Observations and Sample of Recent Trades: BRG, IAU, IRT, RJI, SLV

Economy: 

Home builder stocks in broad decline as Freddie Mac said housing market has 'stalled' - MarketWatch As noted in several prior posts, I am anticipating a slowdown in the housing market due to adverse headwinds coalescing simultaneously, including higher mortgage rates, changes in the tax law that make home purchases less affordable for many households, and the substantial and persistent rise in home prices since the Near Depression.    

40% of Americans struggle to pay for at least one basic need like food or rent - MarketWatch

U.K.’s Theresa May Says Brexit Negotiations Have Reached ‘an Impasse’ - MarketWatch

ECB President Mario Draghi expects 'vigorous pick-up in underlying inflation' - MarketWatch  

Walmart, Target warn that tariffs will raise prices and hurt families - MarketWatch Trump's trade advisor Peter Navarro criticized Procter and Gamble for saying that Trump's tariffs would raise prices to consumer and result in job cuts. Trump trade chief rips Procter & Gamble over tariff warning, profits | Fox Business The Trump Administration has repeatedly warned U.S. companies about making accurate statements about the negative price impacts from U.S. tariffs. 

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Markets and Market Commentary: 

Tepper says tax cuts were too steep and likely borrowed economic growth from the future

Investors have lost their healthy skepticism, Shiller warns - MarketWatch

OPEC raises U.S. oil supply outlook, sees lower demand for own crude | Reuters; OPEC expects U.S. shale growth to slow significantly in less than 5 years - MarketWatch

Weekly U.S. Field Production of Crude Oil (Thousand Barrels per Day)

Production from a shale deposit generally falls off rapidly after the first year. ‘Nothing To See Here’ - Frackers Ignore Rising Well Decline Rates | OilPrice.com; The Shale Boom Might Not Last Long | OilPrice.com

As U.S. sanctions near, Europe fails to protect Iran deal | Reuters Contracts for Iranian crude are being cancelled by firms that wish to avoid U.S. sanctions. The reduction in crude deliveries from Iran is probably contributing to the recent increases in oil prices. Oil buyers must cut all Iranian crude imports by November: State Department 

Stock-market landscape looks like it did before correction, but don’t go short, say Jefferies analysts - MarketWatch

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Trump: 

Trump claim of historic accomplishments elicits unintended laughter from world leaders at U.N. - MarketWatch

Trump claimed that the U.S.-South Korea trade treaty was one of the worst one ever negotiated in world history. Earlier this week, the Duck signed a new trade deal that made a few changes in the existing agreement that will likely have an immaterial impact. For example, the revised agreement would increase the cap on U.S. automobile exports to 50,000 from 25,000 but U.S. auto manufacturers did not come close to hitting the 25K cap last year. America's automakers won't get much help from new South Korea deal

For reasons that have more to do with psychology than facts in the real world, millions accept the Duck's bluster, self-aggrandizement and ceaseless hyperbole as facts.  

Strong economy and stock market may lead Trump to ‘major miscalculation’, say JPMorgan analysts - MarketWatch

‘He is vulnerable’: Trump feels angry, unprotected amid mounting crises

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Kavanaugh: 

Trump: Most unfair thing for Kavanaugh-CNN Video; Trump: Kavanaugh allegations are 'totally political' 

What I have heard directly from republicans is a unanimous opinion that the sexual allegations made against Kavanaugh are part of a Democrat conspiracy to delay and defeat his nomination and is entirely political. GOP politicians are saying the same. Trump on Kavanaugh accusers and Democrats: Transcript-The Washington Post (Quote: "I think it is horrible what the Democrats have done. It's a con game, they are really con artists.") According to Trump and other republicans, Kavanaugh is the  victim. Kellyanne Conway says Brett Kavanaugh accusers' allegations feel like "a vast left-wing conspiracy"-CBS News  

Trump told reporters that “this could be one of the single most unfair, unjust things to happen for a candidate for anything.” 

Senator Mitch McConnell (GOP's Senate Majority Leader): “This shameful, shameful smear campaign has hit a new low. Senate Democrats and their allies are trying to destroy a man’s personal and professional life on the basis of decades old allegations that are unsubstantiated and uncorroborated.” 

Senator Lindsey Graham (R-SC): Kavanaugh is a the victim of a “drive-by shooting.” 

Senator Orrin Hatch (R-UT): Hatch blasted the Democrats for "partisan games and transparent attempts at character assassination", pursuing "underhanded tactics", and using dirty "innuendo". Hatch slams Democrats for 'character assassination' of Kavanaugh-Deseret News Hatch will be remembered in history for his most noteworthy accomplishment as a U.S. senator, which was his claim that Anita Hill sourced some saucy statements that she alleges were made by Clarence Thomas from the "Exorcist". Senator Orrin Hatch Reads ‘The Exorcist’ at Thomas Hearing - Video - NYTimes.com; GOP Senators Will Find Whoever Left Pubic Hair On Brett Kavanaugh's Coke - Wonkette  

Senator James Inhofe (R-WY): The Kavanaugh accusers had a "little help" making up their stories. TheHill

All of the foregoing statements are transparent efforts to belittle the accusers. 

No credence is given to the statements made by the two accusers. 

The only republican senator who has avoided blaming the Democrats is Lisa Murkowski who is a duck out of water in the modern day GOP. Lisa Murkowski Delivers Message: Take Kavanaugh Accusations Seriously - The New York Times

I seriously doubt that the Democrats will gain control over the Senate prior to the November 2020 election. And even that will require a nasty recession before that election that is ongoing on election day. The republicans have done an excellent con job in convincing the middle class that they are promoting their interests. Something materially adverse and concrete has to happen to those voters individually in order to facilitate the piercing of that mirage and facade.  

If Kavanaugh's nomination is scuttled in the coming days or weeks, Trump will probably pick a woman as a replacement, and there are several that are as reactionary as Kavanaugh, all of whom have been cleared by the reactionary Federalist Society. Trump has ‘outsourced’ his Supreme Court picks to this conservative group - SFChronicle.com I would not call the Federalist Society a "conservative group" but a clearly reactionary one. Precedents made over the past 100 years mean nothing to them. 

So if there is a political conspiracy or "con game" of some sort between democrats and the two Kavanaugh accusers who have come forward so far, and that has not been shown to be the case, it will be an ineffective one as judged by the end result. 

I would just note that no allegation was made by any woman against Neil Gorsuch in his recent confirmation hearing. 

For the most part, the sexual misconduct allegations made by 16 women involving Donald are dismissed by republicans as false and politically motivated as well. The same result would be reached even if there were 32 women making sexual assault charges against the Duck. Donald said he was going to sue all of them after the election, which caused the True Believers to cheer whenever he made that boast, but alas no suit has yet to be filed by the President. List of Trump's accusers and their allegations of sexual misconduct - ABC News

Republicans’ response to Kavanaugh’s accuser shows what they really think of women - MarketWatch

Senate Democrats Investigate a New Allegation of Sexual Misconduct, from the Supreme Court Nominee Brett Kavanaugh’s College Years, by His Yale Classmate Deborah Ramirez | The New Yorker This recollection appears to be based on a belated recall from a foggy memory induced by a drunken state.   

Senate Democrats reportedly investigating second sexual misconduct allegation against Brett Kavanaugh (Deborah Ramirez says Kavanaugh exposed himself at a college dorm party when they were both studying at Yale, “thrust his penis in her face, and caused her to touch it without her consent as she pushed him away.” The alleged Kavanugh behavior is consistent with what is alleged by Ms. Ford) Hundreds of Yale alumnae sign open letter supporting new Kavanaugh accuser

James Roche was Kavanaugh's roommate during his freshman year at Yale. Roche said that Kavanaugh was “frequently, incoherently drunk.” While Roche does not have personal knowledge of Kavanaugh committing a sexual assault, or engaging in inappropriate sexual conduct, he added that it was "believable that Kavanaugh was one" of the guys at the party described by Deborah Ramirez who he calls a friend. The sexual misconduct allegations against Brett Kavanaugh: what we know - Vox; Ex-college classmate accuses Kavanaugh of sexual misconduct | TheHill

Kavanaugh’s Yearbook Page Is ‘Horrible, Hurtful’ to a Woman It Named

Several more Kavanaugh classmates at Yale have come forward. Dr. Elizabeth Swisher, a Seattle physician, said that she had seen Kavanaugh "very drunk" on a number of occasions. Another woman recalled seeing Kavanaugh holding his crouch, hoping on one leg and making a non-sensical chant, apparently as part of some kind of DKE fraternity ritual. "Nearly a dozen people who knew him well or socialized with him said Judge Kavanaugh was a heavy drinker in college." In Yale’s Culture of Privilege and Alcohol, Her World Converged With Kavanaugh’s - The New York Times  

Supreme Court nominee Brett Kavanaugh is hard to believe Kavanaugh has hurt his case by claiming in a softball Fox interview that he did not even participate in the rowdy party culture at his high school and at Yale. That goes to credibility when it can be shown by a large number of witnesses that he did participate. Kavanaugh already had credibility issues before these sexual assault allegations were made public. Brett Kavanaugh Supreme Court hearing: the perjury controversy, explained - Vox A Supreme Court nominee has to be squeaky clean with no reasonable doubts about their credibility and character. 

The republicans have framed the issue as the women having to prove Kavanaugh's guilt beyond a reasonable doubt, as if the standard of proof for a Supreme Court confirmation is the same as in a criminal trial. 

The issue is whether there is sufficient evidence to have doubts about Kavanaugh's fitness to receive a lifetime appointment to the Supreme Court. That is a far lower standard than what would be required in any civil or criminal proceeding involving these allegations.   

The all-white male republicans on the Senate Judiciary Committee will farm out Ms. Ford's cross examination to a hired gun in order to avoid showing the public who they really are, which was front and center, an obvious to anyone willing to see and hear, during their interrogation of Anita Hill.   

+++++++

1. Small Ball- Equity REIT Common and Preferred Stock Basket Strategy:

A. Sold 57+ IRT at 10.27+ in a Roth IRA Account:

Profit Snapshot: +$203.17 (excludes 6/13/18 transaction)

Quote: Independence Realty Trust Inc. (IRT)

Closing Price Yesterday (9/25/18): IRT $10.35 +$0.04 0.44% 

SEC Filings
2017 Annual Report
IRT Apartment Map
Corporate Profile - IRT Reit

Dividends: Quarterly at $.18 per share

Independence Realty Trust Announces Third Quarter 2018 Dividend 

Next Ex Dividend Date: 10/4/18

Last Substantive Buy Discussion: Item # 1.A. Added 50 IRT at $9.35-Roth IRA Account (1/21/18 Post)

I discussed several concerns that I have about this REIT in that post.  

Other Buy Discussions: 

Item # 1 Bought 50 IRT at $6.18 Update For The Equity REIT Basket Strategy As Of 2/22/16 - South Gent | Seeking Alpha

Item # 2 Added 100 IRT at $6.8 Update For EQUITY REIT Basket Strategy As Of 1/29/16 - South Gent | Seeking Alpha

Most Recent Sell Discussions: 

Item 1.C. Sold 50 IRT at $10.09 (6/21/18 Post) 

Items 1, 2, 3 Update For Equity REIT Basket Strategy As Of 7/28/16 - South Gent | Seeking Alpha

Last Earnings Report:

Independence Realty Trust Announces Second Quarter 2018 Financial Results and Reiterates Its Full Year Guidance Targets 

REITs want to be valued based on cash flow rather than GAAP earnings due to their large non-cash depreciation expense that is included in the GAAP calculation. 

And, importantly for income investors, which cash flow number is relevant for evaluating dividend safety and the possibility of future dividend growth. 

IRT has a funds from operation ("FFO") number and a core FFO number ("CFFO'). The number that this REIT wants the investor to use is the CFFO which was $.19 in the second quarter. The quarterly dividend is currently $.18 per share.  The dividend is $.01 per share lower than the CFFO number and $.01 above the $.17 per share FFO number. 

The CFFO calculation excludes from the $.17 FFO number certain non-cash expenses including stock compensation and amortization of deferred financing costs. That is appropriate when trying to arrive at a cash available for distribution ("CAD') number. 

What about cash expenses for maintenance, a major item for apartment REITs?  IRT does not deduct those cash expenses from FFO. Consequently, the IRT CFFO number is not a CAD number. 

Those maintenance capital expenditures are recurring expenses. Money used to pay those expenses are not part of cash flow. They will be depreciated over a period of years and will consequently be included in depreciation expense which is excluded in the FFO calculation. 

Maintenance capital expenditures for apartment REIT can vary of course from quarter-to-quarter. An annual number of $400 to $500 per apartment would be a normal range. 

IRT does provide the raw number for each quarter: "For the three months ended June 30, 2018, recurring capital expenditures for the total portfolio were $2.0 million, or $133 per unit. For the six months ended June 30, 2018, recurring capital expenditures for the total portfolio were $3.1 million, or $213 per unit."

There is also a distinction between nonrecurring value added capital expenditures and recurring maintenance capital expenditures. 

IRT Estimates for 2018

Money used in both are not available for distribution. 

The standard definition of adjusted funds from operation "AFFO" requires a deduction for recurring capital expenditures from FFO only:

Glossary of REIT Terms | Nareit

If I excluded the $2M spent in the second quarter from FFO, I would then arrive at an adjusted FFO per share of $.1678 which is below the FFO number and the $.18 per quarter dividend. 

Only a few REITs deduct routine maintenance expenditures from FFO. That is fine for REITs that have triple net leases where the tenants pay for routine expenditures. It is not okay for REITs that actually pay for those recurring expenditures. 

10-Q for the Q/E 6/30/18
I am not reinvesting the dividends currently.

B. Sold 50 out of 177 IRT at $10.38-Used Commission Free Trade:

Profit Snapshot: +125.08

Position Before Pare: Average Cost per share at $7.79:

Position After Pare: Average Cost per share at $7.76

IRT Realized Gains to Date: +$776.15  ($447.9 in prior trades)

Current IRT Positions in Other Accounts:

Fidelity: 127 shares with an average cost of $7.76 per share
Schwab: 121 shares with an average cost of $7.5 per share
IB: 150 Shares with an average cost of $6.61 per share

Total Remaining Position: 398 shares

C. Sold 60 BRG at $9.9-Used Commission Free Trade:

Quote: Bluerock Residential Growth REIT Inc. (BRG)
Portfolio - Bluerock Residential Growth REIT
SEC Filings: SEC
Home - Bluerock Residential Growth REIT

Profit Snapshot: $+142.16

Item # 2.A. Bought 50 BRG at $7.6 (2/12/18 Post)
Item # 3.D. Added 10 BRG at $7.19 (2/19/18 Post)

BRG Trading Profits to Date=  $1,105.93 ($963.77 prior Trades)

Closing Price Yesterday: BRG $9.90 +$0.02 +0.20% 

Dividend: Quarterly at $.1625 per share ($.65)

Last Ex Dividend: 9/24/18

Dividend Cut: As previously discussed, there was a dividend cut which occurred contemporaneously with management internalization. The dividend was at a monthly rate of $.096667 or $1.16 annually.

Earnings Report: Q/E 6/30/18

BRG's calculation of AFFO has the same deficiency as IRT discussed above. Apartments require considerable maintenance expenditures. 

Bluerock Residential Growth REIT Announces Second Quarter 2018 Results 

10-Q for the Q/E 6/30/18 

I still own 50 shares of BRGPRA. Item # 3.A. Bought Back 50 BRGPRA at $24.6 (4/2/18 Post); Bluerock Residential Growth REIT Inc. 8.25% Cumulative Preferred Series A Stock

2. Short Term Bond/CD Ladder Basket Strategy: 

October 2018 Maturities

SU = Senior Unsecured Bond ($1K par value per bond)
CD = Certificate of Deposit ($1K par value per CD)-FDIC Insured

MI = Monthly Interest Payments
Treasury: U.S. Treasury Debt ($1K par value per bill, note or bond)

2 Wells Fargo 1.5% CDs MI 10/1 (18 month CDs)

1 Washington Federal 1.7% CD MI 10/2 (7 month CD)

2 Safra Bank 1.45% CDs 10/9 (13 month CDs)

2 Investors Bank 1.8% CDs 10/9 (4 month CDs)

1 New York Community BK 1.6% CD 10/12 (10 month CD)
2 Mizrahi 2.1% CDs (3 month)

4 Treasury .875% 10/15
2 Enerbank 1.95% CDs MI 10/15/18 (4 month CDs)

2 Stifel Bank 1.85% CDs MI 10/15 (4 month CDs)

1 Deere 1.54% SU 10/15 (bought January 2018)
3 Treasury 4 Week Bills Investment Rate at 2.051% (bought at auction)

2 First N.A. Bank 1.8% CDs MI 10/19 (6 month CDs)

3 Franklin Synergy 1.5% CDs MI 10/19 (15 month CDs)

2 Morgan Stanley Bank 1.9% CDs 10/19 (6 month CDs)

2 First N.A. BK 1.65% CDs MI 10/25 (9 month CDs)

2 Safra BK 1.45% CDs 10/29 (13 month CDs)

2 Umpqua BK 1.9% CDs 10/29 (6 month CDs)

2 UBS BK 1.9% CDs 10/30 (6 month CDs)

1 Bank of India 1.85% CD 10/31 (6 month CD)

2 Treasury 1.25% 10/31

3 Treasury 1.75% 10/31

3 Treasury   .75% 10/31

$46K 

Approximately 1/3rd of the proceeds will be redirected into 4, 13, 26 and 52 week treasury bill auctions with the weighting in 13 week bills. 

Another 1/3rd will be used to buy U.S. treasuries in the secondary market and investment grade corporate bonds maturing in 2020. That leaves one-third to be redirected into stocks, ETFs and ETNs, and a money market fund. 

A. Bought 1 Treasury 2.25% Coupon Maturing on 3/31/20: 

YTM = 2.576%

B. Bought 1 Southern Company 2.75% SU Bond Maturing on 6/15/20:

I received $3K in proceeds from a maturing 1 year CD in this account. The CD had a 1.55% coupon and made monthly interest payments. I redeployed $1K into this Southern bond and another $1K into a treasury discussed in Item #2.C. below.

Fitch Rates Southern Company's Floating Rate Senior Notes 'BBB+'; Ratings on Negative Watch (8/15/18)

FINRA Page: Bond Detail (prospectus linked)

Issuer:  Southern Co. (SO)
SO Analyst Estimates

Southern Company reports second-quarter 2018 results

Credit Ratings:

Bought at a Total Cost of 99.315
YTM at TC Then at 3.151%
Current Yield at TC =  2.769%

The yield is higher than most similarly rated bonds maturing at about the same time, which indicates that the Bond Ghoul consensus is that the bond is riskier than the ratings would indicate. (e.g. Wisconsin Energy 2.45% SU Bond maturing on 6/15/20, rated BBB+, and last trading at a 2.836% YTM at the time of purchase)

C.  Bought 1 Treasury 2.375% Coupon Maturing on 4/30/20:
YTM = 2.648%

I now own 2 bonds.

D. Bought 1 Year Treasury at Auction Maturing on 9/12/19-In a Roth IRA Account:
Investment Rate Yield = 2.547%

Auction Details:

U.S. 1 Year Treasury Bill-MarketWatch

2018 Daily Treasury Yield Curve Rates

1 Year CD Rates at time of purchase:

The highest rate shown in the preceding snapshot is 2.4%. Why would an investor buy a CD that had a .147% lower yield than the one year treasury?  Treasuries are far more liquid and their interest payments are exempt from state income taxes.

E. Bought 1 McDonalds 2.2% SU Bonds Maturing on 5/6/20:

I now own 3 bonds.

FINRA Page: Bond Detail (prospectus linked)

Issuer: McDonald's Corp.  (MCD)
MCD Analyst Estimates
McDonald's Reports Second Quarter 2018 Results

Credit Ratings:

Fitch Affirms McDonald's at 'BBB'/'F2'; Outlook Stable

Bought at a Total Cost of 98.828
YTM at TC Then at 2.907%
Current Yield at 2.2261%

3. Precious Metals and Commodities:

A. Added 10 SLV at $13.34:

Quote:  iShares Silver Trust Overview

Closing Price Yesterday: SLV $13.59 +$0.18 +1.34% 

SLV Chart: Major Long Term Bear Market since 2011

Current Position: 60 Shares

Maximum Position: 100 Shares 

Purchase Restriction: Small Ball Rule

Average Cost Per Share: $14.64

Highest Cost Lot Bought at $15.4: Item # 2.C. Bought 30 SLV at $15.4 (5/3/18)

Trading Profits = $220.42 (snapshots in prior linked post)

B. Bought 30 IAU at $11.47-Commission Free for Vanguard Customers:

Quote: iShares Gold Trust Overview

Closing Price Yesterday: IAU $11.52 +$0.03 +0.26% 

Sponsor's Website: iShares Gold Trust | IAU (expense ratio .25%)

Prospectus (owns gold bullion)

Current Position: 30 Shares

Maximum Position: 100 Shares

Purchase Restriction: Small Ball Rule

This is my first purchase of IAU. I have harvested in the past some profits trading GLD.

As previously noted, I own gold and silver bullion and will trade the long cycles. I last sold gold and silver bullion in September 2011, when gold was over $1900 and silver was over $40, and at slightly lower prices in January 2012. I last bought silver bullion when a one ounce American Silver Eagle could be purchased from a dealer at $7 per coin.  

The Road to Political Power: Lying Works/Recent Gold and Silver Sales (9/15/11 Post); 

Item # 8:  Snapshots of Coin Sales In January 2012  (1/31/12 Post)

I use the precious metal ETFs for short term trades as a form of entertainment. 

The cover story in this week's Barron's is titled Gold Is Cheap. Inflation Is Coming. You Do the Math.  I find gold and silver hard to trade since there is no discernible fair value range and consequently prices are not moored by anything concrete. What is Gold's "Fair Value"? (4/23/13 Post). 

The inability to rationally fix a fair value range for gold makes emotional trading more dominant, marked by frequent up and down moves that are hard or impossible to predict in advance. I am not sure why I bother other than to entertain myself.   

C. Bought 100 RJI at $5.58 ($1 IB Commission): 

Quote: Elements: Rogers International Commodity ETN AB Svensk Ekportkredit (Swedish)

Previous Round-Trip Trades: I has been several years since I owned this ETN. 

Item # 1 Sold 300 RJI at 7.6 (1/21/10 Post)-Bought 100 RJI at $5.97 (4/22/2009 Post) and  Item # 1 Bought 200 RJI at $6.73 (5/22/2009 Post)

Sponsor's Page: ELEMENTS ETN Products (expense ratio =.75%)

Risk_Factors.pdf

Prospectus

Security: RJI is an Exchange Traded Note (ETN) that tracks the Rogers International Commodity Index. The weighting and components of that index are shown in the following snapshot: 

Index; Rogers International Commodity Index (RICI®) Composition Adjustments (2/2/18 News Release)

The ETN matures on 10/22/22 but has no fixed par value unlike other senior unsecured bonds. If held to maturity, which I will not do, the bond's value will be determined with reference to the index's value.    

This is likely to be a trade. With the recent USD weakness, I thought that a rally in several commodities was possible and I have no direct commodity exposure except for the precious metals. Crude oil, a major component of this commodity index, has been rising as of late: Global oil vaults to 4-year high as producers rebuff Trump’s demand to keep crude prices low - MarketWatch 

Realized Gains to Date:  $309.76

2010 RJI 300 Shares +$309.76

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.