Observations and Sample of Recent Trades: BHRPRD, KR

Economy: 

US existing home sales June 2019: Down 1.7% (consensus estimate was -.2%)

Trump's tariffs trip up the all-American RV industry - Reuters (RV shipments to dealers have declined 22% this year, compared to 2018, over the first five months. Shipments were down 4% last year. The industry has been hit by cost increases caused by Trump's tariffs on aluminum and steel as well as "other duties on scores of Chinese-made RV parts, from plumbing fixtures to electronic components to vinyl seat covers.")  

The biggest bull market ever — yet disaster looms for millions of retirees - MarketWatch

Trump wades into debate over controversial Fed speech Thursday, calls for end to tight policy-More companies blame tariffs than Fed for slowing economy

Will the global debt bomb explode again?-Washington Post (mentions that $3 trillion in emerging market debt has to be rolled over by the end of 2020). 

++++

Markets and Market Commentary: 

Market needs deep rate cut to prevent earnings recession: James Bianco

One of Warren Buffet's favorite metrics is flashing red — a sign that corporate profits are due for a hit

Head of the world’s largest hedge fund Ray Dalio says a ‘paradigm shift’ in markets now makes gold a good bet - MarketWatch; Paradigm Shifts I commented on Dalio's thoughts here. 

Trade war blame game will intensify this earnings season: Wells Fargo

DOJ says it will take a broad antitrust look at Big Tech; stocks dip  

+++++

This is an incredible cover of Led Zeppelin's Stairway to Heaven: Heart (Ann Wilson vocals) - Stairway to Heaven (Live at Kennedy Center Honors Led Zeppelin) [FULL VERSION] - YouTube

+++++

Issuer Redemption Notices: 

Since my last post, I received notice that the REIT Ventas (VTR) will redeem its 2.7% SU maturing on 4/1/20 on 8/19/19. I own 6 bonds with 3 of them owned in my Fidelity taxable account: 

There will be a small make whole payment of $16.8 for the six bonds, plus accrued interest, in addition to the $6K in principal amount. 

Goldman Sacks will redeem on 7/29/19 its 2.75% SU maturing on 5/29/20. I own 1 bond. 

I recently bought that bond (4/30/19). Item # 3.E.

I am making my reinvestment problem worse by selling intermediate term corporate bonds, but I would prefer realizing the gains now rather than receiving the relatively low interest payments. 

I am trading intermediate term corporate bonds aggressively. 

Hopefully, there will be another interest rate spike next year where I can buy the bonds back closer to their respective maturities and at lower prices than my previous purchases.      

+++++

Portfolio Management: 

I am going to redirect the proceeds from some maturing securities into dividend growth stocks. I will be limiting my selection to stocks with starting yields over 3% that have already been beaten up. Kroger and Kellogg are in this category. 

This article lists several stocks in that category: These dividend stocks haven’t been scooped up by investors yet-MarketWatch {I am not chomping at the bit to buy Macy's, Macerich Co., and Simon Property Group Inc, three  of the stocks mentioned in that article. Macerich and Simon Property are mall REITs. Newell Brands Inc. is on my watch list, but its turnaround is too iffy and its debt load is worrisome.}

I am exercising some judgment that the stock declines have probably been overdone to the downside; or at least the recent declines in prices squeezes out much of the downside risks.  

I will not buy a full position in one trade and will reserve an option to average down. If I average down, I will consider selling the higher cost lot when I can do so profitably.  

Stocks like Kroger and Kellogg are clearly out-of-favor and may remain so for an unknowable period of time. 

For these kind of stocks, victory is defined as a realized annualized total return in excess of 7%.  

CD yields have both fallen and flattened out along the yield curve: 

++++

Trump: 

The Nobel Peace Prize Winner Nadia Murad told Donald that ISIS had killed her family. The Duck then asked her "Where are they now".  A Yazidi woman from Iraq told Trump that ISIS killed her family. ‘Where are they now?’ he asked. - The Washington Post

Donald is not a good listener, which is usually the case for those who have the narcissistic personality disorder. Narcissistic personality disorder - Symptoms and causes-Mayo Clinic (Donald check's all of the boxes for that mental illness) He enjoys listening to himself pontificate on an endless variety of subjects where his ignorance radiates blindingly bright, easily visible to those who are not blind.   

It looks like Trump's DOJ has placed a muzzle on Mueller's testimony. DOJ tells Robert Mueller 'any testimony must remain in the boundaries of your public report' I will not be watching his testimony today. 

Facts straight from Mueller’s mouth? They won’t put out the gaslighting fire - The Washington Post ("Gaslighting explains why fact-checking generally doesn’t work. And if the truth contradicts people’s favored leaders, hearing it might even push some voters to harden their opposition to it. Trying to contain gaslighting with the truth is like fighting a wildfire with surgical forceps.") 

The author believes that it is possible to penetrate the  Trumpster's Alternate Reality with facts. I view it as futile and a waste of time.   

Trump is a gaslighter and has mastered the art for the tens of millions who are susceptible to manipulation by this demagogue. 

Trump: “Stick with us. Don't believe the crap you see from these people, the fake news . . . What you’re seeing and what you’re reading is not what’s happening.”  Translation: Ignore facts and believe whatever the Duck says. 

'Send her back!' chant shows Trump's ugly plan to get reelected The Trumpsters new chant of "Send her back" refers to Ilhan Abdullahi Omar who was born in Somalia and became a U.S. citizen in 2000 when she was 17. Melania Trump claims to have become a citizen in 2006.  

My idea is to send all of the Trumps back to Germany.  

Maybe we can allow Donald to come back when and if he can pass the citizenship test. Some Trump opponents may complain about such leniency. I view it as unlikely that Donald could ever pass a citizenship test since reality creations about American history are not viewed as correct answers by the test graders. 

Most of us would fail the U.S. citizenship test, survey finds

The Extremely Stable Genius sees a difference behind the Trumpster's chant "send her back" and his tweet "go back". Trump says he disagrees with ‘send her back’ chant directed at Rep. Omar during his rally despite his previous ‘go back’ tweet Both are clearly racist comments and are recognized as such by most people, excluding the Trumpsters of course.  

Donald was really not concerned about anyone viewing his "go back" comments as racist since "many people agree." Trump on racist tweets: “It doesn’t concern me because many people agree” - Vox He is right about that claim. A poll showed that a majority of republicans agreed with him. Most Republicans agree with Trump’s ‘go back’ to your country tweets, polls show - MarketWatch   

How a racist tweet became a Trump rally chant in three short days - The Washington Post

Trump calls rally crowd ‘incredible patriots,’ a day after trying to distance himself from ‘Send her back!’ - The Washington Post

40% of Americans agree with Trump's "go back" to their countries tweet: Most Americans disagree with Trump's "go back" tweets — CBS News poll - CBS News; NBC News poll of the South: Voters' support for Trump grows 

Illinois GOP group removes post calling congresswomen ‘Jihad Squad’  

Gretna police officers Charlie Rispoli and Angelo Varisco fired for suggesting Alexandria Ocasio-Cortez "needs a round" after reading fake news post on Facebook - CBS News It is hard for me to determine whether the Russians or the Trumpsters are the primary spreaders of fake news in the U.S.

Here's the British bigot who Trump retweets-CNN

Their ancestors were slain a century ago along the US-Mexico border by Texas Rangers. They say now is the time to retell the horror - CNN There are two Americas. I am not talking about blue and red states here.  

Opinion | Donald Trump Hates America - The New York Times (opinion column written by the centrist David Brooks)

Thanks to Demagogue Don and other reality creators, a recent poll found that 1/3rd of Americans still believe Obama was probably born in Kenya.  

Fact-checking Trump’s misleading attacks on Omar, Ocasio-Cortez in North Carolina | PolitiFact; 

Trump's False Claims About Rep. Ilhan Omar - FactCheck.org Facts do not matter to Trump and his True Believers and never will.  

Trump and Stephen Miller falsely claimed that Alexandria Ocasio-Cortez called the U.S. garbage when she clearly said that some policies were garbage in her opinion. Fox News Defends AOC and Uses Trump Tweet To Destroy Stephen Miller

There can be reasoned and good faith criticisms of policy proposals made by Democrats without resorting to knowingly false characterizations of their statements. The Trumpsters are just more easily swayed and incensed by the false narratives created by Trump and his minions than by good faith and factually based discussions of policy which bores them.  

The Extremely Stable Genius claimed that he could win the Afghan war in 1 week, but has so far refrained from implementing his victory plan since it would require killing 10 million people. Trump: I could win Afghanistan war 'in a week'-POLITICO; Afghanistan asks for explanation after Trump claims US could wipe it 'off the face of the Earth' 

Perhaps those 10 million people need to profusely express their gratitude that the Duck is such a humanitarian, as proven by his life's work of good deeds and charitable contributions prior to becoming President and his never failing attendance at church services. 

+++++

1. Bought 50 KR at $21.16-Used Commission Free Trade:

This purchase, like the Kellogg one discussed in the prior post, is best described as thoroughly contrarian. The problems are well known but are probably overblown IMO based on the $21.16 price. 

On the day of my purchase (7/22/19), the stock made a new 52 week low. 

The stock is in falling knife mode. 

I will consider buying another 50 shares at below $20. 

Closing Price Yesterday: KR $20.82 -$0.04 -0.19% (a new 52 week low of $20.7 was hit intra-day)

Quote: Kroger Co.  (KR)
P/E On Next F/Y Year's EPS Consensus estimate of $2.31 = 9.01 (at $20.82 closing price 7/23) 
Sourced as of 7/23/19: KR | Kroger Co. Analyst Estimates | MarketWatch

Overview – The Kroger Co.
KR SEC Filings
KR 10-Q for the Q/E 3/25/19
Annual Report for the F/Y Ending on 2/2/19

Dividends: Quarterly at $.16, raised from $.14 effective for the 2019 3rd quarter ($.64 annually)

Dividends – The Kroger Co.

Kroger Board of Directors Raises Quarterly Dividend by 14%

The quarterly rate was at $.045 per share 10 years ago.

Next Ex Dividend Date: 8/14/19

Dividend Yield at $21.16= 3.03%

KR 5 Year Chart as of day of purchase (7/22/19): Ugly

Maybe my mind has turned to mush since I actually find that chart appealing for a first time purchase.

Analyst Reports:

Argus (3/2019): Buy with a $30 price target reduced from $35

Morningstar (6/20/19): 4 stars with a FV at $28.5 

S & P (6/20/19): 4 stars with a $27 price target

Credit Suisse (6/20/19): Outperform with a $27 PT reduced from $30

All of those reports are available to Schwab customers.

Recent Earnings Report: Kroger Reports First Quarter 2019 Results (released on 6/20/19)

GAAP E.P.S. = $.95
Non-GAAP E.P.S. = $.72
Ex Fuel Same Store Sales: 1.5%
Digital Sales: = +42%
Net Debt to Adjusted EBITDA = 2.54

The GAAP number is higher due to a $57M real estate gain.

The market and analysts generally responded unfavorably to this report. 

The Credit Suisse analyst reduced the PT to $27 from $30 in response, calling the report "uninspiring" and doing "little to derail the bear and (far more unpopular) bull theses". One can only glance at the stock chart and conclude that the bear thesis is the popular one.

A central part of the bear thesis is competition originating from Amazon's acquisition of Whole Foods, the grocery departments at Walmart and Target, and other grocery retailers.

The negativity is IMO generated by accentuating the negative and downplaying the positive.

The CS analyst emphasized, for example, that identical store sales increased by 1.5% compared to the consensus 1.7% which was regarded as material by that analyst. That analyst acknowledged that the non-GAAP E.P.S. beat the consensus estimate by 1 cent.

One positive is Kroger's growing private label brands. The company added 219 new private label brands during the quarter that will generated $225M in incremental sales during the quarter. Private label brand sales increased overall by 3.3%. Kroger's private brands generated about 30.5% of its total unit sales in F/Y 2018.

Kroger has now implemented digital ordering and curbside pickup in all of its 2750 stores.

The natural and organic store brand Simple Truth hit $2.3B in revenues in F/Y 18. Argus notes that Simple Truth was now the largest natural and organic brand by volume.

Argus also points out that KR has increased its dividend at a compound annual rate of 11.5% over the past 5 years.

2019 Guidance as of 6/20/19:

Other Material News:

Kroger Completes Sale of Turkey Hill Business to Peak Rock Capital Affiliate (4/29/19)(sold for $215M and will use proceeds to reduce debt)

Kroger Completes Sale of Convenience Store Business to EG Group (4/20/18)(after tax proceeds of $1.7B of which $1.2B was used for an accelerated share repurchase program)

Senior Unsecured Bonds: Rated Baa1/BBB

I have been trading KR's senior unsecured debt and have recently eliminated all of my KR intermediate term bonds. Those sales were not motivated by concerns about credit risk. I have substantially pared my intermediate corporate bond exposure by selling into a strong bond rally.

Those bonds were sold with the anticipation of buying them back during the next interest rate spike. 

I currently own the following KR SU bonds: $4K par value

2 KR 1.5% SU Maturing on 9/30/19
2 KR 3.3% SU Maturing on 1/15/21

2. Intermediate Term Bond Ladder Basket Strategy: 

A. Sold 1 GATX 3.25% SU Maturing on 9/15/26: 

Profit Snapshot: $53.55

Item #  4.A. Bought 1 GATX 2026 SU at a TC of (3/23/19 Post) 

Finra Page: Bond Detail

As shown in the FINRA price chart, this bond closed at 89.7 on 11/30/18. I bought this bond in March 2019. The decline in this bond's price reflected in that chart was not due to increased credit risks but to a rise in interest rates late last year. 

Issuer: GATX Corp. 

GATX Corp. Analyst Estimates 

Sold at 99.227

YTM at 99.227 = 3.371%

Proceeds at 99.127 (after $1 commission)

I previously sold this bond at 97.543: Item # 4.C. (12/26/17 Post) The YTM then was 3.579%. 

In this account, I have 2 GATX 2.5% SU bonds that mature on 7/30/19.

B. Sold 1 GATX 3.25% SU Maturing on 3/30/25: 

Profit Snapshot: +$18.75

Item # 1.E. Bought 1 GATX 2023 SU at a Total Cost of  97.095 (3/13/17 Post)

History: 

FINRA Page: Bond Detail

Sold at 99.919
YTM at 99.919 = 3.265%
Proceeds at 99.719 (after $2 brokerage commission)

3. Eliminations:

A. Sold 50 BHRPRD at $25.25:

Quote: Braemar Hotels & Resorts Inc. 8.25% Preferred Series D Stock
Issuer: Braemar Hotels & Resorts Inc. (BHR) (externally managed-major negative in this case)

Profit Snapshot: +$251.44

Item # 1.A. Bought 50 BHRPRD at $20.02 (1/20/19 Post)

Security Description:

Prospectus 

Par Value= $25
Classification: Equity Preferred Stock
Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks
Capital Structure Placement: Senior only to common stock
Stopper Clause: Yes
Dividend: Quarterly, Cumulative and Non-Qualified
Issuer Optional Call: On or after 11/20/23

Last Ex Dividend: 6/27/19 (received, see snapshot above)

4. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 9 Treasury 28 Day Bills Maturing on 8/20/19: 
IR = 2.128% 

This purchase flushes out the recently received proceeds from maturing short term securities. The purchases of one month treasury bills at auctions only briefly postpones my Day of Reckoning relating to reinvestment options.   

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.