Economy:
First-quarter GDP marked down to 2% from 2.2% - MarketWatch (third estimate)
News Release: Gross Domestic Product
The PCE price index increased 2.3% in May with the core PCE price index up 2%.
News Release: Personal Income and Outlays
EU leaders unite over Trump tariffs-Reuters
EU warns U.S. of major hit if car tariffs imposed | Reuters "The European Union has warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to counter-measures by its trading partners on $294 billion of U.S. exports.")
EU warns U.S. of major hit if car tariffs imposed | Reuters "The European Union has warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to counter-measures by its trading partners on $294 billion of U.S. exports.")
Does not look like Canada is going to rollover just because the Duck commands it: Canada makes retaliatory tariffs official: 'We will not back down'
Canada's retaliatory tariffs are coming — and they could hurt Canadians, too | CBC News; From ketchup to toilet paper: Canada launching retaliatory tariffs | CTV News
Canada trade war will hit Trump supporters hardest (anyone see a problem with that)
As Canada taxes everything from whiskey to cucumbers, the majority of US states could suffer
Trump says he won’t sign any NAFTA deal until after midterms - The Washington Post
Market hopes someone will blink before China and U.S. trade war
Stock Jocks Reaction to the Tariff Wars: 😎 🙏 😛
As Canada taxes everything from whiskey to cucumbers, the majority of US states could suffer
Trump says he won’t sign any NAFTA deal until after midterms - The Washington Post
Market hopes someone will blink before China and U.S. trade war
Stock Jocks Reaction to the Tariff Wars: 😎 🙏 😛
+++++
Markets and Market Commentary:
Investors pull $30 billion out of stocks in 2nd-largest weekly outflow on record: BAML - MarketWatch
Larry Kudlow, the media personality who replaced Gary Cohn as the Duck's economic advisor, made an astonishing statement that federal budget deficits were coming down rapidly. FOX Business on Twitter: ".@larry_kudlow: "The deficit... is coming down, and it's coming down rapidly. Growth solves a lot of problems."… " The Duck's need to create his own reality has infected all of his minions and apparatchiks. Kudlow is now a card carrying member of the White House Fake News apparatus. Why tell the truth when lies work so well on tens of millions.
The CBO recently stated the "federal budget deficit, relative to the size of the economy, would grow substantially over the next several years, stabilize for a few years, and then grow again over the rest of the 30-year period.” CBO says federal debt is headed for the highest levels since World War II - The Washington Post;
The 2018 Long-Term Budget Outlook: Congressional Budget Office
I view the CBO's estimates to be wildly optimistic about the budget deficits. The actual future numbers will be much worse.
Referring specifically to the tax law, the CBO stated that it would increase the deficits by $1.27 trillion over the next decade.
Official White House projections show the deficit increasing to $832B in 2018, up from $665B in 2017 and will then hit $1 trillion in 2019. Historical Tables
Maybe my mind is turning into mush, but those numbers indicate that the deficit is accelerating at a rapid rate rather than "coming down rapidly" as the Duck's chief economic advisor just represented to America.
It’s been decades since the White House has warned the Fed the way Kudlow just did - MarketWatch
Dollar 5% quarterly gain - MarketWatch
Ignore crude’s short-term bumpiness. Oil is heading higher: Expert
Canadian steelmakers warn U.S. tariffs already taking a heavy toll - MarketWatch
Investors pull $30 billion out of stocks in 2nd-largest weekly outflow on record: BAML - MarketWatch
Larry Kudlow, the media personality who replaced Gary Cohn as the Duck's economic advisor, made an astonishing statement that federal budget deficits were coming down rapidly. FOX Business on Twitter: ".@larry_kudlow: "The deficit... is coming down, and it's coming down rapidly. Growth solves a lot of problems."… " The Duck's need to create his own reality has infected all of his minions and apparatchiks. Kudlow is now a card carrying member of the White House Fake News apparatus. Why tell the truth when lies work so well on tens of millions.
The CBO recently stated the "federal budget deficit, relative to the size of the economy, would grow substantially over the next several years, stabilize for a few years, and then grow again over the rest of the 30-year period.” CBO says federal debt is headed for the highest levels since World War II - The Washington Post;
The 2018 Long-Term Budget Outlook: Congressional Budget Office
I view the CBO's estimates to be wildly optimistic about the budget deficits. The actual future numbers will be much worse.
Referring specifically to the tax law, the CBO stated that it would increase the deficits by $1.27 trillion over the next decade.
Official White House projections show the deficit increasing to $832B in 2018, up from $665B in 2017 and will then hit $1 trillion in 2019. Historical Tables
Maybe my mind is turning into mush, but those numbers indicate that the deficit is accelerating at a rapid rate rather than "coming down rapidly" as the Duck's chief economic advisor just represented to America.
It’s been decades since the White House has warned the Fed the way Kudlow just did - MarketWatch
Dollar 5% quarterly gain - MarketWatch
Ignore crude’s short-term bumpiness. Oil is heading higher: Expert
Methane leaks offset much of the climate change benefits of natural gas, study says - The Washington Post; Assessment of methane emissions from the U.S. oil and gas supply chain | Science
AstraZeneca, Merck eye $1 billion boost from cancer drug Lynparza success | Reuters (as discussed in a prior post, Item # 5.B., Merck paid AZN a lot of money to secure 50% of the profits generated by this compound); LYNPARZA® (olaparib) Significantly Delays Disease Progression in Phase 3 First-Line SOLO-1 Trial for Ovarian Cancer | Merck Newsroom Home
Novartis to spin off Alcon and launch a $5 billion share buyback
GM warns US Trump import tariffs could lead to 'smaller' company; G.M. Says New Wave of Tariffs Could Force U.S. Job Cuts - The New York Times
How to plan for higher health-care costs in retirement
AT&T is raising an obscure fee on customer bills to make an extra $970 million a year, analyst says - The Washington Post (AT & T calls it an administrative fee)
AstraZeneca, Merck eye $1 billion boost from cancer drug Lynparza success | Reuters (as discussed in a prior post, Item # 5.B., Merck paid AZN a lot of money to secure 50% of the profits generated by this compound); LYNPARZA® (olaparib) Significantly Delays Disease Progression in Phase 3 First-Line SOLO-1 Trial for Ovarian Cancer | Merck Newsroom Home
Novartis to spin off Alcon and launch a $5 billion share buyback
GM warns US Trump import tariffs could lead to 'smaller' company; G.M. Says New Wave of Tariffs Could Force U.S. Job Cuts - The New York Times
How to plan for higher health-care costs in retirement
AT&T is raising an obscure fee on customer bills to make an extra $970 million a year, analyst says - The Washington Post (AT & T calls it an administrative fee)
++++++
Trump:
I have been referring to Donald some as the "Duck". Some readers may have assumed incorrectly that I was using Donald Duck as my inspiration.
Instead, my inspiration comes from the movie Unforgiven, where Gene Hackman, playing a sheriff, refers to the Duke of Death, a gunslinger played by Richard Harris, as the Duck. The name is designed to deflate the undeservedly inflated reputation of the gunslinger.
Unforgiven (3/10) Movie CLIP - The Duck of Death (1992) HD - YouTube
The Duck's former campaign manager, Paul Manafort, owed a Russian oligarch Oleg Deripaska $10M. Manafort had $10 million loan from Russian oligarch: court filing | Reuters Deripaska was so close to Putin that the Russian Foreign Minister Sergei Lavrov personally tried to secure a U.S. visa for Deripaska after his visa was revoked for alleged ties to organized crime. Manafort’s Russia connection: What you need to know about Oleg Deripaska - The Washington Post U.S. diplomatic cables from 2006 described Deripaska as “among the 2-3 oligarchs Putin turns to on a regular basis” and “a more-or-less permanent fixture on Putin’s trips abroad.” About Oleg Deripaska, the Russian billionaire who worked with Paul Manafort - ABC News
I have been referring to Donald some as the "Duck". Some readers may have assumed incorrectly that I was using Donald Duck as my inspiration.
Instead, my inspiration comes from the movie Unforgiven, where Gene Hackman, playing a sheriff, refers to the Duke of Death, a gunslinger played by Richard Harris, as the Duck. The name is designed to deflate the undeservedly inflated reputation of the gunslinger.
Unforgiven (3/10) Movie CLIP - The Duck of Death (1992) HD - YouTube
The Duck's former campaign manager, Paul Manafort, owed a Russian oligarch Oleg Deripaska $10M. Manafort had $10 million loan from Russian oligarch: court filing | Reuters Deripaska was so close to Putin that the Russian Foreign Minister Sergei Lavrov personally tried to secure a U.S. visa for Deripaska after his visa was revoked for alleged ties to organized crime. Manafort’s Russia connection: What you need to know about Oleg Deripaska - The Washington Post U.S. diplomatic cables from 2006 described Deripaska as “among the 2-3 oligarchs Putin turns to on a regular basis” and “a more-or-less permanent fixture on Putin’s trips abroad.” About Oleg Deripaska, the Russian billionaire who worked with Paul Manafort - ABC News
Here Is One Way Trump Spreads False Information Online The purpose for spreading false information is to acquire and maintain political power. Disseminating demonstrably false information will not achieve those objectives unless millions are and will reliably remain ignorant.
President Trump announces a major U.S. Steel expansion — that isn’t happening - The Washington Post
Trump Says He Never Told House GOPers To Vote For Immigration Bill (He Did)
++
The Duck and Vlad:
Trump casts doubt on Russian election meddling ahead of Putin summit
Just more from the Putin Playbook: U.S. assessing cost of keeping troops in Germany as Trump battles with Europe - The Washington Post
This is a quote from Donald which he made at a recent North Dakota campaign rally: “Sometimes our worst enemies are our so-called friends and allies.” Trump and Putin have a rendez-vous in Helsinki. | The New Republic Trump also made this statement: "NATO is as bad as NAFTA." Donald Trump's private NATO trashing at G7 rattles allies ahead of Putin summit-Axios In TrumpWorld Canada and Western Europe are our worst enemies and are our "so called friends". And who is our new best friend I wonder?
+++
The Duck and Kim:
North Korea has increased nuclear production at secret sites, say U.S. officials
North Korea finishing expansion of missile-manufacturing plant, images show - MarketWatch
North Korea working to conceal key aspects of its nuclear program, U.S. officials say (evidence "points to preparations to deceive the United States about the number of nuclear warheads in North Korea’s arsenal as well as the existence of undisclosed facilities used to make fissile material for nuclear bombs. The findings support a new, previously undisclosed Defense Intelligence Agency estimate that North Korea is unlikely to denuclearize.") How is that even possible when the Duck declared Kim a "very honorable" person?
Trump Lied About Parents Of Korean War Vets, Now He's Lying About Returned Bodies-U.S. Still Hasn’t Received Soldiers’ Remains from North Korea, Says Pompeo
Trump Says He Never Told House GOPers To Vote For Immigration Bill (He Did)
++
The Duck and Vlad:
Trump casts doubt on Russian election meddling ahead of Putin summit
Just more from the Putin Playbook: U.S. assessing cost of keeping troops in Germany as Trump battles with Europe - The Washington Post
This is a quote from Donald which he made at a recent North Dakota campaign rally: “Sometimes our worst enemies are our so-called friends and allies.” Trump and Putin have a rendez-vous in Helsinki. | The New Republic Trump also made this statement: "NATO is as bad as NAFTA." Donald Trump's private NATO trashing at G7 rattles allies ahead of Putin summit-Axios In TrumpWorld Canada and Western Europe are our worst enemies and are our "so called friends". And who is our new best friend I wonder?
+++
The Duck and Kim:
North Korea has increased nuclear production at secret sites, say U.S. officials
North Korea finishing expansion of missile-manufacturing plant, images show - MarketWatch
North Korea working to conceal key aspects of its nuclear program, U.S. officials say (evidence "points to preparations to deceive the United States about the number of nuclear warheads in North Korea’s arsenal as well as the existence of undisclosed facilities used to make fissile material for nuclear bombs. The findings support a new, previously undisclosed Defense Intelligence Agency estimate that North Korea is unlikely to denuclearize.") How is that even possible when the Duck declared Kim a "very honorable" person?
Trump Lied About Parents Of Korean War Vets, Now He's Lying About Returned Bodies-U.S. Still Hasn’t Received Soldiers’ Remains from North Korea, Says Pompeo
North Korea upgrades nuclear facility despite Trump-Kim summit, satellite images show
Top Army Officer Executed For Giving Troops Extra Food In North Korea-Trump says accused human rights abuser Kim Jong Un 'loves his people' - CNN
Top Army Officer Executed For Giving Troops Extra Food In North Korea-Trump says accused human rights abuser Kim Jong Un 'loves his people' - CNN
+++++++
1. REGIONAL BANK BASKET STRATEGY:
A. Sold 52 AROW at $37.5:
Quote: Arrow Financial Corp.
AROW Analyst Estimates
Profit Snapshot: $661.34
50 shares were bought at $26.25 back in 2016: Item # 3 Update For Regional Bank Basket Strategy As Of 3/17/16 - South Gent | Seeking Alpha The other 2 shares came from 3% stock dividends paid in 2016 and 2017 or 1 share per year. The fractional shares were immediately converted into cash.
Contrary to what many investors apparently believe, the yield curve is contracting rather than expanding. The net interest margins of regional banks are relatively stagnant Y-O-Y and may contract as yield spreads between the cost of funds and yields on loans contracts further.
Rationale: Profit Harvesting and concerns about NIM expansion for all banks
Last Earnings Report: Q/E 3/31/18
Arrow Reports Increase in First-Quarter Net Income; Double Digit Loan Growth Continues
"Arrow Financial Corporation announced operating results for the three -month period ended March 31, 2018. Net income for the first quarter of 2018 was $8.5 million, an increase of $1.9 million, or 28.7%, from net income of $6.6 million a year earlier. Diluted earnings per share (EPS) for the first quarter was $0.61, an increase of 29.8% from diluted EPS of $0.47 during the comparable 2017 quarter."
"Annualized key profitability ratios continue to remain strong, as measured by a return on average equity (ROE) of 13.78% and a return on average assets (ROA) of 1.25% for the first quarter, compared to 11.43% and 1.02% a year earlier."
These are good numbers and are a good representation of what I like to see in a small regional bank:
Capital Ratios are fine:
NIM remains relatively stagnant in a 3.15% 5o 3.25% range
AROW Trading Profits to Date: $727.39
I will be looking for an opportunity to buy shares back. Currently, my target re-entry price would be in the $30 to $32 price range. Chart
B. Sold 161+ TRST at $9.2+:
Quote: Trustco Bank Corp.
TRST Analyst Estimates
Profit Snapshot: +$51.09
Rationale: I became dissatisfied with my original entry point and want to retry at lower prices. The dividend history is negative. Meaningful NIM expansion is still in the future.
Dividends: The quarterly rate has been stuck at $.065625 per share since the 2009 third quarter. The dividend was reduced to that level from $.11 per share. Both the dividend slash and the lack of any increase thereafter are both major negatives IMO.
TrustCo Declares Cash Dividend
TRST Stock Chart: Suggests using a trading strategy rather than buy and hold
TRST Trading Profits to Date: $985.36 (prior trades $934.27, snapshots in REGIONAL BANK BASKET STRATEGY GATEWAY POST))
Last Substantive Discussions: Item # 2.A. (12/30/17 Post); Item # 2.A. Bought 50 TRST at $8.65 (1/28/18 Post)
Last Earnings Report: TrustCo Announces First Quarter 2018 Results; Net Income Before Taxes Up 12% Over Prior Year Quarter
The results for the Q/E 12/31/17 were negatively impacted by a non-cash charge related to the revaluation of TRST's deferred tax asset which becomes less valuable due to the reduction in the effective federal income rate. TRST is a major beneficiary of the corporate income tax reduction.
Regional Bank Basket Net Realized Gains= +$46,886.52
2. Sold 100 THQ at $17.38-Used Commission Free Trade:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Fund Sponsor: Tekla Capital Management LLC
Profit Snapshot: $27.62
Position After Pare-FidelityTaxable Account:
Of the remaining shares, I have bought only 20 shares in the open market. Item # 3.C. Bought 10 THQ at $16.1 (3/29/18); Item 2.A. Bought 10 THQ at $16.96-Used Commission Free Trade (3/8/18 Post)
When and if the price falls below $16.1, I will consider buying back this 100 share lot, provided the discount to net asset value is then greater than 10%.
THQ Interactive Chart (the price was last frequently below that level late last year)
I will continue reinvesting the dividend. This is a typical small ball trading pattern where I liquidate the highest cost lots profitably and then buy shares back when the purchase reduces my average cost per share or the purchase is at the lowest price in the chain when using small ball purchasing rules which is the case for this security.
Dividends: Monthly at $.1125 ($1.35 annually)
Distributions
Last Ex Dividend Date: 6/19/18
Last SEC Filed Shareholder Report: Semi-Annual Period Ending 3/31/18
Leveraged: Yes at close to 20% with short term borrowings ($225M as of 3/31/18)
Leverage Terms as of 3/31/18: "The Fund is charged interest at the rate of 0.70% above the relevant LIBOR rate adjusted by the Statutory Reserve Rate for borrowing (per annum). The Fund is also charged a commitment fee on the daily unused balance of the line of credit at the rate of 0.25% (per annum). Per the Line of Credit agreement, the Fund paid an upfront fee of 0.10% on the total line of credit balance, which is being amortized through January 1, 2019. The Fund pledges its investment securities as the collateral for the line of credit per the terms of the agreement. The weighted average interest rate and the average outstanding loan payable for the period from October 1, 2017 to March 31, 2018 were 2.2185% and $225,000,000, respectively."
The 3 month Libor rate has been increasing with the FF rate.
3-Month London Interbank Offered Rate (LIBOR), based on U.S. Dollar | FRED | St. Louis Fed
Data as of Date of Trade (6/22)
Closing Net Asset Value Per Share = $19.34
Closing Market Price = $16.42
Discount: -9.93%
Average Discounts:
1 Year = -9.1%
3 Years= -9.6%
THQ CEF Connect Page
Top Holdings as of 3/31/18:
3. Small Ball:
A. Sold 12 WELL at $58.98-Used Commission Free Trade:
Quote: Welltower Inc. (WELL)
Profit Snapshot: $85.48
Item 3.A. Bought 10 WELL at 52 and 2 at $51.5-Used Commission Free Trades (4/23/18 Post)
Dividends: Quarterly at $.87 per share
Dividend History – Welltower
B. Bought $250 VGHCX at $200.62:
Quote: VGHCX Fund - Vanguard Health Care Fund
Sponsor's Webpage: VGHCX - Vanguard Health Care Fund Investor Shares | Vanguard (expense ratio .38%)
Rated 4 Stars by Morningstar
This mutual fund has an excellent long term track record but has been going nowhere over the past 3 years:
I have not been reinvesting the dividends for about 2 years.
I have pared my position: Item # 3.B. Sold 47+ VGHCX at $205.2 (2/13/17) (profit snapshot $426.53)
As noted in the snapshot, this position was opened in 2011 when I exchanged out of the Vanguard Inflation-Protected Securities Fund into this fund. Item # 3 Exchanged VIPSX for VGHCX (7/6/2011 Post).
That exchange, even with the recent performance of VGHCX, turned out to be the right decisions:
Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) Fund Performance and Returns (5 year annual average total return = +1.52%)
Vanguard Health Care Fund Investor Shares (VGHCX) Fund Performance and Returns (5 year annual average total return = +13.46%)
Some Top Holdings as of 3/31/18:
If I was managing this fund, I would not have BMY in my top 20 holdings: BMY 5 Year Chart It could work out provided another firm acquires BMY at a substantial premium. While admittedly being someone ignorant on this subject area, it seems to me that Merck's Keytruda will be kicking BMY's key drug Opdivo's butt. Ahead of ASCO, BMS' Opdivo leads Merck's Keytruda in U.S. sales—but not for long, analyst predicts | FiercePharma But, then again, BMY's current price may reflect that issue and then some.
The fund was hit last week by owning meaningful amounts of Walgreens, CVS and Cardinal Health.
Vertex Pharmaceuticals had a good day last Friday, as did Novartis for a change.
VRTX $169.96 +$22.37 +15.16%
NVS $75.54 +$2.54 +3.48%
A. Sold 52 AROW at $37.5:
Quote: Arrow Financial Corp.
AROW Analyst Estimates
Profit Snapshot: $661.34
50 shares were bought at $26.25 back in 2016: Item # 3 Update For Regional Bank Basket Strategy As Of 3/17/16 - South Gent | Seeking Alpha The other 2 shares came from 3% stock dividends paid in 2016 and 2017 or 1 share per year. The fractional shares were immediately converted into cash.
Contrary to what many investors apparently believe, the yield curve is contracting rather than expanding. The net interest margins of regional banks are relatively stagnant Y-O-Y and may contract as yield spreads between the cost of funds and yields on loans contracts further.
Rationale: Profit Harvesting and concerns about NIM expansion for all banks
Last Earnings Report: Q/E 3/31/18
Arrow Reports Increase in First-Quarter Net Income; Double Digit Loan Growth Continues
"Arrow Financial Corporation announced operating results for the three -month period ended March 31, 2018. Net income for the first quarter of 2018 was $8.5 million, an increase of $1.9 million, or 28.7%, from net income of $6.6 million a year earlier. Diluted earnings per share (EPS) for the first quarter was $0.61, an increase of 29.8% from diluted EPS of $0.47 during the comparable 2017 quarter."
"Annualized key profitability ratios continue to remain strong, as measured by a return on average equity (ROE) of 13.78% and a return on average assets (ROA) of 1.25% for the first quarter, compared to 11.43% and 1.02% a year earlier."
These are good numbers and are a good representation of what I like to see in a small regional bank:
NIM remains relatively stagnant in a 3.15% 5o 3.25% range
AROW Trading Profits to Date: $727.39
I will be looking for an opportunity to buy shares back. Currently, my target re-entry price would be in the $30 to $32 price range. Chart
B. Sold 161+ TRST at $9.2+:
TRST Analyst Estimates
Profit Snapshot: +$51.09
Rationale: I became dissatisfied with my original entry point and want to retry at lower prices. The dividend history is negative. Meaningful NIM expansion is still in the future.
Dividends: The quarterly rate has been stuck at $.065625 per share since the 2009 third quarter. The dividend was reduced to that level from $.11 per share. Both the dividend slash and the lack of any increase thereafter are both major negatives IMO.
TrustCo Declares Cash Dividend
TRST Stock Chart: Suggests using a trading strategy rather than buy and hold
TRST Trading Profits to Date: $985.36 (prior trades $934.27, snapshots in REGIONAL BANK BASKET STRATEGY GATEWAY POST))
Last Substantive Discussions: Item # 2.A. (12/30/17 Post); Item # 2.A. Bought 50 TRST at $8.65 (1/28/18 Post)
The results for the Q/E 12/31/17 were negatively impacted by a non-cash charge related to the revaluation of TRST's deferred tax asset which becomes less valuable due to the reduction in the effective federal income rate. TRST is a major beneficiary of the corporate income tax reduction.
Regional Bank Basket Net Realized Gains= +$46,886.52
2. Sold 100 THQ at $17.38-Used Commission Free Trade:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Fund Sponsor: Tekla Capital Management LLC
Profit Snapshot: $27.62
Position After Pare-FidelityTaxable Account:
Of the remaining shares, I have bought only 20 shares in the open market. Item # 3.C. Bought 10 THQ at $16.1 (3/29/18); Item 2.A. Bought 10 THQ at $16.96-Used Commission Free Trade (3/8/18 Post)
When and if the price falls below $16.1, I will consider buying back this 100 share lot, provided the discount to net asset value is then greater than 10%.
THQ Interactive Chart (the price was last frequently below that level late last year)
I will continue reinvesting the dividend. This is a typical small ball trading pattern where I liquidate the highest cost lots profitably and then buy shares back when the purchase reduces my average cost per share or the purchase is at the lowest price in the chain when using small ball purchasing rules which is the case for this security.
Dividends: Monthly at $.1125 ($1.35 annually)
Distributions
Last Ex Dividend Date: 6/19/18
Last SEC Filed Shareholder Report: Semi-Annual Period Ending 3/31/18
Leveraged: Yes at close to 20% with short term borrowings ($225M as of 3/31/18)
Leverage Terms as of 3/31/18: "The Fund is charged interest at the rate of 0.70% above the relevant LIBOR rate adjusted by the Statutory Reserve Rate for borrowing (per annum). The Fund is also charged a commitment fee on the daily unused balance of the line of credit at the rate of 0.25% (per annum). Per the Line of Credit agreement, the Fund paid an upfront fee of 0.10% on the total line of credit balance, which is being amortized through January 1, 2019. The Fund pledges its investment securities as the collateral for the line of credit per the terms of the agreement. The weighted average interest rate and the average outstanding loan payable for the period from October 1, 2017 to March 31, 2018 were 2.2185% and $225,000,000, respectively."
The 3 month Libor rate has been increasing with the FF rate.
3-Month London Interbank Offered Rate (LIBOR), based on U.S. Dollar | FRED | St. Louis Fed
Data as of Date of Trade (6/22)
Closing Net Asset Value Per Share = $19.34
Closing Market Price = $16.42
Discount: -9.93%
Average Discounts:
1 Year = -9.1%
3 Years= -9.6%
THQ CEF Connect Page
Top Holdings as of 3/31/18:
3. Small Ball:
A. Sold 12 WELL at $58.98-Used Commission Free Trade:
Quote: Welltower Inc. (WELL)
Profit Snapshot: $85.48
Item 3.A. Bought 10 WELL at 52 and 2 at $51.5-Used Commission Free Trades (4/23/18 Post)
Dividends: Quarterly at $.87 per share
Dividend History – Welltower
B. Bought $250 VGHCX at $200.62:
Quote: VGHCX Fund - Vanguard Health Care Fund
Sponsor's Webpage: VGHCX - Vanguard Health Care Fund Investor Shares | Vanguard (expense ratio .38%)
Rated 4 Stars by Morningstar
This mutual fund has an excellent long term track record but has been going nowhere over the past 3 years:
 |
| As of 5/31/18 |
I have pared my position: Item # 3.B. Sold 47+ VGHCX at $205.2 (2/13/17) (profit snapshot $426.53)
As noted in the snapshot, this position was opened in 2011 when I exchanged out of the Vanguard Inflation-Protected Securities Fund into this fund. Item # 3 Exchanged VIPSX for VGHCX (7/6/2011 Post).
That exchange, even with the recent performance of VGHCX, turned out to be the right decisions:
Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) Fund Performance and Returns (5 year annual average total return = +1.52%)
Vanguard Health Care Fund Investor Shares (VGHCX) Fund Performance and Returns (5 year annual average total return = +13.46%)
Some Top Holdings as of 3/31/18:
If I was managing this fund, I would not have BMY in my top 20 holdings: BMY 5 Year Chart It could work out provided another firm acquires BMY at a substantial premium. While admittedly being someone ignorant on this subject area, it seems to me that Merck's Keytruda will be kicking BMY's key drug Opdivo's butt. Ahead of ASCO, BMS' Opdivo leads Merck's Keytruda in U.S. sales—but not for long, analyst predicts | FiercePharma But, then again, BMY's current price may reflect that issue and then some.
The fund was hit last week by owning meaningful amounts of Walgreens, CVS and Cardinal Health.
Vertex Pharmaceuticals had a good day last Friday, as did Novartis for a change.
VRTX $169.96 +$22.37 +15.16%
NVS $75.54 +$2.54 +3.48%
4. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Oncor Electric Delivery 2.15% SU Maturing on 6/1/19:
Finra Page: Bond Detail (prospectus linked)
Issuer: Oncor is largest owner of transmission and distribution facilities operating in Texas. Oncor It is controlled indirectly by Sempra Energy (SRE)
Credit Ratings:
Bought at a Total Cost of 99.52
YTM at TC Then at 2.659%
Current Yield at TC = 2.1352%
On my day of purchase, the 1 year treasury bill closed at a 2.35% yield. 2018 Daily Treasury Yield Curve Rates So the YTM spread for this A+ bond was only .3% to the comparable term treasury bill.
B. Bought 1 Nextera Capital 2.7% SU Maturing on 9/15/19:
FINRA Page: Bond Detail (PROSPECTUS LINKED)
Issuer: Wholly owned subsidiary of NextEra Energy Inc. (NEE), who guarantees the notes
NEE Analyst Estimates
10-Q for the Q/E 3/31/18
2017 Annual Report
2018 1st Quarter Earnings Press Release-SEC Filing
Credit Ratings:
Fitch Affirms Ratings for NextEra Energy Capital at A- ; Outlook Stable
Bought at a Total Cost of 99.979
YTM at TC Then at 2.88%
Current Yield at TC= 2.7006%
I now own 2 bonds.
C. Bought 1 Stifel Bank 2.1% CD (monthly interest payments) Maturing on 12/27/18-In a Roth IRA Account:
D. Bought 2 Commonwealth Edison 2.15% First Mortgage Bonds Maturing on 1/15/19:
FINRA Page: Bond Detail (prospectus linked)
Issuer: Wholly owned subsidiary of Exelon Corp. (EXC)
Financial information about Commonwealth Edison is available in Exelon's reports.
EXC 10-Q for the Q/E 3/31/18
Security:
Credit Ratings:
Fitch Rates Commonwealth Edison First Mortgage Bonds 'A' (2/13/18)
Bought at a Total Cost of 99.880
YTM at TC Then at 2.361%
Current Yield at TC = 2.1526%
On the day of purchase, the 6 month treasury bill closed at a 2.07% yield. 2018 Daily Treasury Yield Curve Rates So I pick up .291% by going with this first mortgage bond over that treasury bill.
E. Bought 1 ERP Operating Partnership 2.375% SU Bond Maturing on 7/1/2019:
FINRA Page: Bond Detail (prospectus linked)
I now own 2 bonds.
Issuer: Operating Entity for Equity Residential (EQR) which does not guarantee the notes
EQR SEC Filings
EQR 2017 Annual Report
EQR 10-Q for the Q/E 3/31/18
SEC Filed Earnings Press Release for the Q/E 3/31/18
Credit Ratings:
Bought at a Total Cost of 99.559
YTM at TC Then at 2.81%
Current Yield at TC = 2.3855%
F. Bought 1 Black Hills 2.5% SU Bond Maturing on 1/11/19:
FINRA Page: Bond Detail
Issuer: Black Hills Corp. (BKH)
BKH Analyst Estimates
Black Hills Corp. Reports Solid First Quarter 2018 Results
2017 Annual Report (debt discussed starting at page 122)
I took some snapshots of alternative bond and CD investments maturing in January 2019 that were available when I bought this BKH bond.
CDs:
Treasury: There is a yield penalty for buying just 1 but I can buy without having to pay a commission.
B. Bought 1 Nextera Capital 2.7% SU Maturing on 9/15/19:
FINRA Page: Bond Detail (PROSPECTUS LINKED)
Issuer: Wholly owned subsidiary of NextEra Energy Inc. (NEE), who guarantees the notes
NEE Analyst Estimates
10-Q for the Q/E 3/31/18
2017 Annual Report
2018 1st Quarter Earnings Press Release-SEC Filing
Credit Ratings:
Fitch Affirms Ratings for NextEra Energy Capital at A- ; Outlook Stable
Bought at a Total Cost of 99.979
YTM at TC Then at 2.88%
Current Yield at TC= 2.7006%
I now own 2 bonds.
C. Bought 1 Stifel Bank 2.1% CD (monthly interest payments) Maturing on 12/27/18-In a Roth IRA Account:
D. Bought 2 Commonwealth Edison 2.15% First Mortgage Bonds Maturing on 1/15/19:
FINRA Page: Bond Detail (prospectus linked)
Issuer: Wholly owned subsidiary of Exelon Corp. (EXC)
Financial information about Commonwealth Edison is available in Exelon's reports.
Security:
Credit Ratings:
Fitch Rates Commonwealth Edison First Mortgage Bonds 'A' (2/13/18)
Bought at a Total Cost of 99.880
YTM at TC Then at 2.361%
Current Yield at TC = 2.1526%
On the day of purchase, the 6 month treasury bill closed at a 2.07% yield. 2018 Daily Treasury Yield Curve Rates So I pick up .291% by going with this first mortgage bond over that treasury bill.
E. Bought 1 ERP Operating Partnership 2.375% SU Bond Maturing on 7/1/2019:
FINRA Page: Bond Detail (prospectus linked)
I now own 2 bonds.
Issuer: Operating Entity for Equity Residential (EQR) which does not guarantee the notes
EQR 2017 Annual Report
EQR 10-Q for the Q/E 3/31/18
SEC Filed Earnings Press Release for the Q/E 3/31/18
Credit Ratings:
Bought at a Total Cost of 99.559
YTM at TC Then at 2.81%
Current Yield at TC = 2.3855%
F. Bought 1 Black Hills 2.5% SU Bond Maturing on 1/11/19:
FINRA Page: Bond Detail
Issuer: Black Hills Corp. (BKH)
BKH Analyst Estimates
Black Hills Corp. Reports Solid First Quarter 2018 Results
2017 Annual Report (debt discussed starting at page 122)
I took some snapshots of alternative bond and CD investments maturing in January 2019 that were available when I bought this BKH bond.
CDs:
Treasury: There is a yield penalty for buying just 1 but I can buy without having to pay a commission.
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.
Today was another example where the Stock Jocks expressed their lack of concern about the tariff war.
ReplyDeleteWhile the major market averages were slightly in negative territory through most of the day, a rally started around 1:30 P.M. EST that erased those losses with SPX ending the day up 8.34 or .31%.
Precious metals continued their downward spiral with platinum getting hit harder today than the other PMs:
ETFS Physical Platinum (PPLT)
$77.68 -$3.46 (-4.26%)
SPDR Gold Shares (GLD)
117.45-1.20 (-1.01%)
http://www.kitco.com/news/2018-07-02/U-S-Dollar-Continues-To-Crush-Gold-Prices-Hovering-Near-12-Month-Lows.html
I thought that the catalyst for the reversal today was connected to a report that the China's Fuzhou Intermediate People's Court issued a preliminary injunction blocking the purchase of Micron memory chips.
ReplyDeletehttps://www.marketwatch.com/story/micron-stock-drops-as-china-blocks-memory-chip-sales-2018-07-03
There are numerous ways China can respond to U.S. tariffs that go beyond tit-for-tat tariffs. This may turn out to be just one example. It is not like the courts are independent from the government in China.
Interest rates did decline some, probably in a flight to safety trade.
U.S. 10 Year Treasury Note
2.834% -0.035%
Last Updated: Jul 3, 2018 1:19 p.m. EDT
I have stepped up meaningfully a reduction in my stock allocation. By meaningful, I am referring to about a $75K reduction over the past few days.
I have no need to take any risks; and there are easily identifiable risks that are not being priced into stocks.
If things blow over, I can always buy back stocks and funds previously sold.
The Vanguard Prime MM rate is acceptable to me as a temporary repository of funds, so I eliminated yesterday a meaningful position in the Vanguard Equity Income MF-Admiral class moving the funds into the Prime MM fund. I have taken more profits in my regional bank basket due in part to the decreasing yield spread between their cost of funds and the yields on loans.
The Vanguard Prime MM fund is currently yielding 2.04%:
https://investor.vanguard.com/mutual-funds/profile/overview/vmmxx
The Stock Jock consensus is that Trump will win the trade wars that he started and that any economic harm will be shallow and temporary.
This is a typical consensus view:
https://www.marketwatch.com/story/mark-mobius-trump-will-win-the-trade-fight-with-china-and-heres-how-to-play-it-2018-07-03
At the present, foreign nations do not appear willing to take a knee and cry uncle. More tariffs will be imposed on U.S. exports starting on 7/6. It does appear that Trump has managed to piss off just about every foreign government other than Israel and Russia. He is following the Putin playbook by doing just about everything that he can possibly do to weaken the western alliances.
Campbell Soup Company (CPB)
ReplyDelete$41.03 +$0.74 (+1.84%)
Today's pop was due to a hedge fund urging CPB to sell itself.
41% of CPB's stock is controlled by the descendants of the John T. Dorrance who invented the condensed soup formula. Of those descendants, two control have a combined 33.1% share of CPB:
https://www.cnbc.com/2018/07/03/campbell-soup-complex-family-tree-to-make-life-difficult-for-potential.html
There is apparently no financial need for the top owners to sell since the dividends each year can easily support their lifestyles without having to sell any shares. In the fiscal year ending in July 2017, the company paid out $420M in dividends and 41% of that number is $172.2M.
Then you also have the issue of a stepped up cost basis when one of them dies which avoids federal income taxes on their ownership positions.
https://www.thebalance.com/how-the-stepped-up-basis-loophole-works-357485
As I argued earlier, it would be advisable for the main stockholders to at least consider an offer, possibly one that included some tax advantages for them.
The stock price would fall back into the low-to-mid 30s with the Dorrance family standing pat.
But the stock price may be of less importance to many of them than the stock price too. It is not like they are financially pressured to sell now.
There is also a bird in hand is better than two in the bush argument. It is questionable whether CPB can be turned around with existing management. Money would have been better off in the S & P 500 than in CPB stock for a long time now. Dividend growth will probably be non-existent for at least three years given the additional leverage acquired in the Lance and other acquisitions.
And, it would seem to me that GIS would be a better target than CPB for a larger food company.
Enbridge Inc. (ENB.TO)
ReplyDeleteC$ 47.15 +C$0.76 (+1.64%)
As of 11:53AM EDT.
https://finance.yahoo.com/quote/ENB.TO?ql=1&p=ENB.TO
The preceding quote is the CAD priced ENB shares that trade in Toronto which is open today.
Investors are so far reacting positively to ENB's agreement to sell its Canadian natural gas gathering and processing business in the Montney, Peace River Arch, Horn River and Liard basins in British Columbia (B.C.) and Alberta for C$4.1B.
https://www.prnewswire.com/news-releases/enbridge-announces-sale-of-canadian-natural-gas-gathering--processing-businesses-for-4-31-billion-300676284.html
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2018/07/observations-and-sample-of-recent_5.html
The Nuveen Build America Bond Opportunity Fund (NBD) sells at a discount of 5.88 and the fund will terminate on or around 12/31/2020, distributing the fund’s assets to shareholders at that time. I agree, the president is incapable of sound judgement and NBD seems a good place to wait. Are you it? Do you have a view? I am in the same situation as you regarding capital preservations vs stocks. Best, JN
ReplyDeleteJames: I have sold out of the Build America Bond CEFs including the two Nuveen offerings: NBD and NBB.
DeleteUsing the symbol list to the right, I last sold NBD at $22.22:
Item # 3 Sold 100 NBD at $22.22 Taxable Account
https://tennesseeindependent.blogspot.com/2015/01/added-50-pnnt-at-82bought-back-trmk-at.html
My problem with leveraged bond CEFs now is that their borrowing costs have been rising and the bonds bought with borrowed money have generally been trending down in value since September 2017. The later issue has stabilized and reversed some since the ten year treasury topped out at 3.12% recently.
The concern is primary based on the rising borrowing cost which shows no indication in topping out. The FED seems determined to increase the FF rate at least one more time this year and possibly twice.
The effective leverage for NBD was 28.7% as of 3/31/18. Each of these funds borrows short term at the "higher of (i) the overnight Federal Funds rate plus 0.85% or (ii) the one-month London Inter-bank Offered Rate plus 0.85% to the higher of (i) the overnight Federal Funds rate plus 0.75% or (ii) the one-month LIBOR plus 0.75%. Each Fund also incurred an upfront fee of 0.10% based on the maximum commitment amount of the Borrowings through the renewal date."
Page 50
https://www.sec.gov/Archives/edgar/data/1493523/000089180418000263/ncsr.htm
These CEFs are an option for IRA and Keogh accounts since the interest paid by these bonds are taxable.
I have been buying Tennessee Municipal bonds and bought 5 of the Metropolitan Nashville 2.5% GO bonds maturing in 2029 at a total cost of 95.419 with Vanguard's $10 brokerage commission.
https://emma.msrb.org/Security/Details/AC0811008D22526D6CB8AB9A7C16E4D6A?tab=tabTradeActivity
The advantage of the individual bond is that I have a promise to pay par value on a date certain. I can now determine precisely what my rate of return will be. The YTM is 3.013% with the current tax free yield being 2.62%.
NBD promises that it will liquidate on a date certain but does not promise to return the investor's original principal amount. The value of the assets may be less or more than the current net asset value.
The average weighted price for the bonds owned by NBD is around 122% as of 5/3/18, so some gradual loss of value will occur at some point as the bonds work their way down to par value with the passage of time or through early redemptions by the issuers at par value. You can find that information under the "characteristics" tab:
https://www.nuveen.com/closed-end-funds/NBD
That page also shows the average effective duration at 10.47 years-a 1% rise in interest rates at that duration level will results in more than a 10% decline in net asset value.
A number of the owned bonds mature after the liquidation date and may be declining in value into that end date. This gets back to whether the investor prefers a promise to pay a sum certain on a date certain which these two funds do not promise.
The funds do not promise either to pay a sum certain in distributions. The dividend can be cut which may happen solely as a result of increased borrowing costs chipping away at the net interest spread between the cost of funds and the yield received from bonds bought with those funds. If you look at the total dividend history for NBD, the trend is slightly down in the dividend amount ex capital gains distributions, and I would expect that trend to continue. When I first bought NBD, the monthly rate was at $.126 per share and is now at $.0955 per share.
Click Distributions Tab:
https://www.cefconnect.com/fund/NBD
This is a round about way of saying that I personally prefer owning an individual tax free bond issued by a Tennessee governmental entity, but I am not fervently opposed to buying a leveraged bond CEF that invests in taxable or non-taxable municipal bonds.