Sunday, June 25, 2017

Observations and Sample of Recent Trades: Eliminated KO at $45.85 (MAPTX, MCDFX, NVS, PRASX)

Trump chooses family event planner to run N.Y. housing programs - NY Daily News

Trump will never provide the public with accurate information. FactChecking Trump's Iowa Rally - FactCheck.org


President Trump’s Lies, the Definitive List - The New York Times


The Fact Checker’s tally has a list of 669 false statements made by Donald just in his first 151 days as President.


Obama’s secret struggle to punish Russia for Putin’s election assault: WP article republished at MSN (the CIA "captured Putin’s specific instructions on the operation’s audacious objectives-defeat or at least damage the Democratic nominee, Hillary Clinton, and help elect her opponent, Donald Trump.")


By the way, Donald started saying the election was being rigged by the Democrats against him after reports leaked in early August that Russia was actively engage in efforts to help Trump win. 


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It is not surprising that Donald drove his golf cart on a green, something he probably does all of the time:




Donald Trump Drives Golf Cart On The Green 


I started playing golf when I was 9. I have never seen or heard of anyone driving a golf cart on a green until now.  


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New Homes Sales


New home sales recovered from their April slump by rising to a 610,000 seasonally adjusted annual rate last month. That is 8.9% above the May 2016 estimate. The average selling price of a new home was $406,400, with the median at $345,800. new residential sales.pdf Those prices create some concern about the affordability of new homes for first time buyers. 


Other recent economic data is discussed by Robert Johnson here.


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Novartis (NVS)

I own 134+ shares. Of that number, 30 shares are owned in my IB trading account and the remaining shares are owned in another taxable account: 




I did not reinvest the dividends paid in 2014 and 2015. I discussed buying the 50 share lot in 2013 here. The shares have faced several headwinds over the past few years, including mediocre results from its Alcon division, an unexpected slow uptake of its heart failure drug Entresto, and loss of patent protection for its blockbusters Gleevec and Diovan.   

An Alcon Sale Will Take a Bargain Price - Bloomberg Gadfly
Novartis set to ride Entresto wave, says report | BioPharma Dive
Novartis braces for multibillion-dollar generics hit as Gleevec copies launch | FiercePharma

Over the past week, NVS released the results of several trials that have positively impacted the share price. 

U.S.D Priced ADR

June 20, 2017 $81.6
June 21, 2017 $82.56
June 22, 2017 $86.34 Volume 6.139+M Shares (average volume=2.267+M shares)
June 23, 2017 $86.34  

I discussed earlier the following press releases in a comment: 

Novartis RTH258 (brolucizumab) demonstrates robust visual gains in nAMD patients with a majority on a 12-week injection interval | Novartis (June 20, 2017)

Novartis Phase III study shows ACZ885 (canakinumab) reduces cardiovascular risk in people who survived a heart attack | Novartis (June 22, 2017)

The later press release caused a significant pop in the share price considering the size of the company. 

The following news releases were published last Friday: 

1. Novartis combination targeted therapy Tafinlar® + Mekinist® receives FDA approval for BRAF V600E mutant metastatic non-small cell lung cancer (NSCLC) | Novartis

The preceding FDA approval is discussed at FiercePharma

The targeted population for this combination treatment is small. One firm estimates that this indication will generate "sales of $315M for Tafinlar and $278M for Mekinist by 2025. NSCLC MARKET - Global Drug Forecast & Market Analysis to 2025 Those two drugs generated $672M in sales last year. Novartis acquired Tafinlar, Mekinist and other drugs from GlaxoSmithKline in 2015: Novartis announces completion of transactions with GSK | Novartis$16B deal for GlaxoSmithKline oncology meds turns Novartis into cancer heavyweight | FiercePharma Both drugs were previously approved for the treatment of metastatic melanoma.  (see also GSK sells cancer and multiple sclerosis drug to Novartis in $1bn deal - Telegraph)

2. Novartis data shows half of eligible Ph+ CML-CP patients remain in Treatment-free Remission nearly two years after stopping Tasigna® | Novartis

3, Novartis pivotal CTL019 6-month follow-up data show durable remission rates in children, young adults with r/r B-cell ALL | Novartis

4. Novartis Kisqali® (ribociclib) receives positive CHMP opinion as first-line treatment for HR+/HER2- locally advanced or metastatic breast cancer in combination with any aromatase inhibitor | Novartis

Novartis Quarterly Financial Results | Novartis
Novartis Q1 2017 Condensed Interim Financial Report – Supplementary Data
Novartis Financial Results Q1 2017

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Tweak in Portfolio Management: Bonds


Over the past week or so, I have sold at profits investment grade bonds maturing in either 2025 or 2026.  


Those dispositions will be discussed briefly in subsequent posts. 


They include the following bonds:  


2 Apple 2.5% SU Bonds Maturing on 2/29/25


2 CSX 2.6% SU Bonds Maturing on 11/1/26


2 CVS 2.875% SU Bonds Maturing on 6/1/26


2 Exxon 2.709% SU Bonds Maturing on 3/26/25


2 Georgia Power 3.25% SU Bonds Maturing on 4/1/26


2 Pepsico 2.75% SU Bonds Maturing on 4/30/25


2 Procter & Gamble 2.7% SU Bonds Maturing on 2/2/26


2 Sysco 3.3% SU Bonds Maturing on 7/15/26 


2 Walgreens 3.45% SU Bonds Maturing on 6/1/26

$18K


The proceeds are being redirected to short term bank CDs or temporarily to cash. I may buy one or more of these bonds back in the Roth IRA, assuming I can buy at lower prices. All of the preceding bonds were bought in taxable accounts.   


I am continuing to sell a few low current yield bonds maturing in the 2019-2024 time period range with some of the proceeds being redirected into bonds with higher current yields and YTM's than the bonds referenced above.  


There are several reasons for lightening up on the 2025 to 2026 maturities. 


The primary reasons is that I just made a material allocation in longer term Tennessee municipal bonds with a weighted average tax free yield of 3%. That yield is greater than the taxable current yield of most of the corporate bonds that I sold. I am cognizant that I increased my portfolio's interest rate risk meaningfully with those municipal bond purchases and consequently dialed that risk back a tad by selling $18K in low yielding corporate bonds.  


I have freed up some cash, close to $32K, to buy back these corporate bonds or others in my Vanguard Roth IRA where their purchase makes more sense since I am at least able to turn the taxable yield into a tax free one.  Those funds are currently deposited in a Vanguard money market fund that yields over 1%, so I am in no rush to buy a high quality corporate bond maturing in 2026 with a 3% yield. 


Vanguard - Vanguard Prime Money Market Fund (SEC Yield at 1.05%)


I am being far more aggressive than in the past managing my bond and cash positions. Even though I have pared my stock allocation, my interest income this year will be significantly higher than my dividend and interest income in prior years.      


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1. Added $650 To Asia Focused Mutual Funds:  


The precipitating event for this minor rotation out of cash was MSCI adding mainland China stocks to its emerging market index. Roughly $17 billion or more could now flow into Chinese stocks, MSCI exec says: CNBC  A catalyst will generally provoke some kind of response from me.


Last Friday, I added to my positions in the following mutual funds that have exposure to China: 


Matthews China Dividend Fund; Investor (MCDFX)

MCDFX Rated 5 Stars by Morningstar

Matthews Pacific Tiger Fund; Investor (MAPTX)

MAPTX Rated 5 Stars by Morningstar

T Rowe Price New Asia Fund  (PRASX) 

PRASX Rated 3 Stars by Morningstar 

PRASX is among the several vintage T.Rowe Price positions that were originally bought a long time ago and no shares have ever been sold.  


I eliminated Matthews China Dividend fund during a 2015 parabolic price spike:



2015 MCDFX 204+ Shares + $821.83
The price went from $13.4 (1/4/13) to $17.49 (5/31/13)-a fast 30.52% rise.  I sold on 6/3/15. I will generally sell minor positions into that kind of parabolic spike that has no underlying justification and simply wait for an opportunity to buy back when the parabola collapses upon itself which happened quickly in this case.  

I did not buy back shares in Matthews China Dividend fund until December 2016. I discussed that purchase here. I discuss there some of my reservations about China.


Overview - Matthews China Dividend Fund


I also eliminated at about the the 2015 summer my position in Matthews Asian Growth & Income Fund (MACSX):



2015 MACSX 565+ Shares +$470.62
I have not reinitiated a position in MACSX. 

Instead, I started a second position in the Matthews Pacific Tiger Fund after the China stock bubble burst: 





I am reinvesting the dividend in that account. 


Overview - Matthews Pacific Tiger Fund



In my Fidelity account, I have a lower per share cost Matthews Pacific Tiger Fund position, with some shares purchased in 2005-2006 and 2009: 



Average Cost Per share = $16.51
I have not reinvested the dividends in that account. 

This position was pared in 2007. Stocks, Bonds & Politics (Sold 32+ for a $338.62 profit)



2. Continued Paring Stock Stock Allocation:

Lately, I have been focusing more on eliminating or paring individual stock positions that have underperformed, are overvalued, and/or are currently facing significant headwinds.


A. Sold 265+ KO Shares at $45.85+:



Profit Snapshot: $5,338.55





Quote: KO Stock Price - Coca-Cola Co.
KO Analyst Estimates (P/E on 2018 Estimated Non-GAAP E.P.S.=23.17)

There is nothing to really like in trends for revenues, net income and E.P.S. for the past six years.


GAAP net income was $5.506B in 2016 and $8.634B in 2011.

Long term debt was at $13.656B as of 12/31/11. Page 78 2011 Annual Report


Long term debt was at $29.684B as of 12/31/16.  Page 75 2016 Annual Report


Free cash flow was $7.865B in 2012 according to Morningstar and $6.534B last year. Cash Flow for Coca-Cola Co (KO) from Morningstar.com


Of the $6.534B in 2016 free cash flow, KO spent $3.681B to repurchase stock and another $6.043B was paid in dividends to common shareholders. The math does not add up. KO is borrowing a lot of money to pay the dividend and to repurchase shares.


Cash Used to Pay Dividends and To Buy Stock in 2016 = $9.724B

Free Cash Flow in 2016: $6.534B
Deficit = -$3.19B

A lot of new debt is being incurred to buy stock and to pay the dividends.


The trends are all negative. In my view, KO is overvalued and something will have to give on the dividend raises and/or stock buybacks. The refinancing of debt at much higher rates will only aggravate the situation.


I will need a price less than $38 before considering a small purchase.


KO is rated 3 stars by Morningstar with a $46 fair market value estimate.


Argus has a hold with a $46 price target.


Credit Suisse has a $49 price target and an outperform rating.


S & P has a 4 star rating and a $47 twelve month price target.


A five year chart shows peak prices hit in the $45-46.5 range that was followed by a slide back to $40. Coca-Cola


3. Intermediate Bond/CD Basket Strategy:


A. Sold 2 American Water Capital 3% SU Bonds Maturing on 12/1/26:


FINRA Page: Bond Detail

AWK Stock Price - American Water Works Co.
Moody's Upgrades American Water to A3

1 Bond Sold Out of Fidelity Taxable Account ($1 Commission)

Price: 99.139
Proceeds at 99.039
Total Cost at  98.785
YTM a 99.039 as of 6/1/17 = 3.118%
Current Yield at 99.039 = 3.03%

Profit Snapshot:  $2.54





Discussed at  Item # 1.C. (3/16/17 Post)


1 Bond Sold out of Vanguard Taxable Account ($2 Commission):

Price: 99.126
Proceeds at 98.926
Total Cost at 97.836  (YTM then at 3.238%)

Profit Snapshot: +$8.9




Discussed at Item #1.D.  (4/20/17 POST)


The ten year treasury closed at a 2.21% yield on 6/1/17: Daily Treasury Yield Curve Rates


I received the semi-annual interest payment on 6/1/17 ($16.17 per bond):





I am hoping to buy at least one bond back in a Roth IRA when the YTM is over 3.5%.


When I bought this bond in my Vanguard taxable account, I though that I was in my Vanguard Roth IRA account.


B. Bought 1 Ford Motor Credit 2.9% SU Bond Maturing on 6/20/22:



This bond was bought through Fidelity's corporate notes program. No brokerage commission is paid for those purchases. The bonds are newly issued and are sold at par value with no accrued interest.


C. Bought 2 Essex Portfolio L.P. 3.625% SU Bonds Maturing on 8/15/22-In a Roth IRA Account:




Issuer:  Operating Entity for Essex Property Trust Inc (ESS)




FINRA Page: Bond  Detail (prospectus linked)

Credit Ratings:
Moody's at Baa1
S & P at BBB+

YTM at Total Cost (103.756) = 2.805%

Current Yield =  3.49%


2017 ESS 1st Quarter Report

2017 First Quarter Supplemental Financial Information
ESS 2017 10-Q for the Q/E 3/31/17
ESS 2016 Annual Report

4. Long Term Bond Strategy: Tennessee Municipal Bonds:


A. Bought 5 Tennessee Housing Development 3.375% Revenue Bonds Maturing on 7/1/2038:




The quoted price in the preceding snapshot includes the $10 Schwab Commission.


EMMA Page


Credit Ratings:

Moody's at Aa1
S & P at AA+

YTM = 3.367%

Current Tax Free Yield at Total Cost (100.123) = 3.371%

Optional Call: At Par Value on or after 7/1/25


Security:





B. BOUGHT 10 Washington County Tennessee 3% GO Bonds Maturing on 6/1/34:


Bought 5 in my Fidelity Account:




EMMA Page

Credit Ratings:
Moody's at Aa2
S & P at AA

YTM at Total Cost (98.85) = 3.087%

Current Tax Free Yield = 3.03%

Washington County - Google Maps


Optional Redemption: At Par Value on or after 6/1/26


Security:




Tax Matters Excerpt:




I later bought 5 bonds in my Vanguard Taxable Account ($10 brokerage Commission):




YTM at Total Cost (98.953): 3.079%

Current Tax Free Yield: 3.03%

5. Short Term Bond/CD Basket Ladder Strategy:


A. Bought 3 Compass Bank 1.25% CDs Maturing on 12/28/17:





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.

Tuesday, June 20, 2017

Observations and Sample of Recent Trades: (MET, VEIRX)

Long Term Risks of Stock Ownership:


"Contrary to what everyone for years has assured us, investing in the stock market does not become safer as our holding periods lengthen. On the contrary, risk increases the longer we hold stocks." Stock market risk is much greater than we thought - MarketWatch

The preceding linked article written by Mark Hulbert focuses on reversion to mean research including this article: The Latest Look at the Total Return Roller Coaster - dshort - Advisor Perspectives

I have argued in several prior posts that stock ownership can become riskier as the holding period lengthens. 


Stocks, Bonds & Politics: Long Term Stock Risks and Situational Risk (March 30, 2009 Post)


Stocks, Bonds & Politics: Duality of Long Term Risks (March 29, 2009 Post)


When I wrote those posts back in March 2009, I was rotating back into stocks. I am not rotating out. 

Reversion to mean is relevant to a long term risk analysis. Think of it in terms of the inevitable long term secular U.S. bull and bear stock market cycles. 


The problem does not simply involve regression to mean however. There is an important context which relates to an individual's personal and unique situational risks. 


Reversion to mean and the inevitability of long term bull and bear cycles have to be analyzed in the context of a person's situational risks and the relatively short time period between the acquisition of sufficient assets and the need to spend savings.  


What happens, for example, when there is a long term bear cycle starting soon after a person retires with a heavy stock allocation. 


Assume the bear cycle kicks off with a catastrophic event which I define as a relatively quick 45%+ decline. 


Most retirees would have to draw down savings by selling stock into the catastrophic event and its aftermath to pay expenses. 


To make matters worse, there could be no snap back rally like the one experienced from March 2009 to date, but instead a long term bear market interrupted by relatively short bull cycles. Inflation could eat into the purchasing power of money raised after the market's entry into a long term bear cycle. 


Those series of events did in fact occur between 1/1/1966 to 8/15/1982. The Catastrophic Event in that long term bear market for stocks and bonds occurred in 1974. 


Bear cycles came into being with Catastrophic Events starting in 1929 and 2000. 

The Catastrophic Events have notably become more frequent since the 1997 Asian Contagion and the parabolic increases in debt. 

Given the current level of interest rates compared to historical norms and the longevity of the bond bull market (35+ years), the odds of a long term bear market in bonds, coinciding with a stock bear market, as was the case for an 18 year period between 1966-1982, have increased meaningfully as stocks continue a parabolic upward spike and yields remain near all time historical lows.  Those circumstances at least raises the specter of both asset classes failing to produce adequate returns to meet the financial needs of most households over the next ten to 15 years.  


S & P 500 Since August 1982 (Google Finance Chart): 






Historical S & P 500 Since 1900 


Average Annualized SPX Total Returns (dividends reinvested) Adjusted for Inflation and Before Taxes: 


Starting in September 1929  and ending in December 1941: -3.784% (4,504 days)

Starting in January 1966 and ending in July 1982: -1.813% (6,055 days)
Starting in March 2000 and ending in February 2009: -6.957% (3,287 days)

Those are per year numbers with dividends reinvested. If I did not adjust for inflation in the Great Depression period, which had significant periods of deflation, then the annual average total return with no inflation adjustment would increase to -4.643% between 9/1929 and 12/1941. 



Total Days in long term bear cycles since 9/29/29 = 13,856

Total days 32,070
Percentage of Total in Long Term Bear Cycles: 43.21%

Sourced from S&P 500 Return Calculator, with Dividend Reinvestment (click adjusted for inflation box)

What is my point other than bad things have happened in the past? It would not be rational to assume that bad things will not happen in the future. We were very fortunate that a Second Great Depression did not start in 2008. 


With the worldwide exponential growth in debt since 2007, I would argue that the negative ramifications flowing from another deleveraging and credit default cycle are potentially catastrophic.  

The IMF Is Worried About the World's $152 Trillion Debt Pile - Bloomberg

Debt and (not much) deleveraging | McKinsey & Company

And, what happens when interest rates on that debt pile return to more normal levels? 



Nonfinancial corporate business; debt securities; liability, Level-St. Louis Fed

Federal Debt: Total Public Debt-St. Louis Fed

There has been no U.S. recession since the last one ended in June 2009. nber.org/cycles The current cycle is about 96 months in duration. List of economic expansions in the United States - Wikipedia The current expansion is the third longest since WWII. The longest was 120 months in the 1990s and the second longest was 106 months in the 1960s. The current U.S. expansion will likely exceed the 106 month duration, but I would not bet much on exceeding the 120 month record.

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Trump's Business Interest Driving Foreign Policy Positions-Possibly


When Saudi Arabia and other Gulf States broke off diplomatic and commercial ties with Qatar, a U.S. strategic partner, Donald decided to support that move in a tweet notwithstanding Qatar's willingness to permit U.S. military operations to be operated out of an airbase in that country. I previously noted that Trump's position was at odds with both the State and Defense Departments and made no sense strategically. (Trump and Qatar: Stocks, Bonds & Politics:  6/7/17


It does make business sense to the Trump organization. 


Trump’s Business Ties in the Gulf Raise Questions About His Allegiances - The New York Times

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1.  Intermediate Term Bond/CD Ladder Basket Strategy:

A. Sold 1 Shell International 1.375% Senior Unsecured Bond Maturing on 5/10/19

Profit Snapshot:  $2.6




This bond was sold on 5/25/17. I bought it at a total cost of 99.04. The current yield at that total cost number is 1.388%. The YTM on the purchase date was 1.791%. 

I sold at 99.4, netting 99.3 after a $1 commission. The YTM at 99.3, as of 5/25/17, was 1.743%. The two year treasury closed at a 1.3% yield that day. 

B. Sold 2 Microsoft 2.125% Senior Unsecured Bonds Maturing on 11/15/22


Profit Snapshot: $17.02




FINRA Page Bond Detail


I sold at 99.8 or 99.6 adjusted for a $2 commission. The YTM at 99.6 was 2.203%. The current yield at 99.6 is 2.13%.


This bond was purchased at a total cost of 98.176 (2/6/17). The current yield at that price is 2.164% and the YTM was 2.465% on the purchase date.


C. Bought 2 Verizon 3.1% Senior Unsecured Bond Maturing on 6/15/24:


This bond was a new issue bought under Fidelity's corporate notes program and sold to Fidelity's customers at par value.  


My current yield and YTM will consequently equal the 3.1% coupon for this purchase. 


Shortly after this purchase, I bought one more in the secondary market. 




Finra Page: Bond  Detail (prospectus not linked)

Pricing Supplement
Credit Ratings: 
Moody's at Baa1
Moody's rates Verizon's new notes Baa1
S & P at BBB+
Fitch at A - Fitch Rates Verizon's Sr. Unsecured Note Offering 'A-'; Outlook Stable | Reuters
Fixed Income | About Verizon

YTM at Total Cost (99.8) = 3.132%



I am concerned about the pricing wars erupting in wireless services. The Cost of Wireless Service Is Plummeting as Price War Rages On -- The Motley Fool







D. Sold 2 JNJ 2.45% SU Bonds Maturing on 3/1/26


Profit Snapshot: +$28.29




FINRA Page: Bond Detail


I sold at 98 or 97.9 after the commission.  The YTM at 97.9 is 2.721% as of 5/31/17. The current yield at that price is 2.5%. Hard to get excited about those yields for a bond maturing in March 2026 even if it is a JNJ bond with its AAA rating. 


I bought these 2 bonds in 1 bond lots: 


Date/Total Cost/Current YTM/YTM

2/23/17: 96.881/2.528%/ 2.845% Item # 1.E.
3/28/17: 96.09/2.549%/ 2.952% Item # 1.C

I will consider buying back 1 bond when and if the YTM goes above 3%. 


E. Sold Two .375% TIPs Maturing on 7/15/23


Profit Snapshot = $6.86





2. Long Term Bond Basket Strategy-Primarily Tennessee Municipal Bonds


A. Bought 5  City of Knoxville, Tennessee 3% Water Revenue Bonds Maturing on 3/1/2042





EMMA Page


Credit Ratings:

Moody's at Aa1
S & P at AAA

YTM at Total Cost (96.645) = 3.197%

Current Tax Free Yield = 3.1%

This bond was originally sold at 102.279 back in August 2016. 


Optional Redemption: AT PAR on or after 3/1/23


Security: 





Tax Matters: 





Offering Statement.pdf


B. Bought 50 EAI AT $23.85-Roth IRA Account




Quote: Entergy Arkansas 1st Mortgage Bonds 4.875% due 2066 Stock Quote (EAI) 


Credit Ratings: 

Moody's at A2
Moody's Upgrades Entergy Arkansas Senior Unsecured to Baa1 from Baa2 and Senior Secured Bonds to A2 from A3; Outlook Stable
S & P at A

EAI is a Baby Bond that is traded like a stock on the stock exchange rather than in the bond market, which explains why this security is called an Exchange Traded Bond. Par value is $25 rather than the $1K par value for bonds traded in the bond market which is why these $25 par value bonds are called baby bonds. 


This Entergy Arkansas first mortgage bond was sold to the public at $25 last August. The shares declined to $20.85 shortly after issuance, bottoming around 12/12/2017: EAI Stock Charts 


Interest payments are made quarterly. The issuer has the option to redeem at par on or after 9/1/21. If the issuer does not exercise its optional redemption right, the bond matures on 9/1/66. Prospectus 


I don't mind assuming the potential duration risk since I bought the bond in my Roth IRA. It is highly unlikely that I will ever withdraw any funds from the retirement accounts and will simply leave them intact for my heirs. So I am not concerned about being caught owning this security until my DOD because of a persistent rise in interest rates that drives the price down.  


Moreover, I have successfully traded first mortgage bonds issued by Entergy subsidiaries since 2008. The general idea is to clip a few interest payments and to sell at whatever profit is available. So, I have gotten stuck holding one yet.    


I recently discussed purchasing a $1K par value Entergy Arkansas First Mortgage Bond: Item # 1.E. Bought 2 Entergy Arkansas 3.05% First Mortgage Bonds Maturing on 6/1/23: 



3. Short Term Bond/CD  Ladder Basket Strategy:


When the following CDs mature, the proceeds will be used to buy short term bank CDs. 


A. Bought 2 Bank of China 1.1% CDs Maturing on 9/7/17:


This is a 3 month CD.




I have a 6 month Bank of China .75% CD maturing on 9/15/17. 

I am continuing to pick up incrementally higher CD yields with shorter terms than those maturing at about the same time.  


B. Bought 1 Bank of China 1.2% CD Maturing 12/7/17





C. Bought 2 Bank of China 1% CDs Maturing on 8/15/17






D. Bought 2 Bank of Baroda .85% CDs Maturing on 7/10/17 (1 Month)




For comparison purposes, I have two .7% People's Bank CDs maturing on 7/11/17 that had a 6 month term. 


When these CDs were purchased, the odds of a .25% increase in the FF range on 6/14 was about 88%. Consequently, I weighted these CD maturities in the 1 to 3 month range expecting that 4-6 month yields would rise some later in June. 


I have two Huntington Bank .8% CDs maturing on 8/15/17 that had a 6 month maturity when purchased last February. The 2 Bank of China CDs that mature on the same day have a 1% coupon and are slightly longer than 2 months in their term. 


4. Continued to Pare Stock Allocation:


A. Pared MET: Eliminated Position in One Taxable Account:




Profit Snapshot: +$149.48




MET Stock Price - MetLife Inc. 

MET Analyst Estimates 

For the Q/E 3/31/17, GAAP net income per share was $.75 per share while operating income per share was reported at $1.41. 
SEC Filed Press Release


I still own 106+ shares in another account. I will look for an opportunity to buy shares in that account, using commission free trades, only at lower prices. If the price goes over $55 per share, I may dump the remaining shares. I discussed buying 50 of those shares here: Added To METLIFE (MET) at $48.89 - South Gent | Seeking Alpha (1/31/15 Post) The other 50 share lot was bought at $51.76: Item # 7 Bought 50 MET at $51.76 (3/24/14 Post) I am reinvesting the dividend. 


The life insurance industry has faced a difficult operating environment due to CB interest rate repression that has narrowed the spread between short and longer term rates and kept all rates below normal levels. While there was initially optimism that interest rates would rise after Trump's victory, intermediate and long term rates have been falling this year and the yield spread has been contracting. 


So far, there is a disconnect between declining rates and the performance of life insurance stocks that have risen about 23% since the election.  


There is also increased regulatory risk due in large part to the non-bank SIFI designations that MET is still fighting in courts. Prudential and American International Group accepted their SIFI designations. 


I was not pleased to see recent losses in MET's hedging program and poor returns in hedge fund investments.  The 2017 first quarter had a derivative loss of $714M: 




That was much worse in the 2016 4th quarter:  MetLife Announces Fourth Quarter and Full Year 2016 Results | Business WireMetLife's Hedge Fund Chop - Bloomberg Gadfly


The company plans to spin off at least 80.1% of its U.S. retail unit to MetLife shareholders. That unit is now known as Brighthouse Financial (BHF) MetLife U.S. Retail Business to Rebrand as Brighthouse FinancialSEC Filed Information Statement for BHF The spin-off is scheduled for later this year.


This unit offers life insurance policies and annuities. The later business has caused losses in the past. BHF is expected to pay a one time dividend to MET, which will probably be used in a share buyback. While the amount is not certain, it is expected to be in a $3.3B to $3.8B range. 

MetLife Announces New $3 Billion Share Repurchase Authorization 


MET has also sold its U.S. retail advisor unit to MassMatual. 


Argus has a buy rating and a $60 target. Credit Suisse rates MET at neutral with a $65 price target. Those reports are available to Charles Schwab customers. 


Morningstar rates MET at 3 stars with a $55 FMV and a no moat rating. Life insurance is a no moat business.  


2016 MET Annual Report

MET SEC Filings

B. Sold $1,000 of Vanguard Equity Income Fund Admiral Class (VEIRX): 

I am in a controlled burn of this significant position. Whenever the fund goes up $1+K since my last pare, I will sell $1K. I am not reinvesting the dividend anymore. The quarterly dividends are generally around $350 or so and can be considerably higher when a capital gains distribution is made a year end.


   
Taking the dividends in cash is another way to pare a position.

Closing Price 6/19/17: $73.39 Up +$.41 or .56%

Sponsor's Website: Vanguard - Vanguard Equity Income Fund Admiral Shares (VEIRX)

VEIRX  Rated 5 Stars by Morningstar

The last $1K pare was discussed here: Stocks, Bonds & Politics: Observations and Sample of Recent Trades: 3/1/17

I will cease paring when the value falls below $50K.

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.