Economy:
Latest Atlanta FED 1st Quarter real GDP Growth Estimate: 2.3% as of 3/1/23
GDPNow - Federal Reserve Bank of Atlanta
ISM February Services Index: 55.1% with new orders at 62.6%
ISM February Manufacturing Index: 47.7% (below 50 indicates an ongoing contraction)
Mortgage demand falls as interest rates rise Based on the interest rate declines in January, I was hoping that new home construction would rebound in 2023, but growth will be restrained or non-existent at current rate levels or higher.
 |
| Blue Line: 30 year; Green: 15 year |
Sourced from Mortgage Rates - Freddie Mac
+++
Allocation Shifts Discussed in this Post:
Treasury Bills: +$5,000 in principal amount
Corporate Bonds: +$8,000 in principal amount
Canadian Reset Equity Preferred Stocks: +C$886.5
Common Stocks: -$1,796.64
(consisting of $2,211.48 in proceeds minus $414.84 in purchases)
Weighted Average Yield Common Stock Purchases: 8.02%
Realized Gains Common Stocks: +$624.18
2023 Net Outflow Common Stocks/Funds: -$29,160.21
++++
Putin and His Servile Orcs:
Human Rights Council: Russia responsible for ‘widespread death and destruction’ in Ukraine | UN News
How one Ukrainian girl vanished without a trace at the start of the war | CNN Russian troops took the girl after killing her parents who were simply driving in their car that the Orcs sprayed with bullets.
Ukraine War: 'They're just advancing over their dead brothers' in Vuhledar - YouTube
What the Russians left behind when they fled Kherson - YouTube
Belarusian Foreign Minister Vladimir Makei Expressed Russia Fears Before Death Makei died unexpectedly from an "unknown cause" after expressing a fear that Russia would annex Belarus.
Ales Bialiatski, Belarus Nobel Prize winner sentenced to 10 years in prison : NPR
Liberated Ukrainian Villages In Kharkiv Region Face Ongoing Russian Shelling - YouTube Russians target civilians and civilian structures daily.
When the Russians "liberate" a Ukrainian town or village, there is nothing left but rubble and a few old people who managed to survive the Orcs effort to "free" them.
Bakhmut burning: fires everywhere as Russians close in on city’s capture-The Guardian; Bakhmut: As Russian fighters are edging into the city, here's what you need to know | CNN
65-Year-Old Volunteer Fighting In Ukraine Says This Is No Time For Rest - YouTube
Russia Has to Deploy Older Soviet-era Tanks Amid Losses in Ukraine
Crowd Laughs at Lavrov's Claim Ukraine War 'Was Launched Against Us' (1) “This war which was launched against us…” Lavrov’s statement has crowd burst into laughter - YouTube What a ridiculous person.
Ukrainian combat medic’s GoPro captures grim front-line reality - YouTube
Russia will never change. Civilized countries need to recognize that fact.
++++
Trump and His Party:
Fact check: Donald Trump delivers wildly dishonest speech at CPAC | CNN Politics He was cheered by the attendees.
Trump threatens 'retribution' against DeSantis backers in late-night Truth Social rampage-Raw Story
DeSantis signs bill officially stripping Disney of self-governing status - YouTube Basically, DeSantis is punishing the exercise of free speech here.
Rupert Murdoch admitted some Fox commentators ‘endorsed’ election lies - The Washington Post
Donald Trump Claims Ron DeSantis Gets Off on Killing Old People in Wheelchairs | Vanity Fair: As correctly pointed out in the Vanity Fair article, there is some truth to Trump's comments in the following "Truth Social" tweet which is rare for him.
+++
1. Small Ball Sells:
I am in an ongoing house cleaning operation where I am cutting back on my duplicate stock positions and eliminating small ball common stock positions that have low or no dividend yields.
I am placing even more emphasis on increasing MM balances in my Vanguard account, short term investment grade bond and Treasury bill purchases.
A. Eliminated ORCC in Schwab Account- Sold 26+ at $13.6:
Proceeds: $358.22
Quote: Owl Rock Capital Corp. - Externally Managed BDC
I will be keeping only the 40 shares owned in my Fidelity account.
 |
| Price as of 3/3/23 Close/AC at $12.11 |
Item # 3.F. Added to ORCC in Fidelity Taxable Account - Bought 5 at $11.14 (10/4/22 Post); Item # 3. Added to ORCC in Fidelity Taxable Account - Bought 5 at $11.4 (10/4/22 Post); Item L.-Bought 5 ORCC at $12.2 in Fidelity Taxable Account (6/22/22 Post); Item # 2.F. Added to ORCC-Bought 5 at $11.65 (11/13/20 Post); Item # 1.J. Added 4 ORCC at $12.02 (9/12/20 Post); Item # 4.E. Started ORCC-Bought 10 at $12.67; 1 at $12.59; 5 at $12.27 and 5 at $11.95 (6/27/2020 Post) I turned off dividend reinvestment after selling all shares bought with dividends. Item # 2.K. Sold 1.658 ORCC at $14.17-Fidelity Taxable (5/28/2021 Post)
I will eliminate a 30 share ORCC position held in my Vanguard taxable account with a $12.04 AC later this year:
2022 Annual Report (risk factor summary starts at page 33 and ends at page 71)
Owl Rock Capital Corporation - Investor Relations
Profit Snapshot: +$40.68
Last Discussed: Item # 6.F. Added 5 ORCC at $10.94 - Vanguard Taxable Account (10/18/22 Post) I will be eliminating my position in this account later this year.
Regular Dividend: Quarterly at $.33 per share, last raised from $.31 effective for the 2023 first quarter payment
Dividends-Owl Rock Capital Corporation (ORCC)
Shows several special dividends paid in the past.
Last Ex Dividend: 12/29/22 (owned as of)
Next Ex Dividends: Special and Regular
Net Asset Value per share history:
12/31/22: $14.99
3/31/22: $14.88
12/31/21: $15.08
12/31/20: $14.74
12/31/19: $15.24
IPO was in July 2019, priced to the public at $15.5 per share. Prospectus
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
Net Investment Income per share: $.41
Investments in 184 companies
3 portfolio companies with an aggregate fair market value of $153.6M were on non-accrual representing 1.3% of total portfolio "fair value" Note that percentage is not based on original cost. I had to look at the 10-K to find the original cost number which was $225.967M:
2022 Annual Report at page 93
Based on fair value, portfolio consisted of 71.4% first lien, 14.3% second lien, 1.9% unsecured debt, 7.5% equity investments, 2.7% in preferred equity, and 2.2% in "investment funds and vehicles".
Company Assessment of Credit Quality: P. 93 Annual Report
Goal: Any total return before any ROC adjustments in excess of the dividends.
B. Eliminated RTX in Schwab Taxable Account - Sold 3 at $99.02:
Quote: Raytheon Technologies Corp. (RTX)
RTX Analyst Estimates | MarketWatch
Proceeds: $297.06
Profit Snapshot: +$35.32
I am reducing my allocation to common stocks with low dividend yields.
Last Discussed: Item # 4.D. Added to RTX - Bought 1 at $83.5 (9/20/22 Post); Item # 3.J. Bought 1 RTX at $87.66 (9/13/22 Post); Item # 2.B. Bought 1 RTX at $90.59 (8/2/22 Post)
Dividend: Quarterly at $.55 per share, last raised from $.51 effective for the 2022 second quarter payment.
Last Ex Dividend: 2/23/23 (owned as of)
Yield at 99.02 = 2.22%
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
GAAP E.P.S. = $.96
Non-GAAP E.P.S. = $1.27
Revenues: $18.1B
Free Cash Flow: $3.8B
Repurchased $408M RTX shares.
2022 Non-GAAP E.P.S. = $4.78
2023 Guidance Non-GAAP E.P.S. = $4.9-$5.05
GAAP to Non-GAAP Reconciliation:
C. Eliminated GIS in Vanguard Taxable Account - Sold 2+ at $80.41:
Proceeds: $171.19
Quote: General Mills Inc. (GIS)
GIS Analyst Estimates | MarketWatch
General Mills: Brands overview
Profit Snapshot: +$66.83
Last Buy Discussions: Item 3.L. Added to GIS in Fidelity Account-Bought 1 at 58; 1 at $57.67 (8/20/21 Post); Item # 1.G. Added to GIS in Fidelity Taxable Account-Bought 5 at $55.9; 5 GIS at $55.5; 5 at $55.2; 5 at $54.9; 5 at $54.5; 5 at $54 (2/6/21 Post); Item # 1.A. and 1.B. Started GIS in Schwab Taxable account and Added to GIS in Fidelity Taxable Account (1/9/21 Post)
The lowest price paid over the past 5 years was $36.75. 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)
Dividend: Quarterly at $.54 per share, last raised from $.51 effective for the 2022 third quarter payment.
General Mills, Inc. (GIS) Dividend History | Seeking Alpha
Last Ex Dividend: 1/9/23
Next Ex Dividend: 4/6/23
Remaining Taxable Account Position: 45 Shares ($55.56 AC per share)
 |
| Price as of 3/3/23 Close |
Yield at $55.56 AC per share = 3.89%
Last Earnings Report (F/Q 11/27/22): SEC Filed Earnings Press Release
GAAP E.P.S. = $1.01
Non-GAAP E.P.S. = $1.10
Consensus at $1.06 non-GAAP
Net sales increased 4% to $5.2B.
Prices increases are resulting in lower volumes:
GAAP to Non-GAAP Reconciliation:
Other Sell Discussions: Item # 3.C. Pared GIS in Fidelity Taxable Account - Sold 5 at $86.64 (12/13/22 Post)(profit snapshot = $145.71); Item # 6.A. Pared GIS - Sold 5 at $81.64 (11/8/22 Post)(profit snapshot = $118.72); Item # 4.B. Pared GIS in Fidelity Taxable Account - Sold 5 at $80.65 (9/27/22 Post)(profit snapshot = $112.89); Item # 2.B. Sold 2+ GIS at $67.1 and 3 at $69.22 (1/7/22 Post)(profit snapshots = $46.67); Item # 3.B. Sold 1.582 GIS at $64.42 - Eliminated Shares Bought with Dividends (6/4/21 Post)(profit snapshot = $8.09); Item # 1.A. Pared GIS in Fidelity Taxable-Sold 4 at $61.37 (4/17/21 Post)(profit snapshot = $9.95); Item # 1.A. Eliminated GIS-Sold 27+ at $54.86 (3/21/20 Post)(profit snapshot = $426.37); Item # 1.A. Sold 13 GIS at $55.02-Used Commission Free Trade (8/17/19 Post)(profit = $134.13); Item 1.B. Sold Highest Cost GIS lots at $51.69 (4/7/2019 Post); Item #2.A. Sold 10 GIS at $56.18-Used Commission Free Trade (12/21/17 Post) Snapshots of 2007 through 2017 round-trip trades can be found in Item 1.B (+$1,809.99). The largest single gain was $1,285.51 realized on a 52 share lot in 2016. There have not yet been any realized losses.
When the common stock price is above $65, I am more inclined to buy GIS short term SU bonds.
Last SU Bond Purchase: Item # 1.H. Bought 2 General Mills 4% SU Maturing on 4/17/25 at a Total Cost of 97.35 (10/25/22 Post); Finra Page
Analyst Reports (available to Schwab customers):
Morningstar (2/21/23): 3 stars with a fair value estimate of $75
Argus (1/11/23): Hold
S&P (2/22/23): 2 stars with a 12 month PT at $75, notes that GIS raised its fiscal 2023 guidance on 2/21/23, new non-GAAP E.P.S. growth 7-8% up from prior 4-6%)
The Morningstar analyst believe the bump in fiscal 2023 guidance "appears" to a "jolt" in the pet division which the analyst believes is temporary.
D. Eliminated PRU in 2 Taxable Accounts - Sold 2 at $98.92 and 2 at $98.95:
Quote: Prudential Financial Inc.
Proceeds: $395.73
Prudential Financial, Inc. - Credit Ratings
Prudential Financial Investor Relations
Profit Snapshots: +$146.38
Last Discussed: Item # 2.B. Pared PRU in Vanguard Taxable Account - Sold 2 at $108.34 (6/25/21 Post)(profit snapshot = $89.04)
Remaining Position: 5 shares Vanguard Taxable with an AC at $63.19:
Dividend: $1.25 per share, last raised from $1.2 per share effective for the 2023 first quarter payment.
Prudential Financial, Inc. - Stock Information - Dividends
Last Ex Dividend: 2/17/23 (owned as of)
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
Proceeds: $286.86
Quote: MetLife Inc.
Profit Snapshots = +$142.42
Last Buy Discussions: Item # 1.N. Bought 1 MET at $35.52 (10/24/20 Post); Item # 1.F. Restarted MET-Bought 5 at $37.3 (8/29/20 Post)(contains links to prior discussions and snapshots of realized gains)
Last Sell Discussion: Item # 1.C. Pared MET in Vanguard Taxable Account - Sold 1 at $59.61 (3/20/21 Post)(profit snapshot = $22.31)
Remaining Position-Vanguard Taxable: 5 shares at a $36.94 AC.
Yield at $36.94 AC = 5.41% (another 2 cent bump in the 2023 quarter would increase that yield to 5.63%)
Dividend: Quarterly at $.50 per share, last raised from $.48 effective for the 2022 second quarter payment.
MetLife, Inc. - Stock - Common Dividend History
MET is on a pace to almost double the dividend every ten years. The quarterly dividend was at $.275 in the 2013 second quarter. MET went from paying an annual to a quarterly dividend in 2013.
Last Ex Dividend: 2/6/23 (owned all as of)
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
GAAP E.P.S. = $1.66, up from $1.39 in the 2021 4th Q.
Non-GAAP E.P.S. = $1.55, down from $2.17 in the 2021 4th Q.
Non-GAAP Consensus:
GAAP to Non-GAAP reconciliation:
As previously noted, life insurance company accounting is beyond my comprehension and would require far too much time to acquire minimal understanding. Then after spending the time to acquire that knowledge, it would gradually seep out of my aged brain memory bank. I am content to own just 5 shares at a $36.94 AC per share.
MET Realized Gains to Date: $872.4
More than 1/2 of that gain was realized with this trade. Item #5.A. Sold 106+ MET at $55.13-Eliminated Position (7/19/17 Post)(profit snapshot = $502.7)
F. Eliminated PFE in 2 Taxable Accounts - Sold 7 at $41.26 and 3+ at $41.29:
Proceeds: $421.03
Quote: Pfizer Inc. (PFE)
PFE | Pfizer Inc. Analyst Estimates | MarketWatch
Profit Snapshots: +$48.92
Remaining Shares: 10 with a $ AC per share.
Last Substantive Buy Discussion: Item # 1.B. Restarted PFE- Bought 1 at $31.08, 1 at $30.22; 1 at $29.45; 2 at $28.4 (4/25/20 Post)
Growth by Acquisition Strategy: I decided to reduce my small ball PFE position after reading a news story that PFE was in negotiations to buy Seagen Inc. (SGEN) for more than $30B. Pfizer In Early Talks To Buy Cancer-Focused Seagen: WSJ - Seagen - - Benzinga
I started to turn negative on Pfizer over a decade ago based on its growth by acquisition strategy. The bottom line is that total acquisition costs starting in 1999 far exceeds the current market value, a result that has been in effect whenever I made the calculation over the past decade.
Current PFE Market Capitalization: $231.225B as of 3/3/23
Some Acquisitions Starting in 2000: $284.26B
Warner Lambert: $90.2B
Wyeth: $68B
Pharmacia: $60B
Hospira: $17B
Medivation: $14.3B
Biohaven: 11.6B
Array: $11.4B
Arena: $6.7B
Global Blood Therapeutics: 5.4B
Anacor: $5.2B
King Pharmaceuticals: 3.6B
Trillium: $2.26B
My conclusion is that acquiring drugs primarily through expensive acquisitions, compared to internal drug discovery, does not work for long term shareholders.
Pfizer nonetheless continues along that path since it will not align its internal costs, including the size of its salesforce, with the revenues generated by internal drug discoveries.
Pfizer's stock price went over $47 on 4/13/1999.
Starting on 4/13/1999 through 3/2/23, the annual average total return (dividends reinvested) was 2.75%.
Dividend: Quarterly at $.41, last raised from $.40 effective for the 2023 first quarter payment.
Pfizer Inc. (PFE) Dividend History | Seeking Alpha
The quarterly rate was slashed from $.32 to $.16 per share in 2009.
I would rate the dividend history as poor starting with that cut. The increase from $.32 to $.41 is only 28.13% over a 14 year period.
Last Ex Dividend: 1/26/23 (owned all as of)
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
GAAP E.P.S. = $.87
Non-GAAP E.P.S. = $1.14, which includes a $.32 benefit "from Lower Acquired IPR&D Expenses Compared to Fourth-Quarter 2021"
Revenues: 24.3%, up 13% operationally and up 5% excluding Paxlovid and Comirnaty revenues.
2022 Adjusted E.P.S. = $6.58
2023 Guidance: Adjusted E.P.S. range $3.25-$3.45
My gut has informed me that the 2023 projected revenues from the Covid vaccine Comirnaty and Paxlovid included in the 2023 guidance are more than just a little bit optimistic.
4th Quarter Product Revenues:
Realized Gains 2006 to Date: $1,298.4
I do not have snapshots prior to 2006.
Realized Gain Snapshots over $100 Starting in 2006:
Sell Discussions: Item # 3.J. Sold PFE Shares Bought with Dividends at $51.714 and at $60.93(12/16/21 Post); Item # 2.M. Sold 6 at $36.69 (11/28/20 Post)(profit snapshot = $43.6); Item # 4.A. Sold Remaining 33 PFE shares at $33.44 (8/13/2017 Post)(profit snapshot = $90.67); Item # 3.A. Sold 100 PFE at $34.03 (7/13/17 Post)(profit snapshot = $143.42); Item # 3.A. Sold 100 PFE at $34.65 (3/13/17 Post)(profit snapshot = $235.86); Item # 1 Sold: 100 PFE at $31.68 (5/17/14 Post)(profit snapshot = $282.12) Buy discussions are linked in those posts.
G. Eliminated MFC in Fidelity Taxable Account - Sold 14 at $20.10:
Proceeds: $281.39
Quotes:
USDs: Manulife Financial Corp. (MFC)
CADs: Manulife Financial Corp (Canada: Toronto)
Canadian Dollar to US Dollar Exchange Rate Chart | Xe
MFC - Manulife Financial Corporation (USA) Profile | Reuters
Profit Snapshot: $143.61
Item # 2.C. Bought in Fidelity Account 10 MFC at $10.15; 2 at $9.3; 2 at $8.9 (5/9/20 Post)
Current MFC Taxable Account Position: 100 shares.
I am keeping the 100 shares held in my Schwab account that were purchased at $11.41. Item # 2.D. Bought 100 MFC at $11.41 (5/9/2020 Post)
 |
| Price as of 3/3/23 Close/Unrealized Gain at $876.3 |
The before tax yield on that 100 share will depend on the CAD/USD exchange rate. Assuming a constant .75 CAD/USD conversion, the yield is 9.6%, using my US$11.41 per share constant cost basis and C$1.46 annual rate. At .9 CAD/USD, the yield rises to 11.52% and to 12.74% at 1 to 1.
Dividend: Quarterly at C$.365 per share (C$1.46 annually)
Manulife increases common shareholders’ dividend by 11%
When the dividend is paid into a U.S. citizens non-retirement account, Canada will withhold a 15% tax.
Last Ex Dividend: 2/27/23 (owned as of)
Historical Dividends in USDs: Manulife Financial Corporation (MFC) Dividend History | Seeking Alpha
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
All amounts are in Canadian dollars.
E.P.S. = $.95, down from $1.03
Core E.P.S. = $.88, up from $.84
Core net income: $1.746B
Core Income Calculation:
Some Sell Discussions: Item # 1.A. Sold 32 MFC at $20.63 (2/2/20 Post)(profit snapshot = $104.79); Item # 2.A. Sold 20 MFC at $18.78 (11/2/19 Post)(profit snapshot = $7.69); South Gent's Comment Blog # 7: Sold 100 MFC at $18.28 (profit = $481.06; IB Account):
 |
| 100 Shares |
A 5 share trade netted a $44.81 profit (Fidelity RI account)
MFC Realized Gains Starting in 2019 = $837.95
Currently Owned MFC Reset Equity Preferred Stock: 100 shares of MFC-PM.TO
Item # 2.A. Bought 100 MFCPRM:CA at C$15.14 (7/25/20 Post) (resets in December 2024 at a 2.36% spread to the 5 year Canadian government bond; Canada 5 Year Government Bond; closed at C$17.75 last Friday; par value C$25; non-cumulative dividends; dividends paid quarterly; last ex dividend on 2/27/23; Credit Ratings | Manulife Financial)
Prior Round-Trip MFC Reset Equity Preferred Stocks:
Item # 4.A. Sold 50 MFCPRM at C$20.51 (1/21/17 Post)(profit snapshot = C$113).
Item # 4.B. Sold 50 MFCPRN at C$20.91 (1/21/17 Post)(profit snapshot = C$108)
2. Corporate Bonds: $8,000 in principal amount
A. Bought 2 Owl Rock 5.5% SU Maturing on 3/21/25 at a Total Cost of 97.248:
%205.5%25%203:21:25%20.png)
Issuer: Owl Rock Core Income -Externally Managed BDC
Direct Lending at Owl Rock Core Income Corp - ORCIC
Finra Page (prospectus not linked)
Credit Ratings: Baa3/BBB-
YTM at Total Cost = 6.952%
Current Yield at TC = 5.6556%
With those yields, the Bond Ghouls are expressing an opinion that this bond is not properly rated and is viewed more as a junk bond.
Some examples of Ba1/BB+ rated bonds that are currently trading with lower YTMs that mature in 2025:
Apache 4.625% Maturing 11/15/25
Meritage Homes 6% Maturing on 6/1/25
Occidental Petroleum 5.875% Maturing on 9/1/25
The main problems with BDC SU bonds IMO is that almost all of the net investment income is paid out to the common share owners, the loans made by them would be rated in junk territory if rated, and the loans, mostly to private companies, are less liquid than a publicly traded bonds issued by seasoned companies that file financial reports with the SEC.
B. Bought 2 Ryder System 3.65% SU Bonds Maturing on 3/18/24 at a Total Cost of 98.1:
%20.png)
Issuer: Ryder System Inc. Stock Quote (R)
Ryder Analyst Estimates | MarketWatch
Ryder SEC Filed Earnings Press Release for the Q/E 12/31/22ument
FINRA Page: Bond Detail (prospectus not linked)
Credit Ratings: Baa2/BBB
YTM at Total Cost: 5.545%
Current Yield at TC = 3.721%
C. Bought 2 Ryder 3.65% SU Maturing on 3/18/24 at a Total Cost of 98.135:
%203.65%25%20IB%20.png)
This is the same bond discussed in Item # 2.B. above.
YTM = 5.505%
I now own 4.
D. Bought 2 CMS Energy 3.875% SU Maturing on 3/1/24 at a Total Cost of 98.474:
%203:1:24%203.875%25.png)
Issuer: CMS Energy Corp. (CMS)
CMS Energy Corp. Analyst Estimates | MarketWatch
CMS SEC Filed Earnings Press Release for the Q/E 12/31/22 (net income of $168M for the quarter and $637M for 2022)
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings: Baa2/BBB
YTM at Total Cost = 5.468%
Current Yield at TC = 3.935%
3. Treasury Auctions: $5,000 in principal amount
A. Bought 2 Treasury Bills at 2/27/23 Auction:
%206:1:23%20.png){kind=small}
91 Day Bill
Matures 6/1/23
Interest = $24.01
Investment Rate: 4.888%
B. Bought 3 Treasury Bills at 3/1/23 Auction:
%207:5:23%20.png){kind=small}
117 Day Bill
Interest: $48.85
Investment Rate: 5.049%
4. Small Ball Buys:
A. Added to HPP - Bought 5 at $9.34; 5 at $9.1; 5 at $8.95:
Quote: Hudson Pacific Properties Inc. (HPP)
Working my way up to 100 shares.
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Website: Hudson Pacific Properties: A West Coast Real Estate Group
Last Discussed: Item # 3.E. Added to HPP - Bought 5 at $9.3 (1/10/23 Post)
Last Substantive Buy Discussion: Item # 3.B. Added to HPP - Bought 5 at $9.7; 5 at $9.48 (12/27/22 Post) I discussed the 2022 third quarter report in that post. SEC Filed Press Release and SEC Filed Supplemental
New Average cost per share: $11.14 (70 shares)
 |
| Snapshot Intraday on 3/2/23 after last add |
Dividend: Quarterly at $.25 per share
Yield at $11.14 = 8.98%
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release and SEC Filed Supplemental (debt listed and discussed starting at page 20 of the Supplemental; significant variable rate debt which is dragging the stock down now IMO)
FFO per share = $.49, down from $.5
AFFO per share: $.435, rounded (equivalent to CAD)
Net income to FFO Calculation:
FFO to AFFO Calculation: Note the substantial maintenance costs that are deducted from FFO
 |
| 4th Q. Maintenance Expense = $24.356M |
Pretend revenues created by the straight line accounting convention are also deducted from FFO to arrive at AFFO. Compare this report with the adequacies in BDN's financial report discussed below.
AFFO Payout Ratio: 58%
The 2022 4th quarter dividend was well covered by cash available for distribution.
Leasing Statistics:
The first publicly traded SU note matures on 11/1/27 and has a 3.95% coupon. Bond Detail That bond closed last Friday at 86.41.
B. Added to D - Bought 1 at $55.58; 2 D at $54.95; 1 at $54.61:
Quote: Dominion Energy Inc
I discussed this stock in my last post and have nothing substantive to add here. Item # 2.B. Added to D - Bought 1 at $57.19; 1 at $56.64 (2/27/23 Post)
Dominion Energy, Inc. (D) Interactive Stock Chart (bear market trend starting near $85 in August 2022)
New AC per share: $57.33 (11 shares)
 |
| Snapshot Intraday on 31/23 after last add |
Dividend: Quarterly at $.6675 per share
Yield at $57.33 AC = 4.66%
Last Ex Dividend: 3/2/23 (owned all as of)
I will continue buying in 1 or 2 share lots provided each subsequent purchase is at the lowest price in the chain.
C. Added 10 BDN at $5.79:
Quote: Brandywine Realty (BDN)
Our Properties | Brandywine Realty Trust
2022 Annual Report (debt obligations are discussed starting at page F-41; mostly fixed coupon obligations)
Last Bond Offering (12/22): Prospectus; 7.55% SU notes maturing in 2028. Proceeds were used to pay off a 3.95% SU note that matured on 2/15/23. Interest refinancing costs have spiked significantly higher. FINRA Bond Detail (rated at Baa3/BBB-)
Management: Internal
5 Year Chart:
BDN is an Office REIT, probably the first or second most currently disfavored REIT sector depending on where one chooses to place Nursing Home REITs.
The Office REIT sector has been hit particularly hard by the pandemic and the work from home trend.
The rapid rise in short term interest rates is a major negative factor for many Office REITs who relied too much on debt financing at spreads to short term rates. VNO is an example.
Concerns about a recession, which would lead to more vacancies, is a factor negatively impacting current prices.
Another concern is that this property sector has historically been negatively impacted by over building, a problem that would be made worse by vacancies created by the work from home trend.
Some of those problems can be mitigated through property sales, with the proceeds used to reduce variable rate debt. Some REITs, including Brandywine, have sold properties to newly created joint ventures, maintaining a significant ownership interest through the JV.
2022 Property Dispositions:
 |
| Page F-31 Annual Report |
 |
| Page F-33 Annual Report |
Last Substantive Buy Discussion: Item # 7.F. Added to BDN - Bought 3 at $6.53 (11/15/22 Post) I discussed the third quarter report in that post. SEC Filing
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
New Average cost per share = $7.75 (140+ shares)
I was going to stop at 100 shares but the price has continued to decline making the stock more appealing IMO.
Dividend: Quarterly at $.19 per share
BDN Dividend History | Seeking Alpha
Yield at $7.75 AC = 9.81%
Next Ex Dividend: 4/4/23
Last Earnings Report (Q/E 12/31/22): SEC Filed Press Release
FFO of $55.7M or $.32 per share.
Core portfolio 91% leased
2023 Guidance: FFO per share range $1.12 to $1.2
Net Income to FFO: Claims FFO payout ratio of 59.4%
I do not regard the FFO payout ratio of 59.4% as the relevant number for an Office REIT's dividend coverage given the usually substantial maintenance costs and non-cash revenues.
Sell Discussions: Item # 2.F. Eliminated BDN - Sold 15+ at $13.51 in Schwab Account and 20 at $13.5 in Schwab Account (1/7/22 Post)(profit snapshots = $156.29); Item # 1.K. Sold 1+ BDN at $13.75-All Shares Bought with Dividends in Fidelity Taxable (5/16/21 Post)($3.3); Item # 1.D. Sold 50 BDN at $12.9 in Schwab Taxable Account (3/27/21 Post)(profit snapshot = $7.72); Item # 2.B. Sold 101+ BDN at $15.33 (11/9/19 Post)(profit snapshot = $100.4); Item # 7 Sold 158+ BDN at $15.28 (5/24/14 Post)(profit snapshot = $72.31); Item # 2 Sold 100 BDN at $12.38-Roth IRA (profit snapshot = $100.5)
BDN Realized Gains to Date: $440.52
Goal: Any realized gain on the shares before ROC adjustments to the tax cost basis + the dividends
SU Bond Ownership: I own 2 Brandywine Operating 4.1% SU bonds that mature on 10/1/24. Bond Detail The notes are guaranteed by BDN. The last trade yield was at 6.661%.
A. Added 50 FTSPRM:CA at C$17.73 (C$1 Commission):
Quote: Fortis Inc. (FTS-PM.TO)
Issuer: Fortis Inc. (FTS); Fortis Inc. (FTS.TO)
Last Common Stock Trade: Item # 5.D. (11/22/22 Post)
Fortis is a utility holding company.
FTS Analyst Estimates | MarketWatch
Last Discussed: Item # 2.B. Bought 50 FTS.PRM at C$12.4 (5/23/20 Post); Item # 3.A. Bought 50 FTS.PRM at C$16.28 (3/14/20 Post); Item # 2.A. Bought 50 FTSPRM:CA at C$17.55 (11/23/2019 Post)
Current Position: 200 shares
Average cost per share = C$15.99
Security: Reset Equity Preferred Stock.
Par Value = C$25
Optional Redemption: Fortis has an option to redeem at par value only on the reset dates.
Dividends: Quarterly and Cumulative
DBRS Morningstar Confirms Fortis Inc. at A (low) and Pfd-2 (low), Stable Trends | DBRS Morningstar (preferred stock rated at Pfd-2 by DBRS is equivalent to BBB- S&P rating DBRS Report May 2021.PDF
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| Above the red line is investment grade |
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 sale 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 my family members.
So services are going strong, manufacturing is contracting. Services are 70% of US economy. Doesn't bode well for inflation under control.
ReplyDeleteUsing the link, estimated GDP is down from 2.8 to 2.3. The chart looks like it's still holding up generally. Plus it's down for only 1 or 2 datapoints. So GDP doesn't look at risk yet.
+++
The bond fund that's 'cash equivalent' in my Fidelity NetBenefits 401k, is yielding 60% of Vanguard's yield. (Using their reported performances.)
Vang around 4.5% YTD APY (fee .11%)
401k around .44-.46% YTD so 2.7% APY (fee .34%)
I'm not willing to fix this by buying the 401k's ETFs since it doesn't seem a particularly good point to jump back into the market (maybe buy a little nearer bottom of the trading range.)
So that leaves funds to move to an IRA.
I'm so resistant to leaving the 401k. I had it drilled into my head that it's better to stay because of their lower institutional fees. But, but...current situation. And are those fees lower anymore?
So whether to open a Vang traditional IRA,
or Fidelity IRA.
I don't have anything at Fidelity. So it'd be adding a whole new platform to learn. Seems like it may be easier to use than Vang, and worth having?
Do you happen to know Fidelity's money market yield to compare to Vang?
Any opinions on Fidelity vs Vang?
And whether worth adding Fidelity to the mix.
Does Fidelity do partial shares that Vang doesn't?
I usually wait until there's a good bonus but Fidelity doesn't seem to offer much variation with that.
I suppose I could add Merrill Lynch or IBS. Neither stands out.
Land: Fidelity has a MM fund similar to the Vanguard Federal MM. The Fidelity Government MM Fund (SPAXX) has a .42% expense ratio which is going to result in a lower yield compared to the comparable Vanguard MM fund. SPAXX has a current 7 day SEC yield of 4.22%.
DeleteInflation in services may prove resistant to FED rate increases short of a FED induced recession. The ISM services index has a price component which is deep in expansion territory.
Another issue is that 70% of consumer debt consists of home mortgages. Only about 10% of that debt is at adjustable rates down from about 40% just prior to 2008 Near Depression. Fixed rate mortgages are at such low rates that a substantial number of households can generate more income from Treasury bills after tax than they pay on the fixed rate mortgages after the tax deduction.
One benefit for Fidelity is that you can buy fractional shares using a dollar amount. I do that frequently. If I wanted to buy $50 of TXN stock, I could do that at Fidelity but not at Vanguard.
The best research reports are available to Schwab customers. I do not bother to even look at what is available to Vanguard and Fidelity customers.
My IB account is almost entirely devoted to purchases on the Toronto exchange, primarily Canadian REITs and Canadian reset equity preferred stocks, and investment grade corporate bonds, though I still have a few U.S. stock positions in that account.
Vanguard, Schwab and Fidelity do not charge a commission for U.S. Treasury auction or Treasury secondary market purchases.
It looks like it is going to take me a year or so to eliminate duplicate stock positions.
Land: Consumer personal consumption expenditures, which includes both goods and services, contributed about 67.9% of U.S. GDP during the 2022 4th quarter.
Deletehttps://fred.stlouisfed.org/series/DPCERE1Q156NBEA
Services would include rent and insurance payments.
PCE for services will be the larger than goods. In January 2023, PCE on services was about 66.5% of total PCE.
https://fred.stlouisfed.org/release/tables?rid=54&eid=3220#snid=3213
So Vanguard it is! I can live without partial shares for now but maybe will open a Fidelity to get used to it.
ReplyDeleteI have the Schwab open for info from before.
That's a lot of duplicate positions :).
____
Market's not doing anything interesting.
Data's mixed so it doesn't know what future to predict.
Land: The stock market is adjusting to Powell's remarks today that confirm that the FED is going to keep raising the FF rate until inflation is brought under control. I doubt that the FED will raise the rate when it is clear that the economy is in a recession. There is no reason for the FED to alter course as long as the economy is holding up okay, as now, and inflation remains problematic.
DeleteThe CME FedWatch tool currently has a .5% hike this month at 66.1%, up from 31.4% yesterday. The next FED meeting is on 3/22.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
The Vanguard MM fund will always have a higher yield since its expense ratio is lower. There is nothing gained by having a different manager buying short duration treasuries or entering into repurchase agreements collateralized by treasuries.
Hopefully Vanguard keeps going strong because their low fees help so much across all their ETFs & funds and pressure the industry as a whole.
DeleteThe 401k fees are lower than Vanguards. It's easy to compare because Vanguard has their industry MFs listed right in with their Admiral ones. The .02 or .03% more will matter more for a longer horizon. But .03% for 300k for 30 years is only at 8% compounded yearly is only 10,000.
Are you aware of any ETFs that benchmark to the Russell Small Cap Completeness Index?
DeleteThere used to be one RSCO a SPDR, that had excellent returns. Better than other small-mid caps. It's defunct. I haven't found another in several searches over the years.
Land: I am not aware of any such ETFs. RSCO was probably liquidated because it was unable to attract assets and trading volume was miniscule. So I doubt that anyone would try another one linked to that index.
DeleteLand: I did not understand your comment about Vanguard fees. Are you saying Vanguard charges a higher expense ratio for the MM funds in a 401(k) plan.
DeleteI have both the Vanguard Federal MM (VMFXX ), which is used as the settlement fund, and the Vanguard Federal Admiral Class MM (VMRXX ). The expense ratio for VMRXX is .1% and VMFXX is at .11%.
If the FED raises the FF rate by .5% later this month, I would expect both of those funds to go over 5% yields in early April.
Sorry to be unclear! Vanguard's admiral is for individual investors. My 401k has a few of Vang's institutional class for the same funds. Those institutionals charge a lower expense ratio by .02-.03%.
DeleteWhat I discovered is their institutional classes are listed on their website right with the admiral, so it's easy to see the fee comparisons (even for funds not in my particular 401k.)
It used to be sizable. Maybe .15% for individuals, and .04% institutional. That was years ago. Now it's only a .02-.03% spread so it makes staying in a 401k less appealing.
____
Something I haven't sorted out inside the 401k... for the Vang funds divs are paid to and passed onto the holder. But for the 401ks own unique funds (they seem to have made up some small-mid and large cap), no divs are paid. So there may be in effect a hidden fee.
(I can't figured out the total return well enough to tell with certainty. There are performance numbers that aren't marked with what they include.)
I hadn't noticed that VMFXX and VMRXX have a .01% different expensive ratio. (How'd I not notice that?) That explains why I'd noticed one appeared to be .01% higher return most of the time.
DeleteYields do seem like they'll go higher for short end at least.
Enbridge Inc. 6.375% Fixed-to-Floating Rate Sub. Notes Series 2018-B due 2078 (ENBA)
ReplyDelete$25.15 -0.03 -0.12%
https://www.marketwatch.com/investing/stock/enba?mod=search_symbol
ENBA is an exchange traded junior bond issued by Enbridge that has a fixed-to-floating rate coupon.
I only own 10 shares that I bought during the March 2020 meltdown at $15.17:
Item # 7.A.
https://tennesseeindependent.blogspot.com/2020/03/bpoprp-cio-ciopra-enba-fdus-gis-hban.html
The fixed coupon is 6.375% and the transition to a floating rate coupon occurs on 4/15/23. The coupon then resets every 3 months at spreads to the 3 month libor rate (or alternate rate if Libor is no longer in existence) until the note matures or the issuer redeems at par. ENB can redeem at par value + accrued and unpaid interest on or after 4/15/23.
I doubt that will occur soon since ENB has recently sold last September fixed to floating rate junior notes that have higher fixed coupons:
https://www.sec.gov/Archives/edgar/data/895728/000110465922101040/tm2225572d3_424b5.htm
The initial reset is at a 3.593% spread until 4/15/28.
While the Libor rate is being phased out, and will no longer be quoted after 6/30/23, I suspect that the first reset will be at a 3.593% spread to the 3 month Libor rather than SOFR. Even if that is the case, the next reset 3 months thereafter will have to be at SOFR.
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20221216a.htm
I am keeping my 10 shares until there is some conviction that the 3 month SOFR rate is about to trend down and then I will sell.
The current 3 month Libor rate is close to 5%.
https://www.wsj.com/market-data/bonds
3 month SOFR may be lower but I am not sure how that will be calculated (e.g. using a 3 month average which is currently around 4.55% or the most recent quote for a newly entered contract) So I will just have to wait and see until that SOFR rate is used.
There are a number of equity preferred floating rate stocks that pay the greater of a fixed rate or a spread to the 3 month Libor. Those securities have recently started to pay the spread (e.g. MSPRA/greater of 4% or a .7% spread to the 3 month Libor) so this issue applies to them as well. I have sold all of mine.
https://www.preferredstockchannel.com/symbol/ms.pra/
I corrected a mistake made in this post when describing a bond issued by Owl Rock. The issuer is not the publicly traded Owl Rock Capital (ORCC) but another Owl Rock BDC that is not publicly traded called Owl Rock Core Income. I also linked the prospectus. The credit ratings for ORCC and Owl Rock Core Income are the same.
ReplyDeleteSEE ORCC 2025 SU Finra Page:
https://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C854997&symbol=OWLO4893137
The 2-10 Year Treasury yield inversion closed yesterday at -1.03% which is the highest level since the recessions in 1980 and 1981-1982.
ReplyDeletehttps://fred.stlouisfed.org/series/T10Y2Y
The current inversion clearly signals an upcoming recession based on historical data.
This time may be different given the circumstances where the Federal Reserve rapidly lifts its FF rate off zero starting in March 2022. Shorter term rates will be more directly impacted by those rapid increases while investors currently anticipate that the FED will be successful in taming inflation, bringing inflation back down close to 2%, thereby making the ten year yield attractive for investors who actually believe that scenario.
While that is plausible, I am naturally cautious when people start saying this time is different which generally boosts my risk mitigation and capital preservation objective, making both even more hyper.
The following linked inversion chart for the 3 month T Bill and the 10 year note, which goes back to January 1982, shows the current inversion at its highest level.
https://fred.stlouisfed.org/series/T10Y3M
The one difference this time is # of people available to work, post covid and reduced immigration during Trump. It's been keeping the economy afloat.
DeleteRates were raised in March 2022.
Inversion started in Oct 2022.
That's quite a distance. It wasn't an immediate response to Fed action. Though I don't know what that implies.
When rates inverted before covid, there wasn't a hint yet of the virus. It looked like a warning, but that it could be a year or so away.
The virus triggered the recession, but it looked incidental and not from the inversion warning. I've wondered if that warning got waylaid by the virus but has relevance as a warning to the post virus recession possibilities.
In the middle was tons of liquidity put into the economy. Tightening of the job pool. Shift in purchase interests to experiences over items. Housing market climb and pulling back. Chip shortage limiting new car production. So any of that might change how the warning plays out. I don't see how it's reduced the chance of recession, except the labor tightening.
Another way to assess it is that it's impossible to tell because it depends on whether the Fed stops tightening at the right moment before a recession. So it's human decision based.
While Powell stated today that no decision has been made on the FF increase later this month, that tells me nothing about what the FED will do and is what I would expect him to say prior to the meeting.
ReplyDeleteThe odds of a 50 basis point increase on 3/22 is currently at 76.4%, up from 9.2% one month ago.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
The odds of at least a .25% increase remain at 100%.
Regional bank stocks are taking a hit today:
ReplyDeleteSPDR S&P Regional Banking ETF
$54.93 -$2.77 -4.80%
Last Updated: Mar 9, 2023 at 10:52 a.m. EST
https://www.marketwatch.com/investing/fund/kre?mod=search_symbol
As far as I can tell, the cause appears to a development impacting SIVB that is having a contagion effect:
SVB Financial Group (SIVB)
$161.32 -$106.50 -39.77%
Last Updated: Mar 9, 2023 at 10:55 a.m. EST
https://www.marketwatch.com/investing/stock/sivb?mod=search_symbol
I have never owned this non-dividend paying bank stock, but I do own 2 SU bonds.
The culprit is this SEC Filing, where announces a major stock offering and discloses that it liquidated its available for sale securities ("ASS") at a $1.8B loss:
https://www.sec.gov/Archives/edgar/data/719739/000119312523064680/d430920dex991.htm
The ASS securities were substantial at $26B carrying value, see page 65 of the Annual Report:
https://www.sec.gov/Archives/edgar/data/719739/000071973923000021/sivb-20221231.htm
Based on what is disclosed there, the problem was not credit quality but the average weighted interest rate.The weighted average yield was just 1.56%.
Unrealized losses on ASS are common due to the rapid increases in interest rates last year and several more FF rate increases expected this year.
The issue for a bank is whether to hold onto the low yielding ASS until they mature or take a major profit hit now and then reinvest the proceeds in higher yielding securities. The liquidation will NIM but will result in a significant loss and depletion of capital. SIVB decided to take the profit hit and raise a lot more capital through common and preferred stock offerings.
SIVB provided an excellent lesson today to other banks. Do not take a massive loss on low yielding securities and then offer to replace the incinerated capital with a massive common stock offering. That made no sense to me when I first read about it early this morning. Better to let most of those securities mature and to lighten up slowly, selling maybe $50M or so per quarter.
DeleteThe problem originates from an extraordinarily long period of very low interest rates engineered by the Fed and then an abrupt change to rapid increases in the FF rate that has caused a mismatch between the yields of owned securities and the yields that have to be offered to depositors. I was surprised regarding the extremely low yield of SIVB's owned securities (just 1.56%). That is very poor interest rate management.
I suspect that part of SIVB's problem was a failure to meaningfully alter course in 2021 when the low yielding securities could have been sold at a profit or small losses. In anticipation of 2022 rate hikes, proceeds from 2021 sales needed to be invested in short term securities in anticipation of the 2022 FED rate increases. The Fed had to do something when inflation was running close to a 9% annual rate but waited until March 2022 before raising the FF off ZIRP.
SIVB has also created by its exceedingly poor judgment a possible run on the bank, a concern that is having a significant impact in the stock trades after hours, as confused depositors see the plunging stock price and become worried about their uninsured deposits.
SVB Financial Group
Close at $106.04 -161.79 -60.41%
After hours:
$79.25 -$26.79 -25.26%
After Hours Volume: 5M
Last Updated: Mar 9, 2023 at 7:48 p.m. EST
https://www.marketwatch.com/investing/stock/sivb?mod=search_symbol
That would have been a fantastic short if somebody had inside information. What a decline.
ReplyDeleteI would hope people's funds are FDIC insured. Back when I checked, they had a reputation of replacing regular sized accounts within days.
1.56% on loans that they're holding, is stunningly low. Even at the bottom of zirp mortgage rates didn't go down that low. Had some car loans a few home equities... It's hard to be a bank that winds up with learns that average that rate.
It's the first sign of something I don't think the markets thought much about. Thanks dealing with the upside down mortgage ti investors rates. That could be a drag on their ability to lend out, and the economy? This is low lying fruit. This is one or I saw an article of that it could be up to 10 banks.
Thanks in general have been fortifying themselves. So I don't know that this can be generalized. But I think it's the first time the markets thought about the possibility.
It's always interesting how technically it's time for a pullback too. So in some ways this is an excuse.
Land: The 1.56% yield is not for loans made by SIVB but income securities owned by the bank. Those are detailed at page 65 of the annual report, which I linked in a prior comment, and those owned securities are mostly U.S. treasuries and MBS securities.
DeleteI previously discussed this issue. For most banks that I follow, the approach has been to hold the lower yielding securities and take a hit on tangible book value caused by their value depreciation.
The annual reports filed by banks contain a section dealing with unrealized losses on available for sale securities.
https://www.stlouisfed.org/on-the-economy/2023/feb/rising-rates-complicate-banks-investment-portfolios
https://www.spglobal.com/marketintelligence/en/news-insights/research/us-banks-likely-to-tap-other-liquidity-sources-before-selling-bonds-at-losses
I view what SIVB did as stupid but is consistent with the stupidity of being caught holding $26B in available for sale securities with an average weighted interest rate of 1.56% in March 2023.
Oh I see - I misread that. Still not very savvy. by not anticipating the obvious rate increases that were coming. I could see me not anticipating, but bankers should be more astute about... bank rates. (Fed bank rates).
DeleteBanks haven't been raising their rates. So they have had time too, to unwind from the lower bond rates they were holding in the way you've described.
How would Vang have gotten out from under it's lower holding in their MM, that they're keeping up with rates now? Because it's short term 1-3 mo type securities in that Fund?
DeleteSo basically by being in Vang's MM, it's like buying into short term treasuries... with more cost (.11 fee) but you don't have to do the work, and Vang can get institutional/negotiated prices where it's an option. Obvious, but I've never thought about it that way.
_____
Price on my 401k bond fund went up the last couple days. Return vs Vang MM is still too low to keep.
But makes me wonder timing of moving to the IRA.
Will bond prices go up some in the short term some more?
Land: MM funds control interest rate risk by keeping their maturities really short.
DeleteAs of 2/28/23, VMFXX had an average maturity of 13 days so the fund's will respond quickly to up and down changes in short term treasury yields. I would emphasize "up" and "down".
Vanguard Statement:
"The fund invests 99.5% of its total assets in cash, U.S. government securities, and/or repurchase agreements that are collateralized solely by U.S. government securities or cash (collectively, government securities). As such it is considered one of the most conservative investment options offered by Vanguard."
There could be a problem when and if the republicans cause the U.S. to default on redeeming maturing bills. If that occurs, I would hope that the problem is quickly resolved before the onset of a depression.
Today, interest rates are declining as a flight to safety trade based on panic about banks created by the SIVB debacle.
U.S. 10 Year Treasury Note
3.688 -0.223
Last Updated: Mar 10, 2023 at 11:00 a.m. EST
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
I had $13K in two month treasury bills mature in my Schwab account over the past 7 days and used $4K to extend the maturity some by buying 2 5.25% CDs maturing on 9/16/24 and 2 5.3% CDs that pay monthly and mature onf 3/24/25.
According to CNBC, SIVB's effort to raise capital through a common and preferred stock offering has failed, which is not surprising.
ReplyDeletehttps://www.cnbc.com/2023/03/10/silicon-valley-bank-financial-in-talks-to-sell-itself-after-attempts-to-raise-capital-have-failed-sources-say.html
The bank is in talks to sell itself, and there is no choice on that option IMO. The stock has been halted pending news after declining another 62.76% in pre-market trading.
SVB Financial Group
PREMARKET
$39.49 -$66.55 -62.76%
Before Hours Volume: 11.36M
Last Updated: Mar 10, 2023 9:12 a.m. EST
https://www.marketwatch.com/investing/stock/sivb?mod=search_symbol
I would expect offers to materialize from larger banking institutions who would like to have SIVB's niche banking business.
SIVB claimed yesterday that he had to sell the available for sale securities to meet customer burn of deposits. The operating bank, Silicon Valley Bank, has a lot of start up company customers who have withdrawn deposits to meet their cash burn rates.
Even if that reason for selling the securities at a huge loss is true, I do not see how that has an actual, as opposed to perceived, contagion effect to other banks. I may do some small ball buying in that sector today. Yesterday, I added 5 to COLB and 20 to NYCB.
Buying into this in banking sector is an interesting thought. It didn't cross my mind and I could use more in the sector.
DeleteSilicon Valley Bank, the main operating subsidiary of SIVB, has been seized by the FDIC.
ReplyDeletehttps://www.cnbc.com/2023/03/10/silicon-valley-bank-is-shut-down-by-regulators-fdic-to-protect-insured-deposits.html
Depositors with more than $250K in an account may suffer losses.
SIVB traded at over $750 per share in 2021. The stock is still halted for trading and I doubt that it will reopen anytime soon.
I do not see the FDIC covering Silicon Valley Bank deposits in excess of the insurance limit. That is a risk that depositors assume.
ReplyDeleteIf that proves to be case, it will have widespread repercussions on the start ups who kept large sums in that bank unless the bank is soon acquired by a respected and large financial institution like JPM.
BDCs lend to those companies and some of their investments may go bad fast as result. For those companies, assuming no one steps up to protect their deposits, this is a Lehman moment.
Until I have clarity on whether or not deposits in excess of the insurance will be protected, I am not going to buy BDC stocks starting next Monday.
I was a net seller this past week, as I will discuss in my next post, but the sales were pares of duplicate positions before the SIVB news (SLRC, PSEC, PFLT)
I expect the BDC stock sector to remain under pressure until the repercussions relating to deposits are resolved or have more clarity than now.
Good to know
ReplyDeleteA Lehman moment? It'd be big losses, but enough to equal the Lehman collapse? Though I wasn't aware at the time, beyond the bank closing what was impacted by Lehman collapsing and how it caused a series of bank collapses.
Vanguard has SIPC and extra insurance. Could SIVB have extra? Vanguard's is in the Millions, not nearly enough to be very meaningful IMO. I and my dad have a little over the $500, not much. But may be worth revisiting arranging better. The VMRXX and other one are counted as investments, so aren't under the $250 cash SIPC limit.
I have one drowning BDC. I wasn't going to buy lately since they do more poorly during down markets. Now there's much clearer reason why not to.
I never heard of this bank. A CNN article said it was the one of the biggest in the country (AUM-wise).
Land: I limited my Lehman reference to the firms who had substantial uninsured deposits. Depositors withdrew $42B in deposits on 3/9/23, leaving the Silicon Valley Bank, the primary asset of the bank holding company, insolvent with a negative cash balance of about $958M. So it is too early to assess which firms will become insolvent since so many managed to save their money.
DeleteI suspect that in the coming weeks there will be news of firms being unable to pay bills or meet payroll. While I do not expect the FDIC to provide insurance for deposits in excess of the $250,000 limit, there may be some recovery down the road through asset sales.
I do not see now this failure, which says a lot about human nature, having the same widespread contagion effect as Lehman's failure but there will be significant damage in the growth sector that SIVB help to foster.
I understand now. Lehman effect in the circles it's in. As said with " For those companies,"
DeleteAnd depending on how well a company extracted in advance of the FDIC take over.
Meanwhile, the market and SnP still haven't broken down. There's a solid resistance and trading range.
ReplyDeleteI'm about 1/4 in stock, so not selling now, since there's plenty of horizon and cash. Nor buying yet.
Land: The S&P did pierce its 200 day SMA line today which was at 3,940 using a 1 year Yahoo Finance chart. I mentioned in a recent comment that I expected that to happen soon.
DeleteThat's true. I'd noticed. It was below that 200 SMA line recently and for a while, so the move didn't impress yet that it won't jump back up off the bottom of the trading range. You had said it was coming!
DeleteI have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2023/03/argd-bdn-brkb-ddt-gd-igr-jri-kw-pflt.html