Game Therapy

Today takes us off the beaten path with a more personal, rather than investing, theme. As many of you already know, in 2013 I suffered a series of five strokes which overnight turned my world upside down. 2014 was a blur of procedures, tests, medicine calibration and therapies centered on relearning some basic functions such as speaking (I now stutter), walking (with a cane) and basic logic function (depends on the side of the brain). The most difficult issues for me – (my wife’s may differ) – were walking with some right side paralysis, inability to drive and loss of basic math skills. The brain is a weird beast in that I can’t add and subtract but I can perform complex algebra.

Through this journey I’ve uncovered many things that frustrate me, one being walking as a therapy (doctors’ orders) is inherently boring – particularly when cross-country hiking is out of the question. That is until my granddaughter introduced me to Pokémon Go in July of 2016. Since then, I’ve experienced improved dexterity in the fingers on my weak side, an element of improvement in low level strategic thinking and an impetus to get my rear in gear.

The results I’ve had have now been replicated in government funded research studies – one of the reasons I’ve long had Nintendo (NTDOY) on my watch list, included Nexeon MedSystems (NXNN) in my portfolio and am closely monitoring Niantic’s funding rounds. This may be one reason the popularity of Pokémon Go has continued to increase rather than being a flash-in-the-pan. Other games, such as Fortnite, are generally too intense or fast moving for folks like me. I even have difficulty in Las Vegas with the strobe lights on the machines.

For awhile I’ve been struggling with the how and why of sharing this as I’m generally a private person. Then I ran across Captain Zach Brooks story and how his struggles parallel mine – though mine is a walk in the park by comparison. I saw his success as an inspirational guide and figured that perhaps mine could do likewise (in addition to answering the question as to the eclectic nature of some of my holdings). While my daily routine includes my walks (weather permitting), there is also a dose of Pokémon Go as well. And if you play the game and need another friend my trainer code is: 8321 0821 5972

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Recent Sell – GE

I decided to publish this as my weekly post as time is of the essence for any of my readers contemplating a similar decision.

Since the most recent dividend cut, I’ve been holding my GE stock – and almost pulled the trigger to buy more – for one reason: the potential value of the proposed spinoffs. The healthcare unit being a crown jewel and the rail unit being an interesting one.

Word on the street is that the healthcare IPO may not be as lucrative to GE investors as previously thought as GE may monetize a greater share (probably good for the company, though). This I was willing to overlook until the terms were actually released.

My decision to sell was reached when the revised terms of the rail unit were released. Last week it was announced that GE would monetize more of the deal – basically to shore up the balance sheet a little with cash and by shifting the tax liability to shareholders. End result is each share of GE will receive approximately .005403 shares of WAB. You read that right – owners of 100 shares will receive about a half of a share of WAB. As no fractional shares are to be issued, cash in lieu of shares is to be expected.

I’m willing to take a slight loss (as I previously averaged down). What I am unwilling to take is a possible tax liability as well. Frankly, my faith in this company no longer extends that far.

The record date has been set for February 14th with the spin and merger occurring February 25th. If so inclined, I’ll buy WAB at a later date. I am willing to buy into the healthcare unit at (or post) IPO depending on the structure.

I have to acknowledge that the days of playing the contrarian are probably over for this stock. My prior strategy – which was profitable – had been to buy companies which had purchased units that GE was offloading. Under this CEO – and for the first time in many years – this plan is no longer viable.

January 2019 Update

The new year began with a flourish shrugging off the December selloff and recovering most of the losses. With the month exhibiting minimal turbulence outside some earnings misses, my purchases were essentially toppers to existing holdings (except one) – all in the first week. The S&P rose 7.29% while my portfolio lagged a little rising 6.48%. In reality, I was probably even but my cash position was abnormally high as I failed to deploy the cash received from a merger (I exclude cash from my investing positions). I expect this will normalize during February.

PORTFOLIO UPDATES

• Lost GBNK, GNBC and SHPG via mergers
• Added TAK and regained IBTX via mergers
• Added new position BDXA
• Increased VGK, MSCI, SF, JPMV, HTH, GNTY, EBSB, EWA, DGX, CUT, CL, BNCL and BHBK positions

DIVIDENDS

While my primary focus resides on dividends with the goal being a rising flow of dividends on an annual basis, I’m placing less emphasis on the quarterly numbers as the number of semi-annual, interim/final and annual cycles have been steadily increasing in my portfolio.

• January delivered an increase of 19.63% Y/Y, the impacts being dividend increases, special dividends and reinvesting merger cash proceeds into the portfolio.
• January delivered a 0.83% decrease over last quarter (Oct) – the impact of two dividend cuts.
• Dividend increases averaged 8.84% with 20.81% of the portfolio delivering at least one increase (including 2 cuts (GE, OMI).
• 2019 Dividends received were 9.33% of 2018 total dividends putting me on target to exceed last years’ total in October.

Note: I updated my Goals page to provide a visual of these numbers.  Based on Mr All Things Money’s instruction set with a conversion to percentages.  My code only updates when the monthly Y/Y number is exceeded.  Otherwise, the prior year actual is used.

2019 conversion remains pending

SPINOFFs

GE‘s rail unit to spin then merge with WEB. This was restructured in January to generate more cash for GE – end result being a taxable event for shareowners

GE to spin 80% of the health business

NVS proposed spin of Alcon scheduled for shareholder approval Feb 2019

On Oct 4,2018 MSG filed a confidential Form 10 to spin the sports business

MERGERS

XRX merger with Fujifilm cancelled (still being litigated).

BNCL to merge into WSFS

BHBK to merge into INDB

SUMMARY

To escape January’s dividend cuts relatively unscathed is monumental. Back in October my expectation was for the effects to linger through the first quarter. Now I can just put my head down and focus on the long game.

Conspiracy Theory: The Fed

Every now and again a friend of mine asks my view of the world as it relates to conspiracy theories.  For the uninitiated, these are plausible concepts with minimal basis in truth that take on a life of their own through repetition by a willing spokesperson.  A recent example is Info Wars as reported by Rolling Stone.  This platform has been – and continues to be – used by the now indicted and arrested former Trump confidante, Roger Stone.

The theory in question – which has existed for nearly 200 years in some form or fashion – centers on the role played by the Rothschild family in the formation of the Federal Reserve.  While the family’s wealth was at one time vast, nationalizations (France), confiscations (Germany/Austria), charitable donations and dilution between various heirs have reduced the fortune.  One leading view was that the wealth was being used to accumulate land holdings as the precursor to a ‘one world order’.  This one was obviously deflated last week with the sale of their final Austrian property.

As in any good Mythbuster episode, there’s always a secondary revelation and in this case it pertains to Federal Reserve ownership.  The Fed is both a public and private enterprise, the Board of Governors is a government agency while the twelve banks are stock companies.  Their shares are restricted with ownership limited to Fed member banks which currently number about 767 banks.  FRB shares pay a dividend of roughly 6% per annum which for one of my smaller banks Brookline Bancorp (BRKL) would’ve been about $1m last year.  The Fed also pays interest on both required and excess reserves on deposit currently about 2.4%.

Fed membership is not compulsory and many smaller institutions choose not to join, taking advantage of correspondent relationships.  With the advent of the 1976 banking law permitting interstate banking, correspondent banking began to decline and Banker’s Banks arose on fears of competition from their bigger brethren.  Banker’s Banks are structured similarly to the Fed (owned by member banks) but are subject to regulatory oversight.  An interesting tidbit … Congressional hearings in 1923 on lack of participation in the Federal Reserve highlighted a trust issue between large and small, rural and urban – a divide that obviously continues to this day!

So, no the Rothschild family don’t own the Federal Reserve or banking system.  If you own stock in a National bank or State chartered member bank – you own the Fed.

 

Random Thoughts

With the big news being government dysfunction – the partial shutdown in the US, the Brexit power play in the UK, Hong Kong’s volatility and Italy’s lagging growth, earnings reports provided a modest nudge to the markets which was welcomed generally by the Financials.  I’m more interested in the forthcoming multinational reports as a barometer of health.  Thus – as usual in earnings season – my mind tends to wander to obscure – some could posit meaningless – issues to occupy myself.  With a short market week and the only other to-do item is blog housekeeping – here’s my diversionary tactic.

Mergers & a Buy

The first full week of 2019 was busier than usual with three mergers completed – and I still haven’t completed the year end conversion on my blog data.  I’m getting there though – although one unexpected item was the decision of three of my companies to change their names exacerbating the conversion even further.  I figured this week we would dive a little deeper into the mergers and the subsequent purchase.

Guaranty Bancorp

This one was straightforward with Independent Bank Group (IBTX) shares swapped for GBNK shares on January 1st.  On September 13th I had sold my IBTX shares at $66.15 which was prescient in that the 4th quarter selloff hit Financials particularly hard.  I now have more IBTX shares than I previously had with a cost basis of $48.67.  So my arbitrage angle worked out nicely on this one.

Green Bancorp

The next one was Veritex (VBTX) shares swapped for GNBC shares, also on January 1st.  Holding both sides to completion was a losing proposition as both were impacted with the 4th quarter swoon.  Making matters worse was the forced sale of the new shares (computer glitch on the broker side) locking in a loss on the transaction.  I still retain the old shares so my booked loss is $6.54 per share.  At least the prior one was a nice offset.

Shire Plc

As with a number of investors, I incurred a paper loss on the Baxalta spinoff from Baxter on July 1, 2015 along with the subsequent acquisition by Shire on June 3, 2016.  While this loss was offset to a degree by the cash component of the Shire merger, a loss was carried forward.  On January 8th, the Takeda Pharmaceuticals (TAK) acquisition of Shire was completed.  While the shares have arrived, the cash component is expected next week.  Citi (the ADS sponsor) has provided initial indications that this merger is a fully taxable event (cash and stock) under the new tax law.  Chalk another unintended consequence onto the Trump plan as the intent of the IRS ruling was to increase revenues, I’ll finally be able to book my remaining loss on next years’ taxes decreasing their take (if the ruling holds).

Becton Dickinson

Tom at Dividends Diversify recently performed a Deep Dive on BDX, which I won’t go into here, but I had been researching preferred issues of which they had made the cut.  In general terms preferred stock pays a fixed dividend, has less (or no) voting power, but has a higher standing in the event of bankruptcy.  Each issue is different so it is wise to review the prospectus.

This is my first foray back into preferreds since 1978.  Becton’s pfd A (BDXA) is not callable, yields 5.34% (at my purchase price) and matures May 1, 2020 when it converts to .2361 shares of BDX stock.  The proceeds were used in financing the CR Bard acquisition.  I bought on the 8th making me eligible for the February 1st dividend.  I suspect we’ll see a little dilution in BDX when these mature.

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So there we are with my ‘week in review’ and hope you had a good start to your year!

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Dec 2018 Update and Year End Review

he fourth quarter swoon continued in earnest this month resulting in an annual loss for the markets.  While the final trading day closed higher (DJIA up 265, NASDAQ up 51 and the S&P up 21) it was nowhere near close enough to avoid the worst December since 1931.  Though surprised by the resiliency of the US dollar, last year’s intent to migrate further into foreign equities was largely preempted by tariff uncertainty. My other 2018 concern of rising federal deficits stifling the economy did not manifest itself as yet – though I remain skeptical of  administration claims that growth can outpace the deficit. For the month, the S&P index dropped by 9.18% while my portfolio dropped by ‘only’ 8.44%. For the year the S&P posted an unusual loss of 6.65% while my overall loss was 3.57%. In an otherwise ugly ending to the year, my primary goal of exceeding the S&P’s return was attained marking the 33rd year (of 38) that I’ve been able to make this claim.