Observations and Sample of Recent Trades: DGRO, FSK, IBB, OEF

Economy: 

Job growth screeches to near halt in May—private payrolls up just 27K- a 9 year low This comes from the ADP employment report that includes only private company payrolls. ADP National Employment Report | May 2019 The goods producing sector lost an estimated 43K jobs. 

Pending home sales slide, marking the 16th-straight month of annual declines - MarketWatch; Pending Home Sales | www.nar.realtor

ISM Manufacturing Index 52.1 vs. 53 estimate; U.S. manufacturers expand in May at slowest pace in 2 1/2 years, ISM finds - MarketWatch 

Here's why China's trade war threat to restrict rare earth minerals is so serious While there are some rare mineral mines located outside of China, it is my understanding that China refines and processes that production which is presently the case for the only U.S. rare mineral mine. If we can't challenge China, no one can, says only US rare earths mine ( “There’s no refining capacity in the world outside of China,” said Litinsky.")

Trump’s Tariff Pain Set to Ricochet from China to Global Economy - Bloomberg

Trade tensions have had a 'significant' impact on China, IMF says The IMF lowered the forecast for 2019 GDP growth to 6.2% from 6.3% which I would not label as "significant". 

Personal Income and Outlays, April 2019 | U.S. Bureau of Economic Analysis (BEA): The numbers were overall favorable. 

Morgan Stanley sees recession on the horizon if trade war escalates

Yield curve is no longer a reliable recession predictor: Wells Fargo This time will be different according to Wells Fargo since the FED is propping up the short term rates while the market is setting the intermediate and long term ones. Once the FED cuts the FF discount, the WFC argument is that the short treasury bill rates will fall and end the current inverted yields.

One problem with that analysis is that the market has already partially priced a FF rate cut into the treasury bill yields. The treasury bill yields are lower now than earlier this year, even though the FF effective rate and the FF range have remained unchanged. Daily Treasury Yield Curve Rates 

JPMorgan Expects the Fed to Cut Interest Rates Twice This Year That is what the Bond Ghouls are currently predicting. I do not see that happening unless real GDP weakens to below 2% which is likely IMO with an all out trade war with China starting later this month or in July. Increasing the tariffs on Mexico's exports would increase the likelihood of below 2% real GDP growth as well as the odds of a recession by year end or the 2020 first quarter.  

JP Morgan sees 10-year falling to 1.75% as trade tensions push Fed cut

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Markets and Market Commentary: 

Stocks rose yesterday partly in response to China saying that trade disputes need to be resolved through dialogue and mutual respect. China: US trade dispute needs to be solved with dialogue and respect China has repeatedly made the same statement in the past so this was not anything new IMO. It was just spun into a favorable development. 

Another development viewed positively by the Stock Jocks, which was already predicted by the Bond Ghouls in their FF rate forecasts, was Powell's statement that the FED would act to sustain the economic recovery. Powell says the Fed will 'act as appropriate to sustain the expansion' That translates into the Fed will cut rates when necessary. 

The Stock Jocks were also encouraged by several republican senators expressing opposition to Trump's proposed tariffs on Mexico's exports. 

Apparently, the Texas republican senators discovered over the weekend that (1) Texas businesses and consumers would be hit the hardest by those tariffs and (2) U.S. tariffs on Mexico's exports are not paid by Mexico but are taxes on U.S. businesses and consumers. 

Senator Ted Cruz (R-TX) stated that there is "no reason for Texas farmers and ranchers and manufacturers and small businesses to pay the price of massive new taxes" (emphasis added). Perhaps Ted received some calls from major donors to his campaign which led to his enlightenment.  

While Congress can by majority vote override Trump's action, which is likely to happen soon after the first 5% tranche is levied, Trump would veto that congressional resolution, requiring a 2/3rds vote in both the Senate and House to override his veto. That is probably not going to happen.

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Fed members still believe that cutting the federal funds rate below the inflation rate will generate inflation. That seems to be the consensus opinion among economists, even though the events over the past decade fail to support that theory. One dissenting opinion is voiced by economists known as Neo-Fisherites. Inflation Control: Do Central Bankers Have It Right?

Maybe in a few decades, there will be challengers to this group think that lowering nominal rates increases inflation. 

Negative real interest rates do not foster inflationary pressures but deflationary ones IMO. 

The mechanisms for that result are varied but two of the more dominant reasons are matters of common sense and are consequently not captured in complex mathematical models of human behavior and decision making processes.  

The first is the decrease in household disposable income generated by credit risk free savings (e.g. FDIC insured CDs and savings accounts, treasury bills, etc). Spending sourced from interest income is reduced. 

The second is that corporate cash flow is diverted from research and development and other corporate activities that generate revenue and jobs into financial engineering including stock buybacks and dividend increases that do not contribute in any meaningful way to real economic growth. 

Using negative real rates to spur growth and inflation will simply end up in producing a prolonged period of negative real interest rates, abnormally low inflation and subpar growth even during long expansion cycles. Real returns of credit risk "safe" assets will remain unsatisfactory and negative most of the time, and bubbles will form in risk assets.

Will the central bankers learn anything from the past ten years? Maybe future economists born somewhere between 2019-2039 will start to question what is viewed now as certain. 

Trade issues ‘won’t cause a bear market’ as U.S. economy is in ‘very good shape, says Blackstone’s Wien - MarketWatch

Stocks will rally to new highs despite trade tensions: Jeff Saut

Why a cautious Stanley Druckenmiller piled into Treasurys and Chinese tech - MarketWatch

Morgan Stanley tells investors to play defense as cycle indicator flashes ‘downturn’ - MarketWatch

Worried You’re Going to Retire in a Bear Market? Here’s What to Do.

Here's why bond yields are falling and why the rout won't end anytime soon

Apple, Google, Facebook, Amazon facing potential regulatory scrutiny It will take a few years for these investigations to end and speculative now to predict the outcome. 

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Trump:

The Fake News President has requested that Americans boycott AT & T because CNN, now owned indirectly by AT & T, provides accurate information that contradicts Our Dear Leader's Fake News. 

Trump to threaten to curb intelligence sharing with UK over Huawei: FT

The Fake News President is not capable of telling the truth. Mueller spoke. Trump reacted. We fact-checked. | PolitiFact; Fact-checking Trump's lies after Mueller refuses to exonerate him There is never any let up in his stream of lies. 

Donald's pettiness knows no boundaries. Outrage over report that White House ordered USS John McCain out of Trump’s sight - MarketWatch It is clear from the documents that the order came from the White House. 

Donald denied knowing anything about the White House ordering the Pentagon to move the USS John McCain out of Trump's eyesight. Since Demagogue Don is unquestionably a pathological liar,  it is not rational to assume that he is telling the truth about anything until proven otherwise. 

His pettiness is almost a daily occurrence and was on display during his recent U.K. visit, where he felt obliged to call London's Mayor Sadiq Khan "a stone cold loser" who "by all accounts, has done a terrible job", adding for good measure that Kahn reminds him "very much of our dumb and incompetent Mayor of NYC, de Blasio, who has also done a terrible job — only half his height.”  Trump is invariably lying, whenever he uses phrases like "everyone knows" and "by all accounts".  

Only 21% of U.K. citizens have a favorable opinion of the Fake News President. How Popular is Donald Trump in the U.K.? President's Favorability Rating Far Lower Than Barack Obama's 

Trump:  "I am really loved in the UK." Factbox: Donald Trump in his own words on Brexit, Britain and Boris - Reuters

This is not surprising: Despite Trump administration denials, new evidence suggests census citizenship question was crafted to benefit white Republicans-The Washington Post Republicans are doing everything that they can to undermine the foundations of a properly functioning democracy. Trump administration to face claim of deceit over U.S. Census question - Reuters (court hearing will occur today)

Fox News stands by Laura Ingraham after she defends white supremacist, other extremists on her prime time show - CNN Fox believes that social media companies have to provide a megaphone platform for people like Paul Nehlen, a well known white supremacist, who proudly wore last April a shirt featuring the likeness of Robert Bowers who killed 11 people at a Pittsburgh synagogue ("allegedly"), and Alex Jones who claims the Sandy Hook elementary school massacre was a staged event. Who Is Paul Nehlen? Laura Ingraham Defends Paul Ryan's Wisconsin Primary Challenger Deemed Too Extreme for the Alt-right For Fox, white supremists, Nazis, anti-semites and racists are conservative voices in Trump's party.   

Meghan Markle is 'nasty,' says Trump, and Boris Johnson would do a 'very good job' as Prime Minister - CNN It was Boris who played an important role in creating the Brexit mess that the U.K. finds itself now. Boris Johnson to face court for alleged Brexit lies - CNN  

There would be some justice in allowing Boris to become P.M. which would then require him to deal with the real ramifications of leaving the EU. 

Besides endorsing Boris, Demagogue Don advised the British to pursue the hard Brexit option unless the EU bends a knee and rewards the U.K. for its decision to leave. Trump tells Britain to 'walk away' if EU does not yield on Brexit - Reuters 

Trump Camp Rebuts Trump Calling Meghan Markle Nasty-With Clip Of Him Calling Her Nasty 

When media outlets pointed out that the attached video clip proved that Trump did call her nasty, the Fake News President and his True Believers claimed that those reports were Fake News. 

See Comments at Official Trump War Room (@TrumpWarRoom) | Twitter 

President Trump Denies Meghan Markle 'Nasty' Comment Despite Recording

The media did reference other comments made by Trump so the remarks were actually placed in context contrary to the representations made by the Fake News Trumpsters who are in an echo chamber of their own reality creations. 

To realize that the "nasty" comment was placed in context by mainstream media outlets, however, the Trumpsters would actually have to read the articles that they are criticizing, which is a bridge too far from them.  

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1. Short Term Bond/CD Ladder Basket Strategy:

$9K in adds

A. Bought 5 Centennial Bank 2.4% CDs (monthly interest payments) Maturing on 4/30/20 (11 month CDs): 

Issuer: Operating bank for Home BancShares Inc. (HOMB) 

HOMB Analyst Estimates 

Home BancShares, Inc. Remains Steady and Solid in First Quarter, Margin Remains Unchanged

B. Bought 2 Wex Bank 2.45% CDs Maturing on 6/5/20:

Issuer: Subsidiary of WEX Inc. (WEX)
WEX Inc. Reports First Quarter 2019 Financial Results

C. Bought 2 Centennial Bank 2.4% CDs (monthly interest payments) Maturing on 12/31/19:

2. Small Ball-Commission Free ETFs:

Each purchase has to be at the lowest price in the chain. Only ETFs that can be purchased commission free will be purchased. Consideration will be given to selling the highest cost lot or lots when this can be done profitably. 

A. Bought 5 DGRO at $36.37:

Quote: iShares Core Dividend Growth ETF Overview

Last Discussed: Item # 4.A. (5/15/19 Post)

Sponsor's Website: iShares Core Dividend Growth ETF | DGRO
Expense Ratio: .08%

Current Position: 30 shares

Maximum Position: 200 Shares

B. Bought 1 IBB at $100.16: 

Quote: iShares Nasdaq Biotechnology ETF Overview

Last Discussed:  Item # 4.A. (4/6/19 Post)

Sponsor's webpage: iShares Nasdaq Biotechnology ETF | IBB

Expense Ratio: .47%

Current Position: 7 shares

Maximum Position: 20 Shares

5 Year Chart: Uninspiring

C. Bought 1 OEF at $122.2: 

Quote: OEF Fund - iShares S&P 100 ETF Overview

Last Discussed: Item #5.A. (5/18/19 Post)

Sponsor's Webpage: iShares S&P 100 ETF

Expense Ratio: .2%

Current Position: 7 Shares

Maximum Position: 50 Shares

3. Intermediate Term Bond Basket Strategy:

I was looking for another intermediate term bond to sell into the bond rally. I focused on bonds maturing in 2025-2026 that I bought when the ten year treasury yield was lower at the time of purchase then now. The Autozone bond was purchased on 5/22/17 when the ten year treasury yield was at 2.25% compared to 2.39% on 5/22/19, the day that I sold this bond.

A. Sold 2 Autozone 3.125% SU Maturing on 4/21/26:

Profit Snapshot: +$5.92

Item # 3.E. Bought 2 AZO 3.125% SU at a TC of 97.428 (6/17/17 Post)

FINRA Page: Bond Detail

Sold at 97.934
YTM at 97.934 = 3.464%

This bond is on my list for a possible repurchase when and if the 10 year treasury yield goes back over 3%.

4. Added 50 at $5.95 of the Deservedly Hated BDC FSK-Used Commission Free Trade: 

Current Position This Account: 

207.564 Shares with Average Cost at $6.31 per share

Quote: FS KKR Capital Corp  (FSK)
Website: FS KKR Capital Corp

Closing Price Yesterday: FSK $6.01 +$0.06 +1.01% 

Last Discussed: Item # 5 Bought 50 Shares of the Deservedly Hated BDC FSK at $6.25 (5/18/19 Post)

Dividend: Quarterly at $.19 per share or $.76 annually  (more likely to be cut than increased IMO)

Net Asset Value Per Share as of 3/31/19: $7.86
FS KKR Capital Corp 10-Q at page 2 

Discount to NAV Per Share at AC of $6.31 = -19.7%

Discount to NAV Per at $5.95 Purchase Price = 24.3%

Dividend Yield at Average Cost of $6.31 = 12.04%

Next Ex Dividend Date:  6/18/19

Dividend Reinvestment: Yes, as a means to average down for now

Last Earnings Report (Q/E 3/31/19): Note the decrease in net investment income to below the quarterly dividend rate. 

Investments:

FSK Reports First Quarter 2019 Financial Results and Declares Regular Distribution for Second Quarter

A decline in short term rates will negatively impact BDCs with floating rate loans. Those loans pay a spread over a short term Libor rate. It remains to be seen whether the Bond Ghouls are correct in forecasting cuts in the federal funds rate.

Another potential negative for BDCs would be a rise in credit risks and defaults in the event the economy enters into a recession or a long period of below normal real GDP growth. 

The deservedly hated BDC category includes those who have suffered substantial declines in net asset value per share during the current economic expansion and who have already cut their dividend penny rates notwithstanding the positive credit cycle.

For a BDC, I am trying to earn a return in excess of the dividend yield. 

For FSK, this objective has required some averaging down that increases the probability of achieving that objective, but also increases the size of the potential loss with a continued deterioration in results. 

Purchases of deservedly hated BDC stocks may arguably be masochistic. 

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.