Economy:
The NY FED currently predicts that real GDP growth will be 1.6% in the 2019 third quarter. Nowcasting Report - FEDERAL RESERVE BANK of NEW YORK The Atlanta FED's model estimates a 1.9% increase. I would emphasize that this growth is being generated with federal budgets deficits running at near $1 trillion annually, abnormally low interest rates and the huge tax cuts for the "job creators" and corporations. Deficit Tracker | Bipartisan Policy Center (latest prediction is a $1.1 trillion federal deficit for the F/Y ending next September) That deficit is more than the U.S. government's outstanding debt in the F/Y ending in September 1981. Government - Historical Debt Outstanding - Annual 1950 - 1999
Trump says US is not going to do business with Huawei, not ready to make a trade deal with China
Trade war: Goldman Sachs does not expect US-China deal before 2020 election This has been my expectation for several months.
The NY FED currently predicts that real GDP growth will be 1.6% in the 2019 third quarter. Nowcasting Report - FEDERAL RESERVE BANK of NEW YORK The Atlanta FED's model estimates a 1.9% increase. I would emphasize that this growth is being generated with federal budgets deficits running at near $1 trillion annually, abnormally low interest rates and the huge tax cuts for the "job creators" and corporations. Deficit Tracker | Bipartisan Policy Center (latest prediction is a $1.1 trillion federal deficit for the F/Y ending next September) That deficit is more than the U.S. government's outstanding debt in the F/Y ending in September 1981. Government - Historical Debt Outstanding - Annual 1950 - 1999
Trump says US is not going to do business with Huawei, not ready to make a trade deal with China
Trade war: Goldman Sachs does not expect US-China deal before 2020 election This has been my expectation for several months.
China has made it clear that it will not accede to Donald's demands.
Trump actually believes that he is an Extremely Stable Genius IMO, when he is obviously neither stable nor a genius, and that strong arm tactics and bullying will work on powerful nation states.
He is drawing on his life long business tactics that used bullying and threats to achieve his goals against small business owners, individuals and lenders. USA TODAY exclusive: Hundreds allege Donald Trump doesn’t pay his bills
There’s a lot more to the stock market’s slide than Trump and trade wars - MarketWatch This article is an opinion piece written by Ed Yardeni. The fundamental premise is that demographics has contributed, and will continue to do so, to a prolonged period of subpar growth, low inflation and abnormally low interest rates. Monetary policy is tailored to meet the needs of "geriatric economies" which is a consequence "of below-replacement fertility rates." In Yardeni's view, the aging of the population is inherently and inevitably deflationary which is only being offset by expansionary fiscal and monetary policies.
Negative-yielding debt in the world balloons to $15 trillion
How bonds with negative yields work and why this growing phenomenon is so bad for the economy
Mortgage Applications Increase in Latest MBA Weekly Survey | Mortgage Bankers Association (Up 5.3% from the prior week on a seasonally adjusted basis but down 5% without a seasonal adjustment. The decline in U.S. interest rates is not producing a surge in new mortgage applications).
30-Year Fixed-Rate Mortgages Since 1971 - Freddie Mac
US-China trade war is hurting farmers, but they're sticking with Trump These Trump supporters are not paying the price for the tariff war. Instead, other Americans are subsidizing farmers through federal hand out programs financed in part by the tariff taxes paid by other U.S. citizens and businesses.
A poll showed that 78% of farmers believed that Donald's trade war with China will benefit U.S. agriculture. Purdue University Agricultural Economy Barometer That is simply delusional. What is China going to do when the tariff war ends other than to start buying U.S. farm products again, probably at a lower level than before the tariff war started. Other countries will replace some U.S. production, particularly in soybeans sales. What exactly has China done to U.S. farmers other than to be a major customer?
Core producer prices declined .1% last month, the first decline in 4 years. Producer prices are up 1.7% Y-O-Y through July. Producer Price Index News Release summary
The central banks of New Zealand, India and Thailand cut interest rates last week. I view those unexpected actions to be in response to the Yuan's decline. Central banks are cutting interest rates aggressively: Here's why The worldwide Central Bank Jihad Against the Savings Class is once again accelerating.
While there is some debate and disagreements, the majority opinion is China is actually keeping the Yuan from falling more. Kyle Bass: China's currency would drop 30% to 40% without support
How bonds with negative yields work and why this growing phenomenon is so bad for the economy
Mortgage Applications Increase in Latest MBA Weekly Survey | Mortgage Bankers Association (Up 5.3% from the prior week on a seasonally adjusted basis but down 5% without a seasonal adjustment. The decline in U.S. interest rates is not producing a surge in new mortgage applications).
30-Year Fixed-Rate Mortgages Since 1971 - Freddie Mac
US-China trade war is hurting farmers, but they're sticking with Trump These Trump supporters are not paying the price for the tariff war. Instead, other Americans are subsidizing farmers through federal hand out programs financed in part by the tariff taxes paid by other U.S. citizens and businesses.
A poll showed that 78% of farmers believed that Donald's trade war with China will benefit U.S. agriculture. Purdue University Agricultural Economy Barometer That is simply delusional. What is China going to do when the tariff war ends other than to start buying U.S. farm products again, probably at a lower level than before the tariff war started. Other countries will replace some U.S. production, particularly in soybeans sales. What exactly has China done to U.S. farmers other than to be a major customer?
Core producer prices declined .1% last month, the first decline in 4 years. Producer prices are up 1.7% Y-O-Y through July. Producer Price Index News Release summary
The central banks of New Zealand, India and Thailand cut interest rates last week. I view those unexpected actions to be in response to the Yuan's decline. Central banks are cutting interest rates aggressively: Here's why The worldwide Central Bank Jihad Against the Savings Class is once again accelerating.
While there is some debate and disagreements, the majority opinion is China is actually keeping the Yuan from falling more. Kyle Bass: China's currency would drop 30% to 40% without support
+++++
Markets and Market Commentary:
U.S. freezes all Venezuelan government assets in major escalation - MarketWatch
U.K. economy shrinks for first time since 2012 as Brexit bites - MarketWatch
Earnings recession is nearly certain with 90% of S&P 500 having reported - MarketWatch
A JPM market strategist believes that Trump will settle the trade dispute before the election and stocks will rise to new highs. Why this JPMorgan strategist says markets will regain previous highs While anything is possible, I regard that type of analysis as just another effort to diminish the trade disputes as a mere temporary and relatively insignificant headwind for higher stock prices.
Kraft Heinz stock sinks 14% after preliminary report shows more than $1.2 billion in first-half impairment charges - MarketWatch I do not own the stock and have no intention on buying any shares north of $20. I do own 2 KHC 2.8% SU bonds maturing on 7/1/20 that have been downgraded by Moody's and S & P to one notch above junk. Bond Detail A downgrade to junk is certainly possible. It would be prudent IMO for the KHC Board to slash the dividend again.
NorthWest Healthcare Properties Real Estate Investment Trust Releases Strong Second Quarter 2019 Results I currently own 500 CAD priced shares and have traded this Canadian REIT several times over the years. My last purchases were discussed in these posts: Item # 1.B. Bought 100 NWH.UN.CA at C$9.67(1/20/19 Post); Item #1.A Bought 100 at C$10.58 (3/12/18 Post). I currently have close to a C$1K unrealized gain in those shares. My largest sell was a 1000 share lot where I immediately converted the proceeds to USDs. Item # 1.A. (profit snapshot= US$606.31) This REIT has been funding growth through a series of stock offerings, with this one being the latest: NorthWest Healthcare Properties REIT Announces Successful Completion of Previously Announced Bought Deal Equity Offering and Full Exercise of Over-Allotment Option for Gross Proceeds of Approximately $172.6 Million
Closing Price Last Friday: NWH-UN.TO C$11.51 -$C0.26 -2.21%
FS KKR Capital upgraded to Overweight from Neutral at JPMorgan FSK - The Fly The price target is $6.5. I would consider selling my position in the $6.5 to $7 range. To move up into that range, FSK will probably need to report another increase in net asset value per share this quarter and possibly an additional penny or two in NII IMO. FSK $5.81 -$0.09 -1.53%
+++++
Portfolio Management:
I am currently planning for another extended period of negative real interest rates.
When the next recession hits, I expect yields on treasury bills will be taken below zero. Short term treasury notes (2 to 5 years) may break zero as well.
The sharp downtrend in interest rates, coupled with share buybacks, are providing fuel for stock purchases.
I am focusing on buying common stocks with greater than 4% dividend yields in response to this interest rate forecast.
Yesterday, for example, I started a small ball buying "program" in two electric utility stocks. I selected two that had not done much over the past year or so.
I am nibbling at some stocks that I view negatively, but their price declines have squeezed out some of the obvious risks. An example is SKT discussed below.
When playing small ball using commission free trades, I will consider selling the highest cost lot (or some fraction thereof) when I can do so profitably. I sold 10 shares of the recently bought 60 Kellogg shares after a price surge as discussed below.
Small ball trading using commission free trades is primarily a risk reduction technique that results, when successful, in some realized gains and a higher dividend yield. Buying more shares at the lowest price in the chain is coupled with selling the highest cost shares when I can do so profitably.
I have started to sell some corporate bonds maturing in 1 to 3 years at over par value. I am not giving up much income while harvesting early more of a gain compared to holding the bond until maturity.
For the Savings Class, the yield curve looks ugly and will likely become worse on the short end:
Daily Treasury Yield Curve Rates
The Bond Ghouls are clearly telegraphing that short term rates will continue to fall.
Countdown to FOMC: CME FedWatch Tool
As shown in that snapshot, the probability of another .25% FF cut before year end is at 100%. The odds of a .5% cut is at 85.4%. The probability of at least a .75% reduction by year end is at 38.2%.
Money market fund rates are plummeting and can reasonably be expected to fall significantly lower over the next year.
One of the two sweep money market funds available at Fidelity is the Government MM fund which generally has a higher yield than the other one. The current 7 day yield is 1.85%:
If the foregoing interest rate forecast proves prescient, then short term rates will fall meaningfully below the inflation rate within one year, providing a negative real return before taxes.
Stock Jocks believe that negative real rates will juice the U.S. economy. The more likely result at this stage in the economic cycle will be deflationary IMO and will accelerate price bubbles in risk assets. Bubbles can create wealth for those willing to shoulder the risk until the bubble pops.
I am deeply in my bunker waiting for incoming and far better buying opportunities in risk assets.
U.K. economy shrinks for first time since 2012 as Brexit bites - MarketWatch
Earnings recession is nearly certain with 90% of S&P 500 having reported - MarketWatch
A JPM market strategist believes that Trump will settle the trade dispute before the election and stocks will rise to new highs. Why this JPMorgan strategist says markets will regain previous highs While anything is possible, I regard that type of analysis as just another effort to diminish the trade disputes as a mere temporary and relatively insignificant headwind for higher stock prices.
Kraft Heinz stock sinks 14% after preliminary report shows more than $1.2 billion in first-half impairment charges - MarketWatch I do not own the stock and have no intention on buying any shares north of $20. I do own 2 KHC 2.8% SU bonds maturing on 7/1/20 that have been downgraded by Moody's and S & P to one notch above junk. Bond Detail A downgrade to junk is certainly possible. It would be prudent IMO for the KHC Board to slash the dividend again.
NorthWest Healthcare Properties Real Estate Investment Trust Releases Strong Second Quarter 2019 Results I currently own 500 CAD priced shares and have traded this Canadian REIT several times over the years. My last purchases were discussed in these posts: Item # 1.B. Bought 100 NWH.UN.CA at C$9.67(1/20/19 Post); Item #1.A Bought 100 at C$10.58 (3/12/18 Post). I currently have close to a C$1K unrealized gain in those shares. My largest sell was a 1000 share lot where I immediately converted the proceeds to USDs. Item # 1.A. (profit snapshot= US$606.31) This REIT has been funding growth through a series of stock offerings, with this one being the latest: NorthWest Healthcare Properties REIT Announces Successful Completion of Previously Announced Bought Deal Equity Offering and Full Exercise of Over-Allotment Option for Gross Proceeds of Approximately $172.6 Million
Closing Price Last Friday: NWH-UN.TO C$11.51 -$C0.26 -2.21%
FS KKR Capital upgraded to Overweight from Neutral at JPMorgan FSK - The Fly The price target is $6.5. I would consider selling my position in the $6.5 to $7 range. To move up into that range, FSK will probably need to report another increase in net asset value per share this quarter and possibly an additional penny or two in NII IMO. FSK $5.81 -$0.09 -1.53%
+++++
Portfolio Management:
I am currently planning for another extended period of negative real interest rates.
When the next recession hits, I expect yields on treasury bills will be taken below zero. Short term treasury notes (2 to 5 years) may break zero as well.
The sharp downtrend in interest rates, coupled with share buybacks, are providing fuel for stock purchases.
I am focusing on buying common stocks with greater than 4% dividend yields in response to this interest rate forecast.
Yesterday, for example, I started a small ball buying "program" in two electric utility stocks. I selected two that had not done much over the past year or so.
I am nibbling at some stocks that I view negatively, but their price declines have squeezed out some of the obvious risks. An example is SKT discussed below.
When playing small ball using commission free trades, I will consider selling the highest cost lot (or some fraction thereof) when I can do so profitably. I sold 10 shares of the recently bought 60 Kellogg shares after a price surge as discussed below.
Small ball trading using commission free trades is primarily a risk reduction technique that results, when successful, in some realized gains and a higher dividend yield. Buying more shares at the lowest price in the chain is coupled with selling the highest cost shares when I can do so profitably.
I have started to sell some corporate bonds maturing in 1 to 3 years at over par value. I am not giving up much income while harvesting early more of a gain compared to holding the bond until maturity.
For the Savings Class, the yield curve looks ugly and will likely become worse on the short end:
The Bond Ghouls are clearly telegraphing that short term rates will continue to fall.
 |
| FF Range Probabilities On or Before 12/11/19 FED Meeting |
As shown in that snapshot, the probability of another .25% FF cut before year end is at 100%. The odds of a .5% cut is at 85.4%. The probability of at least a .75% reduction by year end is at 38.2%.
Money market fund rates are plummeting and can reasonably be expected to fall significantly lower over the next year.
One of the two sweep money market funds available at Fidelity is the Government MM fund which generally has a higher yield than the other one. The current 7 day yield is 1.85%:
If the foregoing interest rate forecast proves prescient, then short term rates will fall meaningfully below the inflation rate within one year, providing a negative real return before taxes.
Stock Jocks believe that negative real rates will juice the U.S. economy. The more likely result at this stage in the economic cycle will be deflationary IMO and will accelerate price bubbles in risk assets. Bubbles can create wealth for those willing to shoulder the risk until the bubble pops.
I am deeply in my bunker waiting for incoming and far better buying opportunities in risk assets.
++++++
Trump:
Tucker Carlson: White supremacy is a 'hoax' and 'not a real problem' Tucker convinced his soul brother Donald that a war with IRAN was not advisable at the moment since it would hurt the Duck's reelection chances. Tucker Carlson Tells Trump in Private: No War With Iran
Trump suggests tying gun measures to immigration after shooting that targeted immigrants
Iran Foreign Minister says he was sanctioned after rejecting a White House invite
Tucker Carlson: White supremacy is a 'hoax' and 'not a real problem' Tucker convinced his soul brother Donald that a war with IRAN was not advisable at the moment since it would hurt the Duck's reelection chances. Tucker Carlson Tells Trump in Private: No War With Iran
Trump suggests tying gun measures to immigration after shooting that targeted immigrants
Iran Foreign Minister says he was sanctioned after rejecting a White House invite
Trump trash-talks China, gets basic economic facts wrong - MarketWatch
Trump attacks local leaders as he visits two cities grieving from mass shootings - The Washington Post ("On a day when President Trump vowed to tone down his rhetoric and help the country heal following two mass slayings, he did the opposite — lacing his visits Wednesday to El Paso and Dayton, Ohio, with a flurry of attacks on local leaders and memorializing his trips with grinning thumbs-up photos.")
El Paso suspect said he was targeting ‘Mexicans,’ told officers he was the shooter, police say - The Washington Post; El Paso shooter confessed to officers that he was targeting Mexicans - MarketWatch
Trump turns day of grieving for shooting victims into day of his grievances
El Paso Shooting Victims Declined to Meet Donald Trump During His Hospital Visit: Reports
Watch Donald Trump Boast About His Crowd Size At El Paso Hospital
Trump attacks local leaders as he visits two cities grieving from mass shootings - The Washington Post ("On a day when President Trump vowed to tone down his rhetoric and help the country heal following two mass slayings, he did the opposite — lacing his visits Wednesday to El Paso and Dayton, Ohio, with a flurry of attacks on local leaders and memorializing his trips with grinning thumbs-up photos.")
El Paso suspect said he was targeting ‘Mexicans,’ told officers he was the shooter, police say - The Washington Post; El Paso shooter confessed to officers that he was targeting Mexicans - MarketWatch
El Paso Shooting Victims Declined to Meet Donald Trump During His Hospital Visit: Reports
Watch Donald Trump Boast About His Crowd Size At El Paso Hospital
++++++++
1. Equity REIT Common and Preferred Stock Basket Strategy:
A. Bought 50 SKT at $16.04-A Deservedly Out-of-Favor REIT IMO ($1 Interactive Brokers Commission):
Victory is defined as collecting two or more quarterly dividends, preferably 4 to 8, and then to exit the position at any profit.
Quote: Tanger Factory Outlet Centers Inc. (SKT)
SEC Filings
Closing Price Last Friday: SKT $15.70 -$0.12 -0.76%
Brad Thomas published yet another bullish article on SKT yesterday which is not yet behind SA's paywall: It's Tanger Time-Seeking Alpha I am not bullish. I simply view the huge decline since Thomas started his strong buy as squeezing some risk out of the stock.
Dividend: Quarterly at $.355 per share ($1.42 annually)
This penny rate represented a 1.4% increase from the prior rate. SKT has increased its dividend each year since becoming a public company in May 1993.
Dividend Yield at $16.04 = 8.85%
Last Ex Dividend Date: 7/30/19 (after purchase)
Dividend Reinvestment: No. I do not reinvest dividends for securities owned in my Interactive Brokers account.
Over the past 5 years, reinvesting the dividend has resulted in losing part of the dividend's value.
SKT 5 Year Chart: Major bear trend starting in July 2016 when the stock was traded over $41 per share with no end yet in sight started
5 Year Annual Average Total Return Through 7/22/19 = -10.89%
DRIP Returns Calculator | Dividend Channel
Last Earnings Report (Q/E 6/30/19-released after purchase):
"FFO available to common shareholders was $1.09 per share, or $107.4 million, compared to $1.20 per share, or $118.4 million, for the prior year period.
Tanger recaptured approximately 187,000 square feet within its consolidated portfolio during the first half of 2019 related to bankruptcies and brand-wide restructurings by retailers, including 105,000 square feet in the second quarter. During the first half of 2018, 105,000 square feet were recaptured, including 68,000 square feet during the second quarter.
Same center net operating income ("Same Center NOI") for the consolidated portfolio decreased 0.1% for the quarter and 0.3% year to date due to the impact of prior bankruptcies, lease modifications and store closures
Consolidated portfolio occupancy rate was 96.0% on June 30, 2019, compared to 95.4% on March 31, 2019 and 95.6% on June 30, 2018
Interest coverage ratio was 4.2 times for the first half of 2019
FAD payout ratio was 69% for the first half of 2019
Approximately 94% of the Company's consolidated square footage was unencumbered by mortgages
Tanger has reduced its outstanding consolidated debt by $126.6 million since December 31, 2018."
2019 Guidance:
Tanger Reports Second Quarter Results
CEO Steven Tanger on Q2 2019 Results - Earnings Call Transcript | Seeking Alpha
1st Quarter Earnings Report: Tanger Reports First Quarter Results
"Tanger recaptured approximately 82,000 square feet within its consolidated portfolio during the first quarter of 2019 related to bankruptcies and brand-wide restructurings by retailers, most of which closed at the end of the quarter. During the first quarter of 2018, the Company recaptured approximately 37,000 square feet"
"Consistent with its long-standing history of financial stewardship and strategic portfolio management, Tanger completed the sale of four non-core outlet centers for total gross proceeds of $130.5 million on March 29, 2019. The four properties were located in Nags Head, North Carolina; Ocean City, Maryland; Park City, Utah; and Williamsburg, Iowa and represented 6.8% of Tanger's consolidated portfolio square footage and approximately 5.1% of its forecasted 2019 Portfolio NOI."
Risks: SKT summarizes risks relating to its operations starting at page 11 of the 2018 Annual Report
I have discussed why I have avoided this stock in comments: May 20, 2019 and April 16. 2018 Even though the price has continued to decline after I published those negative comments, I am still not comfortable owning shares. The price decline has at least squeezed out some of the risk out for the 50 share buy at $16.04.
The risks are generally understood and include the overall long term secular decline of box retailers and the solvency of some tenants, particularly Ascena Retail Group Inc (ASNA);
Winding down of Dressbarn 'on target'-Seeking Alpha (7/19/19);
ascena retail group, inc. Reports Third Quarter Fiscal 2019 Results; Third Quarter Comparable Sales from Continuing Operations Flat; GAAP Loss Per Share of $1.20 Includes Non-Cash Impairment Charges; Adjusted Loss Per Share of $0.26
Current Position: 50 shares
Purchase Restriction: Small Ball Rule
Averaging down, if done, will be first in a 20 share lot and then a 30 share lot.
Maximum Position: 100 shares
A. Bought 50 SKT at $16.04-A Deservedly Out-of-Favor REIT IMO ($1 Interactive Brokers Commission):
Victory is defined as collecting two or more quarterly dividends, preferably 4 to 8, and then to exit the position at any profit.
Quote: Tanger Factory Outlet Centers Inc. (SKT)
SEC Filings
Closing Price Last Friday: SKT $15.70 -$0.12 -0.76%
Brad Thomas published yet another bullish article on SKT yesterday which is not yet behind SA's paywall: It's Tanger Time-Seeking Alpha I am not bullish. I simply view the huge decline since Thomas started his strong buy as squeezing some risk out of the stock.
Dividend: Quarterly at $.355 per share ($1.42 annually)
This penny rate represented a 1.4% increase from the prior rate. SKT has increased its dividend each year since becoming a public company in May 1993.
Dividend Yield at $16.04 = 8.85%
Last Ex Dividend Date: 7/30/19 (after purchase)
Dividend Reinvestment: No. I do not reinvest dividends for securities owned in my Interactive Brokers account.
Over the past 5 years, reinvesting the dividend has resulted in losing part of the dividend's value.
SKT 5 Year Chart: Major bear trend starting in July 2016 when the stock was traded over $41 per share with no end yet in sight started
5 Year Annual Average Total Return Through 7/22/19 = -10.89%
DRIP Returns Calculator | Dividend Channel
Last Earnings Report (Q/E 6/30/19-released after purchase):
"FFO available to common shareholders was $1.09 per share, or $107.4 million, compared to $1.20 per share, or $118.4 million, for the prior year period.
Tanger recaptured approximately 187,000 square feet within its consolidated portfolio during the first half of 2019 related to bankruptcies and brand-wide restructurings by retailers, including 105,000 square feet in the second quarter. During the first half of 2018, 105,000 square feet were recaptured, including 68,000 square feet during the second quarter.
Same center net operating income ("Same Center NOI") for the consolidated portfolio decreased 0.1% for the quarter and 0.3% year to date due to the impact of prior bankruptcies, lease modifications and store closures
Consolidated portfolio occupancy rate was 96.0% on June 30, 2019, compared to 95.4% on March 31, 2019 and 95.6% on June 30, 2018
Interest coverage ratio was 4.2 times for the first half of 2019
FAD payout ratio was 69% for the first half of 2019
Approximately 94% of the Company's consolidated square footage was unencumbered by mortgages
Tanger has reduced its outstanding consolidated debt by $126.6 million since December 31, 2018."
2019 Guidance:
Tanger Reports Second Quarter Results
CEO Steven Tanger on Q2 2019 Results - Earnings Call Transcript | Seeking Alpha
1st Quarter Earnings Report: Tanger Reports First Quarter Results
"Tanger recaptured approximately 82,000 square feet within its consolidated portfolio during the first quarter of 2019 related to bankruptcies and brand-wide restructurings by retailers, most of which closed at the end of the quarter. During the first quarter of 2018, the Company recaptured approximately 37,000 square feet"
"Consistent with its long-standing history of financial stewardship and strategic portfolio management, Tanger completed the sale of four non-core outlet centers for total gross proceeds of $130.5 million on March 29, 2019. The four properties were located in Nags Head, North Carolina; Ocean City, Maryland; Park City, Utah; and Williamsburg, Iowa and represented 6.8% of Tanger's consolidated portfolio square footage and approximately 5.1% of its forecasted 2019 Portfolio NOI."
Risks: SKT summarizes risks relating to its operations starting at page 11 of the 2018 Annual Report
I have discussed why I have avoided this stock in comments: May 20, 2019 and April 16. 2018 Even though the price has continued to decline after I published those negative comments, I am still not comfortable owning shares. The price decline has at least squeezed out some of the risk out for the 50 share buy at $16.04.
The risks are generally understood and include the overall long term secular decline of box retailers and the solvency of some tenants, particularly Ascena Retail Group Inc (ASNA);
Winding down of Dressbarn 'on target'-Seeking Alpha (7/19/19);
ascena retail group, inc. Reports Third Quarter Fiscal 2019 Results; Third Quarter Comparable Sales from Continuing Operations Flat; GAAP Loss Per Share of $1.20 Includes Non-Cash Impairment Charges; Adjusted Loss Per Share of $0.26
Current Position: 50 shares
Purchase Restriction: Small Ball Rule
Averaging down, if done, will be first in a 20 share lot and then a 30 share lot.
Maximum Position: 100 shares
2. Intermediate Term Bond Basket Strategy:
A. Sold 1 Northern States 2.15% First Mortgage Maturing on 8/15/22-In a Roth IRA Account:
Profit Snapshot: +$18
FINRA Page: Bond Detail
Issuer: Wholly owned subsidiary of Xcel Energy Inc. (XCEL)
I still own 1 bond.
Sold at 99.364
YTM at 99.364 = 2.364%
Current yield at 99.364 = 2.16%
B. Sold 2 Amgen 2.65% SU Maturing on 5/11/22-In a Roth IRA Account:
Profit Snapshot: +$33.9
Item # 5.A. Bought 2 Amgen 2022 SU at a TC of 97.871 -In a Roth IRA Account (2/19/18 Post)
B. Sold 2 Amgen 2.65% SU Maturing on 5/11/22-In a Roth IRA Account:
Profit Snapshot: +$33.9
FINRA Page: Bond Detail
Issuer: Amgen Inc. (AMGN)
AMGN | Amgen Inc. Analyst Estimates
Amgen Reports First Quarter 2019 Financial Results
Sold at 100.436
YTM at 100.436 = 2.485%
Proceeds at 100.236
3. Small Ball:
A. Bought 5 XOM at $71.35-Used Commission Free Trade:
Quote: Exxon Mobil Corp. (XOM)
XOM | Exxon Mobil Corp. Analyst Estimates | MarketWatch
SEC Filings
Closing Price Last Friday: XOM $70.82 -$1.56 -2.16%
Last Discussed: Item # 4.A. (7/27/19 Post) As discussed in that post, my overall opinion of this stock is unfavorable.
Last Earnings Report (Q/E 6/30/19): Not good
Exxon mixed Q2 results; Permian production jumps 90%-Seeking Alpha
Exxon Mobil profit sinks on weakness in chemicals, refining - Reuters
Average Total Cost Per Share = $73.64
Dividend Yield at Total Cost = 4.73%
Dividend information | ExxonMobil
Purchase Restriction: Small Ball Rule
I will be looking to add another 5 shares in the $67 to $69 range.
Next Ex Dividend Date: 8/12/19 (after purchase)
B. Sold 10 of 60 Kellogg (K) at $63.95-Used Commission Free Trade:
Profit Snapshot: $85.08
Item # 1 Bought 50 Kellogg at $55.44 and 10 at $54.68-Used Commission Free Trades (7/20/19 Post)
Quote: Kellogg Co. (K)
Closing Price Last Friday: K $62.18 -$0.31 -0.50%
The price popped after Kellogg released its earnings report:
This is typical small ball trading.
Last Earnings Report (Q/E 6/29/19):
I would characterize the report as being less bad than feared and showing signs of life, with organic sales increasing 2%. Revenue growth was led by Kellogg's snack brands. This was Kellogg's best organic growth since 2016.
SEC Filed Press Release
Earnings Call Transcript | Seeking Alpha
Issuer: Amgen Inc. (AMGN)
AMGN | Amgen Inc. Analyst Estimates
Amgen Reports First Quarter 2019 Financial Results
Sold at 100.436
YTM at 100.436 = 2.485%
Proceeds at 100.236
3. Small Ball:
A. Bought 5 XOM at $71.35-Used Commission Free Trade:
Quote: Exxon Mobil Corp. (XOM)
XOM | Exxon Mobil Corp. Analyst Estimates | MarketWatch
SEC Filings
Closing Price Last Friday: XOM $70.82 -$1.56 -2.16%
Last Discussed: Item # 4.A. (7/27/19 Post) As discussed in that post, my overall opinion of this stock is unfavorable.
Last Earnings Report (Q/E 6/30/19): Not good
Exxon mixed Q2 results; Permian production jumps 90%-Seeking Alpha
Exxon Mobil profit sinks on weakness in chemicals, refining - Reuters
"Exxon Mobil Corporation today announced estimated second quarter 2019 earnings of $3.1 billion, or $0.73 per share assuming dilution, compared with $4 billion a year earlier. Earnings included a favorable identified item of about $500 million, or $0.12 per share assuming dilution, reflecting the impact of a tax rate change in Alberta, Canada. Capital and exploration expenditures were $8.1 billion, up 22 percent from the prior year, reflecting key investments in the Permian Basin."
Note the $.12 favorable impact from a tax rate change that is included in the $.73 per share.
Current Position: 15 Shares
Maximum Position: 30 SharesAverage Total Cost Per Share = $73.64
Dividend Yield at Total Cost = 4.73%
Dividend information | ExxonMobil
Purchase Restriction: Small Ball Rule
I will be looking to add another 5 shares in the $67 to $69 range.
Next Ex Dividend Date: 8/12/19 (after purchase)
B. Sold 10 of 60 Kellogg (K) at $63.95-Used Commission Free Trade:
Profit Snapshot: $85.08
Item # 1 Bought 50 Kellogg at $55.44 and 10 at $54.68-Used Commission Free Trades (7/20/19 Post)
Quote: Kellogg Co. (K)
Closing Price Last Friday: K $62.18 -$0.31 -0.50%
The price popped after Kellogg released its earnings report:
This is typical small ball trading.
Last Earnings Report (Q/E 6/29/19):
I would characterize the report as being less bad than feared and showing signs of life, with organic sales increasing 2%. Revenue growth was led by Kellogg's snack brands. This was Kellogg's best organic growth since 2016.
SEC Filed Press Release
Earnings Call Transcript | Seeking Alpha
Current Position: 50 Shares
Average Cost Per share = $55.28
Maximum Position: 100 Shares
Purchase Restriction: Small Ball Rule
Dividend: Quarterly at $.57 per share ($2.28 annually), raised from $.55 effective for the 2019 third quarter
Kellogg Company Declares Dividend of $0.57 per Share
Next Ex Dividend Date: 8/30/19
Dividend Yield: 4.12% (at current average total cost per share)
Kellogg Company Closes Sale of Keebler Cookies and Related Businesses to Ferrero (about $1.3B in cash which will be used to reduce debt)
4. Short Term Bond/CD Ladder Basket Strategy:
A. Sold 2 Sysco 2.5% SU Maturing on 7/15/21:
Profit Snapshot: +$48.76
Item # 3.A. Bought 2 SYY 2.5% SU at a TC of 97.942 (5/24/18 Post)
Finra Page: Bond Detail
Issuer: Sysco Corp. (SYY)
SYY Analyst Estimates
SYY SEC Fillings
Sold at 100.53
YTM at 100.53 = 2.207%
Proceeds at 100.43 (after $1 per bond commission)
B. Bought 5 Treasury Bills at Auction Maturing on 10/8/19 (56 Day Bill):
The 2 month treasury bill currently has the highest yield for maturities staring with the 1 month treasury bill through the 20 year treasury bond. 2019 Daily Treasury Yield Curve Rates
IR = 2.091%
Auction Results:
Average Cost Per share = $55.28
Maximum Position: 100 Shares
Purchase Restriction: Small Ball Rule
Dividend: Quarterly at $.57 per share ($2.28 annually), raised from $.55 effective for the 2019 third quarter
Kellogg Company Declares Dividend of $0.57 per Share
Next Ex Dividend Date: 8/30/19
Dividend Yield: 4.12% (at current average total cost per share)
Kellogg Company Closes Sale of Keebler Cookies and Related Businesses to Ferrero (about $1.3B in cash which will be used to reduce debt)
4. Short Term Bond/CD Ladder Basket Strategy:
A. Sold 2 Sysco 2.5% SU Maturing on 7/15/21:
Profit Snapshot: +$48.76
Item # 3.A. Bought 2 SYY 2.5% SU at a TC of 97.942 (5/24/18 Post)
Finra Page: Bond Detail
Issuer: Sysco Corp. (SYY)
SYY Analyst Estimates
SYY SEC Fillings
Sold at 100.53
YTM at 100.53 = 2.207%
Proceeds at 100.43 (after $1 per bond commission)
B. Bought 5 Treasury Bills at Auction Maturing on 10/8/19 (56 Day Bill):
The 2 month treasury bill currently has the highest yield for maturities staring with the 1 month treasury bill through the 20 year treasury bond. 2019 Daily Treasury Yield Curve Rates
IR = 2.091%
Auction Results:
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.
Hello SG,
ReplyDeleteI would like your opinion of the following article from SA on management of fed policy re how to manage lowering rates; i wonder if u think there is any way out of this devaluation mess as stated in the article and if this event around the world hastens your worst case scenario or are we just going to have a recession?
And what happens to all this subprime debt?
thanks
https://seekingalpha.com/article/4284468-negative-yielding-debt-end-old-paradigm
G: The author may be describing a snapshot in time with his new paradigm argument, but the "old paradigm", where lenders paid borrowers interest rather than lenders paying a vigorish to borrowers, is the only one that has staying power.
DeleteI would simply label the past decade as a temporary aberration in the only paradigm that will work. It will probably need to crash in a big way to convince central bankers that it creates conditions for financial instability rather than preventing it.
The so called new paradigm can not last. It would weaken the banking system and pension plans, resulting in long periods of subpar growth and disinflation and will ultimately contribute to another massive deleveraging event far worse than the last one.
The author does not believe that the yield curve inversion is a reliable predictor of an upcoming recession. That conclusion is not supported by history and is now at best speculation based on the author's view that the Federal Reserve has caused the inversion and can correct it by implementing a new QE program that buys treasury bills. The remedy of course denies savers of billions that could be spent to support the economy without increasing borrowing.
I view this statement made by the author as ridiculous in its underlying premise that recession talk now is ridiculous: The Fed should start buying Treasury Bills, it does not buy them currently, and then the "Yield Curve" would normalize and stop all of the ridiculous talk about some type of recession."
My bond ownership is focused on high quality bonds. Those bonds have done far better than I could even imagine when I bought them. At at minimum, that takes the pressure off in moving into other risk assets like common stocks.
Junk and subprime credits will be crushed in value when the next recession hits, with that result becoming far worse if the recession morphs into another financial crisis and a forced deleveraging cycle that incinerates trillions of dollars.
I would attribute the recent rise in gold to reflect a growing concern about fiat currencies holding their value given CB monetary policies.
I view the abnormal central bank monetary policies over the past several years as part of an ongoing trade war, though those policies had other rational reasons for a few years after the Near Depression. The use of tariffs is merely an extension of that trade war that could end up being a disaster for the world's economy.
S&P 500 Index
ReplyDelete2,930.65 +47.56 +1.65%
Last Updated: Aug 13, 2019 at 10:47 a.m. EDT
https://www.marketwatch.com/investing/index/spx
Donald mostly folded on the 10% tariffs on $300B that were to become effective on 9/1/19.
“Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent.”
“Further, as part of USTR’s public comment and review process, it was determined that the tariff should be delayed to December 15 for certain articles.” Those articles include consumer good items like “cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing.” Someone convinced the Duck that it would not be a good idea to increase the cost of those products just in time for the Christmas buying season.
https://www.marketwatch.com/story/stock-index-futures-point-lower-as-economic-worries-geopolitical-tensions-swirl-2019-08-13?mod=mw_theo_homepage
+++
Alcentra Capital Corp.
$9.20 +$1.08 +13.30%
Last Updated: Aug 13, 2019 10:41 a.m. EDT
Crescent Capital is acquired this mini cap BDC:
https://www.businesswire.com/news/home/20190813005292/en/
"Under the terms of the transaction, in exchange for approximately 12.9 million shares of Alcentra Capital common stock, Alcentra Capital’s stockholders will receive approximately (i) $19.3 million in cash, or $1.50 per share, from Crescent BDC; (ii) 5.2 million shares of Crescent BDC common stock; and (iii) $21.6 million in cash, or $1.68 per share, from CBDC Advisors, LLC, Crescent BDC’s investment adviser (“Crescent Cap Advisors”)."
I previously eliminated my small position.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/08/observations-and-sample-of-recent_14.html
Hello South Gent,
ReplyDeleteThank you for your last answer of my question of negative rates.
I see that the two-year treasury yield is now up above the 10 year treasury yield by a small amount.
I have been scouring Seeking Alpha just to look and see if there's anything that looks like value. Most areas unfortunately have been pushed out on the risk curve at least in my opinion.
But my question really is about the bank stocks. It appears the Fed has no choice but to lower the Fed funds rate.
There's an article on Seeking Alpha which I will reference to you that I would like your opinion on.
My question is if you think that net interest margins will improve as the Fed funds rate goes toward zero. And in your opinion are the banks going to benefit from this?
The author makes several points which you will see more clearly than I do in terms of NIM, capital ratios, bank formation, share buybacks etc.
Thanks in advance.
https://seekingalpha.com/article/4284980-banks-top-shopping-list
G: I will sell my bank stocks to that author.
DeleteSince buying FNB, which is discussed in this blog, I decided to eliminate ORIT, which is being acquired by VLY, since I do not want any more VLY shares.
I also eliminated my HBAN position at $14.65 (104+) and $14.57 (102+) in two accounts and will discuss those trades in my next post. I kept a smaller position in my Fidelity account, which is subject to the small ball purchase restriction with the lowest price somewhere below $12.
Huntington Bancshares Incorporated (HBAN)
$12.63 -$0.27 (-2.09%)
As of 10:45AM EDT.
I have marked for later consideration buying a 10 share lot of HBAN using a Fidelity commission free trade when and if the yield exceeds 5% and then considering future 10 lot purchases at lower prices until I reach 100 shares in that account.
The author is correct in noting that banks are repricing maturing CDs at lower rates. They are still being squeezed by the negative yield curve. The 30 year treasury bond is current at 2.056% compared to the one month at 2.01%.
Most yield curve inversion models use the 3 month treasury bill and the 10 year treasury note and that inversion has been in effect for months, starting last May, and has only steepened in recent days.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2019
There is no way that a yield inversion is a net positive for banks.
Capital ratios are still good.
The author assumes that the economy will improve with the rate cuts and substantially discounts the possibility of a recession.
Charge-offs for bad loans are already at historical lows. NPLs and charge offs will increase dramatically for banks during a recession.
Larger banks with more diverse revenue streams are less impacted by NIM contraction than most regional banks who are more dependent on loans.
Commercial loans tied to the prime rate will continue to price down as the FED cuts the FF rate.
Bank sensitivity to changes in interest rates will vary depending on their positioning.
While I am still negative about regional bank stocks, and have been leaning in that direction for over a year now when I gutted my allocation, I will look at several to nibble on provided the price declines continue.
However, I do not see major investors stepping up to the plate when the main narrative remains so negative.