Observations and Sample of Recent Trades: BTZ, RMT, TRPPRH

Economy: 

The Fed announced that it will likely stop its balance sheet reduction soon as it sees risk to growth. The Fed just released minutes from its market-moving meeting 

Consumer debt default data remains at historically low levels, though there has been a gradual rise in  auto loan delinquencies and defaults staring in 2014 among consumers with FICO scores less than 650. Consumer Credit Default Indices - Specialty - S&P Dow Jones Indices

Auto Loans in High Gear   Liberty Street Economics: NY Fed

Car Loan Delinquencies Reach New High : NPR

Is a Subprime Auto Loan Crisis Brewing? 

America’s 1% hasn’t had this much wealth since just before the Great Depression - MarketWatch

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Markets and Market Commentary: 

Fed's Bullard: Rate hikes, balance sheet reduction 'coming to an end'

The unexpected development would be two FED rate hikes in the second half. As Fed Pauses on Interest Rates, Some Economists Now Project Cuts -TheStreet The consensus is for the FED standing pat throughout 2019 or possibly cutting .25% on or before their December meeting. 

How trillion-dollar stock-market index funds are vulnerable to manipulation that ‘could harm American investors’ - MarketWatch

Deutsche Bank lost $1.6 billion on a trade involving Buffett, WSJ says 

Kraft Heinz Shareholders Panicked While Bondholders Kept Their Cool

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Trump: 

When the Director of National Intelligence Dan Coats, a former republican senator from Indiana, gave testimony that contradicted Donald's false assertions, Trump was furious since providing truthful testimony was an act of disloyalty to the King. Trump grows frustrated with Coats, leading some to fear he might be fired - The Washington Post

Japan's Abe nominated Trump for Nobel Peace Prize on US request: Asahi

Justice Clarence Thomas is not a conservative justice but a deeply reactionary one. Like Trump, he wants to make it easier to public figures to sue for libel, creating a dampening effect on political criticism and furthering speech suppression which has been Trump's lifelong goal. Justice Clarence Thomas calls for reconsideration of landmark libel case The general idea supported by Trump is to use the libel suits to squash criticism by subjecting those whose speech is disliked by an authoritarian like Trump to ruinous litigation costs. Donald J. Trump Is A Libel Bully But Also A Libel Loser

Trump Asked Matthew Whitaker To Meddle In Michael Cohen Probe: NYT;  Trump denies asking former acting AG about hush-money investigation - CBS News Trump reportedly wanted Whitaker to replace the career prosecutors in the SDNY investigations with a Trump loyalist. 

‘Enjoy your life’: Trump puts new attorney general in an awkward position from the start (Trump has once again unleashed a flurry of tweets attacking the FBI and the Justice Department) The latest salvo appears to have been generated by Andrew McCabe's book and his TV appearances, particularly the one on 60 minutes.  McCabe: 'I think it's possible' Trump is a Russian asset - CNN; Read the Transcript of Ex-FBI Deputy McCabe's 60 Minutes Interview | Time

This WP article documents the "Trumpworld's" outreach to Russia: What we’ve learned about Trumpworld outreach to Russia - Washington Post Trumpworld includes people who were not directly employed by the Trump campaign. 

Trump 'fear-mongering' fuels rise of U.S. hate groups to record: watchdog | Reuters

Yes Roger, this was stupid but consistent nonetheless: Roger Stone will testify to explain crosshair next to Judge's picture in Instagram post

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1. Exchanged a Leverage Bond CEF for a Less Leveraged Stock CEF With a Higher Yield: 

A. Bought 100 RMT at $8.50-Used Commission Free Trade: 

Quote: Royce Micro-Cap Trust Inc. (RMT)

Closing Price Last Friday: RMT $8.79 +$0.08 +0.92% 

Sponsor's Page: Royce Micro-Cap Trust (RMT)

RMT Royce Micro Cap Trust CEF-Morningstar

When foreign economies start to look dicey, and the U.S. economy is still in an expansion cycle, U.S. micro caps are an option since those companies are generally dependent on the U.S. economy. I am not in a buying mood which explains the nominal purchase compared to past positions which have at times been over 500 shares. 

There are a micro cap ETF:  iShares Micro-Cap ETF | IWC (non-leveraged with an expense ratio of .6%) The dividend yield for that ETF will be substantially below RMT. The ten year annual average return through 2/12/19 was 14.08%, which is about 1% lower than the leveraged RMT on an annual basis. iShares Micro-Cap ETF (IWC) Total Returns That 1% adds up over time. 

RMT Leverage: Fluctuates, last reported at 9.71% (6/30/18)

If RMT was leveraged say at 30%, which is common for leveraged bond CEFs, then I would view IWC as less risky than RMT and possibly better for those more sensitive to what a highly leveraged portfolio will do when things go south. 

I did own prior to 2008 the Rice Hall James Micro Cap Fund (RHJSX), one of the many stock mutual fund positions eliminated in late 2006 and in 2007. The ten year average annual total return was 15.65% through 2/12/19. That fund is available on an NTF basis from several brokerage funds including Fidelity and Schwab which allows an initial investment of $100 or more with subsequent buys at $1 or more. 

RMT Dividends: Managed Distribution Policy 

Capital gains, if any, are generally paid in the 4th quarter.  

Data Date of Purchase (2/12/19): 

Net Asset Value Per Share = $10.91
Market Price: $8.49
Discount: -10.91
Historical Average Discounts: 
1 Yr  -8.99%
3 Yr -11.93%
5 Yr -12.05%  
Sourced: RMT Royce Micro Cap Trust-CEF Connect

SEC Filings: RMT

Shareholder Report for the Period Ending 6/30/18 
Sec Form N-Q Holdings as of 9/30/18 

Historical Performance Numbers: 

Compared to the S & P 500, this CEF will be more volatile and will have periods where RMT significantly outperforms and underperforms SPX. During a recession, I would anticipate that RMT would go down more. 

The one year total return through 2/12/19 was .3%, but the average annual total return was 20.93%. Royce Micro Cap Trust (RMT) Total Returns The total returns were less stellar over the past five years at an annual average rate of 6.14%, but that number was at 14.84% over the past ten years.  

RMT Realized Net Gains to Date = $2,461.36 + dividends

Trading History: I have been trading this CEF for more than 10 years.   

The largest gain was in 2014 at $2,269.61: 

The last two sell transaction were discussed in these posts: Item # 3.A. Sold 274+ RMT at $8.9 (8/3/17 Post); Item 3.A. Sold 276+ RMT at $8.4 (5/17/17 Post)

B. Sold 50 out 100+ BTZ at $12.05-Used Commission Free Trade: 

Quote: BlackRock Credit Allocation Income Trust (BTZ)

Position Before Pare: Average Cost Per Share = $11.41

Position After Pare: Average Cost Per Share = $11.24 

Profit Snapshot: 

Item # 1.C. Bought 50 BTZ at $11.58 (12/9/18 Post)

Data Date of Trade (2/12/19)
Net Asset Value Per Share: $13.83
Market Price: $12.03
Discount: -13.02%

Sourced: BTZ BlackRock Credit Alloc Income-CEF Connect

Last Elimination: Sold 103+ at $13.4+ Roth IRA (5/8/17 Post)(snapshots of trading profit since 2010 then at $870.93)

Last Substantive Discussion: Item # 5.A. Added 20 BTZ at $11.35 and 30 at $11.16- Used Commission Free Trades (1/16/19 Post) I have nothing to add to that discussion.

2. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 1 J.P. Morgan 2.295% SU Maturing on 8/15/21: 

FINRA Page: Bond Detail (prospectus not linked)

Pricing Supplement No. 232 

Issuer: JP Morgan Chase & Co.
JPM Analyst Estimates 
4Q18 Earnings Report.PDF

Credit Ratings: 

Bought at a Total Cost of 98.367

YTM at TC Then at 2.975%

Current Yield at TC = 2.3331%

I have traded JPM bonds, including this one, in the recent past:

1 JPM 2.295% SU +$8.64 (sold 11/29/17)

Item # 2.C. Bought 1 JPM 2.295% (2/4/17 Post)
Item #4.A. Sold 1 JPM at 99.306 (12/26/17 Post)(YTM then at 2.492%)

Other JPM bonds traded in 2017:

B. Bought 2 Eversource Energy 2.5% SU Maturing on 3/15/21: 

I now own 4 bonds. 

Finra Page: Bond  Detail (prospectus not linked)

Prospectus 

Issuer: Eversource Energy (ES) 
ES Analyst Estimates 
Eversource SEC Filings 
10-Q for the Q/E 9/30/18 

Last Bond Offering Prospectus (12/18)

Credit Ratings: 

Fitch Rates Eversource Energy's Senior Notes at BBB+ (12/10/18)

Bought at a Total Cost of 98.938
YTM at TC then at 3.027%
Current Yield at TC = 2.5268%

The previous two bond purchase was made in March 2017. 

C. Bought 1 Treasury 1.25% Coupon Maturing on 10/31/19:
YTM = 2.49%

I now own 2. 

D. Sold 1 of 3 McDonalds 2.65% SU Maturing on 1/15/22: 

Profit Snapshot: +6.3 

FINRA Page: Bond Detail

I now own 2 and plan to keep them until the maturity date. This sell is what I would label a nip and tuck on duration exposure. As a result of the bond rally and the flattening yield curve, I am exchanging some 2022 or later maturities for shorter term bonds. I do not receive much, if any, compensation for going out further in time, and those longer maturities carry more interest rate risk.  

The herd consensus is that rates will fall or remain stable near current levels. That opinion is being reinforced by recent statements made by Powell and the FED in its monetary policy announcements. 

The consensus opinion about the future may prove to be right. 

If that is the case, I do not lose much by shortening my average duration unless there is a meaningful decline in rates when the short term bonds mature. 

I am also selectively moving further out in some cases where I sell a 2021 or 2022 maturity and buy a 2026 maturity that provides around a 1.25% higher current yield. 

I am increasing my cash flow by raising my current yield. That is mostly due to redeploying proceeds from maturing securities that were bought over a year ago when rates were lower. 

I have become more active selling existing bond positions while keeping my overall bond exposure about the same. 

E. $5K in Optional Early Redemption Proceeds: 

I will be credited on Monday with $5K in bond proceeds received through the issuers' early redemption. Fidelity notes proceeds that will be received on a Monday on Saturday. 

I had just bought the Abbott 2.8% SU bond maturing on 9/15/20 a few days before the issuer announced that it would redeem that bond early. 

Abbott did pay an additional $1.13 per bond as a make whole payment. 

So I made $12.26 on the two bonds plus a net interest payment of $6.06 ($24.73 in interest paid by ABT with the redemption proceeds minus the the $18.67 in accrued interest paid to the seller when I purchased the bonds)

The Southern bonds were redeemed early without a make whole payment. While the prospectus did contain a make whole provision, the short period to maturity and a discount rate in excess of the coupon resulted in no additional premium to par value for the early redemption. 

I do not view optional redemptions now as a plus given the decline in interest rates over the past several weeks. I would prefer to have kept both the Southern and Abbott bonds to their respective maturity dates.   

3. Bought 100 TRPPRH at C$13 (C$1 IB Commission):

Quote: TransCanada Corp. Cumulative Series 4 Stock (Canada: Toronto)

Raymond James and CIBC issue periodic reports on Canadian preferred stocks. Of those two, the CIBC reports are more comprehensive: March 2018 CIBC Report

The report from Raymond James is more recent: January 2019.pdf

See also: PrefBlog (focused on Canadian preferred shares)

This is a play on the herd potentially being wrong about the future course of short term rates. 

This Canadian reset equity preferred stock pays quarterly dividends at a  1.28% spread to the 3 month Canadian treasury bill.  

See Insert Near Bottom (series 4): 

Issuer: TransCanada Corp.

Canada 3 Month Treasury Bill

As with other resets that float over the 3 month Canadian government bill, there is an option to convert the shares into another series. The other series pays the same spread, except the spread is over the five year Canadian treasury note and remains in effect for five years after the reset date.

Credit Ratings:  DBRS rates the preferred at Pfd-2L which is equivalent to a S & P rating of BBB-. S & P lowered the preferred shares to that same level last year: TRP Downgraded to P-2(low) by S&P « PrefBlog At the current time, this 100 share lot is my only exposure to TRP securities.

Par Value: C$25 

Since this security was bought at a deep discount to its $25 par value, the expectation built into the price is for a continuation of low short term rates for a long time. 

There is no expectation in the C$13 price that there will be a prolonged period of rising inflation and inflation expectations that would cause the Bank of Canada and other central banks to raise their benchmark rates substantially. The expectation expressed in the price is that short term rates are near their peak levels and will remain stable at best or trend down. 

Last Round-Trip 100 Shares: +$C393.

Item # 5.B. Sold 100 TRPPRH at C$14.2 (5/17/17 Post)

Purchase Discussion: Item # 2. Bought 100 TRPPRH at C$10.25-Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 5/26/2016 - South Gent | Seeking Alpha

All Canadian preferred stock purchases have been and will continue to be made in my IB account. 

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.