Observations and Sample of Recent Trades: CIOPRA, EAI, HBAN, PFLT (Snapshot of 2017 Short Term Bond Trading Profits Fidelity Account)

Economy: 

This is probably the majority opinion: First-quarter slump won’t snowball into something worse, JPMorgan’s Feroli says - MarketWatch The fact that the herd believes something about the future does not make it so. The currently available evidence simply validates a first quarter slowdown.  

Ultimately, the future is unpredictable. All that one can do is to know the present, continually make predictions about future scenarios, change those predictions and their probabilities based on new data, identify the important risks, and understand and identify the factors that are important to outcomes.  

Industrial production edges up just 0.1% in disappointing start to the year - MarketWatch (the consensus estimate was for +.4%)

"Industrial production edged up 0.1 percent in February after decreasing 0.4 percent in January. Manufacturing production fell 0.4 percent in February for its second consecutive monthly decline. The index for utilities rose 3.7 percent, while the index for mining moved up 0.3 percent. At 109.7 percent of its 2012 average, total industrial production was 3.5 percent higher in February than it was a year earlier. Capacity utilization for the industrial sector edged down 0.1 percentage point in February to 78.2 percent, a rate that is 1.6 percentage points below its long-run (1972–2018) average." (emphasis added) 


The Fed - Industrial Production and Capacity Utilization - G.17

The industrial production data is consistent with the ongoing slowdown thesis.

The utility index is partly influenced by the weather rather than economic activity.

New home sales drop 7% in January as housing market gets off to slow start in 2019 - MarketWatch

The New York Fed reported that its business condition index fell 5.1 points to 3.7. Empire State Manufacturing Survey (overview) - FEDERAL RESERVE BANK of NEW YORK This index was at 24.3 in August and 21.4 in November:

Current General Business Conditions; Diffusion Index for New York 

Global debt up 50 percent since the financial crisis, S&P says Notwithstanding the explosion in debt, S & P opines that the next financial crisis will not be as bad as the last one. Wishful thinking IMO.  

China's industrial output slower than expected - MarketWatch

Gary Cohn lashes out at former White House colleagues: 'Living in chaos' (Cohn claims that Peter Navarro is the only economist who believes that tariffs work)

This article is worth reading: Treasury 1-to-10 Year Spread Is Best Recession Tool: Wells Fargo - Bloomberg  Last Friday, that spread closed at just 7 basis points. Daily Treasury Yield Curve Rates

China's new foreign investment law may not be enough for US trade deal

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Markets and Market Commentary: 

KBW released estimates of 2019 earnings growth for banks attributable to share buybacks. For the megabanks, the estimate is that 63% of E.P.S. growth will result from share buybacks. Big banks' earnings growth is almost entirely fueled by buybacks It is important now to compare net income and free cash flow growth with E.P.S. growth.

Engineered E.P.S. growth without increases in net income, free cash flow and revenue growth results in what I call the IBM syndrome which will result in subpar long term performance compared to SPX. 

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Portfolio Management: 

I was asked why I buy bonds when I could open an account at Ally and buy a 1 year CD that has a 2.75% coupon. Part of the question was why did I buy in such small amounts. 

I have discussed this topic several times. I am not trying to convince anyone that my way is the right way, but I have my reasons as explained in my response.

One reason that I mentioned is that a 1 year CD purchase does not provide me with any opportunity to increase the coupon yield through trading.

I am an active trader of bonds.

The following 7 snapshots show my 2017 short term bond trades in my Fidelity account. There is one item in the snapshots that is a Canadian preferred stock. Otherwise I excluded only treasuries held to maturity.

2017 Short Term Corporate Bond Trades-One Account: 

Some bonds were held to their 2017 maturities but most were trades of longer term bonds. 

I would emphasize the point made in my response that interest rates may come back down, catching those with only 1 year or less maturities with less income when the securities roll over.  

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Trump:

Trump says US will stay out of Brexit but slams handling by UK's May The U.K. PM was undoubtedly waiting for Donald to slam her again. That is Donald's way of improving ties with our closest ally.  If the U.K. had Donald as their leader, he could fix the problems created by England's Trumpsters. 

I have an idea. Why not have a referendum in 30 days? American and U.K. citizens would vote on switching May for Donald. If a majority of voters in both countries approve the switch, then the U.K. can have all of its problems solved by the Duck himself. 

Trump's budget proposal would cut Education expenditures 

Trump proposes big cuts to health programs for poor, elderly and disabled

How Trump wants to whack Medicare and Medicaid spending - CNN

Overall, Donald's 2020 budget would cut domestic spending by 5% while increasing defense spending and requesting almost another $9B for the wall. 

The republican proposal is to increase defense spending to $750 billion from $716B in the F/Y ending this September, and would slash non-defense programs to $567B from $597B. 

The 5% in non-defense spending would slash some programs by far more, including a 31% cut in the EPA's already demolished budget, 12% out of education and 14.8% decline in the Agriculture Department's budget. Trump releases budget calling for 5 percent cuts in domestic spending | TheHill  

I wonder how the Trumpsters would vote when and if the republicans get their way and slash programs that benefit their core voters. Blame Hillary may be the answer. 

Donald sought to assuage concerns about airline travel after the Ethiopian Airlines crash: 

Donald, who is the personification of willful ignorance, is in his own mind an expert on everything. His opinions are either worthless or worse than worthless. 

I have read a number of Donald's tweets where he complains about comedians. This is the latest: 

Before Donald became President, does anyone remember a single President complaining about comedians poking fun at them? The preceding tweets are also noteworthy in the way Trump effusively praises himself, something that he has done his entire life. It is impossible to believe his grandiose claims about himself, though tens of millions do. 

What can you say about someone who bankrupts 6 businesses than creates a brand that he is an extraordinarily successful businessman through a series of ghost written books?  Give Donald an A+ for having more chutzpah than one would normally expect from 1 million or so randomly selected narcissists combined. 

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1. Bought 100 HBAN at $13.87-A Roth IRA Account:

Quote: Huntington Bancshares Inc. (HBAN)

Closing Price Last Friday:  HBAN $13.75 -$0.18 -1.29% 

Investment Category: Regional Bank Basket Strategy

2 Year HBAN Stock Chart: Struggling since hitting tops in March and September 2018 in the $16.25-$16.5 range

HBAN is one of the large regional banks that has fallen in disfavor. Consequently, any purchase has to be characterized as a contrarian one. The flat yield curve is a major negative but is known to be one. 

2019 Consensus E.P.S. Estimate as of 3/11/19 = $1.35

P/E at $13.87 with a $1.35 E.P.S. =   10.27

Last Earnings Report: Q/E 12/31/18

Huntington Bancshares Incorporated Reports Record Annual Earnings

In the 2017 4th quarter, Huntington logged an estimated tax benefit of $123M or $.11 per share related to a revaluation of a tax deferred liability. This revaluation is one of those GAAP items that is irrelevant and was caused by the reduction of federal corporate income rate. 

Excluding that tax benefit, "2018 fourth quarter earnings per common share were up 12% from the year-ago quarter.  Return on average assets for the 2018 fourth quarter was 1.25%, return on average common equity was 12.9%, and return on average tangible common equity was 17.3%."

Overall, the numbers were good: 

This report apparently caused Jefferies to downgrade HBAN from buy to hold with a $14 price target.

Dividend: Quarterly at $.14 per share

Huntington Bancshares Incorporated Declares Quarterly Cash Dividends On Its Common And Preferred Stocks

Dividend Yield at $13.87 = 4.04%

Last Ex Dividend Date: 3/15/19 (shortly after purchase)

Consensus 2019 E.P.S. Estimate (as of 3/11/19): $1.35
P/E at $13.87 and $1.35 E.P.S. = 10.27

The general goal for this purchase is to clip several dividends and to sell the shares somewhere in the $15 to $16 price range.

I also have an ongoing small ball buying program for HBAN with the last purchases discussed here: Item # 1.B. Bought 10 HBAN at $12.85 and 10 at $11.8-Used Commission Free Trades  (1/9/18 Post); Item # 3.A.  (11/11/18 Post)(discussed 2018 third quarter report).

HBAN Trading Profits to Date = $434.13

Last Elimination: Item # 3.A. Sold 100 HBAN at $16.12  (2/3/18 Post)

2. Short Term Bond/CD Ladder Basket Strategy: 

$5K in Adds
$1K Deletion

A. Bought 1 Treasury 2.375% Coupon Maturing on 4/30/20: 

YTM = 2.503% 

I now own 4 bonds. 

The last purchase was made last November at a 2.788% YTM. 

B. Bought 2 Synchrony Financial 2.7% SU Maturing on 2/3/20:

Finra Page: Bond Detail (prospectus linked)

Issuer: Synchrony Financial (SYF)
Synchrony Financial Reports Fourth Quarter Net Earnings of $783 Million or $1.09 Per Diluted Share
SYF Analyst Estimates 
Synchrony Financial stock gains after Goldman upgrade-MarketWatch (2/14/19)

Credit Ratings: S & P at BBB-; Fitch at BBB-

Credit Rating Summary | Synchrony Financial
Fitch Revises Synchrony's Outlook to Stable Following Key Contract Extensions 

As a credit card issuer, with a BBB- credit rating, I will keep my SU bond exposure to a nominal amount and will only buy bonds maturing in less than 1 year for as long as the economy remains healthy and jobs remain plentiful.

With this purchase, I rolled in advance the proceeds from a 3% SYF bond maturing on 8/15/19. Bond Detail

Bought at a Total Cost of 99.7
YTM at TC Then at 3.028%
Current Yield at TC = 2.7081%

C. Bought 2 Abbvie 2.5% SU Maturing on 5/14/20: 

I now own 4 bonds.  

FINRA Page: Bond Detail (prospectus linked)

Issuer: AbbVie Inc.  (ABBV)
ABBV Analyst Estimates 

Credit Ratings:  

Bought at a Total Cost of 99.5
YTM at TC Then at 2.924%
Current Yield at TC =  2.5126%

Since I am not concerned about the credit risk, and given the short maturity, I view the YTM as the relevant yield number. 

D. Sold 1 U.S. Bancorp 2.35% SU Maturing on 1/29/21: 

FINRA Page: Bond Detail

Profit Snapshot: +$9.66

Item # 2.A Bought 1 USB 2.35% SU maturing on 1/29/21 at a 98.434 TC (8/19/2018 Post) 

The semi-annual interest payment for 1 bond is $11.75. 

Sold at 99.5
YTM at 99.5 = 2.625%
Current Yield at 99.5 = 2.36%

Those yields for this maturity will put me in a consider to sell mode when I can do so profitably.     

I had no trouble selling this bond at 99.5. Fidelity's third party pricing service valued the bond at 99.194: 

3. Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Liberty Property LP 3.375% SU Maturing on 6/15/23-In a Roth IRA Account:

I now own 3 bonds.

FINRA: Bond Detail (prospectus linked)

During the rate spike in 2013, when there remained about 10 years until this bond matures, the price did decline to about 92 followed by a recovery to par value in 2014 as rates declined again. The bond also traded over par value in 2016 and 2017 and has been trending up recently as rates have declined.

Issuer: Wholly owned operating subsidiary of Liberty Property (LPT) who does not guarantee the notes. 

LPT SEC Filings 

SEC Filed Earnings Press Release for the Q/E 12/31/18 ("Liberty Property Trust (NYSE:LPT) is a leader in commercial real estate, serving customers in the United States and United Kingdom, through the development, acquisition, ownership and management of superior logistics, warehouse, manufacturing, and R&D facilities in key markets. Liberty’s 106 million square foot operating portfolio provides productive work environments to 1,200 tenants.")

Covenants Made by Issuer:

Those are relevant in that they limit the amount of debt.

Credit Ratings:

Moody's affirms Liberty Property LP senior unsecured rating at Baa1; stable outlook (1/17/17)
Fitch affirms Liberty Property SU Bonds at BBB-Outlook Stable (10/2/18)

While I view this REIT currently as being among the highest quality ones, the problem from the bond owner's perspective is still the outflow of cash flow to the common shareholders, rather than to use that capital to pay down debt and/or expand the business through acquisitions using that cash.

Bought at a Total Cost of 99.741 (includes $4 Vanguard commission)
YTM at TC Then at 3.439%
Current Yield at TC = 3.3838%

4. Pares: 

A. Sold 50 of 100 CIOPRA at $24.14-Used Commission Free Trade:

I sold my highest cost lot bought at and kept the 50 share lot bought at .

Quote: City Office REIT Inc. 6.625% Cumulative Preferred Series A Stock

Profit Snapshot: +$20.86

Shares Sold: Item # 2.A. Bought 50 CIOPRA at $23.73-Used Commission Free Trade(4/9/18 Post)

Reduced Average Cost Per Share From $22.7 to $21.67

I kept the shares bought $21.67. Item # 4.A. Bought 50 CIOPRA at $21.67-Used Commission Free Trade  (1/13/19 Post)

Yield at TC of $21.67 Per Share = 7.64%

Security Description:

Category: Equity REIT Cumulative Equity Preferred Stocks 
CIO.PA Stock Chart

Par Value: $25

Prospectus Supplement

Issuer: City Office REIT Inc.  (CIO); Form 10-K

Optional Redemption: On or after 10/4/21 at par value plus accrued and unpaid dividends

Dividend Stopper Clause = Yes (page S-22 of the prospectus)

Change of Control Provision: Yes

The issuer is paying out too much to the common shareholders IMO, given its funds available for distribution numbers.

Last Earnings Report: City Office REIT Reports Fourth Quarter and Full Year 2018 Results

Note that the quarterly common share dividend is $.2325 per share, while AFFO, which is close to funds available for distribution, was reported at $.19 per share. The AFFO number removes from CIO's core FFO number the non-cash revenues created by the straight line rent accounting convention and subtracts cash used for routine maintenance. 

While I am not making any accusations against CIO, I would note that cash is generally being used by REITs to fund capital improvements which are not classified as routine maintenance. Those capital expenditures use cash which is not available to support the dividend. The difference between the two categories can be fuzzy. Capital expenditures that improve the value of the property are not generally categorized as routine maintenance expenditures. Both categories use cash that would otherwise be available to support the dividend.  

When and if the price falls below $21 for CIOPRA, I will take another look to see whether I want to buyback the 50 shares sold at $24.14.

Last Sold CIOPRA: Item 3.A. Sold 50 CIOPRA at $25.21 (1/27/17 Post)(profit snapshot= $146.97) I discussed the purchase at $22.23 in this comment.

Last Common Share Dispositions (no current position and not likely to buy north of $9 now):

Item # 1.C. Sold 10 CIO at $11.58 (5/17/2018 Post) 

Item # 8 Sold 100 CIO at $13.5: Update For Equity REIT Basket Strategy As Of 7/28/16 - South Gent | Seeking Alpha (profit snapshot= $207.97);

Item # 1. Sold 50 CIO at $12.38: Update For Equity REIT Basket Strategy As Of 3/7/16 - South Gent | Seeking Alpha (profit snapshot $61.04 plus one dividend

B. Sold 30 of 60 EAI at $24.73-Used Commission Free Trade:

Quote: Entergy Arkansas LLC First Mortgage Bonds 4.875% due 2066

Profit Snapshot: +$17.39

Shares Sold: Item # 4.A. Bought 30 EAI at $24.12 (5/24/18 Post)

Last Discussed: Item # 5.A. Bought 10 EAI at $21.73-Used Commission Free Trade (12/16/18 Post)

Last Ex Interest Date: 2/27/19

I sold the 30 share lot after the ex interest date.

Prospectus

Category: Exchange Traded Baby Bonds, a sub-category of Exchange Traded Bonds

Par Value: $25 

Security: First Mortgage on substantially all assets

Optional Call: At issuer's option on or after 9/1/21

Maturity Date: 9/1/66 unless redeemed at par value earlier at issuer's option (asymmetric interest rate risk in favor of issuer) 

Credit Ratings: A/A2

Remaining Position: 30 Share with an average cost of $23.03

Yield at $23.03 = 5.292%

Purchase Restriction: Small Ball Rule
Lowest Price in Current Chain: $21.73
Maximum Position: 100 shares 

I will generally buy and hold $1K par value first mortgage bonds maturing in less than 10 years. 

I currently owned the following $1K par value Entergy Arkansas First Mortgage Bonds: 

3.05% Maturing on 6/1/23 (2 bonds)
3.5% Maturing on 4/1/26 (1 bond)

5. Bought 70 PFLT at $12.86 (IB=$1 Commission): 

Quote: PennantPark Floating Rate Capital Ltd.  (PFLT)- An externally managed BDC

Closing Price Last Friday: PFLT $12.98 +$0.07 +0.54% 

Website: PennantPark – PFLT
SEC Filings

Last Substantive Buy Discussion: Item # 3 Bought 30 PFLT at $11.99-Used Fidelity Commission Free Trade (1/9/19 Post) I still own that lot in my Fidelity account and I own shares in my Schwab account as well. 

This is an average up from a 30 share buy at $12.55 made in February 2018 Item # 1.A. Bought 30 PFLT at $12.55-IB Account (2/26/18 Post)

PFLT loan portfolio is 100% in variable rate instruments as of 12/31/18. I do not anticipate that Libor rates will increase to any meaningful decree this year and may have already peaked for 2019. First lien loans accounted for $913.3M of the $1B investment portfolio.

Annual Report for the F/Y Ending 9/30/18  (risk factor summary starts at page 14 and ends at page 30)

Net Asset Value Per Share History: Relatively Stable for a BDC

12/31/18  $13.66
9/30/18:  $13.82 
6/30/18:  $13.82
9/30/17:  $14.10
9/30/16:  $14.06
9/30/15:  $13.95
9/30/14:  $14.40
9/30/13:  $14.10
9/30/12:  $13.98 

IPO at $15 in April 2011 (net after underwriters discount = $13.95)

In a Roth IRA account, I recently sold 111+ PFLT at $12.99.  Item # 2.A. (2/13/19 Post)(profit snapshot = $52.24) I discussed the last earnings report in that post: PennantPark Floating Rate Capital Ltd. Announces Financial Results for the Quarter Ended December 31, 2018 

Before repurchasing this BDC in a retirement account, I will want a much larger discount to net asset value per share.

I am slightly less risk adverse in my taxable accounts. The IB taxable account is already conservatively positioned through a significant weighting in short term investment grade corporate bonds. I have had several mature in that account recently and several more will soon mature. So I decided to take a slither of additional risk by rounding up the PFLT lot from 30 shares to 100 shares. 

Dividends: Monthly at $.095 per share  ($1.14 Annually)

PennantPark Floating Rate Capital Ltd. Announces Monthly Distributions of $0.095 per Share

IB Account: 100 Shares at an average total cost per share of $12.78

Dividend Yield at $12.78 = 8.92%

Next Ex Dividend Date: 3/19/18

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.