Observations and Sample of Recent Trades: FNB, POFNF, SKT

Economy: 

The decline in pre-market trading this morning is due to weak economic reports from Germany and China to a lesser extent. What Germany’s dismal GDP number really means for Europe and interest rates - MarketWatch Germany's second quarter GDP declined .1%. I would note that the German 10 year bond is now trading at a NEGATIVE .64% yield as of 7:35 A.M. CST: Germany 10 Year Government Bond Overview The Stock Jocks still believe that negative real interest rates are a major elixir for economic growth.   

Core CPI rose 2.2% Y-O-Y through July: 

Consumer Price Index Summary

US removes some items from China tariff list, delays others

Trump just blinked, giving China a possible edge in trade war: Chanos

The Stock Jocks are an excitable lot. Donald did slam on the brakes and put his tariff war vehicle in reverse yesterday. The question is why.

The Stock Jocks apparently believe that Donald folded again because progress was being made in the trade negotiations with China.

An alternative explanation, which I view as more likely, is primarily political and related to Donald's perception of his reelection odds. 

Raising prices on consumer goods just in time for the Christmas buying season was not a good idea. When viewed this way, Donald's reversal about implementing new tariffs on 9/1 does not signal that a breakthrough has been made in the trade negotiations. The only signal is that some rational person convinced the Duck that this move would damage the economy and hurt his reelection chances.

U.S. July budget deficit widens as spending surges - MarketWatch ($120B compared to $77B in July of 2018) 

Automakers trim production as market weakens – but hope to avoid wholesale cuts of a decade ago;  

Light Weight Vehicle Sales: Autos and Light Trucks Sales have been drifting down since September 2017. 

Automobile sales have been drifting down since July 2015: 

Motor Vehicle Retail Sales: Domestic Autos-St. Louis Fed

United States Total Vehicle Sales | 2019 | Data | Chart | Calendar

I am not yet concerned about the decline in vehicle sales. A meaningful and persistent downtick over the next several months would be consistent with the onset of a recession as reflected in the preceding chart.  

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Markets and Market Commentary: 

About 58% of the S & P stocks now have higher dividend yields than the 10 year treasury bond. It is not difficult to find stocks with higher yields than that 10 year bond or even the 30 year treasury bond. 

Global bond yields have fallen to 120-year low - MarketWatch

IMF contradicts Trump: China hasn’t manipulated its currency - MarketWatch

UBS plans to charge rich clients for Swiss cash deposits - Reuters The Swiss National Bank has a -.75% rate on commercial sight deposits. Swiss National Bank (SNB) - Current interest rates and exchange rates 

It is just incomprehensible to me why any lender would not only forego interest payments but also pay a borrower to take their money.  But there are now over $15 trillion in debt with nominal negative yields and that pile is growing. 

Monetary Madness: Inverted Negative Yields in Germany, Negative Rate Mortgages - Mish Talk

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BDC Earnings Reports: 

I recently bought back a 50 share position in Stellus Capital, a mini cap BDC. Item # 1 Bought 50 SCM at $13.6 (6/19/19 Post) I have been playing small ball with this stock for awhile and have managed to generate $540.24 in realized gains to date.  

SCM Closing Price 8/12: SCM $13.06 -$0.86 -6.18% 

A brokerage firm downgraded the stock to neutral which was deserved based on SCM's recently released earnings report IMO. Stellus Capital downgraded to Perform at Oppenheimer SCM - The Fly

At first glance, SCM's report did not appear to be overly concerning. Stellus Capital Investment Corporation Reports Results for its second fiscal quarter ended June 30, 2019 Net asset value per share was reported at $14.29, up from $14.09 as of 12/31/19. 

The BDC realized "$2.7 million of realized gains, or $0.14 per share, resulting in total realized gains year to date of $12.9 million, or $0.73 per share." SCM reported $.29 per share in net investment income ("NII"), which was below its $.32 per share quarterly dividend rate paid in monthly installments. The NII plus capital gains generated $.43 per share. 

Realized net capital gains may temporarily provide dividend support for a BDC but are not common enough to support the dividend for long.

The problem for SCM is bigger than a second quarter shortfall in NII. SCM reported that a second lien loan made to Protect America went on non-accrual effective 6/29/19. The original loan amount was $17.5M, originally made on 8/16/2017 or more than 5% of SCM's assets. On the conference call, management estimated that this loan produced $.025 cents in quarterly NII per share. So the gap between NII per share and the quarterly dividend is about to become worse. 

SCM did write this loan down some in the second quarter: 

Valued at $15.19M+ as of 6/30/19

Is the loan really worth the new marked down value of $15.19+M? I doubt it. 

However, I do not have any information about this private company to even form an opinion. The fact that the loan is subordinated to first lien debt and is on nonaccrual suggests that significant further markdowns will occur. I have noted several examples in the past where a second lien loan becomes worthless.  

I would attribute the price decline mentioned above to the Protect America loan going on nonaccrual.  

SCM has 2 other non-accruals that have already been marked down: a second lien loan to Grupo HIMA San Pablo and to Wise Holdings: 

Grupo Second Lien valued at $904+K

I have discussed those loans in prior posts. The current value of those two loans is old news. 

During the conference call, management suggested that a 4th non-accruing loan made to Refrac Optical may soon come off nonaccrual status: 

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Trump: 

Trump has made more than 12,000 false or misleading claims over 928 days - The Washington Post  Those are just the publicly disseminated lies. Lying Don will surpass 20,000 publicly disseminated lies in his first term. Most republicans view him as a role model for their children. 

White House rebuffed attempts by DHS to make combating domestic terrorism a higher priority 

In TrumpWorld, Donald is making progress in his negotiations with Kim, who is a humanitarian that cares about his people. Trump again appears to take North Korea’s side against his own military, allies - The Washington Post So far, Donald has succeeded in legitimizing Kim, downplaying the atrocities committed by the NK dictatorship, and making unilateral concessions including a cessation of military drills with SK for over a year in exchange for photo opportunities with Kim. The WP article discusses how Trump disparaged an upcoming military exercise viewed as important by the U.S. military. 

The Trumpsters are prone to engage in conspiracy theories that have no factual basis. This happens since facts do not matter to them. Trump parlayed his claims that Obama was born in Kenya, which propelled his quest for the republican nomination, to this receptive crowd. 

One poll found that 22% of Americans believed it was "possibly or definitely true"  that the Sandy Hook massacre was "faked, in order to increase support for gun control".  Why do some people think mass shootings are staged every time? | PolitiFact  

While "experts" ascribe various theories explaining why individuals believe that mass shootings are staged with actors, the bottom line does not require a psychology decree or any expertise for that matter. 

The only relevant explanation, which is not politically correct to say, is that the U.S. has an incredibly large number of really stupid and ignorant people. 

No further delving into why is necessary beyond that observation.  

Democrats blast Donald Trump over Epstein/Clinton conspiracy theory; Trump's Conspiracy Theory About the Clintons and Epstein - The Atlantic; Trump promotes Epstein-Clintons conspiracy theory, the latest in a pattern of baseless claims spread by President- CNN (Doofus Don is deep into conspiracy theories that have no factual foundation, provided of course the conspiracy relates to a political opponent. In this particular example from last week, Donald retweeted a claim that the Clinton's were somehow involved in murdering Epstein who recently committed suicide.) 

After being criticized for legitimizing this factually baseless conspiracy theory, Donald doubled down on the claim. Trump’s bizarre attempt to defend retweeting Epstein conspiracy theory - Vox 

Disgusting Don maintained that this claim came from a "very highly respected conservative pundit", Terrence Williamson, who was previously best known for appearing on Fox and making comments about an Asian woman hired by the NYT. Fox News addresses host’s response to racist comments - POLITICO(Williamson who is allegedly a comedian made the following remarks about Sarah Jeong: "I don’t know if this lady is Chinese, Japanese or crazy-nese. Something is wrong with this woman and I can’t believe they would hire her. . . There is something wrong with them fortune cookies that Ling Ling’s eating.”)  

Williamson's comments of course pass for intelligent and non-racist commentary in TrumpWorld. 

Donald believes that proof of the Clinton's involvement in Epstein's suicide will emerge once an investigation is launched into whether Bill Clinton visited Epstein on his private island. Trump’s promotion of Jeffrey Epstein conspiracies enters gaslighting mode - The Washington Post

Who knows? Maybe "proof" sufficient for a Trumpster will emerge that Hillary parachuted into an open window at the NYC prison, turned on her invisible cloak, worked her way to Epstein's jail cell and shot him with a blow dart full of crazy juice that caused Epstein to hang himself.  

The Trumpsters have a long history of claiming that the Clintons murdered someone who committed suicide (e.g. Vince Foster) or died an accidental death. Clinton Body Bag Conspiracy Theories: Rated False) 

FBI arrests Las Vegas man who allegedly wanted to shoot Jews, LGBTQ bar patrons

U.S. Significantly Weakens Endangered Species Act - The New York Times

Climate Change Threatens the World’s Food Supply, United Nations Warns - The New York Times

The "conservative" Ann Coulter, a leading "intellectual" in TrumpWorld, suggested the following option to stem illegal immigration: “You can shoot invaders.”  Ann Coulter: "You can't shoot Americans. You can shoot invaders." - YouTube

All of Iceland's glaciers are melting. What Worries Iceland? A World Without Ice. It Is Preparing. - The New York Times

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1. Regional Bank Basket Strategy:

A. Bought 100 FNB at $11.72 ($1 IB Commission):

Yesterday's Closing Price: FNB $10.95 +$0.14 1.30%  

In retrospect, this was a mistake based the yield curve becoming even more unfavorable to banks. After making this purchase, I decided to lighten up more on my  regional bank stock allocation. I have already eliminated most regional bank stocks and my overall allocation now is meaningless to me.  

Quote: F.N.B. Corp.
F.N.B. Corp. Analyst Estimates | MarketWatch
2018: $1.17
2019: $1.21
P/E On Estimated 2019 Consensus at $11.72 = 9.69

Last Transaction: Item # 3.A. Sold 30 FNB at $11.95-Used Fidelity Commission Free Trade (5/18/19 Post) That trade profitably disposed of my highest cost lot and reduced my average cost per share in that account to $9.97. Purchases are subject to the small ball rule in that account.

FNB Trading Profits to Date: +$1,200.47

5 Year Chart: Unfavorable

FNB Interactive Chart

I would simply describe this chart as a roller coaster ride going nowhere.

Dividend History: Highly Unfavorable

The current quarterly dividend is $.12 per share which was reduced to that penny rate from $.24 in 2009.

Last Ex Dividend Date: 5/30/19

Dividend Yield at $11.72 = 4.1%

5 Years of Financial Data Through 2018:  

Sourced: 2018 Annual Report at page 37 

E.P.S. growth was negative between 1/1/14 through 12/31/17. The worm may have started to turn in 2018 toward positive Y-O-Y growth. 

Over the 10 year period, FNB has significantly expanded its geographic footprint through acquisitions. Mergers & Acquisitions | First National Bank However, the benefits to shareholders flowing from a continuous series of acquisitions do not show up in E.P.S. growth until possibly starting in 2018. The reason why is probably due to its last acquisition being completed in March 2017. F.N.B. Corporation Completes Merger with Yadkin Financial Corporation-F.N.B. Corporation to Acquire Yadkin Financial ("all-stock transaction valued at approximately $27.35 per share, or $1.4 billion in the aggregate, using the 20-day trailing average closing stock price of FNB as of Wednesday, July 20, 2016." emphasis added) 

E.P.S. is showing some acceleration in recent quarters notwithstanding the unfavorable yield curve.  

5 Year Annual Average Total Return Through 7/23 = 2.4% (with no increases in the dividend)

DRIP Returns Calculator | Dividend Channel

Pathetic IMO

The Board and management will need to be fired when and if they announce another significant acquisition using FNB stock.  

Recent Earnings Report (Q/E 6/30/19): F.N.B. Corporation Reports Second Quarter 2019 Earnings per Share of $0.29

"net income available to common stockholders of $93.2 million, or $0.29 per diluted common share. Comparatively, second quarter of 2018 net income available to common stockholders totaled $83.2 million, or $0.26 per diluted common share, and first quarter of 2019 net income available to common stockholders totaled $92.1 million, or $0.28 per diluted common share."

Loan and deposit growth was good. The net charge off ratio decreased to just .16%. The efficiency ratio decreased slightly to 54.5% which is favorable. "The ratio of non-performing loans and OREO to total loans and OREO decreased 3 basis points to 0.55%."

For the first six months, GAAP E.P.S. was reported at $.57, up from $.52 in the same period in 2018. 

Financial Metrics: 

There may have been a negative reaction to the decline in NIM that caused a small decline in the stock price on 7/23. The stock rebounded the next day, however, closing up $.42. Closing Price 7/24: FNB $12.06 +$0.42 +3.61% 

The company attributed most of the Y-O-Y NIM decline to "the sale of Regency Finance Company (Regency) in the third quarter of 2018 and a smaller contribution from cash recoveries on acquired loans. Regency contributed 12 basis points to net interest margin in the second quarter of 2018, while the contribution from cash recoveries declined 14 basis points." 

F.N.B. Corporation 2019 Q2 - Results-Earnings Call Slides-Seeking Alpha

This 100 lot purchase will likely be a trade. I had a somewhat more favorable response to this earnings report than the market. On the day of my purchase, FNB closed at $11.64, down 4 cents per share. 

The price has moved down as inversions increase along the yield curve.   

2019 Daily Treasury Yield Curve Rates


2. Bought 50 POFNF at $20.96: 

This is my first purchase of the USD priced shares that are traded on the U.S. pink sheet exchange. A symbol that ends in "F" indicates that the security is not an ADR but the ordinary shares of a foreign corporation priced in USDs.

I view this stock as a dividend harvest candidate.

Power Financial Corporation | Home

Quotes: 

USD Pink Sheets: OTC Markets | POFNF
CAD Toronto:   Power Financial Corp. (Canada: Toronto)


Last Sell: I last sold 50 shares on the Toronto exchange for the reason given in this post: Item # 2.A. Sold 50 of 100 PWF:CA at C$30.99 (3/31/19 Post) I sold my highest cost lot bought at C$27.73 (12/23/18 Post) and kept the 50 share lot bought at C$25.5 (1/23/2019 Post)

Dividends: Quarterly at C$.4555 (C$1.822 annually)

The dividend was raised from C$.433 earlier this year. 

Power Financial Corporation | Dividends

The dividend yield will depend on the CAD/USD conversion rate.

If I assumed a .75 conversion rate, then the USD dividend per share would be USD$1.37 at the current penny rate (.75 x. C$1.822 = US$1.37 rounded). With those assumptions, the dividend yield at a total cost of USD$20.96 would be about 6.54%. The actual will fluctuate with the CAD/USD conversion rate when the dividend is converted from CADs to USDs for the POFNF owners. 

Canada will withhold a 15% dividend tax when the stock is owned by a U.S. citizen and held in a taxable account. No tax will be withheld when this stock is owned in a retirement account. 

Next Ex Dividend Date:  9/27/19

Recent Share Buyback: On April 17, 2019, Power Financial successfully completed its substantial issuer bid to repurchase for cancellation $1.65 billion of its common shares representing 7% of its issued and outstanding shares. Power Financial Announces Final Results of Substantial Issuer Bid

The funding for that buyback mostly originated from a large share buyback from majority owned Great-West Lifeco who in turn funded in part its buyback by selling its U.S. individual life insurance and annuity business for about US$1.2B. Great-West Lifeco to sell U.S. individual life insurance and annuity business; Great-West Lifeco completes sale of U.S. individual life insurance and annuity business  

Great-West Lifeco announces final results of substantial issuer bid

Organization Chart: Power Financial is a holding company with financial interests in several companies as shown below:

PWF has a majority stake in two publicly traded companies: Great-West Lifeco Inc. (Canada) and IGM Financial Inc. (Canada).

PWF has minority stake (27.8%) in Pargesa Holding S.A. (Switzerland) that owns a 50% stake in Groupe Bruxelles Lambert S.A. (Belgium). Group Bruxelles is an investment holding company: GBL-Investment holding

Recent Earnings Report (Q/E 6/30/19):

This was not a favorable report IMO. Adjusted net earnings, which excluded PWF's C$146M share of Great West's loss associated with the sell of its U.S. businesses, fell to C$.88 per share from C$.92 per share in the 2018 second quarter.

Power Financial Reports Second Quarter 2019 Financial Results

Maximum and Current Position: 100 Shares equally divided between CAD and USD priced shares.    

3. Intermediate Term Bond Basket Strategy: 

Verizon has called two intermediate two bonds that I own. The call date will be Thursday 8/15/19. 

I recall, perhaps incorrectly, that I bought those bonds at par value using Fidelity's corporate retail note program. 

Those bonds are sold to retail investors directly by the issuer at par value without a brokerage commission. 

The size of the offering is generally small which makes the bonds illiquid after issuance. 

Some individual investors, who do not want to fool with the bond market and have the financial ability to hold to maturity, like the ease of buying these retail corporate notes.  

The issuer pays the broker an offering fee for access to the broker's customers. 

Generally, most of these bonds do not have make whole provisions and can be redeemed at par value at the issuer's option.  

I quit buying bonds this way awhile back, probably a couple of years ago, for several reasons: (1) lack of call protection and a make whole provision; (2) somewhat lower yields than I can find for comparable bonds from the same issuer that are actively traded by institutions in the bond market; and (3) lack of liquidity.  

If these Verizon bonds had a make whole provision, I doubt that VZ would be calling them. I am okay with the call since I am getting rid of some illiquid bonds. 

A. Sold 1 Federal Realty 3% SU Maturing on 8/1/22: 

Profit Snapshot: +$17.68

Item # 3.A. Bought 1 FRT 2022 SU at a TC of 99.154 (4/12/18 Post) YTM at my total cost was then at 3.21%. 

FINRA Page: Bond Detail

Issuer: Federal Realty Investment Trust (FRT) 

FRT SEC FILINGS

Federal Realty Investment Trust Announces First Quarter 2019 Operating Results

Federal Realty Investment Trust Prices $300 Million of 3.20% Notes due 2029

Sold at 101.077

YTM at 101.077 = 2.6%

I still own 1 bond in a Roth IRA that plan to keep. Stocks, Bonds & Politics  Item # 3.B. Bought 1 FRT 2022 SU at a TC of 98.922 (5/7/18 Post) The YTM at my total cost number was then at 3.271% which is tax free in the Roth IRA.  

B. Sold 1 Anheuser Busch InBev Finance 3.3% SU Maturing on 2/1/23:

Profit Snapshot: +$35.02

Item # 3.C. Bought 1 BUD Finance 3.3% SU Maturing in 2023 at a T.C. of 99.364 (5/24/18 Post)

I will consider buying this bond back at less than 98.

FINRA Page: Bond Detail (prospectus not linked)
Final Prospectus Supplement

Issuer: Wholly Owned Subsidiary of Anheuser-Busch InBev S.A. who guarantees the notes.

Sold at 103.041
YTM at 103.041: 2.361%
Proceeds at 102.941 (after $1IB commission)

IB shows a slightly different YTM at 2.43%. The YTM figures that I use come from FINRA:

The current yield at 103.041 would be 3.2%. 

C. Sold 1 Public Service Electric and Gas 2.25% First Mortgage Bond Maturing on 9/15/26-In A Roth IRA Account:

Profit Snapshot: +$8.19

Item # 2.B. Bought 1 Public Service E & G 2.25%  First Mortgage Bond Maturing in 2026 at a TC of 94.688

Finra Page: Bond Detail  (prospectus not linked)

Pricing Supplement to Prospectus 

Issuer: Wholly owned subsidiary of  Public Service Enterprise Group Inc. (PEG)

Sold at 96.81
YTM at 96.81 = 2.743%

I will be looking for an opportunity to buy this bond back at below 94.

I still own 1 bond held in another account. Item # 2.A. Bought 1 Public Service E& G 2.25% First Mortgage bond Maturing in 2026 at a T.C. of 94.387 (5/28/17 Post) YTM then at 2.939%. 

4. Long Term Bonds-Tennessee Municipal Bonds:

A. Bought 5 City of Knoxville, TN. 3% Gas Revenue Maturing on 3/1/2033:

Emma Page

Credit Rating: Aa2

Security:

Optional Redemption Date: at par on or after 7/1/21

The reasonable forecast now is that the bond will be redeemed on 7/1/21, so in effect the bond is likely to be a short term one. 

Tax Matters: Federally tax free

Bought at a Total Cost of 100.872  (with $1 per bond commission)
Yield to Maturity ("YTM") at 100.872 = 2.922%
Current Tax Free Yield at 100.872 = 2.974%
Yield to Worst ("YTW")= 2.428%

At the current time, yield-to-worst is the most likely total return number given the optional redemption date and the probable refinancing rate on that date. I bought this bond with the assumption that the YTW would be the total return number. 

I would have bought more but only 5 bonds were available. 

The two year treasury note closed yesterday at a 1.66% yield: 

Note that the 30 year treasury closed at 2.15%.

5. Small-Equity REITs: 

A. Bought 10 SKT at $15.31-Used Commission Free trade: 

Quote: Tanger Factory Outlet Centers Inc. (SKT)

Closing Price Yesterday: SKT $15.34 -$0.17 -1.10% 

In my last post, I discussed a 50 share purchase at $16.06 made in my IB account Item # 1.A. (8/10/19 Post) I mentioned in that post that I would consider averaging down in a 20 share lot first and then a 30 share. I will not be buying more SKT in that account. I will sell those shares when I can not so profitably. I bought those shares before the stock went ex dividend for its quarterly dividend. 

Instead, given the toxic nature of this stock as reflected in a five year chart, I elected to start a 10 share small ball program in my Fidelity account using commission free trades. I will permit myself to average down no more than 4 times using the small ball purchase restriction. The maximum exposure will be 50 shares in the Fidelity account. 

This change in strategy recognizes that downside risk looks even more dicey based on the waterfall type chart movement. 

Investors can argue whether SKT now presents a good buying opportunity or a value trap. The chart is saying value trap IMO at the current time. Use SKT 5 Year Chart But that is the signal being sent by the chart since SKT closed over $41 per share in July 2016. 

Bottom feeding and dumpster diving is what I do. 

Dividend: Quarterly at $.3555 ($1.42 annually) 

Last Ex Dividend Date: 7/30/19 

Dividend Yield at a TC of $15.31 = 9.275%

6. Short Term Bond/CD Ladder Basket Strategy: 

A. Sold 1 JP Morgan 2.295% SU Maturing on 8/15/21: 

Profit Snapshot: +$16.33

Item # 2.A. Bought 1 JPM 2.295% SU at a Total Cost of 98.367 (2/23/19 Post) 

FINRA Page: Bond  Detail
Pricing Supplement No. 232

Issuer: JPMorgan Chase & Co. 
JPM | JPMorgan Chase & Co. Analyst Estimates | MarketWatch

Sold at 100.1
YTM at 100.1 = 2.194%
Proceeds at 100 

YTM at total cost was at 2.975% on purchase date (2/7/19). 

B. Bought 10 Treasury Bills Maturing on 11/14/19: 
2.003%IR

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.