Economy:
Fed, saying aggressive action is needed, starts unlimited QE - MarketWatch
The FED unleashed the big cannons last Monday. Federal Reserve Board -Federal Reserve announces extensive new measures to support the economy
JPM call the FED's extraordinary actions "Big Bertha" to distinguish them from mere bazookas. Others analysts characterized the FED's actions as "going nuclear".
The Fed will extend its buying program to include ETFs that track the investment grade corporate bond market. Those ETFs would include the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the iShares Investment Grade Corporate Bond ETF (LQD)
Trump signs $2 trillion coronavirus stimulus bill
Senate, White House reach $2 trillion stimulus deal to blunt coronavirus fallout I would agree with using the words "blunt coronavirus fallout" to describe the deal.
Morgan Stanley is currently predicting a 2.4% annualized decline in first quarter U.S. GDP and a 30% plunge in the second quarter. Morgan Stanley sees US GDP falling by 30% in second quarter
Unemployment could reach 30% in the U.S., says St. Louis Fed’s Bullard - MarketWatch Unemployment peaked at 25% during the Great Depression.
Unemployment claims soared to 3.3 million last week, most in history - CNN;
Almost one in four Americans lost job or furloughed because of coronavirus, poll finds
It was the worst week for the economy in decades. The pain is just beginning.
Soaring unemployment and new unemployment claims are expected by investors. What may not be fully appreciated is the ramifications on the U.S. economy.
In May 2019, FED published its Report on the Economic Well-Being of U.S. Households in 2018. The FED found that 40% of adults could not meet an unexpected $400 expense.
We will soon find out how that finding will reverberate through the U.S. economy. The shutdowns and social distancing will need to work and soon.
Consumer sentiment sinks to a nearly 4-year low in March as coronavirus spreads - MarketWatch
The FED unleashed the big cannons last Monday. Federal Reserve Board -Federal Reserve announces extensive new measures to support the economy
JPM call the FED's extraordinary actions "Big Bertha" to distinguish them from mere bazookas. Others analysts characterized the FED's actions as "going nuclear".
The Fed will extend its buying program to include ETFs that track the investment grade corporate bond market. Those ETFs would include the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the iShares Investment Grade Corporate Bond ETF (LQD)
Trump signs $2 trillion coronavirus stimulus bill
Senate, White House reach $2 trillion stimulus deal to blunt coronavirus fallout I would agree with using the words "blunt coronavirus fallout" to describe the deal.
Morgan Stanley is currently predicting a 2.4% annualized decline in first quarter U.S. GDP and a 30% plunge in the second quarter. Morgan Stanley sees US GDP falling by 30% in second quarter
Unemployment could reach 30% in the U.S., says St. Louis Fed’s Bullard - MarketWatch Unemployment peaked at 25% during the Great Depression.
Unemployment claims soared to 3.3 million last week, most in history - CNN;
Almost one in four Americans lost job or furloughed because of coronavirus, poll finds
It was the worst week for the economy in decades. The pain is just beginning.
Soaring unemployment and new unemployment claims are expected by investors. What may not be fully appreciated is the ramifications on the U.S. economy.
In May 2019, FED published its Report on the Economic Well-Being of U.S. Households in 2018. The FED found that 40% of adults could not meet an unexpected $400 expense.
 |
| Page 2 |
Consumer sentiment sinks to a nearly 4-year low in March as coronavirus spreads - MarketWatch
Consumers could spend $20 billion less for gasoline this April I have almost a full tank of gas and have not been driving for over a week now. I am following the instructions of medical professionals to stay inside, even though I do not have COVID-19 and have no symptoms at all (and have not even had a cold in over 15 years).
The European economy is tanking:
Flash eurozone PMI plunges to worst-ever reading in March - MarketWatch (The flash reading for March was 31.4, a record low since the series began in 1998, and down from 51.6 in February
Germany business morale falls to lowest since 2009; economy 'in shock'
Shellshocked Spain reports record 832 new coronavirus deaths-Reuters (3/28/20)
Mortgage rates declined in the latest Freddie Mac survey:
Mortgage Rates - Freddie Mac
Olive Garden parent Darden Restaurants says same-restaurant sales sank 60% for the current week due to coronavirus - MarketWatch
Cheesecake Factory says it’s not paying rent in April due to ‘unprecedented times’ - MarketWatch
Coronavirus map: Tracking cases around the world
++++++
Markets and Market Commentary:
These indicators suggest a stock-market bottom, but coronavirus fears could send the S&P 500 swooning again - MarketWatch
The Fed's intervention in the corporate investment grade market through purchases of investment grade corporate bond ETFs has provided liquidity and alleviated the dysfunctional and irrational pricing in that market.
For about 10 trading days, it was normal to see BBB+ or higher rated corporate bonds trading far outside normal yield spreads to U.S. treasuries maturing at about the same time.
The bond order books were filled will sell orders, ten or more separate orders were commonplace and frequently no bids at all.
These indicators suggest a stock-market bottom, but coronavirus fears could send the S&P 500 swooning again - MarketWatch
The Fed's intervention in the corporate investment grade market through purchases of investment grade corporate bond ETFs has provided liquidity and alleviated the dysfunctional and irrational pricing in that market.
For about 10 trading days, it was normal to see BBB+ or higher rated corporate bonds trading far outside normal yield spreads to U.S. treasuries maturing at about the same time.
The bond order books were filled will sell orders, ten or more separate orders were commonplace and frequently no bids at all.
A large number of firms have ceased share buyback in response to the COVID-19 pandemic, which removes what has been a major support for stocks. Intel joined that long list last week. SEC Form 8-K
Besides suspending share buybacks, U.S. companies are drawing down their lines of credit. General Motors joined that parade last week. General Motors will draw down $16 billion in credit, suspends 2020 outlook
Companies Tap Their Credit Lines. Should That Worry Investors? | Nasdaq; Markets Insider
Leon Cooperman optimistic stock market bottomed on coronavirus fears
Mortgage REIT stocks are collapsing due to margin calls. New York Mortgage, Invesco Mortgage, and Two Harbors (TWO) suspended both their common and preferred share dividends to preserve capital. Two Harbors Investment Corp. Announces Company Update and Suspension of First Quarter 2020 Common and Preferred Stock Dividends; Invesco Mortgage Capital Inc. Provides Update on Status of Financing Arrangements as of March 23, 2020 and Delays Payment of Quarterly Dividends; New York Mortgage Trust Provides Update on Status of Financing Arrangements as of March 23, 2020 The following is another potential problem for those companies: KBW sees mortgage payment moratorium neutral to agency MBS investors- Seeking Alpha
The $2 trillion stimulus will slam the mortgage industry -- unless the Fed comes to the rescue - CNN
Besides suspending share buybacks, U.S. companies are drawing down their lines of credit. General Motors joined that parade last week. General Motors will draw down $16 billion in credit, suspends 2020 outlook
Companies Tap Their Credit Lines. Should That Worry Investors? | Nasdaq; Markets Insider
Leon Cooperman optimistic stock market bottomed on coronavirus fears
Mortgage REIT stocks are collapsing due to margin calls. New York Mortgage, Invesco Mortgage, and Two Harbors (TWO) suspended both their common and preferred share dividends to preserve capital. Two Harbors Investment Corp. Announces Company Update and Suspension of First Quarter 2020 Common and Preferred Stock Dividends; Invesco Mortgage Capital Inc. Provides Update on Status of Financing Arrangements as of March 23, 2020 and Delays Payment of Quarterly Dividends; New York Mortgage Trust Provides Update on Status of Financing Arrangements as of March 23, 2020 The following is another potential problem for those companies: KBW sees mortgage payment moratorium neutral to agency MBS investors- Seeking Alpha
The $2 trillion stimulus will slam the mortgage industry -- unless the Fed comes to the rescue - CNN
EPR Properties starts buyback program amid market dislocation-Seeking Alpha; EPR Properties Provides Update Regarding the Impact of COVID-19
Gladstone Commercial Corporation Provides Corporate Update (some tenants may be unable to pay rent)
Victoria's Secret parent L Brands halts dividend, furloughs employees - MarketWatch
Tapestry suspends dividends, halts buybacks (NYSE:TPR)-Seeking Alpha
University of Chicago paper sees U.S. dividend annual growth sinking 28% - Vanguard High Dividend Yield ETF -Seeking Alpha Coronavirus: Impact on Stock Prices and Growth Expectations by Niels Joachim Gormsen, Ralph S. J. Koijen- SSRN
Nordstrom suspends dividend, taps credit in midst of coronavirus
AT&T declares $0.52 dividend - AT&T Inc. (NYSE:T) | Seeking Alpha
Abbott Launches Molecular Point-of-Care Test to Detect Novel Coronavirus in as Little as Five Minutes
Larry Kudlow says US has contained the coronavirus and the economy is holding up nicely (2/25/20 article). Kudlow now says he was wrong. Coronavirus: Kudlow admits he was wrong about disease being 'contained' (3/23/20) Kudlow is a former news personality who is Donald's chief economic advisor.
+++++
Portfolio Management:
I have to adjust this reality:
2020 Daily Treasury Yield Curve Rates
Complaining about those interest rates does not solve the problem.
I will not be purchasing any CDs or treasury bills with the proceeds received from maturing securities. (see Item # 4 below which lists securities maturing in April)
The FED is shouting at me to take more risks assuming I want a real rate of return before taxes. Those yields are deeply negative on a real inflation adjusted basis before income taxes.
The significant pricing anomalies in the investment grade corporate bond market, spanning about 10 days, caused me to make a significant reallocation out of cash into purchasing those bonds. I concentrated on maturities within 1 year. YTMs generally ranged from 4% to 8%.
My interest income will increase in 2020 compared to last year notwithstanding the decline in interest rates.
Preferred stocks, both in Canada and the U.S., were in meltdown mode and were priced to produce current yields between 8% to 16%. Pricing has now improved for most issues, other than MREIT preferred stocks, but are not yet back to where they were prior to the common stock meltdown.
Preferred stocks are a disfavored asset category for me. They are junior to all bonds in the capital structure and represent no equity interest in the business even though they are technically equity capital on the balance sheet.
If I own a senior unsecured bond, I have to be paid or the company goes into bankruptcy. A preferred stock owner can have their dividend deferred (cumulative) or eliminated altogether (non-cumulative) when the issuer ceases paying a cash dividend to common stock owners.
Nonetheless, the yields available on preferred stocks this month overwhelmed that distaste.
I increased my allocation by over $10K recently, both in U.S. fixed coupon preferred stocks and Canadian reset equity preferred that were trashed to even a greater extent. It will take several weeks before most of those purchases are discussed here.
We all know by now that Donald's gut is the repository of all knowledge and sound judgment, unmatched in the universe since the Big Bang or any known or unknown dimensions.
I do not claim that my gut has anywhere near the omniscience.
I felt a need to introduce that caveat before making the following statement:
If COVID-19 infections continue to accelerate in April, with widespread shutdowns continuing, my gut tells me that the stock market has not hit bottom yet.
Gladstone Commercial Corporation Provides Corporate Update (some tenants may be unable to pay rent)
Victoria's Secret parent L Brands halts dividend, furloughs employees - MarketWatch
Tapestry suspends dividends, halts buybacks (NYSE:TPR)-Seeking Alpha
University of Chicago paper sees U.S. dividend annual growth sinking 28% - Vanguard High Dividend Yield ETF -Seeking Alpha Coronavirus: Impact on Stock Prices and Growth Expectations by Niels Joachim Gormsen, Ralph S. J. Koijen- SSRN
Nordstrom suspends dividend, taps credit in midst of coronavirus
AT&T declares $0.52 dividend - AT&T Inc. (NYSE:T) | Seeking Alpha
Abbott Launches Molecular Point-of-Care Test to Detect Novel Coronavirus in as Little as Five Minutes
Larry Kudlow says US has contained the coronavirus and the economy is holding up nicely (2/25/20 article). Kudlow now says he was wrong. Coronavirus: Kudlow admits he was wrong about disease being 'contained' (3/23/20) Kudlow is a former news personality who is Donald's chief economic advisor.
+++++
Portfolio Management:
I have to adjust this reality:
 |
| Treasury Yield Curve March 2020 |
Complaining about those interest rates does not solve the problem.
I will not be purchasing any CDs or treasury bills with the proceeds received from maturing securities. (see Item # 4 below which lists securities maturing in April)
The FED is shouting at me to take more risks assuming I want a real rate of return before taxes. Those yields are deeply negative on a real inflation adjusted basis before income taxes.
The significant pricing anomalies in the investment grade corporate bond market, spanning about 10 days, caused me to make a significant reallocation out of cash into purchasing those bonds. I concentrated on maturities within 1 year. YTMs generally ranged from 4% to 8%.
My interest income will increase in 2020 compared to last year notwithstanding the decline in interest rates.
Preferred stocks, both in Canada and the U.S., were in meltdown mode and were priced to produce current yields between 8% to 16%. Pricing has now improved for most issues, other than MREIT preferred stocks, but are not yet back to where they were prior to the common stock meltdown.
Preferred stocks are a disfavored asset category for me. They are junior to all bonds in the capital structure and represent no equity interest in the business even though they are technically equity capital on the balance sheet.
If I own a senior unsecured bond, I have to be paid or the company goes into bankruptcy. A preferred stock owner can have their dividend deferred (cumulative) or eliminated altogether (non-cumulative) when the issuer ceases paying a cash dividend to common stock owners.
Nonetheless, the yields available on preferred stocks this month overwhelmed that distaste.
I increased my allocation by over $10K recently, both in U.S. fixed coupon preferred stocks and Canadian reset equity preferred that were trashed to even a greater extent. It will take several weeks before most of those purchases are discussed here.
We all know by now that Donald's gut is the repository of all knowledge and sound judgment, unmatched in the universe since the Big Bang or any known or unknown dimensions.
I do not claim that my gut has anywhere near the omniscience.
I felt a need to introduce that caveat before making the following statement:
If COVID-19 infections continue to accelerate in April, with widespread shutdowns continuing, my gut tells me that the stock market has not hit bottom yet.
+++++++
Trump:
The U.S. Now Leads the World in Confirmed Coronavirus Cases (as of 3/26/20)
The following tweet is just more proof, when none is needed in TrumpWorld, that Donald's gut is the source of wisdom, informed judgment and common sense:
US coronavirus cases top 100,000, doubling in three days (as of yesterday, 3/27/2020)
Coronavirus COVID-19 Global Cases: John Hopkins
S & P 500 on 2/24/20: 3,225.89
S & P 500 on 3/27/20: 2,541.47 -88.60 -3.37%
Down 22.05%
S & P 500 Historical
Coronavirus (COVID-19) live map tracker from Microsoft
In TrumpWorld, Donald proved that he was up to the task by tweeting or retweeting just last Wednesday his disdain for Mitt Romney, Joe Biden, Robert Mueller, Adam Schiff, the "Trump Derangement Syndrome", the "CORRUPT & FAKE NEWS"; liberal "snowflakes", and the "LameStream media". He touted his own magnificence, which goes without saying of course, and what he now calls "Trumbux" (the stimulus money that he can now spend). We can all be grateful that an Extremely Stable Genius is in charge.
Trump told Pence not to call Washington, Michigan governors; Trump Demands Praise From Governors in Return for Aid Disgusting Don derisively referred to Michigan's governor at that young woman. (Trump: We’ve had a big problem with the young, a woman governor from — you know who I’m talking about — from Michigan.”); Michigan governor says shipments of medical supplies 'canceled' or 'delayed' and sent to federal government
Donald assured the nation that there was oversight in how Trumpbux would be spent: "Look, I'll be the oversight. I'll be the oversight".
Don the Authoritarian, the unchallengeable leader of the GOP, announced when he signed the legislation that he will undermine the law's oversight provisions. Trump takes immediate step to try and limit coronavirus inspector general’s power - The Washington Post; Trump pushes back against congressional oversight for $500 billion bailout fund Donald has repeatedly claimed that he can do whatever he wants as President.
Fortunately Don the Magnificent allowed the treasury secretary to handle the negotiations with Congress on the recently passed stimulus bill. Trump is omnipresent in media during coronavirus outbreak, but takes a back seat in some key areas of response - The Washington Post
Donald wants people to attend Easter Sunday services and to return to work before Easter. Inside Trump’s risky push to reopen the country amid the coronavirus crisis
The Republican governors in Texas and Ohio pushed back on that rosy optimism and arbitrary timeline, which runs counter to the darkening realities.
Trump and governors in heated debate over saving lives versus the economy - Los Angeles Times
Trump needs governors to reopen the economy. Even Republican ones aren’t on board.
Trump wants U.S. economy ‘opened up and raring to go’ by Easter - The Washington Post;
Trump made this comment on 3/24: “We’ve never closed down the country for the flu. So you say to yourself, what is this all about?”
Trump also mused that we do not stop driving automobiles simply because people die in accidents.
I recall hearing that exact statement made in reference to justifying the Vietnam War made by my high school history teacher. The justification was made by a doofus assistant football coach who had no business teaching anything. This was in an Alabama public school when I was in the 10th grade. I could not help myself. I immediately responded "You have got to be kidding". He was in shock that anyone disputed his brilliant analogy.
Coronavirus map: Tracking cases in the U.S. and around the world
How coronavirus compares to the 1918 flu, H1N1 and other pandemics
Coronavirus live updates: At least half a million New Yorkers could be unemployed, GM cuts pay
Governors and mayors in growing uproar over Trump’s lagging coronavirus response
Exclusive: U.S. axed CDC expert job in China months before virus outbreak
Desperate, angry state leaders push back on Trump administration claims of mass mask shipments - POLITICO
Fact check: Trump utters series of false and misleading claims at coronavirus briefing (3/27/20)
When Donald was told that Senator Romney was in self-quarantine, he sarcastically responded "gee that is too bad". Donald is not going to quit being an off-the-charts asshole just because the nation has a health crisis. Donald tries to be the worst person that he can possibly be every day and rarely fails to succeed at that task.
PolitiFact | Timeline: How Donald Trump responded to the coronavirus pandemic
Senator says White House turned down emergency coronavirus funding in early February:
At a minimum, Trump wasted over two months in making preparations for a pandemic including stockpiling medical supplies (test kits, gloves, masks, ventilators) that are now in short supply and accelerating their manufacture. He also contributed to widespread nonchalance, particularly among republicans, that caused more infections and probably IMO led to deaths that would not have occurred under a competent President. Governor Cuomo says Trump administration's inaction will decide who dies - CBS News
Now we know: The "conservative" devotion to life ends at birth - The Washington Post (opinion column written by the former republican Max Boot) I had to put "conservative" in quotes since the people referenced in this opinion column are not anywhere close to being properly classified as conservatives. The GOP is not a conservative party.
The U.S. Now Leads the World in Confirmed Coronavirus Cases (as of 3/26/20)
The following tweet is just more proof, when none is needed in TrumpWorld, that Donald's gut is the source of wisdom, informed judgment and common sense:
US coronavirus cases top 100,000, doubling in three days (as of yesterday, 3/27/2020)
Coronavirus COVID-19 Global Cases: John Hopkins
S & P 500 on 2/24/20: 3,225.89
S & P 500 on 3/27/20: 2,541.47 -88.60 -3.37%
Down 22.05%
S & P 500 Historical
Coronavirus (COVID-19) live map tracker from Microsoft
In TrumpWorld, Donald proved that he was up to the task by tweeting or retweeting just last Wednesday his disdain for Mitt Romney, Joe Biden, Robert Mueller, Adam Schiff, the "Trump Derangement Syndrome", the "CORRUPT & FAKE NEWS"; liberal "snowflakes", and the "LameStream media". He touted his own magnificence, which goes without saying of course, and what he now calls "Trumbux" (the stimulus money that he can now spend). We can all be grateful that an Extremely Stable Genius is in charge.
Trump told Pence not to call Washington, Michigan governors; Trump Demands Praise From Governors in Return for Aid Disgusting Don derisively referred to Michigan's governor at that young woman. (Trump: We’ve had a big problem with the young, a woman governor from — you know who I’m talking about — from Michigan.”); Michigan governor says shipments of medical supplies 'canceled' or 'delayed' and sent to federal government
Donald assured the nation that there was oversight in how Trumpbux would be spent: "Look, I'll be the oversight. I'll be the oversight".
Don the Authoritarian, the unchallengeable leader of the GOP, announced when he signed the legislation that he will undermine the law's oversight provisions. Trump takes immediate step to try and limit coronavirus inspector general’s power - The Washington Post; Trump pushes back against congressional oversight for $500 billion bailout fund Donald has repeatedly claimed that he can do whatever he wants as President.
Fortunately Don the Magnificent allowed the treasury secretary to handle the negotiations with Congress on the recently passed stimulus bill. Trump is omnipresent in media during coronavirus outbreak, but takes a back seat in some key areas of response - The Washington Post
Donald wants people to attend Easter Sunday services and to return to work before Easter. Inside Trump’s risky push to reopen the country amid the coronavirus crisis
The Republican governors in Texas and Ohio pushed back on that rosy optimism and arbitrary timeline, which runs counter to the darkening realities.
Trump and governors in heated debate over saving lives versus the economy - Los Angeles Times
Trump needs governors to reopen the economy. Even Republican ones aren’t on board.
Trump wants U.S. economy ‘opened up and raring to go’ by Easter - The Washington Post;
Trump made this comment on 3/24: “We’ve never closed down the country for the flu. So you say to yourself, what is this all about?”
Trump also mused that we do not stop driving automobiles simply because people die in accidents.
I recall hearing that exact statement made in reference to justifying the Vietnam War made by my high school history teacher. The justification was made by a doofus assistant football coach who had no business teaching anything. This was in an Alabama public school when I was in the 10th grade. I could not help myself. I immediately responded "You have got to be kidding". He was in shock that anyone disputed his brilliant analogy.
Coronavirus map: Tracking cases in the U.S. and around the world
How coronavirus compares to the 1918 flu, H1N1 and other pandemics
Coronavirus live updates: At least half a million New Yorkers could be unemployed, GM cuts pay
Governors and mayors in growing uproar over Trump’s lagging coronavirus response
Exclusive: U.S. axed CDC expert job in China months before virus outbreak
Desperate, angry state leaders push back on Trump administration claims of mass mask shipments - POLITICO
Fact check: Trump utters series of false and misleading claims at coronavirus briefing (3/27/20)
When Donald was told that Senator Romney was in self-quarantine, he sarcastically responded "gee that is too bad". Donald is not going to quit being an off-the-charts asshole just because the nation has a health crisis. Donald tries to be the worst person that he can possibly be every day and rarely fails to succeed at that task.
PolitiFact | Timeline: How Donald Trump responded to the coronavirus pandemic
Senator says White House turned down emergency coronavirus funding in early February:
Now we know: The "conservative" devotion to life ends at birth - The Washington Post (opinion column written by the former republican Max Boot) I had to put "conservative" in quotes since the people referenced in this opinion column are not anywhere close to being properly classified as conservatives. The GOP is not a conservative party.
Despite federal guidelines, Trump suggests 'sanitizing' and reusing medical masks Trump knows more than the medical professionals who issue those guidelines. He acquired that superior knowledge by making no effort to learn anything. His gut is the source of all real knowledge and expertise needed in the universe.
Trump also opined, because he is so "smart" and knowledgeable about medicine, that two existing drugs approved for malaria, chloroquine and hydroxychloroquine, could be helpful since they have created miraculous results in treating COVID-19 infections.
Tony Fauci, the director of the National Institute of Allergy and Infectious Diseases responded to a reporter's question about whether those two drugs were effective with this statement: “The answer is no.”
Nigeria records chloroquine poisoning after Trump endorses it for coronavirus treatment - CNN .
Arizona man dies after self-medicating with chloroquine to treat coronavirus - CNN
Donald did not mention that side effects include heart and nerve damage and suicidal thoughts. Label The drugs can be tested in clinical trials to see whether they are effective against COVID-19, starting with a Phase 1 trial which has limited enrollment.
Trump: "It's shown very encouraging -- very, very encouraging early results. And we're going to be able to make that drug available almost immediately. And that's where the FDA has been so great. They -- they've gone through the approval process; it's been approved. And they did it -- they took it down from many, many months to immediate. So we're going to be able to make that drug available by prescription or states." Coronavirus treatment: Officials are cautious about chloroquine and hydroxychloroquine - Vox
Video: Trump's Exaggerated COVID-19 Drug Claims - FactCheck.org; PWHO Publication on potential role of Chloroquine in COVID 19 Treatment
Trump said he disagreed with the expert because he is smart and had a feeling. Trump says his belief in one potential coronavirus drug is ‘just a feeling’; Could the anti-malarial drug chloroquine treat COVID-19? | Live Science
Gupta stunned by Trump-Fauci difference at briefing - CNN Video
The two drugs are in trials as potential treatments. It remains to be seen whether they are effective.
Trump Has Given Unusual Leeway to Fauci, but Aides Say He’s Losing His Patience Trump reportedly has became weary of Dr. Fauci's correcting his false statements.
As Trump signals readiness to break with experts, his online base assails Fauci - The Washington Post
Trump questions New York’s demand for ventilators as coronavirus cases soar - The Washington Post
Rupert Murdoch Put His Son in Charge of Fox. It Was a Dangerous Mistake.-The New York Times The reporter asked Ashish Jha, the director of the Harvard Global Public Health Institute whether people would die because of Fox "News" coverage of the pandemic. Answer: “Yes,” he said. “Some commentators in the right-wing media spread a very specific type of misinformation that I think has been very harmful.”
In modern American history, there has never been a President who has less regard for science, particularly when science reaches a different conclusion that his "smart" gut.
We can all pray that Donald's all knowing gut is preserved for eons so that future generations can draw upon its vast store of knowledge and wisdom.
Liz Cheney, Lindsey Graham warn against easing guidelines Trump wants everybody back to work in two weeks.
Trump also opined, because he is so "smart" and knowledgeable about medicine, that two existing drugs approved for malaria, chloroquine and hydroxychloroquine, could be helpful since they have created miraculous results in treating COVID-19 infections.
Tony Fauci, the director of the National Institute of Allergy and Infectious Diseases responded to a reporter's question about whether those two drugs were effective with this statement: “The answer is no.”
Nigeria records chloroquine poisoning after Trump endorses it for coronavirus treatment - CNN .
Arizona man dies after self-medicating with chloroquine to treat coronavirus - CNN
Donald did not mention that side effects include heart and nerve damage and suicidal thoughts. Label The drugs can be tested in clinical trials to see whether they are effective against COVID-19, starting with a Phase 1 trial which has limited enrollment.
Trump: "It's shown very encouraging -- very, very encouraging early results. And we're going to be able to make that drug available almost immediately. And that's where the FDA has been so great. They -- they've gone through the approval process; it's been approved. And they did it -- they took it down from many, many months to immediate. So we're going to be able to make that drug available by prescription or states." Coronavirus treatment: Officials are cautious about chloroquine and hydroxychloroquine - Vox
Video: Trump's Exaggerated COVID-19 Drug Claims - FactCheck.org; PWHO Publication on potential role of Chloroquine in COVID 19 Treatment
Trump said he disagreed with the expert because he is smart and had a feeling. Trump says his belief in one potential coronavirus drug is ‘just a feeling’; Could the anti-malarial drug chloroquine treat COVID-19? | Live Science
Gupta stunned by Trump-Fauci difference at briefing - CNN Video
The two drugs are in trials as potential treatments. It remains to be seen whether they are effective.
Trump Has Given Unusual Leeway to Fauci, but Aides Say He’s Losing His Patience Trump reportedly has became weary of Dr. Fauci's correcting his false statements.
As Trump signals readiness to break with experts, his online base assails Fauci - The Washington Post
Trump questions New York’s demand for ventilators as coronavirus cases soar - The Washington Post
Rupert Murdoch Put His Son in Charge of Fox. It Was a Dangerous Mistake.-The New York Times The reporter asked Ashish Jha, the director of the Harvard Global Public Health Institute whether people would die because of Fox "News" coverage of the pandemic. Answer: “Yes,” he said. “Some commentators in the right-wing media spread a very specific type of misinformation that I think has been very harmful.”
In modern American history, there has never been a President who has less regard for science, particularly when science reaches a different conclusion that his "smart" gut.
We can all pray that Donald's all knowing gut is preserved for eons so that future generations can draw upon its vast store of knowledge and wisdom.
Liz Cheney, Lindsey Graham warn against easing guidelines Trump wants everybody back to work in two weeks.
In hard-hit areas, testing restricted to health care workers, hospital patients
All of Trump’s Lies About the Coronavirus - The Atlantic
10 Of Trump's Most Damaging Coronavirus Lies
Coronavirus Fact Check: Analyzing the Patterns in Trump's Falsehoods
Gallup's last poll (3/22) showed that Donald's approval rating increased to 49% from 44% on 3/13. Trump Job Approval Lying all of the time about almost everything works on about 1/2 of the U.S. adult population.
The Trump Campaign has threatened libel lawsuits against TV stations airing an advertisement critical of Donald's handling of the pandemic crisis, noting that their licenses can also be pulled by the FCC. The implication is that Donald will cause the licenses to be pulled if media outlets do not adhere to his edicts. Trump Campaign Threatens Lawsuit Over Coronavirus 'Hoax' Ad | Time (Trump Campaign Letter: "[Y]our failure to remove this deceptive ad may be “probative of an underlying abdication of licensee responsibility” that could put your station’s license in jeopardy.")
It is important to Donald to have his name on the stimulus checks.Donald Trump demands his own signature be on coronavirus stimulus checks to every American: WSJ report
This is the first 3 tweets sent out by Our Dear Leader this morning and the only ones prior to publishing this post:
Donald J. Trump (@realDonaldTrump) / Twitter
++++
Senator Rand Paul (R-KY):
All of Trump’s Lies About the Coronavirus - The Atlantic
10 Of Trump's Most Damaging Coronavirus Lies
Coronavirus Fact Check: Analyzing the Patterns in Trump's Falsehoods
Gallup's last poll (3/22) showed that Donald's approval rating increased to 49% from 44% on 3/13. Trump Job Approval Lying all of the time about almost everything works on about 1/2 of the U.S. adult population.
The Trump Campaign has threatened libel lawsuits against TV stations airing an advertisement critical of Donald's handling of the pandemic crisis, noting that their licenses can also be pulled by the FCC. The implication is that Donald will cause the licenses to be pulled if media outlets do not adhere to his edicts. Trump Campaign Threatens Lawsuit Over Coronavirus 'Hoax' Ad | Time (Trump Campaign Letter: "[Y]our failure to remove this deceptive ad may be “probative of an underlying abdication of licensee responsibility” that could put your station’s license in jeopardy.")
It is important to Donald to have his name on the stimulus checks.Donald Trump demands his own signature be on coronavirus stimulus checks to every American: WSJ report
This is the first 3 tweets sent out by Our Dear Leader this morning and the only ones prior to publishing this post:
++++
Senator Rand Paul (R-KY):
Senator Rand Paul (R-KY) tested positive for the coronavirus. He had no trouble arranging for a test whose expense was covered by the major medical insurance provided to him by the U.S. government. Senator Paul voted against the Families First Coronavirus Response Act that makes coronavirus testing free to the public U.S. Senate: U.S. Senate Roll Call Votes 116th Congress - 2nd Session; Coronavirus Aid: What's In The 'Families First' Package : NPR; Sinema criticizes Paul for behavior ahead of coronavirus test results: 'Absolutely irresponsible'
Senator Paul went to the senate gym after he took the COVID-19 test but before he received the results. Rand Paul Becomes First Senator Known To Contract Coronavirus Paul could not be bothered to isolate himself to protect others until he received the test results, resulting him exposing a multitude of persons including fellow senators over a 6 day period. Six days: Tracking Sen. Rand Paul from coronavirus testing to positive diagnosis - The Washington Post
Paul does have the correct attitude for his political tribe.
Senator Paul went to the senate gym after he took the COVID-19 test but before he received the results. Rand Paul Becomes First Senator Known To Contract Coronavirus Paul could not be bothered to isolate himself to protect others until he received the test results, resulting him exposing a multitude of persons including fellow senators over a 6 day period. Six days: Tracking Sen. Rand Paul from coronavirus testing to positive diagnosis - The Washington Post
Paul does have the correct attitude for his political tribe.
++++++
All trades are commission free except as otherwise noted.
I am charged a $1 per bond commission on bond trades. For purchases on the Toronto stock, I pay a C$1 commission for up to a 100 share purchase.
1. U.S. Equity Preferred Stocks:
These securities are senior only to common stock in the capital structure. Preferred shareholders have a superior claim to cash dividends which is enforced through dividend stopper clauses.
The company is "stopped" from eliminating or deferring the preferred stock dividend and paying a cash dividend to the common shareholders.
A non-cumulative dividend can be eliminated, just like a common share dividend with no legal claim for future payment.
A cumulative dividend can not be eliminated, but only deferred. When and if cash dividends are resumed to the common shareholders, the preferred shareholders must first be paid all of their deferred dividends which were deferred but still accruing.
A common share dividend can be cut or eliminated.
Preferred stocks do not earn interest on the deferred amount.
Junior bonds will frequently contained a deferral right and a stopper clause, but the deferred amount accrues interest at the coupon rate.
A. Bought 20 CIOPRA at $20.6; 5 at $19.14; 5 at $18.6; 5 at $18.35; 5 at $17.5; 5 at $15.15; 5 at $13.56; 10 at $16.5;:
Quote: City Office REIT Inc. 6.625% Cumulative Preferred Series A Stock
Subsequent those purchase, CIO cut its common stock dividend by 36%. City Office REIT Announces Dividends for First Quarter 2020 The regular dividend was declared for the preferred stock: "the Board of Directors authorized a regular quarterly dividend of $0.4140625 per share of the Company’s 6.625% Series A Cumulative Redeemable Preferred Stock."
As discussed below in Item # 3.A., CIO needed to slash the common stock dividend even before the coronavirus pandemic since it was far too generous and unearned by cash flow.
This development is beneficial to the preferred stock investors IMO, since their dividend can not be cut but only deferred when no cash dividend is paid to the common shareholders.
Slashing the common share dividend provides more of a cash cushion for the preferred shareholders, who after all only have their dividends with no equity interest in the business.
Last Issuer Earnings Report: City Office REIT Reports Fourth Quarter and Full Year 2019 Results
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Sub-Category: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks
Last Trade Discussions: Item # 1.A. Eliminated CIOPRA-Sold 50 at $24.77-Used Commission Free Trade (4/24/19 Post)-Item # 4.A. Bought 50 CIOPRA at $21.67-Used Commission Free Trade (1/13/19 Post)
Item # 4.A. Sold 50 CIOPRA at $24.14-Used Commission Free Trade (3/17/19 Post)-Item 3.A. Sold 50 CIOPRA at $25.21 (1/27/17 Post)
Security:
CIOPRA Trading Profits to Date: $302.19
City Office REIT Reports Fourth Quarter and Full Year 2019 Results
Corporate Profile – City Office REIT
Our Properties – City Office REIT
City Office REIT Announces Share Repurchase Program
CIO SEC Filings
2019 Annual Report (debt discussed starting at page 72)
Chart:
Average Cost Per Share: $18.4
Current Yield at Average Cost = 9%
Next Ex Dividend Date: 4/8/20
Closing Price Last Friday: CIO-PA $17.95 +$0.17 +0.98%
Purchase Restriction: Each subsequent purchase has to reduce my average cost per share.
I also restarted a position in the common shares, see below.
2. Bought 50 STAG at $20.9:
Quote: STAG Industrial Inc. (STAG)
Home Page | STAG Industrial
SEC Filings
2019 Annual Report ("As of December 31, 2019, we owned 450 buildings in 38 states with approximately 91.4 million rentable square feet, consisting of 365 warehouse/distribution buildings, 69 light manufacturing buildings, eight flex/office buildings, six Value Add Portfolio buildings, and two buildings classified as held for sale. We own both single- and multi-tenant properties, although we focus on the former. As of December 31, 2019, our buildings were approximately 95.0% leased to 414 tenants, with no single tenant accounting for more than approximately 1.9% of our total annualized base rental revenue and no single industry accounting for more than approximately 11.1% of our total annualized base rental revenue. We intend to maintain a diversified mix of tenants to limit our exposure to any single tenant.")
This last 50 share purchase was an average up:
The prior lots had some ROC adjustment to the tax cost basis. The 50 shares bought on 2/8/16 has an original cost basis of $15.75.
I did not reinvest the dividends since 2018 because I viewed the stock to be overvalued until the recent price decline brought the share price back into a reasonable valuation range IMO.
What I in effect did with this purchase at $20.9 is to reinvest all of the cash dividends received for several years at a price of my choosing. (additional cash added)
5 Year Chart:
Dividend: Monthly at $.12 per share ($1.2 annually)
Last Ex Dividend Date: Monday, 3/30/20
Average Cost Per Share This Account: $17.66
Dividend Yield at Average Cost = 6.8%
My prior discussions can be found at my SA Instablog. South Gent's Blog Posts | Seeking Alpha
My last transactions were to sell shares at $25.20 and at $23.81 back in 2016: Item # 10 Pared STAG-Sold 42 at $25.2 Update For Equity REIT Basket Strategy As Of 7/28/16-South Gent | Seeking Alpha (profit snapshot = $271.31); Item # 2 Pared STAG- Sold 54 at $23.81 Update For Equity REIT Basket Strategy As Of 7/1/16 - South Gent | Seeking Alpha (profit snapshot $318.54)
Last Earnings Report (Q/E 12/31/2019): SEC Filed Press Release
STAG reported "$0.47 of Core FFO per diluted share for the fourth quarter of 2019, an increase of 2.2% compared to the fourth quarter of 2018. Generated Core FFO of $65.5 million for the fourth quarter of 2019 compared to $52.4 million for the fourth quarter of 2018, an increase of 24.8%."
Occupancy Rate: 95%
Recent Capital Market Activity:
The last sentence in the preceding snapshot refers to a stock offering completed last month: Prospectus That offering raised $311M.
I also own 50 shares in my IB account with a current tax cost basis of $16.59 per share.
STAG Trading Profits to Date: $794.49
All trades are commission free except as otherwise noted.
I am charged a $1 per bond commission on bond trades. For purchases on the Toronto stock, I pay a C$1 commission for up to a 100 share purchase.
1. U.S. Equity Preferred Stocks:
These securities are senior only to common stock in the capital structure. Preferred shareholders have a superior claim to cash dividends which is enforced through dividend stopper clauses.
The company is "stopped" from eliminating or deferring the preferred stock dividend and paying a cash dividend to the common shareholders.
A non-cumulative dividend can be eliminated, just like a common share dividend with no legal claim for future payment.
A cumulative dividend can not be eliminated, but only deferred. When and if cash dividends are resumed to the common shareholders, the preferred shareholders must first be paid all of their deferred dividends which were deferred but still accruing.
A common share dividend can be cut or eliminated.
Preferred stocks do not earn interest on the deferred amount.
Junior bonds will frequently contained a deferral right and a stopper clause, but the deferred amount accrues interest at the coupon rate.
A. Bought 20 CIOPRA at $20.6; 5 at $19.14; 5 at $18.6; 5 at $18.35; 5 at $17.5; 5 at $15.15; 5 at $13.56; 10 at $16.5;:
Quote: City Office REIT Inc. 6.625% Cumulative Preferred Series A Stock
Subsequent those purchase, CIO cut its common stock dividend by 36%. City Office REIT Announces Dividends for First Quarter 2020 The regular dividend was declared for the preferred stock: "the Board of Directors authorized a regular quarterly dividend of $0.4140625 per share of the Company’s 6.625% Series A Cumulative Redeemable Preferred Stock."
As discussed below in Item # 3.A., CIO needed to slash the common stock dividend even before the coronavirus pandemic since it was far too generous and unearned by cash flow.
This development is beneficial to the preferred stock investors IMO, since their dividend can not be cut but only deferred when no cash dividend is paid to the common shareholders.
Slashing the common share dividend provides more of a cash cushion for the preferred shareholders, who after all only have their dividends with no equity interest in the business.
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Sub-Category: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks
Last Trade Discussions: Item # 1.A. Eliminated CIOPRA-Sold 50 at $24.77-Used Commission Free Trade (4/24/19 Post)-Item # 4.A. Bought 50 CIOPRA at $21.67-Used Commission Free Trade (1/13/19 Post)
Item # 4.A. Sold 50 CIOPRA at $24.14-Used Commission Free Trade (3/17/19 Post)-Item 3.A. Sold 50 CIOPRA at $25.21 (1/27/17 Post)
Security:
Par Value: $25
Last Ex Dividend:
Issuer: City Office REIT Inc. (CIO)
Optional Redemption: On or after 10/4/21 at par value plus accrued and unpaid dividends
Dividend Stopper Clause = Yes (page S-22 of the prospectus)
Change of Control Provision: Yes
CIOPRA Trading Profits to Date: $302.19
City Office REIT Reports Fourth Quarter and Full Year 2019 Results
Corporate Profile – City Office REIT
Our Properties – City Office REIT
City Office REIT Announces Share Repurchase Program
CIO SEC Filings
2019 Annual Report (debt discussed starting at page 72)
Chart:
Current Yield at Average Cost = 9%
Next Ex Dividend Date: 4/8/20
Closing Price Last Friday: CIO-PA $17.95 +$0.17 +0.98%
Purchase Restriction: Each subsequent purchase has to reduce my average cost per share.
I also restarted a position in the common shares, see below.
2. Bought 50 STAG at $20.9:
Home Page | STAG Industrial
SEC Filings
2019 Annual Report ("As of December 31, 2019, we owned 450 buildings in 38 states with approximately 91.4 million rentable square feet, consisting of 365 warehouse/distribution buildings, 69 light manufacturing buildings, eight flex/office buildings, six Value Add Portfolio buildings, and two buildings classified as held for sale. We own both single- and multi-tenant properties, although we focus on the former. As of December 31, 2019, our buildings were approximately 95.0% leased to 414 tenants, with no single tenant accounting for more than approximately 1.9% of our total annualized base rental revenue and no single industry accounting for more than approximately 11.1% of our total annualized base rental revenue. We intend to maintain a diversified mix of tenants to limit our exposure to any single tenant.")
This last 50 share purchase was an average up:
I did not reinvest the dividends since 2018 because I viewed the stock to be overvalued until the recent price decline brought the share price back into a reasonable valuation range IMO.
What I in effect did with this purchase at $20.9 is to reinvest all of the cash dividends received for several years at a price of my choosing. (additional cash added)
5 Year Chart:
Last Ex Dividend Date: Monday, 3/30/20
Average Cost Per Share This Account: $17.66
Dividend Yield at Average Cost = 6.8%
My prior discussions can be found at my SA Instablog. South Gent's Blog Posts | Seeking Alpha
My last transactions were to sell shares at $25.20 and at $23.81 back in 2016: Item # 10 Pared STAG-Sold 42 at $25.2 Update For Equity REIT Basket Strategy As Of 7/28/16-South Gent | Seeking Alpha (profit snapshot = $271.31); Item # 2 Pared STAG- Sold 54 at $23.81 Update For Equity REIT Basket Strategy As Of 7/1/16 - South Gent | Seeking Alpha (profit snapshot $318.54)
Last Earnings Report (Q/E 12/31/2019): SEC Filed Press Release
STAG reported "$0.47 of Core FFO per diluted share for the fourth quarter of 2019, an increase of 2.2% compared to the fourth quarter of 2018. Generated Core FFO of $65.5 million for the fourth quarter of 2019 compared to $52.4 million for the fourth quarter of 2018, an increase of 24.8%."
Recent Capital Market Activity:
I also own 50 shares in my IB account with a current tax cost basis of $16.59 per share.
STAG Trading Profits to Date: $794.49
3. Small Ball Trades:
A. Restarted CIO-Bought 20 at $7.3; 5 at $7:
Quote: City Office REIT Inc. (CIO)
Website: City Office REIT
Closing Price Last Friday: CIO $7.02 -$0.19 -2.64%
52 Week Range: $6.8 to $14.5
Our Properties-City Office REIT (currently owns 66 office properties with approximately 5.9M square feet of net rentable area located in the "metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, San Diego, Seattle and Tampa." About Us – City Office REIT
CIO Interactive Chart: Traded over $14 last month
CIO SEC Filings
2019 Annual Report: Properties
CIO Information Intraday Date of Trade (3/24/20):
CIO 1 Year Chart Intraday 2/24/20:
City Office REIT Announces Share Repurchase Program (3/10/2020)
Dividend: Prior quarterly dividends were at a quarterly penny rate of $.23 (not earned out of FAD, see discussion below)
CIO reduced the payout to $.15 per quarter effective for the next payment. City Office REIT Announces Dividends for First Quarter 2020
This announcement made in the preceding linked press release makes sense to me:
"As of March 24, 2020, the Company has over $140 million in unrestricted cash and cash equivalents and over $90 million of further availability under its unsecured credit facility. The Company also announced that it has paused its acquisition activity and now expects that it will not acquire any properties in 2020. Instead, the Company intends to allocate capital to the previously announced $100 million share repurchase program and to continue to operate with lower leverage."
Last Ex Dividend Date: 1/9/2020
Next Ex Dividend Date: 4/8/20
Average Cost Per share = $7.24
Dividend Yield at new annual $.60 per share = 8.29% after the dividend slash
Recent Earnings Report (12/30/19): City Office REIT Reports Fourth Quarter and Full Year 2019 Results
Note the AFFO payout ratio of 163%:
Office REITs have to make continuing routine maintenance expenditures and tenant improvements. Funds spent on those routine and recurring expenditures are not available for distribution to common shareholders.
When evaluating dividend coverage for an office REIT, I would not use the FFO number but the FAD number.
The FAD number may be called AFFO, but the investor needs to determine whether the REIT is using the NAREIT definition of AFFO which subtracts routine maintenance expenditures from FFO.
CIO does use the NAREIT definition in making adjustments to FFO. For other REITs, they may label the adjustments AFFO but fail to make the necessary adjustments to FFO to arrive at a meaningful real cash flow number.
The preferred shareholder would want to see the common share dividend cut to below 90% of the AFFO number. I do not view the common share dividend as sustainable without a major slash.
2020 Guidance:
Current Position: shares
Maximum Position: 100 shares
Purchase Restriction: None
Broker Actions:
I do not have access to these reports. I would note that it is not helpful to reduce the price targets from $13 to $16 to $9-$10 after the stock has already fallen to $7:
On 3/27/20, Janney reduced its PT to $10 from $15. A $10 PT sounds more reasonable to me than $15 now.
On 3/26/20, Compass Point cut its PT to $9 from $13 and reduced its rating to neutral from buy.
On 3/26/20, D.A. Davidson cut its price target to $10 from $16.
B. Bought Back 50 UBS at $10.93;10 at $10.41; 5 at $9.71 and 5 at $7.9:
Quote: UBS Group AG (U.S.: NYSE)
UBS Group AG Consensus Analyst E.P.S. Estimates
Last Round-Trip: Item # 1.E. Eliminated UBS-Sold 50 at $13.16 (2/16/20 Post)Item # 3.B. Bought 50 UBS at $10.66 (9/14/19 Post)
Dividend: Annually
Detailed dividend payment history | UBS Global
2020 Dividend: US$.73 per share
UBS proposes annual dividend of $0.73/share - UBS Group AG (NYSE:UBS) | Seeking Alpha
Ex Dividend: 5/5/20
Average Cost Per Share: $10.55
Dividend Yield at Average Cost: 6.92% (before taxes including Switzerland's withholding tax on dividends)
Last Earnings Report (Q/E 12/31/19): UBS's fourth-quarter 2019 results | UBS Global topics
UBS Group AG (UBS) CEO Sergio Ermotti on Q4 2019 Results - Earnings Call Transcript | Seeking Alpha
A. Restarted CIO-Bought 20 at $7.3; 5 at $7:
Website: City Office REIT
Closing Price Last Friday: CIO $7.02 -$0.19 -2.64%
52 Week Range: $6.8 to $14.5
Our Properties-City Office REIT (currently owns 66 office properties with approximately 5.9M square feet of net rentable area located in the "metropolitan areas of Dallas, Denver, Orlando, Phoenix, Portland, San Diego, Seattle and Tampa." About Us – City Office REIT
CIO Interactive Chart: Traded over $14 last month
CIO SEC Filings
2019 Annual Report: Properties
 |
| Page 30 |
Dividend: Prior quarterly dividends were at a quarterly penny rate of $.23 (not earned out of FAD, see discussion below)
CIO reduced the payout to $.15 per quarter effective for the next payment. City Office REIT Announces Dividends for First Quarter 2020
This announcement made in the preceding linked press release makes sense to me:
"As of March 24, 2020, the Company has over $140 million in unrestricted cash and cash equivalents and over $90 million of further availability under its unsecured credit facility. The Company also announced that it has paused its acquisition activity and now expects that it will not acquire any properties in 2020. Instead, the Company intends to allocate capital to the previously announced $100 million share repurchase program and to continue to operate with lower leverage."
Last Ex Dividend Date: 1/9/2020
Next Ex Dividend Date: 4/8/20
Average Cost Per share = $7.24
Dividend Yield at new annual $.60 per share = 8.29% after the dividend slash
Recent Earnings Report (12/30/19): City Office REIT Reports Fourth Quarter and Full Year 2019 Results
Note the AFFO payout ratio of 163%:
When evaluating dividend coverage for an office REIT, I would not use the FFO number but the FAD number.
The FAD number may be called AFFO, but the investor needs to determine whether the REIT is using the NAREIT definition of AFFO which subtracts routine maintenance expenditures from FFO.
CIO does use the NAREIT definition in making adjustments to FFO. For other REITs, they may label the adjustments AFFO but fail to make the necessary adjustments to FFO to arrive at a meaningful real cash flow number.
The preferred shareholder would want to see the common share dividend cut to below 90% of the AFFO number. I do not view the common share dividend as sustainable without a major slash.
2020 Guidance:
Maximum Position: 100 shares
Purchase Restriction: None
Broker Actions:
I do not have access to these reports. I would note that it is not helpful to reduce the price targets from $13 to $16 to $9-$10 after the stock has already fallen to $7:
On 3/27/20, Janney reduced its PT to $10 from $15. A $10 PT sounds more reasonable to me than $15 now.
On 3/26/20, Compass Point cut its PT to $9 from $13 and reduced its rating to neutral from buy.
On 3/26/20, D.A. Davidson cut its price target to $10 from $16.
B. Bought Back 50 UBS at $10.93;10 at $10.41; 5 at $9.71 and 5 at $7.9:
UBS Group AG Consensus Analyst E.P.S. Estimates
Last Round-Trip: Item # 1.E. Eliminated UBS-Sold 50 at $13.16 (2/16/20 Post)Item # 3.B. Bought 50 UBS at $10.66 (9/14/19 Post)
Dividend: Annually
Detailed dividend payment history | UBS Global
2020 Dividend: US$.73 per share
UBS proposes annual dividend of $0.73/share - UBS Group AG (NYSE:UBS) | Seeking Alpha
Ex Dividend: 5/5/20
Average Cost Per Share: $10.55
Dividend Yield at Average Cost: 6.92% (before taxes including Switzerland's withholding tax on dividends)
Last Earnings Report (Q/E 12/31/19): UBS's fourth-quarter 2019 results | UBS Global topics
Maximum Position: 100 shares
Current position: 70 shares
Purchase Restriction: Each purchase must reduce my average cost per share.
C. Bought Back 20 FDUS at $13.75; 5 at $11.99; 5 at $11.5; 5 at $9; 2 at $8.56; 2 at $5.98; 1 at $4.65 (FidelityAccount):
Quote: Fidus Investment Corp.- A BDC
Website: Fidus
SEC Filings
FDUS Chart
While last week brought a stabilization of BDC stock prices and a slight rise for most of them, the current prices makes sense only if there are massive loan losses that incinerate assets to zero values and causes substantial dividend cuts as well.
Prior to the COVID-19 pandemic, I viewed BDCs as high risk. There is no doubt in my mind now that their risk has increased substantially due to a U.S. recession that has probably already started.
As of 12/31/19, Fidus reported a net asset value per share of $16.84.
As with all future forecasts embedded in stock prices, the level of asset destruction that would make the current price reasonable may prove to be about right, too pessimistic or too optimistic.
The answer lies in the future, which is ultimately unknowable, but my best guess now is that forecasted losses for FDUS which are embedded in its current price, is too pessimistic. Losses will accelerate in the coming quarters however. The open question is by how much and will they be consistent with the forecast now being made in the FDUS stock price.
The same phenomenon is observable in regional bank stock prices. For the current prices to be rational and reasonable, the banks will have to suffer massive charge-offs.
I recently sold 20 FDUS in this account. Item 1.E. Sold 20 FDUS at $15.4 (2/22/20 Post) The sell was before the onset of the volatility event, and eliminated the FDUS position in my Fidelity account.
I discussed in Item # 1.D. of that post paring the FDUS position in my Schwab account. I sold 50 shares at $15.34, reducing the position to 40+ shares with an average cost per share of $13.12.
Dividend: $.39 per share or $1.56 annually (regular dividend only)
Fidus Investment Corporation Declares First Quarter 2020 Dividend
The company paid a $.04 per share special dividend in December.
Current Position This Account: 47 shares
Average Cost Per Share: $11.62
Dividend Yield: 13.43% (regular dividend only)
Last Ex Dividend Date: 3/12/20
Net Asset Value Per Share History:
12/31/19: $16.85
$9/30/19: $16.47 10-Q
12/30/18: $16.47
9/30/18: $16.41
3/30/18 $16.28
12/31/17 $16.05
12/31/16 $15.76
12/31/15 $15.17
12/31/14 $15.16
12/31/13 $15.35
12/21/12 $15.32
IPO at $15 June 2011
Last Earnings Report (12/31/19): SEC Filed Press Release
Edward Ross, Chairman and CEO of Fidus Investment Corporation. “I am pleased to report that in February 2020 we successfully completed the partial sale of a portfolio of equity investments, generating $35.9 million in net proceeds and a net realized gain of approximately $20.4 million." (emphasis added)
The adjusted net income adds $.12 per share to net investment income due to a reversal of a capital gain incentive fee payable to the external manager. I would ignore that adjustment and focus instead on the recurring NII per share number of $.22.
FDUS is nowhere close to earning its quarterly dividend of $.39 per share from current net investment income. The dividend is covered, however, by spillover income that has not been distributed to shareholders. The company estimated that "spillover income (or taxable income in excess of distributions) as of December 31, 2019 of $15.3 million, or $0.63 per share."
"The weighted average yield on debt investments was 12.0% as of December 31, 2019."
D. Added 10 HBAN at $11.6; 10 at $11; 5 at $9.5; 5 at $8.4; 2 at $7.5:
Quote: Huntington Bancshares (HBAN)
I discussed the last earnings report in this post: Item # 1.D. (2/2/20 Post)
Dividend: Quarterly at $.15 per share
Last Ex Dividend: 3/17/20
E. Added 5 THQ at $16.25; 5 at $14.3; 5 at $14.07; 5 at $11.9:
 |
Website: Fidus
SEC Filings
FDUS Chart
While last week brought a stabilization of BDC stock prices and a slight rise for most of them, the current prices makes sense only if there are massive loan losses that incinerate assets to zero values and causes substantial dividend cuts as well.
Prior to the COVID-19 pandemic, I viewed BDCs as high risk. There is no doubt in my mind now that their risk has increased substantially due to a U.S. recession that has probably already started.
As of 12/31/19, Fidus reported a net asset value per share of $16.84.
As with all future forecasts embedded in stock prices, the level of asset destruction that would make the current price reasonable may prove to be about right, too pessimistic or too optimistic.
The answer lies in the future, which is ultimately unknowable, but my best guess now is that forecasted losses for FDUS which are embedded in its current price, is too pessimistic. Losses will accelerate in the coming quarters however. The open question is by how much and will they be consistent with the forecast now being made in the FDUS stock price.
The same phenomenon is observable in regional bank stock prices. For the current prices to be rational and reasonable, the banks will have to suffer massive charge-offs.
I recently sold 20 FDUS in this account. Item 1.E. Sold 20 FDUS at $15.4 (2/22/20 Post) The sell was before the onset of the volatility event, and eliminated the FDUS position in my Fidelity account.
I discussed in Item # 1.D. of that post paring the FDUS position in my Schwab account. I sold 50 shares at $15.34, reducing the position to 40+ shares with an average cost per share of $13.12.
Dividend: $.39 per share or $1.56 annually (regular dividend only)
Fidus Investment Corporation Declares First Quarter 2020 Dividend
The company paid a $.04 per share special dividend in December.
Current Position This Account: 47 shares
Average Cost Per Share: $11.62
Dividend Yield: 13.43% (regular dividend only)
Last Ex Dividend Date: 3/12/20
Net Asset Value Per Share History:
12/31/19: $16.85
$9/30/19: $16.47 10-Q
12/30/18: $16.47
9/30/18: $16.41
3/30/18 $16.28
12/31/17 $16.05
12/31/16 $15.76
12/31/15 $15.17
12/31/14 $15.16
12/31/13 $15.35
12/21/12 $15.32
IPO at $15 June 2011
Edward Ross, Chairman and CEO of Fidus Investment Corporation. “I am pleased to report that in February 2020 we successfully completed the partial sale of a portfolio of equity investments, generating $35.9 million in net proceeds and a net realized gain of approximately $20.4 million." (emphasis added)
FDUS is nowhere close to earning its quarterly dividend of $.39 per share from current net investment income. The dividend is covered, however, by spillover income that has not been distributed to shareholders. The company estimated that "spillover income (or taxable income in excess of distributions) as of December 31, 2019 of $15.3 million, or $0.63 per share."
"The weighted average yield on debt investments was 12.0% as of December 31, 2019."
D. Added 10 HBAN at $11.6; 10 at $11; 5 at $9.5; 5 at $8.4; 2 at $7.5:
Quote: Huntington Bancshares (HBAN)
I discussed the last earnings report in this post: Item # 1.D. (2/2/20 Post)
Dividend: Quarterly at $.15 per share
Last Ex Dividend: 3/17/20
E. Added 5 THQ at $16.25; 5 at $14.3; 5 at $14.07; 5 at $11.9:
Quote Tekla Healthcare Opportunities Fund Overview: A leveraged CEF
SEC Filing (Holding as of 12/31/19)
Sponsor's Website: Fund Basics-Leveraged Closed End Fund
Last Sell Discussions: Item # 1.B. Sold Remaining THQ-61+ Shares at $17.5 (9/1/19 Post); Item # 2.A. Sold 53 THQ at $17.98(7/31/19 Post); Item # 5 Sold 100 THQ at $17.59-Used Commission Free Trade(7/7/19 Post)(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)
Distributions: Monthly at $.1125 (ROC supported/needs to cut until market conditions improve)
Tekla Healthcare Opportunities Fund Declares Monthly Cash Distribution
Last Ex Dividend: 3/19/20
Last SEC Filed Shareholder Report (period ending 9/30/19)
Leveraged: Yes (at 20.62% as of 12/31/19 according to fund's factsheet)
Current Position: 35 shares
Average Cost Per Share: $15.21
Dividend Yield at Average Cost Per Share: 8.88%
Data date of 3/11/20 Trade:
Closing Net Asset Value Per Share: $18.43
Closing Market Price: $16.09
Discount: -12.7
Data date of 3/17/20 Trade:
Closing Net Asset Value Per Share:$16.9
Closing Market Price: $14.71
Discount: -12.96%
Date date of 3/23/20 Trade:
Closing Net Asset Value Per Share: $14.56
Closing Market Price: $11.63
Discount: -20.12%
Sourced: THQ-CEF Connect
Purchase Restriction: The purchase price must be at a greater than 5% discount to net asset value per share and reduce my average cost per share.
F. Restarted GIS-Bought 2 at $47.88:
Quote: General Mills Inc. (GIS)
Closing Price Last Friday: GIS $51.82 +$1.82 +3.64%
General Mills: Brands overview
General Mills Inc. Interactive Charts
GIS Analyst Estimates
Dividend: Quarterly at $.49 per share ($1.96 annually) The penny rate is currently frozen to pay for the Blue Buffalo acquisition.
Last Elimination: Item # 1.A. Eliminated GIS-Sold 27+ at $54.86 (3/21/20 Post)(profit snapshot = $426.37) I mentioned in this post that I would start buying again when the price fell below $45. I changed that limit to have a placeholder for GIS stock when and if I restart wave buying programs.
Other Recent Sell Discussions: Item # 1.A. Sold 13 GIS at $55.02-Used Commission Free Trade (8/17/19 Post); Item 1.B. Sold Highest Cost GIS lots at $51.69 (4/7/2019 Post)
Realized Gains 2017 to Date: $2,421.51
Last Buy Discussion: Item # 5 A. Bought 2 GIS at $40.25, 2 at $39.45, 10 at $38.3 and 5 at $36.75-Used Commission Free Trades (12/29/18 Post)(all of those shares have sold)
Last Earnings Report (F/Q 2/23/20): General Mills Reports Fiscal 2020 Third-Quarter Results and Updates Full-Year Guidance
"Net earnings attributable to General Mills totaled $454 million, up 2 percent from a year ago."
Diluted EPS of $0.74 essentially matched prior-year results. Adjusted diluted EPS of $0.77 were down 6 percent from the prior year in constant currency, driven primarily by lower adjusted operating profit, a higher adjusted effective tax rate, and higher average diluted shares outstanding, partially offset by lower net interest expense and higher non-service benefit plan income. Lower contributions from ice cream net sales in Asia in February reduced third-quarter adjusted diluted EPS results versus the prior year by an estimated 150 basis points."
"Net sales of $4.2 billion were flat to last year. Organic net sales were also flat to last year, with strong growth for the Pet segment largely offset by declines in North America Retail and Convenience Stores & Foodservice. . . . Third-quarter net sales results versus the prior year included a 50 basis-point headwind from lower Häagen-Dazs net sales in Asia in February, driven by the impact of the COVID-19 virus outbreak on consumer traffic in Häagen-Dazs shops and foodservice outlets."
Discussed at General Mills sales miss expectations, says retail orders have jumped as coronavirus outbreak spreads- MarketWatch
General Mills, Inc. (GIS) CEO Jeff Harmening on Q3 2020 Results - Earnings Call Transcript | Seeking Alpha
Haagen-Dazs closes about half of Greater China stores on coronavirus fears - Reuters
4. Short Term Bond/CD Ladder Basket Strategy:
April 2020 Maturities:
SU = Senior Unsecured Bond ($1K par value per bond)
CD = Certificate of Deposit ($1K par value per CD)-FDIC Insured
MI = Monthly Interest Payments
SI = Semi-Annual Interest Payments
Treasury: U.S. Treasury Debt ($1K par value per bill, note or bond)
SI = Semi-Annual Interest Payments
Treasury: U.S. Treasury Debt ($1K par value per bill, note or bond)
IR: Investment Rate for Treasury Bills bought at auction
Secondary Market: Treasury purchases made at less than par value commission free
All corporate bonds are bought at less than par value.
Secondary Market: Treasury purchases made at less than par value commission free
All corporate bonds are bought at less than par value.
2 Zimmer Biomet 2.7% SU 4/1 (bought 4/19)
2 Amphenol 2.2% SU 4/1 (bought 12/18)
2 Treasury 6MO Bills 1.842%IR 4/2 (bought at auction)
10 Treasury 3Mo Bills 1.551%IR (bought at auction)
2 State BK India 1.8% CDs 4/7 (3 month CDs)
10 Treasury 58 Day Bill 1.58% IR 4/7(bought at auction)
3 Valley National 1.85% CDs 4/9 (6 month CD)
2 Mizrahi 1.75% CDs 4/9 (3 month CDs)
5 Treasury 3Mo Bill 1.551%IR 4/9 (bought at auction)
2 Gen.Mot.Fin. 2.65% SU 4/13 (bought 5/19)
3 Republic BK 1.9% CDs 4/14 (6 month CD)
10 Treasury 58 Day 1.595%IR 4/14 (bought at auction)
4 Treasury 1.5% 4/15 (secondary market purchases)
2 Treasury 3Mo Bill 1.53% IR 4/16 (bought at auction)
3 Treasury 6MO 1.661%IR 4/16 (bought at auction)
2 Treasury 6MO Bills 1.842%IR 4/2 (bought at auction)
10 Treasury 3Mo Bills 1.551%IR (bought at auction)
2 State BK India 1.8% CDs 4/7 (3 month CDs)
10 Treasury 58 Day Bill 1.58% IR 4/7(bought at auction)
3 Valley National 1.85% CDs 4/9 (6 month CD)
2 Mizrahi 1.75% CDs 4/9 (3 month CDs)
5 Treasury 3Mo Bill 1.551%IR 4/9 (bought at auction)
2 Gen.Mot.Fin. 2.65% SU 4/13 (bought 5/19)
3 Republic BK 1.9% CDs 4/14 (6 month CD)
10 Treasury 58 Day 1.595%IR 4/14 (bought at auction)
4 Treasury 1.5% 4/15 (secondary market purchases)
2 Treasury 3Mo Bill 1.53% IR 4/16 (bought at auction)
3 Treasury 6MO 1.661%IR 4/16 (bought at auction)
2 Bank of America 2.25% SU 4/21 (bought 8/18)
2 State BK. India 1.85% CDs 4/21 (6 month CDs)
5 Treasury 1 Year Bills 2.443% IR 4/23(bought at auction)
2 Wells Fargo 1.8% CDs MI 4/27 (3 year CDs)
10 Treasury 56 Day Bill 4/28 (bought at auction)
2 State BK. India 1.85% CDs 4/21 (6 month CDs)
5 Treasury 1 Year Bills 2.443% IR 4/23(bought at auction)
2 Wells Fargo 1.8% CDs MI 4/27 (3 year CDs)
10 Treasury 56 Day Bill 4/28 (bought at auction)
2 People's Bank CDs 1.6% 4/28 (3 MO CDs)
2 BK China 1.85% CDs 4/29 (6 MO CDs)
2 BK China 1.85% CDs 4/29 (6 MO CDs)
7 Treasury 2.375% 4/30 (secondary market purchases)
2 Zions 1.6% CDs 4/30 (3 mo CDs)
5 Centennial 2.4% CDs MI 4/30 (11 month CDs)
2 Zions 1.6% CDs 4/30 (3 mo CDs)
5 Centennial 2.4% CDs MI 4/30 (11 month CDs)
$101K
* Lost 6 Ventas 2.7% bonds that would have matured this month but were redeemed early last August. Lost 4 Harris 2.7% SU 4/27 redeemed last December. Both early redemptions triggered make whole payments.
I drew down my cash balances in March in an amount exceeding the proceeds that will be received in April from the $101K in maturing securities in order to buy bonds, preferred stocks, ETFs, CEFs and common stocks.
The majority of the cash was used to purchase short term investment grade corporate bonds whose prices became dysfunctional and irrational earlier in March. Without totalling the amounts, I would guess that about 70-80% of the cash was used to purchase $1K par value investment grade bonds maturing within 1 year.
As those proceeds are received throughout April, I will then make a decision to keep all or some of those funds in money market accounts or to redirect some of the proceeds into risk assets.
5. Canadian Reset Equity Preferred Stocks:
A. Bought 100 TRPPRE at C$15 and 50 at C$11.12 (C$1 commission):
Quote: TRP-PE.TO
Canadian reset equity preferred have been smashed worse than U.S. equity preferred stocks which were smashed to smithereens during the stock market meltdown. It does not make any sense to me for the reasons generally discussed below, so I just keep on buying.
Last Discussed: Item # 2 Bought 100 TRPPRE at C$15.6 (9/29/20 Post)
Security Description: This security reset its coupon commencing on 10/31/19 at 3.762%, a 2.35% spread to the 5 year Canadian bond yield.
The coupon will reset in October 2024 at a 2.35% spread to the then existing 5 year Canadian bond yield. The issuer can redeem at par value on reset dates.
Average Cost Per Share: C$14.49
Current Position: 250 shares
Par Value: C$25 per share Issuer: TC Energy Corporation
Reset Coupon: 3.762%
Par Value: C$25
Current Yield at C$14.49 = 6.49%
Dividends: Quarterly and Cumulative
Canada 5 Year Government Bond Overview | MarketWatch
Next Ex Dividend Date: Tomorrow, March 30.
A 6.49% yield for this preferred stock looks good to me now with treasury bills near zero percent.
The concern may be that the coupon will reset in October 2024 at an even lower rate, but that is not a rational concern IMO now.
No one knows what the 5 year Canadian bond yield will be over 4 years from now.
And, the yield would then have to be below 1.412% for this preferred stock to reset at a lower rate than the current 3.762%. It is at least equally likely (or close to it) that the coupon will reset at a higher rate.
I will trade the Canadian reset equity preferred stocks. I would probably sell the highest 100 cost TRPPRE lot somewhere in the C$16 to C$18 range.
I may buy 50 more shares.
Raymond James December 2019 Canadian Preferred Stock Report.pdf This report claims that the credit rating for TC Energy preferred stock is Pfd-2L, a DBRS rating that is equivalent to the S & P BBB-.
I drew down my cash balances in March in an amount exceeding the proceeds that will be received in April from the $101K in maturing securities in order to buy bonds, preferred stocks, ETFs, CEFs and common stocks.
The majority of the cash was used to purchase short term investment grade corporate bonds whose prices became dysfunctional and irrational earlier in March. Without totalling the amounts, I would guess that about 70-80% of the cash was used to purchase $1K par value investment grade bonds maturing within 1 year.
As those proceeds are received throughout April, I will then make a decision to keep all or some of those funds in money market accounts or to redirect some of the proceeds into risk assets.
5. Canadian Reset Equity Preferred Stocks:
A. Bought 100 TRPPRE at C$15 and 50 at C$11.12 (C$1 commission):
Quote: TRP-PE.TO
Canadian reset equity preferred have been smashed worse than U.S. equity preferred stocks which were smashed to smithereens during the stock market meltdown. It does not make any sense to me for the reasons generally discussed below, so I just keep on buying.
Last Discussed: Item # 2 Bought 100 TRPPRE at C$15.6 (9/29/20 Post)
Security Description: This security reset its coupon commencing on 10/31/19 at 3.762%, a 2.35% spread to the 5 year Canadian bond yield.
The coupon will reset in October 2024 at a 2.35% spread to the then existing 5 year Canadian bond yield. The issuer can redeem at par value on reset dates.
Average Cost Per Share: C$14.49
Current Position: 250 shares
Par Value: C$25 per share Issuer: TC Energy Corporation
Reset Coupon: 3.762%
Par Value: C$25
Current Yield at C$14.49 = 6.49%
Dividends: Quarterly and Cumulative
Canada 5 Year Government Bond Overview | MarketWatch
Next Ex Dividend Date: Tomorrow, March 30.
A 6.49% yield for this preferred stock looks good to me now with treasury bills near zero percent.
The concern may be that the coupon will reset in October 2024 at an even lower rate, but that is not a rational concern IMO now.
No one knows what the 5 year Canadian bond yield will be over 4 years from now.
And, the yield would then have to be below 1.412% for this preferred stock to reset at a lower rate than the current 3.762%. It is at least equally likely (or close to it) that the coupon will reset at a higher rate.
I will trade the Canadian reset equity preferred stocks. I would probably sell the highest 100 cost TRPPRE lot somewhere in the C$16 to C$18 range.
I may buy 50 more shares.
Raymond James December 2019 Canadian Preferred Stock Report.pdf This report claims that the credit rating for TC Energy preferred stock is Pfd-2L, a DBRS rating that is equivalent to the S & P BBB-.
Sell Discussion: Item # 2.A. Sold 100 TRPPRE at C$22.26 (5/23/17 Post)(profit snapshot = C$467.5)
B. Bought 50 BPOPRP at C$7.95 (C$1 commission):
Quote: BPO-PP.TO
This brings me up to 200 shares.
My last purchases were discussed here: Item # 2.A. Bought 50 BPOPRP at C$13.86 (9/11/19 Post); Item # 1.A. Bought 50 BPOPRP at C$15.95 (7/27/19 Post)
Issuer: Brookfield Office Properties, a REIT
In 2014, Brookfield Property Partners L.P. (BPY) acquired Brookfield Office Properties. BPY 2019 Annual Report
Preferred Share Prospectus Links: Preferred Shares-Brookfield Office Properties
Par Value: C$25
Last Coupon Reset: March 2017 at a 3% spread to the 5 year Canadian bond yield.
Current Coupon: 4.161% paid on a C$25 par value
Current Yield at C$7.95 = 13.08%
Next Reset: March 2022
Last Ex Dividend Date: 3/12/2020
6. Short Term Corporate Bonds-Alternative to Treasury Bills:
The investment grade corporate bond market was in disarray until the Fed announced that it would be buying ETFs that broadly track the U.S. investment grade corporate bond market.
The disarray caused prices to significantly decline.
The decline was due IMO mostly to a lack of liquidity and secondarily to increased credit concerns that were largely irrational.
I am using the past tense above since the dysfunctional pricing has mostly evaporated as of last Friday due to the FED's intervention.
There remains clearly erroneous pricing by the third party services used by brokers to price their customers bond holdings.
By buying bond ETFs, the FED addressed the liquidity problem. Those funds would then use the cash to buy bonds providing a buyer to match the sellers, calming everyone down at least for now.
The bond price declines had extended into investment grade corporate bonds that mature within 1 year.
I was buying those bonds as an alternative to short term treasury bills that currently have yields very close to zero.
I am taking on more credit risk but view that risk to be minimal given the credit quality of the issuers and the short time frame to maturity.
A. Bought 2 AT & T 2.45% SU Bonds Maturing on 6/30/20:
I now own 6 bonds. The other 4 bonds were bought in February 2017.
AT & T may call at par (no make whole payment) within 30 days of maturity.
FINRA Page: Bond Detail (prospectus linked)
This is an actively traded bond.
Issuer: AT&T Inc. (T)
Credit Quality:
Bought at 99.5
Cost at 99.6
YTM at 99.6 = 3.844%
B. Bought 1 Morgan Stanley 2.8% SU Maturing on 6/16/20:
I now own 3 bonds.
FINRA Page Bond Detail (prospectus linked)
Credit Ratings:
Issuer: Morgan Stanley (MS)
MS | Morgan Stanley Analyst Estimates
Bought at a Total Cost of 100
Yield: 2.8%
C. Bought 10 EBAY 3.25% SU Bonds Maturing on 10/15/20:
FINRA Page: Bond Detail (prospectus not linked)
Prospectus Supplement (sold in 2010)
I will receive the accrued interest paid to the seller when EBAY makes its semi-annual interest payment next month.
EBAY may redeem this bond on or after 7/15/20 at par value plus accrued interest.
"On and after July 15, 2020, we may at our option redeem the 2020 notes at any time or from time to time, either in whole or in part, at a redemption price equal to 100% of the principal amount of the 2020 notes to be redeemed, plus accrued and unpaid interest to the redemption date." Page S-4
Ebay has already raised the funds to pay off this note. Prospectus at page S-14 (see below)
Issuer: eBay Inc. (EBAY)
EBAY | eBay Inc. Analyst Estimates | MarketWatch
EBAY SEC Filings
Last Bond Offering-March 2020: Prospectus
In the use of proceeds section, Ebay states that part of the proceeds will be used to redeem the 3.25% bond that matures on 10/15/20.
"We intend to use all or a substantial portion of the net proceeds from this offering and, if necessary or if we so elect, other available funds to repay all of our outstanding 2.150% Notes due 2020 and 3.250% Notes due 2020. We currently have $500 million aggregate principal amount of 2.150% Notes due 2020 outstanding, which mature on June 5, 2020, and $500 million aggregate principal amount of 3.250% Notes due 2020 outstanding, which mature on October 15, 2020."
Credit Ratings:
Bought at a Total Cost of 99.525
YTM at 99.525 = 4.112% (YTM includes $47.5 profit when bonds redeemed)
D. Bought 2 Capital One 2.5% SU Bonds Maturing on 5/12/20:
FINRA Page: Bond Detail
Bought at a Total Cost of 99.6
YTM at 99.6 = 6.624%
The YTM includes both the 2.5% coupon interest plus a $4 profit on each $1K par value bond. There will only be one more coupon payment. I paid the seller accrued interest of $18.33. I will get that sum back from the issuer on 5/12/20 plus the interest that accrues from the date of my purchase.
Issuer: Capital One Financial Corp. (COP)
Credit Ratings:
I own 4 bonds. The other 2 were bought in my IB account back in March 2019.
7. Exchange Traded Bonds:
A. Bought 10 ENBA at $15.17:
Quote: Enbridge Inc. 6.375% Fixed-to-Floating Rate Subordinated Notes due 2078
Closing Price Last Friday: ENBA $19.28 -$0.62 -3.12%
Issuer: Enbridge Inc. (ENB)
I bought relatively small amounts of several exchange traded bonds during their most recent price collapse.
I have noted in the past that both preferred stocks and exchange trade bonds will crater in price when there is a substantial decline in common stock prices accompanied by a parabolic increase in the VIX.
E.G. Item # 1 Enhanced Price Volatility (8/9/2011 Post) The SPX decline during the 2011 volatility event was almost 20%. The decline this year was significantly worse.
Back to ENBA. The quote for this bond indicates that it is subordinated which is just another word for a bond that is junior to senior unsecured and senior secured debt.
Generally, without even looking at the prospectus or the capital structure, the use of that word indicates that the bond is senior only to common and equity preferred stocks in the capital structure.
Credit Ratings:
Security: Prospectus
Par Value: $25
Coupon Rate: initially at a 6.375% per annum fixed rate paid on the $25 par value (or about $1.59+ annually per share) until 4/15/23
Floating Rate: On 4/15/23, the coupon will reset at a 3.593% spread to the three month libor rate until 4/15/2028; then resets at a 3.843% spread until 4/15/43; and then resets at a 4.593% spread to the 3 month Libor until the note matures in 2078.
B. Bought 50 BPOPRP at C$7.95 (C$1 commission):
Quote: BPO-PP.TO
This brings me up to 200 shares.
My last purchases were discussed here: Item # 2.A. Bought 50 BPOPRP at C$13.86 (9/11/19 Post); Item # 1.A. Bought 50 BPOPRP at C$15.95 (7/27/19 Post)
Issuer: Brookfield Office Properties, a REIT
In 2014, Brookfield Property Partners L.P. (BPY) acquired Brookfield Office Properties. BPY 2019 Annual Report
Preferred Share Prospectus Links: Preferred Shares-Brookfield Office Properties
Par Value: C$25
Last Coupon Reset: March 2017 at a 3% spread to the 5 year Canadian bond yield.
Current Coupon: 4.161% paid on a C$25 par value
Current Yield at C$7.95 = 13.08%
Next Reset: March 2022
Last Ex Dividend Date: 3/12/2020
6. Short Term Corporate Bonds-Alternative to Treasury Bills:
The investment grade corporate bond market was in disarray until the Fed announced that it would be buying ETFs that broadly track the U.S. investment grade corporate bond market.
The disarray caused prices to significantly decline.
The decline was due IMO mostly to a lack of liquidity and secondarily to increased credit concerns that were largely irrational.
I am using the past tense above since the dysfunctional pricing has mostly evaporated as of last Friday due to the FED's intervention.
There remains clearly erroneous pricing by the third party services used by brokers to price their customers bond holdings.
By buying bond ETFs, the FED addressed the liquidity problem. Those funds would then use the cash to buy bonds providing a buyer to match the sellers, calming everyone down at least for now.
The bond price declines had extended into investment grade corporate bonds that mature within 1 year.
I was buying those bonds as an alternative to short term treasury bills that currently have yields very close to zero.
I am taking on more credit risk but view that risk to be minimal given the credit quality of the issuers and the short time frame to maturity.
A. Bought 2 AT & T 2.45% SU Bonds Maturing on 6/30/20:
I now own 6 bonds. The other 4 bonds were bought in February 2017.
AT & T may call at par (no make whole payment) within 30 days of maturity.
FINRA Page: Bond Detail (prospectus linked)
This is an actively traded bond.
Issuer: AT&T Inc. (T)
Credit Quality:
Cost at 99.6
YTM at 99.6 = 3.844%
B. Bought 1 Morgan Stanley 2.8% SU Maturing on 6/16/20:
FINRA Page Bond Detail (prospectus linked)
Credit Ratings:
MS | Morgan Stanley Analyst Estimates
Bought at a Total Cost of 100
Yield: 2.8%
C. Bought 10 EBAY 3.25% SU Bonds Maturing on 10/15/20:
Prospectus Supplement (sold in 2010)
I will receive the accrued interest paid to the seller when EBAY makes its semi-annual interest payment next month.
EBAY may redeem this bond on or after 7/15/20 at par value plus accrued interest.
"On and after July 15, 2020, we may at our option redeem the 2020 notes at any time or from time to time, either in whole or in part, at a redemption price equal to 100% of the principal amount of the 2020 notes to be redeemed, plus accrued and unpaid interest to the redemption date." Page S-4
Ebay has already raised the funds to pay off this note. Prospectus at page S-14 (see below)
Issuer: eBay Inc. (EBAY)
EBAY | eBay Inc. Analyst Estimates | MarketWatch
EBAY SEC Filings
Last Bond Offering-March 2020: Prospectus
"We intend to use all or a substantial portion of the net proceeds from this offering and, if necessary or if we so elect, other available funds to repay all of our outstanding 2.150% Notes due 2020 and 3.250% Notes due 2020. We currently have $500 million aggregate principal amount of 2.150% Notes due 2020 outstanding, which mature on June 5, 2020, and $500 million aggregate principal amount of 3.250% Notes due 2020 outstanding, which mature on October 15, 2020."
Credit Ratings:
YTM at 99.525 = 4.112% (YTM includes $47.5 profit when bonds redeemed)
D. Bought 2 Capital One 2.5% SU Bonds Maturing on 5/12/20:
Bought at a Total Cost of 99.6
YTM at 99.6 = 6.624%
The YTM includes both the 2.5% coupon interest plus a $4 profit on each $1K par value bond. There will only be one more coupon payment. I paid the seller accrued interest of $18.33. I will get that sum back from the issuer on 5/12/20 plus the interest that accrues from the date of my purchase.
Issuer: Capital One Financial Corp. (COP)
Credit Ratings:
I own 4 bonds. The other 2 were bought in my IB account back in March 2019.
7. Exchange Traded Bonds:
A. Bought 10 ENBA at $15.17:
Quote: Enbridge Inc. 6.375% Fixed-to-Floating Rate Subordinated Notes due 2078
Closing Price Last Friday: ENBA $19.28 -$0.62 -3.12%
Issuer: Enbridge Inc. (ENB)
I bought relatively small amounts of several exchange traded bonds during their most recent price collapse.
I have noted in the past that both preferred stocks and exchange trade bonds will crater in price when there is a substantial decline in common stock prices accompanied by a parabolic increase in the VIX.
E.G. Item # 1 Enhanced Price Volatility (8/9/2011 Post) The SPX decline during the 2011 volatility event was almost 20%. The decline this year was significantly worse.
Back to ENBA. The quote for this bond indicates that it is subordinated which is just another word for a bond that is junior to senior unsecured and senior secured debt.
Generally, without even looking at the prospectus or the capital structure, the use of that word indicates that the bond is senior only to common and equity preferred stocks in the capital structure.
Credit Ratings:
Par Value: $25
Coupon Rate: initially at a 6.375% per annum fixed rate paid on the $25 par value (or about $1.59+ annually per share) until 4/15/23
Floating Rate: On 4/15/23, the coupon will reset at a 3.593% spread to the three month libor rate until 4/15/2028; then resets at a 3.843% spread until 4/15/43; and then resets at a 4.593% spread to the 3 month Libor until the note matures in 2078.
During the reset coupon periods, the reset will occur every 3 months.
Libor Rate: This rate will soon cease to exist.
Alternative Rate to Libor: The prospectus discusses what happens when the Libor rate is no longer being quoted:
I am unlikely to own this bond on 4/14/23 and will keep my position small due to the credit risk and the uncertainty relating to the Libor phase out.
Issuer Optional Redemption Summary:
Last Quarterly Ex Interest Date: 3/31/2020
Yield at $15.17 = 10.51% (rounded)
Trades Flat: Whoever owns the bond receives the entire quarterly interest payment
Interest Deferral and Stopper Summary:
The stopper clause requires the company to cease making cash dividend payments to common shareholders before deferring interest payments to the junior bond owners. It "stops" deferral until the cash common stock dividend is eliminated and prevents the use of cash to buy common stock as well.
6. Long Term Bond Strategy-Tennessee Municipal Bonds:
A. Bought 5 Harpeth Valley Utility District 3.25% Tax Free Bonds Maturing on 9/1/2038:
Harpeth Valley is a water/sewer utility operating in Middle Tennessee.
Emma Page
S & P Rating: AA+
Total Cost: 90.07 (includes $1 per bond commission)
YTM at TC = 4.026% (includes bond profit of $465 for 5 bonds)
Current Tax Free Yield at 90.07 = 3.6083%
Issuer Optional Redemption: At par on or after 9/1/2025
I am currently classifying this bond in my long term category (over 10 years to maturity), even though it may only turn out to be an intermediate term one.
Security:
I currently own 5 bonds from this issuer that mature in 2040 Item # 1. E. The coupon is 4% and the optional call date starts on 9/1/2022. I expect that the issuer will call the bond effective for that day. The purchase of the 5 Harpeth Valley bonds discussed above is intended to replace the bonds that I anticipate being called in 2022.
The third party pricing service now claims that this bond had a 104.24 value as of last Friday's close:
The individual investor who sold me this bond may have be influenced by the then third party price and the purported rapid decline in price, which had nothing to deal with reality. The third party pricing services are worst than worthless for that reason among others.
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.
Libor Rate: This rate will soon cease to exist.
Alternative Rate to Libor: The prospectus discusses what happens when the Libor rate is no longer being quoted:
Issuer Optional Redemption Summary:
Last Quarterly Ex Interest Date: 3/31/2020
Yield at $15.17 = 10.51% (rounded)
Trades Flat: Whoever owns the bond receives the entire quarterly interest payment
Interest Deferral and Stopper Summary:
6. Long Term Bond Strategy-Tennessee Municipal Bonds:
A. Bought 5 Harpeth Valley Utility District 3.25% Tax Free Bonds Maturing on 9/1/2038:
Harpeth Valley is a water/sewer utility operating in Middle Tennessee.
Emma Page
S & P Rating: AA+
Total Cost: 90.07 (includes $1 per bond commission)
YTM at TC = 4.026% (includes bond profit of $465 for 5 bonds)
Current Tax Free Yield at 90.07 = 3.6083%
Issuer Optional Redemption: At par on or after 9/1/2025
I am currently classifying this bond in my long term category (over 10 years to maturity), even though it may only turn out to be an intermediate term one.
Security:
I currently own 5 bonds from this issuer that mature in 2040 Item # 1. E. The coupon is 4% and the optional call date starts on 9/1/2022. I expect that the issuer will call the bond effective for that day. The purchase of the 5 Harpeth Valley bonds discussed above is intended to replace the bonds that I anticipate being called in 2022.
The third party pricing service now claims that this bond had a 104.24 value as of last Friday's close:
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.
In addition to STAG, I bought 100 shares of Canada's Dream Industrial Real Estate Investment Trust which I will discuss in my next post.
ReplyDeleteClosing Price: C$8.95
https://www.marketwatch.com/investing/stock/dir.ut?countrycode=ca
I bought at C$8.83 on the Toronto exchange. This REIT was trading over C$14 last month.
I previously eliminated my position and this purchase is merely a restart.
The last round-trip was just a 100 share lot sold at C$11.9 and bought at C$7.95:
Item # 3.A.
https://tennesseeindependent.blogspot.com/2019/04/observations-and-sample-of-recent_27.html
In the past, I have reached 1000 units before eliminating the position.
The stock pays distributions monthly. The next ex date is Monday.
USD priced Dream Industrial shares can be bought on the U.S. Grey Market under the DREUF symbol. I will only buy Canadian stocks traded on the U.S. Grey Market through Schwab for several reasons: (1) Schwab converts the Canadian price into USDs so I do not have to do that calculation myself; (2) executions are generally good notwithstanding a lack of liquidity in that dark market and (3) no commission is charged on the transaction.
The USD priced share closed last Friday at U.S.$6.4:
https://www.marketwatch.com/investing/stock/dreuf
As with all foreign stocks priced in USDs, irrespective of whether the stock is an ADR or the ordinary shares traded on the U.S. pink sheet or Grey Market exchanges, the owner will experience either the Twofer or the Double Whammy.
If the price declines on the foreign exchange and the relevant foreign currency loses value against the USD, that is the double whammy.
The Two for One, or what I call the Twofer, occurs when the relevant foreign currency gains against the USD and the ordinary shares rise in value priced in that currency.
Thank you for the update!
ReplyDeleteThe article about stimulus and mortgage industry, helped explain what all these stimulus's are about relative to the market moves. They're preventing some particular types of fallout that would have happened. So they are important and worth a rally, but it makes it easier to see what the remaining broader risks are in all of this.
The Equity Preferred Stocks details are going in my saved notes on bonds. Also the twofer and double whammy factors on foreign stocks.
---
The data in this article outlines earnings scenarios, with concrete SnP prices.
https://www.marketwatch.com/story/why-this-wild-coronavirus-rally-has-wall-street-experts-fearing-a-bull-market-trap-2020-03-27
The 2nd chart shows if the SnP earnings remains the same or declines, verses various P/E ratios (17.5, 15, 12.5, 10) what the SnP price would be.
It's inserted as an image, so can't post it here.
There's still so much enthusiasm, so that a 15 PE is being considered a very reasonable sale.
At 15PE, for SnP to go back down to 2220, there'd need to be only a slight decline in earnings of 3% to 148ps.
Seems likely earning will drop more than 3%. Depends if investors start insisting on lower PEs. Gives an indication that'd it'd be good to average in slowly, and not assume a retouch of 2220 SnP is it.
It seems like crashes are using not more than 30-40%. This time though to get to fair value, looks like it'd need to be deeper. With how over extended PEs were in 2000, I'm not spotting what I'm missing in this logic. That should have been deeper than what this time needs, in order to get to less extended values.
----
On TCRD, I was going to sell, and turns out there's been substantial insider buying.
My other smaller companies in deep trouble are energy & what's left of TCAP (so much for internal management being stronger.) I should sell into strength when it happens, and use what little funds are left elsewhere.
But the TCRD story is a surprise. Not expected to do well for 3 years, then to turn positive. It's probably hokum. Except that's a lot of buying.
$434,000 by 3 individuals in THL Credit from March 11 to March 26th, each buying multiple times. Plus two other individual big buyers.
CEO/Director, Senior Key Executive, Chief Legal Officer (they each hold other positions too.)
The stock went down a lot (down 80%). But that's a lot of confidence it will weather this. They could all be delusional. It's happened before. Or there's a trick to reading this info that I don't know.
https://simplywall.st/stocks/us/diversified-financials/nasdaq-tcrd/thl-credit
David Templeton at Horan writes:
ReplyDelete"The strong return achieved by the S&P 500 Index in 2019, up 31.5%, occurred in an environment where earnings growth was nearly flat, i.e., up 1.7%."
https://seekingalpha.com/article/4322741-s-and-p-500-earnings-growth-in-uptrend
I didn't know it was flat. That seems like means the economy was not humming along very well at all.
Land: I started to discuss the fact that earnings growth would be flat in 2019 no later than the 4th quarter. I probably needed to give the discussion more prominence.
DeleteThis 1/25/20 post may be my last mention:
Scroll to Markets and Market Commentary
https://tennesseeindependent.blogspot.com/2020/01/aht-bhb-ffbc-fitb-nmfc-rmt.html
Last year the Stock Jocks took the S & P 500 up over 30% notwithstanding a lack of earnings growth. That caused multiples to expand to levels that were clearly overvalued using traditional valuation metrics. The disconnect between earnings growth and valuations was a key reason why I reduced my stock allocation.
The same kind of disconnect has occurred in the past that always resulted in a multiple reset at much lower levels.
No one can predict the future. An investor has to give due weight to the facts as they are now. Back in January of this year, the fact was that there was no or at best negligible SPX earnings growth in 2019. Multiples had expanded to clearly dangerous levels that could only be justified by rapid growth in earnings which was not likely to occur. And that was before the coronavirus pandemic slammed U.S. growth prospects.
That was during a time when I was very distracted (as previously described,) so I didn't catch it as much as I should have.
DeleteExtended values can last a very long time, years. But a 30% climb without much change in earnings, is striking.
Logic says that 2019's 30% climb and that entire parabolic move, doesn't match earnings.
Add that earnings will overall be lower. How much is unknown.
Conclusion is that fair value should hit investors in the face eventually. It may be 3-4 or even more months before "an accounting of the state of things using earnings" is done, and that happens.
That can only be different is stimulus could literally replace all the earnings, but it can't be that big. We haven't ordered any mega sided wheelbarrows from Amazon for all that cash.
So as I read this comment, I conclude this isn't the bottom. I don't like to believe or buy into my own logic too much. Still an interesting framing to keep in mind.
(It's late to so to avoid total incoherence, I'm not commenting on any other comments tonight.)
The FDA has approved Abbott's rapid response test for COVID-19 infections that can provide results in 5 minutes. The device is the size of a toaster.
ReplyDeletehttps://www.usatoday.com/story/news/health/2020/03/28/coronavirus-fda-authorizes-abbott-labs-fast-portable-covid-test/2932766001/
If the tests proved accurate, then that is a game changer since workers can be tested quickly before entering the workplace and those who may be infected can be quickly identified and quarantined.
One of the major problems has been the unavailability of test kits and the long delay in receiving test results. Those issues are tailor made for a rapid increase in infection rates.
With social distancing and rapid test results, the positive outcome will occur sooner, thereby alleviating the economic pain that would have occurred.
+++
I see that the ECB froze bank dividend payments "until at least 1 October 2020" . I own a few shares of ING:
https://think.ing.com/articles/ecb-to-freeze-bank-dividends-due-to-covid-19/
I got to that link. Whoa. So ECB is telling banks with stocks, not to pay divs to shareholders.
DeleteI assume they're still paying depositors (or there'd be a run on the banks.)
Makes me glad I didn't happen to buy Santander. I have an account with them with a small amount. (They've got this great people pay transfer thing that simulates direct deposit, so I can take advantage of deals at other banks.)
Sorry your divs are locked up. Doesn't sound like you'll miss them much. I'm surprised though, that that doesn't or hasn't seemed to make stocks run for cover under rocks in fear.
I'm beginning to conclude that even if this crisis fixes itself and the market rallies, the recession indicators with the recession that was headed our way, will happen in the next couple years anyway. The exuberance is still present and not letting the market default to real undervalued (or properly valued for a sequestered economy) prices.
Land: The ECB wants to increase the capital buffer for bank loan losses.
DeleteAs to paying depositors, it is fairly common in Europe for depositors to pay the bank to keep their money given the negative interest rates. Many banks will make exceptions for individual depositors, but some do not.
I figured it was an important stop gap, and enabled them to buffer without being the "problem banks" individually with the ECB covering for them.
DeleteIt's that such a drastic need, seems like it'd cause worry. (Maybe it did and I didn't happen to be watching EU indices at the time.)
I forgot about paying banks to hold one's money. I'm sure I can find a cubbyhole in my house if it comes to that here.
Vix is under 60 now.
ReplyDeleteWhile the market is rallying, Walmart is up 4.20%.
Walmart was one of the run to safety stocks. It's not up at the 26% raise it was before. But it's not declining like it did in the rallies last week. Maybe it's just investors buying everything not nailed down (except airlines & my beleaguered TCRD).
This article has two bits of info.
The VIX measure's volatility not worry itself? So that these high swings up can be keeping the VIX elevated?
https://www.marketwatch.com/story/why-the-vix-gauge-of-stock-market-volatility-is-still-so-stubbornly-high-2020-03-30
The other is that it's defined the new normal with room for final bottom and lasting upswing rally to be.... VIX under 60.
This is a "this time is different" that is not different in my view. I'll wait for VIX under 20 to redefine as a bull and invest like it's a bull.
While writing this my cell has a big announcement from my state's governor that we're on lockdown, not to leave our houses except for essential trips.
Will my diet may end up working, not by buying good quality fruits, veggies, and low calorie snacks, but out of lack of food to eat in the house? (Not worried. I have a several months supplies of foods.)
I suppose I could sell into this rally. INDAs up 9%. SOXX up 8%. But? Isn't the plan to wait for more clear up rallies that seem extended, and really down days, than to try to trade and time each day in between? Which does better at growing funds?
Land: This time is different in many ways. The U.S. economy is about to crash far quicker than it had done in the past. Unemployment will skyrocket quickly to depression levels, and GDP will suffer a percentage decline in the second quarter greater than it did during any quarter during the Great Depression.
DeleteThat is going to be an unexpected shock for most folks by its severity and quick onset.
Congress and the FED have started massive monetary and fiscal stimulus at the early stages of economic downturn. That is significant in that it was lessen the probability of an extended downturn and cushion the immediate negative impacts.
The fact that the economic downturn was precipitated by a pandemic makes it unique; and that cause can hopefully be addressed more effectively going forward than a near collapse of the financial system (2008) and its massive destruction of home values.
The Abbott test system is the first bit of good news. And, I have faith that scientists will develop a vaccine, though the timing of its availability is uncertain now.
BDCs are getting crushed based on a consensus opinion, expressed in their stock prices, that the value of their assets will be about cut in half.
That is the forecast embedded in their prices now.
The actual path to that destruction is not specified in the price, but would have to include a substantial number of loans going to zero values, while others would have to be restructured at substantially below existing values either through the bankruptcy process or a debt restructuring to avoid one. Equity interests will be written down as well.
I discussed the BDC Fidus in this post. The price closed today at $6.89 down 7.64%. That price postulates that the net asset value per share of $16.85 as of 12/31/19 will be cut in half. That would also result in a substantial cut in the dividend for that BDC and others as well, if the forecast mostly comes true.
The small brokerage firm B. Riley downgraded that BDC to neutral from buy and lowered its price target to $8.5 from $16. That is an analyst reaction to what the market has already done with the price.
That B. Riley downgrade apparently happened on 3/24/20.
The stock closed at $6.18 on 3/24, down from a $14.85 close on 2/23/20 before the onset of the volatility event on 2/24.
So a lot of what analysts do is to tell you to sell after the price has already dropped 50% to 70%. The underlying assumption in the opinion change is that the market has correctly predicted the future in the current price.
While the pandemic will certainly cause asset destruction at BDCs and an increase in non-performing loans, which will probably result in dividend cuts, the ultimate, longer term impact is not knowable now. Consequently, it remains to be seen whether the current prices will prove to be a buying opportunity or a prescient prediction of what will soon occur. Like everything else, you place your bets and take your chances.
People are losing interest in selling me investment grade corporate bonds at prices I am willing to pay. Purchases have slowed to a trickle, not for lack of limit buy orders from me.
ReplyDeleteI guess that I am no longer needed to provide liquidity in the corporate bond market having been replaced by the FED I reckon. The FED does have more firepower, but then they create money to buy whatever. I can not settle trades in Southgent bucks. My brokers would not understand.
Since it may be over a month before I discuss a bond purchase completed today, I thought that I would mention one here.
I bought 2 Wellpoint 4.35% SU bonds maturing on 8/15/20. The total cost was 99.7 creating a YTM of 5.143%.
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C529299&symbol=ANTM3684358
Wellpoint change its name to Anthem in 2014:
Stock Quote:
https://www.marketwatch.com/investing/stock/antm
Hi
ReplyDeleteSG, I wondered what your thinking was on the massive snap back of the S&P etc over such a short trading period. I have heard about rebalancing of pensions etc, but its hard to believe this is the only reason; the market still strikes me as significantly over valued and it is not clear what happens to dividends during this one to one and a half year (or more) virus self distancing before a real cure is available to all of us and the continued damage to the small business worker. So I don't get it; I would appreciate your thoughts..
thanks
G: A reasonable valuation for the S & P 500 depends on how quickly the U.S. economy will recover from what will turn out to be a devastating economic downturn. So, if I knew what will happen with the pandemic, I could better assess what is a fair value now. Unfortunately, I do not have that answer, so I have to adjust to the uncertainty about the future. I have been buying stocks, but not in amounts that would cause me to lose sleep in the event prices collapse well below March's lowest level.
DeleteYou raise a good question whether a recovery can happen when there is no vaccine available and infection rates will start to accelerate again once an effort is made toward normalcy.
That is one possible scenario which would suggest at best a 2021 recovery and less worse numbers in the 3rd and 4th quarters this year than in the disastrous 2nd.
Another scenario is that social distancing and shutdowns slow down the infections, causing a peak number in late April with still serious number throughout May but tailing off rapidly. Coupled with widespread testing with quick results, the nation is able to start a return to normalcy in June except schools would remained closed and hyper vigilance would be observed among the elderly and those with underlying health conditions. That could result in a V shape recovery with strong growth in the 3rd and 4th quarters.
At the moment the Stock Jocks are leaning toward the V shape recovery scenario but their conviction is not too deep IMO and could turn on a dime.
A wild card will be just how shellshocked U.S. consumers will be even under the V shape recovery scenario. It is easy to imagine large numbers keeping a tight reign on spending, realizing now that they need a savings cushion for these unexpected events that result in job losses. That would be a sensible and reasonable reaction.
Remember that future forecasts are usually wrong in some particulars or just so far off that they are dangerous to act upon them when making current decisions.
The Stock Jocks after all believed as late as 2/23/20 that the COVID-19 pandemic would not even be a material problem for the U.S. economy. A bell went off in late February that caused the herd to change that forecast from an optimistic one, nothing but blue skies until the end of days, to something along the lines that it is bad and is never going to get any better.
I am a cautious buyer of stocks but will probably curtail buying after the recent run up. I do not feel any need to do anything other than small ball trades.
There will be widespread dividend cuts and eliminations. So far, those actions have occurred mostly in sectors most impacted by pandemic (e.g. hotel REITs).
China just reported a strong rebound in its manufacturing PMI:
https://www.marketwatch.com/story/china-shows-strong-factory-activity-in-march-2020-03-30?mod=mw_latestnews
Gastro - great question.
DeleteSG - Thank you for the reply!
It seems to me that the market always verbally situates itself to two sides. Both sound very reasonable at the time. On the one hand, this is terrible, and prices are extended for the circumstances. On the other hand, rescue and recovery are right around the corner, and market will rally hard as soon as the word is in.
I can't say from the past if one or the other side tends to win more often, since I haven't watched at the time.
In the world of humor...
ReplyDeleteZerohedge that's been predicting the end of the world since they were birthed into the world...
... is now publishing about "Covid19-Derangement Syndrome."
The answer to our derangement and draconian measures, is to 1) get healthy to get rid of our underlying conditions 2) vitamin C which has cured the China outbreak.
https://www.zerohedge.com/geopolitical/covid-19-derangement-syndrome-world-gone-mad?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Irony lives on.
Land: I do not read Zerohedge. For those who do, I suspect that it fulfills a psychological need to justify what they are already doing which is avoiding risk assets.
DeleteI am aware that some people contend that Vitamin C works on COVID-19, but there is no clinical proof.
https://www.newsweek.com/new-york-hospitals-vitamin-c-coronavirus-patients-1494407
For those who believe Vitamin C may help, it is common to see claims that the powder form works better.
The zerohedge article if one skims several miles down through it ... is claiming vit c + heparin is what cured China based on a supposed shipment, so we all can breath easy here in USA. Also that he would like some bigwigs to be aware of this solution, so he buried it in miles of first criticizing the USA before getting to that point. (Why was I skimming that far down? Morbid curiosity?)
DeleteFinviz seems to put zerohedge articles on it's right side column of news. I never even think to glance through that column. For some read decided to the other day...
I find for common colds and flu-like things, zinc works for me. So if I do find myself not feeling well, I will try zinc. I have no reason to think it can help fend off or not fend off covid-19 which is very different from a cold. ...Or the flu.
I guess it's my night for finding irony.
ReplyDeletehttps://www.cnn.com/2020/03/30/politics/trump-masks-coronavirus-recommendation/index.html
"Trump says he could see recommending all Americans wear masks"
The two minute video embedded in this article is worth viewing:
ReplyDeletehttps://digg.com/2020/trump-impression-coronavirus?fbclid=IwAR3RtY0uos3WODSJMUSYpUosKDYJgZ4MWwak4_Uh6MS2mwn3hkXfGYg7OmQ
That was VERY funny!
DeleteOnly problem with his imitation is not he's not duplicating the ugly factor. Also his teeth are nice. It's made me realize that Trump's must not be, because it kept standing out.
The ending is the best part.
Fitch put New Mountain's senior unsecured rating of BBB- on negative credit watch. The analysis is a good summary of issues facing BDCs now:
ReplyDeletehttps://www.fitchratings.com/research/corporate-finance/fitch-places-new-mountain-finance-corp-bbb-ratings-on-negative-watch-on-elevated-valuation-risk-25-03-2020
New Mountain Finance Corp.(NMFC)
$7.14 -$0.45 -5.93%
Last Updated: Mar 31, 2020 at 11:12 a.m. EDT
https://www.marketwatch.com/investing/stock/nmfc
As with other BDC stocks, NMFC is down about 50% from its February 2020 high:
https://finance.yahoo.com/quote/NMFC/history?p=NMFC
If a normal NMFC stock price is say a 10% discount to net asset value per share, the market is then predicting a net asset value per share near $7.75 + a dividend slash. The last reported NAV per share was at $13.26 as of 12/31/19.
http://ir.newmountainfinance.com/File/Index?KeyFile=402989359
To get to $7.75, the writedown in assets would have to be around 40% to 42% give or take a few percent since all of the numbers are estimates made to highlight the issue involving the future forecasts embedded in BDC prices.
I discussed the carnage in MREIT sector in this post. Common stock dividend eliminations and deferrals of preferred stock dividends are commonplace.
ReplyDeleteI noted that New Residential elected to pay its quarterly preferred stock dividends but slashed its quarterly common dividend to $.05 per share from $.5.
"The Company announced that estimated book value as of March 27, 2020 is down approximately 25% to 30% from $16.21 as of December 31, 2019."
https://www.businesswire.com/news/home/20200331005250/en/
New Residential Investment Corp. (NRZ)
$5.11 -$0.86 (-14.32%)
As of 12:25PM EDT
https://finance.yahoo.com/quote/NRZ?p=NRZ
One commonly blamed villain in this fiasco is the Federal Reserve:
https://www.cnbc.com/2020/03/29/mortgage-bankers-warn-fed-purchases-of-mortgages-unbalanced-market-forcing-margin-calls.html
And that blame appears to be justified as the FED purchased $183B in mortgage backed securities last week which blew up the MREIT hedges.
One of the issues that will be debated by future generations is whether the FED and other central banks did far more harm than good by maintaining extremely abnormal monetary policies far too long. Those policies started in 2008.
""the FED purchased $183B in mortgage backed securities last week which blew up the MREIT hedges. ""
DeleteSo part of the unwinding is the Fed's actions to protect banks, are then blowing up hedges?
I will not try to understand all the dynamics. Only to see how the charts move, and buy when down some more. This stuff can help explain the charts and make it easier to feel comfortable buying. It's complicated though.
On policy, when a country decides that savings is to be anti-rewarded it, good things can not come out of that. Savers are the persistent, responsible types, whom you want to support.
Land: I do not pay much attention to MREITs. Their leverage was always a matter of central concern to me. It is probably impossible to identify the circumstances that will lead to margin calls and major net asset value declines in advance. It is possible to predict that, given enough time, they will blow themselves up.
DeleteAnother problem is that their lenders wanted more collateral for their short term loans used to purchase commercial mortgage backed securities. That has forced MREITs that own a lot of that paper to engage in fire sales to reduce leverage.
New Residential was the latest:
https://seekingalpha.com/news/3557174-new-residential-confirms-move-to-unload-6_1b-of-non-agency-debt
Savers will always pay the price when things go bad, whatever the cause may be. Central banks will quickly lower their benchmark rates to zero or into negative nominal territory where many have been residing for over a decade now including the ECB, BOJ and SNB.
The most egregious case was that savers were involuntarily forced to participate in the bailout of the Masters of Disaster and their firms who profited from the incineration of trillions and then profited again from the FED's Jihad against he Savings Class that started in 2008.
I will not miss the first quarter of 2020. The financial news sites claim that it was the worst 1st quarter in 124 years, and the worst quarter since the 1987 4th quarter. There was a crash in October 1987.
ReplyDeleteMarch 2020 reminded me of October 1987. During both months, volatility went parabolic into the stratosphere and markets were subject to wild up and down swings.
Goldman Sachs is in the camp that there will be a V shape recovery starting in the third quarter.
https://www.cnbc.com/2020/03/31/coronavirus-update-goldman-sees-15percent-jobless-rate-followed-by-record-rebound.html
On some days, the Stock Jocks sort of believe that sounds about right but not today. The belief in a V shape recovery is razor thin in conviction. Governor Cuomo's update today on NY contributed to the more dire outlook:
https://www.cnbc.com/2020/03/31/gov-cuomo-says-coronavirus-is-more-dangerous-than-expected-as-new-york-cases-jump-14percent-overnight-to-75795.html
No one wants to sell me investment grade corporate bonds anymore. I had no buy order fills today. The municipal bond market, which was also negatively impacted by liquidity issues earlier in the month, has settled down as well.
I looked today at yield for Fidelity's Government MM fund, one of the two funds that can be used as a settlement account. The yield was at .1% and will probably continue to decline closer to zero.
The ten year treasury closed at a .7% yield.
It looks like federal government debt will explode to almost $26 trillion by year end due to massive increases in federal government spending (all sourced from new debt) and to a decrease in federal revenues resulting from the recession which has already started IMO.
Currently the U.S. government debt stands at 23,565,055,988,243.25.
https://www.treasurydirect.gov/NP/debt/current
The Bond Ghouls do not now have any concerns that massive amounts of new treasury debt supply will cause higher rates, judging from the current yield curve rates.
Is the awareness of numbers in the financial news what's causing the market to get more somber again?
DeleteI've been thinking about inflation from all the money being offered into the system. Yet, that doesn't seem to be remotely happening. It didn't before with QE either.
It will be hard to return life to ordinary, when even slight rate hikes will be hard on the gov't's debt.
Land: The bottom line is no one really knows what will happen or how long it will take to recover. The stimulus checks will at best be a band aid for about 1/2 of U.S. households, maybe allowing them to put food on the table and make a rent payment.
DeleteI would not expect a federal funds rate hike, even a .25%, this year.
The Bond Ghouls are predicting that ZIRP will be present at least through the May 2021 meeting date.
https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Will the FED ever return to what would be viewed historically at normal rates? It is probably impossible in my lifetime for a variety of reasons, including the interest costs associated with an out-of-control federal debt and the total freak out which would follow with a ten year treasury year at 4% to 5% (close to the long term averages)
I own (15)Ford bonds # 34540TKG6 1st call is 6-20-2020 they're down to $63 and change, any opinion? Bought in 2015 4.05% yield thanks!
ReplyDeleteI was not interested in Ford or Ford Motor Credit bonds before the coronavirus outbreak and view them as having attenuated credit risk now as reflected in their prices.
DeleteThis 2025 bond was issued by Ford Motor Credit, not Ford, and is not actively traded. The last trade was at 70. The trade was only 6 bonds. The coupon is 4.05% but the yield-to-maturity at 70, which assumes all payments are made including the principal amount at maturity, is about 11.3%. The current yield at 70 is about 5.79%. Since credit risk is a more significant issue now than last year, I would view the current yield number at 70 to be more important than the YTM, and I personally would not buy this bond at that current yield number.
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C719596&symbol=F4316265
I seriously doubt that FMC will exercise whatever redemption right it has since it could not refinance the bond at a lower coupon rate now.
I currently own 1 Ford Motor Credit 2.9% SU maturing on 6/20/22 which was bought in June 2017. That is all the exposure to FMC that I want.
While Moody's cut the rating to junk last year, S & P still has a BBB- rating according to FINRA.
Ford has weathered many financial disasters and may pull through this one. Who knows? I can not answer that question.
Ford retooled to produce masks or ventilators. Somehow that hasn't given them any lift.
DeleteThey didn't even get the attention and being picked on by Trump, like GM did.
Land: China is a major manufacturer of masks. When the epidemic started to pick up steam, they imported 1 billion masks. Do not fear. The Duck is now on the case after learnings just this week that there are shortages. Expect a tweet at anytime saying he has solved the problem and every citizens now has 100 masks.
DeleteGM's President is a woman. Ford's President is a man. That is all you need to know to explain why Donald berates the GM President and gives Ford a pass.
Yes, I imagine we will get the bigly-est shipment any day now. From the country Trump beat up on only a year ago, to encourage it's willingness to cooperate.
DeleteSigh, yep, that does seem like the auto explanation.
There are a number of well known issuers whose bonds are selling at levels that signal that a BK is possible; and the Bond Ghouls are attempting now to forecast the likely % recovery for senior unsecured bond owners.
ReplyDeleteMacy's is an example. That company has a 3.45% SU bond maturing on 1/15/21 that closed today with a 35% YTM. The bond is actively traded which gives me an indication that institutional bond investors are setting the price. The last trade went over a $1M in principal amount.
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C644865&symbol=M4319035
Most of the YTM is in the profit that would be realized when and if Macy's pays off the bond at par value next January. The YTM suggests that a BK possibility is being factored by the Bond Ghouls into the price, though I would guess that the odds expressed in the price are less than probable.
Another example is Occidental. OXY has a 4.1% senior unsecured bond maturing on 2/1/21 that closed today at 85.75, which creates a YTM of 24%. Not as bad as the Macy's bond on the BK possibility but still present in the price.
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C538021&symbol=APC3687785
I was asked about OXY bond recently by a reader here, and mentioned that I was not going to take a risk buying one. The issue is whether someone is willing to risk a significant loss of capital in exchange for the return.
If anyone decides to buy one of these bonds, where the Bond Ghouls are signalling a BK risk, you have to be ready to accept a BK before the principal amount is paid and then a big question mark on how many cents on the dollar will be left for the senior unsecured bond owners. There is a loss of principal possibility.
I am not going to speculate on those bonds now, though I have done so many times in the more distant past.
With luck, some near term maturities are sufficiently high in YTM that speculators may find them enticing provided they fully understand the downside risks. A 10 OXY bond purchase at a 85 total cost would net a $1,500 profit when and if (!!!) OXY pays off that bond on 2/1/21 + the coupon from the time of purchase until redemption.
When I discussed the OXY bonds, I said the Bond Ghouls were pricing them around CCC, not as investment grade which both Moody's and S & P then rated them. Shortly after posting that comment, Moody's went to Ba1. That is still too high of a rating for what the Bond Ghouls are saying in their prices.
In my Fidelity account today, I received the redemption proceeds from 4 investment grade corporate bonds. So far, I have been able to redirect almost $2K by purchasing with a limit order 2 J P Morgan 2.75% SU bonds maturing on 6/23/20. The purchase was made at a total cost of 99.8 creating a YTM of 3.63%.
ReplyDeleteat 10:10:13
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C632835&symbol=JPM4260166
This is at best a temporary solution to the ongoing reinvestment problem.
I also received in that account today $953.38 in interest payment with most of that coming from Tennessee municipal bonds. I am going to reinvest about 1/2 of that sum today in common stocks and common stock funds, both ETFs and CEFs.
Common stock purchases had slowed to a crawl. Regional bank stock purchases are now in 1 or 2 share lots. I have no expectation of those purchases working anytime soon since the Stock Jocks are forecasting massive loan losses in the current prices and dividend cuts. Price have generally returned to 2009-2010 levels. An average decline from February highs would be in the 50% neighborhood. The same forecast is embedded in BDC prices as well.
This observation about the future story told by today's prices will actually come to pass as predicted now.
Today, small caps are getting badly beaten up. At 106.xx, IWM has sunk more than DIA or SPY in the last week.
ReplyDeletePreviously at a IWM $108 price, SPY was down to the 222 range. Now it's still at 246.
Any thoughts on the disparities and how to play it while legging in as the market goes lower?
VIX did a divergence thing again yesterday. Going down, while the market went down. Today it's going opposite the market again.
ReplyDeleteI finally managed to get ready for my telemed appointment today. I was not able to arrange my ultrasound to be done telemed style.
ReplyDeleteI spent hours yesterday searching for my pros and cons list for one option. I finally found it this morning. With what I've learned in appts 2 months ago, it turned out not to have much on it of use. Does chasing one's tail count as exercise?
I got through to Social Security. Took 2 hours 40 mins. Problem resolved. I forgot to verify one thing. Today I get the message that no one is available to take calls. Call back another time.
Land: Many systems will be either non-functional or dysfunctional for several months, particularly government services that were already problematic before the pandemic.
DeleteOops, I think I was confused. And while at 222, IWM was under 99. Even hitting 96. It wasn't at the exact same moment or day but close to.
ReplyDeleteBought another .4% of my funds in regular account into IWM at 106.40. :(, it's now at 105.65. I got anxious and bought too soon. Oh well.
ReplyDeleteI'm buffering that if there's a rally in a few days, I'll have something to sell.
Land: The Stock Jocks will not be awarding me their Annual Medal of Value for outstanding courage in stock buying when all others were cowering under the covers crying for their mamas.
DeleteI did invest about 1/2 of the interest payments received in my Fidelity account as I indicated in a prior comment.
I am going back to some stock ETFs that I eliminated late last year, starting with small ball purchases.
Today, I went heavy into the ETF FDVV with a 5 share purchase at $21.9.
FIDELITY HIGH DIVIDEND ETF
$ 21.98 -$0.93 (-4.06%)
https://www.marketwatch.com/investing/fund/fdvv
I will now include the ETF in any wave small ball "buying programs".
I bailed on that one last December along with a lot of stock ETFs.
Item # 3 B. Sold 20 FDVV at $31.28:
https://tennesseeindependent.blogspot.com/2019/12/cpxpre-dgro-fcom-fdrr-fdvv-ht-pfxf-sar.html
Today, the DJIA and S & P 500 logged the worst start to a quarter in their respective histories.
https://www.marketwatch.com/story/dow-and-sp-500-at-risk-of-worst-start-to-a-quarter-in-history-as-investors-brace-for-very-very-painful-weeks-of-coronavirus-2020-04-01?mod=home-page
Well, maybe since you can't compete in the high stakes high count award competition... maybe you can compete in the miniature-size competition? I think you can get smaller than 5 shares at $21 if you try hard enough, and practice, practice, practice.
DeleteFDVV - I was trying to remember the high div you often use instead of VYM by vanguard. FDVV doesn't sound familiar but is that the one or is there another?
Land: I earlier had a brain malfunction. I meant to say "Medal of Valor" awarded by Stock Jocks to be person who went above and beyond to stop the slide.
DeleteI sort of have that feeling that J. P. Morgan must have had when he saved the U.S. economy during the Panic of 1907.
s
https://www.amazon.com/Panic-1907-Lessons-Learned-Markets-ebook/dp/B001JPH9DQ
I also started VYM and actually have an unrealized profit in that one. I may not have owned that one recently.
I also restarted NOBL today. I only got up to 5 shares before I eliminated it last December.
Item # 2.D. Eliminated NOBL-Sold 5 at $74.28:
https://tennesseeindependent.blogspot.com/2019/12/econ-idv-nobl-pflt-prosy-veu-vtr.html
But I am not back up to 5 shares yet. I am not feeling that frisky about stocks.
I dump in December almost all of the stock ETFs where I had initiated small ball "buying programs" since I did not like the lay of the land.
I feel like I am ahead by simply buying the shares back at a lower price than my prior purchases.
Quote:
ProShares S&P 500 Dividend Aristocrats ETF (NOBL)
$55.35 -2.32 -4.02%
https://www.marketwatch.com/investing/fund/nobl
Today, the Stock Jocks went back into "we are all going to die" mode of reacting or what I call the manic depressive state where the worst possible future outcomes are felt as both real in present time and inevitable or close to it.
Going into a Great Depression kind of economy this quick is an unknown experience so the fear has a rational basis.
And, when fear becomes this palpable, it permeates people so bad that the only way to relieve the anxiety and psychological pain is to sell and flee.
Those who are buying get their ass handed to them even before the close or the next day. The buyers certainly do not have to wait long to average down and increase their unrealized losses.
That is the way it has always been during these meltdowns and always will be. Humans are not going to change.
From the book review
Delete""Bruner and Carr provide a thorough, masterly, and highly readable account of the 1907 crisis and its management by the great private banker J. P. Morgan. Congress heeded the lessons of 1907, launching the Federal Reserve System in 1913 to prevent banking panics and foster financial stability. We still have financial problems. But because of 1907 and Morgan, a century later we have a respected central bank as well as greater confidence in our money and our banks than our great-grandparents had in theirs.""
I did not know that Morgan was famous and helped the economy. The current bank does not seem to have that in it's DNA any longer.
I'll accept their "greater confidence" comment but would put on the caveat that it's doesn't rise to "a lot of confidence."
I bought VYM on the way down to here and stand at a loss.
I decided after hours that I'd bought more than I was comfortable with. Asking price went just above mine, and sold 25 shares in several orders for a $6 profit.
Some earnings must have come in positively because at around 6:30 prices climbed almost 1% from close to $107.15, as did futures. I missed that. but have 10 shares left.
It may have been NOBL that came up before. It rings a bell.
So psychologically, this point in a bear, after the bear rally... when fear is in the air... it just keeps going down.
That calls for patience. And waiting. Rather than strong quick averaging-in hoping not to miss the bottom. It sounds like it's an elevator ride down for a while, along the way.
If I'm misinterpreting, please let me know.
---
I had a question this afternoon. In prior bear markets, there were bear rallies. Do you remember what triggered those rallies?
Last week's rally was triggered by the Fed and Congress's packages. In combo with, it was time to be hopeful that this wouldn't be that bad.
It's easy to look at a chart and see the rallies. I've never heard talk of what caused them in the past.
Could be useful to know. Or merely interesting to know.
Have you used VYMI (International div)?
DeleteIt's a higher yield 5.56%, still good fee, .27%. Not as fluid, but not dangerously so, 200k volume.
Looks like large stable companies. For me Shell isn't great because I own it individually.
With dollar high, when that normalizes, dollar comes down and these company's values go up?
https://investor.vanguard.com/etf/profile/overview/vymi
Is there an easy place to get the earnings per indices and P/Es?
DeleteLand: On bull rallies in a long term bear market, I would simply characterize them as a rebirth of hope; a recognition that long term entry points have become better; a follow the herd instinct; a hope that losses may be recouped; and fear of missing out on a money making opportunity.
DeleteThere may be some event that triggers what I would call a countertrend rally after steep losses. In the most recent example, the two events were the $2+ trillion stimulus package and the FED bringing out its "Big Bertha". No one asks whether these rescue operations only dig deeper holes for the future.
One of the quickest countertrend cyclical bull rallies started in 1974 after a fast 50% decline. The S & P 500 bottomed near 60 in September 1974 and then had a countertrend rally that took the average back to around 103 which was below the prior peak 12/1972 peak near 120. By July 1982, or 10 years after the peak 12/1972 levels, the S & P was still lower than the peak.
There was also a brief countertrend rally after the October 1929 crash that started in November 1920 and was snuffed out by May 1930 as reality drowned the Stock Jocks who remained optimistic and relatively solvent.
The issue in the 1974-1976 countertrend rally was that the main underlying problem was not solved and was only getting worse. The main negative for both the bond and stock markets was problematic inflation that was the underlying cause of 16+ years of bear markets in both stocks and bonds.
Until that problem was solved, any bull rally would be cyclical and short lived because hope would be dashed by cold hard facts that could not be ignored and swept under the rug.
In the coming years, debt implosions will be the primary problem causes long periods of financial instability. Those issues first emerged in the 1997 Asian Contagion and have only become more pervasive and problematic since that initial flare up. The cure for too much debt remains even more debt.
Deflationary pressures resulting from debt bomb explosions and related events, rather than inflation, will become more prominent features in the years ahead.
Land: Both GAAP and Non-GAPP index P/Es can be found at
Deletehttps://www.wsj.com/market-data/stocks/peyields
You do not have to be a WSJ subscriber to access that page.
Land: I have never owned VYMI. Since 2007, international stocks have been at best short term trades.
DeleteCompare the performance numbers of the Vanguard FTSE All-Wld ex-US ETF (VEU)
https://www.morningstar.com/etfs/arcx/veu/performance
with SPY
https://www.morningstar.com/etfs/arcx/spy/performance
I would note that the ten year average total return for SPY was at 9.85% through yesterday but at 7.2% over the past 15 which would include the Near Depression period.
The 10 year average annual total return for VEU was at +1.58% through yesterday's close.
The Vanguard FTSE Emerging Markets ETF (VWO) had a ten year annual average total return of -.27%.
https://www.morningstar.com/etfs/arcx/vwo/performance
When I have discussed the international ETFs in the past, I have emphasized those returns, noting that the worm may change in their favor compared to U.S. stocks but there are no signs yet that is about to occur. I consequently have traded them and mutual funds investing in foreign stocks. I reduce my international mutual funds last year, which were already underweighted, to less than a $1K position in China Matthews Dividend (MCDFX) which was a restart after two or so successful round-trip with larger positions. I added $50 to that one this week bringing me up to around 40 shares.
https://www.morningstar.com/funds/xnas/mcdfx/quote
Land: I don't think the managers of VYM needed to do a buy program to invest my cash. I currently own 5 shares, bought in 1 share lots, with an average cost per share now at $63.85 with the lowest price lot bought at $60.77 on 3/23. The second lowest price lot was also bought that day at $62.7.
DeleteI noticed that Fidelity did not have a minimum for its mutual funds so I started today with a $100 buy of the Fidelity Contrafund.
https://www.morningstar.com/funds/xnas/fcntx/quote
As to Royal Dutch, it recently gave investors the vibe that it would continue paying the dividend. This was done by an announcement expressing the firm's strong finances, while cutting expenses and delaying a share repurchase program. All of that was discussed without mentioning the possibility of a dividend cut.
https://www.marketwatch.com/story/shell-rallies-in-london-after-giving-hope-it-would-pay-dividend-2020-03-31
Psychologically, I could not look at my small ball position in the Schwab account where I had an unrealized loss so I started up small ball positions in my Fidelity and Vanguard taxable accounts. I bought 5 shares in the Fidelity taxable account in 4 separate trades with an average cost per share now at $25.42. I bought 9 (8 trades)shares in a Vanguard taxable account with an average cost per share of $29.68 with the lowest cost 1 share lot bought at $19.66 on 3/18.
I will probably keep those shares and look for an exit point on the Schwab position north of $60 when and if that ever occurs. The average cost in that account is $50.22 (39+ shares)
Royal Dutch Shell PLC ADR B
$37.69 +$4.57 +13.80%
Last Updated: Apr 2, 2020 at 11:02 a.m. EDT
https://www.marketwatch.com/investing/stock/rds.b
I've been wanting to buy into my energy stocks at lower prices.
DeleteI've been waiting. I look. I consider. I decide there isn't any indication of a bottom on the drop on demand. I ponder some more.
It was interesting today. Trump announced what turns out to be a non-event. Today's rally on a miss on unemployment went away, over an oil deal. His jawboning is frustrating.
Once again it's a one day rally. At 6:50pm Reuter's had an article on Finviz that oil opened 2% down on Friday. I guess they mean Friday GMT, cause otherwise someone turned in his homework hours early.
I sold my 10 remaining IWM that I'd bought at 106.40, at 106.98 early this morning. I missed the late morning rally to 108.85. If only unemployment ruled, not a non-existent oil deal, it'd have been an excellent move. I earned $12.15 on that total of 35 shares. Free trades is a very big deal!
I completely missed that VYM was that low on 3/23 (I was on a call all afternoon.) I bought my original shares years ago at around $62. If I'd paid attention, i would have bought more at those prices. My recent buys are at 69-77.
DeleteMaybe I would have gotten them to make a program buy.
"GAAP and Non-GAPP index P/Es"
DeleteThanks! No wonder small caps is falling more. It was more overpriced.
Land: The Russell 2000 has a large number of companies that lose money. The sponsor of IWM does not include those companies when calculating the P/E of that ETF.
DeleteIShares claims that the P/E ratio for IWM is 12.95.
https://www.ishares.com/us/products/239710/
Sounds good. Click on the the "i" letter and a pop up appears: "Negative P/E ratios are excluded from this calculation."
That is just completely misleading.
The Stock Jocks frequently view company's without earnings to be growth companies or maybe at some future time will actually earn a profit. During bad market conditions, that view changes and those money eatings firms are deemed to be trash.
"rebirth of hope; a recognition that long term entry points have become better; a follow the herd instinct; a hope that losses may be recouped; and fear of missing out on a money making opportunity. ""
DeleteThe current rallies have triggers even though not very good reasons to trigger.
Sounds like prior ones didn't have triggers. Just started up.
It's a good list to keep in mind when the rallies start. I've logged into.
Chang or some name like that (Chong?) today on MSNBC pointed out that in weakness, slimy stuff under the hoods starts being visible and surfacing. I didn't really understand his thing about restaurant franchises have leverage on their real estate; he got to 3 levels or types of leverage. Then he talked about other types of shoddy arrangements in other sectors. That's the first I've heard of shoddy stuff being uncovered. I'm guessing this will become a topic in a few weeks, as though it's "natural as can be and we all have been talking about it from the beginning."
It was all debt and leveraging related.
That's ridiculous.
DeleteThat link to WSJ has the PE at 32.45 as of 3/27.
I see no mention of what they do with negative earnings companies. Apparently something more sensible than what Ishares does.
It add to reasons to stock pick at this time.
DeleteI can swap out my indices as I find good options.
I'm so slow at going through the sectors because I haven't looked at nearly any stock before... that I may not get a chance to. So meanwhile, indices will do.
My investment grade corporate bond for today was a purchase of 2 Dupont 3.766% SU bonds maturing on 11/15/20. I bought at a total cost of 99.6 which gives my a 4.434% yield-to-maturity.
ReplyDeletehttp://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C792931&symbol=DWDP4768514
I was responsible for both of the two bond trades in that one today. The other 2 bonds were purchased in a family member's account.
I had 7 treasury bills mature today in that account. I had about 8 unfilled bond orders (all 2 bond lots).
Regional bank and BDC stocks are continuing to telegraph a debt default disaster similar to what happened in 2008. This is just an observation based on their price levels rather than my own prediction. Both sectors are roughly back to 2009 stock price levels.
The premier externally managed BDC Ares Capital (ARCC) closed today at $9.65:
https://www.marketwatch.com/investing/stock/arcc
At that price the yield is about 16.58% according to Marketwatch. The Stock Jocks are saying in effect that the dividend is going to be slashed relatively soon by around 50%.
Ares last reported a net asset value per share of $17.32, as of 12/31/19:
Page 1
https://www.sec.gov/Archives/edgar/data/1287750/000128775020000006/arccq4-2019exhibit991.htm
Last February the stock was selling at a premium to net asset value per share. The stock closed at $19 on Friday 2/21/20.
The highest intraday price in February was $19.33. The stock has declined by 50% to today's close from that recent $19.33 price.
For the current price to make sense, there would need to be a dividend slash of around 50% due to net assets being destroyed on a non-temporary basis by about 50%. If that turns out to be case, and who really knows for sure one way or the other, then the Stock Jocks made one hell of a future prediction in today's closing price. If that turns out to be wildly pessimistic based on what actually happens, say a 10% decline in net asset value per share and no dividend cut or a minor one, then buyers at today's close will be rewarded down the road. Place your bets and take your chances. The fact that the future prediction embedded in a stock price is being made by a herd of investors does not make it a good prediction or even a rational one. It is worth noting however since it may turn out to be in the ball park.
Would you extrapolate that worries about regional banks and BDCs, imply a serious amount of concern on the economy and rest of the market?
Delete(Whether or not the worry is accurately placed.)
Jim Cramer said the market overlooked "that 6.6 million Americans filed for unemployment insurance last week, a mind-blowingly horrible, record-breaking number.”
Deletehttps://www.cnbc.com/2020/04/02/jim-cramer-on-thursdays-rally-investors-may-be-grasping-at-straws.html
Not really. The Stock Jocks know that really bad economic numbers are coming which explains why SPX is almost 1000 points lower now than its recent all time high last February. The Stock Jocks were ignoring the pandemic then, but not now.
There are entire sectors that are being priced as if a disaster will happen with no meaningful prospects for recovery. We may see more dividend cuts and eliminations in the coming months than during the Near Depression. The company's will use the word "suspension" to describe a dividend elimination.
There is real danger now since depressionary economic conditions are about to come face to face with a world awash in debt. Worldwide debt is currently around $260 trillion, up over $80 trillion since 2007.
If depressionary conditions continue through the next two quarters, with a weak 4th quarter, and only a modest rebound next year until a vaccine goes nationwide, then the odds of a financial meltdown caused by widespread debt defaults go way up, which could lead to a far worse economic result than the last one in 2008.
So a lot depends IMO on whether the economy can in fact be jump started to 10% or so real GNP growth in the 3rd quarter following by a strong 4th quarter.
Otherwise, there could be a financial crisis that throws gasoline on a fire that is already raging. That is my main concern covering the next 12 months.
I still view cash as king, followed by high quality bonds.
I am nibbling on stocks (and stock funds) in case the V shape recovery is the one that happens.
The most dire scenario would be a deflationary repeat of the Great Depression.
Then there are in between scenarios that would probably lead to chaotic stock market conditions going nowhere until the economy finds firm footing again and starts a longer term growth cycle.
So there will be a tremendous snowball effect that will reverberate through the entire economy, not just the most impacted sectors at the moment.
No one knows how that will play out, with a reasonable set of scenarios being various gradations of bad; and like the recent Near Depression, even the most informed will be trying to understand what actually happened for years and decades after the event plays out.
Does that cheer you up?
"Does that cheer you up? "
DeleteI prefer ice cream. Definitely, I prefer ice cream.
I'm so glad my parents took their money completely out of the market mid-last year. They do not have a long time horizon.
What I've been concluding is that even if there is a v-shaped recovery...and I miss it... there will be other opportunities connected to this whole mess.
If the investing public remains so enthusiastic that PEs are not down to truly good valuations yet... there will be a reckoning to take off their enthusiasm down the road, not too far.
That was a helpful explanation of the in's and out's of possibilities.
The VIX model may come in handy as a guide during rallies on whether to end up buying the momentum, or positioning more cautiously, if the VIX and environment isn't pointing to calmer waters.
Prior to the outbreak of the pandemic, I referred to Georgia's republican governor Brian Kemp as an ignorant idiot. But he knew how to use both qualities to win an election against Stacy Abrams, a competent, knowledgeable and intelligent person.
ReplyDeleteThis is a link to one of Kemp's campaign commercials.
https://www.youtube.com/watch?v=5Q1cfjh6VfE
Like Trump, he has a feel for what works with about 1/2 of the electorate, more in southern states.
Today, Governor Kemp said he just learned that people infected with COVID-19 could transmit the disease even with they have no symptoms. That is why he refused to issue a shelter in place order until today.
https://www.nbcnews.com/politics/politics-news/georgia-gov-brian-kemp-admits-he-just-learned-asymptomatic-people-n1174976
Anderson Cooper was shocked. He should not have been, since Kemp is an ignorant idiot. He is not the only republican governor who is not listening to the medical experts.
VYMI
ReplyDeleteI'd done a comparison chart, but it shows in %s and I didn't look closely enough. That's a good point that international growth has been poor by comparison to USA. So even with 2% more divs, that's a drop in the bucket.
VYMI is selling at a lower cost than VYM (it didn't rise as much.) So I supposed if I decide I want international exposure I'll go for it.
After all, there's not enough uncertainly in the USA market to keep me busy.
If overseas gets into what looks like a much better recovery point (ALL of it) then it might be a nice trade.
Ok! I found an article with another 1/2 dozen high yield ETFs. I haven't gone through they yet.
FDVV has a nice yield (2% more) and still reasonable fee .29 vs .06. So I may give it a try!
Kemp's comments were surprising. How is someone so out of it, that they don't think to NOT say this in a public press conference? He doesn't even know how dumb he looked.
ReplyDeleteStacey Abrams will be back in the thick. She has so much ability.
I'm not disagreeing that they were unsurprising all things considered about him... but I still thought he'd be savvy enough not to admit it right out loud.
DeleteI am going grocery shopping tomorrow. I will wear a mask and scarf. Hopefully it will not be too hot for a scarf. Also hopefully I will find chicken, and frozen veggies. I will be taking another $500 in cash out, for a total of $2000 at home. Call me 9/2k over-nervous. I believe I can find room in my mattress.
ReplyDeleteI went for a walk tonight, in windy weather. It's now nerve wracking wondering if the wind is blowing things my way. I did a lot of walking up onto the hilly grass to let others by.
The lake's geese seemed unworried.
It is important to keep in mind that humans, other than Donald of course, are not omnipotent beings.
ReplyDeleteThere are many possible paths for the U.S. economy and stock markets going forward.
Morgan Stanley revised its forecast for 2nd quarter GDP to -37.9% but then forecasts a robust +20.7% in the third quarter and +15.9% in the 4th. The MS forecast for 2021 has the positive growth numbers in every quarter ranging from 4% to 5.7%.
https://www.marketwatch.com/story/morgan-stanley-releases-new-forecast-showing-us-economy-may-drop-as-much-as-38-2020-04-03?mod=home-page
In short, the forecast is for a 2nd quarter disaster unmatched in U.S. history followed quickly by a V shaped robust recovery that continues through 2021.
If that scenario plays out, and that is one big "if", then stocks will soon bottom, if they have not already done so, and start to move back up.
The problem is the MS is guessing as are other Wall Street firms who are predicting disaster in the second quarter followed by a robust recovery starting in the third quarter.
There are many alternate scenarios that are less benign and one that is gut wrenching and terrifying which I outlined in a prior comment.
When faced with this uncertainty, I will at least play the possible V shape recovery, though I will not be sticking my neck out very far.
I realize that most of those purchases will work, given enough time, under most alternate future scenarios but will be smashed in the more dire ones.
For the past 2 weeks, I have been mostly content in redirecting proceeds from maturing bonds, treasury bills and CDs into short term investment corporate bonds, but that option is drying up. I am only able to pick up a stray or two now like the Dupont bond purchased yesterday.
Hum... it is have to know.
DeleteI'm noticing that this - whatever this state is - is being normalized for investors. Like usual after a couple weeks, investors get used to anything & panic less on repeats of the same bad news. (Slightly different bad news can trigger again.)
I've been expecting this middle ground trading range to continue a little longer.
If there is a real market recovery, then investing is back on into the new stability.
If there isn't, then investing is on sale, and back on.
I haven't found buying here to be appealing. Maybe if I find an individual company. But I'm waiting to see what happens to see whether to chase, or buy lower.
The market is still pretty enthused. We're in the last stage of a bull market parabolia, with a black swan present. All with lots of immediate gov't support.
I don't think that's happened before.
Energy companies are higher today. Trump's lie broken the downtrend without offering anything.
The service sector news caused the market to turn down. The jobs lost earlier in the morning, didn't.
DeleteI can't imagine why that is.
Land: The ISM services index number showed expansion continued in March which is an immediately suspect number. Even if it is accurate, it is a rear view mirror number.
DeleteThe BLS estimated a 701K job loss in March. That comes from the survey of employers. The household survey showed the loss at 2,987,000 workers. Whatever the number may actually be, it would be reasonable to assume that job losses were horrific and will get worse in April.
S & P 500
2,502.79 -24.11 -0.95%
Last Updated: Apr 3, 2020 at 10:54 a.m. EDT
https://www.marketwatch.com/investing/index/spx?mod=home-page
After piercing the 12/24/18 low, the rallies last week took the S & P 500 back above that low of 2,351 which gives the number more significance than it had previously IMO.
The recent intraday low was hit on 3/23/20 at
2,191.86. The recent closing low was also hit that day at
2,237.40.
++
European insurance companies were asked to halt dividend payments by the EU's insurance regulator, which would include dividends that have been declared but not yet paid.
https://www.marketwatch.com/story/european-insurers-asked-to-halt-dividends-2020-04-03?mod=mw_latestnews
This article has one interesting point. That insiders have been buying into their companies, which is optimistic.
ReplyDeletehttps://seekingalpha.com/article/4335543-market-recovery-sooner-expect?li_source=LI&li_medium=liftigniter-widget
(The rest of the article and comments meander around repeating the well known facts.)
A counter comment on the article:
ReplyDelete"Stop with the insider purchases being a guide in this environment. 1/2 of them are obligated to do it because their employment contracts require it when the stock drops by x% and stays down. The other 1/2 do it to send exactly the signal you read into it. This is pedestrian analysis."
If these requirements & patterns are true, then I need to know that when looking at insider trades.
If ISM's slowdown wasn't why... I haven't spotted why at around 10:15 the market took a sudden downturn. CNBC didn't mention it in the time I listened.
ReplyDeleteNow articles are blaming the jobs report even though it didn't cause a downturn when it came out.
Those 2351 / 2191 / 2237 lows are going to be set in the computers.
Media talks about big and individual investors selling.
ReplyDeleteNo mention yet of people out of work selling as a buffer for their own future, even it's down already.
Land: Individuals are probably selling to raise funds. Some of that may be linked to the recently passed CARES Act.
Deletehttps://fortune.com/2020/04/01/what-to-do-with-401k-withdrawal-no-penalty-distribution-cares-act-should-i-keep-contributing-limits-match-stimulus-faq/
https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/how-the-cares-act-changes-health-retirement-and-student-loan-benefits.aspx
I only have Roth IRA accounts.
Many of the sectors used by individual investors to generate income have been hit the hardest including BDCs, equity REITs and MREITs. It is hard to remain calm when an investment goes down over 50% in 30 days and harder still if you have just been laid off or fear that you soon will be.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2020/04/arcc-bif-cio-dirunca-brgpra-fnb-gnl.html