Economy:
The U.S. has started to collect a 15% tariff on more than $125B of China's exports on 9/1/19. China, U.S. kick off new round of tariffs in trade war - Reuters Trump stated last Friday that those tariffs will go into effect. There will be no grace period of goods in transit.
The GOP's tariff tax will be paid by U.S. consumers and businesses. Trump has repeatedly claimed that China pays the U.S. tariffs which is a demonstrably false claim intended to mislead the public.
A 15% tariff will be collected on about $160B in exports, including cellphones, laptops and flat panel TV, starting on 12/15/19. Trump's Fall 2019 China Tariff Plan: Five Things You Need to Know | PIIE
The foregoing tariffs are separate from the 25% tariffs already in place on about $250B other products that will be increased to 30% soon. Retailers howl as U.S. trade agency locks in 15% tariffs on Sept. 1 - Reuters; The trade war has already cost electronics companies $10 billion
The market overreacted IMO last Thursday to this news story: China says it's willing to resolve trade war with a 'calm attitude'
China basically invited the "Extremely Stable Genius" to calm down which is more of a criticism of Donald's hyperbolic and highly acerbic negotiating style than an indication that negotiations are now bearing fruit.
With China, Donald is not dealing with a small business supplier of products or services where litigation and threats of litigation could force them to accept less than what Donald owed them or with individuals who told the truth about Donald and were then browbeat with frivolous libel or slander litigation designed to intimate them and silence others who have damaging information on him. Donald Trump Has a History of Not Paying His Bills. That Offers Some Insights Into His Personality.; Donald J. Trump Is A Libel Bully But Also A Libel Loser; American Bar Association blasts Donald Trump as ‘libel bully’ and ‘loser’ who never won a free-speech suit - New York Daily News
China did not say, as widely reported last Thursday, that it will refrain from retaliating if the U.S. imposes new tariffs on 9/1. (see, e.g. China Indicates It Won’t Retaliate Against Newest U.S. Tariffs - Bloomberg) I made this point in a recent comment.
China has reportedly already retaliated by levying additional tariffs on about $75B of U.S. exports including a new 5% tariff on U.S. crude exports. China starts to impose additional tariffs on some US goods More information will likely be available early next week.
And, China would not even acknowledge that a high level meeting will occur this month. Last Friday, Trump made the following statement about a September meeting: I guess the meeting in September continues to be on, it hasn’t been canceled.”
Trump claimed last Thursday that the negotiations were occurring "at a different level" which I interpret as meaning at a lower level. Trump says China trade talks resume Thursday 'at a different level'
Trump denied that the tariffs were having any impact on the U.S. economy.
Instead, Donald asserted that a "lot of badly run companies are trying to blame the tariffs".
In the Alternate Reality of TrumpWorld where true is false and false is true, the problem is that interest rates are not low enough even though they are at Great Depression levels. Trump: “We don’t have a Tariff problem (we are reigning in bad and/or unfair players), we have a Fed problem. They don’t have a clue!"
As Trump Escalates Trade War, U.S. and China Move Further Apart With No End in Sight - The New York Times
'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs
China's consumption more crucial to its economy than trade exports
How Trump's China tariffs will impact prices for consumers
Trade war: U.S. tariffs on China target clothing, TVs, other goods: USA Today
The second government estimate for 2nd quarter real GDP growth was revised to 2% from the previous 2.1%. Gross Domestic Product, Second Quarter 2019 (Second Estimate); Corporate Profits, Second Quarter 2019 (Preliminary Estimate) | U.S. Bureau of Economic Analysis (BEA) The current 2nd quarter estimate for personal consumption expenditures is +4.7%, up from 1.1% in the prior quarter.
Quotes from Report:
The U.S. has started to collect a 15% tariff on more than $125B of China's exports on 9/1/19. China, U.S. kick off new round of tariffs in trade war - Reuters Trump stated last Friday that those tariffs will go into effect. There will be no grace period of goods in transit.
The GOP's tariff tax will be paid by U.S. consumers and businesses. Trump has repeatedly claimed that China pays the U.S. tariffs which is a demonstrably false claim intended to mislead the public.
A 15% tariff will be collected on about $160B in exports, including cellphones, laptops and flat panel TV, starting on 12/15/19. Trump's Fall 2019 China Tariff Plan: Five Things You Need to Know | PIIE
The foregoing tariffs are separate from the 25% tariffs already in place on about $250B other products that will be increased to 30% soon. Retailers howl as U.S. trade agency locks in 15% tariffs on Sept. 1 - Reuters; The trade war has already cost electronics companies $10 billion
The market overreacted IMO last Thursday to this news story: China says it's willing to resolve trade war with a 'calm attitude'
China basically invited the "Extremely Stable Genius" to calm down which is more of a criticism of Donald's hyperbolic and highly acerbic negotiating style than an indication that negotiations are now bearing fruit.
With China, Donald is not dealing with a small business supplier of products or services where litigation and threats of litigation could force them to accept less than what Donald owed them or with individuals who told the truth about Donald and were then browbeat with frivolous libel or slander litigation designed to intimate them and silence others who have damaging information on him. Donald Trump Has a History of Not Paying His Bills. That Offers Some Insights Into His Personality.; Donald J. Trump Is A Libel Bully But Also A Libel Loser; American Bar Association blasts Donald Trump as ‘libel bully’ and ‘loser’ who never won a free-speech suit - New York Daily News
China did not say, as widely reported last Thursday, that it will refrain from retaliating if the U.S. imposes new tariffs on 9/1. (see, e.g. China Indicates It Won’t Retaliate Against Newest U.S. Tariffs - Bloomberg) I made this point in a recent comment.
China has reportedly already retaliated by levying additional tariffs on about $75B of U.S. exports including a new 5% tariff on U.S. crude exports. China starts to impose additional tariffs on some US goods More information will likely be available early next week.
And, China would not even acknowledge that a high level meeting will occur this month. Last Friday, Trump made the following statement about a September meeting: I guess the meeting in September continues to be on, it hasn’t been canceled.”
Trump claimed last Thursday that the negotiations were occurring "at a different level" which I interpret as meaning at a lower level. Trump says China trade talks resume Thursday 'at a different level'
Trump denied that the tariffs were having any impact on the U.S. economy.
Instead, Donald asserted that a "lot of badly run companies are trying to blame the tariffs".
In the Alternate Reality of TrumpWorld where true is false and false is true, the problem is that interest rates are not low enough even though they are at Great Depression levels. Trump: “We don’t have a Tariff problem (we are reigning in bad and/or unfair players), we have a Fed problem. They don’t have a clue!"
As Trump Escalates Trade War, U.S. and China Move Further Apart With No End in Sight - The New York Times
'It's an unjustified tax': Craft beer brewers hit by Trump China tariffs
China's consumption more crucial to its economy than trade exports
How Trump's China tariffs will impact prices for consumers
Trade war: U.S. tariffs on China target clothing, TVs, other goods: USA Today
The second government estimate for 2nd quarter real GDP growth was revised to 2% from the previous 2.1%. Gross Domestic Product, Second Quarter 2019 (Second Estimate); Corporate Profits, Second Quarter 2019 (Preliminary Estimate) | U.S. Bureau of Economic Analysis (BEA) The current 2nd quarter estimate for personal consumption expenditures is +4.7%, up from 1.1% in the prior quarter.
Quotes from Report:
"The increase in real GDP in the second quarter reflected positive contributions from PCE, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, residential fixed investment, and nonresidential fixed investment. Imports increased."
"The deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending."
"The price index for gross domestic purchases increased 2.2 percent in the second quarter, compared with an increase of 0.8 percent in the first quarter (table 4). The PCE price index increased 2.3 percent, compared with an increase of 0.4 percent. Excluding food and energy prices, the PCE price index increased 1.7 percent, compared with an increase of 1.1 percent." (emphasis supplied)
Second-quarter GDP trimmed to 2% from 2.1%; companies cut spending, boost profits - MarketWatch
Second-quarter GDP trimmed to 2% from 2.1%; companies cut spending, boost profits - MarketWatch
These charts warn that there is something wrong with the American consumer - MarketWatch
Pending home sales fall 2.5% in July - MarketWatch So declining mortgage rates is not acting as a lure for hesitant buyers.
Pending home sales fall 2.5% in July - MarketWatch So declining mortgage rates is not acting as a lure for hesitant buyers.
The rich aren't spending, signaling a possible recession ahead
Ron Insana: It ain't different this time for the inverted yield curve
Ron Insana: It ain't different this time for the inverted yield curve
+++++++
Markets and Market Commentary:
This dividend-stock strategy is for investors who want an attractive monthly income stream - MarketWatch I have created an income stream using bonds and CDs but I am moving more toward using dividend paying stocks as contributors. Of the stocks mentioned in that article, I currently own small amounts of AT&T. Dominion Resources, Duke Energy, Enbridge, and Exxon Mobil. All of those stocks are being bought pursuant to the small ball strategy where each purchase has to be at the lowest price in the chain.
These energy firms are trading at their financial-crisis lows - MarketWatch Before this article was published, I started a small ball purchase program Schlumberger Ltd. (SLB), one of the stocks mentioned in this article. I have not yet discussed the three SLB purchases. SLB is in a major bear market with no end in sight yet.
These energy firms are trading at their financial-crisis lows - MarketWatch Before this article was published, I started a small ball purchase program Schlumberger Ltd. (SLB), one of the stocks mentioned in this article. I have not yet discussed the three SLB purchases. SLB is in a major bear market with no end in sight yet.
Bank of America downgraded amid yield curve inversion, likely Fed cuts The yield inversion is a major headwind for banks.
Stocks won't bottom until they fall another 5%: Wells Fargo
History says the stock market’s volatile August paves the way for more losses in September - MarketWatch
Stocks won't bottom until they fall another 5%: Wells Fargo
History says the stock market’s volatile August paves the way for more losses in September - MarketWatch
++++++++
Trump:
Trump's False Auto Industry Tweets - FactCheck.org
Donald Trump misleads on Russia, Crimea, Obama and the G-8 | PolitiFact
Trump pushes to allow new logging in Alaska’s Tongass National Forest - The Washington Post ("The move would affect more than half of the world’s largest intact temperate rainforest, opening it up to potential logging, energy and mining projects.")
Donald is a self-proclaimed "environmentalist". That is the kind of Trump comment that makes one want to laugh at the Duck and cry at the same time since millions view him as honest person "who tells it like it is" (and they vote).
Trump says he's 'an environmentalist' after skipping G-7 climate meeting | TheHill;
Fact Check: Trump's environmental rhetoric versus his record - POLITICO
Some media outlets parrot Trump’s preposterous claim that he’s an environmentalist | Media Matters for America;
83 Environmental Rules Being Rolled Back Under Trump - The New York Times
New Interior Department senior adviser Christian Palich is a climate denier and former coal group president | Media Matters for America
Trump Administration Hardens Its Attack on Climate Science - The New York Times
After Trump claims first lady has ‘gotten to know’ Kim Jong Un, White House clarifies they’ve never met - The Washington Post
Demagogue Don continued to lash out at media organization that contradict his reality creations and lies with facts.
Donald's conduct, summarized in a WP article published last Wednesday, would constitute impeachable offenses if true. President Trump wants a border wall. He wants it black. And he wants it by Election Day. - The Washington Post Trump is so eager to complete his border law by election day that he instructed aides to "aggressively seize private land and disregard environmental rules, according to current and former officials involved with the project."
When aides suggested that some of Authoritarian Don's were unlawful or unworkable, Donald "waved off worries about contracting procedures and the use of eminent domain, saying 'take the land.'" If anyone was charged with violating the law, the Duck promised that he would pardon them. If Donald did direct subordinates to violate the law, that would be a clear violation of his oath of office.
Donald called the report Fake News that was made up by the WP. Democrats alarmed by Trump’s promise of pardons to build border wall
Donald's spokesperson claimed that Donald was joking when he requested officials to break the law. Trump only 'joking' about pardons if laws broken in pursuit of border wall: WH official - ABC News That is Donalds go to defense when caught in a clearly impeachable offense (the pardon offer for violating the law, if made, probably violated the federal bribery statute, 18 U.S. Code § 201 and other laws besides being a clear violation of his oath of office. On its face, the offer would violate the bribery statute, but Donald's defense, which goes to "corrupt" intent, would be a jury question)Donald called the report Fake News that was made up by the WP. Democrats alarmed by Trump’s promise of pardons to build border wall
Trump's False Auto Industry Tweets - FactCheck.org
Donald Trump misleads on Russia, Crimea, Obama and the G-8 | PolitiFact
Trump pushes to allow new logging in Alaska’s Tongass National Forest - The Washington Post ("The move would affect more than half of the world’s largest intact temperate rainforest, opening it up to potential logging, energy and mining projects.")
Donald is a self-proclaimed "environmentalist". That is the kind of Trump comment that makes one want to laugh at the Duck and cry at the same time since millions view him as honest person "who tells it like it is" (and they vote).
Trump says he's 'an environmentalist' after skipping G-7 climate meeting | TheHill;
Fact Check: Trump's environmental rhetoric versus his record - POLITICO
Some media outlets parrot Trump’s preposterous claim that he’s an environmentalist | Media Matters for America;
83 Environmental Rules Being Rolled Back Under Trump - The New York Times
New Interior Department senior adviser Christian Palich is a climate denier and former coal group president | Media Matters for America
Trump Administration Hardens Its Attack on Climate Science - The New York Times
After Trump claims first lady has ‘gotten to know’ Kim Jong Un, White House clarifies they’ve never met - The Washington Post
Demagogue Don continued to lash out at media organization that contradict his reality creations and lies with facts.
Trump takes time out of G7 meeting to lash out at media
Demagogue Don is of course one of the most prolific liars in recorded human history and consequently does whatever he can to turn voters away from accurate information that contradicts his constant and overflowing stream of false statements and representations.
Demagogue Don is of course one of the most prolific liars in recorded human history and consequently does whatever he can to turn voters away from accurate information that contradicts his constant and overflowing stream of false statements and representations.
VA staffers blasted 'ridiculous' meetings and questions with Trump allies in internal emails
Axios: Trump floated the idea of using nuclear bombs to stop hurricanes headed for US; Scoop: Trump suggested nuking hurricanes to stop them from hitting U.S.-Axios Donald denied that he ever suggested using nuclear weapons to stop hurricanes from reaching the U.S. Trump denies asking about nuking hurricanes - The Washington Post (noting the idea had been considered in the past)
Exclusive: Falwell steered Liberty University land deal benefiting his personal trainer-Reuters Falwell, a self proclaimed Christian and "conservative", is a major Trump supporter.
Donald Trump’s border wall: how much has been built?-PolitiFact Before Lying Don became President, there were 654 miles of primary barriers along the nearly 2000 mile border. That has not changed under Trump notwithstanding his statements to the contrary. What has been done is the replacement of dilapidated barriers with new fencing. Mexico has not paid a penny to build the wall.
Axios: Trump floated the idea of using nuclear bombs to stop hurricanes headed for US; Scoop: Trump suggested nuking hurricanes to stop them from hitting U.S.-Axios Donald denied that he ever suggested using nuclear weapons to stop hurricanes from reaching the U.S. Trump denies asking about nuking hurricanes - The Washington Post (noting the idea had been considered in the past)
Exclusive: Falwell steered Liberty University land deal benefiting his personal trainer-Reuters Falwell, a self proclaimed Christian and "conservative", is a major Trump supporter.
Donald Trump’s border wall: how much has been built?-PolitiFact Before Lying Don became President, there were 654 miles of primary barriers along the nearly 2000 mile border. That has not changed under Trump notwithstanding his statements to the contrary. What has been done is the replacement of dilapidated barriers with new fencing. Mexico has not paid a penny to build the wall.
+++++++
1. Eliminations:
A. Sold 112+ Shares of PRHSX at $74.16:
Quote: T. Rowe Price Health Sciences Fund
Profit Snapshot: +$1,166.12
I have now reduced by T. Rowe Price mutual fund holdings to 3 core funds:
T. Rowe Price Capital Appreciation (PRWCX)
T. Rowe Price Dividend Growth Fund (PRDGX)
T. Rowe Price Small-Cap Fund (OTCFX)
The largest position is in the balanced fund Capital Appreciation. The unrealized gains in those three funds is currently over $30K.
I have been taking the dividends in cash for over 2 years now and will continue to do until there is at least a 40% correction from current levels or around SPX 1800.
If the stock market continues to move higher, piercing SPX 3200 within 12 months, I will next consider eliminating the Dividend Growth Fund which has my largest unrealized profit among those three funds. I reach a point, given my capital preservation objectives, where I would prefer to lock in a profit and then invest the proceeds into credit risk free assets. So far this year, I have harvested a $10,899.66 profit by eliminating T.Rowe Price stock mutual funds.
B. Sold Remaining 61+ THQ Shares at $17.5:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Sponsor's Website: Fund Basics | Tekla Capital
THQ-CEF Connect Page
Closing Price Last Friday: THQ $17.22 +$0.06 +0.35%
SEC Filings
Dividend: Monthly at $.1125 (supported by ROC)
Distributions | Tekla Capital Management LLC
Profit Snapshot: +$60.49 (excludes prior 2019 transactions)
Last Discussed: Item # 2.A. Sold 53 THQ at $17.98(7/31/19 Post)
Last Buy Discussion: Item # 1 Bought 50 THQ at $16.5 (6/12/19 Post)
Other Sell Discussions: Item # 5 Sold 100 THQ at $17.59-Used Commission Free Trade(7/7/19 Post)(profit snapshot = $79.98)(contains 2017 profit snapshots = $555.56); Item # 2.C. Sold 232+ THQ at 17.59 (7/3/17 Post): Item # 2.D. Sold 118+ THQ at $18.7 in a Roth IRA Account (7/3/17 Post); Item # 3. Sold 160+ THQ at $17.41 (6/5/17 Post)
Last Elimination: Item # 6 Eliminated THQ at $17.65 (12/29/18 Post)(profit snapshot = $47.03)
2017 to Date THQ Realized Profit = $743.06
Expense Ratio: Too high at 1.49% which excludes interest expenses
The goal with THQ is harvest the dividend and to sell the shares profitably from time to time.
I am concerned that healthcare stocks may falter during the election season, particularly if it looks like the Democrats will regain control over the White House and both houses of Congress.
While I do not have a target re-entry price, my last purchase was at $16.5 (6/3/19) when the discount to net asset value was greater than 10%. I will start to take another look when the price falls below that level, provided the discount is then at greater than 10%.
2. Small Ball-BDCs:
The goal is always to generate a total return in excess of the dividend yield which requires taking profits and averaging down in order to improve my chances of achieving that goal.
A. Pared Highest Cost 14 TPVG Shares at $15.61-Used Commission Free Trade:
Profit Snapshot: +$46.33
Quote: TPVG | TriplePoint Venture Growth BDC Corp. Overview
TPVG SEC Filings; 2018 Annual Report
Website: TriplePoint Venture Growth
While I view TPVG as one of the better BDCs, I am not accustomed to holding onto any BDC selling at a significant premium to its last reported net asset value per share. TPVG's last reported net asset value per share was $14.19 as of 6/30/19. TPVG 10-Q at page 3
Unlike most other BDCs discussed in this blog, I have had only positive things to say about TPVG. That may change of course.
In the second quarter, a number of BDCs reported downdrafts in their respective net asset values per share due to new nonaccruals and loan writedowns. I discuss one of those in Item # 2.B. below. TPVG, on the other hand, reported a nice gain in its net asset value per share.
I have now sold down my TPVG position to just 20+ shares and have turned off the dividend reinvestment given the premium price to net asset value per share.
TPVG Before Pare: Average Cost Per Share = $11.76
TPVG After Pare: Average Cost per Share = $11.14
Dividend: Quarterly at $.36 per share ($1.44 annually)
Dividend Yield at $11.14= 12.93% (excludes special dividends)
Last Ex Dividend Date: 8/29/19
Realized TPVG Gains to Date: +$699.27 ($652.94 in prior trades)
Sell Discussions: Item # 2.A. Sold 74+ TPVG at $14.87 (7/20/19 Post)(profit snapshot= $246.43); Item # 4.C. Eliminated TPVG in Roth IRA Account (4/17/19 Post)(profit snapshot= $88.87); Item # 3.B.(4/14/19 Post)(profit snapshot = $71.76); Item 3.A. Sold 40 TPVG at $13.44-Schwab Account and Item #3B Sold 50 TPVG at $13.39 Vanguard Roth IRA (3/13/19 Post)(profit snapshots included); Item 2.B. Sold 50 TPVG at $13.39 (3/4/2017 Post)(profit snapshot = $153.08); Item # 3 Sold 50 TPVG at $12.33 (1/16/17 Post)(profit snapshot = $83.48)
Buy Discussions: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post); Item # 3 D. Bought 10 TPVG at $11.2-Used Commission Free Trade (1/9/19 Post); Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post); Item # 3.A. Added 50 TPVG at $13.28 and 10 at $13.02-Used Schwab Commission Free Trades (8/15/18 Post); Item # 2.B. Added 10 TPVG at $11.6-Used Commission Free Trade (3/19/18 Post); Items 1.B. and 1.C. Bought 50 TPVG at $12.32 and 10 at $12.01-Used Commission Free Trades (2/26/18 Post); Comment Blog # 3-South Gent: Bought 50 TPVG at $10.61 | Seeking Alpha
As previously note, I define victory for a BDC position as a total return in excess of the dividend yield. TPVG has significantly surpassed that objective.
B. Bought 10 TCPC at $13.17-Used Commission Free trade:
Quote: BlackRock TCP Capital Corp.
Closing Price Last Friday: TCPC $13.45 unchanged
TCPC is now a borderline deservedly hated BDC IMO.
SEC Filings
Management: External and richly compensated
Only Prior Trade: Stocks, Bonds & Politics:Item # 1.C. Bought 20 TCPC at $13.95-Used Commission Free Trade (4/2/18 Post)
Net Asset Value Per Share History (for a BDC the trend was stable from the 2012 IPO date through 12/31/17 but has been sliding meaningfully since then as highlighted in red below):
6/30/19: $13.64 10-Q for the Q/E 6/30/19 at page 2
12/31/18: $14.13
12/31/17: $14.8
12/31/16: $14.91
12/31/15: $14.78 Earnings Release
12/31/14: $15.43
12/31/13: $15.18 Earnings Release
12/31/12 $14.71 Earnings Release
IPO on 4/3/12 at $14.75 Prospectus (proceeds after external manager's 1/2 reimbursement of the underwriters' discount and the BDC's cost related to the offering was at about $14.16 per share)
5 Year Financial Date:
Average Cost Per Share = $13.69
Maximum Position: 100 Shares
Purchase Restriction: Small Ball Rule (next purchase 20 shares at below $12.75)
Dividend: Quarterly at $.36 per share ($1.44 annually)
Next Ex Dividend Date: 9/13/19
Dividend Yield at $13.69 TC per share = 10.52%
Dividend Reinvestment: Will start with the next quarterly dividend as a means to average down.
Last Earnings Report: The market reacted unfavorably to this earnings release for the reasons discussed below. That reaction was deserved IMO.
The most serious problem involved major markdowns to to Fidelis Acquisition L.L.C.
A $26.765+M original principal amount Term C PIK loan to Fidelis was marked down to a zero valuation. This loan never actually paid TCPC any interest. Instead, interest payments were paid with additions to the original principal amount.
A Term B $25.904+M 8% PIK loan to Fidelis was assigned a $18.965+M valuation.
As of 3/31/19, TCPC marked the Term C PIK loan at $21.608M. The markdown in just 3 months to zero makes the earlier mark look unwarranted and suspicious. The Term B PIK loan was valued at $22.5498+M.
Those two loans went from a $44.157+M valuation as of 3/31/19 to $18.964+B as of 6/30/19.
I do not like PIK loans. since pretend interest payments are made.
If the borrower survives to pay off the principal amount at maturity, then the pretend interest turns into real cash interest.
The large size of this PIK loan, its junior status in the capital structure, and the fast write-down in valuation support an opinion that the external managers are incompetent. They are nonetheless paid boatloads of money to produce this kind of result.
Stock Offerings:
TCP Capital Corp. Announces Pricing Of Public Offering Of Common Shares (4/20/17)("priced the public offering of 5,000,000 shares of its common stock at $16.84 per share for total gross proceeds of approximately $84.2 million. The Company has granted the underwriters an option for 30 days to purchase up to an additional 750,000 shares of common stock.")
$1K Par Value Bonds: Bond Detail (rated Baa3/BBB-)
Prospectus
TCP Capital Corp. Prices $50 Million Of 4.125% Notes Due 2022 (11/1/17); Prospectus
TCP Capital Corp. Prices $125 Million Of 4.125% Notes Due 2022 (8/4/2017)
This BDC recently sold $150M of 3.9% SU notes maturing on 8/23/24: Pricing Supplement
3. Short Term Bond/CD Ladder Basket Strategy:
A. Sold 1 Royal Bank of Canada 2.35% SU Maturing on 10/30/20:
Profit Snapshot: +$17.12
FINRA Page: Bond Detail (prospectus linked)
Issuer: Royal Bank of Canada (US: RY); Royal Bank of Canada (Canada: Toronto)
Sold at 100.394
YTM at 100.394 = 2.014%
Proceeds at 100.294 (after $1 commission)
B. Sold 2 Duke Energy 3.05% SU Maturing on 8/15/22-In a Roth IRA Account:
Profit Snapshot: +$51.12
Item # 3.B. Bought 2 DUK 2022 SU at a Total Cost of 99.465 (3/15/18 Post)
FINRA Page: Bond Detail (prospectus linked)
Issuer: Duke Energy Corp. (DUK)
DUK Analyst Estimates
Sold at 102.221
YTM at 102.221 = 2.21%
Accrued interest paid by the buyer was less than $1 since this bond just made its semi-annual interest payment:
I am redeploying proceeds from DUK bonds into its common stock which has a higher yield.
C. Bought 5 Treasury 56 Bills Maturing on 10/22/19 at Auction:
IR = 2.024%
Auction Results:
A. Sold 112+ Shares of PRHSX at $74.16:
Quote: T. Rowe Price Health Sciences Fund
Profit Snapshot: +$1,166.12
I have now reduced by T. Rowe Price mutual fund holdings to 3 core funds:
T. Rowe Price Capital Appreciation (PRWCX)
T. Rowe Price Dividend Growth Fund (PRDGX)
T. Rowe Price Small-Cap Fund (OTCFX)
The largest position is in the balanced fund Capital Appreciation. The unrealized gains in those three funds is currently over $30K.
I have been taking the dividends in cash for over 2 years now and will continue to do until there is at least a 40% correction from current levels or around SPX 1800.
If the stock market continues to move higher, piercing SPX 3200 within 12 months, I will next consider eliminating the Dividend Growth Fund which has my largest unrealized profit among those three funds. I reach a point, given my capital preservation objectives, where I would prefer to lock in a profit and then invest the proceeds into credit risk free assets. So far this year, I have harvested a $10,899.66 profit by eliminating T.Rowe Price stock mutual funds.
B. Sold Remaining 61+ THQ Shares at $17.5:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Sponsor's Website: Fund Basics | Tekla Capital
THQ-CEF Connect Page
Closing Price Last Friday: THQ $17.22 +$0.06 +0.35%
SEC Filings
Dividend: Monthly at $.1125 (supported by ROC)
Distributions | Tekla Capital Management LLC
Profit Snapshot: +$60.49 (excludes prior 2019 transactions)
Last Discussed: Item # 2.A. Sold 53 THQ at $17.98(7/31/19 Post)
Last Buy Discussion: Item # 1 Bought 50 THQ at $16.5 (6/12/19 Post)
Other Sell Discussions: Item # 5 Sold 100 THQ at $17.59-Used Commission Free Trade(7/7/19 Post)(profit snapshot = $79.98)(contains 2017 profit snapshots = $555.56); Item # 2.C. Sold 232+ THQ at 17.59 (7/3/17 Post): Item # 2.D. Sold 118+ THQ at $18.7 in a Roth IRA Account (7/3/17 Post); Item # 3. Sold 160+ THQ at $17.41 (6/5/17 Post)
Last Elimination: Item # 6 Eliminated THQ at $17.65 (12/29/18 Post)(profit snapshot = $47.03)
2017 to Date THQ Realized Profit = $743.06
Expense Ratio: Too high at 1.49% which excludes interest expenses
The goal with THQ is harvest the dividend and to sell the shares profitably from time to time.
I am concerned that healthcare stocks may falter during the election season, particularly if it looks like the Democrats will regain control over the White House and both houses of Congress.
While I do not have a target re-entry price, my last purchase was at $16.5 (6/3/19) when the discount to net asset value was greater than 10%. I will start to take another look when the price falls below that level, provided the discount is then at greater than 10%.
2. Small Ball-BDCs:
The goal is always to generate a total return in excess of the dividend yield which requires taking profits and averaging down in order to improve my chances of achieving that goal.
A. Pared Highest Cost 14 TPVG Shares at $15.61-Used Commission Free Trade:
Profit Snapshot: +$46.33
Quote: TPVG | TriplePoint Venture Growth BDC Corp. Overview
TPVG SEC Filings; 2018 Annual Report
Website: TriplePoint Venture Growth
While I view TPVG as one of the better BDCs, I am not accustomed to holding onto any BDC selling at a significant premium to its last reported net asset value per share. TPVG's last reported net asset value per share was $14.19 as of 6/30/19. TPVG 10-Q at page 3
Unlike most other BDCs discussed in this blog, I have had only positive things to say about TPVG. That may change of course.
In the second quarter, a number of BDCs reported downdrafts in their respective net asset values per share due to new nonaccruals and loan writedowns. I discuss one of those in Item # 2.B. below. TPVG, on the other hand, reported a nice gain in its net asset value per share.
I have now sold down my TPVG position to just 20+ shares and have turned off the dividend reinvestment given the premium price to net asset value per share.
TPVG Before Pare: Average Cost Per Share = $11.76
TPVG After Pare: Average Cost per Share = $11.14
Dividend: Quarterly at $.36 per share ($1.44 annually)
Dividend Yield at $11.14= 12.93% (excludes special dividends)
Last Ex Dividend Date: 8/29/19
Realized TPVG Gains to Date: +$699.27 ($652.94 in prior trades)
Sell Discussions: Item # 2.A. Sold 74+ TPVG at $14.87 (7/20/19 Post)(profit snapshot= $246.43); Item # 4.C. Eliminated TPVG in Roth IRA Account (4/17/19 Post)(profit snapshot= $88.87); Item # 3.B.(4/14/19 Post)(profit snapshot = $71.76); Item 3.A. Sold 40 TPVG at $13.44-Schwab Account and Item #3B Sold 50 TPVG at $13.39 Vanguard Roth IRA (3/13/19 Post)(profit snapshots included); Item 2.B. Sold 50 TPVG at $13.39 (3/4/2017 Post)(profit snapshot = $153.08); Item # 3 Sold 50 TPVG at $12.33 (1/16/17 Post)(profit snapshot = $83.48)
Buy Discussions: Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post); Item # 3 D. Bought 10 TPVG at $11.2-Used Commission Free Trade (1/9/19 Post); Item # 4.A. Bought 50 TPVG at $12.11-In A Roth IRA Account (12/5/18 Post); Item # 3.A. Added 50 TPVG at $13.28 and 10 at $13.02-Used Schwab Commission Free Trades (8/15/18 Post); Item # 2.B. Added 10 TPVG at $11.6-Used Commission Free Trade (3/19/18 Post); Items 1.B. and 1.C. Bought 50 TPVG at $12.32 and 10 at $12.01-Used Commission Free Trades (2/26/18 Post); Comment Blog # 3-South Gent: Bought 50 TPVG at $10.61 | Seeking Alpha
As previously note, I define victory for a BDC position as a total return in excess of the dividend yield. TPVG has significantly surpassed that objective.
B. Bought 10 TCPC at $13.17-Used Commission Free trade:
Quote: BlackRock TCP Capital Corp.
Closing Price Last Friday: TCPC $13.45 unchanged
TCPC is now a borderline deservedly hated BDC IMO.
SEC Filings
Management: External and richly compensated
Only Prior Trade: Stocks, Bonds & Politics:Item # 1.C. Bought 20 TCPC at $13.95-Used Commission Free Trade (4/2/18 Post)
Net Asset Value Per Share History (for a BDC the trend was stable from the 2012 IPO date through 12/31/17 but has been sliding meaningfully since then as highlighted in red below):
6/30/19: $13.64 10-Q for the Q/E 6/30/19 at page 2
12/31/18: $14.13
12/31/17: $14.8
12/31/16: $14.91
12/31/15: $14.78 Earnings Release
12/31/14: $15.43
12/31/13: $15.18 Earnings Release
12/31/12 $14.71 Earnings Release
IPO on 4/3/12 at $14.75 Prospectus (proceeds after external manager's 1/2 reimbursement of the underwriters' discount and the BDC's cost related to the offering was at about $14.16 per share)
5 Year Financial Date:
Current Position: 30 Shares
Average Cost Per Share = $13.69
Maximum Position: 100 Shares
Purchase Restriction: Small Ball Rule (next purchase 20 shares at below $12.75)
Dividend: Quarterly at $.36 per share ($1.44 annually)
Next Ex Dividend Date: 9/13/19
Dividend Yield at $13.69 TC per share = 10.52%
Dividend Reinvestment: Will start with the next quarterly dividend as a means to average down.
Last Earnings Report: The market reacted unfavorably to this earnings release for the reasons discussed below. That reaction was deserved IMO.
The most serious problem involved major markdowns to to Fidelis Acquisition L.L.C.
A $26.765+M original principal amount Term C PIK loan to Fidelis was marked down to a zero valuation. This loan never actually paid TCPC any interest. Instead, interest payments were paid with additions to the original principal amount.
A Term B $25.904+M 8% PIK loan to Fidelis was assigned a $18.965+M valuation.
 |
| Fidelis Loans as of 6/30/19 with TCPC market values |
Those two loans went from a $44.157+M valuation as of 3/31/19 to $18.964+B as of 6/30/19.
I do not like PIK loans. since pretend interest payments are made.
If the borrower survives to pay off the principal amount at maturity, then the pretend interest turns into real cash interest.
The large size of this PIK loan, its junior status in the capital structure, and the fast write-down in valuation support an opinion that the external managers are incompetent. They are nonetheless paid boatloads of money to produce this kind of result.
Stock Offerings:
TCP Capital Corp. Announces Pricing Of Public Offering Of Common Shares (4/20/17)("priced the public offering of 5,000,000 shares of its common stock at $16.84 per share for total gross proceeds of approximately $84.2 million. The Company has granted the underwriters an option for 30 days to purchase up to an additional 750,000 shares of common stock.")
$1K Par Value Bonds: Bond Detail (rated Baa3/BBB-)
Prospectus
TCP Capital Corp. Prices $50 Million Of 4.125% Notes Due 2022 (11/1/17); Prospectus
TCP Capital Corp. Prices $125 Million Of 4.125% Notes Due 2022 (8/4/2017)
This BDC recently sold $150M of 3.9% SU notes maturing on 8/23/24: Pricing Supplement
A. Sold 1 Royal Bank of Canada 2.35% SU Maturing on 10/30/20:
Profit Snapshot: +$17.12
FINRA Page: Bond Detail (prospectus linked)
Issuer: Royal Bank of Canada (US: RY); Royal Bank of Canada (Canada: Toronto)
Sold at 100.394
YTM at 100.394 = 2.014%
Proceeds at 100.294 (after $1 commission)
B. Sold 2 Duke Energy 3.05% SU Maturing on 8/15/22-In a Roth IRA Account:
Profit Snapshot: +$51.12
Item # 3.B. Bought 2 DUK 2022 SU at a Total Cost of 99.465 (3/15/18 Post)
FINRA Page: Bond Detail (prospectus linked)
Issuer: Duke Energy Corp. (DUK)
DUK Analyst Estimates
Sold at 102.221
YTM at 102.221 = 2.21%
Accrued interest paid by the buyer was less than $1 since this bond just made its semi-annual interest payment:
I am redeploying proceeds from DUK bonds into its common stock which has a higher yield.
C. Bought 5 Treasury 56 Bills Maturing on 10/22/19 at Auction:
IR = 2.024%
Auction Results:
4. Intermediate Term Bond Ladder Basket Strategy:
A. Sold 2 out of 3 Dominion Resources 2.75% SU Maturing on 9/15/22:
Profit Snapshot: +$10.38
Finra Page: Bond Detail
Issuer: Dominion Energy Inc. (D)
Sold at 100.482
YTM at 100.482 = 2.576%
Proceeds at 100.382 (after $ 2 brokerage commission)
5. Small Ball-Electric Utility Stocks:
A. Bought 10 DUK at $89.4-Used Commission Free Trade:
Quote: Duke Energy Corp. (DUK)
Investors - Our Company - Duke Energy
Closing Price Last Friday: DUK $92.74 -$0.02 -0.02%
Duke is favorably mentioned in this Kiplinger article published on 8/30/19: 11 Utility Stocks and Funds to Buy for Safety and Income Centerpoint (CNP), which I discussed in my last post, is also mentioned.
Duke is one of the largest electric power holding companies in the U.S., providing electricity to about 7.7M retail customers in six states.
Operations:
5 Year Chart as of 8/14/19:
Dividend: Quarterly at $.945, raised from $.9275 effective for the 2019 third quarter payment
Dividend Information- Duke Energy
Ex Dividend (day after 10 share purchase): 8/15/19
Dividend Yield at $89.4 TC = 4.23%
Broker Reports:
Morningstar (5/9/19): 3 stars with a FV of $88
Credit Suisse (8/12/19): Neutral with a PT of $95 down from $100
Argus (7/22/19): Hold based on valuation
S & P (8/6/19): 4 stars with a 12 month PT of $95
Over the next 12 months, the price IMO will significantly depend on the movement of intermediate term interest rates. Buyers are now desparate for yield substitutes and a starting yield of 4% with a history of dividend increases looks desirable to those investors. That may change with a pop in interest rates. A decline in the 10 year treasury yield to below 1% could move the price closer to $100. The current price would be too expensive for this stock IMO if I woke up tomorrow and discovered that the 10 year treasury was over 3% and moving toward 3.5%.
Current Position: 10 Shares
Maximum Position: 30 shares
Purchase Restriction: Small Ball Rule
Last Earnings Report (Q/E 6/30/19):
SEC Filed Earnings Press Release
6. Bought 100 DPG at $15.29-Used Commission Free Trade:
Quote: Duff & Phelps Global Utility Income Fund Inc. (DPG)
Closing Price Last Friday: DPG $15.56 +$0.30 +1.97%
Sponsor's Website: Duff & Phelps Global Utility Income Fund Inc.
DPG Duff & Phelps Global Utility-CEF Connect
SEC Filings
Last SEC Filed Shareholder Report: Duff & Phelps Global Utility Income Fund Inc. (Period ending 4/30/19)
Leveraged: Significant at 28.96% as of 4/30/19. The fund uses two forms of leverage. The first is 4,000,000 Floating Rate Mandatory Redeemable Preferred Shares ($25 par value) in 3 series that pays 1.85% to 1.95% spreads to 3 month Libor depending on the series. The second is a secured bank loan which had a $160M balance as of 4/20/19. The interest is a spread over a short term Libor rate, probably one month. For the 6 months ending on 4/29/19, the weighted daily average rate was 3.27%. When the fund files its next shareholder report, I would anticipate that the average weighted daily interest rates on both the bank loan and the preferred stocks to come down.
Dividend: Quarterly at $.35 per share (supported by ROC)
Dividend yield at a TC of $15.29 = 9.16%
Last Ex Dividend Date: 6/14/19
Next Ex Dividend Date: 9/13/19
I am discussing this purchase out of time order since I mentioned this purchase in a comment published last Friday.
I discussed this CEF in a January 2019 post and have nothing much to add to that discussion and my comment cited above: Item # 5 Added 50 DPG at $12.87 in a Roth IRA Account (1/9/19 Post)
A. Bought 10 DUK at $89.4-Used Commission Free Trade:
Quote: Duke Energy Corp. (DUK)
Investors - Our Company - Duke Energy
Closing Price Last Friday: DUK $92.74 -$0.02 -0.02%
Duke is favorably mentioned in this Kiplinger article published on 8/30/19: 11 Utility Stocks and Funds to Buy for Safety and Income Centerpoint (CNP), which I discussed in my last post, is also mentioned.
Duke is one of the largest electric power holding companies in the U.S., providing electricity to about 7.7M retail customers in six states.
Operations:
5 Year Chart as of 8/14/19:
Dividend: Quarterly at $.945, raised from $.9275 effective for the 2019 third quarter payment
Dividend Information- Duke Energy
Ex Dividend (day after 10 share purchase): 8/15/19
Dividend Yield at $89.4 TC = 4.23%
Broker Reports:
Morningstar (5/9/19): 3 stars with a FV of $88
Credit Suisse (8/12/19): Neutral with a PT of $95 down from $100
Argus (7/22/19): Hold based on valuation
S & P (8/6/19): 4 stars with a 12 month PT of $95
Over the next 12 months, the price IMO will significantly depend on the movement of intermediate term interest rates. Buyers are now desparate for yield substitutes and a starting yield of 4% with a history of dividend increases looks desirable to those investors. That may change with a pop in interest rates. A decline in the 10 year treasury yield to below 1% could move the price closer to $100. The current price would be too expensive for this stock IMO if I woke up tomorrow and discovered that the 10 year treasury was over 3% and moving toward 3.5%.
Current Position: 10 Shares
Maximum Position: 30 shares
Purchase Restriction: Small Ball Rule
Last Earnings Report (Q/E 6/30/19):
SEC Filed Earnings Press Release
6. Bought 100 DPG at $15.29-Used Commission Free Trade:
Quote: Duff & Phelps Global Utility Income Fund Inc. (DPG)
Closing Price Last Friday: DPG $15.56 +$0.30 +1.97%
Sponsor's Website: Duff & Phelps Global Utility Income Fund Inc.
DPG Duff & Phelps Global Utility-CEF Connect
SEC Filings
Last SEC Filed Shareholder Report: Duff & Phelps Global Utility Income Fund Inc. (Period ending 4/30/19)
Leveraged: Significant at 28.96% as of 4/30/19. The fund uses two forms of leverage. The first is 4,000,000 Floating Rate Mandatory Redeemable Preferred Shares ($25 par value) in 3 series that pays 1.85% to 1.95% spreads to 3 month Libor depending on the series. The second is a secured bank loan which had a $160M balance as of 4/20/19. The interest is a spread over a short term Libor rate, probably one month. For the 6 months ending on 4/29/19, the weighted daily average rate was 3.27%. When the fund files its next shareholder report, I would anticipate that the average weighted daily interest rates on both the bank loan and the preferred stocks to come down.
Dividend: Quarterly at $.35 per share (supported by ROC)
Dividend yield at a TC of $15.29 = 9.16%
Last Ex Dividend Date: 6/14/19
Next Ex Dividend Date: 9/13/19
I am discussing this purchase out of time order since I mentioned this purchase in a comment published last Friday.
I discussed this CEF in a January 2019 post and have nothing much to add to that discussion and my comment cited above: Item # 5 Added 50 DPG at $12.87 in a Roth IRA Account (1/9/19 Post)
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.
https://www.cnbc.com/2019/08/28/ron-insana-it-aint-different-this-time-for-the-inverted-yield-curve.html
ReplyDeleteSo the arguments for this time is different... a) is that because of foreign rates being so low, negative, more money is flowing into USA bonds which brings long term rates down.
Rates being that low are not because of booming economies.
b) Another argument is that it's a self-made inversion by the Fed raising too fast.
Though counter is 30m/10yr is at -47, which is more than the one .25% recent raise that could be deemed too fast. The other raises were over prior time, & adjusted to & not triggers of an inversion.
c) I guess usually rates are rising fast. Fed is keeping up. Then Fed misses the backing down, as the rates start dropping. That's when inversion happens. It's direct indicator that rates are slower & economy is slowing down.
So this time isn't that. Except it kind of it, by how rates slowed by going negative all over the world. And now Fed is slowing down it's increases & talking about reversing.
What am I missing if anything?
Land: We are trying to understand something unique in 4000 years of human history, give or take a few hundred.
DeleteWhy are lenders willing to forego interest payments and to pay debtors a significant fee to take their money? The negative nominal yield debt is now at $17 trillion, having grown substantially during August.
Accepting a negative nominal yield is not rational behavior unless there is a rational fear that a massive deflation is about to occur accompanied by widespread credit defaults including corporate debt that is now rated investment grade. That is just not the future predicted by the Stock Jocks who are stilling overflowing with abundant exuberance.
Foreign sovereign interest rates are acting to suppress intermediate and longer term U.S. treasury rates but it is questionable why that can continue to occur given the cost of hedging the USD exposure when owning USD denominated debt having abnormally low and negative real yields. And why does Spain and Italy have lower ten year government bond yields than the U.S. if there was so much demand for treasuries from foreigners given the perceived safety of U.S. government debt?
The Fed's FF rate is not causing the substantial decline in intermediate and longer term U.S. interest rates. The FF range is now at 2% to 2.25%. A .5% cut in that range would take the range to 1.5% to 1.75% with a midpoint at 1.625% which is above the current ten year yield. Several economists are predicting that the ten year yield will continue to decline through year end.
Given the uniqueness of what is happening now, I am not placing firm and unequivocal reliance on yield inversion models that were reliable predictors of recession in the past. There is just way too much weirdness now to rely without question on those models as reliable predictors of an upcoming recession.
Has anyone asked them why they are willing to pay for others to hold their money?
DeleteHow much is being held at less than 0, and how much in the cash vault relative to past time? Maybe there isn't much being held at negative rates.
USA is still positive. It's foreign countries that are already showing economic distress. There's always the debate on whether the USA will lead others out of recession, or follow them into one.
Your point is well taken that if there was a run to USA bonds, foreign rates would be higher as bond prices sink, not lower than USA.... same as in economically stressful past times.
Neg rates means economic risk, & that should result in higher rates to compensate for the risks. That sums it up. It's hard to sort out. It's saying the economy is poor, so rates are low, and that should push rates up. That isn't usually how it works, is it?
Normally when rates are low because the economy is sputtering, do rates then go up to compensate and right themselves and the economy?
One factor you aren't adding in, is irrational expectations & perceptions. Maybe they aren't rationally afraid of deflation, but in force of habit & in the USA only low rates are available... so that's what banks are using.
There was a bond bear for a long time. This has been a bond bull. Is there any factor from the bear that's still causing this bull as a rebound?
All of this doesn't take into account a new factor -- Central bank rates are being used in a currency & hegemony war. So rates reflect not just the economy, but this part of a trade war that's been active for several years now.
The other factor is that technology is shrinking the economy. Could this be the usual pattern, but shrunk down (lower rates) to accommodate the technology shrink on the economy? And that's all this is?
Do you have any thoughts on any of these ideas?
Land: The total amount of bonds with negative yields is currently around $17 trillion, which is a significantly large number.
DeleteEven when the yield is positive, the real yield is frequently likely to be negative barring another Great Depression type scenario.
U.S. long term bond bull and bear markets have been far longer than long term stock bull and bear markets.
The last bond bear market lasted from around 1949 into 1982 or thereabouts.
The current long term bull market in bonds started when the U.S. 30 year bonds was over 15% circa 1981-1982.
The last bond bear market started after the FED manipulated treasuries to abnormally low levels in the 1945-1951 period given the inflation rate.
When that policy was abandoned, the ten year rate jumped from around 2.5% to 4.5% in the early 1950s, which was just the first disaster visited upon bond owners.
I don't believe anyone knows now why lenders are willing to forego interest payments and pay a fee to borrowers to hold their money or to accept abnormally low positive yields likely to produce a negative real rate of return before taxes.
This will cause serious problems down the road (e.g. bond bubble bursting, pension funds unable to meet long term benefits, tightening of bank credit due to compressed net interest margins, etc)
Within five years, the answer with the benefit of hindsight may be clear.
If there is a worldwide financial crisis with money incinerated in the tens of trillions accompanied by significant deflation and forced deleveraging worst than the recent Near Depression, then the Bond Ghouls were prescient. Then, in retrospect, buying 10 year German government bonds with negative .7% yields will look good compared to BBB or lower credits whose issuers went bankrupt.
If economic expansion continues uninterrupted, with modest inflation hovering near 2% and 2+% real GDP growth, then the decisions to buy negative nominal yield bonds will be classified as irrational unless sold profitably to the greater fool. Losing purchasing power every year to inflation and taxes is not going to work longer term.
Looking back on 2008 in 2009 or 2010, the reasons for the Near Depression became obvious, though informed people could disagree on decree that certain events played in causing the financial crisis. It was not clear to almost everyone when SPX hit new highs in October 2007.
One possible deflationary force is the extremely abnormal central bank policies maintained for over a decade with no end foreseeable. The continuation of those policies into the indefinite future which is now anticipated is a critical component of the deflationary pressure created by those policies.
This is at best a minority view now but may become more accepted as the Japan and ECB model for generating economic growth continues to fail, eventually causing far more harm than good in part by creating bubbles in risk asset prices that eventually burst causing a financial crisis.
The latest estimate that I have seen is that worldwide non-consumer debt has increased by over 40% since 2008, somewhere close to $237 trillion. This debt binge is due in part to the abnormal CB monetary policies. Companies have issued debt to pay dividends and to buy back stock, both unproductive except as to share prices, and have borrowed heavily to fund acquisitions that will ultimately result in massive writedowns. In a few years, looking back on the past, no one should be surprised to learn to their chagrin that curing the last debt bomb blowup with vast amounts of new debt was not the best of ideas.
Vast amounts of new government debt has been spent foolishly since money is mostly free. This is particularly true in the U.S. and China.
I do believe that investors need to at least take into account that there is a rational explanation for negative sovereign debt yields which may come to pass.
Thanks for the summary!
ReplyDeleteOn the "calm down" and "deescalation"... so it's not what happened.
China pre-another tariff increase said it's better to deescalate. Media & lead investors too that to mean China will not escalate. Not that China was ASKING Trump not to escalate. Media usually works so hard to invent context for comments, and multiple ways to read them. They didn't even entertain the basic usual context when someone says "calm down, we don't want a fight here" that is not the same as saying "I wouldn't fight if you hit me."
Land: You got it.
DeleteTuesday may be interesting. I have plenty of cash.
DeleteI'm not comfortable with bond trading (yet). So I have cash. (Even if I don't personally have the privilege of paying someone to hold it for me.)
Land: So far, U.S. stock futures are only down slightly at the moment.
DeleteThis may be in part due to the mostly net positive reaction so far in Asian and European stock markets.
Shanghai Composite Index 2,924.11 + 37.87 +1.31%
Hang Seng Index 25,626.55 -98.18 -0.38%
STOXX Europe 600 Index 380.85 +1.37 +0.36%
Last Updated: Sep 2, 2019 at 4:25 p.m. CEDT
https://www.marketwatch.com/investing/index/sxxp?countrycode=xx
Before discussing my opinion about the future course of stock prices, I would add my usual admonition about predicting the future. If one is inclined to make predictions, it would be best to predict frequently and within a wide range to improve ones chances of being right once.
Since March 2009, the U.S. stock market has produced great wealth for those who have money and are willing to risk it.
Listening to naysayers and pulling out of stocks to invest in risk free instruments would have been a losing strategy for over a decade now.
This powerful money making machine is not going to be abandoned based on conjectures about what may happen that would destroy a substantial part of that wealth creation.
The Big Nasty will have to happen first, inflicting serious financial pain that causes investors to cry for their mamas and hide under the covers afraid to do anything other than to sell.
Besides the decline in stock prices, there will need to be obvious and indisputable triggers for the decline (e.g. a recession starting of unknown depth and duration).
The current U.S. economic data has several weak points but consumer spending remains positive and the economy is consumer led.
So buying the dips is still the mantra.
The Stock Jocks will spin positive news events out of proportion to their importance and will even spin negative events positively or as having no material consequences.
China's statements from last Thursday were incorrectly spun as a positive and now that is old news already forgotten.
The fact that Donald said yesterday that a September meeting with the big honchos is still on is believed and is now being spun as true (when it is questionable) and positive (even though there is no signs of a breakthrough).
The general consensus among the Stock Jocks is that Donald will settle the dispute before the election with great fanfare, claiming that his brilliant negotiations resulted in the best trade deal in the universe's history (even though the deal will have negligible real net positive benefits and resulted after Donald caved on some important demands)
I doubt that U.S. farmers will regain their China market share for a decade when and if a deal is signed.
Production will be moved out of China mostly to low cost foreign countries rather than back to the U.S.
Ill feelings will result in more difficulties for U.S. companies selling products and services to China's consumers.
I mentioned in the prior comment that Donald represented that trade talks were already scheduled this month with China.
Delete“We are talking to China, the meeting is still on as you know, in September. That hasn’t changed -- they haven’t changed it, we haven’t. We’ll see what happens. But we can’t allow China to rip us off anymore as a country.”
https://www.cnbc.com/2019/09/01/trump-says-trade-talks-still-planned-for-sept-after-china-tariffs-go-into-effect.html
As I quoted in this post, Trump made this comment about 24 hours earlier: "I guess the meeting in September continues to be on, it hasn’t been canceled."
Bloomberg reported within the past hour that both sides are struggling to even agree to a schedule for continued talks. The U.S. stock futures accelerated their declines immediately after that report. The problem in scheduling a meeting arose after Donald rejected China's request to delay the tariffs which went into effect yesterday.
"For their part, Chinese officials don’t want to be seen as succumbing to strong-arm tactics like tariffs and are wary about setting a meeting date because of Trump’s tendency to change tack via surprises on Twitter."
https://www.bloomberg.com/news/articles/2019-09-02/china-u-s-struggle-to-set-next-meeting-as-tariffs-erode-trust?srnd=markets-vp
E-Mini S&P 500 Future Continuous Contract
2,899.00 -25.80 -0.87%
https://www.marketwatch.com/investing/future/sp%20500%20futures
It is going to be hard for Donald to spin as a positive a cancellation of high level trade talks. I doubt that China's leadership could survive now if they accede to Donald's demands.
Then there are legitimate questions about whether Donald will ever honor an agreement or whether he will simply take the concessions that he wants now and then demand more later. I call this the 1938 Munich appeasement syndrome which occurs whenever concessions are made in response to bullying tactics made by someone who can not be trusted. Anyone who trusts Donald is a fool.
By interesting on Tuesday, I meant 1-3% drop. With a pause at the trading range low. Possibly if news supports it, a move down towards 2018 Dec lows. I wasn't thinking grand scale. Just that reality might sink in for a few days or week, before euphoria is back.
ReplyDeleteI said I have a lot of cash, not with expectation of deploying it in some immediate crash, but because there's no worry if there is a decline. I've been trying to buy back in for a while, but not finding it that easy to find buys. I have however done some buying on the dips. I'd like another! That's what I was trying to refer to.
Meanwhile, those are very, very useful reminders. I figure until 200MA or 20month MA is broken, and VIX hangs out at or above 25 (or was it 26 in the model) for a bunch of days... this is still a bull.
Because of inversion warnings, I am planning to sell the next time we're near ATHs again. At least those stocks without much divs, or without much strength. And keep my long term quality holds that have good div growth history.
That said on what I expected about Tues, I can't believe futures didn't manage even a little worry! And it took more news to trigger even some worry. I agree with the euphoria that Trump will pretend he's won before the election. So I might as well invest according to that being -believed- by many, rather than according to the -reality- of damage done by all of his tariff actions with China.
You lay out situation of what it all means well... including how it will be perceived by many...
The meeting will happen. It won't do much or look like much. But the Donald will bend over backwards to have a meeting. China will get something it wants behind the scenes to come to the table, while announcing it's only in the name of peace not in the name of negotiating.
I thought futures were closed today?
ReplyDeleteThe stock market was closed today, but futures contracts can be traded.
DeleteTook many hours, but for the moment, the futures market decided to worry.
DeleteI didn't fall asleep. So I'm going to be more interested in catching up on that today :).
On this time is different, my question is, will euphoria look different this time? Will it show in the market, but investing won't be on everyone's minds & headlining non-financial newspapers?
Land: IMO, the stock market is directionless. A 200 point DJIA move, up or down, is meaningless. Stock Jocks are still in buy the dip mode but are indecisive and lack conviction, waiting for more hard news on the U.S. economy's direction.
DeleteDonald can manipulate the stock investors with an deliberately misleading tweet about the trade negotiations The claims are soon revealed as false and misleading, and whatever was gained in response is lost.
It will take more significant adverse developments happening in the U.S. economy to change the optimistic blue skies consensus. There was a big drop in consumer sentiment last month tied to the trade war that could soon bleed over into a significant decline in consumer spending, but that remains to be seen.
Investment grade bonds, particularly the high quality ones, are still in a bull market of unknowable duration.
Bonds are in a price parabola which accelerated last month. I am selling bonds almost everyday now into the latest price spike. Except for short term treasury bills bought a auction as an alternative to cash catching rays in sweep accounts that pay less interest, I am not even looking for bonds to buy. I will be participating in today's 3 month treasury bill auction.
The rise in gold's price may be an indicator of trouble to come. It looks to me like gold has joined high quality bonds in a flight to safety trade.
So there's a bubble - in bonds. It's not quite the bubble of 2000 or 2007. It hasn't caught on fire for everyone to be investing in and FOMO about.
DeleteSo it's not pointing to enough euphoria yet for the market to start breaking. But that's the first I've heard of a bubble happening related to the market these days.
Land: I would say that bonds are in a bubble. Most individual investors do not buy individual bonds like I do. Before I started selling them most trading days several months ago, I may have owned over 400 different ones. I never counted them. It takes about 7 or 8 scrolls on my mouse to get out of the bond section into the stock section in my Fidelity account now. I also own bonds in 5 other accounts.
DeleteMost individual investors are instead buying bond funds.
https://www.reuters.com/article/us-markets-funds-baml/bond-funds-net-fourth-largest-weekly-inflows-amid-recession-fears-baml-idUSKCN1V60W7
I may have had a brain malfunction today, but this is how I playing now. Even with my coach potato exercise routine, I would still have to call an ambulance before jogging to my mailbox. So I am not exactly in the same condition as I was in my Stock Stud days.
I bought a 7.875% Macy's bond at less than par value over 8 years ago. I sold it today at a 18+% premium over par value. My trade, just 1 bond, was the only one today.
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C104716&symbol=M.BA
I redeployed part of the proceeds, and this is questionable, into buying 30 Macy common shares at $14.92 using a commission free trade. The yield at that price is about 10.54% with an ex dividend date on 9/12.
https://www.marketwatch.com/investing/stock/m
I would classify that as a Lottery Ticket purchase, given that Macy's is on the wrong side of future retail sales growth and has declined about 60% over the past year. The P/E is in the mid-single digits.
I have traded the stock successfully in the past, but may be going to the well one too many times now. It will probably take a better than expected Christmas season for the stock to improve to cross back over $20 where it was in early August before the company guided down:
https://www.marketwatch.com/investing/stock/m/charts
The U.S. stock market accelerated its slide after ISM reported that its U.S. manufacturing PMI index moved into contraction territory.
ReplyDeletehttps://www.cnbc.com/2019/09/03/the-manufacturing-sector-is-contracting-according-to-ism-survey.html
This is not a surprise. Manufacturing has been weakening worldwide. Markit's last manufacturing PMI, which was released on August 22nd and discussed here, had U.S. manufacturing in contraction territory and at a 119 month low.
https://www.markiteconomics.com/Public/Home/PressRelease/8d045df65df54d4694039324224684e0
S&P 500 Index 2,897.41 -29.05 -0.99%
Last Updated: Sep 3, 2019 at 10:21 a.m. EDT
https://www.marketwatch.com/investing/index/spx
U.S. 10 Year Treasury Note
1.442% -0.058%
Last Updated: Sep 3, 2019 at 10:22 a.m. EDT
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx
The Stock Jocks barely reacted to the negative news today.
ReplyDeleteS&P 500 Index 2,906.27 -20.19 -0.69%
https://www.marketwatch.com/investing/index/spx
A .69% decline in SPX could easily happen on a no news day.
The new orders component of the ISM manufacturing index, which is a leading indicator, declined to 47.2% from 50.8 in the prior month.
https://www.instituteforsupplymanagement.org/ISMReport/MfgROB.cfm?navItemNumber=31078&SSO=1
The Stock Jocks are not likely succumb to the shakes, except for a few days or weeks due to their periodic anxiety attacks, unless and until consumer spending turns south in a major way.
I would recommend keeping a close eye on the monthly retail reports as well as the personal consumption expenditures found in the GDP report and the monthly income and outlays reports.
This is a link to the last personal income and outlays report.
https://www.bea.gov/news/2019/personal-income-and-outlays-july-2019
The August report is scheduled for release on 9/27.
The monthly retail sales reports are released by the Census Bureau.
https://www.census.gov/retail/index.html
Part of the stock market scare during the 2018 4th quarter was related IMO to some poor retail sales reports.
https://tradingeconomics.com/united-states/retail-sales
I discussed the second revision of the 2nd quarter GDP, which showed robust consumer spending, in this post.
This is a link to a retail sales chart for the past 30 years.The data is inflation adjusted.
https://www.macrotrends.net/1371/retail-sales-historical-chart
There may not be much lag time between a decline and the start of a recession. With the inflation adjustment, you can see the number start to creep up before a recession ends.
+++
Since I use several brokers, I have found that all of them have issues that are not desirable.
For example, Schwab's computers must take the weekend and holidays off. I had several treasuries mature on 8/31/19 and the proceeds have not yet been credited to my account as of 9/3/19. If I wanted to buy something today with those funds, I could not do so.
There will be a credit for the proceeds effective on 9/4/19.
Fidelity's computers work on weekends and holidays. Apparently, they are not represented by a union. If those treasuries maturing on 8/31 were held in my Fidelity account, the credit would have been available that day.
That wasn't much reaction. Dow was over 1%, but it wasn't a 3% day.
DeleteTo 47.2% is a big drop. That's not a dip into contraction. It's putting a whole foot into it, to feel the waters.
"There may not be much lag time between a decline and the start of a recession. With the inflation adjustment, you can see the number start to creep up before a recession ends. "
Not much lag time between decline in what & a start of a recession? The market? Is there usually a meaningful gap between?
With inflation, you can see what number start to creep up? Is that after the recession starts but before it ends?
Land: Core CPI numbers are over 2% but not climbing. The all inclusive CPI is being negatively impacted by falling energy prices. Sticky prices are increasing at higher than the core CPI. There are a number of products and services that continually move up and rarely come down. Think of private college or health insurance expenses.
Deletehttps://www.frbatlanta.org/research/inflationproject/stickyprice.aspx
I was referring to retail sales going down before a recession and starting a move back up before a recession ends. You will not have much, if any, warning of a recession coming from retail sales. It generally suffers a downtrend when a recession has already started or just prior to one starting:
Chart: Non-Inflation adjusted
https://fred.stlouisfed.org/series/MRTSSM44X72USS
I would not look ordinarily at inflation as an indicator for recession. There are times when inflation causes such a surge in borrowing costs that consumers can no longer borrow and spend. An example would be the inflation rate in the 1979-1982 period when the prime rate hit 20%.
Scroll to Prime Rate Complete History:
https://www.moneycafe.com/prime-rate/
A major financial crisis can cause deflation, which was the case during the Great Depression and for a short period during the recent Near Depression. The deflation will generally occur when recessionary conditions are severe (e.g. 1930-1932 and 2009 as the aftermath of the Near Depression)
https://www.minneapolisfed.org/community/financial-and-economic-education/cpi-calculator-information/consumer-price-index-and-inflation-rates-1913
For most of U.S. history since 1913, problematic inflation has been been more of a problem than deflation. Since WWII, there are only 3 years with deflation and all were minor at -1%, -.3% and -.4%. I counted 22 years with inflation over 4% since WWII and 4 of those were over 10%.
The Bond Ghouls see benign inflation numbers for the next 30 years as reflected in the breakeven spreads of TIPs. The 30 TIP year is currently estimating an average annual inflation rate of about 1.6% over the next 30 years.
https://fred.stlouisfed.org/series/T30YIEM
This article, just published at Marketwatch, summarizes the position of Neil Shearing of Capital Economics who attempts to make the case that there is no bubble in the bond market.
Deletehttps://www.marketwatch.com/story/what-bond-bubble-economist-says-uncomfortable-truth-is-that-rally-in-fixed-income-market-is-justified-2019-09-03?mod=mw_theo_homepage
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2019/09/observations-and-sample-of-recent_4.html