Observations and Sample of Recent Trades: ABDC, BIZD, BKLN, NVS

Economy: 

US trade deficit keeps going up despite tariffs (soybean exports have started to plummet due to the tariff war with China)

China cuts some banks' reserve requirements to spur growth

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Markets and Market Commentary: 

The current dividend yield of the S & P 500 is about 1.82%. S&P 500 Dividend Yield If you bought a 10 year treasury note rather than a S & P 500 index ETF, which security would provide you with the most income over the next ten years with income reinvestment in the same security? The ten year yield is currently near 3.22%. Would your answer change with the 10 year at 3.75% or 4%? 

This 'potentially lethal combination' in market may unleash inflation (trade wars and wage growth) 

BlackRock's Rick Rieder: Spike in yields almost done, and so is Fed

Trump will not shoulder any blame for increases in inflation directly caused by his policies. 

U.S. government fiscal policy is extremely stimulative and will result in larger deficits and parabolic increases in U.S. government debt.  

A major source for higher gasoline prices is the renewed sanctions on Iran that has removed production and supply from the world market.   

The tariffs add to inflation directly and indirectly. The direct impact is caused simply by the tax on imports raising the cost of products. The indirect impact results from the ability of domestic producers to raise prices higher than otherwise possible due to the higher costs of competitive imported products. The GOP's tariffs are a republican tax on U.S. consumers. 

I am anticipating that Trump will raise the 10% tariffs on $250B in China's exports to 25% on 1/1/19. That will be the first salvo in all out trade war with China. Trump puts new tariffs on China as trade war escalates

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Trump: 

Michale Lewis has a new book titled The Fifth Risk which examines in detail the Trump Administration's willful ignorance (and proud of it), hostility to knowledge and facts, and gross incompetence during the transition and shortly thereafter. Author Michael Lewis says Trump administration started from a position of ignorance - YouTube; 'Fifth Risk' looks at lack of preparation of Trump appointees It is somewhat depressing for me to read this kind of book. Maybe I am an emotional masochist. 

Reviewed at Michael Lewis Wonders Who’s Really Running the Government - The New York Times

Trump will go down in American history as the President who did the most to stoke and inflame tribalism among the two political tribes. 

The Teflon Don is doing his best-virtually everyday-to inflame tensions among U.S. citizens. One of the latest examples is this tweet:  

Donald needs to make up his mind. Are those who oppose him part of a demonic mob or are merely hired employees paid by George Soros? 

The tweet reproduced above is a standard method used by demagogues and authoritarian leaders to demonize those who stand in opposition, as are the following repulsive statements made by the Duck: 

Last Monday, Trump asserted that the sexual misconduct allegations against Kavanaugh were a "hoax" manufactured by "evil" people, referring to the Democrats. Trump Calls Allegations Against Kavanaugh ‘a Hoax’ - The New York Times; Trump Today: President says Kavanaugh a victim of ‘hoax’ fostered by ‘evil’ people - MarketWatch 

Trump claims that Kavanaugh was "proven innocent" and the confirmation process was based on "lies and deception". Trump apologizes on behalf of the nation to Kavanaugh, says he was 'proven innocent'  

In TrumpWorld, democrats do not have legitimate differences of opinion but are part of a sinister and evil satanic cult trying to deceive the public with Fake News and lies.  

The old white guy, Senator Orrin Hatch (R-Utah), barked at a female sex-crime victim "Grow Up." The little wave that Hatch gave her was the equivalent of  the finger sign, one of the most profound statements that Senator Hatch ever made during his long tenure as a U.S. Senator. Hatch snaps at female protesters: Grow up - YouTube 

The old white guy Senator John Cornyn (R-TX) called the sexual assault victims a "mob" that were paid to protest. GOP Senator: We will not be bullied by ‘the screams of paid protesters’ | TheHill 

The really old white guy Senator Grassley (R-Iowa) told a Fox Business Network host that he thought the protestors were paid by George Soros. No, George Soros isn’t paying Kavanaugh protesters - The Washington Post 

Showboat Rudy Giuliani (R) retweeted a comment that George Soros was the "anti-Christ" and urged that his assets be confiscated by the government. 

All of foregoing is scarily reminiscent of earlier American First movement's prejudice against Jews and concocted conspiracy theories involving them. A Short History of 'America First' - The Atlantic; 'America First': From Charles Lindbergh To President Trump : Parallels : NPR  

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The likely new senator from North Dakota, Kevin Cramer (R), labelled "Me Too" as a "movement toward victimization". #MeToo Is a ‘Movement Toward Victimization,’ G.O.P. Senate Candidate Says - The New York Times; GOP Senate Hopeful Kevin Cramer Calls Me Too A 'Movement Toward Victimization'  Cramer is just another right wing ideologue who believes that middle aged and older white men are somehow the real victims in America.  

Sally Quinn gets candid about being sexually assaulted - YouTube (she did not report a sexual assault by Senator John Tower (R-Texas), knowing that she would be trashed by the white male republicans who wanted Tower to become Secretary of Defense. One republican voted against him, Nancy Kassebaum (R-Kansas) who was then the only female republican senator. U.S. Senate: U.S. Senate Roll Call Votes 101st Congress - 1st Session) 

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1. Small Ball-Floating Rate ETFs and BDCs:

A. Bought 50 BKLN at $23.17-Commission Free for All Vanguard Brokerage Customers:

Quote: Invesco Senior Loan ETF Overview 

Closing Price Yesterday: BKLN $23.16 -$0.02 -0.09% 

"The Invesco Senior Loan ETF (Fund) is based on the S&P/LSTA U.S. Leveraged Loan 100 Index (Index)." 

Floating rate securities overview (PDF)

Sponsor's website: Invesco

Data as of 9/19/18:

Distributions: Monthly at a variable rate

Recommended by Gundlach: ‘Be conservative’ — Jeffrey Gundlach on how to invest in this dicey environment - MarketWatch

I would not call this fund "conservative" since it owns a variety of junk rated leveraged loans:

Even though these loans are generally secured by a lien, there are nonetheless high risk which is reflected in those junk ratings. Some of the loans are not rated but an investor probably just needs to assume that they would be junk if there were rated by Moody's, Fitch or S & P. Even first lien loans made to these borrowers can go significantly underwater in a bankruptcy. Second lien loans have been to known to become worthless in a BK. 

BKLN is conservative when viewed solely from an interest rate risk perspective ONLY when and if the short term Libor rates are rising. These loans generally pay a spread over the one or three month Libor rates. I took a snapshot from the semi-annual report, which can be downloaded at the sponsor's website, that shows the basic terms of a small sample:

I view this fund as a short term trade. The goal is simply to harvest some dividends and escape at some point with a profit on the shares.

Last Sell Discussion: Item # 3 Sold 101+ at $23.24 BKLN (2/8/18 Post)(profit snapshot= $7.56)

One reason for buying back some shares at a slightly lower price is that libor rates have continued to move up since that disposition.

Last Buy Discussion: Item # 6 Added 50 BKLN at $23.04 (9/28/17 Post)

Maximum Position: 200 shares + shares purchased with dividends. 

Current Position: 50+ shares

B. Bought 50 ABDC at $6.24-Used Schwab Commission Free Trade: 

Quote: Alcentra Capital Corp. (ABDC) 

Closing Price Yesterday (10/9): ABDC $6.03 +$0.02 +0.33% 

This is an externally managed nano cap BDC that has destroyed capital after its 2014 IPO. 

The IPO offering was at $15 in May 2014 with the company receiving $14.55 per share after the underwriters discount. Prospectus 

There was another stock offering in 2017 where the company sold "808,161 shares of its common stock at a public offering price of $13.68 per share for proceeds of approximately $10,853,602, after paying the sales load and offering expenses." (emphasis added)

History: 

By 12/31/17, the asset destruction had resulted in a net asset value per share of $11.09, down from $14.87 as of 12/31/14. That is a 25.4% decline in just three years. 

It is difficult to believe that anyone would be paid for that kind of performance.

But alas, the norm among Masters of Disaster is that their pay is not diminished by incinerating assets and sometimes threatening the viability of their employers, as was the case among major financial institutions in the period leading up to the Near Depression. 

I decided to buy a lottery ticket since the destruction of capital may have stabilized this year and at least the current discount to net asset value and the dividend yield is modestly enticing given the risk.

Perhaps, the addition of Vijay Rajguru to the management team as the new Chief Investment Officer and Chief Executive may result in a better performance. I do not know one way or the other. That comment falls under the general heading that there is always hope. Alcentra Capital Corporation (ABDC) CEO Vijay Rajguru on Q2 2018 Results - Earnings Call Transcript | Seeking Alpha

Net Asset Value Per Share: 

12/31/17: $11.09  2017 Annual Report (risk summary starts at page 26)
3/31/18:   $11.22  10-Q for the Q/E 3/31/18 
6/30/18:   $11.01  10-Q for the Q/E 6/30/18 (list of investments starts at page 7)

Discount to NAV Per Share at $6.24 and $11.01 NAV Per Share = -43.32%

While that discount provides a cushion of sorts and is somewhat comforting, it is not irrational given the NAV per share decline since the IPO. 

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

The penny rate was cut from $.25 effective for the 2018 first quarter and was cut to $.25 from $.34 effective for the 2017 4th quarter. Alcentra Capital Corp. (ABDC) Dividend Date & History That is an abysmal dividend history. 

The company was not earning the $.34 quarterly dividend which contributed to the lower net asset values. The main contributing factor would be losses on investments. 

Dividend Yield at $6.24 TC Per Share = 11.54% (assumes no further cuts)

Last Ex Dividend Date:  9/27/18  (shortly after purchase)

Dividend Reinvestment: Yes for the time being

Maximum Position: 100 Shares + shares purchased with dividends

Current Position: 51+ shares

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

Alcentra Capital Corporation Announces Second Quarter 2018 Financial Results

The non-accrual positions are in Show Media, Southern Technical Institute and Black Diamond Rentals. Looking at the last 10-Q, those three loans had a combined cost of $15.691M and had been written down to $2.324M as of 6/30/18 with the loans made to Show Media and Southern Technical Institute written down to zero. That is a lot of moola for a nano cap BDC to incinerate. The 10-Q also shows that several preferred and common stock issues have also been written down to zero (e.g. "My Alarm Center" common and preferred stocks with an original cost of $5.486+M, see page 9 10-Q) I do not approve of a BDC investing in common and preferred stock unless those securities are granted as additional consideration for making a loan. 

My overall grade for the external managers, based on the history, is F - to infinity. 

The company has no business attempting to raise capital through a stock offering for the foreseeable future, which would be extraordinarily dilutive at anywhere near the current discount.

Investment Composition: 

"At June 30, 2018, 72.4% of our debt investments bore interest based on floating rates (subject to interest rate floors), such as LIBOR, and 27.6% bore interest at fixed rates." (see page 35 10-Q)

C. Bought 5 BIZD at $16.67 and 5 at $16.3-Commission Free for Vanguard Customers: 

Quote: VanEck Vectors BDC Income ETF Overview

Closing Price Yesterday: BIZD $16.40 +$0.15 +0.92% 

Sponsor's Website: VanEck Vectors BDC Income ETF

The two five share lots were bought after the quarterly ex dividend date. The first lot, which was 50 shares, was bought shortly before that date. 

Last Discussed: Item # 1.B. Bought 50 BIZD at $17.23 (9/9/18 Post)

Current Position: 60+ Shares

Maximum Position: 100 Shares

Purchase Restriction: Small Ball Rule

2. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 1 Treasury 1.5% Coupon Maturing on 7/15/20: 

YTM = 2.786% 

I am delaying by a week or so reinvesting the proceeds from maturing short term bonds and CDs. This 1 bond purchase was funded by the proceeds received from 2 Hope Bancorp 1.45% CDs: 

The CD paid interest monthly and had a 1 year term. 

B. Bought 2 Harris 2.7% SU Bonds Maturing on 4/27/20:

FINRA Page: Bond Detail (prospectus linked)

Issuer: Harris Corp. (HRS)
HRS Analyst Estimates
Website: Harris

Harris Corporation Reports Strong Fourth Quarter and Fiscal 2018 Results...Well Positioned to Accelerate Growth | Harris

Annual Report for the Period Ending on 6/29/18 (long term debt listed at page 78)

Harris SEC Filings

Last Bond Offering Prospectus for $850M in 4.4% SU notes maturing in 2028 (May 2018)

Credit Ratings (lowest tier for investment grade):

Bought at a Total Cost of 99.277
YTM at TC Then at 3.198%
Current Yield at TC = 2.7197%

C. Bought 1 Treasury 2.125% Coupon Maturing on 8/31/20:
YTM = 2.792%

D. Bought 2 Treasury 13 Week Bills at Auction Maturing on 12/27/18: 
Investment Rate = 2.223%

Auction Results: 

E. Bought 2 Mondelez 3% SU Bonds Maturing on 5/7/20: 

FINRA Page: Bond Detail (Prospectus linked)

Issuer: Mondelez International Inc. Cl A (MDLZ)
MDLZ Analyst Estimates 

Mondelēz International Outlines Long-Term Strategy and Provides 2019 Guidance 

Mondelēz International Reports Q2 Results 

MDLZ SEC Filings 

10-K: 2017 Annual Report (debt discussed starting at page 86)

Credit Ratings: 

Fitch Rates Mondelez's Senior Unsecured Notes 'BBB' (5/3/18)

Bought at a Total Cost of 99.903 (includes $2 brokerage commission)
YTM at TC Then at 3.061%
Current Yield at TC =  3.0029%

3. More Small Ball:

A. Sold 10 NVS at $85.94 and 5 at $86.5-Used Commission Free Trades:

Quote: Novartis AG ADR  (NVS)

Closing Price Yesterday (10/9): NVS $85.08 -$0.18 -0.21% 

Profit Snapshot: + $32.98

For the remaining 29+ shares, I reduced my average cost per share to $77.31 from $79.55:

I have now sold all of the shares bought at $80 or higher in the current chain. 

NVS went ex dividend for its annual distribution on 3/6/18. I received that dividend for 12 of the 15 shares sold.  

Last Substantive Discussion: Stocks, Bonds & Politics:Item # 3 Sold 108+ NVS at $83.66 (9/12/18 Post)(profit snapshot = $968.85)

Prior 30 share trade: Item 2.A. Sold 30 NVS at $93.85 (2/3/18 Post)(profit snapshot = (+$184.26)

NVS 2018 Trading Profits: $1,186.09  plus annual dividend

I have been moving in and out of this stock for years. I have discussed most trades somewhere in this blog.

My earliest discussion was probably in 2010. Item # 2. Bought 100 NVS at $49.08 (6/22/2010 Post)

Dividends-Paid Annually in Swiss Francs and Converted to USDs for owners of NVS:

Dividend Information | Novartis

My next trade will be a buy when and if the price falls below my lowest purchase price which is $74.76.

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.