Monday, March 13, 2017

Observations and Sample of Recent Trades: 3/13/17 (PFE, VGHCX, KPTI)/TrumpCare and the Trump Voters

TrumpCare and the Trump Voters

I doubt that the GOP will agree upon a repeal and replace plan. 

There are some winners in TrumpCare. The rich will pay less in taxes and at least the GOP knows who they really represent. Wealthy Would Get Billions in Tax Cuts Under Obamacare Repeal Plan - The New York Times Those with incomes of over $1M will save about $144B in lower tax payments over the next ten years. 

A major source of funding for Obamacare was the additional 3.8% tax on investment income over $200K/$250K and a .9% surcharge on Medicare taxes applied on the same basis, bringing the total tax up to 3.8%. The GOP also wants to eliminate the 2.3% tax on medical devices and the "tax" penalty for those who do not buy coverage. The GOP plan is to a large extent a tax bill. ObamaCare Tax: Full List of ObamaCare Taxes

If implemented in its current form, TrumpCare will have negative impacts on many Trump voters who would be thrown under the train to benefit the class that the GOP really represents. 

The Republican health-care bill threatens Trump's voters-CNBC

President Trump’s health-care plan probably would make health care pricier for core Trump voters - The Washington Post

AARP Letter-March-07-2017.pdf

One major Trump constituency was white votes with modest incomes between the ages of 45-64. One provision in Obamacare is that older folks who do not qualify yet for Medicare can not be required to pay in health insurance premiums more than the three times the rate of the youngest insured persons. The GOP would raise that cap to 5 times.

The Kaiser Family Foundation has an interactive map where you can enter income, age and state and see how Obamacare and TrumpCare compare:

Tax Credits under the Affordable Care Act vs. the American Health Care Act: An Interactive Map | The Henry J. Kaiser Family Foundation

I entered $30K, 60 years old and Davidson County Tennessee (Nashville). Those are not my numbers but would cover a large number of Trump voters in my state. For that person, healthcare premium cost would rise $6,100 under TrumpCare. Needless to say, that person would have to toss health insurance. If I raised the income to $40K, the estimate is $4,510 more under TrumpCare. Another factor that comes into play is that many rural areas would be hit harder resulting in many cases with out-of-costs under TrumpCare increasing by over $8K in many rural counties and over $10K in some.

Large swaths of loyal GOP voters will also likely lose their healthcare coverage due to higher costs. Experts: The GOP Health Care Plan Just Won't Work - NBC News; 6 to 10 million to lose coverage under GOP's Obamacare reform plan-S & P

There would also be a major change in Medicaid. The GOP has timed the rollback to start in 2020 so those modest income white voters will not experience the negative blowback until the presidential election is over. Major changes for Medicaid coming under Trump and the GOPGOP's Medicaid block grant plan should trump other concerns | TheHill

The GOP has done a superb job in convincing millions to vote against their economic self-interest. I do not view that as an arguable point.

Yes, Trump scammed many of his working-class supporters. This new analysis leaves little doubt. - The Washington Post

Trump Supporters Have the Most to Lose in the G.O.P. Repeal Bill - The New York Times

The CBO issued today its analysis of TrumpCare. The CBO estimates that the adoption of TrumpCare would result in 14 million persons losing their insurance in 2018 and 21 million would lose coverage by 2020. “In 2026, an estimated 52 million people would be uninsured, compared with 28 million who would lack insurance that year under current law.”  The CBO found that the GOP's plan would substantially raise premiums for older Americans. TrumpCare would reduce the deficit by $337B over a decade. That is not surprising given the number of people losing coverage.

American Health Care Act | Congressional Budget Office
Obamacare revision would reduce insured numbers by 24 million - The Washington Post
CBO report: 24 million fewer insured by 2026 under GOP health care bill -
Health Bill Would Raise Uninsured by 24 Million but Save $337 Billion, Report Says - The New York Times

The change in Medicaid to block grants will be a money saver to the federal government. The general idea is to cap the federal government's cost and then leave it to the states to manage who can be covered under the block grant. This is simply a way for the GOP to kick millions off of Medicaid and to avoid being directly blamed for the massive losses in coverage and benefits.    

There are a large number of GOP politicians who want to repeal without a replacement and view TrumpCare's tax credits as anathema. They also want to transition to block grants sooner than 2020. As to the later point, they are not thinking ahead to the next Presidential election. Moving that date up to 2018 will cause major Medicaid cutbacks in several states that voted republican in the last election (e.g. West Virginia). That would be a wake up call for those GOP voters which would be hard for them to ignore notwithstanding Trump's statements that their coverage is better when they no longer have coverage.


1. Intermediate Term Bond Ladder Basket Strategy

A. Bought 1 KIMCO 3.125% Senior Unsecured Bond Maturing on 6/1/2023:


Issuer:  Kimco Realty Corp.  (KIM)  
KIM Page at Morningstar
Finra Page: Bond Detail (prospectus linked)
Moody's at Baa1
S & P at BBB+
YTM at Total Cost (99.328) = 3.244%

Fitch Affirms Kimco's IDR at 'BBB+'; Outlook Stable

This bond closed at 98.16 today, creating a YTM at that price of 3.456%.

B. Bought 1 Vodafone 2.95% Senior Unsecured Bond Maturing on 2/19/23:


Issuer: Vodafone Group PLC ADR (VOD)

Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at Baa1
Fitch at BBB+

YTM at Total Cost (98.253) = 3.275%

VOD Page at Morningstar Fitch Affirms BBB+ (Stable Outlook): August 2016
VOD Analyst Estimates

I currently own two other Vodafone bonds. One bond matures this September 2017 and the other matures in February 2018. I may use the proceeds from one of those bonds to buy one more of the 2023 bond.

This bond closed at 98.16 today, creating a YTM of 3.456%. 

C. Bought 2 Diageo Capital 2.625% Senior Unsecured Bonds Maturing on 4/29/23:

One Bond Bought in the IB Taxable Account: 


Issuer: Diageo PLC ADR Stock Price Today (DEO)

DEO Page at Morningstar
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at A3
FITCH  at A-

YTM at Total Cost (99.206) = 2.766%

DEO Analyst Estimates

One Bond Bought in a Roth IRA Account:

YTM at Total Cost (98.768) =  2.844%

This bond closed at 98.27 today, creating at that price a YTM of 2.936%.

D. Bought 1 ERP Operating Limited Partnership 2.85% Senior Unsecured Bonds Maturing on 11/1/26:          


General Partner of Issuer: Equity Residential  (EQR:NYSE)
EQR Page at Morningstar
Finra Page: Bond Detail (prospectus linked)
Credit Ratings of Operating Partnership Senior Unsecured Bonds: 
Moody's at Baa1
S & P at A-
Fitch at A -
Equity Residential (EQR) Investments - Credit Ratings

YTM at Total Cost (94.661) = 3.507%

EQR Analyst Estimates  Results for Q/E 12/31/16 

EQR 2016 Annual Report (debt discussed starting at page F-42)

This bond closed at 93.27 today, creating a YTM at that price of 3.686%. 

E. Bought 1 GATX 3.25% Senior Unsecured Bond Maturing on 3/30/25:

Issuer:  GATX Corp. (GATX:NYSE)

Finra Page: Bond Detail (prospectus not linked)
Credit Ratings: 
Moody's at Baa2

YTM at Total Cost (97.095 ) = 3.67%

This bond closed today at 97.1, creating a YTM of 3.67%. 

2016 Annual Report (debt discussed starting at page 79)

GATX Analyst Estimates 
2016 4th Quarter Report 

Last February, GATX sold $300M of 3.85% senior unsecured notes maturing in 2027.

I also own 50 shares of GMTA, an Exchange Traded Bond issued by GATX. I have recently pared my position to my lowest cost lot bought at $22.23. Item 2.A.: Stocks, Bonds & Politics: Observations and Sample of Recent Trades: 3/10/17 (GMTA, UL, FIE:CA, UL, PSAPRE ) 

2. Short Term Bond/CD Ladder Basket Strategy: Due to a slight uptick in treasury bill yields, the following treasuries provided better yields than bank CDs at the time of purchase. The prices were also slightly lower than prior purchases due to a slight uptick in treasury bill yields. For secondary market purchases, I only use brokers who do not charge a commission. The following purchases were made on 3/2/17.

A. Added 2 UST .625% Maturing on 6/30/17: I now own 3 bonds.


My YTM will be slightly higher than the coupon for the UST purchases discussed in this post.

B. Added 1 UST .625% Maturing on 7/31/17: I now own 2 bonds with this coupon, and 3 others that mature on the same day with a .5% coupon. The YTM's would be similar due to a slightly lower price on the .5% coupon bond.


C. Added 1 UST .625% Maturing on 8/31/17: I now own 3 bonds.


D. Added 1 UST .625% Maturing on 9/30/17: I now own 3 bonds.


E. Added 1 UST .75% Maturing on 10/31/17

I now own 2 bonds. The first one was bought on 12/15/16 at 99.895 with a YTM at .87%. 

This bond was bought in a Fidelity account. 

With short term rates ticking up slightly, I received a higher YTM on this last purchase for a shorter term.  

F. Added 1 UST .625% Maturing on 11/30/17: I now own 4 bonds.


I took a snapshot of my confirmation for this bond to show how a slight discount to par value and a short maturity combine to produce a .863% YTM:


When I bought those bonds, the yield on my Schwab sweep MM account was .03% while Fidelity's Government MM fund had zoomed from .2% to .21%. 

3. Continued Paring Stock Allocation:

A. Sold 100+ PFE at $34.65:


Profit Snapshot: +$235.86

I still own 132+ shares in another taxable account where I am reinvesting the dividend to buy additional shares. 

B. Pared Vanguard Health Care Fund Investor Fund (VGHCX): Sold 47+ Shares at $205.2 (3/2/17):

Profit Snapshot: +$426.53

I owned shares in two taxable Vanguard accounts. I eliminated the position in one.

I will keep the remaining 66+ shares that have a cost basis of $169.93 per share. I was reinvesting the dividend but changed the option to cash earlier this year. 

The remaining shares include my first purchase: Item # 3 Exchanged VIPSX for VGHCX (7/6/2011 Post) 

Closing Price 3/13/17: VGHCX $205.77 -0.26 -0.13% 

Remaining Position: 

C. Sold 30 KPTI at $12.04

Profit Snapshot: $145.89:


I discussed purchasing that lot here: 

Item # 2 Bought 30 KPTI at $7.11: Update For Healthcare Basket Strategy As Of 8/12/16 - South Gent | Seeking Alpha

I did not discuss in a post purchasing or selling another 30 share lot that resulted in a $115.25 gain:  

Snapshot at Item # 6 Small Cap Biotech Lotto Basket Strategy: Stocks, Bonds & Politics: Update on Small Cap Biotech Lottery Ticket Basket Strategy; Observations and Sample of Recent Trades (GYLD,TCON)-January 11, 2017/

I am mentioning this trade to highlight a typical negative reaction to what I would consider a misleading news release.  

KPTI issued this press release before the market opened on 3/2/17: Karyopharm Announces the Presentation of New Data at the 2017 American Association for Cancer Research Annual Meeting 

In that press release, the following statement is made when discussing presentations to be made at that meeting: 

"A Phase 2b randomized study of selinexor in patients with relapsed/refractory diffuse large B-cell lymphoma (DLBCL) demonstrates durable responses in both GCB and non-GCB subtypes"

The stock soared 25.476% on 3/2 in response to that press release:

Closing Prices: KPTI Historical Prices 

3/1/17 $11.03
3/2/17 $13.84 

After the close on 3/2/17, KPTI issued the following press release: Karyopharm Announces Results from Interim Analysis of Phase 2 SOPRA Study Evaluating Selinexor in Relapsed/Refractory Acute Myeloid Leukemia 

In that release, the company made this statement regarded the "Phase 2 SOPRA study evaluating single agent selinexor in relapsed/refractory acute myeloid leukemia (AML)":

"The Company determined in concert with the study’s independent Data Safety Monitoring Board (DSMB) that SOPRA will not reach statistical significance for overall survival (OS), the study’s primary endpoint.... “After performing an in-depth analysis, we and the DSMB agree that, despite the higher complete response rates observed with selinexor, the phase 2 SOPRA study evaluating single-agent selinexor in relapsed or refractory AML has not reached statistical significance for overall survival, the primary endpoint of the study,” said Michael G. Kauffman, MD, PhD, Chief Executive Officer of Karyopharm." 

That information needed to be presented in the first press release.   

Closing Price 3/3/17: KPTI $11.63 -$2.21 -15.97% 

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



  2. hello SG,

    James Grant was on CNBC this morning and he quoted the inflation rate may be higher than expected. Used an index called the MIT billion prices index.

    This bit of software apparently takes billions of prices from around the Internet all over the world to assess a more up-to-date evaluation of inflation than the BLS.

    He said it was a rate of rise of around 4+ percent. He cautioned that Trump likes easy money and may well replace Janet Yellen with an easy money Fed chairman.

    I wondered if you are familiar with this index and what you thought of it?


    1. Sam: I doubt that investors are keying pricing decisions off of that MIT inflation index.

      I have been noting in my blogs and comments that the consensus opinion reflected in prices is that there will be low U.S. inflation for decades.

      The consensus forecast in the early 1980s was for problematic inflation continuing for three decades or longer.

      The erroneous consensus forecast made in the early 1980s resulted in both bonds and stocks being priced too low. It took years of data to convince investors that problematic inflation was in the rear view mirror.

      The markets now are now priced based on a consensus forecast that low inflation and interest rates will continue for decades.

      So I agree with Jim Grant's observation that the future is unpredictable and asset prices can swing significantly in the opposite direction when the consensus forecast is later proven to be wrong.

      I discuss some of these issues as they relate to bond pricing here:

  3. LINK TO TRUMP'S 1040 for 2005:

    Someone sent the two page 1040 form to a journalist. The WH has confirmed its authenticity.

    I would first point out that Trump wants to abolish the alternative minimum tax.

    In 2005, he would have paid $5.31+M without the AMT but had to pay +36.571M before a $23,400 foreign tax credit due to the AMT. The AMT cost him $31.261+M.

    Trump says he wants to abolish the AMT to help out the middle class.

    I would need to see Schedule B to see if he made any charitable contributions. The sources of income and other potential conflicts would require disclosure of the schedules and statements.

  4. CPI: "Over the last 12 months, the all items index rose 2.7 percent before seasonal adjustment."

    CPI increased .1% in February. The gasoline index fell 3% in February causing an overall 1% decline in the energy component.

    Core inflation was up 2.2% over the past year. "This was the fifteenth straight month the 12-month change remained in the range of 2.1 to 2.3 percent." Food at home was down 1.7% Y-O-Y. That category has an overall 7.883% weighting in the CPI calculation.

    The categories showing 3%+ Y-O-Y increases were:

    Medical care commodities +4.1%
    Shelter +3.5% (33.565% weighting)
    Transportation services +3.6% (5.911% weighting)
    Medical care services +3.4% (6.676% weighting)

    Late last week and earlier in the week, the ten year treasury did cross over a 2.6% yield, but has fallen back from that level once again.

    The 2.6% proved to be a ceiling for the interest rate spike last year that was hit in mid-December 2016.

  5. The S & P 500 rose .84% today but the SPDR S&P Regional Banking ETF (KRE) declined .84%.

    S&P 500 2,385.26 +19.81 (+0.84%)
    KRE: $56.43- $0.48 (-0.84%)

    Short term rates rose while intermediate and longer term interest rates fell.

    That kind of trend, if it persists, is a negative for net interest margins. Short term CDs and savings account yields will move up, though banks are slow in raising deposit rates. A continued decline in intermediate and long term rates during a federal reserve FF rate hike cycle compresses NIM and flattens the yield curve.

    It remains to be seen whether today's bond rally will persist. I have noted here many times that the ten year treasury initially went down in yield when the FED started to raise the FF rate in 2004. Those raises started when the FF rate was 1% and ended at 5.25% two years later.

    I am continuing to pare my regional bank basket and sold two stocks today which I will discuss in a few weeks. I am running way behind on discussing a sample of my stock trades. I am mentioning all of my $1K bond trades here.

    Why would the ten year decline in yield or remain stable in a tight range as short term rates move up? The perception is that the FED (1) may cause a recession by hiking too much and/or (2) incipient inflationary pressure will be nipped in the bud and the tightening cycle will be of relatively short duration before the FED starts cutting the short term FF rate again.

    I did buy some corporate bonds early today before the announcement. The bonds that I bought rose about 1 point or so after the announcement and into the close.

  6. On CNBC someone was making the point that bonds market and stock market are telling different tales.

    Bond long term rates are hitting heavy resistance, and there is a narrowing. I think he said, that when stocks are hitting highs and when bonds narrow and momentum in stocks slow, 90% of the time there's a correction, in his observation (not from calculation).

    He then pointed out that we aren't anywhere near an inversion that goes with a crash/recession.

    I think that's all similar to what you're describing about the two markets and what they're telling right now....

    1. We're definitely way overdue for a correction according to my crystal ball and common sense!

  7. I have published a new post: