Economy:
On a non-seasonally adjusted basis, CPI rose 2% Y-O-Y through April 2019, an increase of .1% from the March Y-O-Y number. Core CPI also increased .1% to 2.1% Y-O-Y. Tariffs will add to inflation by making imports more expensive and by providing a price umbrella for domestic producers to raise prices. Consumer Price Index Summary
On a non-seasonally adjusted basis, CPI rose 2% Y-O-Y through April 2019, an increase of .1% from the March Y-O-Y number. Core CPI also increased .1% to 2.1% Y-O-Y. Tariffs will add to inflation by making imports more expensive and by providing a price umbrella for domestic producers to raise prices. Consumer Price Index Summary
Here’s the hit U.S., Chinese and global economies could face as trade battle heats up - MarketWatch (provides estimated GDP impacts)
I have been discussing the China trade negotiation in comments to prior posts.
A competent negotiator needs to know how far to push the other side. If you push too far, the other side could easily walk away and then both sides pay a high price.
With China, I have mentioned in several prior posts that the Trump Administration may have pushed China too far and now China is pushing back.
The key U.S. demand, which is apparently a bridge too far, is that the U.S. would keep all or some of the tariffs as an enforcement mechanism even after China caved to other U.S. demands. I have seen that demand in several media reports cited unnamed sources. Vice Premier Liu stated in a Q and A after the Friday meeting that all tariffs had to be eliminated for China and the U.S. to reach an agreement. China, U.S. to hold more trade talks as Trump ratchets up tariff threat - Reuters; China will not flinch in the face of U.S. pressure, top negotiator says after talks - The Washington Post
The natural question to ask is why would China agree to those terms. That question is obvious but apparently has not occurred to the Duck.
Donald believes that the U.S. has China over barrel.
There is some truth to that belief in that the balance of trade is lopsided in China's favor and China's economy is more dependent on exports.
The U.S. was consequently in a position to cause a meaningful restructure in the trade relationship after imposing the tariffs, where China would buy substantially more U.S. products and alter some internal policies that provided its businesses with unfair advantages.
The question for a competent negotiator is how far to push in this round of negotiation without causing a breakdown. It remains to be seen whether or not a resolution will be successful.
China has options and can cause a lot of pain for American businesses with Chinese operations. China has the next move in the tit-for-tat.
How China could 'play dirty' in retaliation for Trump's new round of tariffs
A competent negotiator needs to know how far to push the other side. If you push too far, the other side could easily walk away and then both sides pay a high price.
With China, I have mentioned in several prior posts that the Trump Administration may have pushed China too far and now China is pushing back.
The key U.S. demand, which is apparently a bridge too far, is that the U.S. would keep all or some of the tariffs as an enforcement mechanism even after China caved to other U.S. demands. I have seen that demand in several media reports cited unnamed sources. Vice Premier Liu stated in a Q and A after the Friday meeting that all tariffs had to be eliminated for China and the U.S. to reach an agreement. China, U.S. to hold more trade talks as Trump ratchets up tariff threat - Reuters; China will not flinch in the face of U.S. pressure, top negotiator says after talks - The Washington Post
The natural question to ask is why would China agree to those terms. That question is obvious but apparently has not occurred to the Duck.
Donald believes that the U.S. has China over barrel.
There is some truth to that belief in that the balance of trade is lopsided in China's favor and China's economy is more dependent on exports.
The U.S. was consequently in a position to cause a meaningful restructure in the trade relationship after imposing the tariffs, where China would buy substantially more U.S. products and alter some internal policies that provided its businesses with unfair advantages.
The question for a competent negotiator is how far to push in this round of negotiation without causing a breakdown. It remains to be seen whether or not a resolution will be successful.
China has options and can cause a lot of pain for American businesses with Chinese operations. China has the next move in the tit-for-tat.
How China could 'play dirty' in retaliation for Trump's new round of tariffs
++++++
Markets and Market Commentary:
Donald must enjoy manipulating the Stock Jocks who are easily manipulated by one of his tweets.
Dow stages 400-point comeback, ends the day higher
The major turnaround last Friday started with Mnuchin saying the talks were constructive even though the meeting on Friday did not last long. The Chinese delegation left D.C. later in the day. Bloomberg reported that the talks had made little progress. Trump Says No Rush on China After Tariff Hike on $200B of Goods - Bloomberg
Trump then twitted that negotiations will continue and he may or may not remove the tariffs based on those negotiations.
Those two tweets sent the DJIA and S & P 500 into positive territory.
I can only say that the Duck's tone changed from his morning tweets where he basically viewed an acceleration of the tariff war as better for the U.S. than a new trade deal.
My approach to Donald's tweets last Friday was simply to classify them all as attempts to manipulate, which is something that Donald does whenever he is awake. Donald is proof that pathological liars, carnival barkers, shameless self promoters and fraudsters can go far in America.
Donald must enjoy manipulating the Stock Jocks who are easily manipulated by one of his tweets.
Dow stages 400-point comeback, ends the day higher
The major turnaround last Friday started with Mnuchin saying the talks were constructive even though the meeting on Friday did not last long. The Chinese delegation left D.C. later in the day. Bloomberg reported that the talks had made little progress. Trump Says No Rush on China After Tariff Hike on $200B of Goods - Bloomberg
Trump then twitted that negotiations will continue and he may or may not remove the tariffs based on those negotiations.
Those two tweets sent the DJIA and S & P 500 into positive territory.
I can only say that the Duck's tone changed from his morning tweets where he basically viewed an acceleration of the tariff war as better for the U.S. than a new trade deal.
After the market closed, Vice Premier Liu told Chinese state media that the talks were constructive and honest. He referred to the differences as "signifiant principle issues", adding that China "absolutely cannot make concessions on such principle issues.” Liu claimed that the deletions made in the text are relatively small disagreements about phrasing, whereas the U.S. claims that the deletions gut China's commitments.
The discussions last Thursday and Friday appear to have gone nowhere and primarily involved Liu explaining why China backtracked and its firm opposition to the U.S. demand about keeping tariffs as an enforcement mechanism. If that is the case, the Stock Jock's enthusiasm, expressed in the strong turnaround rally occurring last Friday, is delusional.
A more sober assessment of the negotiations can be found in this article written by Fred Kemp, CEO of the Atlantic Council: It's time for markets to end their illusions about US-China trade deal
The next round of trade talks will be in Beijing, though I have not seen anything yet that a date has been set.
While those comments from Liu do not sound like a deal is about to happen or will ever happen for that matter, it may be enough to keep the Stock Jocks calm until something else disrupts their casual equanimity.
About all that I can say is that the talks are continuing as the confrontation heats up. The only substantive certainty is that the U.S. has raised tariffs with China likely to retaliate.
The discussions last Thursday and Friday appear to have gone nowhere and primarily involved Liu explaining why China backtracked and its firm opposition to the U.S. demand about keeping tariffs as an enforcement mechanism. If that is the case, the Stock Jock's enthusiasm, expressed in the strong turnaround rally occurring last Friday, is delusional.
A more sober assessment of the negotiations can be found in this article written by Fred Kemp, CEO of the Atlantic Council: It's time for markets to end their illusions about US-China trade deal
The next round of trade talks will be in Beijing, though I have not seen anything yet that a date has been set.
While those comments from Liu do not sound like a deal is about to happen or will ever happen for that matter, it may be enough to keep the Stock Jocks calm until something else disrupts their casual equanimity.
About all that I can say is that the talks are continuing as the confrontation heats up. The only substantive certainty is that the U.S. has raised tariffs with China likely to retaliate.
My approach to Donald's tweets last Friday was simply to classify them all as attempts to manipulate, which is something that Donald does whenever he is awake. Donald is proof that pathological liars, carnival barkers, shameless self promoters and fraudsters can go far in America.
Here are the stocks to buy if an all-out U.S.-China trade-war erupts, says Goldman - MarketWatch
Analyst: New China Tariffs Pose Threat to Apple, iPhones - Nasdaq.com The analyst is referring to the Duck's threat to expand the 25% to products that are not now subject to the tariffs. The main problem now for Apple and other companies selling U.S. products in China is their exposure to consumer boycotts based on Chinese nationalism and anger toward the U.S.
Last Friday's Close: AAPL $197.18 -$2.77 -1.39% : Apple Inc.
Previous Friday's Close (last close before Trump's Sunday tweets): $211.75 (5/3/19)
For the Week: -$14.57 per share
'Trade deal trauma' sees investors pull $20 billion
A U.S. recession will knock this asset class hard, says Steve Eisman of ‘The Big Short’ fame - MarketWatch This is not what I would call a perspicacious observation. Eisman is referring to leveraged loans and junk bonds which will be torched in a recession. There will also be lower tier investment grade bonds from highly leveraged borrowers that will sink into junk rated status.
Analyst: New China Tariffs Pose Threat to Apple, iPhones - Nasdaq.com The analyst is referring to the Duck's threat to expand the 25% to products that are not now subject to the tariffs. The main problem now for Apple and other companies selling U.S. products in China is their exposure to consumer boycotts based on Chinese nationalism and anger toward the U.S.
Last Friday's Close: AAPL $197.18 -$2.77 -1.39% : Apple Inc.
Previous Friday's Close (last close before Trump's Sunday tweets): $211.75 (5/3/19)
For the Week: -$14.57 per share
'Trade deal trauma' sees investors pull $20 billion
A U.S. recession will knock this asset class hard, says Steve Eisman of ‘The Big Short’ fame - MarketWatch This is not what I would call a perspicacious observation. Eisman is referring to leveraged loans and junk bonds which will be torched in a recession. There will also be lower tier investment grade bonds from highly leveraged borrowers that will sink into junk rated status.
+++++++
Trump:
Trump job approval surges to highest level since first month in office, RCP average finds
5 Takeaways From 10 Years of Trump Tax Figures; NYT Trump taxes report reveals $1 billion in losses over 10 years - Vox
During the period that Donald promoted himself as the smartest and most successful businessman in world history, the facts show that he was the Biggest Loser among individual taxpayers. He reported a loss totaling $1.17 billion from 1985 through 1994. Decade in the Red: Trump Tax Figures Show Over $1 Billion in Business Losses - The New York Times
The original publication date for Art of the Deal was 11/1/1987. The next self-promotion book was titled "Trump Surviving at the Top", published in 1990. Five more self-promotion books would thereafter be published allegedly written by Trump and a co-author.
When you talk or listen to a Trumpster, they actually believe that the Trump name on a building or a product indicates a Trump business, when actually the Duck has only licensed the Trump name. Donald Trump's Real Secret To Riches: Create A Brand And License It
The Trump brand was created based on the false premise that Donald was a successful business operator when in fact he had bankrupted six businesses that he tried to operate. PolitiFact This required millions to confuse flash and braggadocio with actual business success that was not tied to the Trump brand.
To the extent there was some success, it was based on the enormous tax loss carryforwards resulting from Donald's efforts to operate businesses which sheltered future income from taxes; the huge inheritance from his Daddy; the brand Trump based on his self-created myth pedaled shamelessly to the gullible; reneging on financial commitments to lenders (banks and bond owners); and using lawsuits to browbeat mom and pop businesses into accepting less than they were owed to avoid ruinous litigation.
USA TODAY exclusive: Hundreds allege Donald Trump doesn’t pay his bills
USA TODAY Network: Dive into Donald Trump's thousands of lawsuits - USA TODAY
Trump's $413 million inheritance doesn't explain his mysterious cash spending — Quartz
Trump job approval surges to highest level since first month in office, RCP average finds
5 Takeaways From 10 Years of Trump Tax Figures; NYT Trump taxes report reveals $1 billion in losses over 10 years - Vox
During the period that Donald promoted himself as the smartest and most successful businessman in world history, the facts show that he was the Biggest Loser among individual taxpayers. He reported a loss totaling $1.17 billion from 1985 through 1994. Decade in the Red: Trump Tax Figures Show Over $1 Billion in Business Losses - The New York Times
The original publication date for Art of the Deal was 11/1/1987. The next self-promotion book was titled "Trump Surviving at the Top", published in 1990. Five more self-promotion books would thereafter be published allegedly written by Trump and a co-author.
When you talk or listen to a Trumpster, they actually believe that the Trump name on a building or a product indicates a Trump business, when actually the Duck has only licensed the Trump name. Donald Trump's Real Secret To Riches: Create A Brand And License It
The Trump brand was created based on the false premise that Donald was a successful business operator when in fact he had bankrupted six businesses that he tried to operate. PolitiFact This required millions to confuse flash and braggadocio with actual business success that was not tied to the Trump brand.
To the extent there was some success, it was based on the enormous tax loss carryforwards resulting from Donald's efforts to operate businesses which sheltered future income from taxes; the huge inheritance from his Daddy; the brand Trump based on his self-created myth pedaled shamelessly to the gullible; reneging on financial commitments to lenders (banks and bond owners); and using lawsuits to browbeat mom and pop businesses into accepting less than they were owed to avoid ruinous litigation.
USA TODAY exclusive: Hundreds allege Donald Trump doesn’t pay his bills
USA TODAY Network: Dive into Donald Trump's thousands of lawsuits - USA TODAY
Trump's $413 million inheritance doesn't explain his mysterious cash spending — Quartz
White House invokes executive privilege to bar former counsel from turning over documents to Congress; Mnuchin rejects Democrats’ demand to hand over Trump’s tax returns, all but ensuring legal battle Trump's obstruction efforts have entered into a new phase, fully supported by the sycophant AG who is acting as Donald's defense attorney rather than as the lead attorney for the U.S. That is why he was appointed to the job. Barr can be counted upon to do what is best for Donald.
Trump Asserts Executive Privilege Over Full Mueller Report I view that frivolous claim to constitute obstruction.
'Hit job': Trump responds to report he lost more than $1 billion over decade Trump claims those tax losses were caused in large part by non-cash depreciation expenses. Those non-cash expenses do reduce the tax cost basis of the property.
For a successful real estate operator, the non-cash depreciation will reduce taxable income significantly, but will not eliminate it even after all other cash and non-cash expenses related to property ownership.
Just a few Examples:
Realty Income 2018 Annual Report at page 48 (retail)
Essex Property 2018 Annual Report at page 40 (apartments)
Digital Realty Trust 2018 Annual Report at page 49
Corporate Office Properties 2018 Annual Report at page 24 (office properties)
Alexandria REIT 2018 Annual Report at page 71 (office properties catering to technology and life science companies)
I included financial data for five years to show that these REITs and many others had substantial GAAP net income over the entire five year period. Non-Cash depreciation expenses merely lowered GAAP net income.
Doofus Don will be able to convince the Trumpsters, who do not have a clue, that his $1B+ loss was due to non-cash depreciation expense.
Trump's attorney Charles Harder threatened the NYT for publishing what he called a false and defamatory article:
'Hit job': Trump responds to report he lost more than $1 billion over decade Trump claims those tax losses were caused in large part by non-cash depreciation expenses. Those non-cash expenses do reduce the tax cost basis of the property.
For a successful real estate operator, the non-cash depreciation will reduce taxable income significantly, but will not eliminate it even after all other cash and non-cash expenses related to property ownership.
Just a few Examples:
 |
| 2018 GAAP Net Income of $363+ Million |
 |
| 2018 GAAP Net Income of $390+ Million |
 |
| 2018 GAAP Net Income of $249+Million |
 |
| 2018 GAAP Net Income of $72+Million |
 |
| 2018 GAAP Net Income of $363+ Million |
I included financial data for five years to show that these REITs and many others had substantial GAAP net income over the entire five year period. Non-Cash depreciation expenses merely lowered GAAP net income.
Doofus Don will be able to convince the Trumpsters, who do not have a clue, that his $1B+ loss was due to non-cash depreciation expense.
Trump's attorney Charles Harder threatened the NYT for publishing what he called a false and defamatory article:
"We have already informed you that your statements regarding Mr. Trump’s tax returns from 30 years ago are highly inaccurate and based upon information that is demonstrably false. Any story on this subject that is inaccurate and harms Mr. Trump’s reputation would be defamatory with actual malice. You are on notice. All rights are reserved." 'Hit job': Trump responds to New York Times story that he lost almost $1.2 billion over decade - ABC News
If the NYT has a good faith reason to believe that it had the Trump tax transcripts, then Harder's contentions are frivolous IMO. The news organization has the unquestionable constitutional right to publish accurate information except of course in TrumpWorld.
If the NYT has a good faith reason to believe that it had the Trump tax transcripts, then Harder's contentions are frivolous IMO. The news organization has the unquestionable constitutional right to publish accurate information except of course in TrumpWorld.
So why does Trump refuse to release even the bare bones of his tax returns in rebuttal (e.g. the 2 page 1040 and the basic schedules which altogether may be around 10 pages)
See also: Stocks, Bonds & Politics: Trump's 2005 Tax Return In 2005, Trump Was Hit With A Tax That He Now Wants To Abolish : The Two-Way : NPR
Donald's 1995 state income tax return, previously published by the NYT, shows a $913M+ million loss:
 |
| Excerpt (may be a carryforward losses from earlier tax periods) |
Pages From Donald Trump’s 1995 Income Tax Records - The New York Times This year is not included in the $1+B loss for the period 1985 through 1994 that was the subject of the recent NYT article.
Trump's use of the libel litigation has always been to punish his critics with litigation costs and to make everyone think twice before publishing unfavorable and accurate information about him. Donald J. Trump Is A Libel Bully But Also A Libel Loser; Why Donald Trump Has Never Won a Libel Case | Vanity Fair
The same purpose is behind his references to accurate reporting as Fakes News and his characterization of anyone who disseminates a criticism, no matter how justified, as the "enemy of the people".
The goal is to convince tens of millions that the GOP's propaganda and reality creations are the only true and reliable news. The move to achieve that goal started in the Nixon Administration and has only gained momentum during the Trump Presidency. It has been the most successful political strategy in American history IMO and could easily contribute to Trump's reelection in 2020 barring an ongoing recession and rapidly rising unemployment on election day.
Trump's use of the libel litigation has always been to punish his critics with litigation costs and to make everyone think twice before publishing unfavorable and accurate information about him. Donald J. Trump Is A Libel Bully But Also A Libel Loser; Why Donald Trump Has Never Won a Libel Case | Vanity Fair
The same purpose is behind his references to accurate reporting as Fakes News and his characterization of anyone who disseminates a criticism, no matter how justified, as the "enemy of the people".
The goal is to convince tens of millions that the GOP's propaganda and reality creations are the only true and reliable news. The move to achieve that goal started in the Nixon Administration and has only gained momentum during the Trump Presidency. It has been the most successful political strategy in American history IMO and could easily contribute to Trump's reelection in 2020 barring an ongoing recession and rapidly rising unemployment on election day.
+++++++++
1. Added 100 THQ at $17.15-Used Commission Free Trade:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Closing Price Last Friday: THQ $17.01 +$0.07 +0.41%
Leveraged at 22.3% as of 3/31/19
SEC Form N-Q (holdings as of 12/31/18)
SEC Filings
Sponsor's Website: Tekla Capital Management LLC
Last Purchase Discussions: Item # 4.B. (1/23/19 Post)(snapshots of recent trading profits); Item # 3.C. Bought 10 THQ at $16.1 (3/29/18); Item 2.A. Bought 10 THQ at $16.96-Used Commission Free Trade (3/8/18 Post)
Last Sell Discussions: Item # 6 Eliminated THQ at $17.65 (12/29/18 Post); Sold 100 THQ at $17.38-Used Commission Free Trade (7/2/18 Post)
Data Date of Trade (5/3/19):
Closing Market Price: $17.23
Net Asset Value Per Share: $19.04
Discount: -9.51%
Average Discount:
3 Years = -9.29%
Tekla Healthcare Opportunities Fund--CEF Connect
THQ Interactive Chart: During the 2018 4th quarter decline, THQ declined to a closing low of $15.19, shortly after going ex dividend for its monthly distribution.
Dividends: Monthly at $.1125 per share (currently supported by ROC)
Dividend Reinvestment: Yes but may quit when and if the discount falls below 5%
Last Ex Dividend Date: 4/17/19
Distributions
Chart: THQ Interactive Chart
I bought this CEF before Donald threatened to impose additional tariffs on China due to China backtracking on commitments made in the trade negotiations.
This CEF does have defensive characteristics including its dividend yield and exposure to securities that will largely be unaffected by a recession (though subject to political risks). In addition to owning healthcare stocks, the fund also owns REITs, convertible bonds and preferred stocks and plain vanilla bonds.
The following is a snapshot of the REIT positions as of 12/31/18:
Convertible and non-convertible bonds:
Convertible preferred stocks and warrants:
1. Added 100 THQ at $17.15-Used Commission Free Trade:
Quote: Tekla Healthcare Opportunities Fund (THQ)
Closing Price Last Friday: THQ $17.01 +$0.07 +0.41%
Leveraged at 22.3% as of 3/31/19
SEC Form N-Q (holdings as of 12/31/18)
SEC Filings
Sponsor's Website: Tekla Capital Management LLC
Last Purchase Discussions: Item # 4.B. (1/23/19 Post)(snapshots of recent trading profits); Item # 3.C. Bought 10 THQ at $16.1 (3/29/18); Item 2.A. Bought 10 THQ at $16.96-Used Commission Free Trade (3/8/18 Post)
Last Sell Discussions: Item # 6 Eliminated THQ at $17.65 (12/29/18 Post); Sold 100 THQ at $17.38-Used Commission Free Trade (7/2/18 Post)
Closing Market Price: $17.23
Net Asset Value Per Share: $19.04
Discount: -9.51%
Average Discount:
3 Years = -9.29%
Tekla Healthcare Opportunities Fund--CEF Connect
THQ Interactive Chart: During the 2018 4th quarter decline, THQ declined to a closing low of $15.19, shortly after going ex dividend for its monthly distribution.
Dividends: Monthly at $.1125 per share (currently supported by ROC)
Dividend Reinvestment: Yes but may quit when and if the discount falls below 5%
Last Ex Dividend Date: 4/17/19
Distributions
Chart: THQ Interactive Chart
I bought this CEF before Donald threatened to impose additional tariffs on China due to China backtracking on commitments made in the trade negotiations.
This CEF does have defensive characteristics including its dividend yield and exposure to securities that will largely be unaffected by a recession (though subject to political risks). In addition to owning healthcare stocks, the fund also owns REITs, convertible bonds and preferred stocks and plain vanilla bonds.
The following is a snapshot of the REIT positions as of 12/31/18:
Convertible preferred stocks and warrants:
2. Eliminations and Pares:
A. Eliminated BKLN- Sold 71+ at $22.94 (Commission Free for Vanguard Customers):
Quote: Invesco Senior Loan ETF Overview
Sponsor's Website: Invesco
Closing Price Last Friday: BKLN $22.87 +$0.04 +0.18%
Sponsor's Website: Invesco
Closing Price Last Friday: BKLN $22.87 +$0.04 +0.18%
Loss Snapshot: -$.38
Last Elimination: Item # 3 Sold 101+ at $23.24 BKLN (2/8/18 Post)
I going to quit fooling with this ETF. The current dividend yield is not worth IMO the risk which is highlighted in a one year chart:
I going to quit fooling with this ETF. The current dividend yield is not worth IMO the risk which is highlighted in a one year chart:
B. Pared CPTA-Sold Highest Cost 100 shares at $8.76:
History in this Account:
Profit Snapshot: +$37.28
Reduced Average Cost Per Share from $8.08 to $7.63
Remaining Position: 58+ shares
Remaining Position: 58+ shares
Dividend: Monthly at $.0844 per share ($1 per share annually)
Dividend Yield at $7.63 = 13.1%
Last Ex Dividend Date: 4/18/19
Last Ex Dividend Date: 4/18/19
Last Substantive Purchase Discussions: Item # 2.A. Bought 50 CPTA at $7.99-Used Last Schwab Commission Free Trade (11/18/18 Post); Item # 1.A. Bought 50 CPTA at $8.69 (8/29/18 Post)
As mentioned in those posts and others, CPTA is a deservedly hated BDC IMO.
Recent Earnings Report (Q/E 3/31/19): This report was released after I sold shares. Capitala Finance Corp. Reports First Quarter 2019 Results; Capitala Finance Corp (CPTA) CEO Joe Alala on Q1 2019 Results - Earnings Call Transcript | Seeking Alpha
Net investment income was reported at $.26 per share, down from $.28 in the 2018 first quarter. Included in the 2019 first quarter was a $1.281M dividend distribution from an equity investment. Without that distribution, net investment income would have been $11.403M.
The current quarterly dividend is $.25 per share paid in monthly installments.
Net asset value per share declined to $11.61 from $11.88 as of 12/31/18.
"Non-accrual loans, on a cost basis and fair value basis, represented 2.1% and 1.4%, respectively, of the portfolio at March 31, 2019, compared to 4.9% and 2.1%, respectively, at December 31, 2018."
"First lien debt investments represented 53.0% of the portfolio, second lien and subordinated debt investments collectively represented 23.4% of the portfolio, equity/warrant investments represented 20.5% of the portfolio, and our investment in Capitala Senior Loan Fund II, LLC represented 3.1% of the portfolio, based on fair values at March 31, 2019. The weighted average yield on our debt portfolio was 12.1% at March 31, 2019." (red highlight and bold letters added)
"Net realized losses totaled $5.8 million, or $0.36 per share, for the first quarter of 2019, compared to net realized losses of $3.9 million, or $0.24 per share, for the same period in 2018. During the first quarter of 2019, the Company realized losses related to Velum Global Credit Management, LLC, ($8.9 million), CableOrganizer Acquisition, LLC ($1.8 million), and Cedar Electronics Holding Corp. ($1.0 million), partially offset by a $5.9 million gain related to B&W Quality Growers, LLC. Net realized losses during the first quarter of 2019 did not have a material impact on net asset value per share, as the realized amounts were in line with our previously reported fair values." (red highlight and bold letters added)
Referring to the $8.9M realized loss in Velum Global Credit Management, this was a first lien loan. The following are snapshots of the loans to this borrower. First, note that the loans were PIK (payment-in-kind, so CPTA did not actually receive cash interest since the interest owed was merely added to the principal amount):
2014 Annual Report at page F-8
2015 Annual Report at page F-8
2016 Annual Report at page F-8
2017 Annual Report at page F-8
Note that the loan was originally due 12/31/17 Annual Report SEC Form 10-k at page F-9 Footnote 12 at page 65 says the the loan term was extended, meaning of course that the borrower could not pay the principal amount when due.
Five Year Financials Through 12/31/18: Worse than Pathetic IMO
Note the huge slide in net asset value per share!
CPTA's IPO was in 2013 with shares priced to the public at $20: Form 497
CPTA Chart: A five year chart confirms the deservedly hated characterization.
C. Eliminated CPTA Position in Fidelity Account-Sold 50 Shares at $8.81 (Used Commission Free Trade):
Profit Snapshot: +$86.69
See previous discussion above.
This leaves me with a 58+ share position in the Schwab account as noted in Item # 2.B. above. I am reinvesting the dividend in that account.
My inclination is to keep the position for another 6 to 12 months and to sell, if possible, at $8.7 or higher within that time frame. Just more small ball with the focus being earning a total return in excess of the dividend yield.
Recent Earnings Report (Q/E 3/31/19): This report was released after I sold shares. Capitala Finance Corp. Reports First Quarter 2019 Results; Capitala Finance Corp (CPTA) CEO Joe Alala on Q1 2019 Results - Earnings Call Transcript | Seeking Alpha
Net investment income was reported at $.26 per share, down from $.28 in the 2018 first quarter. Included in the 2019 first quarter was a $1.281M dividend distribution from an equity investment. Without that distribution, net investment income would have been $11.403M.
The current quarterly dividend is $.25 per share paid in monthly installments.
Net asset value per share declined to $11.61 from $11.88 as of 12/31/18.
"Non-accrual loans, on a cost basis and fair value basis, represented 2.1% and 1.4%, respectively, of the portfolio at March 31, 2019, compared to 4.9% and 2.1%, respectively, at December 31, 2018."
"First lien debt investments represented 53.0% of the portfolio, second lien and subordinated debt investments collectively represented 23.4% of the portfolio, equity/warrant investments represented 20.5% of the portfolio, and our investment in Capitala Senior Loan Fund II, LLC represented 3.1% of the portfolio, based on fair values at March 31, 2019. The weighted average yield on our debt portfolio was 12.1% at March 31, 2019." (red highlight and bold letters added)
"Net realized losses totaled $5.8 million, or $0.36 per share, for the first quarter of 2019, compared to net realized losses of $3.9 million, or $0.24 per share, for the same period in 2018. During the first quarter of 2019, the Company realized losses related to Velum Global Credit Management, LLC, ($8.9 million), CableOrganizer Acquisition, LLC ($1.8 million), and Cedar Electronics Holding Corp. ($1.0 million), partially offset by a $5.9 million gain related to B&W Quality Growers, LLC. Net realized losses during the first quarter of 2019 did not have a material impact on net asset value per share, as the realized amounts were in line with our previously reported fair values." (red highlight and bold letters added)
Referring to the $8.9M realized loss in Velum Global Credit Management, this was a first lien loan. The following are snapshots of the loans to this borrower. First, note that the loans were PIK (payment-in-kind, so CPTA did not actually receive cash interest since the interest owed was merely added to the principal amount):
 |
| 12/31/14 $8.3M Valued at $8.3M |
 |
| 12/31/15 $9.069M valued at $9.069M |
 |
| 12/31/16 $10.533M Valued at $10.533M |
 |
| 12/31/17 $12.275M Valued at $8.015M |
2017 Annual Report at page F-8
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| 12/31/18 $14.277M Valued at $2.878M |
Five Year Financials Through 12/31/18: Worse than Pathetic IMO
Sourced 2018 Annual Report at page 66
Note the huge slide in net asset value per share!
CPTA's IPO was in 2013 with shares priced to the public at $20: Form 497
CPTA Chart: A five year chart confirms the deservedly hated characterization.
C. Eliminated CPTA Position in Fidelity Account-Sold 50 Shares at $8.81 (Used Commission Free Trade):
Profit Snapshot: +$86.69
See previous discussion above.
This leaves me with a 58+ share position in the Schwab account as noted in Item # 2.B. above. I am reinvesting the dividend in that account.
My inclination is to keep the position for another 6 to 12 months and to sell, if possible, at $8.7 or higher within that time frame. Just more small ball with the focus being earning a total return in excess of the dividend yield.
D. Eliminated GAINL-Sold 50 at $25.69:
Quote: Gladstone Investment Corp. Preferred Series E Stock (GAINL)
Profit Snapshot: +$65.39
Item # 3 Bought 50 GAINL at $24.18 (1/23/19 Post)
Security Description:
Issuer: Gladstone Investment Corp. (GAIN)
Prospectus
Par Value: $25
Coupon: 6.375%
Dividends: Monthly at $.1328+, Cumulative & Non-Qualified
Last Ex Dividend Date: 4/18/19 (sold on ex dividend date)
Maturity Date: 8/31/25
Issuer Optional Call Date: On or after 8/31/20
I will consider repurchasing shares at less than $22.
I view equity preferred stocks issued by BDCs to be risky.
This is a summary of my opinion taken from a prior post:
"I am uncomfortable owning a preferred stock issued by a BDC, particularly when the yield is lower than 8%. I do not believe the yield on GAINL is adequate compensation for the risk. BDC loans are junky, and they pay out their net income to common shareholders as dividends. Consequently, there is no cash cushion for the preferred shareholders."
3. Short Term Bond/CD Ladder Basket Strategy:
$12K in Adds
$12K in Adds
A. Bought 1 Southern Company 2.375% SU Maturing on 6/1/20:
I now own 3 bonds.
I now own 3 bonds.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Southern Co. (SO)
SO Analyst Estimates
2018 Annual Report
SO SEC Filings
Credit Ratings:
Bought at a Total Cost of 99.584
YTM at TC Then at 2.759%
Current Yield at TC = 2.3849%
B. Bought 2 Zimmer Biomet 2.7% SU Maturing on 4/1/20:
FINRA Page: Bond Detail
Issuer: Zimmer Biomet Holdings Inc. (ZBH)
ZBH Analyst Estimates
2018 ZBH Annual Report
Last Bond Offerings: Prospectus Supplement
Credit Ratings:
Bought at a Total Cost of 99.9 (includes $1 per bond commission)
YTM at TC Then at 2.808%
Current Yield at TC = 2.7027%
D. Bought 1 Treasury 1.75% Coupon Maturing on 11/30/19:
YTM = 2.432%
D. Bought 2 Six Month T Bills at Auction Maturing on 10/31/19:
IR= 2.465%
Auction Results:
E. Bought 1 Goldman Sachs 2.75% SU Maturing on 5/29/20:
FINRA Page: Bond Detail
Issuer: Goldman Sachs Group Inc. (US)
GS Analyst Estimates
SEC Filed Earnings Press Release for the Q/E 3/31/19
Credit Ratings:
Bought at a Total Cost of 100
YTM and Current Yield at TC = 2.75%
At the time of purchase, one treasury maturing on 5/31/20 could have been bought with a YTM of 2.353%.
If I had any concerns about GS surviving to the maturity date, I would not accept the credit risk for .4% in additional yield.
I have 4 GS SU bonds maturing later this year. (2.55% due 10/23/19 and 2.3% due 12/13/19). I may not roll the proceeds from those bonds into other GS bonds.
GS has a lot of debt that continually has to be refinanced. The problem revealed by 2008 is that financial conditions can deteriorate rapidly to a point that credit markets seize up and refinancing heavy debt loads becomes difficult or even impossible under extreme conditions.
F. Bought Five 28 Day T Bills Maturing on 6/11/19 at Auction:
IR = 2.429%
Auction: 28 Day Bill
4. Intermediate Term Bond Ladder Basket Strategy:
A. Sold 1 Whirlpool 3.7% SU Maturing on 3/1/23:
Profit Snapshot: +$16.26
Item # 3.D. Bought 1 Whirlpool 3.7% SU Maturing on 3/1/23 at a TC of 99.874 (5/17/18 Post)
Finra Page: Bond Detail
Issuer: Whirlpool Corp. (WHR)
Sold at 101.6
YTM at 101.6 = 3.254%
Proceeds at 101.5
A. Sold 1 Whirlpool 3.7% SU Maturing on 3/1/23:
Profit Snapshot: +$16.26
Item # 3.D. Bought 1 Whirlpool 3.7% SU Maturing on 3/1/23 at a TC of 99.874 (5/17/18 Post)
Finra Page: Bond Detail
Issuer: Whirlpool Corp. (WHR)
Sold at 101.6
YTM at 101.6 = 3.254%
Proceeds at 101.5
B. Sold 1 Boston Properties LP 3.2% SU Maturing on 1/15/25:
Profit Snapshot: +$25.75
Item # 3.C. Bought 1 BXP 3.2$ SU at a TC of 96.405 (4/16/18 Post)
Finra Page: Bond Detail
Issuer: Operating entity for Boston Properties Inc-A REIT
Credit Ratings: Baa1/A-
Sold at 99.08
YTM at 99.08 = 3.376%
Proceeds at 98.98
C. Sold 2 Kroger 2.8% SU Maturing on 8/1/22:
Profit Snapshot: +$19.62
Item # 5.B. Bought 2 KR 2.8% SU at a TC of 97.499 (4/2/18 Post)(YTM then at 3.422%/current yield at 2.87%)
The annual interest payment on a two bond lot is $56.
Issuer: Kroger Co. (KR)
KR Analyst Estimates
Kroger shares on track for worst day in a year after earnings fall short - MarketWatch (3/10/19 article)
Kroger Completes Sale of Turkey Hill Business to Peak Rock Capital Affiliate
Earnings Press Release for the Q/E 2/2/19
Finra Page: Bond Detail
Sold at 99.274
YTM at 99.274 = 3.024%
I still own several Kroger bonds, though I am paring my position.
Profit Snapshot: +$25.75
Item # 3.C. Bought 1 BXP 3.2$ SU at a TC of 96.405 (4/16/18 Post)
Finra Page: Bond Detail
Issuer: Operating entity for Boston Properties Inc-A REIT
Credit Ratings: Baa1/A-
Sold at 99.08
YTM at 99.08 = 3.376%
Proceeds at 98.98
C. Sold 2 Kroger 2.8% SU Maturing on 8/1/22:
Profit Snapshot: +$19.62
Item # 5.B. Bought 2 KR 2.8% SU at a TC of 97.499 (4/2/18 Post)(YTM then at 3.422%/current yield at 2.87%)
The annual interest payment on a two bond lot is $56.
Issuer: Kroger Co. (KR)
KR Analyst Estimates
Kroger shares on track for worst day in a year after earnings fall short - MarketWatch (3/10/19 article)
Kroger Completes Sale of Turkey Hill Business to Peak Rock Capital Affiliate
Earnings Press Release for the Q/E 2/2/19
Finra Page: Bond Detail
Sold at 99.274
YTM at 99.274 = 3.024%
I still own several Kroger bonds, though I am paring my position.
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
