Tuesday, April 18, 2017

Observations and Sample of Recent Trades: 4/18/17 (ALDX, XHR, GE): Disconnect Between Consumer Confidence and Consumer Spending/John C. Calhoun and the Modern "Conservative" Supreme Court Justices

Disconnect Between Consumer Confidence Numbers and Current Economic Data

In a recent post, I noted that consumer confidence data was not translating into economic activity. (Scroll to Jobs at Stocks, Bonds & Politics: Observations and Sample of Recent Trades-4/8/17 (RHHBY):

Data released last week confirms that observation. U.S. Retail Sales Fall for Second Straight Month--Update



Commerce March Report on Retail Sales.pdf

CPI decreased by .3% in March: Consumer Price Index Summary


The increase in rent costs was 3.5%. Table 2. Consumer Price Index for All Urban Consumers  by detailed expenditure category Rent increases have been rising at higher rates than wages. Coupled with the burdens of student loans, there has to be a negative impact on millennial spending. Millennials: Finances, Investing, & Retirement

Annual Rent Increases By Year from Bureau of Labor Statistics:

2016: 4%      Consumer Price Index News Release
2015: 3.7%   Consumer Price Index News Release
2014: 2.9%   Consumer Price Index News Release
2013: 2.5%   Consumer Price Index News Release
2012: 2.7%   Consumer Price Index News Release


The Atlanta Fed decreased again its estimate for 1st quarter real GDP growth. The new number is .5% as of 4/14/17. GDPNow - Federal Reserve Bank of Atlanta

Confidence Is High but Economic Gains Are Elusive

The more reliable data about what is happening in the economy is nationwide data that shows what consumers are actually doing rather than a sample of consumers responding to survey questions.

Home builder sentiment weakens in April from 11-year high - MarketWatch
Empire State manufacturing index slows in April - MarketWatch

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John C. Calhoun and the "Modern Conservative" Supreme Court Justices

A reader mentioned that the University of Chicago offers a free e-book every month. 

New free e-book every month from the University of Chicago Press ebook

I like free so I will download them as they become available. 

The initial set up was tricky for an Old Geezer since the book would not download into my Apple IBooks or my Amazon Kindle. Instead, I had to get an Adobe ID and download the Bluefire Reader into my IPad which I managed to do.   

My first free book is Lincoln's Constitution which has some relevance today. The book is review in this article: Lincoln v. Lincoln | New Republic

I was familiar with constitutional debates that preceded the Civil War and the constitutional issues raised by Lincoln's actions, including the suspension of writs of habeas corpus, during the War.

I was generally familiar with how today's "conservative" justices have a tendency to resurrect the constitutional arguments made by states rights advocates prior to the Civil War. Those arguments were made to justify succession and the doctrine of nullification (U.S. Constitution). Basically the southerners believed that each state was a sovereign nation and the Constitution was merely a compact among sovereign nations. Each state consequently had the power to nullify and reject federal laws viewed by a state as interfering in its sovereign rights (e.g. slavery). Senator John C. Calhoun of South Carolina was the leading theoretician of those views and the intellectual father of the Civil War. Presidents Jefferson and Madison secretly drafted the Kentucky and Virginia Resolutions that was called by Ron Chernow as the "recipe for disunion" by providing a legal foundation for succession and nullification. (Chernow's Book "Alexander Hamilton" at page 587)

What struck me about the book Lincoln's Constitution is that the author clearly lays out the adoption of Calhoun's constitutional theories by four "conservative" justices in the U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779 (1995) The four dissenting Justices who adopted Calhoun's constitutional views were Clarence Thomas who wrote the dissenting opinion that was adopted by Scalia, Rehnquist and O'Conner.

Of those four, only Thomas currently sits on the Court, but his views are shared by the more recent "conservative" appointees, particularly Justice Alito, as shown by several subsequent decisions that elevates states rights under the Tenth Amendment to the Constitution and limits the power of the federal government to enact laws under the Commerce Clause of the U.S. Constitution.

Grilling Gorsuch and fearing the Federalist Society-The Washington Post;

Ideas with Consequences: The Federalist Society and the Conservative Counterrevolution;

Discussion Starting at Page 89 in The Nine: Inside the Secret World of the Supreme Court: Jeffrey Toobin reviewed at NPR and in The New York Times.

Both trends are intended to restrict the exercise of the federal government's power and to restore more sovereign power to the states.

After reading the Lincoln book, I read a few articles that drew the same conclusion about the so-called modern "conservative" Justices and the southern states rights advocates before this book was published by the University of Chicago several years ago. Terminated | New Republic; The Last Confederate Is Clarence ThomasReading Today's Bias Into 'Original Intent' - latimes

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Stock Allocation:

The market was apparently grateful yesterday that there was no first strike launched against North Korea over the holiday weekend, or perhaps the end of tax season brought back the animal spirits.

Closing Prices 4/17/17:

DJIA 20,636.92 +183.67 +0.90%
S & P 500  2,349.01 +20.06 +0.86%
VIX 14.66 -1.30 -8.15%

I am continuing to pare my stock allocation. As I previously mentioned in a comment, I  have taken small positions in a few high beta ETFs recently as potential trades.

ROBO $31.49 +0.24 +0.77% : ROBO Global Robotics and Automation ETF
Home - ROBO Global ETFs
Fund Holdings - ROBO Global ETFs
Morningstar Risk Page (standard deviation of 14.87)

SKYY +38.35 +0.38 +1.00% : First Trust Cloud Computing ETF
First Trust Cloud Computing ETF (SKYY)
Holdings (SKYY)
Morningstar  Risk Rating (standard deviation of 14.39)

The standard deviation of my Schwab account positions was 3.24 for the twelve months ending 4/13/17.

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1. Intermediate Term Bond/CD Ladder Basket Strategy:

A. Bought 1 Public Service Electric and Gas  3.05% First Mortgage Bond Maturing on 11/15/24




Issuer:  Wholly Owned Subsidiary of Public Service Enterprise Group Inc. (PEG) 
FINRA Page: Bond  Detail (prospectus linked)
PEG Public Service Enterprise Group Inc Page at Morningstar
Credit Ratings: 
Moody's at Aa3
S & P at A

My $1 commission took me slightly over par value. 

YTM at Total Cost (100.075) = 3.036%

PEG Analyst Estimates

B. Bought 2 Verizon 3.5% Senior Unsecured Bonds Maturing on 11/1/24:



FINRA Page: Bond Detail (prospectus linked)
VZ Verizon Communications Page at Morningstar
Credit Ratings:
Moodys at Baa1
Moody's rates Verizon's new notes Baa1
S & P at BBB+

YTM at Total Cost (99.686) = 3.587%

As shown in the FINRA price chart, this bond went over 108 back in July 2016. The decline to 99+ was due to the rise in intermediate term interest rates since that time rather than to any credit risk issue IMO.

Verizon SEC Filings
2016 Annual Report SEC Form 10-K
2016 4th Quarter Earnings Report

C. Bought 2 Tucson Electric Power 3.05% Senior Unsecured Bonds Maturing on 3/15/25:



Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at A3
Moody's upgrades UNS Energy Corp. and its subsidiaries; outlooks are stable
S & P at BBB+

Tucson Electric is a subsidiary of UNS Energy Corporation. UNS was acquired in 2014 by the Canadian utility Fortis. News Release

UNS Energy

A general discussion about TEP's customers and assets can be found in the 2016 Fortis annual report:



Page 19 Fortis 2016 Annual Report

YTM at Total Cost (96.277 ) = 3.592%

D. Bought 1 Wisconsin Power & Light 2.25% Senior Unsecured Bond Maturing on 11/15/22-ROTH IRA:



FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at A2
Moody's downgrades Wisconsin Power and Light to A2
S & P at A
YTM at Total Cost (97.849)= 2.664%

I previously bought one bond in a taxable account and discussed this company at Item 1.D. here.

At least the taxable interest becomes tax free when this bond is owned in a Roth IRA.

E. Bought 2 Canadian National Railroad 2.25% Senior Unsecured Bonds Maturing on 11/15/22:



Issuer: Canadian National Railway Co (CNI:NYSE)Canadian National Railway (CNR:TOR)
FINRA Page: Bond Detail
CNI Canadian National Railway Page at Morningstar
Credit Ratings:
Moody's at A2
Moody's Upgrades CN Rail to A2; outlook stable
S & P at A 

YTM at Total Cost (97.952) = 2.644%

Company Website: CN-Transportation Services-Rail Shipping, Intermodal, trucking, warehousing and international transportation

Investors | cn.ca

2.  Equity REIT Common and Preferred Stock Basket Strategy:

A.  Bought 50 XHR at $16.61-Used Commission Free Trade:



XHR Stock Quote - Xenia Hotels & Resorts Inc. 
Closing Price 4/17/17: XHR $17.27 +$0.20 +1.17% : Xenia Hotels & Resorts,

Company Website: Xenia Hotels & Resorts
Portfolio Map - Xenia Hotels & Resorts

The stock price went from around $15 in early November to over $19.5 in late December: XHR Stock Chart

I bought this 50 share lot shortly before the quarterly ex dividend date. 

XHR is currently paying a quarterly dividend of $.275 per share: Xenia Hotels & Resorts Declares Dividend For First Quarter 2017

At that rate and at a $16.61 total cost per share, the dividend yield is about 6.62%. 

FFO and AFFO Per Share: 



FFO to AFFO Computation: 



Funds From Operation takes GAAP net income and adds $37.914M in depreciation and subtracts the $29.403M gain from selling hotels which are correct additions and subtractions.   

2017 Guidance: 



"We anticipate operating fundamentals to remain challenging in 2017, as citywide convention pace remains weak in several of our markets and new supply continues to weigh on the industry.  As such, cost controls and margin retention remain a focus as we look to find additional efficiencies throughout the portfolio," continued Mr. Verbaas."  

"As of December 31, 2016, the Company had total outstanding debt of $1.1 billion with a weighted average interest rate of 3.24%.  In addition, the Company had $216 million of cash and cash equivalents and full availability on its $400 million senior unsecured credit facility.  Total net debt to trailing twelve month Corporate EBITDA (as defined in Section 1.01 of the Company's senior unsecured credit facility) was 3.3x."

"During the fourth quarter, the Company purchased 500,715 shares under its share repurchase authorization for an aggregate purchase price of $7.7 million.  During the year ended December 31, 2016, the Company repurchased 4,966,763 shares of its common stock at a weighted average purchase price of $14.89 per share, or $74 million in total."

Sourced from Xenia Hotels & Resorts Reports Fourth Quarter and Full Year 2016 Results, and Provides 2017 Guidance 

Xenia Hotels & Resorts Sells Four Hotels For A Combined Sale Price Of Approximately $119 Million (12/16/16 Press Release)

So far I have netted a $103.44 realized gain from trading small XHR lots. My first purchase was made last year. (Snapshots at Stocks, Bonds & Politics: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy)

I last discussed purchases in these blogs: 

Item # 1 Added 50 XHR at $14.55Update For Equity REIT Basket Strategy As Of 4/12/16 - South Gent | Seeking Alpha

Item #1 Bought 50 Xenia Hotels and Resorts at $14.98-Roth IRA: Update For Equity REIT Basket Strategy As Of 4/6/16 - South Gent | Seeking Alpha

3. Continued to Pare Non-Equity REIT Stock Allocation:

A. Sold 80 GE-Highest Cost Shares:

GE General Electric Page at Morningstar
GE Stock Price

Position Before Pare:




Profit Snapshot: +$1,113.71




Position After Pare: Average Cost Per share = $12.53



I have been paring this position over the past two years. I am done paring. If I want to sell another share, I will sell the balance of the position. 

The last pare was 47 shares sold last year: 



2016 GE 47 Shares +$684.69 
GE has turned into an undesirable blue chip stock IMO.  

In 2009, GE slashed its dividend in 2010 by 68% to 10 cents per share from 31 cents per share. GE Dividend History-Dividend Channel


The company has raised its dividend back to $.24 over the past eight years.  The payout ratio is close to 60% at that level. 

I have read several negative articles about GE recently including the following: General Electric: Emerging Bull Case ‘Not Plausible,’ JPMorgan Says-Barrons.comGeneral Electric: Deutsche Bank Has Some Issues With GE’s Earnings - Stocks to Watch - Barrons.com


The GE chart looks awful particularly in context of the strong up move in the market: GE Stock Chart This reflects concerns about GE's ability to grow earnings.  The stock is expensive at 18.23 times estimated 2017 E.P.S. of $1.63, calculated as of 3/28/17: GE Analyst Estimates


In 2004, diluted E.P.S. was reported at $1.59Page 8 GE has not had a Stock Split since 2000 so there is no need to adjust that 2004 E.P.S. number to account for one.

GE General Electric Page at Morningstar (Cash Flow for General Electric Co (GE) from Morningstar.com)
2016 GE Annual Report
GE 2016 4th Quarter Earnings


4. Short Term Bond/CD Ladder Basket Strategy:

A. Bought 2 Merchants Bank of Indiana .8% CDs Maturing on 7/19/17:



5. Small Cap Biotech Lottery Ticket Basket Strategy

A. Bought 50 ALDX-Used Commission Free Trade:


I bought two lots totaling 50 shares in my Schwab taxable account, with the last purchase made at $5.05. At that price, the market capitalization is about $76M. That price IMO is based on a low possibility that ALDX's lead drug candidate, which is in several trials for various indications, will succeed, and that ALDX will have to sell stock (or secure a partner) in order to complete the trials.   


The company sold 2.88+M shares last February. The shares were sold to the public at $4.5 per share. Aldeyra Therapeutics, Inc. Prices Public Offering of Common Stock


Quote: Aldeyra Therapeutics Inc.  (ALDX)





Recent trials are discussed and summarized in this press release: Aldeyra Therapeutics Reports Full Year 2016 Financial Results


2016 Annual Report 


Aldeyra Therapeutics Announces Clinical Development Update for Phase 3 Programs 

Aldeyra Therapeutics Announces First Patient Enrolled in Allergic Conjunctivitis Phase 2b Clinical Trial 
Aldeyra Therapeutics Announces Positive Results from a Randomized, Double-Blind, Vehicle-Controlled Clinical Trial of Topical Dermatologic NS2 in Patients With Sjögren-Larsson Syndrome 

Investor Presentation April 2017: A Novel Pharmaceutical Platform Focused on Inflammation and Inborn Errors of Aldehyde Metabolism

I am "betting" a small sum that the market is wrong and the compound will ultimately succeed in multiple indications. I would charitably refer to that statement as an uneducated guess. 


Again, I have no medical or scientific background. 

I have read Aldeyra's press releases discussing its recent trial results and found them sufficiently interesting to buy a Lotto Ticket in the stock. Just another crapshoot with my gambling money-an uneducated guess.   

Closing Price 4/17/17: ALDX $4.80 -$0.04 -0.73%


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.

7 comments:

  1. I am continuing to do minor nip and tucks by selling some low yielding short term bonds and then using the proceeds to buy higher yielding intermediate term bonds.

    Yesterday, I sold the following for a total profit of $3.49:

    1 Statoil 1.15% SU Maturing on 5/15/18
    1 Paccar 1.3% SU Maturin on 5/10/19

    +++++

    I mentioned in a comment yesterday that Cytokinetics (CYTK) was going to be added to the S & P Small Cap Index. CYTK is part of my small cap biotech lottery ticket basket.

    https://tennesseeindependent.blogspot.com/2017/04/observations-and-sample-of-recent_14.html?showComment=1492472638576#c7008201617464981772

    This kind of news will generally cause a temporary pop in the price. I sold this morning 50 out of 80 shares at $13.11, using a commission free trade, realizing a profit of $157.03.

    I am keeping the 30 shares bought at $8.75 just in case something good happens.

    ReplyDelete
  2. W.W. Grainger (GWW) is the nation's largest industrial MRO distributor that performs the selling function for over 2,500 suppliers. GWW is one company that provides an accurate snapshot of how the industrial economy is actually doing rather than what some investors may believe is happening.

    Net income for the first quarter declined by 6% to $175M
    or $2.93 per share with revenues reported at $2.5B. The adjusted E.P.S. number was $2.88. The consensus was for $2.99 and $2.563B in revenues. The company also lowered guidance 2017 E.P.S. guidance to $10 to $11.93 from $11.3 to $12.4. The company had to lower prices.

    Closing Price 4/18/17: $197.57 -$25.40 (-11.39%)

    http://www.prnewswire.com/news-releases/grainger-reports-results-for-the-2017-first-quarter-300440569.html

    +++

    IBM laid another egg with its 2017 first quarter report released after the close today:

    International Business Machines Corporation (IBM)
    $160.88 -9.17 (-5.39%)
    After hours: 6:45PM EDT

    IBM is a DJIA component.

    https://www.bloomberg.com/news/articles/2017-04-18/ibm-misses-estimates-in-20th-straight-quarterly-revenue-decline

    +++

    Some investors are pointing out the better than expected earnings at J.P. Morgan without mentioning a few important details that detract from their rosy assessment.

    Yes, the bank did report an E.P.S. of $1.65, better than the consensus estimate of $1.52.

    However, the beat was largely due to a lower than expected tax rate, which included a $373M non-recurring tax benefit. Excluding that item, the result would have been $1.53.

    NIM was an anemic 2.33% in the first quarter. (page 6 of supplemental)

    Mortgage banking net revenue was down 18%. Card, Commerce Solutions & Auto net revenues declined 3%. Overall, consumer and community banking revenues declined by 1% Y-O-Y.

    https://www.jpmorganchase.com/corporate/investor-relations/document/1Q17_Earnings_Press_Release.pdf

    Besides the one time tax benefit, what saved the corporate was not bread and butter banking but the firm's trading. That revenue source increased by 13% to $5.82B. Fixed income trading revenue increased by 17%. Those revenue and profit sources are not stable revenue and profit streams. The 2016 first quarter was brutal in this category for JPM and other big banks.

    Investment banking fees were up 40% as companies sought to lock in lower rates with bond offerings.

    Commercial loans were flat with the 2016 4th quarter. New auto loans declined by 17%.

    http://news.morningstar.com/all/dow-jones/financials/2017041310605/jp-morgan-citi-score-big-gains-but-shareholders-want-more.aspx

    ++++

    The FED reported today that "manufacturing output fell 0.4 percent in March, led by a large step-down in the production of motor vehicles and parts; factory output aside from motor vehicles and parts moved down 0.2 percent. .. Capacity utilization for the industrial sector increased 0.4 percentage point in March to 76.1 percent, a rate that is 3.8 percentage points below its long-run (1972–2016) average." And that is 8 years into an economic recovery.

    https://www.federalreserve.gov/Releases/g17/current/default.htm

    The Bond Ghouls are starting to feel their Mojo again.

    iShares Trust - iShares 20+ Year Treasury Bond ETF (TLT)
    $124.70 +1.61 (+1.31%)

    iShares 7-10 Year Treasury Bond (IEF)
    $107.38 +$0.61 (+0.57%)

    The ten year treasury closed today at a 2.18% yield.
    https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2017

    ReplyDelete
  3. BEIGE BOOK: I thought the Beige Book report was overall a positive one:

    "Economic activity increased in each of the twelve Federal Reserve Districts between mid-February and the end of March, with the pace of expansion equally split between modest and moderate. In addition, the pickup was evident to varying degrees across economic sectors. . .. Employment expanded across the nation and increases ranged from modest to moderate during this period. Labor markets remained tight, and employers in most Districts had more difficulty filling low-skilled positions, although labor demand was stronger for higher skilled workers. Modest wage increases broadened, and reports noted bigger increases for workers with skills that are in short supply. A larger number of firms mentioned higher turnover rates and more difficulty retaining workers. . . On balance, prices rose modestly since the previous report."

    https://www.federalreserve.gov/monetarypolicy/beigebook201704.htm

    I have been saying for awhile now that the labor market was tightening and the bargaining power on wages has generally shifted from employers to employees.

    ++++

    I have done my spring planting work. I ordered three plants online from The Planting Tree:

    https://www.theplantingtree.com/

    Lilac, Frost Proof Gardenia, and the Fragrant Tea Olive

    Upon their arrival today, I called my yard guy to bring some mulch and to plant those suckers. I am weary from the effort. My hole digging days are over.

    +++
    ImmunoGen, Inc. (IMGN)
    $3.58+$0.34 (+10.49%)

    This pop was due to an upgrade from the Leerink analyst who has an $8 price target.


    https://www.fool.com/investing/2017/04/19/why-immunogen-inc-shot-up-today.aspx

    The small brokerage companies that specialize in biotech stocks generally have optimistic price targets. I would never buy based on these rosy price targets. Sure, they may be hit at some point but there is a generally a lot of optimistic assumptions baked into those targets.

    Another optimistic price target firm in this sector is H.C. Wainwright.

    As noted in a recent post, I was able to sell 100 shares profitably after a 50%+ surge in the price leaving me with 50 shares bought at $1.77 (12/12/16):

    Item # 3 C. SOLD 100 IMGN AT $3.55:
    https://tennesseeindependent.blogspot.com/2017/03/observations-and-sample-of-recent_8.html

    I am not getting enough of a gambling rush with my small cap lottery ticket basket so I will need to visit a casino this weekend to satisfy that urge. I did report on my 2016 1040 $1,850 in blackjack winnings. For 2017, my last trip ended in a draw after I won my last hand with a $500 bet. The women said that I was making them nervous so I had to leave. It was a nail bitter hand. The dealer had a 10 showing as I recall and I had a bust hand. I drew to the bust hand and hit a 5, bringing me up to 18. The dealer turned over a 7.

    ReplyDelete
  4. "Aldeyra Therapeutics, Inc. Receives Orphan Drug Designation from the U.S. Food and Drug Administration for ADX-102 in Sjögren-Larsson Syndrome"

    http://www.marketwired.com/press-release/aldeyra-therapeutics-inc-receives-orphan-drug-designation-from-us-food-drug-administration-nasdaq-aldx-2210811.htm

    ReplyDelete
    Replies
    1. ALDX: The initial reaction was to take the stock. Intra-day, the shares hit $5.62.

      $4.8585 -$0.3415 (-6.57%)
      As of 9:19AM C.S.T.

      Volume is heavy for this stock at 9:19:

      Volume 1,106,322
      Avg. Volume 45,229

      It is difficult for me to see a negative development in the press release. Perhaps some investors see more stock offerings to support the Phase 3 trial for this indication.

      Delete
    2. ALDX: I threw caution to the wind and bought 20 more shares at $4.7. Might need to go back to a 9 to 5 job if this does not work out.

      Delete
  5. I have published a new post:

    https://tennesseeindependent.blogspot.com/2017/04/observations-and-sample-of-recent_20.html

    ReplyDelete