Another bruising quarterly report for OHI who continues to struggle with operator profitability and the SNF industry in general (IMHO) … i was seriously considering rebuilding my position and was carefully reading the earnings report / conference call … here is my post to Seeking Alpha this morning connected to Brad Thomas’ post on OHI report https://seekingalpha.com/article/4118906-just-another-day-paradise-omega-healthcare
I was seriously thinking of adding to my OHI position which i have reduced to about 25% of its early 2017 size, but … in the earnings call transcript, there was a political comment that precludes my further investment and i will work my way out of the position.
Quote: “Finally, the resignation of industry-friendly Department of Health and Human Services Secretary, Tom Price, raises the question of whether his successor will continue the largely favorable treatment of SNF industry issues strongly supported by current CMS administrator, Seema Verma, a potential successor.”
What is this? Without a friendly HHS secretary OHI business is at risk (and how was Price helping stabilize funding for SNF market)? … weakens my confidence in OHI executive suite.
This is a thought provoking post (ignore the title as ‘click bait’ but do read the article) https://seekingalpha.com/article/4115647-everything-think-know-chinese-finances-wrong
i have to re-read several times before an opinion can be formed, but this seems to be some heavy digging into data to derive this picture … which at face value is pretty un-nerving
Here is one of the better commentaries on GE that i have read recently. While the actionable advise is no better / worse than others and the author comes clean on the … GE is big, messy and intentionally financially confusing, so ultimately investors are going to have to go w/ their gut … i agree
but i really liked the use of scenarios and the ability to talk thru assumptions and drivers in the model rather than just navel gazing at the same graphs and charts the company publishes and a thousand authors redress and publish
As far as my actions wrt GE … i am holding until November investor / strategy discussion
I posted several times recently that i will buy 10yr corp bonds with >3.7% yield to call and maturity. My weekly update had a reference to Doug Short’s post on treasuries https://seekingalpha.com/article/4115250-treasury-snapshot-10-year-yield-2_39-percent
There is a bit more behind my bias toward flat or down rates (with some range on either side). The key chart from Doug’s post is this one
The key question for me is around the trend … is this a cyclical or structural downward trend in rates. The folks who forecast materially higher rates assume that the trend is cyclical. For me, and others, this is a structural trend and will not via business cycles change reverse. The structural difference is driven by automation, labor force worldwide, and the soverign debt carried worldwide. I do not have the perview nor the tools to articulate exactly what the range bands will be, but i just cannot see the overall trend reversing. That first group of folks, sic ‘the cyclicals’, are also the cheerleaders behind an upcoming certain US tax cut to help fuel the trend reveresal. I am just skeptical and do not see even a perfect tax reform tip the balance vs worldwide demographics and debt. It also seems that the answer to the question will be known by EOY ’18.
This week was filled with a bunch of noise and the real start for the earnings season. I was also focused on learning more on technical analysis with a bit of real money on the table to really drill in the lessons. That experience will be a complete post in itself.
- Some interesting executive quotes from http://avondaleam.com
- Is consumption really up as much as BoA claims? … “Consumers are spending, whether it is checks written, cash taken out of the ATM’s, P2P payments, and all the debit and credit cards, 5% more through the first nine months of 2017 than they did in the first nine months of 2016. That’s a faster growth rate than it has been in prior years.” –Bank of America CEO Brian Moynihan (Bank)
- So i should disregard all those comments about all the ‘cash on the sidelines’ … “we saw more cash go into the markets, particularly the equity markets as those markets rose around the world. And we’ve seen cash in our clients’ accounts at its lowest level.” –Morgan Stanley CEO James Gorman (Broker)
- this is just straight out marketing spin imho … “The pipeline…is strong also in our conversations with clients on the advisory side. There’s no sense of slowdown. We’re seeing a pickup in client dialogue, particularly I would note in technology, media, telecom, as well as industrials and natural resources. And so, it’s strong for all of the reasons that you would expect that CEOs are confident, equity market support valuations and acquisition currencies, the financing markets are open, the overall levels of financing costs are relatively low by historical standards.” –Goldman Sachs CFO Marty Chavez (Broker)
- The impact to real estate from rising interest rates (and all of us who make money in that market) … “Rising rates to the real estate market are troublesome. They impact cap rates, they — if — as rates go up in the front end, since most of the borrowings on the projects are floating rate, you expose coverage ratios in those loans…at the margin, I would expect higher rates are going to cause greater delinquencies in real estate, and it’s one of the reasons we have at the margin, dialed back our growth.” –PNC CEO Bill Demchack (Bank)
- I was one that thought infrastructure investments, especially water, would continue to outpace average demand – not so much? … “Although utility metering sales were relatively flat, we have seen an overall softening in the utility market over the past six months” –Badger Meter CEO Rich Meeusen (Water Meters)
- Investment dilemnas of the week = FIT, GE and O
- FIT – (will post Monday morning)
- GE – what a merry-go-round! … i went from wanting to buy more below $23, to watching the drama and deciding to wait until Flannery actually updates the Street on his strategy … my cost basis is<$18. I am still waffling on the Oil / Gas business expansion in the overall GE footprint, so that may be reason for a complete liquidation if the strategy is not compelling. a moral/ethical compromise could be made
- O – Currently, i own O in 3 different portfolios: core, trading and IRA. i sold 50% of my medium position in my IRA to free up capital for possible additional investments in PEGI or BEP / BIP. my confidence in O stock valuation expansion for near term (6-12 months) is low given the current hatred for anything brick / mortar and as well the potential rising interest rates. I will continue to hold in ‘core’ portfolio which is the largest position, and will look to either exit in trading or continue my practice of writing 60 day out of money calls when the prices are compelling.
- Euphoria … short post using GE’s Friday experience as the model … it’s compelling narrative and continuation of my bearish bias … but the wall of worry is one of the factors keeping multiple expansion alive https://seekingalpha.com/article/4115273-friday-ge-fiasco-exposes-fluff-fueled-market
- Jeff Miller / Doug Short weekly snapshot … one week bull rampage (Here is Doug’s post)
- These next two charts show how context and data type can really change the interpretation of the VERY same data … this is a comparison of 1987 and 2017 which has been a popular topic this past week … i was a broker in 1987 and remember that day (week) like it was yesterday … we as consumers of more and more visual data need to be reminded every so often that “how” the data is presented needs to be as evaluated as the data itself … else we risk error, big time. (thanks to Jeff Miller for pointing this out)
- non-normalized data
- normalize data (percentage)
- Jeff’s weekly indicators
- A truck-load of treasury data from Doug Short https://seekingalpha.com/article/4115250-treasury-snapshot-10-year-yield-2_39-percent
- this is probably the key graphic for me as i try to answer: top 10yr rate will be xx in next 2-3 years?
- regardless around the 3.4% 10yr i am back looking at 10yr investment corporates where i can get >3.7% with low / no capital risk … my eTrade screen this morning did not surface any bonds that hit my criteria … here’s Baird’s commentary (i did not find helpful)
- Or, just maybe … earnings are really supporting the multiple expansions (in a general sense) https://seekingalpha.com/article/4115248-s-and-p-500-forward-earnings-curve-tells-good-story
- My own thought here is that index investments will ride this generalization / averages … but the ride will be both directions when the tides turn
For me this week, i have only nibbled at a few small trades that are intentionally shorter term than i would prefer. I also watched in confusion as T and GE (two of my larger positions) went way south and i was torn with hold ’em, buy more or dump and run …. it ended in a stalemate of hold.
Had to put my systems thinking hat on to read this https://seekingalpha.com/article/4112906-flow-show-single-important-issue-volatility
Author has it right imho … the flows matter more and from one perspective, some very strong flows are going to be removed, shut down … but the US Fed has only talked about how the stocks will be reduced and alarmingly nothing about the impact of the flows stopping
here is the accompanying quote from the author: “The U.S. middle class suffers from stagnant wages, and has not seen an increase in their standard of living in nearly 20 years. This is not sustainable in a consumer-based economy. At some point, debt availability will run out and consumers will have to drastically lower their level of consumption, triggering a drop off in economic activity.”
Lance Roberts posted an article on SA recently that echos most closely how i am approaching things right now …. https://seekingalpha.com/article/4111553-technically-speaking-80-20-rule-investing
How i have translated the conditions into actions
- watching for irratic / irrational moves in my watch list and snapping them up if appropriate, e.g., PEGI, BEP, IEMG and EFV
- Note: either nonUS or interest paying at decent rate (these are also in 401k or IRA)
- watching for bumps in 10yr treasury yields and snapping up $5k increments of 10yr investment grade corporates, e.g., Nordstrom and Kroger
- creating a watch list for preferred stock … investment grade cummulative preferreds, e.g., (eTrade symbols for some new issues), DLR.PR.C, AOP.PR.Q, ECF.PR.A …. DLR.PR.C is my favorite but a bit highly priced @$27.70
- working short term trades for 1-3% gains (both short and long) … to borrow a baseball analogy, i am VERY defensive at the plate looking for a sacrifice or a single (no homerun) … just want to either get on base or advance the runner – no heros
- Note: for shorts, i have focused on December Puts … i pay a premium, but i have more time to catch a sequence really bad days
- trimming or liquidating stocks that just have no rational room to inflate further, e.g., CLX and possibly TJX
- writing covered calls for stocks that i would not mind losing, e.g., TSCO
Commentary, maybe’s and decisions
- personal sentiment is flat to down on US equities
- took positions in the following: PEGI (IRA), Kroger 3.7% 8/1/2017 @ $98.96, yield to maturity of 3.805 (taxable), IEMG and EFV ((401k)
- targeting to reduce or eliminate positions in the following: CLX, TJX and perhaps UMPQ
- careful toe-dipping in emerging market / asia equities
- additional corp 10yr bonds >4.25% yield to call / maturity
- stocks wanted at lower entry points: CY, MSFT
- analysis unclear – cyber security and CPU producers (is it finally time to completely give up on INTC?) – these will be part of the IOT narrative update expected later in Oct
Two small trades surfaced this week … one i like and the other is like playing 1 hand of 21. PEGI is the former and FIT is the latter.
- PEGI announced that the recent natural disasters would impact their demand but committed to keeping distributions as promised. The market dumped the stock as if this was some kind of BIG surprise. Really? … i grabbed a bit in IRA as this is one of my favorite sustainable energy income plays (HASI and BEP the others with positions in both). If i hold this for longer term, no big deal; if i earn 3-5% in intermediate term, i’ll take it.
- FIT is just one of those things … Iconic may / may not be the fitness watch to win, but there are just too many people running around w/ Fitbit devices and they built a new R&D center in Romania – i know some of the SW team and they are top-notch … i’ll put 100 share investment bet on that SW team!
Given the spike this morning in US rates, i picked up another small lot of 10yr bonds to augement the intermediate income stream. I am unwilling to extend beyond 10yrs and will stick w/ investment grade. Today’s add was Kroger 3.7% 2027 with a YTM of 3.804. My objective is to build maybe 10-20% of my taxable bond position within the 10 yr frame with yields >3.5%. The other bond i picked up a couple of weeks ago was Nordstrom 4.0% 2027; also purchased just below par.
there is a good image that merits review if you hold specific stocks or if you hold ETFs. Also, if you are looking for a possible opportunity to scavange any upcoming ETF debacle. The full source of the article that brought this to my attention is here https://seekingalpha.com/article/4109330-babies-bathwater-risks-passive-investing-etfs-pile