Observations and Sample of Recent Trades: DX, FNB, GYLD

Economy: 

The USD rose in value yesterday against major currencies.  DXY - U.S. Dollar Index (DXY); Dollar rises across the board as trade tensions brew | Reuters The DXY is heavily weighted in the Euro.  

WSJ Dollar Index Interactive Charts 
BBDXY Quote - Bloomberg Dollar Spot Index - Bloomberg Markets

The Bloomberg Dollar Index gives less weight to the Euro compared to the DXY and includes more currencies: Currency Indices 

The Canadian currency declined to below .76. CADUSD Currency I would attribute the recent decline in the CAD/USD to Donald's trade war with Canada. The odd thing is that Doofus Don is making Canadian goods and services cheaper for purchasers using USDs and is consequently aggravating the export/import balance of trade in favor of Canada.   

Canada to stick to guns at NAFTA talks despite Trump pressure; 

No NAFTA without cultural exemption and a dispute settlement clause, Trudeau vows | CBC News; 

Trump’s fight with Canada over NAFTA faces growing opposition at home | Financial Post

The Argentine peso has crashed this year, falling about 45% against the USD. Inflation in Latin America's economy is currently near 25%. In response, Argentina's central bank increased short term rates 15% to 60%. Peso crashes to record low amid IMF plea 

World debt has increased to about $169 trillion from $97 trillion ten years ago. Approximately $10 trillion in corporate bonds will have to be refinanced within the next five years. Are we in a corporate debt bubble? | McKinsey

The ISM manufacturing index increased to 61.3% in August from 58.1 in July. The new orders component increased to 65.1 from 60.2. Those are good numbers. I would call readings above 60 robust. 

++++++++

Markets and Market Commentary: 

Optimism about the economy is so high it suggests a recession is ‘imminent,’ analyst warns-MarketWatch Imbedded in this article is a chart, going back to 1967, that shows a recession occurs after peaks in consumers becoming more optimistic about the present than in the future. The problem with the chart is that the peak can occur within a wide range based on the historical data. Recessions have started at levels lower than now and only one at a higher level which was in 2000. 

Emerging Markets Continue to Slide as Dollar Pressures $3.7 Trillion Debt Wall - TheStreet The problem here is that corporations in emerging markets have U.S.D. denominated debt and have to service that debt with a currency that has fallen in value against the USD. In some cases, like Turkey's lira, the value of the currency has plummeted.   

Jobless claims scraping lows not seen since 1969 - MarketWatch

10- and 30-year Treasury yields see biggest daily climb in 5 weeks - MarketWatch (9/4/18)

++++

Trump: 

Bob Woodward's Trump book: Author details aides' worries about Trump (the Secretary of Defense James Mattis described Teflon Don as having the understanding of "a fifth or sixth grader" according to Woodward. That is about right. Chief of Staff John Kelly refers to Doofus Don as being "unhinged" and an "idiot". 

I would not disagree. The Donald portrayed in Woodward's book was readily apparent to anyone capable of observation prior to the election.  

I would, however, describe Donald as being more ignorant than stupid, since his stupidity largely flows from his willful ignorance and extreme narcissism which prevents him from recognizing his ignorance.  

Woodward documents that Trump smothers everyone, including his highest ranking aides, with insults, rage, and demeaning comments.  Bob Woodward’s new book reveals a ‘nervous breakdown’ of Trump’s presidency

Bob Woodward book, "Fear," reveals dysfunction in "crazytown" Trump White House - CBS News  

I have to hand to the reptilian brain. He has an innate sense on how to be an effective demagogue, the first ever elected to be a U.S. President. The fact that Donald is a demagogue is not debatable. 

National Enquirer Had Decades of Trump Dirt. He Wanted to Buy It All.

Trump touts ‘fantastic job’ on Puerto Rico hurricane response, despite nearly 3,000 deaths - MarketWatch

U.S. is denying passports to Americans along the border, throwing their citizenship into question

Ron DeSantis (R) slammed for telling voters not to ‘monkey it up’ and vote for his black gubernatorial opponent in Florida - MarketWatch

Donald is a perpetual motion machine of reality creations. Trump, without evidence, says NBC fudged 2017 Russia interview

In this one, Trump insinuates that NBC doctored the tape where he clearly stated that he fired Comey because of the Russian investigation rather than the purported reasons involving Comey's misfeasance. He made a similar suggestion just yesterday that NBC somehow doctored the Access Hollywood tape to make him look bad: “There’s even questions about the tape, there’s many things going on.” EXCLUSIVE: Trump Prepped Lawsuit Against NBC Over ‘Access Hollywood’ Tape  

Demagogue Don hates the free press, or anyone else who dares to point out his lies, with a passion:

Trump's usual tactic is to accuse others of lying when he is the one who is lying with an average of 8 false statements per day. It is typical for an authoritarian demagogue to claim that he and his apparatchiks are the only source of truth.

As discussed previously, I view this kind of tweet to be an abuse of presidential power.

This is a direct effort by the President to interfere for political reasons with criminal prosecutions. Trump has no respect for the rule of law. 

Note that Demagogue Don does not address the detailed facts contained in the indictments against representatives Collins and Hunter. 

Instead, he questions the motives of the career prosecutors in bringing the charges.   

Donald also blamed his own Attorney General, a staunch republican, for refusing to stop the legitimate prosecutions for political reasons. Sessions was the first U.S. Senator to endorse Trump.  

Senator Ben Sasse (R-Nebraska), one of the few republican senators who remains tethered to conservatism, responded to Trump as follows:

“The United States is not some banana republic with a two-tiered system of justice — one for the majority and one for the minority party. These two men have been charged with crimes because of evidence, not because of who the president was when the investigations began.”

The Duck has been provoking a lot of threats made by his cult members against reporters.

The Boston Globe received the following call which did result in an arrest:

++++

Trump orders US to strip $200 million in aid from Palestinians - CNN 

Trump, Sessions approved of Putin meeting proposal: former campaign adviser | Reuters

++++

1. Small Ball-Regional Bank Basket Strategy:

A. Sold Highest Cost 50 of 100 FNB Shares at $13.65-Used Commission Free Trade:

2 Year FNB History in this Account:

I sold the 50 share lot bought at $13.08 (7/24/18) per share total cost and kept the 50 shares bought at $12.6 the next day. Item 1.A. Bought Back 50 FNB at $13.08 and 50 at $12.6 (8/1/18 Post) The downdraft on 7/25 occurred on the day that FNB released its second quarter report which is discussed in that post.

Profit Snapshot: $28.54

Quote: FNB Stock Quote

Closing Price 9/4/18: FNB $13.54 $ +0.09 +0.67% 

Regional bank stocks had a positive day yesterday as interest rates rose slightly. KRE $63.47 +$0.32 +0.51%: SPDR S&P Regional Banking ETF 

FNB Analyst Estimates

Dividend: Quarterly at $.12 per shares, sliced from $.24 per share in 2009 and not raised since that 50% haircut.

FNB Trading Profits to Date: $1,172.28 ($1,143.74 in prior trades)

As discussed in the previously linked post and other posts, I have an unfavorable view of FNB's Board and management who are in an empire building mode that has yet to benefit shareholders IMO, as shown in five year historical data found at page 40 of the 2017 Annual Report. Consequently, I am in a hyper trading mode for this stock.  

2. Short Term Bond/CD Ladder Basket Strategy (Maturing within 3 years of the date of purchase):    

A. Bought 2 American Express 2.2% SU Bonds Maturing on 3/3/20: 

Finra Page: Bond Detail (prospectus linked)

Issuer: American Express Co. (AXP)

AXP Analyst Estimates 

American Express Reports Second-Quarter EPS of $1.84 

Credit Ratings: See Confirmation

Bought at a Total Cost of 99.1 (with $4 Vanguard Commission)

YTM at TC Then at 2.805%

Current Yield at TC = 2.22%

When I bought this bond, the ten year U.S. treasury was trading at a 2.83% yield. 

Over the past several weeks, I have been focusing on buying investment grade corporate bonds maturing in about 18 to 26 months that have yields to maturity greater than, or close to the ten year treasury yield. 

This bond issued by the A2 rated American Express matures in about 18 months and has a slightly lower YTM than the ten year treasury at my total cost when purchased. Without the $4 brokerage commission, the YTM would have been 2.94%.

The two year treasury note, which matures about 6 months after this bond and close to the bond discussed below, closed yesterday near a 2.66% yield-to-maturity. U.S. 2 Year Treasury Note-MarketWatch

B. Bought 2 Biogen 2.9% SU Bonds Maturing on 9/15/20:

FINRA PAGE: Bond Detail (prospectus not linked)
Prospectus

Issuer: Biogen Inc. (BIIB)
BIIB Analyst Estimates

2018 Second Quarter Earnings Report
2017 Annual Report (this is the next BIBB SU bond to mature, see page F-32)
Biogen SEC Filings

Credit Ratings:

Bought at a Total Cost of  99.812  (includes $2 Fidelity Commission)
YTM at TC Then at 2.994%
Current Yield at TC 2.9055%

I prefer to buy short term bonds maturing in 2020 where I my current yield and YTM are close together rather than to have a significant portion of the yield tied up in harvesting the spread between my total cost and par value.

While I don't mind realizing a small gain on a bond trade, my primary reason for investing in bonds is to generate current cash flow that can be aggregated with other cash flow sources to invest in more securities that generate cash flow, all with a capital preservation goal in mind.

C. Bought 1 Enterprise Products Operating LLC 2.55% SU Bond Maturing on 10/15/19:

Finra Page: Bond Detail

Issuer: Wholly owned subsidiary of Enterprise Products Partners L.P. (EPD) who guarantees the note

EPD 2017 Annual Report

Credit Ratings:

Fitch Affirms Enterprise Products Operating at 'BBB+'; Outlook Stable (12/21/16)

Enterprise Products Operating LLC recently issued some junior bonds that were rated BBB- by Fitch: Fitch Rates Enterprise Products Operating's Jr. Subordinated Notes Offering 'BBB-'; Outlook Stable (2/1/18). The senior unsecured bonds were affirmed at BBB+.

Bought at a Total Cost of 99.791
YTM at Total Cost Then at 2.736%
Current Yield at Total Cost = 2.5553%

At the time of this trade, the one year treasury bill was trading at a 2.455% YTM. The yield has risen to near 2.49% since this purchase: U.S. 1 Year Treasury Bill 

3. More Small Ball-Income Generation from Securities Held in Very Low Esteem:

A. Bought 50 DX at $6.39-Used Commission Free Trade:

Quote: Dynex Capital Inc. (DX)

Closing Price Yesterday: DX $6.40 -$0.01 -0.16% 

Dynex is an out-of-favor small cap MREIT that has about a $367+M market cap at $6.39 market price.  Dynex Capital, Inc. - Home

The plan is to average down in no more than two 25 share lots using commission free trades.  

While the price has remained mostly in a channel between $5 to $10 since 2002, there was a near collapse in the late 1990s: DX Chart In March 1997, the stock was trading near $62 and had sunk to less than $1 by August 2000.

I do not recall specifically what caused the collapse but this firm was into a lot of things other than owning mortgage backed securities back then. I have never own any DX securities, including it common and equity preferred stocks, before this 50 share purchase.

Chart: Using a one year YF chart, DX was selling at below its 200, 100 and 50 day SMA lines at the time of this 50 share purchase.

Dividend: Quarterly at $.18 per share ($.72 per share annually)

Dividend Yield at $6.39 = 11.27%

Last Ex Dividend Date: 7/3/18

Last Earnings Report: Dynex Capital, Inc. Reports Second Quarter 2018 Results 

Book Value Per Share: $6.93 as of 6/30/18

Discount to 6/30/18 Book Value at a TC of $6.39 per share =  7.79%

2017 Tax Information:

As a pass through entity, DX will not be paying qualified dividends.

For high bracket taxpayers, that is mitigated somewhat by the ROC classification which was at 70.11% of the total last year.

Dynex Capital, Inc. Announces 2017 Dividend Tax Information

When owned in a taxable account, that part of the dividend classified as return of capital ("ROC") is not taxable as a dividend but reduces the tax cost basis by an equivalent amount. By holding the stock for at least one year, the ROC adjustment could become a long term capital gain taxable at a lower rate than the taxpayer's highest marginal tax bracket.

B. Bought 50 GYLD at $17.62 in a Roth IRA Account:

Quote: Arrow Dow Jones Global Yield ETF Overview

Closing Price Yesterday: GYLD $17.250 -$0.080 -0.46% 
52 Week Range as of 9/4/18: $16.98 to $19.24

GYLD One Year Chart (not a total return chart)

Maximum Position: 100 Shares

Except for leveraged ETFs, Vanguard does not currently charge a commission for the purchase of ETFs. This purchase was consequently commission free and would be for all Vanguard brokerage customers.

Sponsor's Page: Arrow Funds Dow Jones Global Yield ETF (GYLD) - World Allocation

Category Weightings as of 8/23/18:

Snapshot of Some Holdings:

Distributions: Monthly and variable

GYLD_Annual Report_for the period ending 1-31-18.pdf

I will reinvest the dividend.

This ETF has a deserved 1 star rating from Morningstar. I would label this buy as deeply contrarian with a bias toward financial masochism. 

That rating is due in large part to a multi-year storm that caused underperformance in several major asset categories. 

The fund owns energy infrastructure MLPs, which have been in a bear market since 2014, and foreign securities hurt by a rise in the USDs value. At one time, there was some exposure to energy E & P MLPs as I recall, which were smashed, with several filing for bankruptcy. 

Some of those foreign securities are emerging market sovereign bonds which have been declining in price and will probably continue to do so. A bottom is hard to call. 

This ETF has not participated in the market's up move over the past five years which is one reason why I take a nibble now. That is a massive understatement. The five year annual average return through 8/23/18 was .10%.

The expense ratio is high at .75%.

Another reason for buying this security is that it does have a decent yield and can be bought commission free in my Vanguard accounts.

The last reason is that I have so far been able to successfully trade this massively underperforming ETF. Maybe the past will not be prologue.

Links to Some Prior Trade Sell Discussions:

Item # 3 Eliminated GYLD-Sold 201 Shares (1/11/2017 Post)(profit snapshots = $108)

This post contains links to prior discussions:

Item # 6 Sold 50 GYLD at $28.09-Roth IRA (7/19/14 Post)(total return +$154.9)

Item # 4 Sold 100 GYLD at $28.32 (8/9/14 Post)(total return +323.22 or 12.1%)

Sold 100 of the ETF GYLD at $25.49 (2/21/15 Post)

Total GYLD Trading Gains = $452.11 

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.