, 2018 and June 30, 2018. The Company’s estimated effective tax rate is expected to decrease further subsequent to the fiscal year ending June 30, 2018."

10-Q for the Q/E 12/3/17

Closing Price 2/21/18: ORIT $16.10 +$0.15  +0.94% 

Disclaimer: I 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.