Observations and Sample of Recent Trades: CIOPRA, CMFN, DX, GMREPRA

Economy: 

Existing home sales declined a seasonally adjusted 4.9% last month. Existing-Home Sales Slide 4.9% in March | www.nar.realtor

U.S. to end waivers for countries buying Iranian oil imports-MarketWatch The rise in energy costs will contribute to inflationary pressures. Consumers will also have less money to spend on discretionary purchases without increasing their debt.  

Trump’s Washing Machine Tariffs Stung Consumers While Lifting Corporate Profits - The New York Times; The Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines | BFI 

The GOP's tariffs are a tax on U.S. consumers. It remains to be seen whether their use as a bludgeon for trade concessions will be successful. I do believe that it is probable that a trade deal with China will be concluded within 90 days. The Trump Administration has certainly led everyone to believe that a deal is certain. 

The New York Fed's GDP model currently estimates first quarter real GDP growth at 1.4% and at 1.9% for the second quarter. Nowcasting Report The Atlanta Fed's model is currently predicting 2.8% real GDP growth for the first quarter. GDPNow It is a guessing game. The important point IMO is that the economy remains in an expansion mode that is neither too slow nor too fast. 

First quarter earnings reports have been mostly positive so far with some notable exceptions. I would note that a number of earnings beats were due to low expectations. Moreover, GAAP E.P.S. could be down from the 2018 first quarter, which was the case for United Technologies, but investors were nonetheless enthusiastic about the non-GAAP earnings beat and an increase in the estimated 2019 non-GAAP E.P.S. range from $7.7 to $8 to $7.8 to $8. UTK 1st Quarter Report  

The Bond Ghouls are not impressed and are taking interest rates back down. U.S. 10 Year Treasury Note The German 10 year bond yield is currently at zero percent. GDBR10 Quote - German Government Bonds 10 Yr: Bloomberg Markets

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Markets and Market Commentary: 

A rise in the USD is pressuring precious metals. Dollar edges toward 22-month high as Swiss franc and Aussie dollar tumble - MarketWatch; DXY - U.S. Dollar Index (DXY) - MarketWatch (a rise in DXY indicates USD strength against a basket of 6 currencies weighted in the Euro). 

The rise in energy prices is not helping currencies that were previously viewed as based on or at least linked to commodity prices, which includes the Australian Dollar (AUD), the Canadian Dollar (CAD), and the Norwegian Krone (NOK). 

I do not view Medicare for All as likely to pass in my lifetime. This plan would not receive a single republican vote. Many democrats would balk based on the price tag. Disagreements about the plan details are widespread among Democrats who support some version, making it less likely that even the supporters can come to an agreement. ‘Medicare-for-all’ is no longer purely theoretical. Democrats are coming to terms with that; Medicare-for-all: Where Democrats stand on health-care issues - Washington Post

‘Medicare for All’ Could Cost Hospitals Billions of Dollars Since private insurers generally pay more than Medicare, hospitals would be deprived of revenues that now receive. The Costs of a National Single-Payer Healthcare System

Nonetheless, until yesterday, investors have been selling healthcare stocks recently based on the fear that this kind of legislation will actually pass. Health care suffers worst week of 2019, and technician sees more pain

Closing Price Yesterday: FHLC $42.41 +$0.68 +1.63% : Fidelity MSCI Health Care Index I have been adding to this ETF, which can be brought commission free by Fidelity customers, during the recent downdraft.  

4 New Ideas From the Wide-Moat Focus Index

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Trump: 

Trump says: 'Nobody disobeys me' - Reuters Trump is an authoritarian. That statement could just as easily been made by Putin or his soul brother Stalin. 

Trump sues to block subpoena from House Democrats seeking information on his finances There are likely multiple reasons why Donald wants to keep his tax returns private, and I doubt that any of them are related to ongoing IRS audits. 

Trump unleashes on the media in morning tweetstorm - POLITICO

This is a sample of Donald's Easter tweets: 

(1) The New York Times "will have to get down on their knees & beg for forgiveness-they are truly the Enemy of the People!"

(2) "Morning Psycho (Joe), who helped get me elected in 2016 by having me on (free) all the time, has nosedived, too Angry Dumb and Sick." 

He is referring to the former republican congressman from Florida's panhandle region Joe Scarborough. 

Trump further claimed in his Easter tweet that the Morning Joe program on CNBC was a "really bad show with low ratings -and will only get worse". The show recently received its highest ratings, up 10% Y-O-Y. Joe Scarborough Claps Back at Trump for Calling Him 'Morning Psycho' 

{Disgusting Don tagged Scarborough's wife Mika Brzezinski with his "low I-Q" label, claiming further that she was bleeding badly from an alleged face-lift. Donald Trump Twitter Rant Targets Mika Brzezinski's Looks | Time}

(3) "The Radical Left Democrats, together with their leaders in the Fake News Media, have gone totally insane". The Stable Genius has spoken, so carve that sentence on Mount Rushmore next to George Washington.  

(4) In another tweet, Donald lashed out at Paul Krugman, calling him "stupid", "obsessed with hatred" and as having lost "all credibility, as has the Times itself, with his false and highly inaccurate writings on me."  

No examples of the alleged "false and highly inaccurate writings" were provided by the Duck. In Trumpworld, an accusation unsupported by facts is equivalent to stating a fact that can not be disputed which leads to numerous accusations being made that are contradicted by facts. 

Krugman is not a NYT reporter, but writes an opinion column published in the NYT. He graduated summa cum laude from Yale University and received a PhD in economics from MIT. He was awarded a Nobel Prize in Economics. 

His last opinion piece was titled The Great Republican Abdication - The New York Times. In that column, Krugman argued that the republicans no longer believe in American values: "The simple fact is that one of our two major parties — the one that likes to wrap itself in the flag-no longer believes in American values. And it’s very much up in the air whether America as we know it will survive." A growing number of Americans share that opinion. 

(5) Trump claimed that he was cleared of all wrongdoing and it was the Democrats who were the criminals. Trump: Democrats committed crimes 

So it was good to see Donald imbued with the Christian spirit over the Easter holiday. 

Mueller report shows Russians, Trump camp were friends with benefits. Collusion by another name?

Mueller’s methodical, relentless recitation of why Trump is vulnerable over Russia contacts and obstruction is devastating - MarketWatch

While Mueller laid out a persuasive obstruction of justice case against Donald, far more convincing IMO than the obstruction case developed against Nixon, I recognize that any effort to impeach Trump would be an exercise in futility since no republican would ever cast a vote in favor based on what can be proven now. 

Barr's opinion on obstruction is worthless partisan banter from a Trump sycophant. Trump could be indicted now for obstruction of justice, if he was not the President, and possibly convicted based on the material contained in the Mueller report. Political partisans from all sides would need to be excluded from the jury.  

Consequently, without substantial new and irrefutable evidence that Trump committed other serious felonies, it would be unnecessarily divisive to launch an impeachment proceeding in the House Judiciary Committee. I previously agreed with Pelosi that impeachment efforts need to be "bipartisan". Stocks, Bonds & Politics (3/13/19 Post)(scroll to "Nancy Pelosi on Impeaching" Trump)  That opinion has not changed. 

Investigations can continue, but Trump will stonewall every single one of them. Trump says he is opposed to White House aides testifying to Congress, deepening power struggle with Hill - The Washington Post  

Congressional oversight over the executive branch was part of the House's constitutional responsibility when the GOP controlled the House, but is now unconstitutional with the Democrats in control. 

Trump's obstruction efforts will now shift to making frivolous legal arguments to stymie each and every investigative effort. 

Claiming executive privilege when the facts clearly show a waiver, even if the privilege claim is well founded, is just one frivolous argument. 

Needless to say, the now public testimony relating to Trump's obstruction efforts would not be privileged even without a waiver which was clearly given. 

It is hard to claim a privilege for asking aides to lie in Trump's obstruction of justice effort when it is the President who has the constitutional duty to uphold the law rather than to make attempts to violate it and then claim a privilege to prevent questioning about those acts and statements.   

The intended and actual impact will be to delay the investigations for an extended period of time, possibly into the 2020 election season. 

If the republican regain control over the House, they will just stop every investigation before one can cause any further damage to Trump which would otherwise occur through unfavorable factual revelations that show him for what he is. 

The Mueller Report, as Mitt Romney noted, paints Trump in a most unfavorable light since it shows him for what he is.   

Newt Gingrich was once asked why the republicans wanted to impeach Clinton for lying about having sex with Monica. 

His reply was predicable. 

The republicans wanted to impeach Clinton "because we can", meaning simply that the GOP then had more than enough republican votes in the House to approve articles of impeachment against Clinton. The republicans then had a majority in the Senate (55 to 45) which was well short of the 2/3rds necessary to convict.  

That effort made the republican base happy and demagogues will always pander to their base rather than to act in the nation's interest. The effort was irresponsible and a waste of time and money since the republicans knew there was no chance whatsoever to convict in the Senate, where a two-thirds majority is required.  How the senators voted on impeachment -- February 12, 1999 

Some republican senators voted not guilty on both counts. The end result was never in doubt. The republicans will do it again when they have the power to do so. The democrats need to show restraint and act more responsibly than Trump's party.  

How Michael Cohen Turned Against President Trump

Florida man charged with threatening to kill three Democratic lawmakers

Texas Militia leader allegedly told FBI they were training to assassinate Obama, Hillary Clinton - CBS News

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1. Eliminations:

A. Sold 50 CIOPRA at $24.77-Used Commission Free Trade:

Profit Snapshot: +$155.22 (last 50 share lot only)

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

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

Security Description:

Category: Equity REIT Cumulative Equity Preferred Stocks 

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

Last Ex Dividend: 4/10/19 (after sell)

Last Sell Discussions: Item # 4.A. Sold 50 CIOPRA at $24.14-Used Commission Free Trade (3/17/19 Post); Item 3.A. Sold 50 CIOPRA at $25.21 (1/27/17 Post)(profit snapshot= $146.97) 

B. Sold 70 GMREPRA at $25.87:

Quote: Global Medical REIT Inc. 7.5% Cumulative Preferred Series A Stock  (GMREPRA)

Profit Snapshot: +$208.36 

Item # 4.B. Bought 70 GMREPRA at $22.75 (1/13/19 Post)

Security Description:

Category: Equity REIT Common and Preferred Stock Basket Strategy

Prospectus

Par Value: $25

Dividends: Cumulative, Non-Qualified and Paid Quarterly  

Issuer Optional Call: On or after 9/15/22 

Last Ex Dividend:  4/12/19  (after sell)

Last Sell Discussions: Item # 1.A. (2/20/19 Post)

C. Sold 103 DX at $6.18-Used Commission Free Trade:

Quote: Dynex Capital Inc.-MarketWatch

Profit Snapshot: $13.2 (ROC adjustment for 50 share lot bought last year of $8.52)

I took 1 quarterly dividend in cash that was paid last year and the remaining dividends were used to buy additional shares.

I suspect that many individual investors believe that they are doing better than they actually are when owning MREIT common stocks. There is a tendency to double count the dividend payments, first in the amount of the dividend payment and second in the profit generated by the reduction in the cost basis.

In my small DX lot, I received $43.47 in dividends and realized a gain of $13.2. While that looks like a total return of $43.47, a correct calculation would subtract the ROC adjustment from either the dividend amount received or the profit. When that is done, the actual total return for my lot was $34.95. In my case, I did earn a total return in excess of the dividend payments, but I had to spend several minutes figuring that out.

When there are meaningful ROC adjustments to the tax cost basis,  it would be difficult to know whether the investment is producing an acceptable return or the amount of the total return.

There will be an additional profit amount reported when DX classifies its dividends paid in 2019 which will probably be mostly or entirely treated as ROC. That adjustment will not impact my total return but only how the return is allocated between a short term capital gain and ordinary dividend income.

Last Discussed: Item # 4.A. Bought 50 DX at $6-Used Commission Free Trade  (3/27/19 Post)

I still own a Dynex equity preferred stock that pays cumulative and non-qualified dividends. Item # 4 Bought 50 DXPRB at $23.77-Used Commission Free Trade (2/2/19 Post); Dynex Capital Inc. 7.625% Cumulative Preferred Series B Stock

2. Short Term Bond/CD Ladder Basket Strategy:

Adds: +$8K

A.  Bought 3 Treasury 3 Month Bills at Auction Maturing on 7/11/19:
IR = 2.429%

Auction Results: 91 Day T Bill

B. Bought 2 Wells Fargo 2.45% CDs (monthly interest payments) Maturing on 4/12/21: 

C. Bought 3 Treasury Bills Maturing on 6/11/19 at Auction: 56 Day Bills
IR = 2.424%

Just another punt with recently received proceeds from maturing securities.

Auction Results: 56 Day T Bill

3. Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Sold 1 Boston Properties L.P. 3.125% SU Maturing on 9/1/23: 

Finra Page: Bond Detail

Profit Snapshot: +$11.89 

Sold at 100.322

YTM at 100.322 = 3.043%

Current Yield at 100.322 = 3.115%

Proceeds at 100.222 (YTM at 3.069%

I kept the 2 bonds owned in a Roth IRA where the interest payments are tax free: 

The last purchase was made in December 2018. Item # 5.A. Bought 1 Boston Properties L.P. 3.125% SU Maturing on 9/1/23 at a TC of 96.7 (12/26/18 Post) 

Issuer: Operating subsidiary of Boston Properties Inc. (BXP) who guarantees the note

B. Sold 2 Kraft Heinz 3.5% SU Maturing on 7/15/22:

The short term bond classification that I use ends at 3 years from the transaction date.

Profit Snapshot: +$28.75

Item # 4.B. Bought at a Total Cost of 99.231 (6/14/18 Post)

FINRA Page: Bond Detail

Issuer:  Kraft Heinz Co. (KHC )
KHC Analyst Estimates

Sold at 100.869
YTM at 100.869 Then at = 3.204%
Current Yield at 100.869 = 3.47%
Proceeds at 100.669 (after $4 commission)

I decided that a Kraft Heinz bond maturing in more than 3 years was not worth the risks given the price and yield, particularly when I had a profit in the bond. The $28.75 profit amount is close to the $35 semi-annual interest payment for this 2 bond lot. After selling this bond, I did buy a Kraft Heinz 2.8% SU bond maturing on 7/2/20 which I will discuss in a subsequent post. 

4. Added 50 of the Deservedly Hated BDC CMFN at $7.31-Used Fidelity Commission Free Trade:

Quote: CM Finance Inc
SEC Filings

Closing Price Yesterday: CMFN $7.26 -$0.04 -0.55% 

CM Finance 10-Q for the Q/E 12/31/18 (investments listed starting at page 7)

I do not yet have any realized gains or losses in this BDC stock. Currently, it looks like a total return in excess of the dividend yield will be difficult to achieve.  

I noticed a recent 13G filing made by the Caxton Corporation claiming it owned 7.5% of the common stock. The filing was signed by Bruce S. Kovner. A fund called Cyrus Capital Partners owned 28.05% of the outstanding shares as of 12/31/2018. If those investors want to own so many shares, maybe I could dig down deep, find a pair, and buy another 50 shares. 

Current and Maximum Position in this Account: 125 shares plus shares purchased with dividends (now at 130+ with dividend purchases)

Average Cost Per Share in this Account: $7.61

Regular Dividend: Quarterly at $.25 per share 

The quarterly penny rate was reduced to $.25 from $.3516 effective for the 2017 first quarter payment. CM Finance Inc (CMFN) Dividend Date & History - Nasdaq

Dividend Yield at $7.61 = 13.14%

Last Ex Dividend Date: 3/14/19

Dividend Reinvestment: Yes given the current discount

Net Asset Value Per Share History:
Q/E 12/31/18: $11.49
Q/E 6/30/18:  $12.57 
Q/E 3/31/18:   $12.55
Q/E 12/31/17:  $12.5
Q/E  6/30/17:  $12.41
Q/E  6/30/16:  $11.9
Q/E  6/30/15:  $14.41 
IPO at $15 with net proceeds at $14.55 February 2014 

I mentioned in a recent discussion that the risk associated with some BDCs may not adequately be addressed by a 30% price discount to the last reported net asset value per share. 

CMFN would fall in that category based on its history. 

At a $7.31 purchase price, the discount to the $11.49 net asset value per share as of 12/31/18 would be -36.38%. 

Chart: Ugly

CMFN 5 Year Chart

Using a 1 year chart, the stock was selling below its 50, 100 and 200 SMA lines on the day of purchase.

Five Year Annual Average Total Return through 4/23/19 = -.55%

DRIP Returns Calculator | Dividend Channel Last Earnings Report:  

"Mr. Michael C. Mauer, the Company’s Chief Executive Officer, said, “While the fair value of the portfolio declined during the quarter, we believe that we take a prudent and conservative approach to both investing and valuing our portfolio and we see significant opportunity as we look forward in 2019.  We have fully written down our positions in Trident USA Health Services, LLC, and have no other positions on non-accrual today. 

As of December 31, 2018, the Company’s investment portfolio consisted of investments in 29 portfolio companies, of which 63.7% were first lien investments, 31.7% were second lien investments, 4.1% were unitranche loans, and 0.5% were in equities, warrants and other positions.  The Company’s debt portfolio consisted of 94.4% floating rate investments and 5.2% fixed rate investments."

CM Finance Inc Reports Results for its Fiscal Second Quarter Ended December 31, 2018 

Asset Categories as of 12/31/18: 

Asset Quality Measures Per Management as of 12/31/18: 

CMFN would be undervalued at the current price provided the external managers cease incinerating assets with bad loans. 

The current large discount to net asset value per share would be insufficient with the past being prologue for the future. 

On the other hand, a positive surprise in net investment income for the first quarter with a nice bump up in net asset value per share, could send the shares much higher. 

The problem is that it is difficult to have much confidence in the latter alternative coming to fruition given the historical performance.  

CM Finance Annual Report (risk factor summary starts at page 32 and ends at page 67)

I also own 87+ shares in my Schwab account with an average cost per share of $8.68 The last purchase in that account was discussed here: Item #4.A. Bought 30 CMFN at $8.23-Used Schwab Commission Free Trade (11/7/18 Post) 

I view the CMFN position as deservedly hated and highly speculative. A continuation of an average annual total return of -.55% is not going to pay for my nursing home expenses. And, if one adjusts that number for inflation and taxes, the performance only becomes more pathetic. 

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.