AKBA, FFHPRI:CA, JCAP, PNNT, PPL

Economy: 

Fed study: Trump tariffs backfired, caused job losses and higher prices; Fed study finds Trump tariffs backfired - MarketWatch

Federal Reserve Board Study: Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector

EU Industrial Production in October: -.5% compared to September and -2.2 Y-O-Y (12/12/19 Eurostat Press Release)

The U.S. economic expansion will last ‘many more years’ and 2020 will be good for stocks, says prominent economist - MarketWatch 

Goldman Sachs is saying the economy is nearly recession-proof

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Markets and Market Commentary: 

Stocks post best annual gain in 6 years with the S&P 500 surging more than 28%

Fear & Greed Index-CNNMoney (currently at 93 on a zero to 100 scale, indicating "extreme greed")

Record rally putting stocks at risk for 20% meltdown, Ed Yardeni warns

Here’s a warning for investors who are tempted by this year-end rally for stocks - MarketWatch

Barron's names 10 top stocks for 2020 - Alphabet Inc. (NASDAQ:GOOG) | Seeking Alpha I currently own 2 of the 10 stocks mentioned in that article: Royal Dutch Shell and ViacomCBS (VIAC). 

No snowflakes here: U.S. consumers will keep the economy humming through 2020 - MarketWatch

Stocks are moving deeper into a danger zone: Jack Ablin

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Trump: 

Giuliani says he's 'more of a Jew' than Holocaust survivor George Soros

Trump Justice Department sues to seize private property for border-wall construction - MarketWatch While the U.S. government can seize private property, just compensation has to be paid to the owners. Private landowners can contest in court what is fair compensation and present other arguments that may be appropriate under the circumstances. 

The end result is almost no part of the wall has been built. There has been some replacement of border fencing.   

Acquiring Private Land Is Slowing Trump's Border Wall : NPR

Trump’s misleading “border wall” narrative | The Fact Checker - YouTube

6 ways the border wall could disrupt the environment: National Geographic; Homeland Security To Waive Environmental Rules On Border Wall Projects- NPR

The 5 republican Supreme Court Justices lifted a lower court injunction that prevented Donald from using funds appropriated by Congress for other uses. When giving Donald what he wants, those Justices will be inclined to create powers for the President that usurp the enumerated Constitutional powers of Congress. Opinion | On the Border Wall, the Supreme Court Caves to Trump - The New York Times They may dodge this particular  issue on the merits as noted in this 5 to 4 memorandum order while giving Donald what he wants. Trump v. Sierra Club (07/26/2019)  

Trump: “I have an Article II where I have the right to do whatever I want as president.” Remarks by President Trump at Turning Point USA's Teen Student Action Summit 2019 | The White House

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All trades are commission-free unless otherwise noted. 

1. Added 50 FFHPRI at C$16.55 (C$1 commission at IB): 

Quote: FFH-PI.TO 

Fairfax Financial Holdings Ltd | Cumulative 5-Year Rate Reset Preferred Shares, Series I (FFH.PRI.CA) Information Page | Preferred Stock Channel

Issuer:  Fairfax Financial Holdings Ltd. (Canada: Toronto) 
Fairfax Financial Holdings Limited: Third Quarter Financial Results 

Security: Reset Equity Preferred Stock 

Par Value: C$25

Prospectus Excerpt: 

Coupon: 2.85% spread to the 5 year Canadian Bond, resets every five years 

Last Reset: December 2015 

This reset resulted in a 3.708% coupon for five years. Fairfax Announces Reset Dividend Rate on Its Series I Preferred Shares

For the initial five year period ending in December 2015, the issuer paid a 5% fixed rate coupon. The first reset resulted in a significant coupon decrease.  

The current quarterly penny rate is C$.23175 per share/unit (C$.927 annually)

The yield at a C$16.55 TC at this penny rate is 5.6%.   

Last Ex-Dividend Date: 12/12/19

Dividends: Cumulative and quarterly 

Next Reset: December 2020

Canada 5 Year Government Bond Overview | MarketWatch

Current Position: 150 shares/units

I can not find any discussion of the previous purchase. 

Fairfax Announces Reset Dividend Rate on Its Series C Preferred Shares and Quarterly Dividend on Series C, D, E, F, G, H, I, J, K and M Preferred Shares and Quarterly Dividend Rate for Series D, F, H and J Shares  

Current Holdings FFH Preferred Resets: 

FFHPRD resets quarterly at a 3.15% spread to the 3-month Canadian government note. One interest rate risk for this type of reset is that short-term rates will decline. The benefit is that the coupon will reset quickly when short-term rates are rising. Item # 5 Added 50 FFHPRD at C$16.32 (10/5/19 Post); Item # 2 Bought 50 FFHPRD at C$16.84

FFHPRF resets quarterly at a 2.16% spread to the 3-month Canadian government note. Item # 1 Bought 100 FFHPRF at C$12.36 Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of April 1, 2016 - South Gent | Seeking Alpha

FFHPRG resets every 5 years at a 2.56% spread to the 5-year Canadian bond, with the next reset occurring in September 2020. Item # 1.A. Bought 50 FFHPRG at C$14.54 (11/13/19 Post)  

My brokerage commissions on all Canadian Reset preferred transactions are C$1 for 100 shares or less.  

Trading Profits Canadian Reset Preferred Stocks = +C$10,643.5 

Realized Trading Profits FFH Preferred Stocks = C$680.5

FFHPRD = C$400 (2017)
FFHPRG = C$168.5  (2017) & C$112 (2016)

Snapshots are included in Advantages and Disadvantages of Equity Preferred Floating Rate Securities

The Canadian Reset equity preferred stocks in the aggregate have been moving up in price recently. This class of securities will generally perform better when interest rates are moving up, as investors start to anticipate higher coupons on the applicable reset date.

A steep decline in prices occurred when it became obvious that interest rates were headed back down.

The most recent top in the 5 year Canadian bond's yield was at 2.5% during September 2018.

Importantly for the pricing of the Canadian equity preferred resets, the forecast then was that rates would continue to move higher. That turned out to be the wrong forecast as the 5 year Canadian bond yield fell to about 1.2% last August.

Worries about a recession led many to believe that the downtrend in rates would continue. That forecast and the actual decline from 2.5% to 1.2% in less than a year caused a major decline in prices for this class of securities.

More optimism about future growth has resulted in the 5 year moving back up in yield, closing near 1.7% last Friday.

2. Pares and Eliminations: 

A. Sold 131+ PNNT at $6.6: 

Quote: PennantPark Investment Corp. (PNNT) - MarketWatch

Profit Snapshot: +$20.17 (net) 

Last Buy Discussions: Item # 2.A. Added 10 PNNT at $6.09 (10/26/19 Post); Item # 2.B. Added 50 PNNT at $6.21 (9/21/19 Post)

Last Sell Discussions: Item # 1.B. Sold 50 PNNT at $7.35-Highest Cost Lot (6/7/18 Post); Sold Roth IRA: 100 PNNT at $9.535 (2/17/15 Post); Item # 5 Sold 50 PNNT at $11.92 (12/17/13 Post)

Dividend: Quarterly at $.18. While the dividend has not been covered by net investment income per share in recent quarters, this BDC does have spillover income that has covered the shortfall.  (see my discussion in this comment)

Goal: With BDCs, the goal is to exit the position at a total return in excess of the dividend payments. 

Small Ball Trading Rules

B. Sold 105 AKBA at $6.35: 

Quote: Akebia Therapeutics Inc.

Website: Akebia | Pioneering Hypoxia Inducible Factor (HIF) Therapies

SEC Filings; 2018 Annual Report

Profit Snapshot: $135.66 (net)

Item # 3.A. Bought 70 AKBA at $3.98 (10/16/19 Post); Item # 1.A. Bought 30 AKBA at $7.82- Used Commission free trade (8/26/19 Post) 

Prior Round-Trip: Item # 4.A. Sold 30 AKBA at $15.27 (8/22/17 Post)(profit snapshot = $181.03)-Item # 3.A. Bought at $9.17 on 3/30/17

AKBA Trading Profits to Date = $316.69

C. Pared JCAP-Sold 50 at $20 (highest cost lot): 

Quote: Jernigan Capital Inc. (JCAP)

Website: Jernigan Capital

SEC Filings

Average Cost Before Pare = $18.95

Average Cost After Pare = $18.44

Snapshot Intra-day 12/19/19 

Profit Snapshot: +$8.47 

Item # 3. Bought 50 JCAP at 19.83 (7/27/19 Post)

Last Buy Discussion: Item # 1.A. Bought 10 JCAP at $18.9 and 30 at $18.78 (10/19/19 Post) I did continue to purchase lots at lower prices, including the following: 5 at $18.72, 5 at $18.18, 5 at $17.8; 10 at $17.46, 4 at $17.41 and 5 at $17.3, just a typical small ball trading pattern using commission-free trades. 

Jernigan Capital, Inc. Announces Agreement to Internalize External Manager The stock popped on this news, even though the quarterly dividend was cut from $.35 per share to $.23 or $.92 annually. The overall cost of the internalization is favorable to shareholders IMO.

At the new dividend rate, the yield at a total cost of $18.44 is 4.99%.

I will receive one quarterly dividend at the old rate of $.35 which went ex on 12/31/19. 

D. Pared PPL-Sold 50 at $36.2: 

Quote: PPL Corp.
PPL Corp. Analyst Estimates 

Profit Snapshot: +$114.96

Item # 1 Bought 100 PPL at $33.9  (12/7/19 Post) I discussed the last earnings report in that post. 

Dividend: Quarterly at $.41 per share

Last Ex Dividend: 12/9/19 (received on the 100 shares)

PPL 5 Year Chart

3. An Example of an Early Redemption: 

Laboratory Corporation  of America Holdings (LH) redeemed its 2.625% SU bond maturing on 1/1/2020 on 12/31/20. The issuer made a $1.56 per bond make whole payment. The issuer did not have the right, which is common, to avoid a make whole payment when the optional redemption right was exercised 30 days before maturity. 

Prospectus Excerpt 

LH bonds are frequently available in 1 bond lots. I owned this particular bond in 3 accounts. 

Their purchases were made as part of an anticipated low return/low risk investment strategy where the goal was to realize a total return in excess of a treasury with maturities similar to the remaining terms of these bonds when bought. 

The comparable treasury would have been somewhat shorter than the two year treasury note which was treading in a range between 2% and 2.25% when these bonds were bought. 2018 Daily Treasury Yield Curve Rates 

The goal for such a short maturity would be close to .5% annual return in excess of that treasury note when I view the interest rate and credit risk issue to be immaterial. 

That excess total return is negligible for a few bonds, of course, but adds up in a 7 figure bond portfolio.    

Profit on 6 Bonds = $16.87 

  

By going out further in time, I was able to trade LH SU bonds where the total return was significantly higher than for the 6 bonds maturing on 2/1/20. In each case, a 1 bond round-trip produced a greater profit than the 6 short term bonds.  

E.G. 2019 Sells:  

Item # 2.A. Sold 1 LH 3.6% SU Maturing on 2/1/25 at 103.340 (7/37/19 Post)(profit snapshot = $45.54)-Item # 1.B. Bought 1 LH 2025 SU at a TC of 98.088 (3/22/17 Post)

Item # 3.A. Sold 1 LH 3.25% SU Maturing on 9/1/24 at 100.131 (6/8/19 Post)(profit snapshot = $28.04)-Item # 4.A. Bought 1 LH SU at a TC of 97.277 (3/15/18 Post) 

I was not concerned about the credit risk for the issuer over the intermediate term 3 to 10 years, so that risk IMO was no different than the LH short term bonds.  

The longer maturities can of course  increase interest rate risk, but observation assumes some future event that may never happen. The reality of interest rate risk depends on whether rates go up or down. 

There is interest rate risk in owning bonds, T Bills and CDs that have short term maturities when short rates are declining which is the recent experience.   

When I bought the 6 LH bonds that were just redeemed, the reasonable forecast was that they had less interest rate risk attached to them than the LH intermediate term bonds. 

However, if I took a snapshot of the risks at this moment in time, the shorter term bonds arguably had greater interest rate risk since I will receive less income reinvesting the proceeds into a similar bond while I could have received a greater return with the intermediate term bonds.  

This assessment of risk is fluid with time. 

Interest rates for intermediate term bonds have been moving up some but not enough to change the conclusion set out in the previous paragraph.  

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.