Economy:
On a non-seasonally adjusted basis, CPI rose 2% Y-O-Y through April 2019, an increase of .1% from the March Y-O-Y number. Core CPI also increased .1% to 2.1% Y-O-Y. Tariffs will add to inflation by making imports more expensive and by providing a price umbrella for domestic producers to raise prices. Consumer Price Index Summary
On a non-seasonally adjusted basis, CPI rose 2% Y-O-Y through April 2019, an increase of .1% from the March Y-O-Y number. Core CPI also increased .1% to 2.1% Y-O-Y. Tariffs will add to inflation by making imports more expensive and by providing a price umbrella for domestic producers to raise prices. Consumer Price Index Summary
Here’s the hit U.S., Chinese and global economies could face as trade battle heats up - MarketWatch (provides estimated GDP impacts)
I have been discussing the China trade negotiation in comments to prior posts.
A competent negotiator needs to know how far to push the other side. If you push too far, the other side could easily walk away and then both sides pay a high price.
With China, I have mentioned in several prior posts that the Trump Administration may have pushed China too far and now China is pushing back.
The key U.S. demand, which is apparently a bridge too far, is that the U.S. would keep all or some of the tariffs as an enforcement mechanism even after China caved to other U.S. demands. I have seen that demand in several media reports cited unnamed sources. Vice Premier Liu stated in a Q and A after the Friday meeting that all tariffs had to be eliminated for China and the U.S. to reach an agreement. China, U.S. to hold more trade talks as Trump ratchets up tariff threat - Reuters; China will not flinch in the face of U.S. pressure, top negotiator says after talks - The Washington Post
The natural question to ask is why would China agree to those terms. That question is obvious but apparently has not occurred to the Duck.
Donald believes that the U.S. has China over barrel.
There is some truth to that belief in that the balance of trade is lopsided in China's favor and China's economy is more dependent on exports.
The U.S. was consequently in a position to cause a meaningful restructure in the trade relationship after imposing the tariffs, where China would buy substantially more U.S. products and alter some internal policies that provided its businesses with unfair advantages.
The question for a competent negotiator is how far to push in this round of negotiation without causing a breakdown. It remains to be seen whether or not a resolution will be successful.
China has options and can cause a lot of pain for American businesses with Chinese operations. China has the next move in the tit-for-tat.
How China could 'play dirty' in retaliation for Trump's new round of tariffs
A competent negotiator needs to know how far to push the other side. If you push too far, the other side could easily walk away and then both sides pay a high price.
With China, I have mentioned in several prior posts that the Trump Administration may have pushed China too far and now China is pushing back.
The key U.S. demand, which is apparently a bridge too far, is that the U.S. would keep all or some of the tariffs as an enforcement mechanism even after China caved to other U.S. demands. I have seen that demand in several media reports cited unnamed sources. Vice Premier Liu stated in a Q and A after the Friday meeting that all tariffs had to be eliminated for China and the U.S. to reach an agreement. China, U.S. to hold more trade talks as Trump ratchets up tariff threat - Reuters; China will not flinch in the face of U.S. pressure, top negotiator says after talks - The Washington Post
The natural question to ask is why would China agree to those terms. That question is obvious but apparently has not occurred to the Duck.
Donald believes that the U.S. has China over barrel.
There is some truth to that belief in that the balance of trade is lopsided in China's favor and China's economy is more dependent on exports.
The U.S. was consequently in a position to cause a meaningful restructure in the trade relationship after imposing the tariffs, where China would buy substantially more U.S. products and alter some internal policies that provided its businesses with unfair advantages.
The question for a competent negotiator is how far to push in this round of negotiation without causing a breakdown. It remains to be seen whether or not a resolution will be successful.
China has options and can cause a lot of pain for American businesses with Chinese operations. China has the next move in the tit-for-tat.
How China could 'play dirty' in retaliation for Trump's new round of tariffs
++++++
Markets and Market Commentary:
Donald must enjoy manipulating the Stock Jocks who are easily manipulated by one of his tweets.
Dow stages 400-point comeback, ends the day higher
The major turnaround last Friday started with Mnuchin saying the talks were constructive even though the meeting on Friday did not last long. The Chinese delegation left D.C. later in the day. Bloomberg reported that the talks had made little progress. Trump Says No Rush on China After Tariff Hike on $200B of Goods - Bloomberg
Trump then twitted that negotiations will continue and he may or may not remove the tariffs based on those negotiations.
Those two tweets sent the DJIA and S & P 500 into positive territory.
I can only say that the Duck's tone changed from his morning tweets where he basically viewed an acceleration of the tariff war as better for the U.S. than a new trade deal.
My approach to Donald's tweets last Friday was simply to classify them all as attempts to manipulate, which is something that Donald does whenever he is awake. Donald is proof that pathological liars, carnival barkers, shameless self promoters and fraudsters can go far in America.
Donald must enjoy manipulating the Stock Jocks who are easily manipulated by one of his tweets.
Dow stages 400-point comeback, ends the day higher
The major turnaround last Friday started with Mnuchin saying the talks were constructive even though the meeting on Friday did not last long. The Chinese delegation left D.C. later in the day. Bloomberg reported that the talks had made little progress. Trump Says No Rush on China After Tariff Hike on $200B of Goods - Bloomberg
Trump then twitted that negotiations will continue and he may or may not remove the tariffs based on those negotiations.
Those two tweets sent the DJIA and S & P 500 into positive territory.
I can only say that the Duck's tone changed from his morning tweets where he basically viewed an acceleration of the tariff war as better for the U.S. than a new trade deal.
After the market closed, Vice Premier Liu told Chinese state media that the talks were constructive and honest. He referred to the differences as "signifiant principle issues", adding that China "absolutely cannot make concessions on such principle issues.” Liu claimed that the deletions made in the text are relatively small disagreements about phrasing, whereas the U.S. claims that the deletions gut China's commitments.
The discussions last Thursday and Friday appear to have gone nowhere and primarily involved Liu explaining why China backtracked and its firm opposition to the U.S. demand about keeping tariffs as an enforcement mechanism. If that is the case, the Stock Jock's enthusiasm, expressed in the strong turnaround rally occurring last Friday, is delusional.
A more sober assessment of the negotiations can be found in this article written by Fred Kemp, CEO of the Atlantic Council: It's time for markets to end their illusions about US-China trade deal
The next round of trade talks will be in Beijing, though I have not seen anything yet that a date has been set.
While those comments from Liu do not sound like a deal is about to happen or will ever happen for that matter, it may be enough to keep the Stock Jocks calm until something else disrupts their casual equanimity.
About all that I can say is that the talks are continuing as the confrontation heats up. The only substantive certainty is that the U.S. has raised tariffs with China likely to retaliate.
The discussions last Thursday and Friday appear to have gone nowhere and primarily involved Liu explaining why China backtracked and its firm opposition to the U.S. demand about keeping tariffs as an enforcement mechanism. If that is the case, the Stock Jock's enthusiasm, expressed in the strong turnaround rally occurring last Friday, is delusional.
A more sober assessment of the negotiations can be found in this article written by Fred Kemp, CEO of the Atlantic Council: It's time for markets to end their illusions about US-China trade deal
The next round of trade talks will be in Beijing, though I have not seen anything yet that a date has been set.
While those comments from Liu do not sound like a deal is about to happen or will ever happen for that matter, it may be enough to keep the Stock Jocks calm until something else disrupts their casual equanimity.
About all that I can say is that the talks are continuing as the confrontation heats up. The only substantive certainty is that the U.S. has raised tariffs with China likely to retaliate.
My approach to Donald's tweets last Friday was simply to classify them all as attempts to manipulate, which is something that Donald does whenever he is awake. Donald is proof that pathological liars, carnival barkers, shameless self promoters and fraudsters can go far in America.
Here are the stocks to buy if an all-out U.S.-China trade-war erupts, says Goldman - MarketWatch
Analyst: New China Tariffs Pose Threat to Apple, iPhones - Nasdaq.com The analyst is referring to the Duck's threat to expand the 25% to products that are not now subject to the tariffs. The main problem now for Apple and other companies selling U.S. products in China is their exposure to consumer boycotts based on Chinese nationalism and anger toward the U.S.
Last Friday's Close: AAPL $197.18 -$2.77 -1.39% : Apple Inc.
Previous Friday's Close (last close before Trump's Sunday tweets): $211.75 (5/3/19)
For the Week: -$14.57 per share
'Trade deal trauma' sees investors pull $20 billion
A U.S. recession will knock this asset class hard, says Steve Eisman of ‘The Big Short’ fame - MarketWatch This is not what I would call a perspicacious observation. Eisman is referring to leveraged loans and junk bonds which will be torched in a recession. There will also be lower tier investment grade bonds from highly leveraged borrowers that will sink into junk rated status.
Analyst: New China Tariffs Pose Threat to Apple, iPhones - Nasdaq.com The analyst is referring to the Duck's threat to expand the 25% to products that are not now subject to the tariffs. The main problem now for Apple and other companies selling U.S. products in China is their exposure to consumer boycotts based on Chinese nationalism and anger toward the U.S.
Last Friday's Close: AAPL $197.18 -$2.77 -1.39% : Apple Inc.
Previous Friday's Close (last close before Trump's Sunday tweets): $211.75 (5/3/19)
For the Week: -$14.57 per share
'Trade deal trauma' sees investors pull $20 billion
A U.S. recession will knock this asset class hard, says Steve Eisman of ‘The Big Short’ fame - MarketWatch This is not what I would call a perspicacious observation. Eisman is referring to leveraged loans and junk bonds which will be torched in a recession. There will also be lower tier investment grade bonds from highly leveraged borrowers that will sink into junk rated status.
+++++++
Trump:
Trump job approval surges to highest level since first month in office, RCP average finds
5 Takeaways From 10 Years of Trump Tax Figures; NYT Trump taxes report reveals $1 billion in losses over 10 years - Vox
During the period that Donald promoted himself as the smartest and most successful businessman in world history, the facts show that he was the Biggest Loser among individual taxpayers. He reported a loss totaling $1.17 billion from 1985 through 1994. Decade in the Red: Trump Tax Figures Show Over $1 Billion in Business Losses - The New York Times
The original publication date for Art of the Deal was 11/1/1987. The next self-promotion book was titled "Trump Surviving at the Top", published in 1990. Five more self-promotion books would thereafter be published allegedly written by Trump and a co-author.
When you talk or listen to a Trumpster, they actually believe that the Trump name on a building or a product indicates a Trump business, when actually the Duck has only licensed the Trump name. Donald Trump's Real Secret To Riches: Create A Brand And License It
The Trump brand was created based on the false premise that Donald was a successful business operator when in fact he had bankrupted six businesses that he tried to operate. PolitiFact This required millions to confuse flash and braggadocio with actual business success that was not tied to the Trump brand.
To the extent there was some success, it was based on the enormous tax loss carryforwards resulting from Donald's efforts to operate businesses which sheltered future income from taxes; the huge inheritance from his Daddy; the brand Trump based on his self-created myth pedaled shamelessly to the gullible; reneging on financial commitments to lenders (banks and bond owners); and using lawsuits to browbeat mom and pop businesses into accepting less than they were owed to avoid ruinous litigation.
USA TODAY exclusive: Hundreds allege Donald Trump doesn’t pay his bills
USA TODAY Network: Dive into Donald Trump's thousands of lawsuits - USA TODAY
Trump's $413 million inheritance doesn't explain his mysterious cash spending — Quartz
Trump job approval surges to highest level since first month in office, RCP average finds
5 Takeaways From 10 Years of Trump Tax Figures; NYT Trump taxes report reveals $1 billion in losses over 10 years - Vox
During the period that Donald promoted himself as the smartest and most successful businessman in world history, the facts show that he was the Biggest Loser among individual taxpayers. He reported a loss totaling $1.17 billion from 1985 through 1994. Decade in the Red: Trump Tax Figures Show Over $1 Billion in Business Losses - The New York Times
The original publication date for Art of the Deal was 11/1/1987. The next self-promotion book was titled "Trump Surviving at the Top", published in 1990. Five more self-promotion books would thereafter be published allegedly written by Trump and a co-author.
When you talk or listen to a Trumpster, they actually believe that the Trump name on a building or a product indicates a Trump business, when actually the Duck has only licensed the Trump name. Donald Trump's Real Secret To Riches: Create A Brand And License It
The Trump brand was created based on the false premise that Donald was a successful business operator when in fact he had bankrupted six businesses that he tried to operate. PolitiFact This required millions to confuse flash and braggadocio with actual business success that was not tied to the Trump brand.
To the extent there was some success, it was based on the enormous tax loss carryforwards resulting from Donald's efforts to operate businesses which sheltered future income from taxes; the huge inheritance from his Daddy; the brand Trump based on his self-created myth pedaled shamelessly to the gullible; reneging on financial commitments to lenders (banks and bond owners); and using lawsuits to browbeat mom and pop businesses into accepting less than they were owed to avoid ruinous litigation.
USA TODAY exclusive: Hundreds allege Donald Trump doesn’t pay his bills
USA TODAY Network: Dive into Donald Trump's thousands of lawsuits - USA TODAY
Trump's $413 million inheritance doesn't explain his mysterious cash spending — Quartz
White House invokes executive privilege to bar former counsel from turning over documents to Congress; Mnuchin rejects Democrats’ demand to hand over Trump’s tax returns, all but ensuring legal battle Trump's obstruction efforts have entered into a new phase, fully supported by the sycophant AG who is acting as Donald's defense attorney rather than as the lead attorney for the U.S. That is why he was appointed to the job. Barr can be counted upon to do what is best for Donald.
Trump Asserts Executive Privilege Over Full Mueller Report I view that frivolous claim to constitute obstruction.
'Hit job': Trump responds to report he lost more than $1 billion over decade Trump claims those tax losses were caused in large part by non-cash depreciation expenses. Those non-cash expenses do reduce the tax cost basis of the property.
For a successful real estate operator, the non-cash depreciation will reduce taxable income significantly, but will not eliminate it even after all other cash and non-cash expenses related to property ownership.
Just a few Examples:
Realty Income 2018 Annual Report at page 48 (retail)
Essex Property 2018 Annual Report at page 40 (apartments)
Digital Realty Trust 2018 Annual Report at page 49
Corporate Office Properties 2018 Annual Report at page 24 (office properties)
Alexandria REIT 2018 Annual Report at page 71 (office properties catering to technology and life science companies)
I included financial data for five years to show that these REITs and many others had substantial GAAP net income over the entire five year period. Non-Cash depreciation expenses merely lowered GAAP net income.
Doofus Don will be able to convince the Trumpsters, who do not have a clue, that his $1B+ loss was due to non-cash depreciation expense.
Trump's attorney Charles Harder threatened the NYT for publishing what he called a false and defamatory article:
'Hit job': Trump responds to report he lost more than $1 billion over decade Trump claims those tax losses were caused in large part by non-cash depreciation expenses. Those non-cash expenses do reduce the tax cost basis of the property.
For a successful real estate operator, the non-cash depreciation will reduce taxable income significantly, but will not eliminate it even after all other cash and non-cash expenses related to property ownership.
Just a few Examples:
 |
| 2018 GAAP Net Income of $363+ Million |
 |
| 2018 GAAP Net Income of $390+ Million |
 |
| 2018 GAAP Net Income of $249+Million |
 |
| 2018 GAAP Net Income of $72+Million |
 |
| 2018 GAAP Net Income of $363+ Million |
I included financial data for five years to show that these REITs and many others had substantial GAAP net income over the entire five year period. Non-Cash depreciation expenses merely lowered GAAP net income.
Doofus Don will be able to convince the Trumpsters, who do not have a clue, that his $1B+ loss was due to non-cash depreciation expense.
Trump's attorney Charles Harder threatened the NYT for publishing what he called a false and defamatory article:
"We have already informed you that your statements regarding Mr. Trump’s tax returns from 30 years ago are highly inaccurate and based upon information that is demonstrably false. Any story on this subject that is inaccurate and harms Mr. Trump’s reputation would be defamatory with actual malice. You are on notice. All rights are reserved." 'Hit job': Trump responds to New York Times story that he lost almost $1.2 billion over decade - ABC News
If the NYT has a good faith reason to believe that it had the Trump tax transcripts, then Harder's contentions are frivolous IMO. The news organization has the unquestionable constitutional right to publish accurate information except of course in TrumpWorld.
If the NYT has a good faith reason to believe that it had the Trump tax transcripts, then Harder's contentions are frivolous IMO. The news organization has the unquestionable constitutional right to publish accurate information except of course in TrumpWorld.
So why does Trump refuse to release even the bare bones of his tax returns in rebuttal (e.g. the 2 page 1040 and the basic schedules which altogether may be around 10 pages)
See also: Stocks, Bonds & Politics: Trump's 2005 Tax Return In 2005, Trump Was Hit With A Tax That He Now Wants To Abolish : The Two-Way : NPR
Donald's 1995 state income tax return, previously published by the NYT, shows a $913M+ million loss:
 |
| Excerpt (may be a carryforward losses from earlier tax periods) |
Pages From Donald Trump’s 1995 Income Tax Records - The New York Times This year is not included in the $1+B loss for the period 1985 through 1994 that was the subject of the recent NYT article.
Trump's use of the libel litigation has always been to punish his critics with litigation costs and to make everyone think twice before publishing unfavorable and accurate information about him. Donald J. Trump Is A Libel Bully But Also A Libel Loser; Why Donald Trump Has Never Won a Libel Case | Vanity Fair
The same purpose is behind his references to accurate reporting as Fakes News and his characterization of anyone who disseminates a criticism, no matter how justified, as the "enemy of the people".
The goal is to convince tens of millions that the GOP's propaganda and reality creations are the only true and reliable news. The move to achieve that goal started in the Nixon Administration and has only gained momentum during the Trump Presidency. It has been the most successful political strategy in American history IMO and could easily contribute to Trump's reelection in 2020 barring an ongoing recession and rapidly rising unemployment on election day.
Trump's use of the libel litigation has always been to punish his critics with litigation costs and to make everyone think twice before publishing unfavorable and accurate information about him. Donald J. Trump Is A Libel Bully But Also A Libel Loser; Why Donald Trump Has Never Won a Libel Case | Vanity Fair
The same purpose is behind his references to accurate reporting as Fakes News and his characterization of anyone who disseminates a criticism, no matter how justified, as the "enemy of the people".
The goal is to convince tens of millions that the GOP's propaganda and reality creations are the only true and reliable news. The move to achieve that goal started in the Nixon Administration and has only gained momentum during the Trump Presidency. It has been the most successful political strategy in American history IMO and could easily contribute to Trump's reelection in 2020 barring an ongoing recession and rapidly rising unemployment on election day.
+++++++++
1. Added 100 THQ at $17.15-Used Commission Free Trade:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Closing Price Last Friday: THQ $17.01 +$0.07 +0.41%
Leveraged at 22.3% as of 3/31/19
SEC Form N-Q (holdings as of 12/31/18)
SEC Filings
Sponsor's Website: Tekla Capital Management LLC
Last Purchase Discussions: Item # 4.B. (1/23/19 Post)(snapshots of recent trading profits); Item # 3.C. Bought 10 THQ at $16.1 (3/29/18); Item 2.A. Bought 10 THQ at $16.96-Used Commission Free Trade (3/8/18 Post)
Last Sell Discussions: Item # 6 Eliminated THQ at $17.65 (12/29/18 Post); Sold 100 THQ at $17.38-Used Commission Free Trade (7/2/18 Post)
Data Date of Trade (5/3/19):
Closing Market Price: $17.23
Net Asset Value Per Share: $19.04
Discount: -9.51%
Average Discount:
3 Years = -9.29%
Tekla Healthcare Opportunities Fund--CEF Connect
THQ Interactive Chart: During the 2018 4th quarter decline, THQ declined to a closing low of $15.19, shortly after going ex dividend for its monthly distribution.
Dividends: Monthly at $.1125 per share (currently supported by ROC)
Dividend Reinvestment: Yes but may quit when and if the discount falls below 5%
Last Ex Dividend Date: 4/17/19
Distributions
Chart: THQ Interactive Chart
I bought this CEF before Donald threatened to impose additional tariffs on China due to China backtracking on commitments made in the trade negotiations.
This CEF does have defensive characteristics including its dividend yield and exposure to securities that will largely be unaffected by a recession (though subject to political risks). In addition to owning healthcare stocks, the fund also owns REITs, convertible bonds and preferred stocks and plain vanilla bonds.
The following is a snapshot of the REIT positions as of 12/31/18:
Convertible and non-convertible bonds:
Convertible preferred stocks and warrants:
1. Added 100 THQ at $17.15-Used Commission Free Trade:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Closing Price Last Friday: THQ $17.01 +$0.07 +0.41%
Leveraged at 22.3% as of 3/31/19
SEC Form N-Q (holdings as of 12/31/18)
SEC Filings
Sponsor's Website: Tekla Capital Management LLC
Last Purchase Discussions: Item # 4.B. (1/23/19 Post)(snapshots of recent trading profits); Item # 3.C. Bought 10 THQ at $16.1 (3/29/18); Item 2.A. Bought 10 THQ at $16.96-Used Commission Free Trade (3/8/18 Post)
Last Sell Discussions: Item # 6 Eliminated THQ at $17.65 (12/29/18 Post); Sold 100 THQ at $17.38-Used Commission Free Trade (7/2/18 Post)
Closing Market Price: $17.23
Net Asset Value Per Share: $19.04
Discount: -9.51%
Average Discount:
3 Years = -9.29%
Tekla Healthcare Opportunities Fund--CEF Connect
THQ Interactive Chart: During the 2018 4th quarter decline, THQ declined to a closing low of $15.19, shortly after going ex dividend for its monthly distribution.
Dividends: Monthly at $.1125 per share (currently supported by ROC)
Dividend Reinvestment: Yes but may quit when and if the discount falls below 5%
Last Ex Dividend Date: 4/17/19
Distributions
Chart: THQ Interactive Chart
I bought this CEF before Donald threatened to impose additional tariffs on China due to China backtracking on commitments made in the trade negotiations.
This CEF does have defensive characteristics including its dividend yield and exposure to securities that will largely be unaffected by a recession (though subject to political risks). In addition to owning healthcare stocks, the fund also owns REITs, convertible bonds and preferred stocks and plain vanilla bonds.
The following is a snapshot of the REIT positions as of 12/31/18:
Convertible preferred stocks and warrants:
2. Eliminations and Pares:
A. Eliminated BKLN- Sold 71+ at $22.94 (Commission Free for Vanguard Customers):
Quote: Invesco Senior Loan ETF Overview
Sponsor's Website: Invesco
Closing Price Last Friday: BKLN $22.87 +$0.04 +0.18%
Sponsor's Website: Invesco
Closing Price Last Friday: BKLN $22.87 +$0.04 +0.18%
Loss Snapshot: -$.38
Last Elimination: Item # 3 Sold 101+ at $23.24 BKLN (2/8/18 Post)
I going to quit fooling with this ETF. The current dividend yield is not worth IMO the risk which is highlighted in a one year chart:
I going to quit fooling with this ETF. The current dividend yield is not worth IMO the risk which is highlighted in a one year chart:
B. Pared CPTA-Sold Highest Cost 100 shares at $8.76:
History in this Account:
Profit Snapshot: +$37.28
Reduced Average Cost Per Share from $8.08 to $7.63
Remaining Position: 58+ shares
Remaining Position: 58+ shares
Dividend: Monthly at $.0844 per share ($1 per share annually)
Dividend Yield at $7.63 = 13.1%
Last Ex Dividend Date: 4/18/19
Last Ex Dividend Date: 4/18/19
Last Substantive Purchase Discussions: Item # 2.A. Bought 50 CPTA at $7.99-Used Last Schwab Commission Free Trade (11/18/18 Post); Item # 1.A. Bought 50 CPTA at $8.69 (8/29/18 Post)
As mentioned in those posts and others, CPTA is a deservedly hated BDC IMO.
Recent Earnings Report (Q/E 3/31/19): This report was released after I sold shares. Capitala Finance Corp. Reports First Quarter 2019 Results; Capitala Finance Corp (CPTA) CEO Joe Alala on Q1 2019 Results - Earnings Call Transcript | Seeking Alpha
Net investment income was reported at $.26 per share, down from $.28 in the 2018 first quarter. Included in the 2019 first quarter was a $1.281M dividend distribution from an equity investment. Without that distribution, net investment income would have been $11.403M.
The current quarterly dividend is $.25 per share paid in monthly installments.
Net asset value per share declined to $11.61 from $11.88 as of 12/31/18.
"Non-accrual loans, on a cost basis and fair value basis, represented 2.1% and 1.4%, respectively, of the portfolio at March 31, 2019, compared to 4.9% and 2.1%, respectively, at December 31, 2018."
"First lien debt investments represented 53.0% of the portfolio, second lien and subordinated debt investments collectively represented 23.4% of the portfolio, equity/warrant investments represented 20.5% of the portfolio, and our investment in Capitala Senior Loan Fund II, LLC represented 3.1% of the portfolio, based on fair values at March 31, 2019. The weighted average yield on our debt portfolio was 12.1% at March 31, 2019." (red highlight and bold letters added)
"Net realized losses totaled $5.8 million, or $0.36 per share, for the first quarter of 2019, compared to net realized losses of $3.9 million, or $0.24 per share, for the same period in 2018. During the first quarter of 2019, the Company realized losses related to Velum Global Credit Management, LLC, ($8.9 million), CableOrganizer Acquisition, LLC ($1.8 million), and Cedar Electronics Holding Corp. ($1.0 million), partially offset by a $5.9 million gain related to B&W Quality Growers, LLC. Net realized losses during the first quarter of 2019 did not have a material impact on net asset value per share, as the realized amounts were in line with our previously reported fair values." (red highlight and bold letters added)
Referring to the $8.9M realized loss in Velum Global Credit Management, this was a first lien loan. The following are snapshots of the loans to this borrower. First, note that the loans were PIK (payment-in-kind, so CPTA did not actually receive cash interest since the interest owed was merely added to the principal amount):
2014 Annual Report at page F-8
2015 Annual Report at page F-8
2016 Annual Report at page F-8
2017 Annual Report at page F-8
Note that the loan was originally due 12/31/17 Annual Report SEC Form 10-k at page F-9 Footnote 12 at page 65 says the the loan term was extended, meaning of course that the borrower could not pay the principal amount when due.
Five Year Financials Through 12/31/18: Worse than Pathetic IMO
Note the huge slide in net asset value per share!
CPTA's IPO was in 2013 with shares priced to the public at $20: Form 497
CPTA Chart: A five year chart confirms the deservedly hated characterization.
C. Eliminated CPTA Position in Fidelity Account-Sold 50 Shares at $8.81 (Used Commission Free Trade):
Profit Snapshot: +$86.69
See previous discussion above.
This leaves me with a 58+ share position in the Schwab account as noted in Item # 2.B. above. I am reinvesting the dividend in that account.
My inclination is to keep the position for another 6 to 12 months and to sell, if possible, at $8.7 or higher within that time frame. Just more small ball with the focus being earning a total return in excess of the dividend yield.
Recent Earnings Report (Q/E 3/31/19): This report was released after I sold shares. Capitala Finance Corp. Reports First Quarter 2019 Results; Capitala Finance Corp (CPTA) CEO Joe Alala on Q1 2019 Results - Earnings Call Transcript | Seeking Alpha
Net investment income was reported at $.26 per share, down from $.28 in the 2018 first quarter. Included in the 2019 first quarter was a $1.281M dividend distribution from an equity investment. Without that distribution, net investment income would have been $11.403M.
The current quarterly dividend is $.25 per share paid in monthly installments.
Net asset value per share declined to $11.61 from $11.88 as of 12/31/18.
"Non-accrual loans, on a cost basis and fair value basis, represented 2.1% and 1.4%, respectively, of the portfolio at March 31, 2019, compared to 4.9% and 2.1%, respectively, at December 31, 2018."
"First lien debt investments represented 53.0% of the portfolio, second lien and subordinated debt investments collectively represented 23.4% of the portfolio, equity/warrant investments represented 20.5% of the portfolio, and our investment in Capitala Senior Loan Fund II, LLC represented 3.1% of the portfolio, based on fair values at March 31, 2019. The weighted average yield on our debt portfolio was 12.1% at March 31, 2019." (red highlight and bold letters added)
"Net realized losses totaled $5.8 million, or $0.36 per share, for the first quarter of 2019, compared to net realized losses of $3.9 million, or $0.24 per share, for the same period in 2018. During the first quarter of 2019, the Company realized losses related to Velum Global Credit Management, LLC, ($8.9 million), CableOrganizer Acquisition, LLC ($1.8 million), and Cedar Electronics Holding Corp. ($1.0 million), partially offset by a $5.9 million gain related to B&W Quality Growers, LLC. Net realized losses during the first quarter of 2019 did not have a material impact on net asset value per share, as the realized amounts were in line with our previously reported fair values." (red highlight and bold letters added)
Referring to the $8.9M realized loss in Velum Global Credit Management, this was a first lien loan. The following are snapshots of the loans to this borrower. First, note that the loans were PIK (payment-in-kind, so CPTA did not actually receive cash interest since the interest owed was merely added to the principal amount):
 |
| 12/31/14 $8.3M Valued at $8.3M |
 |
| 12/31/15 $9.069M valued at $9.069M |
 |
| 12/31/16 $10.533M Valued at $10.533M |
 |
| 12/31/17 $12.275M Valued at $8.015M |
2017 Annual Report at page F-8
 |
| 12/31/18 $14.277M Valued at $2.878M |
Five Year Financials Through 12/31/18: Worse than Pathetic IMO
Sourced 2018 Annual Report at page 66
Note the huge slide in net asset value per share!
CPTA's IPO was in 2013 with shares priced to the public at $20: Form 497
CPTA Chart: A five year chart confirms the deservedly hated characterization.
C. Eliminated CPTA Position in Fidelity Account-Sold 50 Shares at $8.81 (Used Commission Free Trade):
Profit Snapshot: +$86.69
See previous discussion above.
This leaves me with a 58+ share position in the Schwab account as noted in Item # 2.B. above. I am reinvesting the dividend in that account.
My inclination is to keep the position for another 6 to 12 months and to sell, if possible, at $8.7 or higher within that time frame. Just more small ball with the focus being earning a total return in excess of the dividend yield.
D. Eliminated GAINL-Sold 50 at $25.69:
Quote: Gladstone Investment Corp. Preferred Series E Stock (GAINL)
Profit Snapshot: +$65.39
Item # 3 Bought 50 GAINL at $24.18 (1/23/19 Post)
Security Description:
Issuer: Gladstone Investment Corp. (GAIN)
Prospectus
Par Value: $25
Coupon: 6.375%
Dividends: Monthly at $.1328+, Cumulative & Non-Qualified
Last Ex Dividend Date: 4/18/19 (sold on ex dividend date)
Maturity Date: 8/31/25
Issuer Optional Call Date: On or after 8/31/20
I will consider repurchasing shares at less than $22.
I view equity preferred stocks issued by BDCs to be risky.
This is a summary of my opinion taken from a prior post:
"I am uncomfortable owning a preferred stock issued by a BDC, particularly when the yield is lower than 8%. I do not believe the yield on GAINL is adequate compensation for the risk. BDC loans are junky, and they pay out their net income to common shareholders as dividends. Consequently, there is no cash cushion for the preferred shareholders."
3. Short Term Bond/CD Ladder Basket Strategy:
$12K in Adds
$12K in Adds
A. Bought 1 Southern Company 2.375% SU Maturing on 6/1/20:
I now own 3 bonds.
I now own 3 bonds.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Southern Co. (SO)
SO Analyst Estimates
2018 Annual Report
SO SEC Filings
Credit Ratings:
Bought at a Total Cost of 99.584
YTM at TC Then at 2.759%
Current Yield at TC = 2.3849%
B. Bought 2 Zimmer Biomet 2.7% SU Maturing on 4/1/20:
FINRA Page: Bond Detail
Issuer: Zimmer Biomet Holdings Inc. (ZBH)
ZBH Analyst Estimates
2018 ZBH Annual Report
Last Bond Offerings: Prospectus Supplement
Credit Ratings:
Bought at a Total Cost of 99.9 (includes $1 per bond commission)
YTM at TC Then at 2.808%
Current Yield at TC = 2.7027%
D. Bought 1 Treasury 1.75% Coupon Maturing on 11/30/19:
YTM = 2.432%
D. Bought 2 Six Month T Bills at Auction Maturing on 10/31/19:
IR= 2.465%
Auction Results:
E. Bought 1 Goldman Sachs 2.75% SU Maturing on 5/29/20:
FINRA Page: Bond Detail
Issuer: Goldman Sachs Group Inc. (US)
GS Analyst Estimates
SEC Filed Earnings Press Release for the Q/E 3/31/19
Credit Ratings:
Bought at a Total Cost of 100
YTM and Current Yield at TC = 2.75%
At the time of purchase, one treasury maturing on 5/31/20 could have been bought with a YTM of 2.353%.
If I had any concerns about GS surviving to the maturity date, I would not accept the credit risk for .4% in additional yield.
I have 4 GS SU bonds maturing later this year. (2.55% due 10/23/19 and 2.3% due 12/13/19). I may not roll the proceeds from those bonds into other GS bonds.
GS has a lot of debt that continually has to be refinanced. The problem revealed by 2008 is that financial conditions can deteriorate rapidly to a point that credit markets seize up and refinancing heavy debt loads becomes difficult or even impossible under extreme conditions.
F. Bought Five 28 Day T Bills Maturing on 6/11/19 at Auction:
IR = 2.429%
Auction: 28 Day Bill
4. Intermediate Term Bond Ladder Basket Strategy:
A. Sold 1 Whirlpool 3.7% SU Maturing on 3/1/23:
Profit Snapshot: +$16.26
Item # 3.D. Bought 1 Whirlpool 3.7% SU Maturing on 3/1/23 at a TC of 99.874 (5/17/18 Post)
Finra Page: Bond Detail
Issuer: Whirlpool Corp. (WHR)
Sold at 101.6
YTM at 101.6 = 3.254%
Proceeds at 101.5
A. Sold 1 Whirlpool 3.7% SU Maturing on 3/1/23:
Profit Snapshot: +$16.26
Item # 3.D. Bought 1 Whirlpool 3.7% SU Maturing on 3/1/23 at a TC of 99.874 (5/17/18 Post)
Finra Page: Bond Detail
Issuer: Whirlpool Corp. (WHR)
Sold at 101.6
YTM at 101.6 = 3.254%
Proceeds at 101.5
B. Sold 1 Boston Properties LP 3.2% SU Maturing on 1/15/25:
Profit Snapshot: +$25.75
Item # 3.C. Bought 1 BXP 3.2$ SU at a TC of 96.405 (4/16/18 Post)
Finra Page: Bond Detail
Issuer: Operating entity for Boston Properties Inc-A REIT
Credit Ratings: Baa1/A-
Sold at 99.08
YTM at 99.08 = 3.376%
Proceeds at 98.98
C. Sold 2 Kroger 2.8% SU Maturing on 8/1/22:
Profit Snapshot: +$19.62
Item # 5.B. Bought 2 KR 2.8% SU at a TC of 97.499 (4/2/18 Post)(YTM then at 3.422%/current yield at 2.87%)
The annual interest payment on a two bond lot is $56.
Issuer: Kroger Co. (KR)
KR Analyst Estimates
Kroger shares on track for worst day in a year after earnings fall short - MarketWatch (3/10/19 article)
Kroger Completes Sale of Turkey Hill Business to Peak Rock Capital Affiliate
Earnings Press Release for the Q/E 2/2/19
Finra Page: Bond Detail
Sold at 99.274
YTM at 99.274 = 3.024%
I still own several Kroger bonds, though I am paring my position.
Profit Snapshot: +$25.75
Item # 3.C. Bought 1 BXP 3.2$ SU at a TC of 96.405 (4/16/18 Post)
Finra Page: Bond Detail
Issuer: Operating entity for Boston Properties Inc-A REIT
Credit Ratings: Baa1/A-
Sold at 99.08
YTM at 99.08 = 3.376%
Proceeds at 98.98
C. Sold 2 Kroger 2.8% SU Maturing on 8/1/22:
Profit Snapshot: +$19.62
Item # 5.B. Bought 2 KR 2.8% SU at a TC of 97.499 (4/2/18 Post)(YTM then at 3.422%/current yield at 2.87%)
The annual interest payment on a two bond lot is $56.
Issuer: Kroger Co. (KR)
KR Analyst Estimates
Kroger shares on track for worst day in a year after earnings fall short - MarketWatch (3/10/19 article)
Kroger Completes Sale of Turkey Hill Business to Peak Rock Capital Affiliate
Earnings Press Release for the Q/E 2/2/19
Finra Page: Bond Detail
Sold at 99.274
YTM at 99.274 = 3.024%
I still own several Kroger bonds, though I am paring my position.
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.
In the first Trump tweet reproduced in this post, Donald repeated his frequently told lie that China pays the U.S. tariffs.
ReplyDeleteIt is important to recognize why he is lying on this point and will continue to do so.
The purpose of this lie is to convince voters that tariffs are not a tax imposed by Trump on them. Yes, in TrumpWorld, China is paying tens of billions into the U.S. Treasury rather than U.S. consumers paying them indirectly through higher costs for imported products and higher prices from domestic manufacturers who now have a price umbrella to raise their prices.
This lie will work, as many of his lies do, since tens of millions do not have a clue, no desire to find out what is true and false, and actively avoid contact with facts as much as possible which is what they have been trained to do.
Truth really does not matter in TrumpWorld anyway and never will. Lying all the time works so well that telling the truth is something reserved for losers.
Facts are surely no substitute for a good story that is demonstrably false told by America's Carnival Barker.
A recent study estimates that the tariffs constitute a $700+ annual tax on U.S. households which would rise to more than a $2,000 average when and if Donald levies on the remaining Chinese imports.
https://www.cbsnews.com/news/china-tariffs-mean-for-americans-an-extra-767-per-year/
It would get far worse with tariffs on imported automobiles which Donald as threatened to impose.
Voters will not see this GOP tax being taken out of their paychecks which is important since that would alert them that something is amiss.
Tariffs are a silent and hidden tax increase, similar to the GOP's change in how inflation is calculated in the tax code that operates as a perpetual increase in taxes each and every year.
There are a large number of increased tariffs levied against foreign imports from other countries. So the GOP's taxes are paid by American importers on a growing array of imports, primarily those from Asian countries, the EU, Mexico, and Canada.
And, the hidden GOP tax will rise significantly when and if the Donald imposes 25% tariffs on the remaining $300B or so in China's exports that are not now subject to any tariff, which he and his trade representative have repeatedly threatened to do.
We can have a debate on tariffs once all sides accept the facts. Trump could start that process by acknowledging and repeating over and over again that his tariffs are a tax on American voters.
Will the tariffs lead to fewer China imports? Yes.
Will the tariffs cause higher inflation in the U.S. than what would exist with the tariffs? Yes, though it will take time for cost push effects to be felt.
And, if they remain in place too long, consumers could also be hit with higher interest rates than what would otherwise exist without the tariffs.
Some jobs may be gained for companies producing domestically but more will probably be lost in export industries over time.
"If Trump slapped a 25% tariff on the remaining $325 billion in goods the U.S. imports from China, it would cost the U.S. 2.1 million jobs and the average family of four more than $2,000 a year, according to the Trade Partnership analysis." https://www.usatoday.com/story/money/2019/05/10/us-china-trade-war-how-affect-shoppers-and-can-tariffs-work/1164965001/
Moreover, the increase in U.S. jobs comes with a heavy price. The Chicago FED calculated that 1800 jobs had been created due to the GOP's tariff on washing machines, but the cost is $817,000 per year (!!!) for each job.
https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_201961-1.pdf
Tariffs are always a tit-for-tat game where there are no winners except in TrumpWorld of course.
So inflation will finally set in.
DeleteThen Fed can reduce rates again, cause a market rally, which will make Trump look good right before the election?
It will be interesting to see whether events over the past 24 hours or so will puncture the Stock Jock's optimism about a trade deal balloon.
ReplyDeletehttps://www.reuters.com/article/us-usa-trade-china/u-s-and-china-at-impasse-over-trade-kudlow-says-new-tariffs-will-remain-idUSKCN1SI0B8
The guy who was negotiating on behalf of China, was demoted before arriving for last Friday's brief meeting.
Apparently, the working draft had not been circulated within the China's Politburo until recently and the reaction was both swift and negative to the concessions previously offered by Liu. Among those issues were statements in the draft that required China to pass laws dictated by the Americans. Liu used the term balance of dignity after Friday's meeting to summarize China's rational for deleting those provisions.Liu: "Every nation has its dignity, so the text ought to be balanced."
In other words, if the U.S. wants to dictate laws that China has to pass, then China wants the right to demand that the U.S. pass laws that it wants. That is how I read his comments in the context they were given.
The opposition to keeping the tariffs in place even after China bends to Donald's demands is obviously anathema to them. From their point of view, why make all of these concessions which they do not want to do and then be rewarded by U.S. tariffs remaining in place.
Contrary to Donald's manipulative statement late Friday that the tariffs may or may not stay in place during the negotiation, Larry Kudlow made it clear today that the tariffs will remain in place during the negotiations, assuming there will future substantive discussions; and he expected China to retaliate to the U.S. raising the tariffs last Friday.
https://www.cnbc.com/2019/05/12/kudlow-says-us-will-pay-for-china-tariffs-contradicting-trump.html
https://www.cnbc.com/2019/05/12/kudlow-says-he-expects-china-to-retaliate-against-us-over-tariffs.html
Kudlow also admitted that U.S. businesses and consumers pay the tariffs levied by Trump on China's imports. Kudlow is the first republican to acknowledge this simple and undeniable fact to my knowledge. Once that is accepted, then it is a small step for voters to take and then recognize that Trump has levied substantial taxes on them without their consent and has repeatedly deceived them into believing China pays those tariffs. Will China suffer more than the U.S. when an acceleration in the trade war is a different issue than who pays the U.S. tariffs.
It is clear, based on what I have been reading, that there is a significant impasse. Donald is basically trying to put China is a position that no Chinese leader could accept and probably makes them worse off than no trade deal from their point of view.
To demonstrate that he is both clueless and impulsive, Donald tweeted earlier today that the trade deal offered to China will be far worse after Donald wins in 2020 so he told them to eat crow now or suffer the consequences. Negotiating on sensitive matters through tweets is juvenile of course.
China already views what the U.S. wants as unacceptable on many important issues, so it is difficult seeing them accept something much worse than what Trump has already done and will probably do before the election to strong arm China into bending to his demands.
A couple of minutes before the close last Friday, I bought SDS as a hedge to what may happen over the next 30 days. I will not keep that security, which quickly loses tracking, more than a month.
Did you post that you bought the hedge?
DeleteSo China is going to pay for the tariffs in the same way Mexico is paying for a wall.
I just posted that I bought the hedge in the comment published on Sunday rather than the post published on Saturday. My previous discussions and comments were critical of how the Stock Jocks were reacting to the tariff war accelerating and expressing my disagreement of their assessment of the risks which is what led me near the close last Friday to buy that hedge.
DeleteAdding to the Stock Jocks' angst this morning is an attack on two Saudi Arabia oil tankers that caused significant damage to both ships. Crude oil is up about 2.5% at the moment. The word being used is "sabotage" which suggests a bomb on board. On Sunday, UAE said 4 of its cargo ships were targeted by "sabotage operations". Iran is the likely culprit. Tensions are moving toward hot in U.S. relations with Iran.
ReplyDeletehttps://www.cnn.com/2019/05/12/middleeast/uae-cargo-ship-sabotage-intl/index.html
These developments may be having more of a negative impact than the trade news.
I hope the Stock Jocks were not surprised this morning by China's retaliation, announced shortly before the U.S. stock market opened for regular trading, which is not a coincidence.
China's response was mild and measured in my opinion. Tariffs were raised on $60B in U.S. exports but will not take effect until June 1. Shipments made from the U.S. prior to that date will pay the old tariffs.
https://www.cnbc.com/2019/05/13/china-is-raising-tariffs-on-60-billion-of-us-goods-starting-june-1.html
Predicting the future is necessarily prone to frequent errors.
It does look likely now that a SPX double top has been put in place. That simply means for my planning that I am expecting lower highs and lower lows until the Stock Jocks find a line in the sand that they can defend.
When I last discussed this issue, which was before the trade negotiations broke down, I was on the fence but leaning toward the double top scenario.
I couldn't picture a double top forming. But here it is. Your fence sitting was correct.
DeleteI missed the Saudi tanker events all together (haven't put news on, except to hear some blurb no different from the last month's.)
That seems like it'd be a bigger deal than trade negotiations going not well, but as expected.
Since I am heavily weighted in high quality bonds, the price appreciation in those bonds today will likely offset declines in my greatly diminished stock portfolio.
ReplyDeleteThere is an ongoing major flight to high quality bonds today.
U.S. 10 Year Treasury Note
2.402% -0.067
Last Updated: May 13, 2019 11:04 a.m. EDT
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx
I discussed my plan for the next market meltdown in this post:
Item # 4
Sunday, May 5, 2019
https://tennesseeindependent.blogspot.com/search?updated-max=2019-05-08T08:36:00-05:00&max-results=20&start=1&by-date=false
That post was published shortly before Donald's tweets about increasing the tariff amounts.
I don't think that it is possible to time the bottom so this kind of strategy is premised on a recognition that I do not know.
Purchase amounts increase as the decline accelerates until I hit my maximum allocation assigned to each ETF.
The strategy is also predicated on the fact that I do not have to take any risks. So the purchase amounts will remain well below immaterial to me.
Bonds are now unattractive to me for new purchases. While I am still discussing here previous sales of intermediate term corporate bonds, I stopped several weeks ago the paring of that allocation at $200K. The Tennessee Municipal bonds have a meaningfully larger weighting with a weighted average rating of AA.
The problem for the weightings now is that I drastically increased the allocation to short term bonds. I may be looking at some undesirable rates when those bonds mature.
While I will go ahead and buy 5 one year treasury bills at the 5/21 auction, that rate may become too unattractive to me relatively soon.
The highest yield starting at the 1 month treasury through the 10 year treasury note is the 6 month bill.
https://www.bloomberg.com/markets/rates-bonds/government-bonds/us
The short term bills are holding up in yield only because the FED has indicated it does not yet see a good reason to cut the FF rate. That may soon change.
I'm looking but not seeing an item 4. ?
ReplyDeleteThe link apparently includes two posts. Item # 4 is in the first one published on Sunday May 5th. I have been moving in that direction for several weeks and just discussed succinctly in one place my plan and the reason for what I call "bookmarks".
Delete"The purpose of a bookmark is to identify what may be bought during a market meltdown before it occurs." I used bold letters when I said "may be bought during a market meltdown before it occurs". I am just planning for alternate future scenarios there.
I mentioned in another comment that I sold the CEFs ADX and RVT last Monday in response to Donald's tariff tweets when the market reacted as if nothing had happened.
Throughout this year, I have significantly paring my stock allocation and increasing my bond allocation.
This will make it psychologically easier for me to buy stocks or stock ETFs during a major meltdown. It is not clear yet whether one is underway.
So far today, in furtherance of that small ball ETF plan, I bought 5 DGRO when the DJIA had dropped 500 points and place another 5 share buy of another stock ETF at that time slightly below the bid price. I may place additional orders like that later today near the close.
Other than high quality bonds, I am seeing green arrows in several bond like common stocks, but it remains to be seen for how much long that will hold.
ReplyDeleteThe main beneficiary is the Utility sector:
Utilities Select Sector SPDR Fund (XLU)
$58.27 +0.31 (+0.53%)
As of 1:11PM EDT.
https://finance.yahoo.com/quote/XLU?p=XLU&.tsrc=fin-srch
The equity REIT ETFs are down far less than the market, with a number of stocks still showing gains so far.
Fidelity MSCI Real Estate Index ETF (FREL)
25.82-0.15 (-0.57%)
As of 1:08PM EDT
E.G. W. P. Carey Inc. (WPC)
$79.45+0.32 (+0.40%)
As of 1:13PM EDT.
https://finance.yahoo.com/quote/WPC/?p=WPC
Several medical property REITs are still in the plus column.
Junk bonds are not going to participate in the bond rally and are selling off due to concerns about the economy. They are credit risk sensitive.
SPDR Bloomberg Barclays High Yield Bond ETF (JNK)
$106.92-0.83 (-0.77%)
As of 1:17PM EDT.
https://finance.yahoo.com/quote/JNK?p=JNK&.tsrc=fin-srch
Although LQD is loaded with lower tier investment grade corporates, it is in the green:
$118.99 +0.13 (+0.11%)
As of 1:18PM EDT.
https://finance.yahoo.com/quote/LQD/?p=LQD
The best upside movements on a day like today will be bonds that are viewed as credit risk free. The Bond Ghouls still view U.S. treasuries to fall into that category. The longer duration treasuries will go up more than the shorter duration ones.
Perhaps the longest duration treasury ETF is ZROZ , which I will not buy and have never owned:
PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund (ZROZ)
$118.32+1.10 (+0.94%)
As of 1:20PM EDT
https://finance.yahoo.com/quote/ZROZ/?p=ZROZ
Treasury strips do not have coupons (no interest payments) which adds to the duration in addition to the long maturities. There are also adverse tax considerations to buying them in a taxable account. The zero coupon strips owned by this fund will be the most volatile and potentially interest rate risky treasuries that an investor can buy, just look at a five year chart.
I sold SDS after a 5% gain. This undesirable hedge security was bought about 2 minutes before the close last Friday. I have only cash accounts and do not trade options or futures. So a double short ETF is my only hedge option other than to own securities that may go up in value (bonds) or maintain their value (MM funds/short term T Bills) during a significant market decline. Since it is questionable now how far high quality bonds can rise in price, cash and T Bills are probably better "hedges" for someone with my financial goals. Today, my best hedge would be the high quality intermediate and longer term bonds.
ReplyDeleteThe Stock Jocks had made an effort to draw a line in the sand at SPX 2800. The intra-day low today was at 2801.43 near 1:30 P.M. E.S.T.
The 50 days SMA line has been broken but the current 200 day SMA line is still lower at around 2775.
While that 2800 line is not much of a support level IMO, it may have psychological significance if it holds (possible move up) or breaks decisively (more downside).
There is another ongoing VIX spike that is worrisome. There have been IMO far too many for my comfort level since January 2018.
Use 2 year chart:
https://finance.yahoo.com/quote/%5EVIX?p=%5EVIX
There is less pressure on the 1 year treasury bill and the 2 year treasury note inverting with the 10 year treasury with rates also declining at the short end.
ReplyDeletehttps://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
The 1, 2, 3 and 6 month bills now have a higher yield than the ten year treasury, but the yield inversion stops at the 1 year which has a current yield of 8 basis points lower than the 10 years.
The Bond Ghouls are upping their odds that the FED will cut the FF by at least .25% on or before the December 2019 meeting. What changed today is that the odds of a .5% rate cut went up to 31.4% today from 21.3% last Friday. The odds of a .25% cut on or before the December 2019 meeting rose to 72.7%.
With that kind of prediction, the 6 month T Bill is going to yield more than the 1 year bill since it is expected, though not certain, that short term rates will decline in 4 to 7 months to reflect at least a .25% cut. The Bond Ghouls are willing to accept a 2.18% 2 year treasury note yield over a 2.42% six month bill only because they believe they will be better off with the two year yield now than rolling over the six month bill.
The odds of a .25% cut on or before the October 30 meeting is at 59.6% and at 50.6% on or before the 9/18/19 meeting.
So how is Donald going to extricate the U.S. from an accelerating trade war with China. My best suggestion is for Donald to become the first brain transplant recipient.
I talked to my youngest nephew, who is about to finish his first year of medical school at Northwestern, and he assured me that this was not yet possible. Nonetheless I volunteered Donald to be a test case. We now need to find a suitable brain that can govern, a willing donor, and a doctor willing to give it a shot for the good of the country.
As the day went on, there was less and less concern about recent events in the Strait of Hormuz and oil finished down for the day. Maybe there is some suspicion about the Saudi claims. Both the UAE and Saudi Arabia would like for the U.S. to take care of their Iran problem for them.
Vix Asset Allocation Model:
ReplyDeleteEarlier this year, a SPX volatility spike ended in early January. Another major volatility spike occurred in January 2018 and two minor ones in between the major ones.
The VIX Chart since January 2018 has many of the characteristics of what I call an Unstable Vix Pattern, a far riskier market that suggests a buy the dips and sell the rips strategy rather than the buy and hold strategy that works during the Stable Vix Pattern.
The transition between the Stable Vix Pattern and the Unstable Vix Pattern is marked by what I call a Trigger Event, defined as a number of days where the VIX closes above 26.
In the two prior VIX spikes starting in January 2018, both missed the Trigger Event (a stock reduction signal) classification by one day. There is a built in bias in the Vix Model to keep investors in the market and not to flash a wrong sell signal.
In large part that bias is due to the long term patterns in the stock market. While they can be long term bear markets, where SPX will return something close to -2% as an average annual total return (dividends reinvested) adjusted for inflation, the long term bull cycles result historically in annual average total return for SPX at over 15% adjusted for inflation. That is past history and the past may turn out not to be a good future prediction measuring long cycle performances.
The overall pattern since January 2018 resembles more the Unstable Vix Pattern than the Stable one with two major VIX spikes and two minor ones coming from below 20 movement.
The main difference between this latest pattern and the historical Unstable Pattern is the elongated movement below 20 starting in January 2018 and ending with the first minor VIX spike in September. That period long period of stability (ie. below average volatility readings) is something that historically does not happen in an Unstable Vix Pattern. However, an investor would be doing just fine buying the two big declines and selling when SPX recovered.
I mentioned after the last VIX spike ended that I would require one less day in the Trigger Event calculation when and if there was another spike over 26 within six months after the last one ended. So a spike this month would qualify for that VIX Model adjustment. It remains to be seen whether this is about to happen. The VIX closed today at 20.55, up 28.12% for the day.
Historically, as I have discussed in the past, the Stock Jocks have historically taken the SPX up and the VIX down after a Trigger Event, called a Recovery Event in the Model, where the investor can sell stocks at more favorable prices than those that existed during the VIX spike. The return movement to below 20 movement in the VIX will be brief for as long as the Unstable Pattern remains in place. That is not a requirement but has occurred after each TE as the Stock Jocks mount what turns out to be a Charge of the Light Brigade (again, from a trader's perspective since the overall stock pattern will be one of lower highs and lower lows until stability returns)
I have been talking about this Model for over ten years. The first signal given after its development was a TE in August 2007 followed by a Recovery Period that ended in October 2007.
I was wondering about the VIX model. The worry levels at under 26, mean it wasn't too intense yet even with the sell off. It may well have been opportune time to reset valuations.
ReplyDeleteIf so, there's some more resetting needed.
If it's about trade wars, I've decided that Trump operates in a black swan event mode. Now that he's triggered the swan, it's a matter of guessing how it will honk at the tourists.
This was the only place I saw mention of the boat issues. Maybe it was made up. I'm not inclined to think that. But it was oddly missing from media, who would have had fun with it.
I was sure Trump was going to use Venezuela to create a war, to secure his position and use of powers. That failed when Guado (spelling?) had success though the US policies helped. So I'm not sure he's headed for Iran, or still focused on Venezuela and Iran is the distractor.
If he does take out Iran, without them feeding NK nukes in the process, it will be the one useful thing he's done, since the Iranians are desperate to get rid of this dictatorship. However, whatever he decides will have non-transparent aspects with Russia, and so on... Sigh.
Land: The NYSE composite index topped out in early January 2018 shortly before the VIX spiked, going from about 13,627 (1/22/18) down to about 12,000. There was then a rally which did not take that broad index higher, with the top put in place at 13,326. Then during the first minor spike in 2018 and the major one in December, the index fell to 11,000. The rally after Christmas Eve took the index to a lower high in this cycle, topping out at 13,037 in late April 2020. If this lower high and lower low cycle continues, the next bottom would be somewhere below 11,000 with the ultimate retest being somewhere around the 9400 level hit in early February 2016.
DeleteSo when looking at this broader index (close to 2000 stocks) than the S & P 500, the warning bells have been ringing since the failure to reach a new high in September 2018 when the SPX first topped.
As to Donald, personally I think that he less inclined to start a war than Bush Junior and the Dark Force unless the flare up occurs with Iran. He is stumbling in that direction and it would not be surprising to see some kind of military intervention. It is my contention that the nation has learned nothing that will stick for long after the Vietnam and Iraq Wars.
The attacks on the Saudi oil tankers has been reported by several outlets. The damage to the ships may be exaggerated. The Washington Post says two Saudi oil tankers and a Norwegian flagged vessel were "apparently attacked"
https://www.washingtonpost.com/world/middle_east/two-saudi-oil-tankers-attacked-in-the-persian-gulf-amid-rising-iran-tensions/2019/05/13/c8907108-755e-11e9-bd25-c989555e7766_story.html?utm_term=.69f50308359a
As expected, the U.S. government has determined there was an attack already and that Iran or its proxies were likely responsible. Iran says that Saudi Arabia was responsible for the attacks.
I would also offer an opinion that the U.S. foreign relations will be in near total tatters within two years as the U.S. offends just about everyone in the world, with most of the offense directed at western democracies. That is one of Trump's main fortes with the others being an innate feel for manipulating the weak minded and ignorant, lying with a straight face, and engaging in shameless braggadocio.
The NYSE composite index isn't one you can invest in an ETF in? And isn't listed as one of the big indices?
DeleteI wondered why it isn't.
So while SnP and Dow & QQQ made new highs, NYSE composite didn't since Feb 2018.
The breath by those who track it in their timing models is considered to be very good. So that's contradictory.
That's all very interesting. Along with your VIX concerns.
The 11th hour announced that it'd be covering the tankers. Maybe it took awhile to verify info. It's like serial news.
It's not effecting the futures at all.
There is so much in tatters. On so many topics.
Land: There use to be an ETF that tracked the NYSE Composite, but it never gathered much money and had to dissolve. There is no good reason to have a broad index fund that does not include the Nasdaq stocks.
DeleteIf investors want exposure to a low cost ETF that tracks the broad U.S. market, there are a variety of total stock market ETFs and mutual funds that can be purchased. (e.g. IYY or VTI at Vanguard ) Fidelity now has a total U.S. stock mutual fund that has a zero expense ratio and no minimums (FZROX).
Most brokerages will offer commission free at least one ETF product that attempts to track the entire U.S. stock market. Those ETFs are generally very low cost as well. Schwab has one, SCHB, that has a .03% expense ratio. Generally, those funds will use a sampling technique for the small and thinly traded stocks.
The Stock Jocks are naturally predisposed to optimism about the future. Donald can manipulate that optimism for periods of time, at least until it becomes crystal clear that it was just spinning B.S.
Donald claimed last night that everything will work out just fine and soon. That is for reasons that escape me a sufficient chill pill for the Stock Jocks who will not look under the surface.
My reading of the situation is that Donald believes that China will cave to his demands rather than to be hit with 25% tariffs on the $300B in exports which are not currently subject to any tariff.
China has been telling him too politely that this is not going to happen. Perhaps China's President needs to send a not so nice letter to the Duck, saying in clear terms that Donald will burn in Hell before China buckles to all of his demands, stating further that China views acceptance of those demands as worse than no trade deal at all from their perspective.
++
I followed my plan in doing some light buying in commission free ETFs yesterday after the DJIA declined by 500 points. I am not enthused about buying at current levels.
I generally start out by identifying how much I am will to invest. Yesterday, the range amount was set at $500 to $1000, and I invested $650. I scattered that amount into purchases of DGRO, MGC, FDVV and OEF.
This cautious on steroids approach will generally mean no buying at all on up days since my current working hypothesis is that the market will be seeing lower highs and lower lows, though of course there is no way to be reasonably certain about future predictions.
Donald's latest effort to manipulate the Stock Jocks is having the intended impact so far as the DJIA futures are up 100+ points currently.
ReplyDeleteTrump said this evening that we will know whether the trade negotiations will be successful in 3 or 4 weeks. I doubt that he has any basis for that comment or this one:
“I have a feeling it’s going to be very successful.”
https://www.reuters.com/article/us-usa-trade-china/trump-and-xi-to-meet-after-defiant-china-hits-u-s-with-new-tariffs-idUSKCN1SI0B8
Today the U.S. trade representative formally began the process of slapping 25% tariffs on China's exports that are not currently subject to tariffs. Under U.S. law the action date for those tariffs can not be any earlier than June 24.
I suspect that Donald's optimistic forecast of a deal in three or four weeks is premised on his belief that China will cave into his demands before that occurs. The motive is to stop the current stock market decline. Few will remember his statements this evening in late June when the U.S. adds $300B in exports to its 25% tariff list.
Why anyone would believe that Donald is being straight with them is beyond my comprehension. While I hope his optimism proves correct, I believe that he has no basis for the statements and has an ulterior motive for making them.
I doubt he expects anything to be fine. He's grooming. If everyone calms down while the "hitting & chaos" is happening, then the calm orderly result of tariffs will practically seem like their idea or at least that they were expecting it all along.
ReplyDeleteHe is very skilled. It's in manipulation and mind games. Not in negotiations. But who's counting?
Saudi Arabia reported a drone attack on its energy infrastructure. Yemen's Houthi rebels claimed responsibility. Those rebels are attacked by Saudi Arabia with U.S. cooperation and aid. They have nothing to lose by attacking oil tankers and energy infrastructure assets belonging to SA.
ReplyDeleteThe U.S. views the Houthi as Iranian proxies. Some would just call them freedom fighters against the former corrupt and authoritarian regime in Yemen led by President Abd Rabbu Mansour Hadi . They are unquestionably allied with Iran who is providing support to them.
https://www.cfr.org/interactive/global-conflict-tracker/conflict/war-yemen
I decided early this morning that I will not participate in another 1 year treasury bill auction until the yield is over 2.4% just prior to the deadline. I will use the Marketwatch quote as a benchmark for this purpose:
ReplyDeleteU.S. 1 Year Treasury Bill
2.346% +0.008%
https://www.marketwatch.com/investing/bond/tmubmusd01y?countrycode=bx
So the auction next Tuesday may be a scratch for me.
Instead, shortly before the purchase option was withdrawn, I bought 3 NYCB 2.45% CDs that mature in 1 year. The state income tax issue is not relevant to me.
A few words from Donald that the China trade negotiations will end successfully, and really soon, have worked their magic.
SPX at 2,847.73 +35.92 +1.28%
Last Updated: May 14, 2019 at 12:08 p.m. EDT
https://www.marketwatch.com/investing/index/spx
The Stock Jocks are easily manipulated with words that comfort them and relieve their anxieties. They want to believe. Most of them are Trumpsters anyway and believe in Donald as the new Messiah that will lead America to the promised land of perpetual growth.
Yes, China will bend to the Duck's will. We can all rejoice when President Xi Jinping is required to crawl up to Donald on national TV, begging forgiveness for China "stealing" $500B a year from the U.S.
This can work for awhile since there is not likely to be much if any real news on the trade negotiations for several weeks.
And it is easy to say all will work out well down the road a bit when nothing will likely contradict that prediction for maybe 30 days or so. And, in 30 days who will remember what Donald is saying now when everyone is deluged with his missives daily.
One of Donalds interesting tweets this morning is an effort to blame the Federal Reserve in case the trade negotiations fall apart. If the FED would only reduce interest rates now, it would "be game over" for China according to the Teflon Don. Just another idiotic statement and contention.
Investors accept for reasons that are hard to fathom that the Duck is giving them the straight dope based on what he is hearing from China. I seriously doubt that is the case.
Donald is instead basing his opinion on China folding before the U.S. levies the 25% tariffs on $300B in exports.
In that sense, Donald is probably misleading investors into excessive optimism based on what he has been told, but is not lying on the point. He is expressing an opinion which only becomes a lie when he knows that the facts contradict the opinion. I can not say at the moment that he is lying in making that prediction of success.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/05/observations-and-sample-of-recent_15.html