Observations and Sample of Recent Trades: DES, FZLIX, FXROX, GOV, NMFC, SIR

Economy: 

Wilber Ross has assured Americans that we will not notice price increases resulting from Donald's tariff war. Wilbur Ross says nobody will notice price hikes from new China tariffs-MarketWatch 

I am not sure that I would notice a 10% price hike in products that I normally buy for a simple reason. I would have to remember the old price first and then recognize that the new price was significantly higher. "Will not notice" is different than "will not happen". Walmart will soon hike prices due to tariffs: Ex-Walmart US CEO

Trump's latest Chinese tariffs are a $1 billion tax on housing  

Housing starts roar back even as builder permits fall to 15-month low - MarketWatch

The surge in new housing starts in August compared to July was due mostly to new apartment construction. New single family units increased 1.9% compared to July while the overall increase was at 9.2%. 

Jack Ma: Alibaba is no longer planning to create 1 million US jobs His promise seemed mostly illusory to me anyway. 

Trump raises shutdown specter by calling spending bill ‘ridiculous’ - MarketWatch

U.S. 'very close' to proceeding with Mexico-only trade deal: Trump adviser | Reuters

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Markets and Market Commentary: 

So a trade war with China is a good thing apparently. Who knew? China cancels trade talks with U.S. amid escalation in tariff threats - MarketWatch I am not on board with the belief that China will bend a knee and pay homage to the Duck. 

Bank of America Merrill Lynch: The 'Great Bull' market is 'dead' Many have been predicting the bull's demise for years now. The bull run will end at some point with a non-temporary major decline.  

The market continues to defy the skeptics and to ignore all possible and even probable negative events that would necessitate a reassessment about the future. The shared story among Stock Jocks about the future is that only blue skies lie dead ahead. 

I would note that parabolic rises in any asset class create a risk that the parabola will collapse upon itself. Timing that collapse is impossible when measured in weeks or months and sometimes in years. 

I recall believing that Nikkei 200 had entered into a parabolic move in 1984, when that index had almost tripled in a decade. Chart: Nikkei Stock Index The index was then around 11,000 and then proceeded to go into the outer reaches of the galaxy before topping out near 39,000 in December 1989. That index may not return to that level in my lifetime. A cyclical bull move started around 8,800 in 2012 and the index is now near 22,900 or about 41% below its 1989 peak. 

Get ready for U.S. stocks to come off their ‘sugar high’: JPM strategists - MarketWatch

The former media personality and current Trump economic advisor Larry Kudlow maintains that the tax cuts are not contributing to the budget deficits. Kudlow claims spending, not tax cuts, is culprit in budget deficit - MarketWatch What needs to be done is to increase tax breaks for the "job creators" and to slash spending on social programs including Medicare and Medicaid. 

The September Empire State Manufacturing Survey showed a 7 point decline to the general business conditions index to 19. Any number above zero indicates an expansion. 

The 19 number is still a good one. I am anticipating, however, declines in the various manufacturing surveys starting later this year and into next year, primarily due to the ongoing trades wars.  

This stock market indicator hasn’t been so inflated since the internet bubble top-MarketWatch (the reference is to the Shiller P/E 10) I recently discussed this valuation metric here: Scroll to Market and Market Commentary Section

Fed officials are playing with fire if they deliberately invert the yield curve - MarketWatch   

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Trump:

It looks like Donald will not have Rod Rosenstein on his Christmas card list: Rod Rosenstein discussed 25th Amendment to remove Trump and offered to wear a wire, report says - MarketWatch The report originates from a NYT and Washington Post articles. Rod Rosenstein Suggested Secretly Recording Trump and Discussed 25th Amendment - The New York Times; McCabe memos say Rosenstein considered secretly recording Trump - The Washington Post 

The DOJ is claiming that Rosenstein was just joking which appears to be the case: Rosenstein joked about secretly recording Trump, Justice Department officials say The problem is that sarcasm does not translate into the written word. 

The Plot to Subvert an Election: Unraveling the Russia Story So Far - The New York Times

Hill.TV INTERVIEW EXCLUSIVE: Trump eviscerates Sessions: ‘I don’t have an attorney general’ | TheHill What Donald is really saying is that Sessions is not protecting him from investigations. On every other issue, including immigration, Sessions is doing the Duck's work. 

What is fascism? A Yale philosopher (Jason Stanley) explains how it works - Vox 

Stanley has just published a book titled How Fascism Works: The Politics of Us and Them. The question posed by Stanley is whether the fascist label, based on historical precedent, is an appropriate one to describe Donald. 

After reading his book, Stanley makes a case for Donald and the modern day GOP pursuing what he calls "fascist politics", which is dangerous to a liberal democracy as a possible precursor to authoritarianism and control through false information.  

Instead of using that the phrase "fascist politics" to describe Donald and the means used by him to manipulate his followers, I would simply label Donald as a demagogue with strong authoritarian and anti-democratic tendencies who uses false information and narratives to successfully manipulate his followers while denigrating the purveyors of accurate information.  

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GOP Circles the Wagons for Kavanaugh:  

Trump: If alleged Kavanaugh attack 'as bad as' Ford says, 'charges would have been immediately filed' 

This of course ignores the well known statistic that most sexual assaults are not reported. The Criminal Justice System: Statistics | RAINN 

Donald views Dr. Ford's sexual assault claim as originating from the "radical left", which is defined in Trump's America as all individuals who are true conservatives, centrists, moderates, and liberals.   

My answer to the preceding tweet from Our Dear Leader is that FBI would not investigate an attempted rape in Montgomery County, Maryland but does get involved in vetting Supreme Court nominees. It is the republicans who are preventing a full vetting from taking place. 

When evaluating any claim made by one person against another, my natural inclination is to gather facts before rendering an opinion. I realized that there is no shortage of people who form opinions before acquiring facts or who create their own reality to justify their opinions. 

I do not have enough facts to form an opinion on whether Ms. Ford is telling the truth. I suspect that she is telling the truth. One reason is simply the terrible consequences visited upon anyone coming forward to make that kind of allegation.   

It is unfortunate that a woman in Ms. Ford's position is better off keeping quiet and avoiding the death threats and hostility directed at her, particularly since nothing that she says will likely change a single republican vote to confirm. That would be the case even if she had told several classmates of the incident contemporaneously with its occurrence who were willing to so testify under oath.   

With a FBI investigation of the allegations, possibly more facts will come to light that would warrant forming a more concrete opinion. The investigation would take a few days but the republicans want none of it. 

The FBI would not form a conclusion but simply report their findings to Donald. Lying to an FBI agent is a felony. 18 U.S. Code § 1001 Perhaps one or more witnesses would get cold feet about their public statements on the matter when there are potential criminal repercussions about giving false statements.  

I have been reading about the writings of Mark Judge, Kavanaugh's high school friend who was allegedly in the room. His writings confirm an out-of-control drinking culture at the private school attended by him and Kavanaugh. ‘100 Kegs or Bust’: Kavanaugh friend has spent years writing about high school debauchery-The Washington Post; Kavanaugh's classmates at Georgetown Prep describe alcohol-soaked party culture - Chicago Tribune; Kavanaugh pal at center of sex assault claim had choice words for women 

That is why the republicans do not want to subpoena him. 

Senator Grassley (R) asserted last Wednesday that it was not the FBI's job to investigate a claim of attempted rape when doing a background check for a republican nominee to the Supreme Court. Sen. Chuck Grassley: No Need For FBI To Investigate Kavanaugh Allegation All republican senators are in full agreement with Grassley which hardly qualifies as news.   

{Side Note: There is no statute of limitations for rape in Maryland where the alleged attack occurred, so maybe Grassley and his fellow republican senators would prefer the Montgomery County D.A. to conduct a criminal probe after they confirm Kavanaugh. All it would take would be a criminal complaint filed by Ms. Ford with that office. Brett Kavanaugh Could Still Face Charges For Attempted Rape In Maryland; Maryland Prosecutor on Kavanaugh Allegations: “When There’s Something the Police Have Brought to Us, We’ll Address It”}  

The FBI did investigate Anita Hill's sexual harassment charges made against Clarence Thomas. It took three days. The FBI did investigate Anita Hill's accusation, and it took 3 days-CNN  Reviewing videos of how badly republican senators treated Ms. Hill is enlightening, since nothing has really changed among republicans, and explains why they want no part in questioning Ms. Ford due to the bad optics (e.g. Here are some of the questions Anita Hill answered in 1991 - CBS News) HBO has started to air a TV movie based on Anita Hill's allegations: Confirmation (TV Movie 2016) - IMDb. Joe Biden does not come off well either. Reviving The Mishandling Of Anita Hill's Testimony Is Bad News For Biden 2020 

‘Incredibly frustrated’: Inside the GOP effort to save Kavanaugh amid assault allegation

The low life creatures who slither around the blogosphere and call themselves "conservatives" have already defamed Ms. Ford with false reality creations that spread far and wide in today's America before the truth even has an opportunity to put its boots on. Debunking 5 Viral Rumors About Christine Blasey Ford, Kavanaugh’s Accuser As with Trump, facts are irrelevant to them.  

Sen. Heller (R) refers to Kavanaugh assault allegation as just a ‘hiccup’ - The Washington Post

A republican congressman from South Carolina, Ralph Norman,  thought the following statement made by him was funny: "Did y’all hear this latest late-breaking news from the Kavanaugh hearings? Ruth Bader Ginsburg came out that she was groped by Abraham Lincoln." I did not laugh but did have an immediate upchucking sound. U.S. Rep. Ralph Norman jokes about Supreme Court sexual assault-postandcourier.com 

Ed Whelan’s Kavanugh tweets were not what conservatives had hyped - The Washington Post (Mr. Whelan's tweets are just disgusting)

This falls under the category life can be messy: Court Docs Allege Ex-Trump Staffer Drugged Woman He Got Pregnant With 'Abortion Pill'

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On Hurricane Maria Anniversary, Puerto Rico Is Still in Ruins - The New York Times Yes, I understand that the real victim from Hurricane Maria is Donald, as he perpetually whines about justified criticism and responds to such criticism frequently by weaponizing conspiracy theories created by him or troglodytes like him.    

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1. Small Ball-Commission Free ETFs: 

The size of the following trades reflect my current trepidation about purchasing ETFs that track a stock index. 

A. Bought $100 FZILX at $9.69:

Maximum Position: $3K out-of-pocket

Fidelity launches first-ever free index funds, and $1 billion follows

FZILX Fund - Fidelity ZERO International Index Fund Overview - MarketWatch

This is a new NTF mutual fund that has a zero expense ratio and no minimum investments requirements:

FZILX - Fidelity ZERO SM International Index Fund | Fidelity Investments

I will buy in small dollar amounts periodically using minor amounts of cash flow. I will increase the dollar amounts when this fund experiences significant price declines.

Vanguard has a low cost ETF that can be bought commission free by its brokerage customers: 

VEU-Vanguard FTSE All-World ex-US ETF (expense ratio of .11%) I have owned that ETF from time to time, but do not currently have a position.

Compared to the U.S. total stock market ETFs, VEU has significantly underperformed YTD and over the past 1, 3, 5 and 10 years which at least potentially makes VEU a better total return vehicle than VTI over the next ten years. A total international stock fund would including emerging market stocks that have been beaten up recently.

Vanguard FTSE All-World ex-US Index Fund ETF Shares (VEU) Total Returns
Vanguard Total Stock Market Index Fund ETF Shares (VTI) Total Returns

B. Bought $100 of FZROX at $10.21:

FZROX Fund-Fidelity ZERO Total Market Index Fund Overview

Maximum Position: $10K out-of-pocket

This is a fund for the coach potato. There is no minimum investment and no expense ratio. The fund attempts to replicate the entire U.S. stock market.

The general idea here is to periodically to buy shares in $50 to $100 increments, using part of my cash flow, until there is a major correction. After a 20% decline in the S & P 500 index from its current level, I would increase the incremental purchases to $100 to $200, and then $200 to $300 when and if there is another 40%+ decline.

C. Bought 10 DES at $30.31 and 5 at $29.92-Commission free for Vanguard Customers:

Current Position: 15 Shares

Maximum Position: 300 Shares

Quote: WisdomTree U.S. SmallCap Dividend Fund Overview

Sponsor's Website: WisdomTree U.S. SmallCap Dividend Fund

Expense Ratio: .38%

Dividends: Monthly at a Variable Rate

Morningstar currently has a 4 star rating.

WisdomTree U.S. SmallCap Dividend Fund (DES) Total Returns

Over the past ten years through the date of purchase, the average annual total return of this ETF was 11.18%. That would include the September 2008 through March 2009 period.

Since this fund can be bought by Vanguard customers commission free, I will follow the small ball buying program strategy when adding to it. Purchases will be financed out of cash flow.

2. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Three Month Treasury Bills Maturing on 12/6/18 at Auction: 

Investment Rate = 2.135% 

B. Bought 2 Goldman Sachs 2.55% SU Bonds Maturing on 10/23/19:

I redeployed the proceeds received from two 4 month CDs:

FINRA Page: Bond Detail (prospectus linked)

Issuer: Goldman Sachs Group Inc. (GS) - MarketWatch
GS Analyst Estimates

Form 10-K: 2017 Annual Report
Form 10-Q for the Q/E 6/30/18

Credit Ratings:

Fitch Affirms Goldman Sachs' Long-Term IDR at 'A'; Outlook Stable (6/21/18)

Bought at a Total Cost of 99.751 (includes $2 commission)
YTM at TC Then at 2.776%
Current Yield at TC = 2.5564%

Treasury Yield Comparison at time of Purchase (2 bond order with no brokerage commission):

YTM at 2.491%
Current Yield at 1.0164%

C. Bought 2 BB&T 2.625% SU Bonds Maturing on 6/29/20:

FINRA Page: Bond Detail (prospectus not linked)
Prospectus

Issuer: BB&T Corp. (BBT)
BBT Analyst Estimates

BB&T SEC Filings
2017 Annual Report
10-Q for the Q/E 6/30/18

Credit Ratings:

Bought at a Total Cost of 99.553 (includes $2 commission)
YTM at TC Then at 2.88%
Current Yield at TC = 2.6619%

Treasury Yield Comparison at Time of Purchase (2 bond order; no commission) 

YTM at 2.581%
Current Yield at 2.5036%

3. Small Ball-Using Commission Free Trades:

A. Sold 10 GOV at $17.03-Used Commission Free Trade:

Quote: Government Properties Income Trust (GOV)

Closing Price Last Friday (9/21/18): GOV $11.70 +$0.17 1.47% 

Acquisition of Select Income (SIR): Subsequent to this disposition, GOV announced that it would acquire Select Income (SIR). Government Properties Income Trust and Select Income REIT Announce Agreement to Merge; Government Properties Income Trust to Change its Name to “Office Properties Income Trust”

Government Properties Income Trust (GOV) CEO David Blackman on Government Properties Income Trust and Select Income REIT Merger Call (Transcript) | Seeking Alpha

In response to that merger announcement, I sold my remaining 20+ SIR shares using a commission free trade, see Item #3.C. below.

Equity REIT Common and Preferred Stock Basket Strategy:

Profit Snapshot: +$38.29

Item # 2.C. Bought 10 GOV at $12.5, 5 at $12.38 and 5 at $11.99-Used Commission Free Trades (4/12/18)

I reduced my average cost per share from $12.65 to $12.43.

Current Position: 25 Shares

Average Cost Per Share: $12.43

Dividend: Quarterly at $.43 ($1.72 annually)

Dividend Yield at Total Cost Per share of  $12.43: 13.8375%

The dividend will be slashed after the merger. 

GOV will be the surviving entity and will rename itself Office Properties Income Trust ("OPI"). 

"GOV and SIR expect that post-merger, OPI will pay an annual dividend of between $0.50 and $0.60 per share based upon a targeted 75% cash available for distribution, or CAD, dividend payout ratio." Merger Call (Transcript) at page 2 | Seeking Alpha 

It is hard for me to even imagine why anyone would want to own GOV shares with a $.5 to $.6 annual dividend, particularly with RMR as the external manager and that manager's history.   

GOV's current annual dividend is $1.72 per share. 

SIR is currently paying $2.04 per share annually. 

One reason is that SIR's dividend is supported by its majority ownership position in Industrial Logistics Properties Trust (ILPT) and those shares would be distributed to SIR shareholders before the merger's completion. There are other reasons including an already tight cash flow coverage of both SIR and GOV distributions, the anticipated loss of some office tenants, the increased capital expenditures to maintain older properties, and the anticipated disposition of  27 properties by mid-2019. 

Management also stated during the conference call that the distribution of ILPT shares to SIR shareholders would be a taxable transaction, though no details were provided:  Page 4 

As part of the transaction, GOV intends to sell its 24.9+M shares of SIR prior to the merger's consummation which is likely to result in a significant loss  based on GOV's original purchase prices given the excessive price paid for the shares. As discussed previously, GOV acquired those shares, IMO, at a steep premium in order to solidify RMR's control over both GOV and SIR rather than for any alleged benefit to GOV shareholders. (see discussion at Item # 2.A (3/22/18 Post) and Government Properties Income Trust Purchases Shares of Select Income REIT (21.5M SIR shares bought at $31.51); Government Properties Income Trust Increases Investment in Select Income REIT (3.418+M shares bought at $27.85); Lakewood Capital Issues Letter to Select Income REIT Board of Trustees; CommonWealth REIT Sells Entire Select Income REIT Stake to Government Properties Income Trust)

I noted that the B. Riley brokerage firm claimed that GOV would do a 1 for 4 reverse stock split after the merger. B. Riley FBR analyst defends Government Properties, saying selloff overdone If that is the case, and I can not confirm it one way or the other, I am assuming-until corrected- that the annual revised per share dividend number of $.5 to $.6 is before that reverse split. 

Last Ex Dividend Date: 7/27/18

Last Sell Discussion: Sold 10 GOV at $14.11 (6/4/18 Post 

Last Buy Discussion: Item # 2.A. (3/22/18 Post)

Trading Profits to Date: $413.6 ($375.31 in prior trades)

This externally managed REIT is viewed with extreme disfavor for the reasons discussed in prior posts. The only reason for fooling with the shares was to capture the high dividend and to hopefully exit the position profitably which I have been able to do. Assuming the merger is completed and the dividend is slashed,  that trading rationale for GOV shares is no longer applicable. That gig is kaput.  

Last Earnings Report: Q/E 6/30/18

Government Properties Income Trust Announces Second Quarter 2018 Results

Prior Sells:

Item # 2 Sold 50 GOV at $26 (3/5/13)(profit snapshot =$231.42)-Item # 2 Added 50 GOV at $21.22 (6/18/12)

Item # 4 Sold 50 of 100 GOV at $23.45 (7/19/12 Post)-Item # 3 Bought 50 GOV at $22.9-ROTH IRA (5/21/12 Post)

Item # 1: Sold 50  GOV at $24.5 at $24.5 Roth IRA (10/17/12 Post)(profit snapshots for 2 Roth IRA 2012 trades = $143.89)-Item # 4 Bought Back GOV at $21.78 Roth IRA (8/6/12 Post)

GOV has two outstanding senior unsecured bonds. I do not currently own either one.

3.75% Maturing on 8/15/19
4% Maturing 7/15/22

B. Bought Back 50 NMFC at $13.54:

Quote:  New Mountain Finance Corp. (NMFC)
Website: New Mountain Finance Corporation
2017 Annual Report (risk summary starts at page 23 and ends at page 46)
SEC Filings
10-Q for the Q/E 6/30/18 (list of investments and basic terms starts at page 7)

Closing Price Last Friday: NMFC $13.55 -$0.15 -1.09%

While I repurchased the shares at a higher price than my previous buy, I did harvest a profit on those shares and did not miss a quarterly dividend payment.  

Dividend: Quarterly at $.34 per share or $1.36 annually 

Dividend Yield at a $13.54 TC per share = 10.04%

Last Ex Dividend Date: 9/13/18 (shortly after purchase)

Dividend Reinvestment: NO (require at least a 5% discount to NAV per share)

Last Purchase Discussion: Item # 1.A. Bought 50 NMFC at $12.84 (3/5/18 Post)

Last Sell Discussion: Item # 1 A. Sold 50 NMFC at $14.06 (8/19/18 Post)(profit snapshot = $61.44)

I discussed the second quarter earnings report in that post. New Mountain Finance Corporation Announces Financial Results for the Quarter Ended June 30, 2018

Last Reported Net Asset Value Per Share = $13.57

Net Asset Value Per Share:

6/30/18:   $13.57
3/31/18:   $13.60 10-Q at page 3
12/31/17: $13.63
12/31/16 $13.46
9/30/15   $13.73
12/31/14 $13.83
9/30/14   $14.33
12/31/13 $14.38
6/30/13   $14.32

12/31/12 $14.06 Sourced from 10-Qs

IPO Price: $13.75 Prospectus (filed 5/23/11)

NMFC Trading Profits to Date = $74.1

The only positive statement that I can make about my trading history is that I harvested dividends without losing money on the shares.

I do not view BDCs as long term holds but as trading vehicles where the goal is to harvest the dividends and to escape with whatever profit may be available-no matter how small.

With NMFC, as previously discussed, I am concerned about its second lien loan exposure which was at 34.8% as of 6/30/18. While a senior lien bond is better than an unsecured senior bond, the second lien bonds issued by highly leveraged and usually unseasoned companies can be torched in a bankruptcy, as the holders discover that the lien attaches to nothing other than vapor after the first lien owners take a hit leaving nothing for those owning paper further down in the capital structure.

C. Sold 20+ SIR at $23.15-Used Commission Free Trade: 

Profit Snapshot: $81.57

Closing Price Last Friday: SIR $21.54 +$0.59 +2.82% 

This will be my last trade in SIR shares.

See Item # 3.A. above.

Realized SIR Gains: $459.41 ($377.84 in prior trades)

Last Sell Discussion: Item # 1.A. Sold 83+ SIR at $23.2  (7/18/18 Post) 

In the merger announcement, GOV's external managers claimed that the then value to SIR shareholders was $29.26. Select Income REIT. While technically accurate based on the closing prices before the announcement, it was clearly an illusory number as proven by subsequent GOV price movement. Realizing that would likely be the case, I quickly sold my remaining SIR shares.  

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.