Economy:
Signs point to the trade war dragging on as China strikes hard-line tone
A .25% cut in the FF rate this month will not have any material positive impact on the real economy.
At best, the negatives, including less disposable income from risk free investments, will offset any beneficial effect. There is consequently no legitimate reason for a rate cut. The FED will simply be responding to political and market pressure.
I have been making those points for weeks now and noticed over the weekend an article written by El-Erian that makes the same case and highlights the potential negatives. El-Erian: Make no mistake, the Fed will pay a premium when it cuts rates this month
Among the negatives according to El-Erian, the rate cuts will signal to the markets to drive up risk asset prices, creating a growing disconnect between economic fundamentals and assets prices which accentuates "threats of future financial instability that could cause economic harm." The FED is engineering an accelerated flight to risk assets "at a time when several indicators of excessive risk-taking are already flashing yellow if not red."
JP Morgan strategist: Fed is 'making a mistake' by cutting rates
Signs point to the trade war dragging on as China strikes hard-line tone
A .25% cut in the FF rate this month will not have any material positive impact on the real economy.
At best, the negatives, including less disposable income from risk free investments, will offset any beneficial effect. There is consequently no legitimate reason for a rate cut. The FED will simply be responding to political and market pressure.
I have been making those points for weeks now and noticed over the weekend an article written by El-Erian that makes the same case and highlights the potential negatives. El-Erian: Make no mistake, the Fed will pay a premium when it cuts rates this month
Among the negatives according to El-Erian, the rate cuts will signal to the markets to drive up risk asset prices, creating a growing disconnect between economic fundamentals and assets prices which accentuates "threats of future financial instability that could cause economic harm." The FED is engineering an accelerated flight to risk assets "at a time when several indicators of excessive risk-taking are already flashing yellow if not red."
JP Morgan strategist: Fed is 'making a mistake' by cutting rates
The Fed chairman says the relationship between inflation and unemployment is gone
China's Q2 GDP grows at slowest pace in 27 years - MarketWatch
China's Q2 GDP grows at slowest pace in 27 years - MarketWatch
+++++
Markets and Market Commentary:
JP Morgan raises stock outlook, sees China trade deal and an easy Fed (raised the SPX 12 month PT to 3,200 from 3000)
JP Morgan raises stock outlook, sees China trade deal and an easy Fed (raised the SPX 12 month PT to 3,200 from 3000)
An economy gone ‘mad?’ The Fed is going to cut interest rates despite record stock prices, low unemployment - MarketWatch
Treasury yields continue comeback on the week after another report shows rising inflation
IBM signs new cloud deal with AT&T
Treasury yields continue comeback on the week after another report shows rising inflation
IBM signs new cloud deal with AT&T
++++++
Trump:
Trump tells four liberal congresswomen to ‘go back’ to their countries -The Washington Post Three of the four congresswomen were born in the U.S.
Trump tells four liberal congresswomen to ‘go back’ to their countries -The Washington Post Three of the four congresswomen were born in the U.S.
Behind Trump’s ‘go back’ demand: A long history of rejecting ‘different’ Americans - The Washington Post
The Painful Roots of Trump’s ‘Go Back’ Comment - The New York Times
Throughout my life, I have frequently heard racists tell people of color to "go back" to their countries. That would be true for native born non-caucasian Americans in addition to new immigrants.
In the Alternate Reality inhabited by Donald and his cult of True Believers, Trump does not "have a Racist bone in" his "body" and is the "least racist person" in the history of the universe.
Trump: 'I'm the least racist person' that anyone will every meet- BBC News; Six times President Trump said he is the least racist person - The Washington Post
GOP support for Trump rises after tweets attacking congresswomen: Poll
The Trump campaign denied that Donald said what he said in the tweets. Trump Campaign Staffer Claims 'Twitter Is Lying,' Says President Never Tweeted 'Go Back' To House Democrats
In TrumpWorld, the only true Americans are the White Nationalists, the dominant force in the modern republican party-the antithesis of a true conservative party. There is no political party for moderates and true conservatives.
White identity politics drives Trump, and the Republican Party under him - The Washington Post
Graham declines to condemn racist Trump tweets and calls Democratic congresswomen 'a bunch of communists' Senator Graham, like most Trumpsters, have a non-traditional definition of socialism and communism.
Republicans have a long history of calling people communists who advocate for social programs. It started in the 1930s with such programs as the New Deal, the federal loans necessary for rural electrification through newly created rural electric cooperatives (frequently referred to for decades as communist organizations), and the implementation of Social Security.
The republican communist name calling accelerated during the Great Society programs implemented by LBJ including Medicare and Medicaid which were viewed as communist programs by many republicans when adopted and even now.
It is no secret that the GOP really wants to get rid of traditional Medicare while giving their major donors more tax breaks. The republicans tried to kill traditional Medicare in 2011, offering vouchers to purchase private insurance instead while cutting tax rates for the wealthy.
This effort would have succeeded but for a Democrat President and too many Democrat senators given the filibuster rule. The House easily passed this GOP plan, with no Democrat votes, that would have doubled premium costs compared to traditional Medicare. The republicans called their voucher program a "Path to Prosperity" when in reality it was a Path to Bankruptcy for the Middle Class in their golden years.
Today, republicans will call Medicare for All advocates communists. Comparing ‘Medicare-For-All’ To Communism Makes No Sense: Kaiser Health News
{Eventually there will be a Medicare for All with private insurance filling in the coverage gaps which is the case now for traditional Medicare. The nation can not now afford such an expansive new social program, which is not an opinion but a fact. I view the proposals made by several Democrat candidates for President as fiscally irresponsible. Traditional Medicare is not even close to being adequately funded for the baby boomers. When will Medicare and Social Security run out of money to pay all obligations? - CBS News; Medicare Hospital Insurance Trust Fund will run out money in 7 years, trustees say | Healthcare Finance News In 30 to 40 years from now, the transition to Medicare for All with supplemental private insurance may be fiscally feasible, as the baby boomers pass on to the hereafter, provided medical advances have drastically reduced healthcare costs (e.g. cure for cancer, more effective medicines and procedures for other costly diseases, more effective generic drugs etc.)}.
Trump blasts Paul Ryan as 'weak, ineffective & stupid' in fresh attack on ex-Speaker
The Painful Roots of Trump’s ‘Go Back’ Comment - The New York Times
Throughout my life, I have frequently heard racists tell people of color to "go back" to their countries. That would be true for native born non-caucasian Americans in addition to new immigrants.
In the Alternate Reality inhabited by Donald and his cult of True Believers, Trump does not "have a Racist bone in" his "body" and is the "least racist person" in the history of the universe.
Trump: 'I'm the least racist person' that anyone will every meet- BBC News; Six times President Trump said he is the least racist person - The Washington Post
GOP support for Trump rises after tweets attacking congresswomen: Poll
The Trump campaign denied that Donald said what he said in the tweets. Trump Campaign Staffer Claims 'Twitter Is Lying,' Says President Never Tweeted 'Go Back' To House Democrats
In TrumpWorld, the only true Americans are the White Nationalists, the dominant force in the modern republican party-the antithesis of a true conservative party. There is no political party for moderates and true conservatives.
White identity politics drives Trump, and the Republican Party under him - The Washington Post
Graham declines to condemn racist Trump tweets and calls Democratic congresswomen 'a bunch of communists' Senator Graham, like most Trumpsters, have a non-traditional definition of socialism and communism.
Republicans have a long history of calling people communists who advocate for social programs. It started in the 1930s with such programs as the New Deal, the federal loans necessary for rural electrification through newly created rural electric cooperatives (frequently referred to for decades as communist organizations), and the implementation of Social Security.
The republican communist name calling accelerated during the Great Society programs implemented by LBJ including Medicare and Medicaid which were viewed as communist programs by many republicans when adopted and even now.
It is no secret that the GOP really wants to get rid of traditional Medicare while giving their major donors more tax breaks. The republicans tried to kill traditional Medicare in 2011, offering vouchers to purchase private insurance instead while cutting tax rates for the wealthy.
This effort would have succeeded but for a Democrat President and too many Democrat senators given the filibuster rule. The House easily passed this GOP plan, with no Democrat votes, that would have doubled premium costs compared to traditional Medicare. The republicans called their voucher program a "Path to Prosperity" when in reality it was a Path to Bankruptcy for the Middle Class in their golden years.
Today, republicans will call Medicare for All advocates communists. Comparing ‘Medicare-For-All’ To Communism Makes No Sense: Kaiser Health News
{Eventually there will be a Medicare for All with private insurance filling in the coverage gaps which is the case now for traditional Medicare. The nation can not now afford such an expansive new social program, which is not an opinion but a fact. I view the proposals made by several Democrat candidates for President as fiscally irresponsible. Traditional Medicare is not even close to being adequately funded for the baby boomers. When will Medicare and Social Security run out of money to pay all obligations? - CBS News; Medicare Hospital Insurance Trust Fund will run out money in 7 years, trustees say | Healthcare Finance News In 30 to 40 years from now, the transition to Medicare for All with supplemental private insurance may be fiscally feasible, as the baby boomers pass on to the hereafter, provided medical advances have drastically reduced healthcare costs (e.g. cure for cancer, more effective medicines and procedures for other costly diseases, more effective generic drugs etc.)}.
Trump blasts Paul Ryan as 'weak, ineffective & stupid' in fresh attack on ex-Speaker
Ryan's call for decency was enough for Disgusting Don to spew his venom on Ryan.
This is what the Extremely Stable Genius said about Ryan earlier:
Republican baby boomers are more likely to share #fakenews on Facebook - MarketWatch That is hardly a surprise.
GOP was ready to be hijacked, argues 'American Carnage' author;
American Carnage: On the Front Lines of the Republican Civil War and the Rise of President Trump eBook: Tim Alberta
The modern day GOP would be a far better fit for the America that existed in the late 19th Century.
++++++
1. Canadian Reset Equity Preferred Stocks:
A. Bought 50 TA.PRH at C$16.85 and 50 at C$16.19 (C$1 Commission Each Order):
Quote: TA.PRH | TransAlta Corp. Pfd. Series E Overview
Closing Price Yesterday: TA-PH.TO C$16.10 -C$0.01 -0.06% (volume =4,937 shares, used limit orders)
TAPRH ended its fixed coupon period in September 2017 when the coupon reset at a 3.65% spread to the five year Canadian bond yield.
The coupon will be reset again in September 2022 using the same spread.
The owners of this security have the option on the reset dates to convert the Series E cumulative preferred stock into a Series F, subject to the conditions spelled out in the prospectus.
The Series F cumulative preferred stock resets quarterly at a 3.65% spread to the 3 month Canadian treasury bill.
On each reset date, the issuer has the option to redeem at par.
The issuer has no call right in between reset dates.
Issuer: Transalta Corp. (TAC)
About Us | TransAlta
Par Value: C$25
Prospectus Excerpt:
Transalta preferred share prospectuses can be found here:
Preferred Share Information-TransAlta.
Coupon Reset: The new coupon is 5.194% paid on a C$25 par value (C$1.2985 per share annually). This coupon became effective on 9/30/17 and will remain in effect to but excluding 9/30/22.
Dividend Yield at C$16.54 average cost per share = 7.85%
Last Issuer Earnings Report: TransAlta Reports First Quarter 2019 Results
2. Equity REIT Common and Preferred Stock Basket Strategy:
A. Bought 100 BDN at $14.34-Used Commission Free Trade:
Quote: Brandywine Realt (BDN)
Closing Price Yesterday: BDN $14.44 -$0.06 -0.41%
Company Website Brandywine Realty Trust
Company Profile | Reuters.com
Brandywine Realty Trust (BDN) Key Developments | Reuters.com
SEC Filings
2018 Annual Report
10-Q for the Q/E 3/31/19 ("As of March 31, 2019, we owned 96 properties that contained an aggregate of approximately 16.9 million net rentable square feet . . . In addition, as of March 31, 2019, we owned economic interests in ten unconsolidated real estate ventures, ... six of which own properties that contain an aggregate of approximately 5.8 million net rentable square feet of office space; two of which own, in aggregate, 1.4 acres of land held for development; one that owns 1.3 acres in active development; and one that owns a residential tower that contains 321 apartment units. In addition to the Properties, as of March 31, 2019, we owned land held for development, comprised of 234.7 acres of undeveloped land, of which 35.2 acres were held for sale and 1.8 acres related to leasehold interests in two land parcels each acquired through prepaid 99-year ground leases and held options to purchase approximately 55.5 additional acres of undeveloped land.")
Subsequent to my purchase, Argus raised BDN to buy from hold with a $17 price target. That report can be reviewed by Schwab customers.
S & P has a two star rating on the stock with a 12 month price target of $14.
The REIT is focused on three primary metropolitan markets: Philadelphia, Washington D.C. and Austin.
The Schuylkill Yards Project, a joint venture with Drexel University, is in the developmental stage, and looks promising. The Development: Schuylkill Yards | Schuylkill Yards; Drexel Square, first Schuylkill Yards project, is finally here - Curbed Philly
BDN is an out-of-favor office REIT whose share price has been on a roller coaster ride going nowhere for two decades. The stock has also suffered two near death experiences in 1991-1992 and 2008-2009. Those observations are not recommendations to jump aboard.
I have not bothered with the common shares since I sold a small lot back in 2014: Item # 7 Sold 158+ BDN at $15.28 (5/24/14 Post)(profit snapshot = $72.31); Item # 3 Bought 50 BDN at $11.7 (11/2/2012 Post); Item # 2 Sold 100 BDN at $12.38-ROTH IRA-Item # 1 Bought Roth IRA: 100 BDN at $11.24 (6/27/12 Post)
I looked at this REIT again as an alternative to cash building up in a low yielding sweep MM fund whose yield is likely to trend lower in the coming months.
BDN looked more attractive now than it did when I last bought shares.
I am not saying with that statement that BDN is attractive at its current price. It is more of an expression that BDC is a better value now than it was when I sold shares at $15.28 in 2014.
Dividend: Quarterly at $.19 per share ($.76 annually)
Brandywine Realty Trust Announces Common Quarterly Dividend
Last Ex Dividend Date: 7/3/19 (shortly after purchase)
Dividend Yield at $14.34 = 5.3%
Dividend Reinvestment: Yes
Tax Characteristics 2018 Dividend Payments: 23.8% ROC
One reason for looking again at this one is my current problem. I have cash flow from maturing short term bonds and CDs arriving throughout each month; and the reinvestment options in more of the same are becoming less appealing, or more appropriately characterized as moving from bad to awful.
Last Earnings Report: Brandywine Realty Trust Announces First Quarter Results And Narrows 2019 Guidance
Net Income to FFO Calculations:
2019 Guidance:
BDN has "commenced the development of 405 Colorado located in the Austin, Texas CBD. The project is comprised of a 204,000 square foot office building above a structured parking garage containing 520 parking spaces."
BDN has "signed a lease with an anchor tenant that will occupy approximately 35% of the project and total estimated cost to develop is $114.0 million."
Senior Unsecured Debt: Rated at Baa3/BBB-
2018 4th Quarter Transaction Activity: Brandywine Realty Trust Announces Significant Investment Activity, Third Quarter 2018 Results, Narrows 2018 Guidance and Provides Initial 2019 Guidance
BDN Preferred Stocks: Most of my profits have been in BDN's $25 equity preferred stocks during the Near Depression period which have been redeemed at par.
E.G. 2009 in BDNPRC
B. Bought 10 IRM at $29.51-Used Fidelity Commission Free Trade:
Website: Data & Records Management | Shredding | Iron Mountain
Closing Price Yesterday: IRM $30.57 +0.16 +0.53%
I discussed this purchase in a comment.
A Merrill Lynch downgrade to underperform from neutral and a PT reduction to $25 from $33 caused a 7.48% slippage on 7/11, the day that I bought this 10 share lot at $29.21.
Wells Fargo had upgraded IRM to outperform on the prior day (7/10) with a $38 PT and the stock gained +1.49% that day.
The Stock Jocks are more receptive to negative opinions than to positive ones.
IRM Historical Prices
The Credit Suisse analyst is even more negative Merrill with a $23 PT (report dated 7/9/19 available to Schwab customers).
While that analyst noted the decline in shredded paper prices, the analyst claimed that the negative thesis was not based on recycled paper prices.
Instead, the CS analyst negative PT is based on "slowing revenue in core storage as pricing gains should be offset by lower lower volumes and higher leverage (5.8x and trending higher)". The CS analyst claims that about 1/3rd of shred revenues comes from selling the paper.
The CS PT was reduced from $25 to $23 in a 6/6/19 report, apparently due to the lower paper revenues, which is not consistent IMO with the analyst's claim in the 7/9/19 report.
The CS analyst claimed that the paper price decline would be at least a $35M headwind to 2019 revenues, compared to the $25M-$40M shred revenue gain in 2018 due to higher paper prices.
I mentioned in a previous comment that recycled paper prices are volatile and an increase in those prices was a tailwind last year.
I now own 35+ shares in this account. This 10 share purchase reduced my average cost per share from $31.16 to $30.7. In a small ball "purchase program," the highest cost lot in the chain will be the first one bought. The highest cost lot in this chain was a 10 share purchase at $31.88 (3/16/18).
Dividend: Quarterly at $.611 per share ($2.444 annually)
I am reinvesting the dividend in this account but not in my IB account where I own 50 shares.
Dividend Yield at Total Average Cost of $30.7 = 7.96%
2018 Dividend Tax Classification: 6.38% ROC
Maximum Position in this Account: 100 shares
Purchase Restriction: Small Ball Rule (each purchase has to be at the lowest price in the chain)
I also recently bought 50 shares in my IB account. Item # 1 Bought 50 IRM at $31.58 (5/18/19 Post) I discussed the last earnings report, which was not well received, in that post. I will not be adding to that position. I will be content with an 8% realized total return for that lot.
I do view IRM to be among the riskier equity REIT stocks. That is in part reflected in a five year chart, a below average total return number for an equity REIT, the non-investment grade rating and the risks associated with moving more into data centers, digital transformations, and emerging markets in addition to the more traditional business of paper document storage, information management and secure shredding.
The stock is also subject to sell the rips trading strategy.
I do not view the stock as a long term hold.
I am not a IRM groupie.
IRM 5 Year Chart: I would describe the five year chart as a roller coaster going up and down, and all around, and eventually ending up back where the ride started. Note that the price five years ago is about where IRM is now.
DRIP Returns Calculator | Dividend Channel: 5 year annual average return of 5.53% through 7/15/19
Short interest is high: IRM YF Statistics
The stock has performed poorly over the past year and is currently trading below its 50 and 100 day SMA lines.
Senior Unsecured Bond Ratings: Junk at Ba3/BB- Bond Detail
Prior Eliminations: Item # 1.C. Sold 10 IRM at $33.91-Used Commission Free Trade (12/26/18 Post); Item # 3 Sold 50 IRM at $33.82-Update For Equity REIT Basket Strategy As Of 4/6/16 - South Gent | Seeking Alpha (profit snapshot= +$398.06)-Item # 3. Bought 50 IRM at $25.7: Update For Equity REIT Basket Strategy As Of 1/11/16 - South Gent | Seeking Alpha
Morningstar has a 3 star rating with a FV of $36.5 as of a 7/27/19 report, which is available to Schwab customers. Morningstar assigns IRM a "narrow moat" based in large part on switching costs and customer inertia.
IRM is rated "F" in Schwab's Equity Rating methodology which equates to "strongly underperform".
3. Intermediate Term Bond Ladder Basket Strategy:
A. Sold 2 KR 2.65% SU Maturing on 10/15/26:
FINRA Page: Bond Detail
Issuer: Kroger Co. (KR)
Sold at 95.5
YTM at 95.5 = 3.348%
Proceeds at 95.4 (after $1 per bond commission)
Current Yield at 95.5 = 2.7749%
4. Short Term Bond/CD Ladder Basket Strategy:
Treasury bills are currently providing greater yields than comparable term CDs.
Treasury bills are currently providing greater yields than comparable term CDs.
A. Bought 5 Treasury 56 Day Bills at Auction Maturing on 9/3/19:
IR = 2.198%
5. Cash Flow Reinvestment Problem:
With stocks at new highs, longer term bond yields declining from historically low levels, and yields from short term treasury bills and CDs plummeting, the options for reinvesting cash flow look bleak.
The following snapshots show cash flow into my Fidelity account for 7/15.
The two 2019 Synchrony Financial bonds were redeemed by the issuer one month early.
The National Rural Utilities and Goldman Sachs (1) bonds pay monthly. The 2022 National Rural Utilities position is a two bond lot. The 2027 maturity is a 1 bond lot.
Other one bond lots shown in the preceding snapshots include the following:
2026 Black Hills 3.95%- Electric Utility
2025 Dow Chemical 3.9%
2023 Highwoods Realty 3.625% - Equity REIT
2026 Ventas 4.125% - Equity REIT
2022 Virginia Electric Power 2.95% - Electric Utility
Other two bond lot positions include:
Arizona Public Service 2.2% 1/15/20 Bond Detail
Broadcom 2.375% SU 1/15/20 Bond Detail
Sysco 2.5% SU 7/15/21 Bond Detail
The 2.75% Alexander Real Estate SU maturing on 1/15/20 is a 4 bond position.
Small Ball Positions (each purchase has to be at the lowest price in the chain):
GNL 74+ Shares Lowest Cost Lot at $17.28
STWD 39+ Shares Lowest Cost Lot at $19.4
The following bonds matured:
2 Legg Mason 2.7% SU
2 Rockwell Collins 1.95% SU
Monthly Pay CDs: Bridgewater (1); Reliant (2), Smartbank (2)
Equity REIT Preferred: 50 shares of AHTPRI (average cost per share = $20.53)
Equity REIT Common Shares: 161+ Apple Hospitality
BDC: FSK dividend waiting for reinvestment price as of 7/17/19
Generally, brokers do not enroll their clients in company DRIP plans.
Instead, they aggregate the dividends scheduled for reinvestment and then buy shares in the open market.
Those purchases will occur at different times depending on the broker which results in disparate reinvestment prices. Differences in Prices Among Brokerage Firms for Reinvested Dividends (7/15/12 Post); Item # 1 Continuation of Discussions Re: Broker Price Differences For Reinvested Dividends (7/20/12 Post)
Fidelity has an arrangement with the Depository Trust Company who receives their customer dividends. DTC has enrolled some stocks in the company DRIP plans. If the DRIP program has a discount, that is the only way for the customer to receive a discounted price for the reinvestment when the shares are held in the street name.
Normally, the FSK would have been paid on 7/2 and other brokers would have already used those dividends to buy shares, usually no later than 7/3. The Schwab reinvestment price for FSK shares bought on 7/3 with my dividend payment was $6.156+ per share:
Since the reinvestment price for FSK shares held in my Fidelity account was not determined when I took the preceding snapshots on 7/15, this indicates that FSK is one of the stocks enrolled indirectly through DTC in that company's DRIP program, and consequently Fidelity did not aggregate the dividends and buy shares in the open market earlier.
As far as I can tell, FSK does not provide a discounted reinvestment price in its DRIP program, though it has the discretion to issue at a 5% discount when the market price exceeds the estimated net asset value per share which is not applicable now. Page 67
For shares bought with a dividend on the payment date or the day after, that will invariably indicate an open market purchase by the broker rather than a purchase through a company's DRIP program.
I finally received the shares in my Fidelity account, bought with the 7/2 dividend payment on 7/16, at a $6.1523 reinvestment price, so nothing is gained except the aggravation associated with delay:
6. Early Issuer Redemption Problem:
When interest rates are falling, bond issuers are tempted to redeem before the maturity dates. This adds to the reinvestment problem discussed above.
Since my last post, I received notice that Verizon was going to redeem a 2024 and 2027 maturity that I own:
While those redemption notices do not indicate the redemption dates, the notices are issued at least 30 days prior to the proposed redemption date which will probably be 8/15/19.
Next Monday, I will receive $6K in principal amount from HCP's early redemption of a February 1, 2020 SU bond maturity.
IR = 2.198%
5. Cash Flow Reinvestment Problem:
With stocks at new highs, longer term bond yields declining from historically low levels, and yields from short term treasury bills and CDs plummeting, the options for reinvesting cash flow look bleak.
The following snapshots show cash flow into my Fidelity account for 7/15.
The two 2019 Synchrony Financial bonds were redeemed by the issuer one month early.
The National Rural Utilities and Goldman Sachs (1) bonds pay monthly. The 2022 National Rural Utilities position is a two bond lot. The 2027 maturity is a 1 bond lot.
Other one bond lots shown in the preceding snapshots include the following:
2026 Black Hills 3.95%- Electric Utility
2025 Dow Chemical 3.9%
2023 Highwoods Realty 3.625% - Equity REIT
2026 Ventas 4.125% - Equity REIT
2022 Virginia Electric Power 2.95% - Electric Utility
Other two bond lot positions include:
Arizona Public Service 2.2% 1/15/20 Bond Detail
Broadcom 2.375% SU 1/15/20 Bond Detail
Kroger 3.3% SU 1/15/21 Bond Detail
Duke Energy Florida First Mortgage 1.85% 1/15/20 BondSysco 2.5% SU 7/15/21 Bond Detail
The 2.75% Alexander Real Estate SU maturing on 1/15/20 is a 4 bond position.
Small Ball Positions (each purchase has to be at the lowest price in the chain):
GNL 74+ Shares Lowest Cost Lot at $17.28
STWD 39+ Shares Lowest Cost Lot at $19.4
The following bonds matured:
2 Legg Mason 2.7% SU
2 Rockwell Collins 1.95% SU
Monthly Pay CDs: Bridgewater (1); Reliant (2), Smartbank (2)
Equity REIT Preferred: 50 shares of AHTPRI (average cost per share = $20.53)
Equity REIT Common Shares: 161+ Apple Hospitality
BDC: FSK dividend waiting for reinvestment price as of 7/17/19
Generally, brokers do not enroll their clients in company DRIP plans.
Instead, they aggregate the dividends scheduled for reinvestment and then buy shares in the open market.
Those purchases will occur at different times depending on the broker which results in disparate reinvestment prices. Differences in Prices Among Brokerage Firms for Reinvested Dividends (7/15/12 Post); Item # 1 Continuation of Discussions Re: Broker Price Differences For Reinvested Dividends (7/20/12 Post)
Fidelity has an arrangement with the Depository Trust Company who receives their customer dividends. DTC has enrolled some stocks in the company DRIP plans. If the DRIP program has a discount, that is the only way for the customer to receive a discounted price for the reinvestment when the shares are held in the street name.
Normally, the FSK would have been paid on 7/2 and other brokers would have already used those dividends to buy shares, usually no later than 7/3. The Schwab reinvestment price for FSK shares bought on 7/3 with my dividend payment was $6.156+ per share:
Since the reinvestment price for FSK shares held in my Fidelity account was not determined when I took the preceding snapshots on 7/15, this indicates that FSK is one of the stocks enrolled indirectly through DTC in that company's DRIP program, and consequently Fidelity did not aggregate the dividends and buy shares in the open market earlier.
As far as I can tell, FSK does not provide a discounted reinvestment price in its DRIP program, though it has the discretion to issue at a 5% discount when the market price exceeds the estimated net asset value per share which is not applicable now. Page 67
For shares bought with a dividend on the payment date or the day after, that will invariably indicate an open market purchase by the broker rather than a purchase through a company's DRIP program.
I finally received the shares in my Fidelity account, bought with the 7/2 dividend payment on 7/16, at a $6.1523 reinvestment price, so nothing is gained except the aggravation associated with delay:
6. Early Issuer Redemption Problem:
When interest rates are falling, bond issuers are tempted to redeem before the maturity dates. This adds to the reinvestment problem discussed above.
Since my last post, I received notice that Verizon was going to redeem a 2024 and 2027 maturity that I own:
Next Monday, I will receive $6K in principal amount from HCP's early redemption of a February 1, 2020 SU bond maturity.
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
VICI Properties Inc. (VICI)
ReplyDelete$ 22.30 +$0.07 (+0.31%)
As of 9:35AM EDT
I will discuss a 50 share purchase, made yesterday at $22.19, in about 2 weeks. I am mentioning that purchase now since an article was published about this REIT today at SA; and it may be behind the SA paywall before I get around to discussing the company.
https://seekingalpha.com/article/4275196-vici-properties-growth-ahead
I am looking for yield investment alternatives to cash that is building up rapidly in my sweep accounts, a growing problem that is discussed in this post.
I approached this new REIT with some trepidation giving its significant exposure to Eldorado Resorts (ERI). When I first started looking at VICI about a week ago, the first vision that popped into my aged brain was an older casino being blown up to make way for a newer one.
Yesterday, oil prices dipped soon after Donald and Pompeo claimed that IRAN was open to negotiating about its missile program. For reasons that impossible to understand, investors actually believed them. Iran responded that the claim was not true:
https://www.cnn.com/2019/07/16/politics/trump-pompeo-iran-negotiate-missiles/index.html
South Gent,
ReplyDeleteGood call on AHT preferred series on 7/10/2019. I placed limit orders for some but did not get hit. Are they still undervalued at the current price?
Y: I own 100 shares of AHTPRI.
DeleteI view AHT's preferred shares as high risk given the leverage (mortgages on all properties) and the external managers which I view unfavorably.
The 50% common dividend slash is theoretically a positive for preferred shareholders but that depends on how the external managers use the cash.
My preference would be to use the additional cash saved through the dividend reduction to lower the amount of secured debt.
The more likely use would be to buy more hotels financed in part by the cash and mostly by incurring more debt.
The AHT preferred shares are still in dive mode IMO.
Ashford Hospitality Trust, Inc. (AHT-PI)
$19.48 -$0.93 (-4.56%)
At close: 4:04PM EDT
It does not take many sellers to knock the price down substantially since buying interest tends to evaporate during price declines, at least until a balance is reached with buyers willing to step up to the plate.
For that one, there has been some buying support in the $18.5 to $19 range.
The shares are far more volatile than the average equity REIT preferred stock, reflecting the risk, the consensus negative opinion about the external managers (deserved IMO), and the negative opinion about Hotel REITs in general at this stage in the economic cycle.
I would not call AHTPRI undervalued at the current price.
Instead, the better question is whether the dividend yield at the current price is adequate compensation for the risk.
The risk is primarily the near total loss prospect after a BK.
While there was some dividend deferrals in the Hotel REIT space during or in the wake of the Near Depression (Sunstone e.g.), that risk is probably not the primary one being priced into these volatile AHT preferred stocks.
Precious metals were up today, responding to nothing in particular that I could find. There was a slight decline in the Dollar Index.
ReplyDeleteiShares Gold Trust (IAU)
$13.65 +$0.215 +1.60%
https://www.marketwatch.com/investing/fund/iau
IAU can be bought commission free at Fidelity. GLD can be bought commission free at other brokers.
I am not going to bust one of my few remaining functional brain cells trying to figure out what drives PM prices day-to-day.
Longer term, a rational argument could be made that central banks ("CBs") are gradually turning their currencies into so much confetti and that gold is an alternative to fiat currencies that are being persistently devalued by the CBs.
The extremely abnormal CB monetary policies throughout the developed world since 2007 can be understood in part by efforts to devalue fiat currencies in an ongoing trade war which has simply turned hotter with the implementation of tariffs by the U.S.
For a few years after the Near Depression, those extremely abnormal monetary policies could be justified as a reasonable response to economic conditions.
For the past five years or so, the policies are more in line with (1) devaluing currencies as nations compete for growth through exports, (2) goosing asset risk asset prices at the expense of returns from safe investments to create a wealth effect (illusory for most households), and (3) lowering the cost of servicing rapidly growing government debts.
I primarily play PMs through bullion ownership where I trade the long cycles. The bullion is stored in safety deposit boxes along with other valuables including a vintage baseball card collection and jewelry. The last gold and silver sales occurred when the prices went over $1900 and $40 respectively. Prices have not fallen enough for me to use the proceeds raised from those sales to buy again.
IBM is rising in after hours trading after reporting earnings:
International Business Machines Corp
$145.95 +$ 2.88 +2.01%
After Hours Volume: 549.4K
Last Updated: Jul 17, 2019 at 4:34 p.m. EDT
I have a small ball position with the last purchase made at $108.48 (12/24/18)
I am not likely to get excited about this report. Revenue declined by 4.2% and 1.6% adjusting for currencies. The revenue number is being dragged down by the legacy businesses and the strong USD.
Cloud unit revenues increased 5%.
GAAP net income rose to $2.50 billion, or $2.81 per share, in the second quarter ended June 30, from $2.40 billion, or $2.61 per share, a year earlier. Non-GAAP E.P.S. was reported at $3.17. "Gross profit margin up 100 basis points; largest year-to-year expansion in more than 5 years."
"Net cash from operating activities of $16.1 billion over the last 12 months; free cash flow of $12.7 billion over the last 12 months"
"Continues to expect Red Hat, including related activity, to be accretive to free cash flow in the first year, and accretive to operating (non-GAAP) earnings per share by the end of the second year after closing, as previously stated"
https://www.businesswire.com/news/home/20190717005773/en/IBM-Reports-2019-Second-Quarter-Results
Ray Dalio was probably responsible for the rally yesterday in gold.
ReplyDeleteHe published a long opinion piece on "Linked in" that ended with the following sentences:
"For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier."
https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/
Long time readers will see several observations that I have been making in that article.
While it is not possible to predict precisely when the "paradigm shift" will occur, the course of history is moving inextricably toward it, where governments monetize debt and devalue currencies and investors balk on buying debt with negative nominal returns and negative real returns where the nominal yield is positive.
Hello SG,
ReplyDeleteI wonder if u read Mark Grant on SA; he has been echoing your thesis of negative debt levels in Europe as designed by the ECB; with the new LeGarde admin of the ECB lighting the fuse for a debt bomb; my question, is what are the reasons in your opinion of a debtors strike on buying bonds; rapid unforeseen inflation, a recession? Just too low rates thanks
https://seekingalpha.com/article/4275465-road-emerald-city
G: There is no question that the Central Banks in the developed world have suppressed interest rates and created a world where negative real yields predominate.
DeleteCentral bankers claim that negative real rates maintained for an extended period of time, including over $13 trillion in negative nominal rate bonds, will produce inflation.
Apparently, facts do not matter to them. Where is the inflation and real GDP growth in Europe and Japan?
The ECB's extremely abnormal monetary policies are more likely creating anemic growth and abnormally low inflation. The ECB's monetary policies are more likely a disinflationary force than an inflationary one. The transmission of disinflation into the real economy occurs through a variety of avenues (e.g. less consumer discretionary income due to abnormally low rates; the use of vast sums to buy back stock and to increase dividend rather than into the real economy)
Dalio's opinion is closer to mine. There is no way to know the precise date when the "New Paradigm" will start but the seeds have been planted and being nurtured vigorously.
Pension funds and other institutional buyers of debt have future obligations that can not be met by debt instruments available for purchase now or for over a decade.
Sooner or later, buyers who have to meet future obligations with their fixed income investments will go on strike and demand much higher interest rates.
I do not expect that will happen this year or even next year, but it will happen soon enough since the amount of the rapidly growing new additions to worldwide debt, plus the need to refinance maturing securities, will exceed the demand or just about anyone's desire to buy more.
Based on CB thinking, a recession would likely accelerate extremely dovish FED policy and could lead to a negative FF rate and more QE.
Over the past decade, disinflationary forces have included interest rate suppression by CBs, globalization, technological and other advances, and the forced deleveraging that was necessary due to an unsustainable buildup in consumer debt (due in large part to debt financed housing purchases at inflated prices).
The globalization trend may be reversing now.
Technological advances appear to be moderating and are less likely to lead to productivity gains.
Some inflation indicators have started to run hotter. The Sticky price CPI is one of them.
Ashford Hospitality Trust 7.5% Pfd. Series I
ReplyDelete$19.05 -$0.43 -2.21%
Last Updated: Jul 18, 2019 11:35 a.m. EDT
When discussing this high risk preferred stock in a prior comment, I mentioned that I would not use the word "undervalued" in reference to its current price.
The yield at a total cost of $19.05 per share is 9.84%.
I would examine this preferred stock by identifying and understanding the risks first and then evaluating whether that yield is sufficient compensation to assume those risks.
Factors to be considered on the "reward" side of the equation include the low yields for "risk free" investments; the superior claim to cash compared to common shareholders, and the cumulative nature of the preferred dividends. The deferral of a preferred dividend can occur once the common share cash dividend is eliminated, but the preferred share dividend can not be eliminated short of a BK.
I have discussed the many negatives.
Once I have completed this process, I may take a pass on the investment altogether or make an investment.
The amount of the investment and the process of acquiring shares will be governed by the risk/reward balance assessment.
My 100 shares of AHTPRI is probably my maximum, giving weight to the risks, though I would not rule out one 20 to 30 share purchase at below $18. If an additional purchase is made, the highest cost 50 share lot will be sold at over $23.
The "process" of acquiring and disposing of shares is a risk reduction and management tool for me, taking into my first objective of capital preservation and my secondary objective of income generation.
That process will include buying dips and selling the highest cost lots into rips; eliminating or paring risk positions; rarely buying a full position in one trade; and creating a constant stream of cash flow that can be redirected into opportunities when and if they arise without having to sell securities at a loss to finance new purchases.
The AHTPRI position is what I describe as "light years" below immaterial. I would obviously have a much larger position if I thought there was no risk or minimal risk to the principal amount invested.
Another point that I would make is that AHT has several functionally equivalent preferred stocks. One issue may be better overall than another.
AHT did redeem at par value a good chunk of AHTPRD with proceeds received from a new preferred stock. That resulted in a family member's position in that one being reduced to a small odd lot.
Ashford Hospitality Trust Inc. 8.45% Cum. Pfd. Series D
$22.05 -$0.941 -4.09%
https://www.marketwatch.com/investing/stock/aht.prd
The yield on AHTPRD at $22.05 is at 9.58%.
Another consideration is whether AHT will use the savings from the common dividend slash to redeem the remaining AHTPRD shares, which are the highest coupon series, at the $25 par value. That is far less likely to occur with the other preferred series.
August 2017 Press Release:
https://www.prnewswire.com/news-releases/ashford-trust-announces-redemption-of-series-a-and-partial-redemption-of-series-d-preferred-stock-300505733.html
November 2007 Press Release
https://www.prnewswire.com/news-releases/ashford-trust-announces-partial-redemption-of-series-d-preferred-stock-300552465.html
Those redemptions left 2,389,393 Series D shares as of 3/31/19.
I doubt a full call will happen since that would cost $59+M at the $25 par value. I do not recall whether AHT has the right to purchase its preferred stocks in the market.
The 50% reduction in the common dividend will save about $23.8+ annually using the last reported share total.
The optional call provision can factor into the choice as well, particularly when the current yields of two or more preferred stocks are close and one is selling above par value with a likely call on the near horizon.
Another way to look at it is that AHTPRI is closer to zero.
The probability of a .5% cut in the federal funds rate later this month soared to 70% from 34.3% yesterday. The probability was at 19.9% a week ago:
ReplyDeletehttps://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Citizens Financial Group Inc.
ReplyDelete$36.13 +$ 1.51 +4.36%
https://www.marketwatch.com/investing/stock/cfg
The pop is due to an earnings report released this morning:
https://seekingalpha.com/news/3479301-citizens-financial-q2-results-beat-nim-declines?mod=mw_quote_news
CFG raised its quarterly dividend to $.36 from $.32. The Board authorized a stock repurchase of up to $1.275B.
Earnings Report:
https://www.sec.gov/Archives/edgar/data/759944/000119312519197139/d11904dex991.htm
I have a small ball position with the last lot bought at $30.85 on 12/12/18. I am reinvesting the dividend.
I have not been buying regional bank stocks this year due primarily to the unfavorable yield curve.
I also own 4 Citizens Financial 2.375% SU bonds maturing on 7/8/21:
Finra Page:
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C658481&symbol=CFG4387509
The yield spread between investment grade bonds maturing in 2 years and the 2 year treasury note has widened as of late. For example, this CFG SU is rated at BBB+ and last traded at 99.83 (YTM at 2.46% all in)
The two year treasury note is currently trading at a 1.79% yield:
https://www.marketwatch.com/investing/bond/tmubmusd02y?countrycode=bx
"""The Fed chairman says the relationship between inflation and unemployment is gone"""
ReplyDeleteWhat's puzzling is that employment isn't that good. It shows as low, but so many people are underemployeed, or working two jobs, or not feeling they have opportunities to move from their job. I haven't figured out why yet. Media keeps calling it a good economy. It's better than after the near recession, but this doesn't feel "good" just slowly moving along.
On Trump "go home tweets", this is an interesting thread:
https://twitter.com/jaketapper/status/1151607134905389056?s=21
The medicals I mentioned before, require a lot of research, information (2nd opinions). So haven't been paying attention to investing. What I've seen hasn't been much change. It looks like tradewars are no longer a market worry. So I was surprised to see that link in here.
L: This article summarizes the economic theories relating to inflation and unemployment.
Deletehttps://www.investopedia.com/articles/markets/081515/how-inflation-and-unemployment-are-related.asp
The relationship between inflation and unemployment can not be evaluated in isolation from other factors that suppress or contribute to inflationary pressures. Over the past decade, there have been a number of powerful disinflationary and deflation forces that have overwhelmed the inflationary ones.
When 40% of U.S. households can not pay a $400 unexpected expense with cash on hand, the benefits of the expansion, record stock market levels and a 37+ year bull market in bonds is obviously not trickling down very far.
https://money.cnn.com/2018/05/22/pf/emergency-expenses-household-finances/index.html
The U-6 unemployment rate has come steadily down since 2008:
" Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons"
https://fred.stlouisfed.org/series/U6RATE
For households in the bottom 3 income quintiles, real wage growth has been negligible or negative for several decades.
For example, the minimum wage peaked in inflation adjusted terms in 1968. Between 2009 and 2016, the minimum wage has lost almost 10% of its purchasing power to inflation.
https://www.pewresearch.org/fact-tank/2017/01/04/5-facts-about-the-minimum-wage/
Nonetheless, there is widespread opposition, and almost unanimous among republican politicians, to gradually increasing the minimum wage to $15 over the next six years.
Labor has lost the battle with employers for close to 4 decades on how to divide increases in income resulting from gains in worker productivity. The republicans would like to keep that allocation way out of balance in favor of capital.
https://www.epi.org/productivity-pay-gap/
https://www.epi.org/publication/raising-the-federal-minimum-wage-to-15-by-2024-would-lift-pay-for-nearly-40-million-workers/
Trade war concerns are still present but are presently being ignored by most investors. It doesn't look to me like Donald will resolve the trade war with China and the negative impacts are building slowly.
I would be in favor of sending all of the Trumps back to Germany.
I would add this citation to my prior comment about the ability of U.S. households to pay an unexpected $400 expense. The article was just published at CNBC:
Deletehttps://www.cnbc.com/2019/07/20/heres-why-so-many-americans-cant-handle-a-400-unexpected-expense.html
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/07/observations-and-sample-of-recent_20.html