Economy:
Annual CPI Through July = 3.2% (forecast at 3.3%), up from 3%
Annual Core CPI = 4.7%, down from 4.8% in June.
Month-to-Month Core CPI = .2%
Consumer Price Index Summary - 2023 M07 Results
The annualized CPI rate for May-July was 1.9% and that was with the hot "owners equivalent rent" numbers.
Annual "Owners Equivalent Rent" = +7.7%, weighted at 25.54% in CPI. This "expense" was up .5% month-to-month. Table 2. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by detailed expenditure category - 2023 M07 Results This is a phony expense item. Homeowners do not pay rent to themselves.
Where Is Shelter Inflation Headed? | San Francisco Fed (8/7/23):
As shown in Figure 1 in that article, core CPI excluding shelter was close to 2.5%.
I think the Fed is done hiking for this cycle, says Fundstrat's Tom Lee
Moody's downgraded its credit ratings on a number of banks last Tuesday Moody's cuts ratings of 10 U.S. banks and puts some big names on downgrade watch The credit ratings for 11 other banks were put on negative outlook and 6 banks were put on review for possible credit downgrades.
New Lending by Mortgage REITs Has Dried Up - WSJ Refinancing commercial mortgages has become more difficult. Two publicly traded mortgage REITs, Blackstone Mortgage Trust and KKR Real Estate Finance Trust, have ceased making new originations.
Overseas shipments from China declined by 14.5% Y-O-Y.
Foreign direct investment in China declined to $20B in the first quarter from $100B in the 2022 first quarter.
Deflation: Why falling prices in China raise concerns - BBC News Too much debt and deflation do not mix well together.
China property market roiled by default fears, Country Garden spooks investors; China property giant Country Garden warns of up to $7.6bn loss - BBC News; Country Garden misses bond payments as China property fears flare | Reuters
Based on the CME FedWatch Tool, there is currently a 90% probability that the FED will leave the FF unchanged after its 9/20 meeting. CME FedWatch Tool - CME Group
It is more probable than not that the year end FF range will be the current one of 5.25% to 5.5%.
 |
| December 2023 Probabilities |
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Allocation Shifts Discussed in this Post:
Treasury Bills purchased at auction: $9,000 in principal amount
Corporate Bonds: $5,000 in principal amount
CD - FDIC Insured: $1,000
Net Outflow Common stock: -$1,679.66
(consisting of $2,129.66 in proceeds minus $450 in purchases)
Leveraged Stock CEF: +$96.8 (yield at 8.68%)
Outflow Common Stocks/Stock Funds: -$1,582.86
Realized Gains Common Stocks: +$434.16
REIT Equity Preferred: +$141.5 (Yield at 9.28%)
Exchange Traded First Mortgage Bonds: +$329.4 (weighted average yield at 5.56%, potentially long duration)
Highly Leveraged Senior Loan/Junk Bond CEF = +$101.4 (yield at 11.24%, viewed as very risky)
2023 Net Outflow Common Stocks/Stock Funds: -$36,663.37
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Vix Asset Allocation Model Update:
Vix Asset Allocation Model | Seeking Alpha (10/17/2014); Vix Asset Allocation Model Explained Simply (5/17/2009). The model was initially developed in 2007 prior to the August 2007 Trigger Event.
A Stable Vix Pattern (SVP) formed on 8/8/23. That required 90 days of movement below 20 without a major spike in the VIX.
The SVP has been a period in the past where the S&P 500 has continued an uptrend lasting for several years.
The longest SVP since 1990 was between May 1991 to October 1997: VIX and S&P Compared 1990 to 1997 That SVP was ended by a Trigger Event in October 1997 that ushered in the Unstable Vix Pattern. (S&P 500 at 375.34 on 4/30/1991 and at 983.12 on 10/7/1997)
The next SVP started in January 2004 and lasted until the August 2007 Trigger Event. VIX Chart from 2007: Alerts and Triggers Major Disruption of Cyclical Stable Bull VIX Pattern; More on VIX and Stock Asset Allocation (The S&P 500 closed at 1,108 on 1/2/2004 and at 1,497 on 8/8/2007)
The next SVP started in September 2012 and was terminated by the Trigger Event in August 2015. Stable Vix Pattern as of 9/26/12; A Trigger Event In The Vix Asset Allocation Model 8/31/15 | Seeking Alpha (S&P was at 1433 on 9/26/12 and at 2,102 on 8/17/15)
The next SVP started in July 2016 and was terminated by March 2020 Trigger Event caused by the pandemic and related recession. Update For Portfolio Positioning And Management As Of 7/24/16 - South Gent | Seeking Alpha (S&P 500 was at 2,099 on 7/6/16 and at 3,130 on 3/5/20)
Trading Strategy Under The Vix Asset Allocation Model: Part 1 - -Seeking Alpha
The VIX, which is volatility for the S&P 500, started in 1990.
Volatility data for the S&P 100 started in April 1987 and revealed a Trigger Event before the October 1987 crash. Parallels to VXO 1987-1988
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Putin and His Violent, Orwellian State/Kleptocracy:
The WP summed up Russia's land grab in Ukraine succinctly: "Russia’s pitiless assault on Ukraine is a land grab, an imperial fever dream and an unjustified war of aggression, but it is something more than that. It is also a relentless campaign of criminality aimed at eradicating Ukraine’s national identity, spirit and resolve — often by means of murder, rape and torture." Opinion | Russia’s torture chambers underscore the Ukraine war’s stakes - The Washington Post
Pokrovsk: Twin Russian strikes kill at least 7 After targeting civilians in an apartment building, the Orcs then launched an attack on the rescuers.
A NYT journalist and photographer spent a month in Russia, traveling from Moscow to Siberia and then back to the Russian border with Ukraine. This article is a detailed accounting of their contacts with ordinary Russians: Putin’s Forever War - The New York Times
There are a few salient points made in that article:
(1) Putin is successfully recruiting untrained soldiers from poor regions of Russia, rather than from Moscow and St. Petersburg. Poor Russians are enticed to join by salaries that far exceed what that can earn in civilian jobs (about $2,500 per month in the army and an average of $500 in their civilian jobs).
(2) Putin enjoys widespread support, particularly in the rural areas, and is unlikely to lose power and possibly his life unless Russia loses the war either on the battlefield or through a negotiated settlement that is generally viewed among Russians as having almost the same result as being driven out of Ukraine;
(3) The false information and narratives constantly streamed from state controlled media have successfully manipulated most Russians into accepting lies as true (Trump's false statements and narratives will successfully manipulate tens of millions in the U.S. even though accurate information is easily available rebutting them, so this is a major problem in both authoritarian regimes like Russia and democracies like the U.S.);
(4) Sanctions have had no meaningful impact on most Russians outside of Moscow and St. Petersburg;
(5) Russians have a strong sense of nationalism, bellicosity, and stubbornness to see the war to an end, no matter how long it takes, how many lives are lost, the long term negative impact on Russia's economy and the overall lack of any real benefits, as distinguished from the imaginary advanced daily on state controlled media, to offset those negatives; and
(5) Except for family members and friends of soldiers who have died or have been seriously wounded, primary living in remote areas of Russia, most Russians have not felt any direct impact on their lives from Putin's invasion.
In short, it is foolish to believe Russia will change. Russia will remain an Orwellian state controlled by a succession of authoritarian leaders who have imperialistic ambitions and a willingness to cause widespread death and destruction in pursuit of those ambitions.
The West simply needs to accept those facts as true and prepare accordingly.
Russia did flirt with peaceful coexistence for a few years that did result and would have continued to result in mutually beneficial economic relationships, but Putin decided that was not going to continue preferring belligerent and threatening behavior and actions; Russian deaths and injuries that could easily exceed 500,000 in Ukraine by year end; and a permanent economic isolation from the West, including capital investment, that will have a long term and profound negative impact on Russia and the average Russian citizen.
Russia hit a blood transfusion center, located with a missile. Russia hits blood transfusion centre-BBC News
Ukraine steps up sea drone attacks, targeting Russian oil tanker hours after hitting naval base Ukraine successfully hit one of Russia's largest oil tankers, the SIG, with a sea drone packed with 992 pounds of explosives.
Russia, Ukraine confirm Kyiv hits Chonhar bridge to Crimea- Reuters; Ukraine strikes Chonhar bridge to Crimea, says Russia-BBC; Storm Shadow missiles damage Chonhar Bridge in occupied Kherson Oblast, Russian officials say. Ukraine needs to continually hit that bridge and others used to supply Russian troops until the bridge is destroyed and beyond repair.
The Chonhar bridge links Crimea to the Kherson Oblast and to Melitopol. Retaking Melitopol from the Russian invaders would be a major victory for Ukraine, since it would cut off the land bridge linking Russia to Crimea as well as the eastern and southern Ukrainian territories currently illegally occupied by Russia's army.
Crimea-Kherson bridges: Explosions hit critical road bridges between Crimea and occupied Ukraine The Henichesk road bridge , located to the east of the Chonbar bridge, was also hit. All bridges in Ukraine and the Kerch Strait bridge, which are used to supply Russian troops in Ukraine, need to be destroyed beyond repair.
A majority of republicans are opposed to additional funding for Ukraine. "On providing additional funding, liberal Democrats are far and away the most supportive, 74% back it compared with 51% of moderate or conservative Democrats. Among Republicans, about three-quarters of conservatives oppose new funding (76%) compared with 61% of moderate or liberal Republicans." CNN Poll: Majority of Americans oppose more US aid for Ukraine in war with Russia I support more funding.
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Trump and his Trumpsters:
Trump on 8/5/23: “Every time the radical-left Democrats do this and the Marxist, communist fascists indict me, I consider it a great badge of honor, because I’m being indicted for you”
Previously Secret Memo Laid Out Strategy for Trump to Overturn Biden’s Win - The New York Times
In a defamation suit brought against Giuliani by 2 Georgia election workers, Giuliana conceded that he made defamatory statements but wants to argue that defamatory statements are protected by the First Amendment. Judge questions Giuliani over not forfeiting lawsuit after conceding false 2020 election statements Once words are adjudicated as defamatory by a jury verdict, or are admitted to be so by the defendant, there is no First Amendment protection for those words. That has been the law for as long as there has been a First Amendment. Giuliani can only argue now the amount of compensatory that he has to pay and whether he is liable for punitive damages.
Justice Clarence Thomas enjoyed more vacations, private flights and perks thanks to wealthy friends, new ProPublica report details, summarizing a new ProPublica report: The Other Billionaires Who Helped Clarence Thomas Live a Luxe Life — ProPublica
Justice Clarence Thomas’s $267,230 RV and the Friend Who Financed It - The New York Times The friend is another rich Thomas benefactor who refused to provide the NYT with details about how much, if any, of the loan was paid back or simply forgiven in whole or in part.
How Hunter Biden Scandals Compare to Trump's Family Members | Time
Florida's "anti-woke" political climate is driving away thousands of visitors and millions of dollars DeSantis targeted Disney for personal ambition. He thought that constantly attacking one of his state's largest employers would his improve to win the 2024 Republican nomination for President. "Anti-woke" demagoguery, which is non-stop with DeSantis, appeals to republicans nationwide, but it will result in adverse consequences for Florida's economy.
DeSantis' polling for the republican nomination peaked at about 30% several months ago and has been steadily falling since that peak. As republicans have got to know him better outside of Florida, seeing him in action on the campaign trail, his republican support for President in 2024 has fallen to about 15%. He has pretty much already flamed out.
G.O.P. Contenders Feed Voter Distrust in Courts, the FBI, Schools and even the Military - The New York Times What we are seeing in the Trumpster candidates is nihilism in pursuit of personal power. They are simply catering to core republican voters.
The Nihilism of MAGA World - The Atlantic; Dostoevsky warned of the strain of nihilism that infects Donald Trump and his movement (discussing primarily the Dostoevsky novel Demons.)
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1. Small Ball Buys:
Baseball Analogy: Small ball (baseball) - Wikipedia
Small Ball Rules: Primarily a risk reduction trading technique, one of many strategies that I employ to mitigate risk.
(2) Purchases are made in small lots using commission-free trades;
(3) On price pops, I will consider selling my highest cost shares at a profit, no matter how small;
(4) Some positions will be eliminated altogether on price pops when the goal is achieved;
The corollary is to buy the dips, particularly during extreme volatility events that would be associated with major declines in stocks.
Another aspect is selling fractional shares bought with dividends in order to harvest the original dividend amount plus a small profit on the shares. Generally, if I am willing to buy a dividend stock now through a market purchase, I will consider reinvesting the dividend. Conversely, if I am not willing to buy shares, I will likely turn off the dividend reinvestment option.
Primary Investment Objectives: (1) Preservation of Capital; (2) Income Generation; (3) Realized Capital Gains in risk assets.
Normally, I try to generate at least $25K in trading profits during each year. It is doubtful that I will succeed in that goal in 2023 without significantly increasing my stock allocation which I have been reducing throughout 2023.
A. Restarted DPG - Bought 10 at $9.68 (Schwab Account):
4 Year History this Account
Quote: Duff & Phelps Utility & Infrastructure Fund Inc. (DPG) - Leveraged Stock CEF
Sponsor's Website: Duff & Phelps Utility and Infrastructure Fund Inc.
Last SEC Filed Shareholder report: Duff & Phelps Utility & Infrastructure Fund Inc. (SEC filed semiannual report for the period ending 4/30/23)
Holdings as of 4/30/23:
Total Investments: $627.909+M
Borrowings: $195M (priced at spreads to short term rates, see pages 19-20 of the semiannual report)
Leveraged at 31% as of 4/30/23
Dividends Received 6 months: $1,517,078
Interest Paid on Borrowings: $891,138
Last Elimination: Item # 1. Eliminated DPG in Schwab Account - Sold 390+ at $14.57 (6/14/21 Post)(profit snapshot = $132.63)
Other Sell Discussions: Item # 1.F. Eliminated DPG in Fidelity taxable account-Sold 21+ at $13.03(3/20/21 Post); Item # 1.K. Pared DPG-Sold 5 at $11.82 (1/16/21 Post); Item # 2.D. Sold 15 DPG at $11.62 (12/12/20 Post)(contains snapshots of prior DPG trades = +$887.88)
Data Date of 8/4/23 Trade:
Closing Net Asset Value Per share = $10.94
Closing Market Price = $ 9.63
Discount: -11.97 %
Source: DPG CEF Connect (click "Pricing Information" tab)
Yield at $9.68: 8.68%
Next Ex Dividend: 9/14/23
B. Added 5 OLP at $20:
Quote: One Liberty Properties Inc. (OLP)
OLP "acquires, owns and manages a geographically diversified portfolio consisting primarily of industrial and retail properties. Many of these properties are subject to long-term net leases under which the tenant is typically responsible for the property’s real estate taxes, insurance and ordinary maintenance and repairs."
2022 Annual Report (List of properties owned as of 12/31/22 starts at page 25; a discussion of problem properties starts at page 33. Problem properties include 3 leased to Regal Cinemas which includes 1 leased by a JV, one to Party City and one to Bed, Bath and Beyond (BBBY), all of whom have filed for bankruptcy. Regal Cinemas just emerged from BK. Owner of Regal cinemas emerges from bankruptcy (8/1/23). I have no information on whether Regal still rents those properties or, if so, the new rent terms. That may be discussed in the next 10-Q or the 2023 Annual Report. I would anticipate less rental revenue than the pre-bankruptcy leases and other concessions. There is also a problem in receiving rent for a ground lease on an apartment complex called The Vue located in Beechwood, Ohio. The tenant for that ground lease settled litigation with the builder. Although OLP was not a party, it did receive in early January 2023 $4.6M from the settlement)
Website: One Liberty Properties, Inc.
Properties | One Liberty Properties | REIT
Investment Category: Equity REIT Common and Preferred Stock Basket Strategy
Management: Internal
Last Discussed: Item # 2.E. Added 5 OLP at $19.4 (5/20/23 Post)
Average cost per share: $20.85 (25 shares)
Dividend: Quarterly at $.45 per share ($1.8 annually)
One Liberty Properties, Inc. (OLP) Dividend History | Seeking Alpha
Yield at AC per share: 8.63%
Last Ex Dividend: 6/23/23
Last Earnings Report (Q/E 6/30/23): SEC Filed Earnings Press Release
FFO Per Share: $.45
AFFO Per Share $.50, up from $.49
"Rental income was $22.4 million in the second quarter of 2023 compared to $21.5 million in the second quarter of 2022. The 4.2% growth is due primarily to an additional $567,000 from the net impact of acquisitions and dispositions and a net $368,000 increase in same-store rental income. The Company benefited during the quarter from favorable lease amendments and extensions, and from adding tenants at vacant properties."
On 5/31/23, "the Company sold the Havertys furniture retail location located in Duluth, Georgia, for a gross sales price of $6.0 million and realized a gain of $3.2 million.". This gain would be included in net income but excluded from FFO and AFFO.
Net Income to AFFO Reconciliation:
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| Page 29 |
C. Added 10 VNO.PRM at $14.15:
Quote: Vornado Realty Trust 5.25% Cumulative Preferred Series M
Issuer: Vornado Realty Trust
Investment Category: Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks, a subcategory of Equity REIT Common and Preferred Stock Basket Strategy
I mentioned in my last post eliminating my common stock position. VNO is not currently paying a dividend on its common shares, but is paying its cumulative preferred dividends. Since the REIT is using cash to buy common stock, that is sufficient, as long as it continues, to prevent VNO from deferring the preferred stock dividends.
Last Discussed: Item # 2.E. Added 5 VNOPRM at $11.25 (5/27/23 Post)
Average cost per share: $15.79 ( shares)
Yield at AC: 8.31%
Next Ex Dividend: 9/14/23
Par Value: $25
Coupon: 5.25%
Dividends: Paid quarterly, non-qualified, and cumulative
Stopper Clause: Standard
Prior Sell Discussions: Item # 3.A. Sold 10 VNO.PRM at $25.34 (10/31/2020 Post); Item # 3.C. Sold 5 VNO.PRM at $24.99-Highest Cost lot bought at $19 (7/18/20 Post); Item # 2.A. Eliminated VNO.PRM-Sold 50 at $22.95 (5/23/19 Post)
Realized VNOPRM Gain: $154.84
Goal: Any total return in excess of the dividends.
Purchase Restrictions: 5 or 10 share lots with each subsequent purchase required to reduce my average cost per share and a maximum position of 100 shares.
D. Restarted AGR - Bought 5 at $35:
Quote: Avangrid Inc.
AGR is a utility holding company that owns renewable energy generation and provides electricity and gas to customers in New York, Connecticut, Maine and Massachusetts.
The electric and gas operating utilities are New York State Electric and Gas Company, Maine Natural Gas, Central Maine Power, Connecticut Natural Gas, United Illuminating, Rochester Gas and Electric, Southern Connecticut Gas and Berkshire Gas. Company Profile - Avangrid
The company owns about 8.6 gigawatts of wind and solar generation which makes it one of the largest developers of renewable energy projects in the U.S.
AGR entered into an agreement to acquire PNM Resources (PNM) in October 2020. AVANGRID and PNM Resources Announce Merger Plans (all cash offer for $50.3 per share) All approvals have been obtained excerpt from the New Mexico Public Regulation Commission who rejected the purchase. An appeal was taken from that decision and is now pending in the New Mexico Supreme Court with oral arguments scheduled in September. I would just assume now that the merger is not going to happen.
In May 2021, AGR sold in two private placements 77,821,012 shares of stock at $51.4. "Iberdrola purchased
AGR raised some of the cash with this offering that would be needed to pay PNM shareholders. However, since the acquisition has not closed, the shares have resulted in E.P.S. dilution.
AGR Investor Relations Website
AGR Analyst Estimates | MarketWatch
Last Discussed: Item # 2.H. Eliminated AGR - Sold 3 at $53.2 (12/3/21 Post) I mentioned that the stock was overpriced IMO at $53.2.
Dividend: Quarterly at $.44 ($1.76 annually), last raised from $.432 effective for the 2018 third quarter.
I am not expecting a dividend increase.
Yield at $35: 5.03%
Next Ex Dividend: 8/31/23
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
Recent operating results have been unsatisfactory which explains the share price decline. The question is whether the current price already discounts the less than stellar near term prospects.
Adjusted E.P.S. = $.21, down from $.46 in the 2022 second quarter
Analyst Report (available to Schwab customers):
Morningstar (7/27/23): 3 stars with a fair value estimate of $39 with a narrow moat Notes that 2nd quarter results were negatively impacted by higher operating expenses and interest costs which the company will attempt to recover through regulatory rate filings.
Purchase Restrictions: 5 share lots, conditioned on each subsequent purchase being at lowest price in the chain and a 25 share maximum position.
E. Added To KHC - Bought 5 at $35:
Quote: Kraft Heinz Co.
Cost: $175
KHC Analyst Estimates | MarketWatch
Average Cost per share: $35.32 (10 shares)
Dividend: Quarterly at $.40 per share
Yield at New AC = 4.53%
Last Ex Dividend: 6/5/23
Last Discussed: Item # 2.A. Restarted KHC - Bought 5 at $35.64 (7/22/23 Post) I discussed the first fiscal report in that post. SEC Filed Press Release That report was for the first fiscal quarter ending on 4/1/23.
Last Earnings Report (2nd Fiscal Quarter ending 7/1/23): SEC Filed Press Release
GAAP E.P.S. = $.81
Adjusted E.P.S. = $.79
Consensus at $.76 per Schwab
Revenues: $6.72B vs. consensus of $6.8B
The primary adjustment to GAAP is to exclude unrealized gains on commodity hedges.
As with other packaged food companies, organic revenues are increasing based entirely on price increases as volume declines in response to those increase.
Stock Jocks are not going to be impressed with 4% organic sales growth Y-O-Y resulting from a 11% increase in prices and a 7% decline in volume.
Fiscal Year 2023 Outlook: "Adjusted E.P.S. to be in the range of $2.83 to $2.91, which includes a negative impact of approximately $0.04 from expected unfavorable changes in non-cash pension and post-retirement benefits and a currency headwind of approximately $0.02 at current foreign exchange rates. The expected 2023 year-over-year Adjusted EPS change reflects a negative $0.06 impact from lapping a 53rd week in 2022. Additionally, the Company continues to expect an effective tax rate on Adjusted EPS to be in the range of 19 to 21 percent."
Analyst Reports (available to Schwab customers):
Morningstar (8/2/23): 5 stars with a fair value estimate of $53.
S&P (8/6/23): 3 stars with a 12 month PT of $38
Argus (6/9/23): Hold
F. Added 20 JQC at $5.07:
Quote: Nuveen Credit Strategies Income Fund Overview
"The Fund invests at least 70% of its "Managed Assets" in adjustable rate senior secured and second lien loans, and up to 30% opportunistically in other types of securities across a company’s capital structure, primarily income-oriented securities such as high yield debt, convertible securities and other forms of corporate debt."
Nuveen Credit Strategies Income Fund- SEC Filed Semiannual Report for the period ending 1/31/23
SEC Filing- Holdings as of 4/30/23 (shows credit ratings of securities)
Last Discussed: Item # 2.A. Added to JQC - Bought 10 at $4.94 (6/17/2023 Post)
Sponsor's website: JQC -Nuveen
Leveraged: Yes at 38.47% as of 6/30/23
Annual Leverage Cost Based on June 2023: 6.41%
While the borrowing cost has increased over the past year, so has the yields of senior loans priced at spreads to short term rates.
New Average cost per share: $5.12 (120 shares)
Dividend: Monthly at $.0475 per share ($.57 annually)
Yield at AC = 11.13%
Next Ex Dividend: 8/14/23
Data Date of 8/7/23 Trade:
Closing Net Asset Value per share: $5.82
Closing Market Price: $5.07
Discount: -12.89%
Goal: Any total return before ROC adjustments to the tax cost basis in excess of the dividends paid.
Average 3 year discount: - 9.95%
Sourced: JQC-CEF Connect
2. Exchange Traded First Mortgage ("FM") Bonds:
I own the FM bonds discussed below in three taxable account and 2 Roth IRA accounts. My maximum position for each FM bond discussed below is 300 shares. Each of these bonds have a $25 par value and trade like stocks.
Investment Category: Exchange Traded Baby Bonds
A. Added 5 ELC at $21.85- Fidelity Taxable Account:
Yield at AC = 5.58%
Trades Flat
Coupon: 4.875% paid on a $25 par value.
Interest Payments: Quarterly
Next Ex Interest: 8/30/23
Security: First Mortgage Lien on substantially all assets
Par Value: $25
Issuer's Optional Call: At par value on or after 9/1/21
Maturity: 9/1/2066, unless called earlier at the issuer's option.
Last Sell Discussions: Item # 4.B. Sold 30 ELC at $24.87 (5/1/2019 Post); Item # 4.A. Sold 30 ELC at $23.48-Used Commission Free Trade (2/27/19 Post)
B. Added 5 EMP at $21.95- Vanguard Taxable Account:
Quote: Entergy Mississippi LLC 4.9% First Mortgage Bonds Overview
Issuer: Operating Utility for the utility holding company Entergy Corp. (ETR)
Last Discussed: Item # 6.A. Bought 5 EMP at $22.4; 5 at $22.15; 5 at $21.9 - Fidelity Taxable Account (6/24/23 Post)
Maximum position: 300 shares
Average cost per share this account:
Yield at AC:
Credit Ratings: A/A2
Security: First Mortgage on substantially all assets.
Par Value: $25
Interest Paid Quarterly
Next Ex Interest Date: 9/28/23
Trades Flat (whoever owns the security on the ex interest date receives the entire quarterly interest payment)
Issuer Optional Redemption: At par value + accrued and unpaid interest. Call protection expired in 2021.
Maturity: Unless redeemed early at the issuer's option, the bond matures on 10/1/2066.
Rationale: Purchases of first mortgage bonds baby bonds issued by utilities, with maturities extending well beyond my expected lifespan, are in part a very small play on the possibility that long term interest rates will plummet again.
In a bond ladder, I want some potentially long term maturities.
The issuer may elect to call this bond at par value provided it can refinance at a lower cost, whereupon I will generate a profit.
Or, rates may decline but not enough to cause an optional redemption, which could result in receiving a higher current yield than other similarly rated bonds that could be purchased at that time.
The worst case scenario is a long term uptrend in interest rates that results in this bond going steadily down in price.
The only two responses to that scenario, both unfavorable, would be to sell at a loss, reinvesting in other bonds with higher yields, or holding onto the bond that is going down in price, thereby tying up money that could be reinvested into higher yielding bonds. I call that interest rate risk "lost opportunity" which continues for as long as the bond is held and proceeds could be reinvested at higher current yields and/or YTMs.
Some Other Buy Discussions: Item # 2.E. Added to EMP in Schwab Account - Bought 5 at $20.92 (1/3/23 Post); Item # 5.A. Added 5 EMP in Vanguard Taxable Account at $21.75 (12/6/22 Post); Item # 2.B. Bought 10 EMP at $23.76; 5 at $21.07; 10 at $20.39 (4/25/2020 Post)
Sell Discussions: Item # 5.A. Pared EMP-Sold 5 at $26.84 (6/27/20 Post); Item # 4.A. Eliminated EMP-Sold 70 at $24.87 (5/1/19 Post)(profit snapshot = $207.92); Item # 2.B. Sold 30 EMP at $24.44 (2/13/19 Post); Item # 2.A. Sold 50 EMP at $24.47 (7/22/17 Post)(profit snapshot = $66.98)
EMP Trading Profits to Date: $464.9
Interest rate risk has been mitigated in the past by trading.
Entergy Mississippi also issues $1K par value FM bonds. I had 4 mature in my Fidelity taxable account on 6/30/23:
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3. Treasury Bills Purchased at Auction - Schwab Account: $9,000 in principal amount
Purchases funded from maturing CDs (4K in 5% CDs) and a T Bill. The proceeds were invested T Bills that have higher yields than the securities that matured.
I had $5K in a Treasury Bill that matured on 8/10/23 in my Schwab account.
Schwab did not credit my account until after the time cut off for submitting orders for the 2 month treasury bill auction last Thursday.
I will redirect $3K of the proceeds into the 3 month T Bill auction on Monday and whatever I have available into the 4 month T Bill auction next Wednesday. I generally keep only $1K or so in my Schwab sweep account that currently pays .45%:
The low interest payments on sweep accounts has juiced Schwab's earnings, but has contributed to lower earnings as customers, like myself, move funds out of that low yielding account seeking higher yields. I have some funds in Schwab's Treasury MM fund (SNOXX) which I may transfer to the sweep account when and if I need to funds to pay for a purchase. For a transfer made before the market closes, the transferred amount will appear in my sweep account on the next day.
Most of the proceeds deposited in my Schwab sweep account originate from maturing T Bills and CDs, and those funds are now being redirected into T Bills purchases at auctions usually in 1 day or a maximum of 5 business days after receipt.
If the $5K T Bill had matured in my Fidelity account, the amount would have been credited to my account several hours before the cut off time. Schwab credits proceeds usually in the afternoon.
A. Bought 2 Treasury Bills at the 8/7/23 Auction:
91 Day Bill
Matures on 11/19/23
Interest: $26.74
Investment Rate: 5.451%
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119 Day Bill
Matures on 12/12/23
Interest: $52.66
Investment Rate: 5.495%
C. Bought 4 Treasury Bills at the 8/10/23 Auction:
%2010:10:23.png){kind=small}
Matures on 10/10/23
56 Day Bill
Interest: $32.85
Investment Rate: 5.412%
4. Corporate Bonds:
A. Bought 1 National Rural Utilities Cooperative Finance 5.1% SU Maturing on 8/15/25:
Interest paid monthly.
Website: National Rural Utilities Cooperative Finance Corporation (CFC) This company is a non-profit private corporation that provides financing to rural electric cooperatives.
Since bonds are sold to the public, the company does file financial reports with the SEC. SEC Filings
SEC Filed Annual Report for the F/Y Ending 5/31/23
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| Dollars in Thousands |
This note was bought under Fidelity's Corporate Notes program at par value. Notes offered under that program are original issuances and are sold at par value without any accrued interest payable by the buyer.
I mentioned buying another one in my last post.
On the day of purchase, the 2 year treasury note closed at a 4.78% yield.
Credit Ratings (reports can be downloaded here): A2/A-
Fitch has an A rating.
B. Bought 1 Canadian Imperial Bank 5.4% SU Maturing on 5/5/25 at a Total Cost of 99.225:
%205.4%25%205:5:25.png)
CM Analyst Estimates | MarketWatch
CIBC Announces Second Quarter 2023 Results
New Finra Page: Bond Page | FINRA.org
Credit Ratings: A2/A-
YTM at Total Cost: 5.93%
Current Yield at TC = 5.44%
C. Bought 2 Lexington REIT 4.4% SU Maturing on 6/15/24 at a Total Cost of 98.544:
%206:15:24%204.4%25.png)
Issuer: LXP Industrial Trust (LXP)
SEC Filed Earnings Press Release for the Q/E 6/30/23 and Supplemental
10-Q for the Q/E 6/30/23 Debt discussed starting at page 14. The 2024 SU is the first one that matures:
 |
| P.15 |
As of 6/30/23, LXP had no outstanding balance on its $600M credit facility. Mortgage debt was reported at $66.353M with a weighted average interest rate of 4%.
New Finra Page: Bond Page | FINRA.org
Credit Ratings: Baa2/BBB-
YTM at Total Cost: 6.18%
Current Yield at TC: 4.465%
I now own 5 bonds. I bond has a higher yield, using YTM, than the common stock.
I also have a small ball position in the common stock, last discussed in this post: Item # 1.D. Added to LXP - Bought 5 at $9.37 (7/1/23 Post)
Realized Gains LXP: $1,937.8
Largest LXP Gain: Item # 1.C. Sold 137+ LXP at $9.08 and 53 at $9.06 In 2 Separate Roth IRA Accounts (9/12/18 Post)(profit snapshot = $914.11)
D. Bought 1 Bank of Montreal 5.1% SU Maturing on 2/27/25 at a Total Cost of 98.85:
Issuer: Bank of Montreal (BMO)
BMO Financial Group Reports Second Quarter 2023 Results - May 24, 2023
New Finra Page: Bond Page | FINRA.org
Credit Ratings: A2/A1 and AA- by Fitch
Fixed Income Investors - About BMO Canada
YTM at Total Cost: 5.894%
Current Yield at TC = 5.16%
5. CDs - FDIC Insured:
A. Bought 1 JPM 5.55% CD Maturing on 9/9/24:
Interest paid at maturity or earlier if called.
Call Dates:
Many of the CDs offered through brokers are callable. Those CDs offer higher rates than the non-callable ones with similar maturities. This JPM offers 6 months of call protection.
Except for a few callable CDs, broker sold CDs maturing in 1 year have lower yields than the YTMs of comparable maturity treasury bills. If I had to pay a state income tax on CD interest payments, and Tennessee does not have a state income tax, going with the treasury bills would be a no brainer.
6. Small Ball Sells:
A. Eliminated Duplicate Positions in WMB- Sold 10+ at $35.23; 5 at $35.33:
Quote: Williams Cos. (WMB)
Proceeds: $481.11
Last Discussed: Item # 2 Added 95 WMB at $24.98 and 5 at $23.8 (8/20/21 Post); Item # 3.B. Added 5 WMB at $24.2 (10/8/21 Post)
Profit Snapshots: +$190.98
I am keeping a larger position held in my Schwab account:
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| Price as of Close on 8/9/23 |
I quit reinvesting the dividends in that account after the 2022 first quarter dividend and will be taking the dividends in cash until the reinvestment price lowers my current $24.13 average cost per share. The dividend yield at that average cost per share is 7.46%.
Dividend: Quarterly at $.45 per share ($1.8 annually)
Next Ex Dividend: 9/8/23
5 year chart as of 8/9/23:
$35-36 has been a range where uptrend topped out which is one reason for selling my duplicate positions now.
Last Earnings Report (Q/E 6/30/23) SEC Filed Press Release
Analyst Reports (available to Schwab customers)
Morningstar (8/2/23): 3 stars with a fair value estimate of $32 with a narrow moat.
Argus (5/11/23): Hold
S&P (5/30/23): 3 stars with a 12 month PT of $36, which was increased by $5 in response to the second quarter report.
Last Bond Offering (8/23): Prospectus 5.400% Senior Notes due 2026 at a price of 100.181 percent of par and
WMB SU Bond Positions: I own 12 bonds. The bonds include those originally offered by Williams Partners that was acquired by WMB.
Last Bond Purchase Discussion Item # 3.C. Bought 2 Williams 4.55% SU Maturing on 6/24/24 at a Total Cost of 98.93 (6/3/23 Post) YTM was then at 5.6%.
B. Eliminated EMR - Sold 2 at $96.77:
Quote: Emerson Electric Co. (EMR)
EM Analyst Estimates | MarketWatch
Website: Emerson US
Proceeds: $192.38
Profit Snapshot: +$33.14
Last Discussed: Item # 3.H. Bought 1 EMR at $82.78 (7/27/22 Post) When I published that post, the consensus E.P.S. for 2023 was at $5.41 and at $6.05 for 2024. As of last Friday, the 2023 consensus E.P.S. was at $4.39 and at $4.88 in 2024.
My concern is valuation at $96+ and the slow growth of the dividend. I regard EMR as a quality industrial stock. EMR is a dividend aristocrat but that has to be judged also on dividend growth.
Dividend: Quarterly at $.52 per share, last raised from $.515 effective for the 2022 4th quarter. The dividend was at $.43 in the 2013 4th quarter. The last stock split was in 2006. Emerson Electric Stock Split History
Last Ex Dividend: 8/10/23
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
GAAP E.P.S. at $1.03
Non-GAAP E.P.S. at $1.29
GAAP to Non-GAAP Reconciliation:
The most significant add back was $.29 loss from exiting its Russian business. Hopefully, EMR will never go back. Russia is just not worth the trouble.
Emerson Announces Agreement to Divest its Russia Business to Local Management (9/27/22)
Aspen Technology transaction explained at page 7.
Aspen Technology Inc. (New) (AZPN)
C. Pared HBAN - Sold 10 at $12.25:
Quote: Huntington Bancshares Inc. (HBAN)
Proceeds: $122.5
HBAN Analyst Estimates | MarketWatch (far from enticing, with actual E.P.S. at $1.44 in 2022 and the consensus at $1.37 in 2025)
I sold my highest cost 10 shares.
Investment Category: Regional Bank Basket Strategy
Last Discussed: Item # 2.J. Pared HBAN in Fidelity Account- Sold 10 at $15.35; Item 2.K. Eliminated HBAN in my Vanguard Taxable Account - Sold 10 at $15.25; Item # 2.L. Eliminated HBAN in Schwab Account - Sold 10 at $15.37 (2/20/23 Post)(profit snapshots = $137.61)
Last Buy Discussions: Item # 2.E. Bought 10 HBAN at $13.06 in Vanguard Taxable Account (8/2/2022 Post); Item # 2.C. Added to HBAN-Bought 2 at $7.4; 1 at $7.27; 1 at $6.96; 10 at $7.92 (5/30/20 Post); Item # 3.D. Added to HBAN-Bought 10 at $11.6; 10 at $11; 5 at $9.5; 5 at $8.4; 2 at $7.5 (3/28/20 Post)
Profit Snapshot: +12.55 (8/7/23 sale only)
Average Cost per share before pare: $8.75
Average Cost per share after pare: $8.2 (40+ shares)
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| Snapshot Intraday on 8/7/23 |
Dividend: Quarterly at $.155 ($.62 annually), last raised from $.15 effective for the 2021 4th quarter.
HBAN Dividend History | Seeking Alpha
Yield at new AC: 7.56%
Dividend History: Poor. As with other regional banks that had near death experiences in 2008-2009, the quarterly dividend was slashed from $.265 per share to $.1325 effective for the 2008 second quarter and then to $.01 effective for the 2009 first quarter. The $.01 per share rate was kept until it was raised to $.04 effective for the 2011 third quarter. There were dividend increases each year starting with 2013 but that ended with a raise from $.15 to the current $.155 effective for the 2021 4th quarter.
I doubt that the quarterly rate will return to $.265 per share in my lifetime.
Next Ex Dividend: 9/15/23
I am not reinvesting the dividend.
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
Comparisons are to the 2022 second quarter.
E.P.S. $.35, unchanged
NIM: 3.11%, down from 3.15%
Efficiency Ratio: 55.9%, up from 57.3%
NPA Ratio: .46%, down from .59%
NPL Ratio: .42%, down from .57%
Charge off ratio: .16%, up from .03%
ROTE: 19.9%, unchanged
Tangible book value per share: $7.33, up from $6.96
Deposits and Borrowings:
Deposits were flat with the 2022 4th quarter.
Investment Securities:
Heavily weighted in maturities greater than 10 years ($37.552B). My grade for interest rate management is a "D+", and I am grading liberally.
Some Other Sell Discussions: Item # 3.C. Pared HBAN - Sold Highest Cost 10 Shares at $16.22 (2/24/22 Post); Item #1.A. Pared HBAN in Fidelity Account- Sold 50 at $14.6 and 20 at $15 and Item #1.B. Sold 4 HBAN in Vanguard Account at $14.6 (1/31/21 Post); Item # 5.B Sold 51+ HBAN at $14.5 (9/28/19 Post)(profit snapshot = $52.58); Item # 5.A. Sold 104+ HBAN at $14.65 and 102+ at $14.57 (8/17/19 Post)(profit snapshots = $142.62); Item # 3.A. Sold 100 HBAN at $16.12 (2/3/18 Post)(profit snapshot = $254.75); Sold 50 HBAN at $9.53 (10/17/14 Post)(profit snapshot = $275.68); Item # 3 Sold 90 HBAN at $5.83 (9/29/2010 Post)(lots bought at $4.27 and $3.7)
Realized HBAN Gains to Date: $1,168.83
My overall opinion of this super regional bank holding company is negative and I see no reason to change that opinion. My total return has been decent by realizing capital gains, gradually lowering my average cost per share, and taking the dividends in cash, thereby avoiding a loss in their value based on share price declines after the reinvestment.
D. Eliminated CVBF - Sold 18 + at 19.14:
Quote: CVB Financial Corp. (CVBF)
CVBF Analyst Estimates | MarketWatch
Proceeds: $348.91
Investment Category: Regional Bank Basket Strategy
Profit Snapshot: $75.39
Last Discussed: Item # 1.I. Added to CVBF - Bought 3 at $14.81 (4/29/23 Post) I discussed the first quarter report in that post.
Dividend: Quarterly at $.20 per share
Last Ex Dividend: 7/5/23
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
The "tax equivalent net interest margin was 3.22% for the second quarter of 2023, compared to 3.45% for the first quarter of 2023 and 3.16% for the second quarter of 2022. The 23 basis point decrease in our net interest margin compared to the first quarter of 2023, was primarily due to a 34 basis point increase in our cost of funds."
Investment Securities:
 |
| Just Awful |
My grade on interest rate management is a D+.
Realized Gains CVBF = $270.59
Current Position: None
E. Eliminated Duplicate Position in RITM - Sold 30 at $10.3 (Vanguard Taxable Account):
Proceeds: $309
Profit Snapshot: Net of +$2.31
Dividend: Quarterly at $.25 per share
Last Ex Dividend: 6/30/23 (owned as of)
Current Position: (Fidelity Account)
I will consider buying 5 share lots when the purchase will lower my average cost per share. I am reinvesting the dividend in this account.
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
GAAP E.P.S. = $.74
FAD E.P.S. = $.62
Calculation GAAP to FAD:
Pending acquisition of Sculptor Capital Management (SCU):
Rithm Capital Corp. to Acquire Sculptor Capital Management
Goal: Any total return in excess of the dividends paid.
F. Eliminated Duplicate position in FHB - Sold 33+ at $20.42:
Quote: First Hawaiian Inc. (FHB)
Proceeds: $675.76
FHB Analyst Estimates | MarketWatch
Profit Snapshot: $119.79
Last Discussed: Item # 1.L. Added to FHB in Schwab Account - Bought 1 at $15.86; 1 at $15.48 (5/20/23 Post) I discussed the 2023 first quarter report in that post. SEC Filing
Remaining Position: 31+ shares with a $15.73 average cost per share.
Dividend: Quarterly at $.26 per share ($1.04 annually), last raised from $.24 effective for the 2019 first quarter.
FHB Dividend History | Seeking Alpha
Yield at $15.73: 6.61%
Next Ex Dividend: 8/18/23
Last Earnings Report (Q/E 6/30/23): SEC Filed Press Release
Comparisons are to the 2022 second quarter
Net Income: $62.4M
E.P.S. $.49, up from $.46
NIM: 2.91%, up from 2.6% (but down from 3.11% in the 2023 first quarter)
Efficiency Ratio: 57.96%, up from 57.33%
NPA and NPL Ratios: .09%
Coverage Ratio: 11.23 x.
Charge off Ratio: .1%, up from .07%
ROTE: 18.57%, down from 18.79%
Total deposits decreased $203.3M from the prior quarter and were down $610.9M from 12/31/22.
Tangible Book Value per share: $10.69, up from $9.86
Dividend payout ratio: 53.06% (I do not expect a dividend increase for as long as the payout ratio is near 50%)
Deposit information at pp. 87-88. "As of June 30, 2023 and December 31, 2022, the amount of uninsured deposits that exceeded FDIC insurance limits were estimated to be $10.7 billion, or 51% of total deposits, and $11.1 billion, or 51% of total deposits, respectively. At June 30, 2023 and December 31, 2022, the Company had $2.2 billion and $1.9 billion, respectively, of public deposits, all of which were fully collateralized with investment securities. As of June 30, 2023 and December 31, 2022, the amount of uninsured deposits excluding public deposits that exceeded FDIC insurance limits were estimated to be $8.5 billion, or 40% of total deposits, and $9.2 billion, or 42% of total deposits, respectively. As of June 30, 2023 and December 31, 2022, deposit accounts above $250,000 were estimated to be $12.5 billion and $13.3 billion, respectively." (emphasis added)
The large percentage of uninsured deposits and large unrealized losses on owned securities provide the best explanation IMO of why FHB has not recovered in price after the three bank failures earlier this year, caused by uninsured deposit runs occurring when the owned securities portfolios had a heavy unrealized losses. Since the Silicon Bank failure, the FED has addressed the problem of having to sell investment securities at a loss to build up capital depleted by the heavy uninsured deposit run.
Investment Security information at pp. 12-16 and pages 65 and 77 for average yields. My rating for interest rate management is a "D+", liberally graded.
The decline in NIM quarter-to-quarter feeds into the concerns.
E.P.S. is holding up. The NPL, NPA and Charge off ratios are excellent.
Some Sell Discussions: Item # 5.D. Pared FHB in Schwab Account - Sold 10 at $27.14 (1/16/23 Post)(profit snapshot = $46.05); Item # 4.C. Pared FHB in Fidelity Taxable Account - Sold 5+ at $26.355 (1/10/23 Post); Item # 3.B. Sold 11 FHB at $29.21-Highest Cost Lots in my Fidelity Account (3/17/22 Post)(profit snapshot = $78.07); Item # 3.G. Pared FHB in Fidelity Taxable Account-Sold 12+ at $29.07 (7/9/21 Post)(profit snapshot = $51.22); Item # 1.P. Continued Paring FHB in Fidelity Taxable Account-Sold 5.891 Shares bought with dividends at $30.47 (3/20/21 Post); Item # 1.B. Pared FHB in Fidelity Taxable Account-Sold 5 at $28.61 and Item #1.C. Pared FHB in Schwab Taxable Account-S0ld 55 at $28.62 and 6 at $29.9 (3/13/21 Post)(profit snapshots = $79.88); Item 1.A. Pared FHB in Schwab Account: Sold 40 at $29.65; 5 at $30.81 and Item #1.B. Pared 10 FHB in Fidelity Account at $29.65 and 10 at $30.02 (2/12/20 Post)(profit snapshots = $61.04); Item # 1.A. Sold 10 FHB at $30.76 (6/21/18 Post)(profit snapshot = $17.55; includes a snapshot of 100 shares, held for 6 trading days, booking a $40.11 profit)
FHB has not recovered from the regional bank selloff that started with the Silicon Valley Bank failure. While I do not agree with the GS price target of $20, I decided to liquidate my duplicate position. I will consider adding to my Fidelity position at less than $20.
FHB Realized Gains to Date: $736.66
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.
Stable Vix Pattern -
ReplyDeleteeconomic indicators are split, but the pattern reflects the comfortableness of the more engaged investors.
That is a long list of when SVP's been effective, and there weren't any failed times in the list.
There's also been rotation to support the market recovery. But... small cap didn't break upward with the other indices, and double topped instead.
___
People are no longer supporting funding for Ukraine's defense?
Because the risks if Ukraine collapses into Russia, have changed? Because Putin, Russia, & Trump didn't wind up in USA govt, with Ukraine as a pawn in the mix?
I think American's may not know much about European politics.
Land: When there are extreme volatility events, where the VIX spikes into the 30s and higher, there is something causing the event that is sufficiently troubling that buying stocks creates discomfort. I have been buying during those events, and it has never felt comfortable.
DeleteThe VIX Model has historically worked best by increasing the stock allocation during an Unstable Vix Model when the 200 day SMA line is pierced to the upside after a Trigger Event and the VIX is steadily moving down from its spike peaks.
I certainly support aid to Ukraine. Russia is a threat to all European democracies, particularly those that were formerly part of the Soviet Union or the eastern European nations that were effectively controlled by Russia after WWII (Baltic states, Poland, Romania, Bulgaria, Czechoslovakia).
Putin is certainly hoping that meaningful military support for Ukraine will steadily decline as the war drags on. It is not an irrational hope.
In late July, Trump stated that he wanted republicans to withhold all support for Ukraine until every scrap of evidence is turned over "on the Biden Crime Family’s corrupt business dealings" in Ukraine.
https://www.washingtonpost.com/politics/2023/07/29/trump-ukraine-congress-hunter-biden/
Putin is in a box of his own creation and will continue the war, irrespective of the cost in Russian lives and treasure, until Russia secures a negotiated settlement that transfers about 20% of Ukraine to Russia, with the rest coming later, or the total defeat of the Ukrainian army and the absorption of Ukraine into Russia. I doubt that even a successful Ukraine counter-offensive that cuts off Crimea and subjects Russian military installations there to destruction, will stop Putin. The only question IMO is whether he would then be overthrown.
Putin has severed economic ties with the west, as well as western capital deployment in Russia, in pursuit of his desire to recreate imperial Russia.
Unless Russia relents and withdraws from Ukraine, those ties will be severed permanently or at least for several decades and that will contribute to Russia's ongoing economic decline that will be exacerbated by its aging population, the flight of its youth to better opportunities, and the gradual dwindling of the only resources that work which are natural gas and crude oil.
I decided earlier today to learn about my Canadian reset preferred stock positions, particularly the reset dates which I had forgotten.
ReplyDeleteI found one of them, EMA.PRC.CA, just reset its coupon for 5 years at 6.434%, paid on a C$25 par value, representing a 2.65% spread to the 5 year Canadian Government bond yield as of 7/17/23. I did not know that it had reset. The reset raised my dividend yield to 8.72% based on my C$18.45 cost.
I discovered that PWF.PRT:CA will reset on 1/31/24 at a 2.37% spread to the 5 year Canadian government bond.
https://www.marketwatch.com/investing/stock/pwf.prt?countrycode=ca&mod=search_symbol
My last buy was 50 shares at C$11.11 during the 2020 pandemic meltdown. I bought a 100 today at C$18.7, which brings me to 200 shares at a C$16.38 AC per share.
This preferred stock will use the Canadian 5 year yield as of 30 days prior to the day the reset period starts. That will be a holiday so the yield on the first business day thereafter will be used. That 5 year bond is currently trading at a 4.04% yield.
The issuer is Power Financial, a wholly owned subsidiary of Power Corporation of Canada (POW:CA). I own 100 POW:CA.
This is quality preferred stock, rated at A- by S&P and Pfd-2 High by DBRS which is equivalent to BBB+ on the S&P scale.
https://www.powerfinancial.com/en/investors/credit-ratings/
I will be discussing this purchase in my next post along with summaries of the other resets that I currently own. My realized gains in this niche Canadian reset equity preferred stock sector is close to C$17K.
I use Interactive Brokers to trade on foreign exchanges and keep a meaningful amount of CADs on hand to fund purchases on the Toronto exchange. The IB commission for trades on that exchange is C$1 for 1 to 100 shares, and then C$1 for the next 100.
I have enough trouble figuring out when to buy in American dollars. I'll leave the Canadian market to you. :) Looks like some good deals were bought!
DeleteSeveral factors are contributing to stock declines in pre-market trading this morning.
ReplyDeleteInterest rates continue to trend up in response to better than expected retail sales and a rise in import prices.
https://www.cnbc.com/2023/08/15/retail-sales-report-july-2023.html
Fitch says it may have to downgrade the credit ratings of major U.S. banks.
https://www.cnbc.com/2023/08/15/fitch-warns-it-may-be-forced-to-downgrade-dozens-of-banks.html
Concern about China's economy is accelerating.
Cramer attributes the decline more to the latest Trump indictment. While all of Trump indictments will increase political dysfunction since most republicans believe Donald is innocent and a victim of political retribution, but would believe a Democrat is guilty who committed the same acts with the same proof described in those indictments, I doubt that the Stock Jocks are reacting at all to the last indictment which was universally expected for some time.
+++
I discussed the Canadian reset equity preferred stock PWFPRT:CA in my last comment. I noticed last night that the fill was at C$18.65, rather than at C$18.7 which was my limit price.
Plymouth REIT has called its 7.5% equity preferred stock that I own, PLYMPRA. The call is at the $25 par value + the accrued and unpaid dividend.
I was up in the middle of the night (not on purpose) and futures were down at least this much, and the only news item was China doing poorly.
DeleteSo the rest like Finch and rate increases due to good reports of a strong economy, came after. Though with the current exuberation, it could take those in addition , for China not to fade out.
I don't see how this could have anything to do with the Trump indictments. Anyone investing based on Trump getting elected, has already been sending him their hard-earned dollars to cover his legal costs for all the other indictments. A new pre-announced set isn't moving their expectations.
Stock declines picked up after the Fed released the minutes for its last meeting. The minutes indicate that the FED remains concerned about inflation and declaring victory too soon. More rate hikes may be necessary.
ReplyDeletehttps://www.cnbc.com/2023/08/16/fed-meeting-minutes-signal-coming-rate-moves.html
I believe that it would be a mistake to hike rates again this year. If inflation remains near current levels by year end, then one or two .25% rate increases in the first half of 2024 may be justifiable.
It's interesting how the market anticipated something to be nervous about. I wonder what information leaked.
ReplyDeleteI hope the Fed waits for the current hikes to sink in before jumping to more. It's a mistake that's been done before.
So it looks like China's struggling with a slowdown. While there's inflation in the US. I think a slowdown in Europe. It looks like a setup for stagnation is possible. There's something uncomfortable about China hitting a slowdown while the US is dealing with inflation.
Land: The 10 year treasury hit a 15 year high today, but the yield is what I would call a historical normal yield based on a 2% real rate plus a currently expected annual average CPI of 2% to 2.5% over the next 10 years. Maybe investors and companies need time to adjust to what is normal after about 15 years of FED manipulating rates below the inflation rate.
DeleteChina, even more than the U.S., has relied on parabolic increases in debt to fuel GDP growth. The economic activity associated with China's property sector is about to end as all bubbles eventually do. Creditors will take a hit. Projects will not be completed. New projects will not start. Loans made by China's banks will go to money hell and consequently can not be used to fund economically productive activities. Economic activity will contract or slowdown as less growth can be fueled by more debt.
It remains to be seen whether the inflation problem in the U.S. is in the rear view mirror. When investors start to think based on some new old news that maybe that is not the case, then there will be an anxiety attack. I did not see in the FED minutes today anything that is actually new news. A good chunk of the inflation now is being caused by the hot "owners equivalent rent" number, and that phony pretend expense item is expected to decline in the coming months.
HI southgent do u think inflation is here to stay ; whats your take on buying some TLT? thanks , still reading your blog
ReplyDeleteGE: TLT can work when long term interest rates have peaked and are in a long downtrend, but purchasing that ETF would be less desirable than buying directly long term treasuries in that scenario, either at auction or in the secondary market. The reason is that TLT and other long term bond ETFs will own a considerable number of bonds bought when interest rates were much lower which drags down the current yield. The 20 year treasury bond has gone up 25 basis points so far this month and had a 4.55% yield as of yesterday’s close.
ReplyDeleteOver a 15 year period, TLT’s nominal total returns has been abysmal and deeply negative adjusted for inflation. The current yield at today’s price, unadjusted for taxes, is barely above the inflation rate.
https://www.morningstar.com/etfs/xnas/tlt/performance
IMO, the risk outweighs the potential reward. Long term inflation rates are impossible to predict. The more likely than not scenario would be that inflation has peaked and will trend down into a 2%-3% range, but that is just a best guess based on what I know now.
Buying the ten year treasury directly makes more sense to me in that the current yield is at least close to what I would call a normalized rate, which is a 2% real + 2%to 2.5% currently anticipated annual average inflation over the next years predicted in the 10 year TIP breakeven inflation rate (now at 2.32%). Buying a 10 year TIP in a retirement account with a current yield near 2% would provide a better total return than the nominal provided the annual average inflation rate was above the current breakeven inflation rate.
One reason why longer term treasury yields are rising is the huge supply coming from the treasury, a factor that increase yields independent of inflation and inflation expectations. I expect that upward pressure will be material in the coming decades.
The next 10 year auction is on 9/12 with the 30 year on 9/13 and the 20 year on 9/19. The next ten year TIP auction is on 9/21.
thank you ; great thinking; still following!!!!!
DeleteThe S&P 500 is going to struggle for as long as the 10 year treasury yield continues to inch higher.
ReplyDeleteU.S. 10 Year Treasury Note
4.322% +0.065%
Last Updated: Aug 17, 2023 at 12:14 p.m. EDT
https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=home-page
I suspect that institutional and foreign country buying will start to pick up at the current yields, based on the projected real yields and predicted average annual inflation rate. The market is still being swamped by new supply however.
As of yesterday's closing yield, the highest treasury yield from 1 month to 30 years was the 3 month treasury bill at 5.56%. The 1 month to the 6 month T Bill yields have flatlined (5.52% for the 1 month T Bill to the 5.56% high). This indicates to me that the Bond Ghouls still believe there will not be another FF rate hike this year.
I would attribute the recent increase in intermediate and longer term treasury yields almost exclusively to excessive new supply, rather than a change in inflation expectations.
Treasuries can be bought at auction commission free at Schwab, Vanguard and Fidelity. Purchases at those brokers in the secondary market are also commission free.
Treasuries are an extremely liquid market. Bid/ask spreads are small even for small lot transactions. These bonds have $1K par values but are priced at 1/10th of par value. So an order to buy 1 at 100 would cost $1,000.
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