Thursday, May 31, 2018

Observations and Sample of Recent Trades: GDO, HRZN, PWCDF, SGZA

I finished my home improvement project for this year. I had squeaky floors in several areas. The best way to repair those squeaks is to replace the carpet and then drive nails or screws through the floor into the joists. The squeaks are caused by smooth nails become loose over time which then allows the floor to move up and down creating the noise. 

Since I did not want to replace the carpet, I bought this product at Amazon. O'BERRY ENTERPRISES 3233 "SQUEEEEEK NO MORE" FLOOR REPAIR KIT  Instructions on how to use that kit can be found here: How to Repair Squeaky Floors Through Carpeting - This Old House - YouTube

My scanning device provided inconsistent results for finding the joists beneath the carpet and floor. I simply used a hammer to locate the joists which would give a distinctive sound when hit. A power drill is a necessary item along with a lot of screws.  Areas around beds and entrances into rooms will generally have the louder and more pervasive squeaks due to traffic placing pressure on the floor.



ADP reported that 178K private sector jobs were added in May. 

The government revised down its initial estimate of 2.3% real GDP growth in the first quarter to 2.2%. News Release: Gross Domestic Product  The 2017 4th growth rate was 2.9%. Excluding food and energy, the Personal Consumption Expenditure ("PCE") price index increased 2.3%.  Overall the PCE price index was up 2.7%. 

Delays and 'poison pills': team Trump runs out of road in NAFTA talks | Reuters


Markets and Market Commentary

The downdraft in the market last Tuesday was mostly due to Donald moving toward additional tariffs on China's exports to the U.S. White House plans to release final list of Chinese goods subject to tariffs by June 15 - MarketWatch

About one week earlier, the Treasury Secretary had eased investor concerns about a potential trade war by claiming that additional tariffs were "on hold".  

Almost nothing is gained in yield by buying a 30 or 20 year treasury bond compared to one maturing in five years. The spread between the 5 and 20 year treasury yields is less than .25%. 2018 Daily Treasury Yield Curve Rates



Trump's dishonesty, hostility to democratic norms and institutions,  and inherent demagoguery  are on display daily.  

In the following tweet snapshot, Trump claims that a White House source did not exist, but 50 reporters from several media outlets were present during that official's briefing and another 200 or so were on the conference call listening to that official. The White House official Trump says 'doesn't exist'Trump Falsely Says Times Made Up Source in Report on Korea Summit Meeting-The New York Times

This tweet, like thousands of other statements made by Donald, also demonstrates his persistent effort to undermine the free press. 

In another tweet, Trump blamed Democrats for breaking up immigrant families at the border. Trump is blaming Democrats for separating migrant families at the border.-The Washington Post ("In one of several misleading tweets during the holiday weekend, Trump pushed Democrats to change a “horrible law” that the president said mandated separating children from parents who enter the country illegally. But there is no law specifically requiring the government to take such action, and it’s also the policies of his own administration that have caused the family separation that advocacy groups and Democrats say is a crisis." emphasis added) 

One of more ridiculous Trump falsehood categories is to blame others for what he is doing or has done. 

Trump blames Democrats for his policy of separating migrant families at borderTrump Blames Dems for His Most Horrifying Immigration Policy Shameless is an inadequate characterization. Trumpsters could not be more vocal in support. 

Donald Trump's false claim that Nancy Pelosi 'came out in favor of MS-13' | PolitiFact

Did ex-intelligence chief Clapper say FBI spied on Trump campaign? No | PolitiFactTrump Misquotes Clapper on FBI 'Spy' -

Trump's Misleading L.A. Story -

With ‘Spygate,’ Trump Shows How He Uses Conspiracy Theories to Erode Trust - The New York Times  ("Mr. Trump’s willingness to peddle suspicion as fact has implications beyond the Russia inquiry. It is a vital ingredient in the president’s communications arsenal, a social media-fueled, brashly expressed narrative of dubious accusations and dark insinuations that allows him to promote his own version of reality.") In this particular case, Trump has taken aim at law enforcement, making unverified accusations of a "criminal deep state". 

Trump says investigation of 2016 election interference is now interfering with 2018 electionsPresident Donald Trump rips '13 Angry Democrats,' Mueller on Twitter

Trump is as close to being 100% untrustworthy as any human can be.    


This news item, if true, is more evidence of Trump's "corrupt intent" necessary to a criminal charge for obstruction of justice: Trump Asked Sessions to Retain Control of Russia Inquiry After His Recusal ("Mr. Trump, who had told aides that he needed a loyalist overseeing the inquiry, berated Mr. Sessions and told him he should reverse his decision, an unusual and potentially inappropriate request.")

Obstruction of justice does require a "corrupt intent" as an element of the crime. I have seen enough evidence to warrant an indictment against Donald for obstruction, but I doubt that Mueller will go down that rabbit hole. I would agree with those who argue that there is more evidence of Donald's obstruction than there was for Nixon. Any attempt at impeachment would be futile, even if the Democrats gain control over the House and the Senate, given the total lack of support among republicans and the 2/3rds requirement for a conviction. And it would be politically divisive if pursued with nothing to be gained other than fueling the partisan divide.  

Trump rips McCain at political rally

Ivanka Trump abruptly exits media call after questions on Chinese trademarks

Ambien maker Sanofi responds to Roseanne Barr: Racism is ‘not a known side effect’ - MarketWatch Ms. Barr referred to a prominent African America as a love child between an Ape and the Muslim Brotherhood. Trump refused to criticize Ms. Barr for her clearly racist comment but complained that he deserved an apology. Trump rips Disney CEO Bob Iger for defending Obama aide Jarrett after Roseanne Barr's racist tweet  That was not the first time Barr has compared an African American to an ape. Roseanne Barr compared Susan Rice, another black Obama official, to an ape in 2013 - CBS NewsInside Roseanne Barr’s history of offensive tweets: USA Today   


1. Small Ball:

A. Bought 10 GDO at $16.49-Used Commission Free Trade:

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

GDO is a global bond CEF that uses leverage. The fund will terminate on or about 12/2/24 and will return the proceeds from its investment to GDO's shareholders. WA Global Corporate Defined Opportunity Fund Inc. | Legg Mason

Data Date of Trade (5/21/18):

Closing Net Asset Value Per Share = $18.04
Closing Market Price = $16.53
Discount to Net Asset Value Per Share = -8.37%
Average Discounts: 
1 Year    -6.69%
3 Years  -8.56%
5 Years  -9.32%

Sourced: GDO Page at CEF Connect 

Last Substantive DiscussionItem # 2 Bought 50 GDO at $17.01 and 10 at $16.82-Used Commission Free Trades (2/22/18 Post)

Current Position: 91+ Shares

Maximum Position: 150 Shares

Purchase Restriction: Small Ball Rule (each new purchase has to be at the lowest price in the chain)

Average Total Cost Per Share = $16.85

Dividend Reinvestment: Yes at a greater than 5% discount to net asset value per share.

Dividend: Monthly, currently at $.101 per share

Legg Mason Partners Fund Advisor, LLC Announces Distributions for the Months of June, July and August 2018

The dividend penny rate has been trending down some. This is in part due to the increased cost of borrowed funds. That increase has caused a decrease in the net interest spread between the cost of borrowed money and the yield on bonds bought with those funds. As interest rates rise and bonds mature, the fund may be able to offset the decrease in that spread through the purchase of higher yielding bonds.

Generally speaking, the factors that would normally impact a leverage bond CEF's dividend level include the following: (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. 

The January 2018 dividend was at $.1135 per share. 

Last Ex Dividend Date:  5/24/18

Next Ex Dividend Date: 6/21/18 

Dividend Yield at a Total Average Cost of $16.85: 7.19% (using current monthly rate of $.101 per share or $1.212 annually) 

Last SEC Filed Fund InformationWSEC Form N-Q as of 1/31/18

Credit Quality Information as of 3/31/18

Leverage Information: 23.5% as of 3/31/18

GDO borrows money under a revolving credit agreement with the National Bank of Australia. The rate is short term and based on a spread to the short term Libor rate. (See Discussion at page 44: WA Global Corporate Defined Opportunity Fund Inc)

It is not a good idea to buy assets that go down in price with borrowed money whose carrying cost is rising.   

Duration as of 3/31/18: 5.75 Years

Duration and Interest Rate Movement InformationGet to know your bond fund: Duration | Vanguard

B. Bought 30 HRZN at $10.03-Used Commission Free Trade:

Quote Horizon Technology Finance Corp. (HRZN)

This is my first purchase of the micro cap BDC. I view it with significant disfavor. The market capitalization at a $10.03 is about $115.5M.

The BDC has a bad track record since its IPO as shown by its historical record. Realized losses have occurred every year for the past five years.

5 Year Operating History:

2017 Annual Report at page 58 (risk factor discussion starts at page 25 and ends at page 52)

While this BDC has no current non-performing loans, it did move two loans from "performing" to its watch list for the quarter.

A list of investments can be found starting at page 7 of the recently filed 10-Q.

HRZN SEC Filings

Net Asset Value Per Share History:

  3/31/18: $11.64

12/31/17: $11.72
12/31/16  $12.09 
12/31/15  $13.85
12/31/14  $14.36
12/31/13  $14.14
12/31/12  $15.15
12/31/11  $16.75

IPO at $16 in October 2010: Prospectus

Since I am using a commission free trade to buy a small lot, I am simply hoping to harvest a few dividends and to escape with a profit sometime later this year.

Dividends: Monthly at $.10 per share ($1.2 annually; $.30 quarterly)

Dividend Yield at $10.03 = 11.96%

Recent Earnings Report: Q/E 3/31/18

Horizon Technology Finance Announces First Quarter 2018 Financial Results

NII: $.28 per share (below $.3 per share dividend)

Net Asset Value Per Share = $11.65, down from $11.72 as of 12/31/17
Floating Rate Loans = 99% of outstanding
Warrant and Equity Positions in 76 portfolio companies
Annualized Portfolio Yield = 14.4% (includes loan prepayment fees)

CEO, Robert Pomeroy on Q1 2018 Results - Earnings Call Transcript | Seeking Alpha

2. Bought 50 PWCDF at $23.31-Used Commission Free Trade:


CAD Priced Shares: Power Corp. of Canada Stock Quote (Canada: Toronto)

USD Priced Shares:  (pink sheet exchange):  Power Corp. of Canada

Company: Power Corporation is a holding company that owns interests in other companies with the majority of its holdings concentrated in life insurance and financial service organizations. Power Corporation of Canada | Home 

Power Corporation of Canada | Organization Chart

Several of the companies included in the prior snapshot are publicly traded:

Power Financial Corp.  (Canada: Toronto)

Great-West Lifeco Inc. Stock Quote (Canada: Toronto)
IGM Financial Inc. (Canada: Toronto)
Groupe Bruxelles Lambert S.A.  (Belgium: Brussels)
Pargesa Holding S.A.  (Switzerland: SWX)

Prior Trades

Item # 4.A. Sold 100 PWCDF at $23.56 (7/22/17)-Item # 3.A. Bought 100 PWDCF at $22.14 (5/28/17 Post) 

Item # 4.A. Sold 100 PWCDF at $23.51Stocks, Bonds & Politics 3/20/17 (profit snapshot=+$237)-Bought 100 PWCDF at $21.05: Update For Portfolio Positioning And Management As Of 7/9/16 - South Gent | Seeking Alpha

Item # 1. Sold 400 POW:TO at C$31.05: Update For Portfolio Positioning And Management As Of 4/29/16 - South Gent | Seeking Alpha (USD Profit = $360.45)
Trading Profits to Date: $1,088.04

Dividend: The Board recently increased the quarterly dividend by 6.6% to C$.382 per share. The amount payable to the owners of PWCDF will depend on the CAD/USD conversion rate. Canada will withhold 15% when the dividend is paid into a U.S. citizen's taxable account, but there is no withholding when this stock is held in a U.S. citizen's retirement account. Those statements assume that an investor's brokerage company claims U.S. citizen tax treaty rights.     

Next Ex-Dividend Date: 6/7/18

Recent Earnings Report:  Q/E 3/31/18

Power Corporation Reports First Quarter Financial Results and Dividend Increase 

"Net earnings attributable to participating shareholders and adjusted net earnings attributable to participating shareholders (a non-IFRS financial measure) were $525 million or $1.13 per share, compared with net earnings of $258 million, or $0.56 per share, and adjusted net earnings of $269 million, or $0.58 per share, in 2017."

3. Short Term Bond/CD Ladder Basket Strategy

June Maturities  

SU Senior Unsecured Bond
CD Certificates of Deposit
(MI) Monthly Interest Payments 

1 Southern 1.5% SU 6/1/18 (bought in December 2016)
2 FNB CDs 1.4% 6/6  (6 month CD)
2 Bank of India 1.6% CDs 6/6 (1 Month CD)
2 Comenity Bank (MI) 1.4% CDs 6/7 (9 month CD)
1 Merchants Bank 1.4% CD (7 month CD)
1 Citizens Bank 1.45% CD (6 month CD)
2 Beam 1.75% SU 6/15 (bought in January 2018)
2 Cardinal Health 1.95% SU 6/15 (bought 2/1/18)
1 Wisconsin Electric 1.7% SU 6/15 (bought 12/27/18)
2 Cadence Bank 1.6% CDs 6/18 (2 month CDs)
2 Bank West 1.4% CDs 6/18 (9 month CD)
2 Bank of China 1.6% CDs 6/18 (2 month CD)
2 Washington Federal (MI) 1.4% CDs 6/20 (6 month CD)
2 Northpointe Bank (MI) 1.3% CDs 6/20 (7 month CD)
2 Volunteer Bank (MI) 1.4% CDs 6/22 (6 month CD)
2 Abbott Laboratories 2.3% SU 6/22 (early redemption)
2 Bank West 1.45% CDs  6/25 (9 month CD)
2 First Bank (MI) 1.1% CDs 6/25 (15 month CD)
2. Citibank 1.6% CDs 6/26 (5 month CD)
1 Sonabank 1.5% CD 6/28 (6 month CD)
2 BOFI Bank 1.65% CDs 6/29 (6 month CD)
2 Bank of Baroda 1.45% CDs 6/29 (9 month CD)
2 Treasury .625% 6/30
2 Treasury 1.375% 6/30


For now, I am including in the preceding two Abbott Laboratory 2.35% SU bonds that would otherwise mature on 11/22/2019. I received an email notice that the issuer has called those bonds, but have not yet seen any other evidence of that call: 

A. Bought 1 Deere Capital 2.375% SU Bond Maturing on 7/14/20:

This bond, and the McDonald's  bond discussed in 3.B. below, were bought in a Roth IRA using the proceeds of two Anheuser Busch bonds that were redeemed early by the issuer:

FINRA Page 2020 Deere Bond: Bond Detail (prospectus linked)

Issuer: Wholly Owned Subsidiary of  Deere & Co. (DE)

DE Analyst Estimates

Credit Ratings: 

Fitch Affirms Deere's IDR at 'A'; Outlook Stable (10/19/17)(Deere Capital has the same rating as Deere & Company)

Bought at a Total Cost of 98.98

YTM at TC Then at 2.859%
Current Yield at 2.34%

B. Bought 1 GATX 2.5% SU Bond Maturing on 7/30/19:

FINRA PAGE: Bond Detail (prospectus linked)

Issuer: GATX Corp. (GATX)

GATX Analyst Estimates
GATX Corporation Reports 2018 First-Quarter Results

GATX 2017 Annual Report (debt listed and discussed starting at page 85)

Last Debt Offering in May 2018: $300M in 4.55% SU Bonds Maturing in 2028

Credit Ratings:

Bought at a Total Cost of 99.565

YTM at TC Then at 2.838%
Current Yield at TC = 2.5109%

C. Bought 2 Citizens Bank 1.95% CDs Maturing on 11/16/18:

Holding Company:  Citizens Financial Group Inc. (CFG)

CFG Analyst Estimates

D. Bought 2 Bank of China 1.75% CDs Maturing on 7/30/18 (2 month CDs):

4. Intermediate Term Bond/CD Ladder Basket Strategy:

A. Bought 1 Duke Realty LTD  3.75% SU Bond Maturing on 12/1/24:

FINRA Page: Bond Detail (prospectus linked)

Issuer: Operating Entity for Duke Realty Corp. (DRE) 

Duke Realty Reports First Quarter 2018 Results

DRE SEC Filings

2017 Annual Report

Credit Ratings:

Bought at a Total Cost of 98.883

YTM at TC Then at 3.944%
Current Yield at 3.7924%

B. Bought 1 McDonalds 2.625% SU Bond Maturing on 1/15/22-In a Roth IRA Account:

I now own 3 bonds with 1 owned in this account.

FINRA Page: Bond Detail

Issuer: McDonald's Corp.  (MCD)

MCD Analyst Estimates

MCD SEC Filings

2017 Annual Report

Last Bond Offering: $500M 4.45% SU Bond Maturing in 2047 (March 2018)

Credit Ratings:

Bought at a Total Cost of 97.822

YTM at Total Cost Then at 3.256%
Current Yield at 2.6834%

Note the difference in yields for this McDonalds bond and the Ventas bond discussed below. Both bonds are rated Baa1 and BBB+ and mature in 2022, though the Ventas bond does mature 7 months after the MCD 2022. The higher Ventas bond YTM and current yield reflects a consensus opinion among the Bond Ghouls IMO that either the Ventas bond is rated a notch too high or the MCD bond is rated a notch too low.   

C. Bought 1 Ventas LTD 3.25% SU Bond Maturing on 8/15/22:

FINRA Page: Bond Detail (prospectus linked)

Issuer: Operating Entity for Ventas Inc. (VTR) who guarantees the notes

10-Q for the Q/E 3/31/17

2017 Annual Report (debt listed and discussed starting at page 110)

Last Bond Offering: $650M 4% SU Bonds Maturing in 2028  (2/2018)

Credit Ratings:

Bought at a Total Cost of 98.307

YTM at TC Then at 3.681%
Current Yield at TC =  3.306%

5. Long Term Bond Strategy-Exchange Traded Investment Grade Corporate Bonds

A. Bought 30 SGZA at $24.8-Used Commission Free Trade

Quote:  Selective Insurance Group Inc. 5.875% Senior Notes due 2043 (SGZA)

Issuer: Selective Insurance Group Inc. (SIGI)

SIGI Analyst Estimates

Q1 2018 Results - Earnings Call Transcript | Seeking Alpha

Selective Reports Results for the First Quarter of 2018 - Net Income per Diluted Share of $0.32; Non-GAAP at $.46 

SIGI SEC Filings 

SIGI 2017 Annual Report (debt discussed starting at page 113)

Par Value: $25

Optional Call: On or after 2/18/18 at par value plus accrued and unpaid interest (callable at anytime now at the issuer's option)

Interest Payments: Quarterly


Trades Flat

Fitch Affirms Selective Insurance's Ratings; Outlook Stable (5/3/18)(SU bonds rated BBB+)

S & P at BBB
Moody's at Baa2

Next Ex-Interest Date: 8/13/18

Exchange traded bonds have asymmetric interest rate risk in favor of the issuer.

Total SGZA Trading Profits = $384.75

Prior Round-Trip Discussions:

Item # 5.F. Sold 50 SGZA at $25.51-In a Roth IRA Account  (9/11/17 Post)South Gent's Comment Blog # 6: Bought 50 SGZA Roth IRA at $24.1

SItem # 5 G. Sold 50 SGZA at $25.53 (9/11/17 Post)-South Gent's Comment Blog # 8 Bought at $23.53 (comment posted 12/29/16)

Item 2.A. Sold 40 SGZA at $24.83 (3/25/17 Post)-South Gent's Comment Blog # 6: Bought 40 SGZA at $23.5 (comment posted 12/20/16)

Item # 3 Bought 50 SGZA at $20.6 (10/19/13 Post)-Sold for a $140.58 profit in May 2014)

Please note the the 2013 interest rate spike knocked this security to the $20 area, with the ten year treasury yield peaking at 3.04% that year. SGZA Stock Chart 

When the ten year yield treasury yield made a sustained march to 3.12% recently, SGZA barely budged below its $25 par value. While I could provide a few explanations, none would make much sense to explain those different reactions and consequently I would not attempt to do so.   

DisclaimerI am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.