Economy:
Goldman Sachs says chance of a recession is now just 10%
As of 4/2/19, the NY Fed model has the probability of a recession by March 2020 at 27.08%. Probability of a Recession Within 12 months.pdf
Jamie Dimon says the US economic expansion 'could go on for years'
Dimon added that there "may be a confluence of events that somehow causes a recession, but it may not be in 2019, 2020, 2021.”
The words "could" and "may" convey uncertainty. The expansion could go on for 2019 through 2021 or maybe a "confluence of events causes a recession" during that time period. I hope that no one is being paid to make that kind of prediction.
The underlying message, however, is an upbeat assessment of the near future by Dimon, along with a suggestion that the expansion alternative is more likely than the recession scenario over this period.
I would not make a prediction about 2020 yet.
March 2019 CPI: Tame
Goldman Sachs says chance of a recession is now just 10%
As of 4/2/19, the NY Fed model has the probability of a recession by March 2020 at 27.08%. Probability of a Recession Within 12 months.pdf
Jamie Dimon says the US economic expansion 'could go on for years'
Dimon added that there "may be a confluence of events that somehow causes a recession, but it may not be in 2019, 2020, 2021.”
The words "could" and "may" convey uncertainty. The expansion could go on for 2019 through 2021 or maybe a "confluence of events causes a recession" during that time period. I hope that no one is being paid to make that kind of prediction.
The underlying message, however, is an upbeat assessment of the near future by Dimon, along with a suggestion that the expansion alternative is more likely than the recession scenario over this period.
I would not make a prediction about 2020 yet.
March 2019 CPI: Tame
Consumer Price Index Summary
On a non-seasonally adjusted basis, CPI rose 1.9% over the past 12 months ending in March, with core CPI up 2%. There was positive price pressure from energy products in March compared to February. CPI rose .4% in March on a seasonally adjusted basis compared to .2% in February.
On a non-seasonally adjusted basis, CPI rose 1.9% over the past 12 months ending in March, with core CPI up 2%. There was positive price pressure from energy products in March compared to February. CPI rose .4% in March on a seasonally adjusted basis compared to .2% in February.
Import prices March 2019 (up .6% vs. .4% consensus)
+++++
Markets and Market Commentary:
Fed's Clarida: US slowing, but expansion will 'almost certainly' break record (Clarida is currently the FED's Vice Chairman)
Fed's Clarida: US slowing, but expansion will 'almost certainly' break record (Clarida is currently the FED's Vice Chairman)
The semis are sending an important signal to the bond market: JP Morgan (strength in semis indicates to this technical analyst that global interest rates rates will move higher, with the two year treasury note "spiking" to 2.6% by mid-summer)
Restaurant Stocks Could Be Headed for a Fall, JPMorgan Says I do not own any.
Restaurant Stocks Could Be Headed for a Fall, JPMorgan Says I do not own any.
Guggenheim says next recession will be less severe — but the ensuing stock market fall will be brutal - MarketWatch A mild, garden variety recession with no significant threat to the financial system will generally result in a 20% to 25% SPX decline. A recession that turns into a catastrophic event for the financial system (Great Depression, Near Depression) will result in catastrophic stock market declines which I define as a greater than 45% over a relatively short period (October 1929 to 1933; 2008 to March 2009). If there are other substantial problems occurring during a recession, such as problematic inflation, and high multiples going into the decline, than there can be a 45+% decline (1974).
The most serious problem for stock investors occurs when the recession morphs into a financial crisis.
Given the $60T or so in new debt added since the Near Depression (2008), I would not be venturing an opinion now that the next worldwide recession will be less severe than the last one.
And, what could easily make matters worse is that the U.S. government will be far less able to deal with the next major downturn given its already bloated $1 trillion per year in deficits.
Recession fears are receding now. Based on future events that are hard or impossible to predict, those fears may continue to recede or come back with a vengeance.
As previously noted, I am not predicting a U.S. recession this year but only a decline in real GDP growth compared to 2018. The impact of the next debt bomb explosion is still in the more distant future.
JPMorgan profit tops estimates on higher interest income - Reuters
Chevron to buy Anadarko Petroleum in a $33 billion cash and stock deal
I thought that last Friday's rally was due more to the items linked immediately above than to somewhat better than expected data coming out of China. China March exports rebound to five-month high but imports fall more than expected - Reuters
+++++++
The most serious problem for stock investors occurs when the recession morphs into a financial crisis.
Given the $60T or so in new debt added since the Near Depression (2008), I would not be venturing an opinion now that the next worldwide recession will be less severe than the last one.
And, what could easily make matters worse is that the U.S. government will be far less able to deal with the next major downturn given its already bloated $1 trillion per year in deficits.
Recession fears are receding now. Based on future events that are hard or impossible to predict, those fears may continue to recede or come back with a vengeance.
As previously noted, I am not predicting a U.S. recession this year but only a decline in real GDP growth compared to 2018. The impact of the next debt bomb explosion is still in the more distant future.
JPMorgan profit tops estimates on higher interest income - Reuters
Chevron to buy Anadarko Petroleum in a $33 billion cash and stock deal
I thought that last Friday's rally was due more to the items linked immediately above than to somewhat better than expected data coming out of China. China March exports rebound to five-month high but imports fall more than expected - Reuters
+++++++
Trump:
So our country is full.
It is impossible to have a fact based discussion with Donald and the Trumpsters on immigration.
I would point out that about 3% of the land is urbanized and even the major population centers are among the least dense in the world. U.S. Cities Home to 62.7% of Population but Comprise 3.5% of Land Area: U.S. Census Bureau Report March 2015
Trump Says the U.S. Is ‘Full.’ Much of the Nation Has the Opposite Problem. - The New York Times; America is not full — in fact, the economy could use more immigrants - MarketWatch
One of the most critical future problems faced by the U.S. is an aging population and low fertility rates.
The labor force is simply not growing fast enough to support higher GDP growth than the historically sluggish rates experienced over the past decade or so.
GDP growth is a function of increases in population and worker productivity. How Demographics Drive The Economy
Then you have issues like the number of wage earners supporting social security recipients.
The number has been declining, and currently stands at 2.8 workers for each SS recipient. The ratio is predicted to decline to 2.2 by 2035. The state government pension situation is even worse.
The republicans want to cut back on legal immigration which is not in the nation's interest given the demographic trends. Republicans Are Now Opposed to Legal and Illegal Immigration - The Atlantic; GOP senators introduce bill to reduce legal immigration | TheHill
That nativist immigration policy does appeal to the white middle aged Trumpsters who are angry and blame just about anyone or anything other than themselves for their current financial predicaments.
The starting point in what to do about immigration is long term demographic trends. Without the Trumpsters and the demagogues who cater to them, there would be a majority consensus that the U.S. needs more younger immigrants.
The issue would then become how to best promote more legal immigration, to curtail illegal immigration, and to restrict the eligibility for asylum applicants.
I do not view it as workable to process asylum applications at the border.
The law needs to be changed so that the application will not be processed except at the immigrants native country.
But to make that change, Trump would have to be a good negotiator, which he is not, and to be willing to compromise on some other issues which is not possible due to opposition by the GOP's base supporters and Trump's own demagoguery on all immigration issues.
The republicans want skilled white people from places like Norway to immigrate. Trump wants fewer immigrants from “shithole countries” and more from places like Norway - Vox I am not sure why highly compensated Europeans would want to leave their native country and to become U.S. citizens. Even if a few did, they would be competing for the higher paying jobs held by native born Americans which does not make any sense.
The H-1B visa program has been used by U.S. companies as a means to replace skilled U.S. workers with foreigners willing to work for lower wages and benefits. That needs to be abolished.
The U.S. was built by immigrants, who were neither wealthy nor well educated, and their descendants who received the benefits of a free public education and opportunities for self-advancement that was unavailable to the original immigrants in their home countries. Maybe the republicans need to take a refresher course in U.S. history and possibly learn something about U.S. demographic trends which is probably a bridge to far for them.
I am still doing genealogical research on my ancestors. I have expanded the research interest to distant cousins. The reason has more to do with sociology/anthropology than genealogy. I am learning a lot about American history that is not found in the textbooks. One observation relates to population and GDP growth.
In the 19th century, I have noted, focusing just on my distant ancestors, that the normal number of children would be in the 8-12 range. And that would be the surviving children. Frequently, 1 to 3 children would die at birth or shortly thereafter.
The next most common range would be 4-7 children.
More than 12 children would be more common than none to 3.
The rapid growth rate in population during the 18th and 19th centuries was a major contributor to GDP growth and the U.S. becoming the most economically powerful and successful country. Economic history of the United States - Wikipedia
The average now is 1.76 births per woman.
Will The Fertility Rate Recover? Probably Not, A New Study Says
The US fertility rate just hit a historic low - Vox
Most parents in U.S. say they probably won’t have more kids | Pew Research Center
So, are the republicans going to demand that today's women have at least 4 or 5 children as an alternative to their immigration restrictions?
Besides engaging in non-stop demagoguery on immigration issues, Don the Authoritarian thrives on requesting or demanding that federal officials take unlawful actions.
One recent request was to transport illegal immigrants to sanctuary cities and leave them there. Donald Trump's proposal to move migrants into sanctuary cities raises logistical, legal issues; Trump’s plan to send migrant detainees to sanctuary cities draws concerns about cost, legality - The Washington Post
The recent departures at the Department of Homeland Security resulted from officials pushing back on Donald's demands to commit unlawful acts. Trump Urged Homeland Security Official to Close Border Despite an Earlier Promise of a Delay - The New York Times ("Ms. Nielsen had earlier refused to carry through with Mr. Trump’s desire to close the border, telling him it was illegal. But the president encouraged Mr. McAleenan to disregard Ms. Nielsen and enforce the move himself." Ms. Nielson was forced to resign two days later); Trump told CBP head he'd pardon him if he were sent to jail for violating immigration law - CNN
Trump is an authoritarian to his core and his approval rating is going up.
++++++++
1. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Digital Reality L.P. 2.75% SU Maturing on 2/1/23:
FINRA Page: Bond Detail (prospectus linked)
Issuer: Operating subsidiary of Digital Realty Trust Inc. (DLR) who guarantees the notes:
DLR SEC Filings
2018 Annual Report
Digital Realty Reports Fourth Quarter And Full-Year 2018 Results
Digital Realty Provides Initial 2019 Outlook (1/9/19)
Last March, DLR sold 8M shares of a 5.85% Series K preferred stock. Prospectus; Digital Realty Announces Pricing of Preferred Stock Offering; Digital Realty Announces Redemption of 7.375% Series H Preferred Stock
Digital Realty Announces Pricing of €850 million of Green Bonds ("Euro-denominated 2.500% Guaranteed Notes due 2026")(1/11/19)
Credit Ratings:
Bought at a Total Cost of 97.849
YTM at TC Then at 3.349%
Current Yield at TC = 2.8105%
I lowered my weighted average bond duration some by buying this Digital Realty bond and selling the 2.4% Entergy Louisiana bond discussed below. I may sell this Digital Realty bond in the 99 to 100 range.
B. Sold 1 Entergy Louisiana 2.4% First Mortgage Bond Maturing on 10/1/2026:
I still own 2 bonds.
My profit was $.8. For this one, I was using the bond rally to dump one that was bought when interest rates were even lower than they are now.
Finra Page: Bond Detail
Sold at 94.33
YTM at 94.33 = 3.257%
Current Yield at 94.33 = 2.5443%
I lightened up on this low yielding 2026 bond. Discarding some lower yielding bonds seemed prudent given the bond rally and the ability to buy similarly rated shorter maturity bonds at higher yields.
A. Bought 2 Digital Reality L.P. 2.75% SU Maturing on 2/1/23:
FINRA Page: Bond Detail (prospectus linked)
Issuer: Operating subsidiary of Digital Realty Trust Inc. (DLR) who guarantees the notes:
2018 Annual Report
Digital Realty Reports Fourth Quarter And Full-Year 2018 Results
Digital Realty Provides Initial 2019 Outlook (1/9/19)
Last March, DLR sold 8M shares of a 5.85% Series K preferred stock. Prospectus; Digital Realty Announces Pricing of Preferred Stock Offering; Digital Realty Announces Redemption of 7.375% Series H Preferred Stock
Digital Realty Announces Pricing of €850 million of Green Bonds ("Euro-denominated 2.500% Guaranteed Notes due 2026")(1/11/19)
Credit Ratings:
Bought at a Total Cost of 97.849
YTM at TC Then at 3.349%
Current Yield at TC = 2.8105%
I lowered my weighted average bond duration some by buying this Digital Realty bond and selling the 2.4% Entergy Louisiana bond discussed below. I may sell this Digital Realty bond in the 99 to 100 range.
B. Sold 1 Entergy Louisiana 2.4% First Mortgage Bond Maturing on 10/1/2026:
I still own 2 bonds.
My profit was $.8. For this one, I was using the bond rally to dump one that was bought when interest rates were even lower than they are now.
Finra Page: Bond Detail
Sold at 94.33
YTM at 94.33 = 3.257%
Current Yield at 94.33 = 2.5443%
I lightened up on this low yielding 2026 bond. Discarding some lower yielding bonds seemed prudent given the bond rally and the ability to buy similarly rated shorter maturity bonds at higher yields.
2. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 1 Dominion Energy 2.579% Junior Bond Maturing on 7/1/20:
I now own 2 bonds.
FINRA Page: Bond Detail (prospectus not linked)
Issuer: Dominion Energy Inc. (D)
Credit Ratings:
I am not concerned about the credit risk. Dominion is a holding company that owns Virginia Electric Power and Dominion Gas. Dominion Energy - Home
The company acquired SCANA, a large electric utility based in S.C., earlier this year. Dominion Energy Combines With SCANA Corporation - Jan 2, 2019
Bought at a Total Cost of 99.461 (includes $1 commission)
YTM at TC Then at 3.01%
Current Yield at TC = 2.593%
I am rolling in advance the proceeds of a Dominion Energy bond that matures on 7/1/19.
 |
| Shaded area is the Junior Bond Purchase |
One reason for rolling in advance relates to the possibility that interest rates will go down more.
The Bond Ghouls are less sure now, compared to a month ago, that the FED will cut the FF rate by at least .25% on or before their January 2020 meeting. The current probability estimate is at 52.9% that the FF range will be the same and 47.1% that there will be at least a .25% cut. A zero percent chance is given for an increase.
B. Bought 2 Citizens Financial Group 2.375% SU Maturing on 7/28/21:
The name shown in the preceding snapshot is Royal Bank of Scotland. CFG used to be a wholly owned subsidiary of that bank. It was separated out as a publicly traded in 2014, with RBS selling its remaining stake in October 2015. Note that the CUSIP now starts with the stock symbol CFG.
I now own 4.
FINRA Page Bond Detail (prospectus linked)
Bond Facts FINRA
Issuer: Citizens Financial Group Inc. (CFG)
CFG Analyst Estimates
Citizens Financial Group, Inc. Reports Fourth Quarter Net Income of $465 Million and Diluted EPS of $0.96
Citizens Financial Group Announces Pricing of $1.5 Billion of Citizens Bank, N.A. Senior Notes (2/11/19)
Citizens Financial Group Announces Pricing of $300 Million Preferred Stock Depositary Shares Offering (1/22/19)("6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock")-CFG.PD Stock Price - Citizens Financial Group Inc. Preferred Series D Stock-Final Prospectus Supplement (equity preferred stock rated at BB+ by S & P)
2018 Annual Report
SEC Filings
Credit Ratings:
Credit Ratings – Citizens Bank
Fitch Affirms Citizens Financial Group's IDRs at 'BBB+ (9/27/18 Post)
Bought at a Total Cost of 98.838
YTM at TC Then at 2.892%
Current Yield at TC = 2.4029%
C. Bought 2 Treasury 1.5% Coupon Maturing on 11/30/19:
YTM = 2.447% (moved down in yield since my last purchase)
I now own 6 bonds.
3. Eliminations and Pares:
A. Eliminated BTZ-Sold 50+ shares at $12.42 (used Commission free Trade):
Quote: BlackRock Credit Allocation Income Trust (BTZ)
Fund Sponsor's Website: BlackRock Credit Allocation Income Trust | BTZ
BTZ BlackRock Credit Allocation Income Fund- CEF Connect
BLACKROCK CREDIT ALLOCATION INCOME TRUST (SEC form N-Q, holdings as of 1/31/19)
Profit Snapshot: +$60.1(excludes profit from 50 share lot sold on 2/12/19)
Item # 5.A. Added 20 BTZ at $11.35 and 30 at $11.16- Used Commission Free Trades (1/16/19 Post)
That snapshot includes an earlier profit of $23.5 from a 50 share lot. Item #1.B. (2/23/2019 Post)
I mentioned in that post that I was more comfortable owning a lightly leverage stock CEF compared to a 30%+ leveraged bond CEF like BTZ.
Prior Elimination: Sold 103+ at $13.4+ Roth IRA (5/8/17 Post)(snapshots of trading profits since 2010 to May 2017 = $870.93)
Dividends: Monthly
Last Ex Dividend Date: 3/14/19
B. Pared TPVG Again-Sold 50 at $13.84:
Quote: TriplePoint Venture Growth BDC Corp. (TPVG)
Website: TriplePoint Venture Growth
TPVG SEC Filings
Dividends: Quarterly at $.36 per share ($1.44 annually)
Last Ex Dividend Date: 3/19/19
Last Special Dividend: $.10 per share paid in the 2018 4th quarter
Last Reported Net Asset Value Per Share: $13.5 as of 12/31/18
2018 Annual Report (risk factor summary starts at page 27 and ends at page 54)
This lot was my highest cost one held in my Schwab account:
This sell reduced my average cost per share to $11.41 per share in this account.
The dividend yield increased to 12.62% based on the regular quarterly dividend of $.36 per share. This calculation excludes special dividends that may be paid in the future. A $.10 per share special dividend was paid in the 2018 4th quarter.
This kind of pare accomplishes my objectives with a BDC.
The overall goal is to earn a total return in excess of the dividend yield.
By buying dips and selling the rips, I lower my average cost per share and increase my dividend yield. Moreover, by reducing my average cost per share by profitably selling my highest cost lots, I make it more likely that I will be able to sell the remaining shares profitably at some point while harvesting some profits as the process proceeds.
Profit Snapshot: +$71.66
TPVG Trading Profits to Date: +$317.84
Last Sell Discussions: Item 3.A. Sold 40 TPVG at $13.44-Schwab Account and Item #3B Sold 50 TPVG at $13.39 Vanguard Roth IRA (3/13/19 Post) (profit snapshots = $8.62)(discussed earnings report for the Q/E 12/31/18); Item 2.B. Sold 50 TPVG at $13.39 (3/4/2017 Post)(profit snapshot =$153.08); Item # 3 Sold 50 TPVG at (1/16/17 Post)(profit snapshot = $84.48).
Most Recent Purchase Discussions: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post)(discussed third quarter earnings report); Item # 3 D. Bought 10 TPVG at $11.2-Used Commission Free Trade (1/9/19 Post)
In addition to the shares that are still owned in the Schwab account, I own 56+ shares in the Vanguard Roth IRA account with a total cost per share at $12.3.
An even smaller position in my Fidelity taxable account with a total cost of $11.71 per share, which is subject to the small ball trading rule using commission free trades. The lowest price lot was bought at $11.2 (12/18/18), see previous link.
Last Earnings Report 12/31/18 SEC Filed Press Release
The market responded favorably to this report.
IPO March 2014
IMO, individual investors need to have a plan for dealing with BDC risks before buying these stocks. Some investors may focus on the better quality ones and simply reinvest the dividends.
I start with an analysis of the risks. The main reward is the dividend. The main risk is that net assets will be incinerated over time causing dividend cuts and share price declines. That later risk shows up in historical numbers for a large number of BDCs.
Some BDCs may not adequately compensate for risks even though the dividend yield is over 12% and a 30% price discount to the last reported net asset value per share. Some may be undervalued at a 9%+ dividend yield and a 10% discount. The past and present are the only guides.
Significant capital gains can be made even with the worst ones provided the managers cease incinerating assets through bad loans, stabilize net asset value per share and net investment income, and then increase those measures. It is a crap shoot when and if that will happen since past performance provides little comfort about a positive change in future performance.
My approach focuses on the following metrics: (1) the trend of past historical numbers including net asset value per share, dividends and net investment income; (2) a focus on the overall safety of loans and the allocation to first lien loans; (3) an assessment of whether the economy is still in an expansion mode; (4) stability or instability in the VIX; and (5) generating total returns in excess of the dividend yield through trading.
To expound further on the VIX angle, BDCs will do worse than the S & P 500 during a volatility spike. If the S & P 500 declines say 20% during a volatility spike into the 30s, which was the case recently, I would anticipate that BDCs would decline more, with some falling more than 30%. I would actually be looking for some to buy during that volatility spike and then to sell my highest cost lots when the VIX returned to below 20 movement. TPVG for example went from $13.59 on 9/28/18 to $10.38 on 12/21/18.
The problem involves a real time assessment of what is actually happening in the real world. Is that 20% SPX decline the first warning shot of a developing recession or just another Stock Jock anxiety attack. I did do some light buying during that last volatility surge. Owning a BDC stock during a recession will be painful.
This is the chart for ARES, one of the best, that goes back to the Near Depression period:
C. Eliminated DLRPRJ-Sold 60 at $23.91-Used Commission Free Trade:
Quote: Digital Realty Trust Inc. 5.25% Cumulative Preferred Series J
Profit Snapshot: +$171.78
2018 Annual Report
Item # 3.A. Bought 50 DLRPRJ at $21.16 and 10 at $20.48 - Used Commission Free Trades(1/2/19 Post)
Category: Equity REIT Cumulative Equity Preferred Stocks part of the Equity REIT Common and Preferred Stock Basket Strategy
Security Description:
Prospectus (sold to the public at $25 in August 2017)
Category: Equity Preferred Stock
Capital Structure Placement: Senior only to common stock
Issuer Optional Call: On or after 8/7/22
Maturity Date: None, potentially perpetual
Dividends: Quarterly, Cumulative and non-qualified
Last Ex Dividend Date: 3/14/19 (before sell)
Stopper Clause: Yes, see bottom of page S-34 and top page S-35 of the prospectus
4. Small Ball Commission Free ETFs:
These purchases are bookmarks. I have "bookmarked" several stock ETFs that I may buy in the event of a correction or bear market. Purchases in this strategy are subject to the small ball trading rules and purchase restriction.
I will have two similar ETFs held in different accounts where I can buy shares commission free. Purchases of one or the other may depend on cash availability. I may throw out one and keep the other down the road depending in part on relative performance.
The two funds discussed below are similar in that the owned stocks are concentrated in the S & P 100 which will be the 100 largest capitalization stocks within the S & P 500. MGC has more stocks than OEF as noted below.
A. Bought 5 MGC at $99.23-Commission Free for Vanguard Customers:
Quote: MGC Fund - Vanguard Mega Cap ETF Overview
Closing Price Last Friday: MGC $100.19 +$ 0.66 +0.66%
Sponsor's Page: MGC - Vanguard Mega Cap ETF | Vanguard
Expense Ratio: .07%
Dividends: Quarterly
Holdings: 262 as of 2/28/18
Top 10 Holdings as of 2/28/19
Last Ex -Dividend: 3/25/19
The Bond Ghouls are less sure now, compared to a month ago, that the FED will cut the FF rate by at least .25% on or before their January 2020 meeting. The current probability estimate is at 52.9% that the FF range will be the same and 47.1% that there will be at least a .25% cut. A zero percent chance is given for an increase.
B. Bought 2 Citizens Financial Group 2.375% SU Maturing on 7/28/21:
The name shown in the preceding snapshot is Royal Bank of Scotland. CFG used to be a wholly owned subsidiary of that bank. It was separated out as a publicly traded in 2014, with RBS selling its remaining stake in October 2015. Note that the CUSIP now starts with the stock symbol CFG.
I now own 4.
FINRA Page Bond Detail (prospectus linked)
Bond Facts FINRA
Issuer: Citizens Financial Group Inc. (CFG)
CFG Analyst Estimates
Citizens Financial Group, Inc. Reports Fourth Quarter Net Income of $465 Million and Diluted EPS of $0.96
Citizens Financial Group Announces Pricing of $1.5 Billion of Citizens Bank, N.A. Senior Notes (2/11/19)
Citizens Financial Group Announces Pricing of $300 Million Preferred Stock Depositary Shares Offering (1/22/19)("6.350% fixed-to-floating rate non-cumulative perpetual Series D Preferred Stock")-CFG.PD Stock Price - Citizens Financial Group Inc. Preferred Series D Stock-Final Prospectus Supplement (equity preferred stock rated at BB+ by S & P)
2018 Annual Report
SEC Filings
Credit Ratings:
 |
| SU at BBB+ S &P/Fitch |
Fitch Affirms Citizens Financial Group's IDRs at 'BBB+ (9/27/18 Post)
Bought at a Total Cost of 98.838
YTM at TC Then at 2.892%
Current Yield at TC = 2.4029%
C. Bought 2 Treasury 1.5% Coupon Maturing on 11/30/19:
YTM = 2.447% (moved down in yield since my last purchase)
3. Eliminations and Pares:
A. Eliminated BTZ-Sold 50+ shares at $12.42 (used Commission free Trade):
Quote: BlackRock Credit Allocation Income Trust (BTZ)
Fund Sponsor's Website: BlackRock Credit Allocation Income Trust | BTZ
BTZ BlackRock Credit Allocation Income Fund- CEF Connect
BLACKROCK CREDIT ALLOCATION INCOME TRUST (SEC form N-Q, holdings as of 1/31/19)
Profit Snapshot: +$60.1(excludes profit from 50 share lot sold on 2/12/19)
Item # 5.A. Added 20 BTZ at $11.35 and 30 at $11.16- Used Commission Free Trades (1/16/19 Post)
That snapshot includes an earlier profit of $23.5 from a 50 share lot. Item #1.B. (2/23/2019 Post)
I mentioned in that post that I was more comfortable owning a lightly leverage stock CEF compared to a 30%+ leveraged bond CEF like BTZ.
Prior Elimination: Sold 103+ at $13.4+ Roth IRA (5/8/17 Post)(snapshots of trading profits since 2010 to May 2017 = $870.93)
Dividends: Monthly
Last Ex Dividend Date: 3/14/19
B. Pared TPVG Again-Sold 50 at $13.84:
Quote: TriplePoint Venture Growth BDC Corp. (TPVG)
Website: TriplePoint Venture Growth
TPVG SEC Filings
Dividends: Quarterly at $.36 per share ($1.44 annually)
Last Ex Dividend Date: 3/19/19
Last Special Dividend: $.10 per share paid in the 2018 4th quarter
Last Reported Net Asset Value Per Share: $13.5 as of 12/31/18
2018 Annual Report (risk factor summary starts at page 27 and ends at page 54)
This lot was my highest cost one held in my Schwab account:
 |
| Position Before Pare: Sold 50 shares bought at $12.32 FIFO |
The dividend yield increased to 12.62% based on the regular quarterly dividend of $.36 per share. This calculation excludes special dividends that may be paid in the future. A $.10 per share special dividend was paid in the 2018 4th quarter.
This kind of pare accomplishes my objectives with a BDC.
The overall goal is to earn a total return in excess of the dividend yield.
By buying dips and selling the rips, I lower my average cost per share and increase my dividend yield. Moreover, by reducing my average cost per share by profitably selling my highest cost lots, I make it more likely that I will be able to sell the remaining shares profitably at some point while harvesting some profits as the process proceeds.
Profit Snapshot: +$71.66
TPVG Trading Profits to Date: +$317.84
Last Sell Discussions: Item 3.A. Sold 40 TPVG at $13.44-Schwab Account and Item #3B Sold 50 TPVG at $13.39 Vanguard Roth IRA (3/13/19 Post) (profit snapshots = $8.62)(discussed earnings report for the Q/E 12/31/18); Item 2.B. Sold 50 TPVG at $13.39 (3/4/2017 Post)(profit snapshot =$153.08); Item # 3 Sold 50 TPVG at (1/16/17 Post)(profit snapshot = $84.48).
Most Recent Purchase Discussions: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post)(discussed third quarter earnings report); Item # 3 D. Bought 10 TPVG at $11.2-Used Commission Free Trade (1/9/19 Post)
In addition to the shares that are still owned in the Schwab account, I own 56+ shares in the Vanguard Roth IRA account with a total cost per share at $12.3.
An even smaller position in my Fidelity taxable account with a total cost of $11.71 per share, which is subject to the small ball trading rule using commission free trades. The lowest price lot was bought at $11.2 (12/18/18), see previous link.
Last Earnings Report 12/31/18 SEC Filed Press Release
The market responded favorably to this report.
IPO March 2014
IMO, individual investors need to have a plan for dealing with BDC risks before buying these stocks. Some investors may focus on the better quality ones and simply reinvest the dividends.
I start with an analysis of the risks. The main reward is the dividend. The main risk is that net assets will be incinerated over time causing dividend cuts and share price declines. That later risk shows up in historical numbers for a large number of BDCs.
Some BDCs may not adequately compensate for risks even though the dividend yield is over 12% and a 30% price discount to the last reported net asset value per share. Some may be undervalued at a 9%+ dividend yield and a 10% discount. The past and present are the only guides.
Significant capital gains can be made even with the worst ones provided the managers cease incinerating assets through bad loans, stabilize net asset value per share and net investment income, and then increase those measures. It is a crap shoot when and if that will happen since past performance provides little comfort about a positive change in future performance.
My approach focuses on the following metrics: (1) the trend of past historical numbers including net asset value per share, dividends and net investment income; (2) a focus on the overall safety of loans and the allocation to first lien loans; (3) an assessment of whether the economy is still in an expansion mode; (4) stability or instability in the VIX; and (5) generating total returns in excess of the dividend yield through trading.
To expound further on the VIX angle, BDCs will do worse than the S & P 500 during a volatility spike. If the S & P 500 declines say 20% during a volatility spike into the 30s, which was the case recently, I would anticipate that BDCs would decline more, with some falling more than 30%. I would actually be looking for some to buy during that volatility spike and then to sell my highest cost lots when the VIX returned to below 20 movement. TPVG for example went from $13.59 on 9/28/18 to $10.38 on 12/21/18.
The problem involves a real time assessment of what is actually happening in the real world. Is that 20% SPX decline the first warning shot of a developing recession or just another Stock Jock anxiety attack. I did do some light buying during that last volatility surge. Owning a BDC stock during a recession will be painful.
This is the chart for ARES, one of the best, that goes back to the Near Depression period:
C. Eliminated DLRPRJ-Sold 60 at $23.91-Used Commission Free Trade:
Quote: Digital Realty Trust Inc. 5.25% Cumulative Preferred Series J
Profit Snapshot: +$171.78
2018 Annual Report
Item # 3.A. Bought 50 DLRPRJ at $21.16 and 10 at $20.48 - Used Commission Free Trades(1/2/19 Post)
Category: Equity REIT Cumulative Equity Preferred Stocks part of the Equity REIT Common and Preferred Stock Basket Strategy
Security Description:
Prospectus (sold to the public at $25 in August 2017)
Category: Equity Preferred Stock
Capital Structure Placement: Senior only to common stock
Issuer Optional Call: On or after 8/7/22
Maturity Date: None, potentially perpetual
Dividends: Quarterly, Cumulative and non-qualified
Last Ex Dividend Date: 3/14/19 (before sell)
Stopper Clause: Yes, see bottom of page S-34 and top page S-35 of the prospectus
4. Small Ball Commission Free ETFs:
These purchases are bookmarks. I have "bookmarked" several stock ETFs that I may buy in the event of a correction or bear market. Purchases in this strategy are subject to the small ball trading rules and purchase restriction.
I will have two similar ETFs held in different accounts where I can buy shares commission free. Purchases of one or the other may depend on cash availability. I may throw out one and keep the other down the road depending in part on relative performance.
The two funds discussed below are similar in that the owned stocks are concentrated in the S & P 100 which will be the 100 largest capitalization stocks within the S & P 500. MGC has more stocks than OEF as noted below.
A. Bought 5 MGC at $99.23-Commission Free for Vanguard Customers:
Quote: MGC Fund - Vanguard Mega Cap ETF Overview
Closing Price Last Friday: MGC $100.19 +$ 0.66 +0.66%
Sponsor's Page: MGC - Vanguard Mega Cap ETF | Vanguard
Expense Ratio: .07%
Dividends: Quarterly
Holdings: 262 as of 2/28/18
Top 10 Holdings as of 2/28/19
Purchase Restriction: Small Ball Rule (Each subsequent purchase has to be at the lowest price in the chain. After averaging down with several more small lot purchases, I will consider selling the highest cost lot when I can profitably do so)
Maximum Position: 50 shares
Purchases will likely pick up some after a 20+% SPX decline from current levels.
For stock purchases, I am going to place more emphasis on low cost ETFs that can be bought commission free than I have in the past. That will allow for cost effective averaging down when I no longer have commission free trades available for individual stock purchases.
B. Bought 5 OEF at $127.88-Commission Free for Fidelity Customers:
This ETF can be bought commission free at several other brokers including Schwab and Vanguard.
Sponsor's Website: iShares S&P 100 ETF
Expense Ratio: .2%
Top 10 Holdings as of 4/5/19:
Dividends: Quarterly
Last Ex Dividend Date: 3/20/19
OEF Page at Morningstar:
iShares S&P 100 ETF (OEF) Total Returns (Rated 4 stars by Morningstar)
Vanguard Mega Cap Index Fund ETF Shares (MGC) Total Returns (rated 5 stars by Morningstar)
I have 3 prior round-trip trades:
Item # 2 Sold 103+ of the Stock ETF OEF at $59.98 (7/25/11 Post)-Item # 8 Added 100 OEF at $49.11 6/11/2010 Post)
Item # 2 Sold: 100 OEF at $54.94 (12/7/2010 Post)-Item # 4 Bought 100 OEF at $49.61 (6/2/2010)
It would be fair to say that I am more circumspect and cautious now compared to 2010-2011.
My most important and overriding objective is not to lose what I now have.
iShares S&P 100 ETF (OEF) Total Returns (Rated 4 stars by Morningstar)
Vanguard Mega Cap Index Fund ETF Shares (MGC) Total Returns (rated 5 stars by Morningstar)
I have 3 prior round-trip trades:
 |
| 2010 OEF 100 Shares +$516.4 |
 |
| 2011 OEF 103+ Shares + $1,096. |
 |
| 2015 10 Shares +$42.55 |
Item # 2 Sold: 100 OEF at $54.94 (12/7/2010 Post)-Item # 4 Bought 100 OEF at $49.61 (6/2/2010)
It would be fair to say that I am more circumspect and cautious now compared to 2010-2011.
My most important and overriding objective is not to lose what I now have.
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.
You may have seen this New Yorker (Feb. 2017) article on confirmation bias, but in case you haven't, it's worth reading:
ReplyDeletehttps://www.newyorker.com/magazine/2017/02/27/why-facts-dont-change-our-minds
Cathie: Most individuals IMO prefer the comfort level that comes with confirmation bias or just filtering out and rejecting any and all information that does not conform to pre-existing opinions.
DeleteThe next step is to actually make an effort to avoid contact with information that may challenge an existing belief and/or to seek out only information, no matter how unreliable, that confirms that belief.
The general tendency is to form the opinion first, with little or no accurate information, rather than to gather relevant and reliable information and then form an opinion.
It takes time to acquire facts, judge their reliability and then to change one's opinion when and if justified by newly acquired information.
The time requirement is one reason that facts do not matter but is probably not the most important reason.
Uncertainty about what is true or false and challenges to one's beliefs (which causes a negative response from one's ego) create psychological tensions that humans prefer to avoid altogether.
Instead, relying on cliches and "talking points", which inadequately or inaccurately describe what is happening in the real world, is far more comfortable and less taxing.
The foregoing issues can be found throughout the ideological spectrum, and many liberals just have a different set of beliefs that are not grounded in hard reality.
The Trumpsters, more so than the liberal democrats IMO, will not be influenced by accurate information and will be far more susceptible to the false narratives and lies perpetrated by a demagogue like Trump. Another way of saying this is that liberals tend to be more open minded than those who call themselves "conservatives" now. Demagogues from the left would, however, receive a receptive audience, just nowhere near as large as the "conservative" demagogue.
The Fake Conservatives, another description that fits most Trumpsters, are probably the most authoritarian leaning bunch in U.S. history. They are a far bigger threat to the future of American democracy and freedoms than the far left. I would not view the modern day GOP as the individual freedom party.
I am not a fan of the left wing of the democrat party either. Plans like taxing currently unrealized gains, or Medicare for all, or free college are just irresponsible and are based on a delusion that the U.S. can afford those programs when it actuality it will be a huge fiscal problem to fund the unfunded entitlement programs that we now have without adding anymore. A related delusion is that taxing rich people more will provide the funding gap for new programs when confiscation of their property would be insufficient and of course self defeating as to taxing future income.
I agree, both extremes are undesirable. During the 1960s Cultural Revolution in China, we witnessed the evils of excess leftism. Now we seem to be witnessing the other extreme in the West, still unfolding, as a threat to democracy and moderation.
DeleteHello South Gent,
ReplyDeleteI note from market watch a very interesting piece on debt and the history of bubbles. This appears to come from a person who is an esteemed economist who as far as I can tell does not look like a chronic bear.
It looks like we are in for at least a decreased amount of returns over the next number of years as you have been pointing out and perhaps even something much worse.
I wondered what thoughts you had on this article linked below
https://www.marketwatch.com/story/theres-no-safe-place-to-hide-from-the-consequences-of-the-biggest-bubble-yet-2019-04-15?mod=mw_theo_homepage
thanks
G: The author, Eugene Steurele, is an economist and thoughtful person, which does not mean that his future forecast will turn out to be prescient but only that it will be more grounded in facts and sound judgment than most.
Deletehttps://www.urban.org/author/c-eugene-steuerle
His concerns have merit, but the million dollar question is when will the worm turn popping what he calls the "wealth bubble". Maybe money grows on trees, and nothing will go wrong again until the end of days.
The market will giveth and taketh away, to paraphrase Job 1:21. The Lord was not giving stock market advice there but then again it hones one's attention on the transience of benefits as does the bible's passage immortalized in the Byrd's song (Ecclesiastes 3) :
https://www.youtube.com/watch?v=W4ga_M5Zdn4
I can not predict the future. Boundless optimism about the future has a tendency to deflate quickly when enough evidence amasses that inarguably throws an ocean of cold water on it.
And, I become a somewhat unnerved when I look at a long term SPX chart and see it reaching for the heavens. And I am uncomfortable with the notion that money grows on trees, where an individual just has to place their money down and are guaranteed to win type of mind set.
The stock market has a lot of momentum now and nothing seems capable yet of derailing that big mo.
Economic conditions are mostly optimal now with low interest rates and inflation, strong employment numbers so far, extreme fiscal and monetary stimulus (eventually a major negative when the blowback starts), and a lack of alternatives to stocks for those needing meaningfully positive inflation adjusted total returns.
Possibly the stock market is entering a blowoff phase based on excessive optimism about the future.
The warning signals for the worm turn may not be clear but would involve the conditions, which are now optimal, turning toward negative.
South Gent,
ReplyDeleteI like your BDC investing strategy. I sold my TVPG position today.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/04/observations-and-sample-of-recent_17.html