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Update For Portfolio Positioning And Management 2016 4th Quarter

|Includes: FRFHF, GLD, HT, NVS, PACB, Pfizer Inc. (PFE), PRNEX, RY, SLV, VGHCX, VHT

This topic is being updated daily in my Comment Blogs. This post will be summarizing some previous comments, adding new ones and providing updated tables of a few basket strategies.

The last Instablog update can be found here: Update For Portfolio Positioning And Management As Of 8/21/16 - South Gent | Seeking Alpha

My portfolio management goals are described in this 2014 post: Portfolio Management Goals-Snapshots of Performance Numbers YTD, 3 and 5 Years Cumulative.

I am no longer in the asset accumulation phase and have no debt.

I am more concerned now with capital preservation than capital appreciation.

For risk assets, I am primarily focused on income generating securities which includes dividend growth common stocks, equity preferred stocks, above average yielding common stocks, closed end funds, and individual bonds bought either on the stock exchange or in the bond market.

I am a fact based, unemotional investor. I have been an investor through countless market corrections and dips, way too numerous to even recall now, two long term secular bear markets in stocks, and three catastrophic bear markets marked by relatively quick 45%+ market declines. I am not going to be ruffled by anything thrown at me.

Most positions are bought in small lots, with a lot of averaging down and occasionally averaging up, using commission free trades or trading in my Interactive Brokers' account where the brokerage commission is negligible ($1 minimum and up to .5% of trade value, Commissions | Interactive Brokers)

I will generally manage positions by selling the rips and buying the dips as a risk management technique.

This trading approach frequently involves selling my highest cost lots profitably and keeping my lowest cost lots.

The general goal is to reduce my average cost per share over time while harvesting some profits along the way including profits on shares bought with dividends. By selling the highest cost shares, I reduce my tax liability in addition to lowering my average cost per share and increasing my dividend yield based on the lower constant cost per share number.

The general goal is arrive at a point where a less at-risk money generates more income.

I am retired and spend a lot of time researching securities using original source material.

I own securities throughout the capital structure worldwide.

One risk management technique is that I will not risk more than $15K in the securities issued by one company.

The Big Picture:

Stable Vix Pattern: The Stable Vix Pattern formed in July 2016. I discussed some reasons why this pattern terminated the Unstable Vix Pattern after 11 months: Update For Portfolio Positioning And Management As Of 7/24/16 - South Gent | Seeking Alpha Other possible reasons have emerged since I wrote that post which I will summarize below.

A Trigger Event In The Vix Asset Allocation Model 8/31/15 - South Gent | Seeking Alpha

Vix Asset Allocation Model - South Gent | Seeking Alpha

For now, the herd opinion is that GOP control over the government will usher in significant law changes that will improve the profitably of U.S. corporations. Those changes generally relate to lower tax rates, fewer and less onerous regulations, and a tax holiday of some sort for the repatriation of foreign cash. Potential adverse outcomes are being assigned a zero chance of occurring IMO.

The U.S. economy has been and is improving before those changes take place. Both Obama and Bush Junior began their first terms during a recession and serious job losses. That will not be the case when Trump becomes President next month.

The second revised estimate for REAL 3rd quarter GDP growth was a robust 3.2%. News Release: Gross Domestic Product The estimated Nominal GDP increased $207.7B or 4.6% to $18,657B.

Job creation numbers have been decent coming out of the worst recession since the Great Depression:

Bureau of Labor Statistics Data

Generally, it takes 7-8 years for an economy to fully recover from a recession caused by a banking crisis. Recovery from Financial Crises: Evidence from 100 Episodes

Average hourly earnings have been accelerating at a faster rate than inflation, thereby creating real wage growth. Atlanta FED Wage Growth Tracker The last reading in that Wage Growth Tracker, which was for October, showed a 3.9% increase in wage growth.

The increase in short term rates will generate more disposable income for households owning savings accounts, certificates of deposit, money market mutual funds and short term treasury bills.

Households have $8.8045 trillion in savings accounts as of 11/28/16, up from around $3.974T in early January 2008:

Total Savings Deposits at all Depository Institutions -St. Louis Fed

Households currently have over $10T in money tied up in risk free or low risk investments that have generated negative real returns for 8 years and have provided miniscule after tax income that can be saved, spent or used to pay down high cost debt.

The other sources of low yielding investments would include retail money market funds, certificates of deposit, checking accounts, short term treasury bills and savings bonds. Some of that data can be found in Table 4 of the Fed's H.6 releases: FRB: H.6 Release--Money Stock Measures, Release Dates

If I increased the weighted average yield on those investments by just 2% from current levels, an additional $200+B per year in pre-tax disposable income would be created that could support benign consumer spending, which I define as being spending sourced from disposable income growth rather than debt accumulation.

Household debt service payments as a percentage of disposable income remain near historical lows.

Household Debt Service Payments as a Percent of Disposable Personal Income-St. Louis Fed

The same is true for mortgage payments as a percentage of disposable income:

Mortgage Debt Service Payments as a Percent of Disposable Personal Income-St. Louis Fed

While this will sound like a tired refrain to long time readers, the increase in disposable personal income ("DPI") after debt service payments, largely caused by the home refinancing tsunami at historically low and long term mortgage rates, allows households to spend and save more without incurring an equivalent amount of debt. The impact is like a stimulus check in the amount of the savings after refinancing the main household debt obligation. I have been making this same point for over 4 years now.

The wealth effect created by a robust stock market remains in effect and has gathered some momentum after the election.

The S & P first mortgage, second mortgage and credit card default indexes remain tame and way below the levels hit in the 2008-2010 period. The Composite S & P/Experian Credit Default Index is currently at .87%, well below the 5.51% peak hit in May 2009. S&P/Experian Consumer Credit Default Composite Index - S&P Dow Jones Indices The credit default indexes have been relatively stable for several years now.

The ISM services PMI rose to 57.2 in November from 54.8 in the previous month. November 2016 Non-Manufacturing Any number over 50 indicates expansion. The employment component rose to 58.2% from 53.1%.

The ISM manufacturing PMI for November rose to 53.2 from 51.9. ISM Report - November 2016 Manufacturing

The Markit PMI numbers for the Eurozone have been turning up: markiteconomics

Markit Economics - Press releases

The problems, as I see it, remain valuations and the discounting of potential negative events to zero possibilities. Possible negative events would include trade wars, a failure to enact meaningful changes in tax and regulatory policies, a recession at some point within 3 or 4 years, a major adverse geopolitical event, higher than expected interest rates and inflation, and chaotic U.S. political conditions under the new Trump administration.

Investors have become giddy again and have already priced major stock indexes to reflect all or nearly all positive scenarios that may occur for several years.

Market Remains Overvalued - dshort - Advisor Perspectives

Inflation and interest rates are trending up, and I expect that to continue.

However, the continuation of extremely abnormal CB monetary policies will dampen the rise in interest rates below normalized levels. The recent actions of the FED and ECB only indicate a gradual slowing down of their interferences in the free market. Taking the foot off the accelerator some.

The normalized level is one determined by a free market in accordance with historical criteria including inflation, credit worthiness and inflation expectations.

There has been no free market in the interest rate setting process for eight years.

A normalized ten year treasury yield would be somewhere in a 3.75% to 4.25% range now based on the inflation expectations built into the 10 year TIP price and an average 2% spread to the annual average inflation expectation. The ten year treasury closed at a 2.47% yield last Friday (12/9/16): Daily Treasury Yield Curve Rates

In the governments last CPI report, the annual rate of inflation was reported at 1.6% through October 2016: United States Consumer Price Index (NYSEARCA:CPI) YoY Core CPI has been running consistently over 2% this year: United States Core Consumer Price Index (CPI) YoY

The headline Y-O-Y CPI numbers have until now been restrained by significant negative Y-O-Y energy costs. Those costs have now turned into tailwinds for inflation.

This can be seen by comparing the current WTI spot prices and those that can be reasonably anticipate with the prices prevailing in November 2015 through March 2016:

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Summary of Portfolio Management and Positioning:

Since I last published this table, I have significantly pared all of my larger leveraged bond CEFs due to interest rate concerns.

After significantly paring a position, I changed my distribution option to reinvestment from cash.

In my exchange traded bond and preferred stock basket, I am attempting to cope with interest rate risk in a variety of ways:

1. Floating Rate Securities And Interest Rate Risks: I am buy floating rate securities when adding to fixed coupon ones. Those securities have the potential to increase their coupons during a rising rate period.

Most of the floater purchases have been Canadian reset equity preferred stocks. Some of those reset every quarter at spreads to the 3 month Canadian T Bill which is what I call a pure floater. Others reset every five years at a spread to the five year Canadian bond. For anyone unfamiliar with how the Canadian resets work, I have drag and dropped some recent discussions into the Appendix section below along with some links to prior posts.

I have also added some to my synthetic floater bond position. Those securities are complicated and probably need to be avoided by most investors. I have been buying and selling them since early 2009. They come in two basic flavors. The first are the pure floaters that pay a spread to a short term rate like the 3 month Treasury Bill or the 3 month Libor rate. The others pay the greater of a minimum coupon or a spread over short term rates. Those will require the Libor to increase significantly from current levels to trigger an increase in the coupon, whereas the coupons of the pure floaters will rise along with applicable short term rate.

2: Interest Rate Risk and Small Lot Trading: Another way that I cope with interest rate risk is to buy small lots, average down when prices decline further and potentially sell higher cost lots when and if there is another rally in bonds.

3. Interest Rate Risk and the Investment of All Cash Flow: I will also by using the entire cash flow generated by my bond and preferred stock positions to buy more of the same, provided interest rates continue to trend up. That will increase my yields and cash flow over a period where interest rates are rising in a persistent manner. I do not know now how high rates will go or whether we are only now at the start of a long term secular bear market in bonds.

4. Interest Rate Risk and Individual Bond Ladders: I can mitigate interest rate risk by buying individual bonds using a ladder approach. Most of those purchases have had or will have maturities in the 2019 to 2026 range.

My bond ladders will use individual TIPs, treasury bills and notes and mostly investment grade corporate bonds.

The treasury securities are bought either at auction or in the secondary market.

Update On Buying TIPs In The Secondary Market - South Gent | Seeking Alpha

I can participate in treasury auctions directly through one of my brokers who do not charge a commission for those trades (e.g. Fidelity and Vanguard) or through my Treasury Direct account.

I am scheduled to currently a 3 year note Monday through Treasury Direct; $1K in a 5 year treasury to be auctioned on 12/28/16; and $1K in a two year note to be auctioned on 12/27/16. ($1K though purchases can be made for as low as $100). I will be buying one 5 year TIP at the 12/22/16 auction through my Vanguard Roth IRA brokerage account. I will probably buy $5K in a January 3 month T Bill auction through Treasury Direct and simply schedule automatic rollovers which I can cancel as a matter of convenience. The notes are not automatically rolled over. If I do not schedule a rollover, they will be redeemed with the principal amount paid directly into my checking account.

Treasury Auction Schedule.pdf

I have only recently started to buy Treasury securities again. That kind of investment is primarily for capital preservation. There was a time, not that long ago, when treasuries produced a good income stream as well.

As discussed earlier, I reopened a treasury direct account and my first purchase was $3K in an IBOND: Buying IBonds Through Treasury Direct - South Gent | Seeking Alpha

5. Interest Rate Risk and Bond ETFs: I am avoiding those bond funds where investors can withdraw funds (net outflows in ETFs and mutual funds) that cause the fund managers to sell securities into a declining market, thereby locking in lower prices and impairing the net asset value per share of the remaining shareholders. I call this form of interest rate risk "bond fund redemption risk". CEF bond funds do not face this particular form of interest rate risks but are exposed to other forms.

The regional bank basket has exploded upward since the election and I have steadily been harvesting profits. I predicted that this sector would be a major beneficiary of Trump's victory on 11/9:

However, I did not foresee such a powerful and fast move up.

1. Regional Bank Basket: This topic was last updated here: Update For Regional Bank Basket Strategy As Of 8/18/2016 - South Gent | Seeking Alpha

The following table does not yet reflect the disposition of my highest cost BDGE lot, bought at $28.25 (10/12/16) and sold at $37.05 yesterday. I discussed buying that lot here:

I have been selling into the parabolic rise in regional bank stocks since the election. Even with the elimination or paring of some positions at profits, the unrealized profit continues to move up.

Table as of 12/8/16 (prices as of 12/9):


Without the profit from the 50 shares of BDGE sold yesterday, the profit since the formation of this basket strategy in the 2009 Spring stands at $32,162.8. I generated $2,097+ in dividends last year, but this year will likely show a decline due to fewer positions. I generally do a yearly computation in January.

2. Equity REITs: This topic was last updated here: Update For Equity REIT Basket Strategy As Of 8/27/16 - South Gent | Seeking Alpha

There has been a bout of profit taking in this basket that started when I detected a non-temporary uptrend in interest rates. The selling started in earnest in late summer.

I have discussed how interest rates impact REIT stock prices elsewhere. Scroll to "Interest Rate Movements and REIT Stocks" Update For REIT Basket Strategy As Of 8/11/15/Interest Rate Cycles And REIT Stock Prices - South Gent | Seeking Alpha

Many investors, including well known authors here at SA, draw incorrect conclusions about REIT performance during periods of rising intermediate term interest rates. Those periods need to be separated from periods when short term rates are rising due to the FED raising the FF rate while intermediate term rates remain stable in part due to impact of rising short term rates on inflation and inflation expectations.

The May to December 2013 period was one where intermeidate and long term rates were rising, and REITs tanked.

The 2004-2006 period is one where short term rates were rising rapidly but intermediate term rates initially fell and then stabilized.

Current Table

VNQ is included in the table for comparison purposes.

I am tracking realized gains and losses, along with annual dividend payments, here: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy While I have invested in REITs for a long time, I started the basket strategy approach for this sector in September 2013 after they started to crater in price.

Total Net Realized Gain Since September 2013 Inception: $14,137.41 (of which $1,545.66 has been in equity preferred stocks)

The total was at $8,855.58 when I updated the basket on 7/1/16.

I discussed reasons for maintaining an allocation to REITs here: Scroll to "Why Own Equity REITs" at Update For Equity REIT Basket Strategy As Of 7/24/15 - South Gent | Seeking Alpha

As to purchases since last update, I have discussed in comments buying back 160 of the 200 OHI shares sold at over $37 a few months ago. Those discussions can be found in several Comment Blogs I bought several small lots that totaled 160 shares using commission free trades, with those lots bought at $32.9 (prior to last ex dividend date), $32.67, $30.78, $29.75 and $28.39. So I was averaging down. I am reinvesting the dividend.

I have bought some additional units in Canadian preferred stocks given their low P/AFFO ratios and high dividend yields.

And, last Friday, I initiated a position in W.P. Carey Inc. (NYSE:WPC) by buying 30 shares in my IB account at $59.45.

After selling down my SNR position, I bought another 50 shares at $9.10 before the recent ex dividend date. South Gent's Comment Blog # 3: REITs, Preferred Stocks And Bonds, Regional Banks, Healthcare & Biotechs, CEFs, Currencies And International Trading - South Gent | Seeking Alpha

I am down to only 50 shares of MPW and and BRG. STAG has been reduced to a 100 share positions. IRT has been cut in half or thereabouts. I eliminated IRET and GPT.

The paring that started in July are discussed in my REIT basket updates through the last one published in August and thereafter in my comments.

3. CEFs: This topic was last updated here: Update For CEF Basket Strategy As Of 8/28/16 - South Gent | Seeking Alpha

The leveraged bond CEFs are struggling. I started to pare my exposure in late summer.

I did add to my ADX position after the year end distribution of $.84 cents per share went ex dividend. The dividend will be paid on 12/28/16. Adams Diversified Equity Fund Declares Year-End Distribution; Exceeds Its Annual 6% Minimum I will be reinvesting the dividend only a 200 share lot held in my Fidelity account.

I will also be reinvesting the GAM year end distribution of $3.08 per share which has not yet been received. General American Investors Company Declares Year-End Dividends and Distributions on Common and Preferred Stock

I did buy some Royce Micro-Cap (NYSE:RMT) shares after the election based on the thesis that Trump's policies would benefit U.S. centric companies. While some micro-caps have foreign sales, they are far more dependent on the U.S. economy than companies included in the Russell 1000 index. iShares Russell 1000 ETF | IWB

Table as of 12/9/16 (does not yet reflect the change in BOI):

While I own CEFs that pay dividends quarterly or pay most or all of their distributions at year end, I am also focused on generating monthly income. This is a list of owned CEFs that pay monthly and the current total monthly income generated by each position.

When I last compiled this list in August 2016, the monthly total was $823.19. I have pared several leveraged bond CEFs that has reduced that number to $637.55 or $185.64 less dividend income per month from CEFs that pay monthly dividends.

I eliminated the BlackRock Credit Allocation Income Trust (NYSE:BTZ) and subsequently bought 100 shares back.

The largest pares were in GDO and ZTR, where I previously indicated a desire to reduce both positions by year end. (scroll to "General Risk Discussion for Leveraged Bond CEFs") I also discussed those risks here.)

1. GDO-Western Asset Global Corp Defined Opportunity Fund

These calculation were made about ten days ago and do not include shares recently purchased with dividends.

1,100.72 Shares x. $.1135=$ 124.93

I have knocked the position down from about 1700 shares. GDO liquidates in 2024. The duration was 6.89 years as of 9/30/16. The fund was leveraged at 22.27% as of 9/30.

Sponsor's Page; GDO's CEF Connect Page; Holdings as of 7/31/16

2. THQ-Tekla Healthcare Opportunities Fund

1017.53 Shares x. $.1125=$ 114.47

CEF Connect Page; Holdings as of 6/30/16; Sponsor's Page

Healthcare stocks have underperformed the market in 2016.

3. ZTR-Zweig Total Return Fund

628.37 Shares x. $.1130= $ 71

4. VGI-Virtus Global Multi-Sector Income Fund

350.67 Shares x. $.156= $54.4

5. ERC-Wells Fargo Multi-Sector Income Fund

567.38 Shares x. $.0923= $ 52.37

6. GHY-Prudential Global Short Duration

542.86 Shares x. $.10=$ 52.29

7. FAX-Aberdeen Asia-Pacific Income Fund

1,019.67 Shares x. $.035=$35.69

8. BCX-BlackRock Resources & Commodities Strategy

598.17 Shares x. $.0446= $26.68

9. BWG-Legg Mason BW Global Income Opportunities Fund

220.49 Shares x. $.09+= $19.84

10. KIO-KKR Income Opportunities Fund

100 Shares x. $.125= $12.5

11. ESD-Western Asset Emerging Markets Debt Fund

113.858 Shares x. $.105=$11.96

12. THW-Tekla World Healthcare Fund

100 Shares X. $.1167=$11.67

13. GGN-GAMCO Global Gold Natural Resources & Income Trust

162.03 Shares x. $.07= $11.34

14. BIF-Boulder Growth & Income Fund

109.883 Shares x. $.033 = $10.23

15. FAM-First Trust/Aberdeen Global Opportunity Income Fund

114.431 Shares x. $.075= $8.58

16. BTZ BlackRock Credit Allocation Income

100.57 Shares x. $.0705=$7.09

17. BOI-Brookfield Mortgage Opportunity Income Fund

50 Shares x. $.1271 = $6.36

Brookfield recently completed the reorganization of its CEFs into one fund called Brookfield Real Assets Income (NYSE:RA). CEFs: 3 Brookfield Funds Merge; A "Real Asset" Fund Emerges - Focus on Funds - I received 32 RA shares for 50 BOI. CEFConnect has not yet picked up data for this new fund. The sponsor's page shows a net asset value per share of $25.16 as of 12/9/16. Based on a closing price of $21.95, the discount at that time was -12.76%. The monthly dividend rate is shown at $.199 per share. Brookfield Real Assets Income Fund - Brookfield Public Securities At the $21.95 price, the yield would be about 10.88%. RA Fact Sheet_Dec2016.pdf

18. ARDC -Ares Dynamic Credit Allocation Fund

60 Shares x. $.1025=$6.15

Total Monthly Dividends From Above: $ 637.55 x 12= $7,650.6 annually

I have a lengthy discussion of bond CEF risks in the Appendix section to an earlier post: Update For Closed End Fund Basket Strategy As Of 8/14/15 - South Gent | Seeking Alpha

I discussed the factors impacting the dividend payout for leveraged closed end funds here: Update For CEF Basket Strategy As Of 10/14/15 - South Gent | Seeking Alpha (Scroll to APPENDIX: 1. Factors Impacting a Dividend Payout for Leveraged Closed End Bond Funds Using VKQ as an Example)

The CEF risk associated with a forced reduction in leverage at the most inopportune time, sort of like a margin call during a huge downdraft, is discussed in this post. Update For REIT Basket Strategy As Of 9/17/15 (scroll to RNP Presents a Good Historical Example of One Risk Inherent in Using Leverage)

I view the closed end portfolio to be a balanced worldwide portfolio within a larger portfolio that includes individual stock and bond selections.

4. Bonds and Preferred Stocks: This topic was last updated here: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 8/25/16 - South Gent | Seeking Alpha

The following table includes only exchange traded securities. I do not have a table showing my existing $1,000 par value bonds bought in the bond market. I am far more active trading bonds in the bond market compared to exchange traded bonds. I focus on BB+ or higher rated bonds maturing between 2020-2026 and used a ladder approach when building bond ladders that are periodically torn down and then rebuilt hopefully at better prices/yields.

Table as of 12/9/16:

Part 2:

As noted in prior comments, my strategy has changed for bonds effective on 11/22/16 when I started to nibble again due to the price declines which at least started to make the yields slightly more attractive. Based on my risk tolerances and income focus, bonds and preferred stocks are gradually becoming more attractive to me as prices decline and yields increase.

The long term secular bull market in bonds that started in 1982 had reached a point where yields no longer adequately compensated me for credit and/or interest rate risks.

Consequently, I have been in a hyper trading mode for bonds and preferred stocks for about four years.

I would buy declines in prices, notably in the autumn and early winter of 2013, and then sell when prices recovered and reached levels again where the yields were no longer worthwhile given the risks-at least to me.

I currently believe that interest rates will work their way higher, and intermediate and longer term bonds will go down in price with periodic rallies.

Nonetheless, I am going to buy over the next year enough bonds and preferred stocks to generate $10K annually in additional income, using a small part of my current 40% cash allocation.

Two Conditions:

1. Purchases are permitted only when the ten year treasury is over a 2.3% yield; and 2. Purchases will continue only for as long as the dominant trend in interest rates is up. I will be buying in small lots, spacing the purchases out over time, and will be primarily using my Schwab commission free trades that expire one year prior to the ones that I have with Fidelity. I will reinvest the cash flow to buy more of the same. Some buying will be in my IB account which currently has too much cash for a trading account after a recent bout of selling into the market's most recent burst skyward.

Normally, I would not buy into what may easily turn into a long term bear market for bonds. I would be selling into bond strength, which I have been doing, before the worm turns and then redeploy elsewhere including short term bonds.

I will be buying corporate bonds in the bond market (2020-2026 maturities), TIPs in a Roth IRA account, equity preferred stocks and exchange traded bonds. I can hold the short to intermediate term bonds until maturity, so a temporary price decline becomes less important.

By focusing on individual bonds and using a ladder strategy, I am still subject to the risk of lost opportunity, a category of interest rate risk, during a period of rising interest rates. That risk involves tying up funds in lower yielding securities that could have been invested in higher yielding ones by simply waiting. I am willing to accept that risk since I do not know how high rates will go and I can lessen the impact by reinvesting cash flow generating by existing positions into buying more at lower prices and higher yields.

For potentially longer duration bonds, I am managing interest rate risk to some extent by buying small 30 share lots and averaging down.

Two recent examples of initial 30 share purchases are the eBay Inc. 6% Senior Notes due 2056 (later bought another 40) and the Entergy Louisiana LLC Mortgage Bonds 4.875% Series due 2066. Both of those securities are Exchange Traded Baby Bonds where the issuer reserves the option to call at par value five years after the IPO, a potentially major disadvantage to the owners when rates are falling. If rates are rising, and it is not advantageous for the issuer to refinance, then the issuer will allow the owners to keep the bonds that are falling in price.

When I buy a small odd lot, I am anticipating averaging down, but I am not certain that I will be given the opportunity or how far the price will fall before hitting bottom.

Purchases Starting on 11/22/16 (all have $25 par values):

Approximate Annual Income is in the parenthesis. I have not done that calculation for securities classified as floaters including the fixed-to-floating rate floaters that are currently in fixed coupon periods.

50 AEB AEGON N.V. Floating Perpetual Capital (no computation-Floater)

30 AEH AEGON N.V. 6.375% European Hybrid ($47.78)

50 AGNCP AGNC Investment Cumulative 8% Equity Preferred Series A Stock ($100)

50 AHTPRD Ashford Hospitality Trust 8.45% Cumulative Equity Preferred Series D ($105.63)

29 BGEPRB BGE Capital Trust II 6.2% Trust Pfd (partial fill)($45)

50 CIOPRA City Office REIT Inc. 6.625% Cumulative Floating Rate Equity Preferred Series Series A ($78.13)

50 COFPRH Capital One Financial 6% Equity Preferred Stock ($75)

50 CYSPRA CYS Investments Inc. 7.75% Cumulative Preferred Series A Stock ($96.88)

50 DCPRD (NYSEARCA:CAD) Dundee Corp. Cumulative Preferred Series 3 Stock (DC.PR.D:TOR)(4.1% over the 3 month Canadian T. Bill Rate) (no calculation-floater)

50 DLRPRI Digital Realty Trust Inc. 6.35% Cumulative Equity Preferred Stock ($79.48)

80 EBAYL eBay Inc. 6% Senior Unsecured Notes due 2056 ($105)

30 ELC Entergy Louisiana LLC First Mortgage Bonds 4.875% due 2066 ($36.56)

12 EMP Entergy Mississippi Inc. 4.9% First Mortgage Bonds (partial fill)($14.7)

100 FFHPRD Fairfax Financial Holdings Ltd. Cumulative Floating Rate Pfd. Series D Stock (floats at a spread to the 3 month Canadian T Bill/no computation of income)

30 GMTA GATX 5.625% Senior Unsecured Notes ($42.19)

50 GYC Corporate Asset Backed Corp. CABCO Series 2004-102 Trust SBC Communication Inc. Call Floating Rate Certificates-Interest Payments at the Greater of 3.25% or .65% over the 3 Month Libor Rate With Maximum Coupon of 8% (underlying bond is a senior AT & T bond maturing on 6/15/34)(no calculation)

100 HTGZ Hercules Capital Inc. 7% Senior Notes due 2019 ($175)

50 NLYPRD Annaly Capital Management 7.5% Cumulative Equity Preferred Stock Series D ($93.75)

50 PSAPRE Public Storage 4.9% Cumulative Equity Preferred Series E Stock ($61.25)

50 REXRPRA Rexford Industrial Realty 5.875% Cumulative Equity Preferred Series A ($73.48)

50 RNRPRC RenaissanceRe Holdings 6.08% Equity Preferred Series C Stock ($76)

100 RYPRZ Royal Bank of Canada Non-Cumulative First Pfd. Series AZ (no computation-Floater)

80 SCEPRJ SCE Trust IV 5.375% Fixed-to-Floating Rate Equity Preferred Stock Series J (no computation floater)

50 SLRA Solar Capital Ltd. 6.75% Senior Notes due 2042 ($84.28)

100 SGZA Selective Insurance Group 5.875% Senior Notes due 2043 ($146.88)

50 SWJ Stanley Black & Decker 5.75% Junior Bond Due 2052 ($71.88)

50 WFCPRV Wells Fargo & Co. 6% Equity Preferred Series V Stock ($75)

50 WBSPRE Webster Financial 6.4% Non-Cumulative Preferred Series E Stock ($80)

Total Fixed Coupon Additions Starting 11/22/16 (Excludes Floaters) =$27,956

Approximate Total Fixed Coupon Additional Annual Income= $1,766

Yield on New Fixed Coupon Additions: 6.317%

The general idea will be to raise that yield on new purchases by buying at lower prices and higher yields over the next year or so. I would be satisfied with a 7% to 7.5% weighted average yield at the end point.

Discussions of these purchases, with a few exceptions, can be found in my Comment Blogs.

Dispositions after the Election and Prior to 11/22:

Sold 100 JPMPRH at $25.99 on 11/18

Current Exchange Traded Bonds and Preferred Stock Table:

I have snapshots of net trading gains for the following exchange traded bonds and preferred stock categories. The net trading gains were in small lots.

Overview: Exchange Traded Bonds: New Gateway Post

Trust Certificates: New Gateway Post = $29,565.05

Advantages and Disadvantages of Equity Preferred Floating Rate Securities (includes Canadian Resets)= $15,907.2

Baby Bonds - South Gent | Seeking Alpha = $8,026.44

Advantages and Disadvantages of Equity REIT Cumulative Equity Preferred Stocks = $6,384.65

Aegon Hybrids: Gateway Post = $4,512.81

TRUST PREFERRED SECURITIES - South Gent | Seeking Alpha =$4,136.47

Non-REIT Fixed Coupon Equity Preferred Stocks = $2,704.44 (snapshots now at the end of REIT Cumulative Equity Preferred Stocks Post linked above)

ING Hybrids = $2,117.96

Synthetic Floater transactions are included in the Trust Certificate category.

Fixed coupon exchange traded bonds and preferred stocks have what I call asymmetric interest risk between the owner and the issuer that clearly favors the issuer.

I discuss the asymmetric interest rate risk of exchange traded fixed coupon securities here: Update For Bond And Preferred Stock Basket Strategy As Of 9/10/15 - South Gent | Seeking Alpha

I discussed the interest rate risk and other material topics here: Update On Bond And Equity Preferred Stock Basket Strategy As Of 8/14/15 - South Gent | Seeking Alpha(scroll to following titles in the Appendix section: Interest Rate and Lost Opportunity Risks for Fixed Rate Coupon Equity Preferred Stocks; Credit Risks; Volatility Risk for Equity Preferred Stocks)

5. Healthcare: This topic was last updated here: Update For Healthcare Basket Strategy As Of 8/12/16 - South Gent | Seeking Alpha

I have not being doing much in this sector basket strategy. This basket includes small cap biotech lottery tickets bought with a maximum exposure per ticket of $1K.

Current Table as of 12/9/16

Profitable Dispositions Total $1,844.51 -ALL SMALL LOTS: AGN (eliminated); AGEN (eliminated); AMGN (eliminated); BBC (eliminated); CYTK; EPZM (eliminated); HZNP (eliminated); IBB (eliminated); IMDZ (eliminated); MACK; MRK; NVTA; PFE; PGNK; PRTK; RIGL (eliminated); SNY

Unprofitable Dispositions Total $ 417.98: ARGS; EARS; NVAX

Over the past two weeks through last Thursday, I have been added to my VGHCX position and initiated a position in VHT which I can buy commission free in my Vanguard brokerage accounts. I intend to go over 100 shares of VGHCX before year end.

Drug stocks initially popped on after the election which alleviated concerns about government price controls. The rally quickly faded as part of sector rotation out of defensive stocks into cyclical ones based on a herd consensus opinion that growth, interest rates and inflation would accelerate. The downdraft accelerated some after the Donald channeled Bernie Sanders on drug prices, but the market quickly concluded that Donald's talk was just talk and the GOP congress would take no steps to control drug prices through government management.

Largest Net Addition Since The Last Update: PFE

I would view Pfizer shareholder's as one of the beneficiaries of a tax repatriation holiday.

Pfizer recently completed a debt offering at low rates:

"On November 21, 2016, Pfizer Inc. (the "Company") completed a public offering of $1,000,000,000 aggregate principal amount of 1.700% Notes due 2019, $1,000,000,000 aggregate principal amount of 2.200% Notes due 2021, $1,750,000,000 aggregate principal amount of 3.000% Notes due 2026, $1,000,000,000 aggregate principal amount of 4.000% Notes due 2036 and $1,250,000,000 aggregate principal amount of 4.125% Notes due 2046." 8-K; Prospectus (use of proceeds section at page S-7).

Last Earnings Report: SEC Filed Press Release

Pfizer: Easy to Swallow With Low P/E, 3.8% Yield - Barron's



Canadian Resets: I use Interactive Brokers to make international trades. For 100 or less shares, my usual purchase lots, the commission is C$1. Prior to purchasing a Canadian security traded in Toronto, I have to own a sufficient amount of Canadian dollars to pay for the trade or I need to buy CADs before placing the trade.

I was running out of CADs last Thursday so I sold $2,000 to buy C$2,638.18 at the USD/CAD exchange rate of 1.31909:

I incurred a $2 currency conversion fee which, if memory serves me, is built into the exchange rate. Fidelity and other brokers would charge 1% of the value as a fee or $20 on $2K.

The USD/CAD rate was 1.3174 as of 5:00 P.M. on 12/9/16.

Interactive 10 Year USD/CAD Chart

Looking at that chart, the low for the USD was hit in 2011 when 1 USD would buy only C$.95. Most of the damage to the CAD started in the 2014 summer when crude prices started to crater. The CAD is generally viewed by many as a commodity currency.

The best result would be for two events to happen at the same time: (1) my owned Canadian securities to rise in value in CADs and (2) for the CAD to return to parity ($1 =C$1) or higher. I could then sell the security for a profit and exchange the proceeds back into USDs to generate what would probably be a greater profit. A return to parity would generate close to a 33% gain just on the currency conversion.

I can hold my Canadian Dollar position, if need be, until my DOD and then my heirs can decide what to with it. The position is somewhere over $100K. Until the currency profit harvesting time arrives, I am attempting to generate trading profits and income with my Canadian dollars by buying income generating securities in Toronto that include Canadian Reset equity preferred stocks, Canadian REITs, Canadian ETFs (e.g. FIE), and Canadian CEFs.

I started a rotation into Canadian resets last February with a 300 share purchase of ENBPRP at C$12.39: Item # 1 Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 2/29/16 I later added 200 shares.

Closing Price Last Friday: C$16.4 Enbridge Inc. 4% Pfd. Series P Stock Price Today (ENB.PR.P:TOR)

ENBPRP pays a 4% fixed coupon until 3/1/19 when it resets for five years at a 2.5% spread to the 5 year Canadian bond, unless called then at the C$25 par value.

While ENBPRP is my largest unrealized dollar gain, near $1300 U.S.D, VSNPRC is my largest unrealized percentage gain in this category, having bought 100 shares C$12.96 (Item #2), and the closing price last Friday was C$ $19.39.

In the five year reset category, I have C$100+ unrealized gains in 50 or 100 share lots in CPXPRC, EMAPRC (C$234), PPLPRC (C$188); PPLPRG, and TRPPRE. My largest net unrealized loss is C$35 in DCPRD.

Unlike U.S. preferred stocks that permit an issuer redemption at par value on or at anytime after a specific date, the Canadian resets permit an optional issuer redemption only at the reset dates.

The Canadian resets have performed far better than U.S. fixed-to-floating rate preferred stocks over the past several months. I have harvested some profits in Canadian resets totaling about USD$956+. The Canadian dollar profit numbers are higher, but I do not report income to the IRS in Canadian Dollars. I am classifying these securities in the same category as U.S. equity preferred floaters. Snapshots of profits can be found in my Gateway Post on that subject: Stocks, Bonds & Politics: Advantages and Disadvantages of Equity Preferred Floating Rate Securities

RYPRZ: This is a non-cumulative reset equity preferred stock issued by the Royal Bank of Canada. I bought 100 at C$18.9.

Royal Bank of Canada Non-Cumulative. First Pfd. Series AZ
Change +0.03 +0.16%
December 9, 2016, 3:59 p.m.
52 week low $16.00
52 week high $19.85
Div yield 5.28%
Ex dividend date 1/24/17

This one is still in its fixed coupon period. The fixed coupon is 4% applied to a C$25 par value and will remain in effect to, but excluding 5/29/19. Unless redeemed by RY at that time, the coupon is reset for five years at a 2.21% spread to the five year Canadian bond. To achieve a coupon greater than the current 4%, the five year Canadian bond would need to be over 1.79%. I view that as likely. How much higher is anyone's guess. As I mentioned earlier, a normal 5 year rate for Canada, excluding the Great Depression period and the period during and after the Near Depression, would be in the 4% to 5% range. I doubt that the lower end of that range will be hit by May 2019 but it is possible.

The benefit is a decent current yield based on the 4% coupon and the 24.4% discount to par value. The discount provides some potential capital appreciation when and if rates continue to rise and investors start predicting a higher coupon on the reset date. The discount juices the current yield at the fixed coupon rate and for all subsequent coupon resets compared to buying at par at the IPO which was not that long ago (January 2014).

The prospectuses for RY preferred stocks are available here:

Share Information

One final note. This security is "non viability contingent capital" preferred stock. If things get really bad, and RY has failed or is about to fail, then the NVCC preferred stock can be forced to convert into common shares. The RY NVCC preferred shares have a Pfd-2 rating from DBRS which is equivalent to BBB. The non-NVCC preferred is rated one notch higher at Pfd-2 (high) or BBB+.

The NVCC provision can be found in the prospectus starting at page S-10: SeriesAZ.pdf

I seriously doubt that any preferred shareholder would likely receive a recovery in that kind of dire scenario. So I view it as a distinction without a difference on credit risk. And, there are possible scenarios where the conversion into common stock would work out better than keeping a plain vanilla non-cumulative equity preferred stock where the bank survives and then returns to prosperity.

However, investors do not see it my way.

RYPRI is a non-NVCC preferred stock that has already reset as a much lower coupon at 3.52% and a lower float over the five year at 1.93%. This security also reset in February 2014 at a 1.93% spread to the five year.

That one closed at C$24.29 on 12/9/16: Royal Bank of Canada 1st Pfd. Stock Price Today (RY.PR.I:TOR)

Div yield 3.62%
Ex dividend date 1/24/17

FFHPRD: I added to two Canadian reset equity preferred stocks today and initiated a position in FFHPRD by buying 100 at C$17.98 (C$1 commission at IB).

Fairfax Financial Holdings Ltd. Cumulative Floating Rate Pfd. Series D
$18.04 12/8/16
Change -0.06 -0.33%
Volume 4,073
Dec 8, 2016, 3:48 p.m
Div yield 5.06%
Ex dividend date 12/14/16
52 week low C$15.15
52 week high C$18.56

Fairfax Financial Holdings Ltd. Cumulative. Floating Rate Pfd. Series D (FFH.PR.D:TOR)

This one floats at a 3.15% spread over the 3 month Canadian treasury bill. The Series C ended its fixed coupon period on 12/31/14 whereupon the coupon was reset at a 3.28% spread to the five year Canadian bond. As with other Canadian resets, the prospectus for the Series C allows its owners to convert into the Series D. Those who do not convert are locked into the new Series C coupon, which was reset at 4.578% for five years.

12/02/2014 Press Release: Fairfax - Fairfax Announces Reset Dividend Rate on Its Series C Preferred Shares

The TSX listing for the Series D started with the reset date.

The Canadian 5 year bond is moving up some in yield since I last discussed it:

Today's Close (12/8/16) at 1.03%:

Canada 5 Year Government Bond Bond

The Bank of Canada has been keeping it benchmark rate at Great Depression levels for awhile as I have previously noted with a table going back to the early 1930s. The question is how much longer can this extremely abnormal monetary policy, given current economic conditions and reasonably anticipated inflation.

The current 3 month Canadian T-Bill rate is about .49%.

The keys to the floaters over the T-Bill rate is the discount to par value and how quickly will this short rate return to something approaching a normal level which is in the 4% to 5% range excluding the Great Depression period and the Near Depression period to the present.

Historical 5 Year Canadian Bond Rates Since 1980: Selected Government of Canada Benchmark Bond Yields - 5 year / Quelques rendements d'obligations types du gouvernement canadien - À 5 ans

Historical 3 Month Canadian Treasury Bill Yields Since 1934:

Treasury Bill Auction - Average Yields - 3 Month / Adjudication hebdomadaire de bons du Trésor - Rendement moyen - À 3 mois

I paid a lot less for other 3 month T Bill floaters, but they have much lower spreads too. And the resets have rallied in price since some of those earlier purchases including a 3 month T Bill reset issued by Fairfax:

1. Bought 100 FFHPRF at C$12.36: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of April 1, 2016 - South Gent | Seeking Alpha (2.16% spread)

6. Bought 100 FTSPRI AT C$10.46: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 3/28/16 - South Gent | Seeking Alpha (1.45% spread)

2. Bought 100 TRPPRH at C$10.25: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 5/26/2016 - South Gent | Seeking Alpha (1.28% spread)

A riskier purchase, Capital Power Corp. Pfd. Series 1 Preferred Stock (CPX.PR.A:TOR), has a 2.17% spread. This one closed at C$13.7 last Friday, up C$.46 per share and my purchase was at C$10.2 (Item # 3 Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 4/14/16)

So I had to pay up for the 3.15% spread.

At a 4% T Bill, the coupon would be 7.15% but the effective yield at a constant cost of $17.98 would be about 9.94% and that is the point.

I am using Canadian resets in my allocation plan to sensitize my fixed income portfolio to a greater than currently expected rise in short to long term rates. Only outliers are expecting a 5% to 6% ten year U.S. treasury in 4 to 5 years, and those outliers may end up being on the low end. If rates remain abnormally low, then the 3.15% spread to even an all time historically low Canadian T Bill rate produces close to a 5% yield at $17.98

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.