Economy:
CPI and core CPI rose .2% in February on a seasonally adjusted basis. On a non-seasonally adjusted basis, CPI rose 2.2% Y-O-Y with core CPI up 1.8%. Consumer Price Index Summary
Everyone will be pleased to learn that health insurance costs declined by .1% Y-O-Y according to the BLS: Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by detailed expenditure category
Guts of U.S. CPI Data Show Key Inflation Gauge Weakest in Years - Bloomberg (this article discusses what is known as Procyclical Inflation, a term recently popularized by the San Francisco FED in this paper: Federal Reserve Bank of San Francisco | What’s Down with Inflation?)
There were several reports that Trump was considering levying $60B on China's imports to the U.S. Trump considers indefinite tariffs, investment restrictions against China: Source; Trump demands aides pump up anti-China tariffs - POLITICO; Trump eyes tariffs on up to $60 billion Chinese goods; tech, telecoms, apparel targeted: Reuters
While a trade war with China is something the Stock Jocks are unlikely to ignore, a profound and non-temporary negative reaction will probably require something far more concrete than information from anonymous sources that Trump is considering the possibility of imposing tariffs. Periodic, mild and mostly temporary anxiety attacks may become more common as long as there is a lack of clarity.
China January-February factory output, investment stronger than expected: Reuters
Philly FED Empire manufacturing gauges stay solid in March- MarketWatch
+++++
Market Commentary and Markets:
Bond Market’s Most Feared Traders Threaten Treasuries Once Again - Bloomberg
The preceding article discusses that concerns about future inflation is causing a surge in TIP purchases.
To emphasize a point made in several prior posts, a TIP will outperform a nominal treasury with the same maturity and bought at the same time when the actual annual average CPI rate over the bond's term is greater than the break-even inflation rate, and the investor holds until maturity. Lot's of ifs in that sentence.
When buying the TIP rather than the comparable term non-inflation protected security, the investor has to accept a meaningfully lower current yield and hope that the inflation accretion to the TIP's principal will end up providing a greater return over time.
2012 Daily Treasury Real Yield Curve Rates
2017 Daily Treasury Real Yield Curve Rates
2018 Daily Treasury Real Yield Curve Rates
2012 Daily Treasury Yield Curve Rates
2018 Daily Treasury Yield Curve Rates
A vintage TIP does not provide full protection against a rise in nominal interest rates caused by inflation since the rise in nominal rates will generally cause the TIP's current yield to rise as well.
The only way for a vintage TIP's current yield to compensate for that increase in non-inflation protected security yields is to go down in price.
The investor can see that process in action by looking at how TIP and non-inflation protected treasuries moved in price when the nominal rates started to rise in early September 2017 through today.
Stocks, Bonds & Politics: TIP Trading in the Secondary Market
Update On Buying TIPs In The Secondary Market - South Gent | Seeking Alpha
The Mechanics Of Purchasing A TIP In The Secondary Market - South Gent | Seeking Alpha
I will own and trade individual TIPs in my Roth IRA account. As trades, the long duration TIPs provide the most up and down movement. I am referring to TIPs moving in the 2038 to 2048 time frame (20 to 30 year TIPs).
For example, I sold a .75% TIP maturing on 2/15/42 at 99.6 unadjusted for the inflation factor. Y-O-Y inflation through September 2017 was 2.2% or the same number as Y-O-Y through February 2018. The 10 year TIP's break-even inflation rate, which is the market's estimate for the annual average CPI over ten years, has gone up since September 2017: 10-Year Breakeven Inflation Rate Chart)Item # 6.A. Roth IRA TIP Dispositions on 9/8/17 (9/25/17 Post) What has changed between now and then is not the actual CPI annual increase but inflation expectations.
Yesterday, the one bond purchase price for the 2/15/42 maturity was 96.054 which was probably up some from the prior day:
I sold out of my last long duration TIP last November.
My last trade was to sell a .625% coupon TIP maturing in 2043, a security that I have bought and sold several times and no longer own. This bond was sold at 95.05 unadjusted for the "inflation factor". Item # 6.A. (11/26/17 Post)-Item 5.A. Bought Back 1 TIP .625% Coupon Maturing in 2043 at 93.375 (10/19/17 Post)
To receive a 1% current yield on a one bond TIP purchase, it was necessary to go to a 2045 maturity when I took this snapshot last Tuesday:
The preceding article discusses that concerns about future inflation is causing a surge in TIP purchases.
To emphasize a point made in several prior posts, a TIP will outperform a nominal treasury with the same maturity and bought at the same time when the actual annual average CPI rate over the bond's term is greater than the break-even inflation rate, and the investor holds until maturity. Lot's of ifs in that sentence.
When buying the TIP rather than the comparable term non-inflation protected security, the investor has to accept a meaningfully lower current yield and hope that the inflation accretion to the TIP's principal will end up providing a greater return over time.
2012 Daily Treasury Real Yield Curve Rates
2017 Daily Treasury Real Yield Curve Rates
2018 Daily Treasury Real Yield Curve Rates
2012 Daily Treasury Yield Curve Rates
2018 Daily Treasury Yield Curve Rates
A vintage TIP does not provide full protection against a rise in nominal interest rates caused by inflation since the rise in nominal rates will generally cause the TIP's current yield to rise as well.
The only way for a vintage TIP's current yield to compensate for that increase in non-inflation protected security yields is to go down in price.
The investor can see that process in action by looking at how TIP and non-inflation protected treasuries moved in price when the nominal rates started to rise in early September 2017 through today.
Stocks, Bonds & Politics: TIP Trading in the Secondary Market
Update On Buying TIPs In The Secondary Market - South Gent | Seeking Alpha
The Mechanics Of Purchasing A TIP In The Secondary Market - South Gent | Seeking Alpha
I will own and trade individual TIPs in my Roth IRA account. As trades, the long duration TIPs provide the most up and down movement. I am referring to TIPs moving in the 2038 to 2048 time frame (20 to 30 year TIPs).
For example, I sold a .75% TIP maturing on 2/15/42 at 99.6 unadjusted for the inflation factor. Y-O-Y inflation through September 2017 was 2.2% or the same number as Y-O-Y through February 2018. The 10 year TIP's break-even inflation rate, which is the market's estimate for the annual average CPI over ten years, has gone up since September 2017: 10-Year Breakeven Inflation Rate Chart)Item # 6.A. Roth IRA TIP Dispositions on 9/8/17 (9/25/17 Post) What has changed between now and then is not the actual CPI annual increase but inflation expectations.
Yesterday, the one bond purchase price for the 2/15/42 maturity was 96.054 which was probably up some from the prior day:
My last trade was to sell a .625% coupon TIP maturing in 2043, a security that I have bought and sold several times and no longer own. This bond was sold at 95.05 unadjusted for the "inflation factor". Item # 6.A. (11/26/17 Post)-Item 5.A. Bought Back 1 TIP .625% Coupon Maturing in 2043 at 93.375 (10/19/17 Post)
To receive a 1% current yield on a one bond TIP purchase, it was necessary to go to a 2045 maturity when I took this snapshot last Tuesday:
Sea Change Is Underway in Money Markets for Banks, Investors - Bloomberg
Have Treasury Yields Peaked for 2018? BMO Thinks So - Bloomberg While longer term treasury bond yields may have peaked for 2018, I view that outcome as a low probability scenario based on what it is known now.
The dominant trend in U.S. interest rates remains up IMO.
It is certainly possible that inflation will remain range bound near 2% as the FED continues to hike short term rates. At some point in that process, the Bond Ghouls may react by taking longer duration bonds up in price and down in yield, squeezing the spread between the 2 year treasury and the 10 year treasury note.
When the FED started to raise the FF rate from 1% in 2004, the initial reaction was for the 10 year treasury yield to decline, but the yield was over 4%.
Another factor that would impact the economy and interest rates would be a trade war involving China. It is hard to say how the Bond Ghouls will react to such an event. The trade war would be inflationary as to the products impacted by the tariffs and potentially deflationary as the economy and markets weaken, possibly even turning into a recession and a stock market rout. Then, there is the flight to safety issue that could be a factor independent of inflation that would drive yields lower.
Have Treasury Yields Peaked for 2018? BMO Thinks So - Bloomberg While longer term treasury bond yields may have peaked for 2018, I view that outcome as a low probability scenario based on what it is known now.
The dominant trend in U.S. interest rates remains up IMO.
It is certainly possible that inflation will remain range bound near 2% as the FED continues to hike short term rates. At some point in that process, the Bond Ghouls may react by taking longer duration bonds up in price and down in yield, squeezing the spread between the 2 year treasury and the 10 year treasury note.
When the FED started to raise the FF rate from 1% in 2004, the initial reaction was for the 10 year treasury yield to decline, but the yield was over 4%.
Another factor that would impact the economy and interest rates would be a trade war involving China. It is hard to say how the Bond Ghouls will react to such an event. The trade war would be inflationary as to the products impacted by the tariffs and potentially deflationary as the economy and markets weaken, possibly even turning into a recession and a stock market rout. Then, there is the flight to safety issue that could be a factor independent of inflation that would drive yields lower.
++++++
Trump:
White House proposes arming teachers, backpedals on raising age to buy guns - CNN
Rex Tillerson lasted nearly 41 ‘Scaramuccis’ in the Trump administration - MarketWatch
Donald fired Rex with a tweet. Donald has always been, and always will be an asshole.
Trump has appointed as the next Secretary of State a former GOP congressman, Mike Pompeo, who was known a Koch Brother's boy when he was in Congress. The Koch Brothers Get Their Very Own Secretary of State | The Nation On behalf of his patrons whose oil and chemical operations are based in Pompeo's former Kansas congressional district, Pompeo vehemently opposed any efforts made during the Obama administration to combat climate change, believing, as do his patrons for financial reasons, that man does not contribute to the atmosphere's warming.
Pompeo has no diplomatic skills and lacks any temperament for diplomacy. At least Tillerson had the restrained tone and personality suited for a diplomat. Pompeo is a yes man for Donald and does "think" like Trump according to Donald himself. Donald Trump Fires Rex Tillerson: Transcript | Time I expect Pompeo to be confirmed by the Senate.
Trump wants to replace Pompeo as the CIA's Director with Gina Haspel who was directly involved in CIA's torture operations which Trump supports. McCain: Trump’s CIA pick was involved in ‘one of the darkest chapters in American history’; Trump would bring back waterboarding and 'a hell of a lot worse' | Daily Mail Online Haspel's confirmation is in doubt.
Perhaps Hope Hicks could come back as National Security Advisor when Donald fires General McMaster. An “Idiot” and a “Dope”: McMaster Reportedly Unloads on Trump During a Private Dinner | Vanity Fair
++
White House proposes arming teachers, backpedals on raising age to buy guns - CNN
Rex Tillerson lasted nearly 41 ‘Scaramuccis’ in the Trump administration - MarketWatch
Donald fired Rex with a tweet. Donald has always been, and always will be an asshole.
Trump has appointed as the next Secretary of State a former GOP congressman, Mike Pompeo, who was known a Koch Brother's boy when he was in Congress. The Koch Brothers Get Their Very Own Secretary of State | The Nation On behalf of his patrons whose oil and chemical operations are based in Pompeo's former Kansas congressional district, Pompeo vehemently opposed any efforts made during the Obama administration to combat climate change, believing, as do his patrons for financial reasons, that man does not contribute to the atmosphere's warming.
Pompeo has no diplomatic skills and lacks any temperament for diplomacy. At least Tillerson had the restrained tone and personality suited for a diplomat. Pompeo is a yes man for Donald and does "think" like Trump according to Donald himself. Donald Trump Fires Rex Tillerson: Transcript | Time I expect Pompeo to be confirmed by the Senate.
Trump wants to replace Pompeo as the CIA's Director with Gina Haspel who was directly involved in CIA's torture operations which Trump supports. McCain: Trump’s CIA pick was involved in ‘one of the darkest chapters in American history’; Trump would bring back waterboarding and 'a hell of a lot worse' | Daily Mail Online Haspel's confirmation is in doubt.
Perhaps Hope Hicks could come back as National Security Advisor when Donald fires General McMaster. An “Idiot” and a “Dope”: McMaster Reportedly Unloads on Trump During a Private Dinner | Vanity Fair
++
In his 3/10/18 speech, Trump suggested that the U.S. start executing drug dealers, like they do in the Philippines. Trump in Campaign Mode on Steel, Drug-Dealer Death Penalty Idea - Bloomberg
It was not clear from his remarks whether he supported executing drug dealers before a trial or after a conviction, though I doubt this distinction mattered to those cheering that remark.
Philippine president Duterte needs psychiatric evaluation, says UN chief-The Guardian; Philippines: Duterte’s ‘Drug War’ Claims 12,000+ Lives | Human Rights Watch
In that recent PA speech in support of Rick Saccone, Trump managed to read his prepared remarks for about 5 minutes before going off into another tirade spewing personal ad hominem attacks at his political opponents or anyone whose name occurred to him while his big mouth was moving. The 64 most outrageous lines from Donald Trump's untethered Pennsylvania speech-CNN
Saccone will be remembered by many for saying that his opponents hated the US and hated GOD. Democrats Hate America, Trump and God, Rick Saccone Says The True Believers eat that stuff up. Saccone needed to add to those comments that Hillary needed to be locked up in a solitary confinement as soon as possible and kept their even after her demise from natural causes.
++
It was not clear from his remarks whether he supported executing drug dealers before a trial or after a conviction, though I doubt this distinction mattered to those cheering that remark.
Philippine president Duterte needs psychiatric evaluation, says UN chief-The Guardian; Philippines: Duterte’s ‘Drug War’ Claims 12,000+ Lives | Human Rights Watch
In that recent PA speech in support of Rick Saccone, Trump managed to read his prepared remarks for about 5 minutes before going off into another tirade spewing personal ad hominem attacks at his political opponents or anyone whose name occurred to him while his big mouth was moving. The 64 most outrageous lines from Donald Trump's untethered Pennsylvania speech-CNN
Saccone will be remembered by many for saying that his opponents hated the US and hated GOD. Democrats Hate America, Trump and God, Rick Saccone Says The True Believers eat that stuff up. Saccone needed to add to those comments that Hillary needed to be locked up in a solitary confinement as soon as possible and kept their even after her demise from natural causes.
++
Senators Worry Trump Will Get Played by Kim Jong-Un ("the North Korean regime has desired a face-to-face meeting with a U.S. president for decades, and that his acceptance already counts as a major propaganda win for Kim. And his impulsive “yes” ran against years of U.S. foreign policy doctrine, which mandated that North Korea give up its nuclear weapons program altogether before the U.S. would dignify it with a meeting.")
Trump: “I think North Korea is going to go very well. I think we will have tremendous success … they promised they wouldn’t be shooting off missiles in the meantime, and they’re looking to de-nuke. They’re gonna be great.”
Maybe Trump's approach will work. Some pundits argue that a different approach is needed since nothing tried by previous administrations has worked out. One major concern is what will Trump do when NK does not do what Trump demands of them.
++
Emails show Ben, Candy Carson selected $31,000 dining set - CNN
I certainly understand why Donald wants to quash the free press. His sycophants at Fox and elsewhere are not likely to contradict his reality creations with facts or to report anything that may be even remotely embarrassing while lavishly singing his praises 24/7.
++
Some Trump voters are apparently tiring of Donald and their displeasure is rubbing off on other republican candidates.
A strong signal was sent to the republicans by Conor Lamb's likely win in the PA's 18th congressional district last Tuesday. Paul Ryan claims that Lamb is a conservative. He is what I would call a blue dog Democrat who is left of center and center to center-right on issues like gun control.
Ryan and other republicans will spin Lamb's performance in a district that Trump carried by 20% in a variety of ways. "The margin shift is similar to what we saw in Kansas's 4th District (where the Democrat bettered Hillary Clinton's margin of defeat by 21 points), Montana's at-large district (15 points), South Carolina's 5th District (15) and the Alabama Senate race (29). And special elections for state legislature seats have often seen even bigger shifts". 3 big numbers from the Pennsylvania special election — in context - The Washington Post
Notwithstanding their spin, the message is clear when looking at the recent voting patterns.
The GOP is rapidly losing support in the suburbs and among independents, and their domination in rural areas is becoming less so.
The professional republican politicians have to be concerned with Trump's approval ratings and whether their full embrace of a republican party remade in Trump's image is going to have legs or will turn toxic for many of them.
It is unique for a U.S. President to have such low ratings when the economy is doing so well. Donald Trump Approval Rating Still Makes Him the Least Popular President in Recent History
What will his ratings be when there is a recession, an exploding federal deficit, and the DJIA and S & P 500 giving up all or a significant part of their gains since the last election? If that happens before the November 2018 election, you can stick a fork in the GOP chances to maintain control over the House and possibly the Senate even with the odds decidedly stacked in their favor. 10 Senate seats most likely to flip in 2018 - CNN
Trump Job Approval (Weekly)
+++
The Farcical House Intelligence I21nvestigation of Russia's Meddling in the 2016 Election:
The republicans on the House Intelligence Committee, the one chaired by Devin Nunes, have concluded that there was no collusion between Russia and Trump, and that Russia did not intervene in the election on behalf of Trump. Putin would be so proud of them. The later conclusion is of course 100% at odds with the consensus opinion of the intelligence agencies.
The republicans will issue their report which will be challenged by the Democrats who will be releasing their own report. House Republicans find no evidence of collusion as they wrap up Russia probe - CNN
So far, the Democrats responded to the GOP's shutdown with a 21 page letter published on March 13th: Status of the Russia Investigation.pdf
If the Democrats win control over the House this November, then I would anticipate that the investigation will be reopened with new witnesses subpoenaed and court motions filed to compel testimony where witnesses simply refused to answer questions and the republican majority let them get away with it.
The effort could be part of a broader investigation by the Democrats, over 100% republican opposition, to determine whether articles of impeachment should be filed against Trump.
Personally, I think the Democrats just need to let it go unless Mueller turns up something that would clearly warrant Trump's impeachment even to some GOP politicians. Enough is known now about how Russia meddles in Western elections to get really serious about preventive measures. And what preventive measures has Trump proposed?
Mike Conaway (R-TX) argues that the meeting in Trump tower, where Don Jr., Manafort and Kushner hoped to receive dirt on Hillary from the Russians, does not establish collusion or even an effort to cooperate, but was merely "ill-advised." Apparently, in Conaway's worldview, it would only be an intent to cooperate if Hillary did the exact same thing. Conaway is just another political hack willing to lick turd off Trump's shoes.
That meeting was clear evidence of the Trump campaign's intent to cooperate with the Russians, but is not, without more details, evidence of actual collusion IMO. I have not seen any evidence yet of actual collusion as opposed to an intent to collude.
Conaway and the other republicans on this House Committee ran a farcical investigation into Russia's meddling in the 2016 election. Their investigation from start to finish was just a sham and a pretense. As shown by their conduct over the past several months, those republicans, particularly Devin Nunes, were far more interested in obstructing an honest investigation of Russia's interference, providing cover for Trump, and attempting to redirect focus back to Hillary's conduct before the election.
Trump: “I think North Korea is going to go very well. I think we will have tremendous success … they promised they wouldn’t be shooting off missiles in the meantime, and they’re looking to de-nuke. They’re gonna be great.”
Maybe Trump's approach will work. Some pundits argue that a different approach is needed since nothing tried by previous administrations has worked out. One major concern is what will Trump do when NK does not do what Trump demands of them.
++
Emails show Ben, Candy Carson selected $31,000 dining set - CNN
I certainly understand why Donald wants to quash the free press. His sycophants at Fox and elsewhere are not likely to contradict his reality creations with facts or to report anything that may be even remotely embarrassing while lavishly singing his praises 24/7.
++
Some Trump voters are apparently tiring of Donald and their displeasure is rubbing off on other republican candidates.
A strong signal was sent to the republicans by Conor Lamb's likely win in the PA's 18th congressional district last Tuesday. Paul Ryan claims that Lamb is a conservative. He is what I would call a blue dog Democrat who is left of center and center to center-right on issues like gun control.
Ryan and other republicans will spin Lamb's performance in a district that Trump carried by 20% in a variety of ways. "The margin shift is similar to what we saw in Kansas's 4th District (where the Democrat bettered Hillary Clinton's margin of defeat by 21 points), Montana's at-large district (15 points), South Carolina's 5th District (15) and the Alabama Senate race (29). And special elections for state legislature seats have often seen even bigger shifts". 3 big numbers from the Pennsylvania special election — in context - The Washington Post
Notwithstanding their spin, the message is clear when looking at the recent voting patterns.
The GOP is rapidly losing support in the suburbs and among independents, and their domination in rural areas is becoming less so.
The professional republican politicians have to be concerned with Trump's approval ratings and whether their full embrace of a republican party remade in Trump's image is going to have legs or will turn toxic for many of them.
It is unique for a U.S. President to have such low ratings when the economy is doing so well. Donald Trump Approval Rating Still Makes Him the Least Popular President in Recent History
What will his ratings be when there is a recession, an exploding federal deficit, and the DJIA and S & P 500 giving up all or a significant part of their gains since the last election? If that happens before the November 2018 election, you can stick a fork in the GOP chances to maintain control over the House and possibly the Senate even with the odds decidedly stacked in their favor. 10 Senate seats most likely to flip in 2018 - CNN
Trump Job Approval (Weekly)
+++
The Farcical House Intelligence I21nvestigation of Russia's Meddling in the 2016 Election:
The republicans on the House Intelligence Committee, the one chaired by Devin Nunes, have concluded that there was no collusion between Russia and Trump, and that Russia did not intervene in the election on behalf of Trump. Putin would be so proud of them. The later conclusion is of course 100% at odds with the consensus opinion of the intelligence agencies.
The republicans will issue their report which will be challenged by the Democrats who will be releasing their own report. House Republicans find no evidence of collusion as they wrap up Russia probe - CNN
So far, the Democrats responded to the GOP's shutdown with a 21 page letter published on March 13th: Status of the Russia Investigation.pdf
If the Democrats win control over the House this November, then I would anticipate that the investigation will be reopened with new witnesses subpoenaed and court motions filed to compel testimony where witnesses simply refused to answer questions and the republican majority let them get away with it.
The effort could be part of a broader investigation by the Democrats, over 100% republican opposition, to determine whether articles of impeachment should be filed against Trump.
Personally, I think the Democrats just need to let it go unless Mueller turns up something that would clearly warrant Trump's impeachment even to some GOP politicians. Enough is known now about how Russia meddles in Western elections to get really serious about preventive measures. And what preventive measures has Trump proposed?
Mike Conaway (R-TX) argues that the meeting in Trump tower, where Don Jr., Manafort and Kushner hoped to receive dirt on Hillary from the Russians, does not establish collusion or even an effort to cooperate, but was merely "ill-advised." Apparently, in Conaway's worldview, it would only be an intent to cooperate if Hillary did the exact same thing. Conaway is just another political hack willing to lick turd off Trump's shoes.
That meeting was clear evidence of the Trump campaign's intent to cooperate with the Russians, but is not, without more details, evidence of actual collusion IMO. I have not seen any evidence yet of actual collusion as opposed to an intent to collude.
Conaway and the other republicans on this House Committee ran a farcical investigation into Russia's meddling in the 2016 election. Their investigation from start to finish was just a sham and a pretense. As shown by their conduct over the past several months, those republicans, particularly Devin Nunes, were far more interested in obstructing an honest investigation of Russia's interference, providing cover for Trump, and attempting to redirect focus back to Hillary's conduct before the election.
++++++++++
1. Small Ball: MREITs and BDCs:
A. Bought 10 NRZ at $16.38 and 5 at $16.18-Used Commission Free Trades:
This is a new entrant into my small odd lot "buying programs".
Quote: New Residential Investment Corp. (NRZ)
Website: New Residential Investment Corp.
Excess MSRs
Servicer Advances
Non Agency RMBS & Associated Call Rights
Other Investments
Dividends: Quarterly at $.5 per share
Total Cost Per Share (15 Shares) = $16.313
Dividend Yield: 12.26%
Tax Classification 2017 Dividends:
New Residential Announces Tax Treatment of 2017 Dividends
2017 4th Quarter Report:
New Residential Announces Fourth Quarter & Full Year 2017 Results
CEO Michael Nierenberg on Q4 2017 Results-Earnings Call Transcript | Seeking Alpha
Closing Price on 3/14/18: NRZ $17.09 +$0.07 +0.41%
B. Added 10 AGNC at $18.15-Used Commission Free Trade:
Quote: AGNC Investment Corp. (AGNC)
Current Position: 70+ Shares
Total Average Cost Per Share = $18.62
Dividend: Monthly at $.18 per share
I am currently reinvesting the dividend. I will turn that option off when the price exceeds the net asset value per share.
Dividend Yield at ATC (average total cost)= 11.6%
Last Substantive Discussions:
Added 10 AGNC at $18.57 (2/26/18 Post)
Item # 6 Bought 50 AGNC at $18.72-Used Commission Free Trade (2/1/18 Post)
2017 Sells:
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)
Closing Price on 3/14/18: AGNC $18.80 +$0.01 +0.05%
C. Added 10 SCM at $11.10-Used Commission Free Trade:
Quote: Stellus Capital Investment Corp. (SCM)
2017 Annual Report SEC Form 10-K (risk factor discussion starts at page 29 and ends at page 56).
The list of investments can be found starting at page 89 of the annual report.
Five Year Historical Results Through 2017:
For a BDC, and I am speaking relatively for this sector, net asset value per share has remained relatively stable. Note the use of the word "relatively" twice in the preceding sentence.
Industry Concentration:
Net Asset Value Per Share: $13.81 as of 12/31/17, up from $13.69 as of 12/31/16
Current Position: 70 Shares (currently in "10 share buying program" with the next buy having to be below $11.1)
I may round up to 100 shares before my commission free trades expire in August. I currently have 207 commission free trades left in this account.
Average Cost Per Share: $11.75
Dividends: Monthly at $.1133 or $1.36 annually
Stellus Capital Investment Corporation Declares First Quarter 2018 Regular Dividend of $0.34 Per Share
Dividend Yield at Total Average Cost Per Share: 11.57%
Recent Earnings Report:
Stellus Capital Investment Corporation Reports Results for its Fourth Fiscal Quarter and Year Ended 12/31/17
Subsequent to this last purchase, SCM reported results for the 2017 4th quarter.
As of 12/31/17, SCM's portfolio "included approximately 38% of first lien debt, 48% of second lien debt, 7% of unsecured debt and 7% of equity investments at fair value. Our debt portfolio consisted of 87% floating rate investments (subject to interest rate floors) and 13% fixed rate investments."
As shown in the preceding snapshot, a problem is that net investment income per share was reported at $.28 for the Q/E 12/31/17, while the quarterly dividend, paid in monthly installments, is $.34 per share. NII was 3 cents per share below the consensus estimate.
During the conference call, management indicated that it was their intent to cover the dividend amount through investment income realized from investments purchased with the additional capital raised last year, by drawing down its credit facility and by using the remaining $60M available under its SBIC debentures: Earnings Call Transcript (pages 4-5) The capital raised through debt will increase leverage and risk.
SCM was able to make up the shortfall in 2017 due to a total realized gain of $.31 per share. A persistent failure to cover the payout with net investment income will lead to a dividend cut.
In part, the shortfall is caused by a lag between repayments and new investments.
Several new investments were made in the 4th quarter and in 2018 prior to the earnings release.
2017 4th Quarter Activity:
2018 Activity to 3/6/18:
CEO Robert Ladd on Q4 2017 Results - Earnings Call Transcript | Seeking Alpha (there were two non-accruals at year end: Binder and Grupo San Pablo. A company formerly on non-accrual status, Hostway, came back during the quarter on accrual status)
The Binder loan is listed at a $400K principal amount and a fair market value of #380K as of 12/31/17.
The Grupo San Pablo loans are more serious. SCM has a $4.1+M second lien note that has already been written down to $900K as of 12/31/17.
A first lien note in the amount of $4.75M has been written down to $4.18M and represented 1.9% of net assets as of 12/31/17.
As of 12/31/16, the two Grupo loans were valued at $8.229M so there has already been a substantial write-down. It is my understanding that this borrower owns 4 hospitals in Puerto Rico.
This comment was made about these loans in the earnings call: "As you know, this is a hospital system based in Puerto Rico that like many businesses were affected by the hurricane. So we’ve tried to mark the position on the second lien and the first for that matter at our best estimate of value. But more to come and one thing we do know is this is a very important hospital system in Puerto Rico and was up and running very shortly after the hurricane struck."
In the first trading session after the earnings release, the shares closed at $11.43 (3/6/18), down 1.55%.
Closing Price on 3/14/18: SCM $11.92 +$0.01 +0.08%
2. More Small Ball:
A. Added 5 ENB at $32.58, 2 at $31.92 and 2 at $31.45-Used Commission Free Trades:
1. Small Ball: MREITs and BDCs:
A. Bought 10 NRZ at $16.38 and 5 at $16.18-Used Commission Free Trades:
This is a new entrant into my small odd lot "buying programs".
Quote: New Residential Investment Corp. (NRZ)
Website: New Residential Investment Corp.
Excess MSRs
Servicer Advances
Non Agency RMBS & Associated Call Rights
Other Investments
Dividends: Quarterly at $.5 per share
Total Cost Per Share (15 Shares) = $16.313
Dividend Yield: 12.26%
Tax Classification 2017 Dividends:
2017 4th Quarter Report:
CEO Michael Nierenberg on Q4 2017 Results-Earnings Call Transcript | Seeking Alpha
Closing Price on 3/14/18: NRZ $17.09 +$0.07 +0.41%
B. Added 10 AGNC at $18.15-Used Commission Free Trade:
Quote: AGNC Investment Corp. (AGNC)
Current Position: 70+ Shares
Total Average Cost Per Share = $18.62
Dividend: Monthly at $.18 per share
I am currently reinvesting the dividend. I will turn that option off when the price exceeds the net asset value per share.
Dividend Yield at ATC (average total cost)= 11.6%
Last Substantive Discussions:
Added 10 AGNC at $18.57 (2/26/18 Post)
Item # 6 Bought 50 AGNC at $18.72-Used Commission Free Trade (2/1/18 Post)
2017 Sells:
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)
Closing Price on 3/14/18: AGNC $18.80 +$0.01 +0.05%
C. Added 10 SCM at $11.10-Used Commission Free Trade:
Quote: Stellus Capital Investment Corp. (SCM)
2017 Annual Report SEC Form 10-K (risk factor discussion starts at page 29 and ends at page 56).
The list of investments can be found starting at page 89 of the annual report.
Five Year Historical Results Through 2017:
Industry Concentration:
Net Asset Value Per Share: $13.81 as of 12/31/17, up from $13.69 as of 12/31/16
Current Position: 70 Shares (currently in "10 share buying program" with the next buy having to be below $11.1)
I may round up to 100 shares before my commission free trades expire in August. I currently have 207 commission free trades left in this account.
Average Cost Per Share: $11.75
Dividends: Monthly at $.1133 or $1.36 annually
Stellus Capital Investment Corporation Declares First Quarter 2018 Regular Dividend of $0.34 Per Share
Dividend Yield at Total Average Cost Per Share: 11.57%
Recent Earnings Report:
Stellus Capital Investment Corporation Reports Results for its Fourth Fiscal Quarter and Year Ended 12/31/17
Subsequent to this last purchase, SCM reported results for the 2017 4th quarter.
As of 12/31/17, SCM's portfolio "included approximately 38% of first lien debt, 48% of second lien debt, 7% of unsecured debt and 7% of equity investments at fair value. Our debt portfolio consisted of 87% floating rate investments (subject to interest rate floors) and 13% fixed rate investments."
During the conference call, management indicated that it was their intent to cover the dividend amount through investment income realized from investments purchased with the additional capital raised last year, by drawing down its credit facility and by using the remaining $60M available under its SBIC debentures: Earnings Call Transcript (pages 4-5) The capital raised through debt will increase leverage and risk.
SCM was able to make up the shortfall in 2017 due to a total realized gain of $.31 per share. A persistent failure to cover the payout with net investment income will lead to a dividend cut.
In part, the shortfall is caused by a lag between repayments and new investments.
Several new investments were made in the 4th quarter and in 2018 prior to the earnings release.
2017 4th Quarter Activity:
2018 Activity to 3/6/18:
CEO Robert Ladd on Q4 2017 Results - Earnings Call Transcript | Seeking Alpha (there were two non-accruals at year end: Binder and Grupo San Pablo. A company formerly on non-accrual status, Hostway, came back during the quarter on accrual status)
The Binder loan is listed at a $400K principal amount and a fair market value of #380K as of 12/31/17.
The Grupo San Pablo loans are more serious. SCM has a $4.1+M second lien note that has already been written down to $900K as of 12/31/17.
A first lien note in the amount of $4.75M has been written down to $4.18M and represented 1.9% of net assets as of 12/31/17.
As of 12/31/16, the two Grupo loans were valued at $8.229M so there has already been a substantial write-down. It is my understanding that this borrower owns 4 hospitals in Puerto Rico.
This comment was made about these loans in the earnings call: "As you know, this is a hospital system based in Puerto Rico that like many businesses were affected by the hurricane. So we’ve tried to mark the position on the second lien and the first for that matter at our best estimate of value. But more to come and one thing we do know is this is a very important hospital system in Puerto Rico and was up and running very shortly after the hurricane struck."
In the first trading session after the earnings release, the shares closed at $11.43 (3/6/18), down 1.55%.
Closing Price on 3/14/18: SCM $11.92 +$0.01 +0.08%
2. More Small Ball:
A. Added 5 ENB at $32.58, 2 at $31.92 and 2 at $31.45-Used Commission Free Trades:
ENB has been getting its ass kicked by investors. One concern is ENB's gigantic debt load and rising interest rates. Long term debt was at C$60.865B as of 12/31/17. (see note 17 starting at page 151 of the 2017 Annual Report) The last debt sale was last February and consisted of US$850M of 6.25% of fixed-to-floating subordinated notes maturing in 2078 unless redeemed early.
Debt service costs may be the primary reason explaining the recent decline in ENB's ordinary share priced in Canadian Dollars, made worse for owners of U.S. priced ENB shares traded on the NYSE due to the most recent decline in the Canadian Dollar's value against the USD.
Position: 54+ Shares
Average Cost Per Share = $35.17
Next Purchase: Must be below $31.45, the lowest price paid in this "buying program".
Quote: Enbridge Inc. (ENB)
Website: Home - Enbridge Inc.
2017 Annual Report
Map of Operations:
Dividends: Paid Quarterly in Canadian Dollars at the current rate of C$.671 per share. Converted into U.S. Dollars for ENB's owners. The dividend is subject to Canada's 15% withholding tax when held in a U.S. citizens taxable account. The dividend will be exempt from withholding when held in a U.S. citizens retirement account provided the investor's broker claims a U.S. citizens treaty rights.
Convert CAD/USD. Canada Dollar to United States Dollar
Enbridge Dividend History and Securities Info - Enbridge Inc.
I am reinvesting the dividend. My last reinvestment price was at $31.44 on 3/2/18.
The dividend yield for an ENB owner will depend on the CAD/USD conversion rate when the CAD dividend is converted into USDs.
Most Recent Substantive Discussion: Item 3. Added 20 ENB at $36.5 (11/17/17 Post)
Last Two Sells: Item # 3 Sold 50 ENB at $39.03 (12/21/17 Post); Sold 10 ENB at $40.14
Recent Earnings Report: Q/E 12/31/17
Enbridge Inc. Reports Fourth Quarter 2017 Results
Group Performance Numbers:
B. Bought 10 CPB at $45.63 and 10 at $43.68-Used Commission Free Trades:
I now own 20 shares with an average cost per share of $44.66. In this "10 share buying program", my current limit is 30 shares. My next 10 share purchase will need to be below $42. Note that my prior purchases were 30 shares at $51 and then 20 at $45.72 and those two lots were sold at $49.74 on 11/17/17. The fact that I am reducing my purchases to ten share lots bought at the lowest prices shown in the preceding snapshot indicates that my confidence level in CPB's future is at a low ebb.
I sold 30 shares at $62.87 in January 2017 and would not hesitate to sell my current lots with a price move over $55.
Price History Shortly Prior to and After My Two Purchases on 2/21/18:
On 2/21/18, JPM maintained its overweight rating but reduced its price target to $48 from $50. That report may explain that unusual price action on 2/21, the day of my two 10 lot purchases, when the price opened at $46.11, hit an intra-day low of 42.82 and closed at $42.9.
I do not have access to that report. I do know that CPB held an analyst conference that day and maybe the JPM analyst heard something that he did not like.
CPB's problems are well known with the most important one being declining soup sales. Besides hurting revenue and profits, the long term decline in sales places CPB in a worse bargaining position regarding promotions and wholesale prices with high volume retailers that aggravates this problem. Walmart and CPB could not reach an agreement for a promotion late last year which hurt soup revenues. Campbell's Fight With Walmart Over Soup Is Hurting Sales | Fortune While I do not know any of the details of what caused this breakdown, it is probably due to what CPB would view as "damned if you do" and "damned if you don't" with WMT demanding too much given CPB's weak negotiating posture.
And, generally, there is widespread revenue declines or anemic revenue growth in the packaged food industry.
CPB has also had sporadic operational issues in its Bolthouse Farms products relating to recalls and supply issues.
Last Substantive Buy Discussions:
Item # 6.A. Added 20 CPB at $45.72 (10/16/17 Post)
Item #2: Bought Back 30 CPB at $51 (7/25/17 Post)
Lance Acquisition:
Since my last substantive discussion, the most important news item was CPB's agreement to buy the snack company Lance Snyder for $50 per share in an all cash transaction. Campbell to Acquire Snyder’s-Lance, Inc. to Expand in Faster-Growing Snacking Category
Products sold by Lance include "pretzels, sandwich crackers, pretzel crackers, potato chips, cookies, tortilla chips, restaurant style crackers, popcorn, nuts and other snacks."
Lance's-Snyder 2017 4th Quarter Report
While I do favor CPB increasing its snack exposure, I doubt that Lance will provide much in the way of organic growth. CPB has a good snack business in its Pepperidge Farm franchise which includes Goldfish crackers. Home - Pepperidge Farm
To finance this purchase, CPB recently sold $5.3B in new debt:
Recent CPB Earnings Report: Fiscal Quarter Ending 2/28/18.
Campbell Reports Second-Quarter Results
Let's just say this last quarter was another disappointing earnings report.
Campbell's Beats Fiscal Q2 Sales Expectations, Challenges Persist - Market Realist
Fiscal Year 2018 Guidance:
Recent Prior Sell Discussions:
Item # 3 Sold 50+ CPB at $49.73+(11/20/17 Post)
2017 Trading = +$280.36
At the time of my last purchase, Morningstar rated CPB 4 stars with a $52 price target. S & P had a 4 star rating and a $53 price target.
Closing Price on 3/14/18: CPB $44.20 +$0.26 +0.59%
All of the common stocks mentioned above did go up yesterday when the S & P 500 declined .57% and the DJIA went down by 1% as Boeing continued its slide. My Fidelity account was up yesterday primarily on the strength of longer duration bonds, the substantial underweight in equities, and the overall performance of common stock positions in that account.
3. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 1 GATX 2.5% SU Bond Maturing on 3/15/19:
I bought this bond with the proceeds from a 1 year, 1.1% WFC CD that matured on 3/1/18:
Finra Page: Bond Detail (prospectus linked):
Issuer: GATX Corp (GATX)
GATX Analyst Estimates
GATX Corporation Reports 2017 Fourth-Quarter and Full-Year Results
2017 Annual Report SEC Form 10-K (debt listed at page 85)
Last Bond Offering: 2021 Floating Rate Notes (3 month Libor + .72%)
Credit Ratings:
Bought at a Total Cost of 99.871
YTM at TC Then at 2.628%
Current Yield at TC = 2.5032%
B. Bought 1 Ryder System 2.65% SU Bonds Maturing on 3/2/20:
FINRA Page: Bond Detail (prospectus linked)
Issuer: Ryder System Inc. (R)
R Analyst Estimates
Ryder Reports Fourth Quarter and Full-Year 2017 Results, and Provides 2018 Forecast
Credit Ratings:
Fitch Expects to Rate Ryder's Senior Unsecured Notes 'A-' (2/21/18)
Bought at a Total Cost of 99.748
YTM at TC Then at 2.781%
Current Yield at TC = 2.6567%
C. Bought 1 Dow Chemical 2.85% SU Bond Maturing on 8/15/20:
FINRA Page: (prospectus linked)
Issuer: Dow Chemical, wholly owned subsidiary of DowDuPont Inc. (DWDP)
DWDP Analyst Estimates
2017 DWDP Annual Report
While my memory is not as good as it use to be, I recall generally that DowDuPont, as the parent entity, is not liable for the debt of its two subsidiaries, Dow Chemical and DuPont. The DuPont subsidiary has less debt and a higher credit rating at A- and A3. The debt originally issued by Dow Chemical is therefore considered higher risk than the debt originally issued by DuPont.
Dow Chemical is still reporting as a separate entity in addition to being consolidated with its parent DowDuPont.
2017 Dow Chemical Annual Report
Dow 10-Q for the Q/E 9/30/17
Credit Ratings:
Fitch Maintains Dow's 'BBB' IDR on Rating Watch Positive (8/10/17)
Bought at a Total Cost of 99.2
YTM at TC Then at 3.193%
Current Yield at TC = 2.873%
D. Bought 1 Laboratory Corporation of America 2.625% SU Bond Maturing on 2/1/20-In A Roth IRA Account:
This limit order was filled at a slightly lower price of 99.673 or 99.873 with the $2 commission.
This brings me up to 4 bonds with only 1 of those owned in a Roth IRA account.
FINRA PAGE: Bond Detail (prospectus linked)
Issuer: Laboratory Corp. of America (LH)
LH Analyst Estimates
LabCorp Announces Record 2017 Fourth Quarter and Full Year Results and Provides 2018 Guidance
Credit Ratings:
Bought at a Total Cost of 99.873 (with $2 Vanguard Commission)
YTM at TC Then at 2.691%
Current Yield at TC = 2.6534%
This was a somewhat marginal purchase in my Vanguard Roth IRA given the yield on the Vanguard Prime Money Market Fund. At the time of purchase, the SEC yield on that MM fund was 1.53% and will rise as the FED raises the federal funds rate. However, I doubt that the rate will surpass the YTM of this bond until late in 2019, so there is a yield advantage to the bond which matures on 2/1/20. There is also the possibility that a recession will occur in 2019 that will knock MM yields down as the FED lowers the FF rate.
E. Bought 1 Morgan Stanley 2.45% SU Bond Maturing on 2/1/19:
Finra Page: Bond Detail
Issuer: Morgan Stanley (MS)
MS Analyst Estimates
Credit Ratings:
Bought at a Total Cost of 99.945
YTM at TC Then at 2.511%
Current Yield at TC = 2.4513%
I took the following snapshot to highlight CD rates for similar maturities available at the time of this bond purchase:
F. ADDED 1 Treasury1.5% Coupon Maturing on 2/28/19:
YTM= 2.05%
I now own 4 bonds.
G. Added 1 Treasury 1.5% Coupon Maturing on 8/31/18-A Roth IRA account:
YTM = 1.803%
I now own 3 bonds.
4. Intermediate Term Bond/CD Ladder Basket Strategy:
A. BOUGHT 1 Laboratory Corporation of America 3.25% SU Bond Maturing on 9/1/24:
See Item 3.D. above for Details on the issuer
FINRA Page: Bond Detail
Bought at a Total Cost of 97.277
YTM at TC Then at 3.735%
Current Yield at TC = 3.341%
I am tip toeing into 2024 bond maturities where I can now pick up 3.5% to 4%. This was my first purchase of this bond. If interest rates continue to move up, I then have the option to buy more at higher yields. If a rise in short term rates and other factors precipitate a recession, then I may have the option of selling this bond profitably at over 100. LH's business is relatively recession resistant. This bond last traded at over 100 in early January 2018 (see FINRA chart)
I slashed my 2024 maturities last year and currently only have only $10K in principal amount coming due that year. Three positions are at 2 bonds each with the remainder at 1 bond. The three 2 bond positions are as follows: 3.1% Verizon 6/15/24; 3.125% Voya 7/15/24; and 4.25% Select Income 5/15/24. I view the current allocation as to light given my objectives and financial resources.
B. Bought 2 Duke Energy 3.05% SU Bonds Maturing on 8/15/22-A Roth IRA Account:
Finra Page: Bond Detail (prospectus linked)
Issuer: Duke Energy Corp. (DUK)
Bought at a Total Cost of 99.465
YTM at TC Then at 3.18%
Current Yield at TC = 3.0664%
At least the yield is tax free when owned in a Roth IRA.
With several recent additions, my 2022 maturities has been built back up to $48K. I will keep that level for several weeks and focus more on building up 2021 maturities where I am currently at $17K.
C. Another Issuer Partial Redemption of HTGX:
HTGX is an exchange traded senior unsecured bond issued by the BDC Hercules Capital (HTGC). The bond has a 6.25% coupon and matures in 2024 unless redeemed earlier by Hercules.
Hercules has the option to redeem this bonds at its $25 par value plus accrued and unpaid interest. That optional right came into being or or after 7/30/17.
After paring my position in this bond, I elected to keep 100 shares in a ROTH IRA that was bought at $24.98 Item # 3
Hercules first exercised its right to do a partial redemption last October: Hercules Announces Intention to Partially Redeem its 6.25% Notes Due 2024 I lost 29 of my 100 shares.
Hercules announced on 2/20/18 that it was going to do another partial redemption. Hercules Announces Intention to Partially Redeem its 6.25% Notes Due 2024 ("The redemption price will be par $25.00 per Note plus accrued and unpaid interest through, but excluding, the redemption date, April 2, 2018.")
My broker set aside 39 out of my remaining 71 shares to meet this redemption:
This is done to keep the investor from selling the shares subject to the redemption. If I sold 39 shares, I would have to buy back shares to fulfill the redemption obligation for 39 shares.
This trickle of partial redemptions is slightly aggravating.
Still, knowing that HTGC is going to exercise its redemption right, there is no reason for me to incur a brokerage commission to sell shares. The market price basically reflects the accrued interest plus the $25 par value.
5. Small Ball: Makers of Thingamajigs:
A. Sold 30 OCLR at $9.84:
Profit Snapshot: $88.78
Item # 1.B. Bought 30 OCLR at $6.88 (1/8/18 Post)
OCLR agreed to be acquired by Lumentum Holdings Inc. (LITE) for $5 in cash plus .0636 LITE shares for each OCLR share. Lumentum To Acquire Oclaro For $1.8B In Cash And Stock
I am using the word "thingamajigs" to highlight that I really do not understand the products being made and sold. I could drag and drop the company's description but that does not mean that I understand what the company is saying. Usually, the product falls under the heading of "technology" and is a component in another "technology" product.
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.
With several recent additions, my 2022 maturities has been built back up to $48K. I will keep that level for several weeks and focus more on building up 2021 maturities where I am currently at $17K.
C. Another Issuer Partial Redemption of HTGX:
HTGX is an exchange traded senior unsecured bond issued by the BDC Hercules Capital (HTGC). The bond has a 6.25% coupon and matures in 2024 unless redeemed earlier by Hercules.
Hercules has the option to redeem this bonds at its $25 par value plus accrued and unpaid interest. That optional right came into being or or after 7/30/17.
After paring my position in this bond, I elected to keep 100 shares in a ROTH IRA that was bought at $24.98 Item # 3
Hercules first exercised its right to do a partial redemption last October: Hercules Announces Intention to Partially Redeem its 6.25% Notes Due 2024 I lost 29 of my 100 shares.
Hercules announced on 2/20/18 that it was going to do another partial redemption. Hercules Announces Intention to Partially Redeem its 6.25% Notes Due 2024 ("The redemption price will be par $25.00 per Note plus accrued and unpaid interest through, but excluding, the redemption date, April 2, 2018.")
My broker set aside 39 out of my remaining 71 shares to meet this redemption:
This is done to keep the investor from selling the shares subject to the redemption. If I sold 39 shares, I would have to buy back shares to fulfill the redemption obligation for 39 shares.
This trickle of partial redemptions is slightly aggravating.
Still, knowing that HTGC is going to exercise its redemption right, there is no reason for me to incur a brokerage commission to sell shares. The market price basically reflects the accrued interest plus the $25 par value.
5. Small Ball: Makers of Thingamajigs:
A. Sold 30 OCLR at $9.84:
Profit Snapshot: $88.78
Item # 1.B. Bought 30 OCLR at $6.88 (1/8/18 Post)
OCLR agreed to be acquired by Lumentum Holdings Inc. (LITE) for $5 in cash plus .0636 LITE shares for each OCLR share. Lumentum To Acquire Oclaro For $1.8B In Cash And Stock
I am using the word "thingamajigs" to highlight that I really do not understand the products being made and sold. I could drag and drop the company's description but that does not mean that I understand what the company is saying. Usually, the product falls under the heading of "technology" and is a component in another "technology" product.
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.
Independence Realty Trust Inc.
ReplyDelete$9.04 +$0.05 +0.56%
https://www.marketwatch.com/investing/stock/irt
I mentioned earlier that this REIT was changing its distribution policy from monthly to quarterly payments. The monthly dividend was $.06 and I had some concerns that the REIT would reduce the rate when switching to the quarterly schedule.
IRT declared an $.18 per share quarterly dividend, which is unchanged from the prior rate.
https://www.businesswire.com/news/home/20180313006513/en/
There is widespread weakness today in the energy infrastructure sector.
ReplyDeleteEnterprise Products Partners L.P. (EPD)
$23.60 -$2.03 (-7.92%)
As of 11:56AM EDT
Magellan Midstream Partners, L.P. (MMP)
$57.42 -$6.29 (-9.87%)
As of 11:57AM EDT
JPMorgan Alerian MLP ETN (AMJ)
$23.66 -$2.49 (-9.54%)
As of 11:57AM EDT.
Since have minimal exposure to this sector (ENB discussed in this post and a few shares of the ETN AMU), I have not spent much time finding out the cause. I did not see anything specific.
This industry has complained that Trump's tariffs will raise their costs and cost jobs. A lot of steel goes into energy infrastructure.
There had to be a trigger for the selloff in MLP infrastructure stocks since they all cratered at the same time.
DeleteI now know the cause. The Federal Energy Regulatory Commission, which regulates rates, ruled that MLP companies can no longer recover an income tax allowance in cost of service rates.
https://www.marketwatch.com/story/tax-ruling-sparks-selloff-of-once-hot-mlps-and-other-energy-stocks-2018-03-15
https://www.ferc.gov/media/news-releases/2018/2018-1/03-15-18-G-2.asp#.Wqq8mZPwbuT
The FERC's ruling was in response to a U.S. Appellate Court ruling in United Airlines, Inc. v. FERC, (827 F.3d 122 (D.C. Cir. 2016) where the court held that FERC had no demonstrated the absence of a double recovery of income tax costs "when permitting SFPP, L.P., an MLP, to recover both an income tax allowance and a return on equity determined by the discounted cash flow methodology."
Previously, FERC had allowed the MLP an income tax allowance accounting for the taxes paid by partner-investors that are attributable to the partnership entity.
https://www.cadc.uscourts.gov/internet/opinions.nsf/0/034AB41AC788112485257FE30050BB3F/$file/11-1479-1622707.pdf
I am not sure what bearing that may have on non-MLPs like Enbridge or Kinder (KMI).
I am not going to think much about or research this issue in any depth. The declines simply have an aroma of an over-reaction, but I do not know enough about the financial impact from FERC's ruling to form an opinion.
DeleteENB does stakes in MLPs like Enbridge Energy Partners which is cratering today:
Enbridge Energy Partners L.P. Cl A
$10.88 -$2.225 -16.98%
https://www.marketwatch.com/investing/stock/eep
When ENB acquired Spectra Energy Inc., it acquired Spectra Energy's stake in Spectra Energy Partners.
Spectra Energy Partners L.P.
$35.01 -$4.79 -12.04%
Last Updated: Mar 15, 2018 at 3:01 p.m. EDT
https://www.marketwatch.com/investing/stock/sep
What I do not know is how the decision impacts "C" corporations that operate energy infrastructure properties who pay taxes at the corporate level or whether there is a remedy or work around by changing from a partnership to a regular corporation structure.
That may be the case since Kinder Morgan is down only fractionally:
Kinder Morgan Inc.
$16.29 -$0.13 -$0.79%
Last Updated: Mar 15, 2018 at 3:04 p.m. EDT
https://www.marketwatch.com/investing/stock/kmi
Intra-day, KMI traded as low at $15.07.
I did buy 2 ENB at $30.89 before I knew why energy infrastructure stocks were tanking. That was an automatic buy at below $31 using a commission free trade.
DeleteClosing Price Today: $31.46 -$1.63 -4.93%
Until I have a better understanding on the economic impact of FERC's ruling today, I will refrain from buying additional shares.
Washington Trust Bancorp Inc.
ReplyDelete$56.45 +$1.05 +1.90%
https://www.marketwatch.com/investing/stock/wash
I own 50 shares with a total average cost per share of $15.34. I have never reinvested a dividend payment which obviously has hurt my total return to date.
The rise today was probably linked to WASH's dividend increase. The quarterly dividend increase was $.04 per share with the new rate at $.43 per share. Based on the new rate, my yield at my constant average cost per share is now at 11.21%.
https://www.nasdaq.com/press-release/washington-trust-bancorp-inc-increases-quarterly-dividend-20180315-00888
My 50 share lot was part of a 100 share lot bought in 2010 at $15.26:
Item # 3
http://tennesseeindependent.blogspot.com/2010/01/sold-all-pgnbought-100-wash-at-1526sold.html
A few months after the purchase, Left Brain sold 50 of that 100 share lot at $22.44, realizing a gain of $347.03, arguing at the time as I recall that "you never go broke taking a profit".
Item # 2
http://tennesseeindependent.blogspot.com/2011/01/bought-50-gis-at-3553-sold-cef-eto-at.html
That sale provoked a heated discussion at the trading desk here memorialized in that post which I will quote for sake of posterity:
LB = Left Brain
RB: Right Brain
Headknocker: The Boss of Everything Here at HQ
"If LB had waited a few days, Headknocker observed, the shares in Washington Trust would have turned into a long term capital gain. LB noted that it is being distracted by the RB, a constant nuisance and noisemaker of ceaseless gibberish, whereupon the RB asserted that the LB continues to help our Uncle Sam in his hour of need by selling for short term capital gains. HK let it be known that he was not in favor of making charitable contributions to our destitute Uncle. While HK gave serious consideration to firing LB as the acting HT for the storied trading operation here at HQ, he thought that might make him appear fickle, possibly even lacking in understanding or sympathy to a few of our readers, having just appointed the Nerd as Head Trader after sending the Old Geezer ("OG") to the Old Folks Home for mental rehabilitation and electric shock therapy, in order to energize the OG's ten remaining functioning brain cells."
So reading that summary of what happened, it is clear that LB was to blame for selling 50 WASH at $22.44. RB, the OG, and Headknocker are clearly blameless.
Enbridge claims that it does not expect a material impact to "the previously disclosed financial guidance over the 2018-2020 horizon as a result of the Federal Energy Regulatory Commission (FERC) revised policy statement on interstate pipeline tax allowance recovery in Master Limited Partnerships (MLPs) nor from FERC's Notice of Proposed Rule-Making (NOPR)."
ReplyDeletehttps://www.newswire.ca/news-releases/enbridge-inc-does-not-expect-a-material-consolidated-financial-impact-as-a-result-of-ferc-revised-policy-statements-677068853.html
Note that this statement does not go beyond 2020.
There are several variables in assessing the impact based on my cursory review of the issues. I am not going to spend much time trying to understand the issues since my overall exposure is substantially below immaterial.
The MLPs do not believe that the FERC policy change will impact negotiated rates.
The policy change would not impact non-FERC regulated businesses. For Enbridge, that would include all of its Canadian operations and operations that are solely intrastate such as gathering/ processing and storage.
I also have a small position in Enbridge Income Holdings as previously discussed. Enbridge makes this statement about the impact on that company:
" Under the International Joint Toll mechanism, reductions in the EEP tariff will create an offsetting revenue increase on the Canadian Mainline system owned by Enbridge Income Fund Holdings Inc. (ENF). Financial guidance at ENF remains unchanged; however, this could provide a further tailwind for financial results. The combined impact at both EEP and ENF are offsetting for Enbridge on a consolidated basis."
So, the impact appears to be neutral on ENF and possibly even positive.
There appears to be two separate issues which is made clear in Kinder Morgan's press release.
https://www.businesswire.com/news/home/20180315006283/en/
One involves eliminating the master limited partnership tax allowance and the other involves the impact of lower C-corporation tax rates on FERC regulated rates.
Kinder is now a C-Corporation and is consequently not impacted by the MLP tax allowance issue.
The issue of how lower corporate income tax rates will impact existing and future rates appears to be more uncertain and potentially subject to litigation.
KMI believes that negotiated rates "should not be subject to adjustment due to changes in tax law". That appears to be an open issue with FERC.
Where there is no negotiated contract, and the FERC regulated pipeline rate was based in part on the prior law's income tax expense for C-Corporations, then that is apparently a complex issue.
Kinder notes that the FERC is permitting companies to file a statement "explaining why an adjustment to rates to reflect the Tax Act impact is not necessary." That implies future and uncertain litigation on this issue that may include whether the lower tax rates have to be passed through negotiated rate contracts.
Kinder then adds this comment:
" Also, many of our current transactions are provided at discounted rates that are below maximum tariff rates, many of which would not be impacted by a change in the maximum tariff rate. Further, on many of our pipelines we are operating under rate settlements that limit changes to their terms during the life of the settlement."
EPD Press Release:
"FERC Policy Revision to Have No Material Impact to Enterprise Financial Results"
https://www.businesswire.com/news/home/20180315006243/en/
It is important to always keep in mind what you know and do not know. I do not know the future. And, I do not know enough about FERC's rate-making in this area to make anything close to an informed decision on the matter or to dispute anything being said by the companies in response to FERC's change in policy. That is why I use the word "appears". Some of the company statements appear to be mushy with a a lot of loose ends.
Thank you for the updates, South Gent! Much appreciated, as usual.
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