Saturday, June 29, 2019

Observations and Sample of Recent Trades: ECON, IGR, REET


Trump to allow U.S. firms to sell technology to Huawei and promises farmers they would win from new talks, in wide-ranging news conference 

US-China trade war: Trump Agrees to Postpone New Tariffs and to Allow Huawei to Buy U.S. Products: CNBC 

'Back on track': China and U.S. agree to restart trade talks - Reuters

Donald agreed to withdraw the prohibition on U.S. firms selling products to Huawei and further agreed to postpone further tariffs on China's exports. In exchange, Donald claimed that China agreed to buy farm products. 

I would draw 3 conclusions from the news reports so far. 

(1) Donald folded;

(2) The Stock Jocks got more favorable news than they were expecting (assuming Donald carries through on lifting the Huawei restrictions); 

(3) U.S. companies that sell products to Huawei will enjoy a Happy Hour lasting for days but many were  circumventing the ban. 
US companies reportedly bypassing Trump ban on sales to Huawei - CNETTrump's blacklisting of Huawei is hurting American chip firmsTop U.S. Tech Companies Begin to Cut Off Vital Huawei Supplies

It would be difficult for the Trump administration to credibly claim hereafter that Huawei is a national security threat given this near 180 decree reversal.  

Durable-goods orders drop 1.3% in May: Marketwatch (the number for April was also revised down to -2.8% from -2.1%) Core capital goods orders have been trending down (see chart in previous link)

May 2019 Durable Goods Part of the weakness recently can be attributed to cancellations for Boeing's 737 Max jet.

Trump threatens Vietnam, which has been benefiting from U.S. tariffs on China - MarketWatch It may never occur to the Extremely Stable Genius that U.S. companies will not move manufacturing from China back to the U.S. but simply to another low cost foreign country. The end result would be no change in the U.S. trade imbalance overall. This will not prevent Don the Clueless from threatening every country that increases its trade imbalance with the U.S. due to Donald's tariffs on China's exports.  

GDP q1 2019 final readingFirst-quarter GDP left at 3.1% as stronger business investment offsets weaker consumer spending - MarketWatch (the increase in consumer spending was reduced to .9% from 1.3%) As previously noted, GDP growth in the first quarter was juiced up by events that are likely to reverse which includes the first quarter's build up in inventories. 

Trump demands withdrawal of India's 'unacceptable' retaliatory tariff hikes - Reuters

Morgan Stanley CEO: Trade war would 'devastate' the world economy


Markets and Market Commentary

There's something wrong with this rally in the stock market, JP Morgan says The last rally was led by defensive stocks rather than economically sensitive cyclicals.  

A housing market slump could drive global growth to a decade low, economists warn - MarketWatch

I am anticipating a robust reaction in China's stock market to the trade truce. 


Hang 'Em High Don still thinks the "Central Park Five" need to be executed even though DNA evidence proved their innocence and that DNA evidence was linked to another person who admitted to the crime. Trump does not apologize to Central Park 5 when asked by reporterTrump stands by comments about wrongly convicted 'Central Park Five' - Reuters

Hang 'Em High (1968) - IMDb

This is just another example of how the U.S. Department of Justice has gone rogue under Trump: Justice Department Argues Against Providing Soap, Toothbrushes, Beds To Detained Kids  

Trump responds to E. Jean Carroll's sexual assault accusations God's Gift to Women has never committed a sexual assault even though he bragged about doing so on tape. President Donald Trump Faces New Rape AccusationMagazine columnist accuses Trump of sexual assault more than two decades ago, an allegation he denies

Trump's lewd talk about women, Billy Bush "Access Hollywood" - YouTube

Two Women Who Heard E. Jean Carroll’s Account of Being Attacked by Trump Go Public

Time magazine: Trump threatened reporter with prison time That reporter was lucky that he was not hanged on the White House steps after angering the Duck. The leaders admired by the Teflon Don (e.g. Putin, Kim and Xi Jinping) do not have to put up with a free press. 

1. Bought 200 IGR at $7.58-Used Commission Free Trade

Quote: IGR | CBRE Clarion Global Real Estate Income Fund Overview 
Sponsor's Webpage: Global RE Income Fund - CBRE Clarion
SEC Filings

Holdings as of 3/31/19 (value at $1.171+ billion with the cost at $1.085+ billion)

Last SEC Filed Shareholder Report (period ending 12/31/18)(IGR has access to a secured line of credit up to $300,000,000 from BNYM for borrowing purposes. Borrowings under this arrangement bear interest at the Federal funds rate plus 75 basis points. At December 31, 2018, there were borrowings in the amount of $74,110,800 . . . The average daily amount of borrowings during the year ended December 31, 2018 was $140,293,259 with an average interest rate of 2.58%." page 20, emphasis added)

Dividends: Monthly at $.05 per share ($.60 annually)

Dividend Yield at a TC of $7.58  = 7.92%

Last Ex Dividend Date: 6/20/19 (after purchase)

Data Date of Trade (6/14/19): 

Closing Net Asset Value Per Share: $8.75
Closing Market Price = $7.55
Discount: -13.71%

Sourced: IGR CBRE Clarion Global Real Estate- CEF Connect 

Portfolio Leverage = 14.83% as of 5/31/19

I am slightly less concerned about CEF leverage with short term rates coming back down. 

This fund will own U.S. equity REIT preferred stocks and global REIT common stocks. 

CBRE Clarion Global Real Estate Income Fund (IGR) Total Returns (average annual total return was 12.08% over the past 10 years through 6/14/19, but only 4.27% over the past 5 years)

The goal is simply to earn a total return in excess of the 7.92% dividend yield.  

Last Round-Trip: Item # 1 Sold 283 IGR at $7.89+ (8/24/13 Post) 

The leveraged real estate CEFs were decimated during the last 50% stock meltdown. 

Given the bounce back in share prices after the Great Depression, a simply buy and hold strategy would have worked, but the leverage had to be reduced as prices plummeted, precipitating liquidations at the worst possible time. 

It was common for $25 par value equity preferred stocks to fall below $10 per share and many common stocks fell far more than the market averages. I bought one $25 par value equity preferred stock with a 8.875% coupon at $2.9 and the issuer never missed a payment. The security was later redeemed at par value. 

But when the fund or an investor buys a preferred stock near $25 using borrowed money, which is about where these securities were trading before the Near Depression, and the price falls to the single digits, then at some point along that path the securities bought with borrowed money have to be sold, locking in a loss that would not otherwise exist longer term without the margin call.   

In short, using a lot of borrowed money to buy stocks is not healthy when the stocks go down 50%+. Just a reminder since it will happen again.  

2. Short Term Bond/CD Ladder Basket Strategy

July 2019 Maturities:

SU = Senior Unsecured Bond ($1K par value per bond)
CD = Certificate of Deposit ($1K par value per CD)-FDIC Insured
MI = Monthly Interest Payments
Treasury: U.S. Treasury Debt ($1K par value per bill, note or bond)
IR = Investment Rate for Treasury Bills Bought at Auction
Secondary Market: Treasuries Bought at less than par value 

Corporate bonds are bought at less than par value. 

3 Bar Harbor 1.65% CD MI 7/1/19 (2 Year CD)
1 Dominion Energy 2.962% SU 7/1 (bought 12/18)
2 ERP 2.375% SU 7/1 (bought in March and June 2018)
5 Treasury 56 day bills 2.439% IR (bought at auction)
3 Treasury Bills  2.432% YTM 7/5  (secondary market)
5 Treasury Bills 56 Days bills  2.429% IR 7/9 (bought at Auction)
3 Treasury 2.536%% IR 6 Month 7/11  (bought at auction)
3 Treasury 2.429% IR 3 month 7/11 (bought at auction)
2 Treasury .75% 7/15 (secondary market)
2 Rockwell Collins 1.95% SU 7/15 (bought 12/17)
2 Legg Mason 2.7% SU 7/15  (bought 7/18)
2 AIG 2.3% SU 7/16 (bought 1/18)
2 Bank of Montreal 1.5% SU 7/18 (bought 11/17)
2 Treasury 3 Month Bills 2.434% IR 7/18 (bought at auction)
1 Treasury 2.526%% IR 6 Month Bill 7/18 (bought at auction)
2 Wells Fargo 1.7% CDs MI 7/19 (2 year CDs) 
2 Merrick Bank 1.7% CDs MI 7/22 (2 Year CDs)
2 Morgan Stanley 2.375% SU 7/23/19 (bought 3/18 AND 12/18)
6 Treasury 6 Month Bills 2.515% IR 7/25 (bought at auction)
1 Royal Bank of Canada 1.5% SU 7/29 (bought 11/17)
2 Citigroup 2.5% SU 7/29 (bought1/2019)
5 United Bank 2.3% CDs 7/29  (1 month CDs)
2 GATX 2.5% SU 7/30 (bought 5/18 and 8/18)
1 Treasury 1.625% 7/31 (secondary market)


The Bank of China and State Bank of India CDs, discussed below, are FDIC insured and are issued by the U.S. regulated branches of those institutions.

$9K in adds

A. Bought 2 Bank of China 2.4% CDs Maturing on 9/19/19:

B. Bought 2 State Bank of India 2.4% CDs Maturing on 9/26/19 (3 month CDs):

C. Bought 2 Bank of China 2.4% CDs Maturing on 11/19/19 (5 month CDs):

D. Bought 1 State Bank of India 2.55% CDs (semi-annual interest payments) Maturing on 6/21/21:

E. Bought 2 Bank of China 2.4% CDs Maturing on 12/19/19

3. Intermediate Term Bond Basket Ladder Strategy:

I have been selling into the bond rally intermediate term bonds with low coupons and YTMs. 

I am almost a month behind in mentioning these trades. 

The general idea is to sell into rallies and then wait for another pop in interest rates to buy back bonds previously sold at higher prices. 

The preference is to buy the bonds back at the lowest price ever paid with a shorter time period to maturity. 

Several intermediate term corporate bonds have already been bought and sold multiple times. 

The high water mark in the prior round-trip trades occurred in 2017, mostly during the spring and summer. 2017 Daily Treasury Yield Curve Rates

A. Sold 1 Energy Louisiana 2.4% First Mortgage Bond Maturing on 10/1/26-In a Roth IRA Account:

Profit Snapshot: +$9.6

Finra Page: Bond Detail

Issuer: Wholly owned subsidiary of Entergy Corp. (ETR)

Sold at 95.81

YTM at 95.81 = 3.043%
Current Yield at 95.81 = 2.505%
Proceeds at 95.61 (after $2 commission)

I still own 1 bond. 

B. Sold 1 Consolidated Edison 2.9% SU Maturing on 12/1/26-In a Roth IRA Account:

Profit: +$4.91

Item # 5.A. Bought 1 Con ED 2% SU at a TC of 97.461-In a Roth IRA Account (3/8/18 Post) 

FINRA Page: Bond Detail

Issuer: Consolidated Edison Inc. (ED) 

ED | Consolidated Edison Inc. Analyst Estimates 
Con Edison Reports 2019 First Quarter Earnings 

Sold at 98.944

YTM at 98.944 = 3.059%
Proceeds at 98.744 (after $2 Vanguard commission)

Previous Round-Trips: Item # 1.D. Sold at 98.578  (6/12/17 Post)Item # 3.E. Sold at 99.7- A Roth IRA Account (8/31/17 Post)

C. Sold 1 of 2 Remaining Entergy Arkansas 3.05% First Mortgage Bond Maturing on 6/1/23:

Profit Snapshot: +$25.24

Item # 3.B. Bought 1 Entergy Arkansas First Mortgage Bond at a TC of 98.903 (4/12/18 Post)

Finra Page: Bond Detail

Issuer: Wholly owned subsidiary of Entergy Corp. (ETF)

Sold at 101.527

YTM at 101.527 = 2.618%
Proceeds at 101.427

I still own 1 bonds and will probably keep it until maturity. I will be looking for an opportunity to buy this 1 bond back at less than 98, probably in a Roth IRA account. That price is not going to be available for awhile.

4. Small Ball ETF "Buying Program" Strategy

A. Bought 5 ECON at $21.96-Commission for Vanguard Brokerage Customers

Quote: Columbia Emerging Markets Consumer ETF Overview

Closing Price Last Friday: ECON $22.82 -$0.03 -0.13% 

Sponsor's Webpage: Columbia Markets Consumer ETF - ECON

Purchase Restriction: Small Ball Rule (each purchase has to be at the lowest price in the chain)

Maximum Position: 100 Shares

Current Position: 55 shares

Last Discussed: Item # 4 (4/3/19 Post) I have nothing to add to that discussions. 

B. Added 5 REET at $26.56-Commission Free for Fidelity Customers:

Quote: REET | iShares Global REIT ETF Overview

Closing Price Last Friday: REET $26.67 +$0.06 +0.23% 

Last Discussed: Item # 5 Bought 10 REET at $27.16 (6/19/19 Post) 

Sponsor's Website: iShares Global REIT ETF | REET

Expense Ratio: .14%

Dividends: Quarterly at a variable rate 

Last Ex Dividend Date: 6/17/19 (received on 10 share lot bought 6/14)

Current Position: 15 shares

Maximum Position: 100 shares

Purchase Restriction: Small Ball Rule

5. Long Term Bond Strategy-Tennessee Municipal Bonds

As shown in Item # 2 above, I have a constant flow of proceeds from maturing short term bonds and CDs. 

Given the ongoing Jihad Against the Savings Class, the options for reinvesting those proceeds in similar securities can be described charitably as substantially less than optimal. This has forced me to reach for yield in a longer term Tennessee Municipal bond. 

A. Bought 5 City of Maryville, TN. 3.25% GO Bonds Maturing on 6/1/2036

The City of Maryville is a small town in eastern Tennessee located south of Knoxville and is relatively prosperous. Maryville - Google Maps

This general obligation bond is rated Aa3 by Moody's and AA+ by S & P. (click ratings tab at Emma page.


Total Cost: 102.838

Tax Free Current Yield at 102.838 = 3.16%
YTM at 102.838 = 2.797%
Bought at 102.738

Optional Redemption: At par value plus accrued and unpaid interest on or after 6/1/26


Tax Matters:

Snapshots of other Tennessee municipal bond owned in this taxable account can be found in this recent post: Item # 6  (6/8/19 Post) I own Tennessee municipal bonds in 3 taxable accounts. 

6. Portfolio Management-Continuous Cash Flow

The following two snapshots reflect the 7/1/19 cash flow into my Fidelity account. 

For now, the cash flow is building up in my Fidelity sweep account which is the Fidelity Government Money Market Fund (SPXXX). That fund has a high expense ratio of .42% and a current seven day yield of 2.02%. The yield will continue to drift down as higher yielding securities mature. 

The returns shown in the preceding snapshot are ANNUAL AVERAGE TOTAL RETURNS and reflect a decade long Jihad Against the Savings Class conducted by central bankers worldwide. 

The annual average total return numbers stand out as historically unique in U.S. history given that the economy was in an expansion cycle for the entire 10 year period. The returns are substantially below the inflation rate and consequently result in annual average negative real returns before taxes

The other observation about this Jihad is that it forces investors who actually need to grow their capital into risk investments and consequently contributes to rising prices in risk assets. 

I am using some cash flow to buy higher yielding risk securities. Examples include IGR discussed above.  

Included in cash flow snapshots is the $.11 per share quarterly dividend from Valley National (VLY). I mentioned in a recent comment that VLY will acquire Oritani (ORIT), which I also own in this account: 

Valley National Bancorp to Acquire Oritani Financial Corp. in Capital Accretive Transaction I will hold the ORIT shares until the merger is consummated and will then receive 1.6 VLY shares for each ORIT share. Since ORIT has a higher dividend yield than VLY, I will suffer a dividend cut as a result of that share exchange. I will sell the ORIT shares held in a Roth IRA but am in no hurry to do so given the dividend yield of 6.27% at my total cost per share, a number that excludes the special dividends paid by this small bank. I recently eliminated my ORIT position in my taxable Schwab account. 
Item # 3 Sold 89+ ORIT at $17.49 (5/18/19 Post) 

The snapshots include one semi-annual interest payment from the Trust Certificate Structured Products Corp. 8.205% Credit-Enhanced CorTS (KTN). I have sold all but a 50 share lot. This TC does not have a "call warrant" attached to it, which is why it is still around. The underlying security is a junior AON bond. (see generally, 
Trust Certificates: New Gateway PostBought 50 KTN at $13.1 (10/10/08 PostTrust Certificate AON Bond KTN (10/6/2008 Post; KTN add at less than $14 (11/24/2008 Post)

The KTN 50 share lot that is still owned was bought 10/10/18 at a total cost of $13.26 per share:

KTN is thinly traded and the closing price shown in the preceding snapshot was from Thursday, unadjusted for the ex interest amount, when the security went ex interest for its semi-annual distribution of $1.02+ per share.

The two Tennessee municipal bond payments originate from 5 bond lots paid semi-annually. 

The two Live Oak banking CDs pay monthly interest and both are 2 CD lots. 

The two Centennial bank CDs pay monthly interest with the larger payment originating from a 5 CD lot and the lower amount from a 2 CD lot. 

Corporate bond interest payments shown in the snapshot come from 1 or 2 bond lots,  except for the Entergy Mississippi First Mortgage 2023 bond which is currently a 3 bond lot (recently trimmed from 4 bonds held in this account, but not yet discussed)  

The Hercules bond payment is from a 1 bond lot bought several years ago as part of my now defunct junk bond basket ladder strategy:

Trading in that bond is highly illiquid. Hercules is now part of 
Ashland Global Holdings Inc. (ASH), see Ashland 10-K at page F-30. This is a junior bond rated in junk territory that makes quarterly interest payments.  I still own this bond because it is nearly impossible to sell. That is also the case with two other bonds that were bought as part of that strategy and are still owned: 

Now a Macy's Obligation and upgraded to Baa3/BBB- from junk rating
Albertsons: Still Rated Junk at B- by S & P
The other corporate bonds shown in the snapshots above pay semi-annually.   

The dividend payments from regional bank stocks are from very tiny positions. 

DisclaimerI 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.