Economic Reports:
U.S. industrial output jumps in April at fastest rate in more than three years - MarketWatch
"Industrial production advanced 1.0 percent in April for its third consecutive monthly increase and its largest gain since February 2014. Manufacturing output rose 1.0 percent as a result of widespread increases among its major industries. The indexes for mining and utilities posted gains of 1.2 percent and 0.7 percent, respectively. At 105.1 percent of its 2012 average, total industrial production in April was 2.2 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.6 percentage point in April to 76.7 percent, a rate that is 3.2 percentage points below its long-run (1972–2016) average." The Fed - Industrial Production and Capacity Utilization - G.17
The Empire State manufacturing business activity index fell 6 points to a negative 1 this month as the new orders component declined to -4.4: Empire State Manufacturing Survey (overview) - FEDERAL RESERVE BANK of NEW YORK
Housing starts for April were reported at a seasonally adjusted rate of 1.172M which was 2.6% below the revised March rate and up .7% Y-O-Y. Building permits declined by 2.5% below the revised March number. Monthly New Residential Construction April 2017.pdf
++++
Mostly Politics:
Trump is convinced that he invented the phrase "priming the pump".
The phrase has been in existence for as long as I can remember. The dictionary says that the phrase originated in the early 19th century. The phrase was popularized by John Maynard Keynes and Franklin Roosevelt during the Great Depression.
++++++++++
Trump revealed highly classified information to Russian foreign minister and ambassador - The Washington Post; Trump Revealed Highly Classified Intelligence to Russia, in Break With Ally, Officials Say - The New York Times; Trump Aides Race to Limit Fallout From Report on Disclosure - Bloomberg
H.R. McMaster issued what I call a non-denial denial designed to mislead the public late last Monday: "The story that came out tonight, as reported, is false. At no time were intelligence sources or methods discussed. I was in the room, and it didn't happen." (emphasis added) This is called a "straw man" argument.
Mr. McMaster falsely stated that the articles from the NYT and the WP claimed that Trump disclosed what the CIA calls sources and methods. Those articles clearly state that Trump disclosed highly classified information to the Russians and that Trump had disclosed more information to Russia than the U.S. would to its closest allies.
Quote from WP article:
"Trump went on to discuss aspects of the threat that the United States learned only through the espionage capabilities of a key partner. He did not reveal the specific intelligence-gathering method, but he described how the Islamic State was pursuing elements of a specific plot and how much harm such an attack could cause under varying circumstances. Most alarmingly, officials said, Trump revealed the city in the Islamic State’s territory where the U.S. intelligence partner detected the threat."
PAUL RYAN TWEET:
Instead, he gave the evasive answer that nothing inappropriate was done by his Boss and suggested that nothing more than publicly available information was discussed. If that was the case, why not deny that Trump released classified information on the fly. That can not be done if he knows that classified information was given to the Russians. So he can not answer the question yes or no.
He also knows that the Washington Post was asked to withhold details about what was told since "revealing them would jeopardize important intelligence capabilities".
McMaster also stood by his comments made on Monday that the press articles were false, "as reported" since no sources or methods were disclosed by Trump. He is claiming now that he meant to say something that he did not say:
“I stand by my statement — the premise of the article is false that in any way the president had a conversation that was inappropriate or that resulted in any kind of lapse in national security.”
That is not what he said earlier when characterizing the articles.
One statement made by McMaster, which was probably true, is that Trump made the disclosure in a spur of the moment decision which is totally contrary to past practice.
What is "wholly appropriate" for Trump according to McMaster?
Anything that Trump thinks is appropriate, without regard to whether the disclosure was considered appropriate in the national interest by the intelligence agencies.
McMaster Quote:
"It is wholly appropriate for the president to share whatever information he thinks is necessary to advance the security of the American people. That's what he did."
Soon after McMaster talked to the press, the NYT later asserted that one source for the disclosed classified information was Israel. Israel Said to Be Source of Secret Intelligence Trump Gave to Russians - The New York Times
The NYT referenced an earlier story that Israel was told by U.S. intelligence officials to be careful about the information given to Trump since he might leak it to the Russians. US intel sources warn Israel against sharing secrets with Trump administration.
Putin is defending Trump's disclosure and offered to provide a transcript of the meeting.Putin offers transcript of Trump meeting with Lavrov - CNN Why not provide a tape Vlad, which Russia would have to have in order to prepare a transcript? The U.S. probably has a tape and a transcript already.
Tuesday ended with the disclosure that raises serious questions, if true, whether Trump has used Presidential powers in a manner that obstructs justice. I am referring to the Comey memo of his meeting with Trump. That memo and other documents prepared by Comey will be made public soon enough.
Trump Said to Ask Comey to Drop FBI Probe of Flynn's Russia Ties - Bloomberg
Comey Memo Says Trump Asked Him to End Flynn Investigation - The New York Times
Comey memo says Trump asked him to drop Flynn probe - CBS News
Trump asked Comey to end investigation of Michael Flynn: source | Reuters
Notes made by former FBI Director Comey say Trump pressured him to end Flynn probe - The Washington Post
Based on what I know now, there is a zero chance that the GOP will initiate impeachment proceedings against Trump.
The noise in Washington should quiet down for awhile after the Deputy Attorney General appointed a special counsel to investigate. He made a good choice in selecting the former FBI Director Robert Mueller who served under Bush Jr. and Obama.
+++++
A recording has become public where the House Majority Leader Kevin McCarthy asserted that ‘I think Putin pays’ Trump. His staff initially denied that McCarthy ever made that statement. When confronted with a recording, their tune changed to characterizing the statement as a joke. Lot's of jokes in Washington now. In any event, Ryan is heard on the recording swearing everyone to secrecy. I believe at a minimum that McCarthy's statement reflects his unguarded opinion of Trump, so how can he stay on as the GOP's Majority Leader?
++++
Trump to Expand Funding Ban Tied to Abortion Overseas - The New York Times (Trump will "vastly expand the so-called global gag rule that withholds American aid from health organizations worldwide that provide or even discuss abortion in family planning. The new policy could disrupt hundreds of clinics in Africa and around the world that fight AIDS and malaria.")
++
Presence of Russian photographer in Oval Office raises alarms - The Washington Post (Trump did not discuss Russian interference in the U.S. election in his meeting with the Russian Foreign Minister Lavrov and Russia's Ambassador to the U.S., Sergey Kislyak, who is reportedly at the center of Russia's election interference. Who is Sergey Kislyak, Russian ambassador to the US? - CNN
This photograph was taken by a Russian purportedly employed by Tass, the only news service allowed to take pictures of this meeting:
The President No One Wants to Talk To - Bloomberg
Trump's Military Ignorance Steams Full Speed Ahead - Bloomberg
Manafort Got $3.5M Mystery Mortgage, Paid No Tax - NBC News (this may develop into a major news story); Feds Subpoena Records for $3.5M Mystery Mortgage on Manafort's Home - NBC News
Flynn, Manafort Are Key Figures in Russia Probe Mueller Will Lead - NBC News
Trump to graduates: "No politician in history... has been treated worse or more unfairly" : - CNNPolitics.com
+++++++++++++++
1. Intermediate Term Bond/CD Ladder Basket Strategy:
U.S. industrial output jumps in April at fastest rate in more than three years - MarketWatch
"Industrial production advanced 1.0 percent in April for its third consecutive monthly increase and its largest gain since February 2014. Manufacturing output rose 1.0 percent as a result of widespread increases among its major industries. The indexes for mining and utilities posted gains of 1.2 percent and 0.7 percent, respectively. At 105.1 percent of its 2012 average, total industrial production in April was 2.2 percent above its year-earlier level. Capacity utilization for the industrial sector increased 0.6 percentage point in April to 76.7 percent, a rate that is 3.2 percentage points below its long-run (1972–2016) average." The Fed - Industrial Production and Capacity Utilization - G.17
The Empire State manufacturing business activity index fell 6 points to a negative 1 this month as the new orders component declined to -4.4: Empire State Manufacturing Survey (overview) - FEDERAL RESERVE BANK of NEW YORK
Housing starts for April were reported at a seasonally adjusted rate of 1.172M which was 2.6% below the revised March rate and up .7% Y-O-Y. Building permits declined by 2.5% below the revised March number. Monthly New Residential Construction April 2017.pdf
++++
Mostly Politics:
Trump is convinced that he invented the phrase "priming the pump".
"Have you heard that expression used before? Because I haven’t heard it. I mean, I just … I came up with it a couple of days ago and I thought it was good." Donald Trump Says He Invented 'Priming the Pump' Phrase | Time.com; No, Donald Trump Did Not Invent 'Priming the Pump' Donald himself has used the phrase more than "a couple of days ago" but he would have to be compos mentis to remember.
The phrase has been in existence for as long as I can remember. The dictionary says that the phrase originated in the early 19th century. The phrase was popularized by John Maynard Keynes and Franklin Roosevelt during the Great Depression.
++++++++++
Trump revealed highly classified information to Russian foreign minister and ambassador - The Washington Post; Trump Revealed Highly Classified Intelligence to Russia, in Break With Ally, Officials Say - The New York Times; Trump Aides Race to Limit Fallout From Report on Disclosure - Bloomberg
H.R. McMaster issued what I call a non-denial denial designed to mislead the public late last Monday: "The story that came out tonight, as reported, is false. At no time were intelligence sources or methods discussed. I was in the room, and it didn't happen." (emphasis added) This is called a "straw man" argument.
Mr. McMaster falsely stated that the articles from the NYT and the WP claimed that Trump disclosed what the CIA calls sources and methods. Those articles clearly state that Trump disclosed highly classified information to the Russians and that Trump had disclosed more information to Russia than the U.S. would to its closest allies.
Quote from WP article:
"Trump went on to discuss aspects of the threat that the United States learned only through the espionage capabilities of a key partner. He did not reveal the specific intelligence-gathering method, but he described how the Islamic State was pursuing elements of a specific plot and how much harm such an attack could cause under varying circumstances. Most alarmingly, officials said, Trump revealed the city in the Islamic State’s territory where the U.S. intelligence partner detected the threat."
PAUL RYAN TWEET:
"Individuals who are "extremely careless" with classified information should be denied further access to such info." 12:30 PM-7 Jul 2016
House majority leader Kevin McCarthy to colleagues in 2016: ‘I think Putin pays’ Trump - The Washington Post (just another locker room joke I suppose)
McMaster then held a press conference on Tuesday, where he repeatedly refused to answer a yes or no question whether Trump gave classified information to the Russians.
House majority leader Kevin McCarthy to colleagues in 2016: ‘I think Putin pays’ Trump - The Washington Post (just another locker room joke I suppose)
McMaster then held a press conference on Tuesday, where he repeatedly refused to answer a yes or no question whether Trump gave classified information to the Russians.
Instead, he gave the evasive answer that nothing inappropriate was done by his Boss and suggested that nothing more than publicly available information was discussed. If that was the case, why not deny that Trump released classified information on the fly. That can not be done if he knows that classified information was given to the Russians. So he can not answer the question yes or no.
He also knows that the Washington Post was asked to withhold details about what was told since "revealing them would jeopardize important intelligence capabilities".
McMaster also stood by his comments made on Monday that the press articles were false, "as reported" since no sources or methods were disclosed by Trump. He is claiming now that he meant to say something that he did not say:
“I stand by my statement — the premise of the article is false that in any way the president had a conversation that was inappropriate or that resulted in any kind of lapse in national security.”
That is not what he said earlier when characterizing the articles.
What is "wholly appropriate" for Trump according to McMaster?
Anything that Trump thinks is appropriate, without regard to whether the disclosure was considered appropriate in the national interest by the intelligence agencies.
McMaster Quote:
"It is wholly appropriate for the president to share whatever information he thinks is necessary to advance the security of the American people. That's what he did."
Soon after McMaster talked to the press, the NYT later asserted that one source for the disclosed classified information was Israel. Israel Said to Be Source of Secret Intelligence Trump Gave to Russians - The New York Times
The NYT referenced an earlier story that Israel was told by U.S. intelligence officials to be careful about the information given to Trump since he might leak it to the Russians. US intel sources warn Israel against sharing secrets with Trump administration.
Putin is defending Trump's disclosure and offered to provide a transcript of the meeting.Putin offers transcript of Trump meeting with Lavrov - CNN Why not provide a tape Vlad, which Russia would have to have in order to prepare a transcript? The U.S. probably has a tape and a transcript already.
Tuesday ended with the disclosure that raises serious questions, if true, whether Trump has used Presidential powers in a manner that obstructs justice. I am referring to the Comey memo of his meeting with Trump. That memo and other documents prepared by Comey will be made public soon enough.
Trump Said to Ask Comey to Drop FBI Probe of Flynn's Russia Ties - Bloomberg
Comey Memo Says Trump Asked Him to End Flynn Investigation - The New York Times
Comey memo says Trump asked him to drop Flynn probe - CBS News
Trump asked Comey to end investigation of Michael Flynn: source | Reuters
Notes made by former FBI Director Comey say Trump pressured him to end Flynn probe - The Washington Post
Based on what I know now, there is a zero chance that the GOP will initiate impeachment proceedings against Trump.
The noise in Washington should quiet down for awhile after the Deputy Attorney General appointed a special counsel to investigate. He made a good choice in selecting the former FBI Director Robert Mueller who served under Bush Jr. and Obama.
+++++
A recording has become public where the House Majority Leader Kevin McCarthy asserted that ‘I think Putin pays’ Trump. His staff initially denied that McCarthy ever made that statement. When confronted with a recording, their tune changed to characterizing the statement as a joke. Lot's of jokes in Washington now. In any event, Ryan is heard on the recording swearing everyone to secrecy. I believe at a minimum that McCarthy's statement reflects his unguarded opinion of Trump, so how can he stay on as the GOP's Majority Leader?
++++
Trump to Expand Funding Ban Tied to Abortion Overseas - The New York Times (Trump will "vastly expand the so-called global gag rule that withholds American aid from health organizations worldwide that provide or even discuss abortion in family planning. The new policy could disrupt hundreds of clinics in Africa and around the world that fight AIDS and malaria.")
++
Presence of Russian photographer in Oval Office raises alarms - The Washington Post (Trump did not discuss Russian interference in the U.S. election in his meeting with the Russian Foreign Minister Lavrov and Russia's Ambassador to the U.S., Sergey Kislyak, who is reportedly at the center of Russia's election interference. Who is Sergey Kislyak, Russian ambassador to the US? - CNN
This photograph was taken by a Russian purportedly employed by Tass, the only news service allowed to take pictures of this meeting:
The President No One Wants to Talk To - Bloomberg
Trump's Military Ignorance Steams Full Speed Ahead - Bloomberg
Manafort Got $3.5M Mystery Mortgage, Paid No Tax - NBC News (this may develop into a major news story); Feds Subpoena Records for $3.5M Mystery Mortgage on Manafort's Home - NBC News
Flynn, Manafort Are Key Figures in Russia Probe Mueller Will Lead - NBC News
Trump to graduates: "No politician in history... has been treated worse or more unfairly" : - CNNPolitics.com
+++++++++++++++
1. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Added 1 Boston Properties 2.75% Senior Unsecured Bond Maturing on 10/1/26:
Issuer: Operating Partnership of Boston Properties Inc. (BXP)
BXP Boston Properties Inc Page at Morningstar
Company Website: Boston Properties
Finra Page: Bond Detail (prospectus linked; make whole provision at page S-12)
Credit Ratings:
Moody's at Baa2
S & P at A-
YTM at Total Cost (93.469) = 3.57%
2017 First Quarter Earnings Report
2017 First Quarter Earnings Report
Boston Properties 2016 Annual Report (list of properties at pages 30-33)
B. Bought 2 CVS 2.75% Senior Unsecured Bonds Maturing on 12/1/22:
Issuer: CVS Health Corp (CVS)
CVS CVS Health Corp Page at Morningstar
Finra Page: Bond Detail (prospectus linked/make whole provision at S-13)
Credit Ratings:
Moody's at Baa1
S & P at BBB+
YTM at Total Cost (99.967) = 2.756%
This purchase brings me up to 6 SU CVS bonds. I also own the 2.125% maturing in 2021 and the 2.875% maturing in 2026.
C. Bought 2 Centerpoint 2.4% General Mortgage Bond Maturing on 9/1/2026:
One bond was bought in a Roth IRA account ($2 Commission):
Issuer: CenterPoint Energy Inc. (CNP)
FINRA Page:Bond Detail (prospectus linked/ranking and make whole provisions described at page S-2)
CNP CenterPoint Energy Inc Page at Morningstar
Credit Ratings:
Moody's at A1
S & P at A
YTM at Total Cost (95.726) = 2.926%
Another bond was bought in a taxable account ($1 Commission):
YTM at Total Cost (96.762): 2.922%
As explained earlier, Centerpoint's General Mortgage Bonds are junior to its First Mortgage Bonds. The company has $102M in outstanding First Mortgage Bonds as of 12/31/16. The 9.15% first mortgage bond matures in 2021. The general mortgage bonds would then become first mortgage bonds, assuming, as I anticipate, no superior secured bond issuances.
Last January, Centerpoint sold $300M 3% general mortgage bonds maturing in 2027.
CenterPoint Energy reports first quarter 2017 earnings of $0.44 per diluted share CNP Analyst Estimates
10-Q for the Q/E 3/31/17
CNP 2016 Annual Report (debt discussed at page 45)
CNP SEC Filings
D. Bought 2 Walgreens 3.45% Senior Unsecured Bonds Maturing on 6/1/26:
Issuer: Walgreens Boots Alliance Inc. (WBA)
WBA Walgreens Boots Alliance Inc Page at Morningstar
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at Baa2
S & P at BBB
YTM at Total Cost (98.925) = 3.589%
10-Q for the Q/E 2/28/17
Earnings for Q/E 2/28/17
WBA Analyst Estimates - Walgreens Boots Alliance Inc.
E. Bought 2 Entergy Arkansas 3.05% First Mortgage Bond Maturing on 6/1/23:
Bought 1 in a Taxable Account ($2 Commission)
YTM at Total Cost (101.464) = 2.778%
I later bought 1 in a Roth IRA Account ($1 Commission):
YTM at Total Cost (101.013) = 2.842%
Issuer: Wholly Owned Distribution/Generation Subsidiary of Entergy Corp. (ETR)
"Entergy Arkansas owns and operates, through an affiliate, the ANO 1 and ANO 2 nuclear power plants." (page 316)
Finra Page: Bond Detail (prospectus linked)
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
Entergy Arkansas SEC Filings
Page 321 Entergy 2016 Annual Report
Owned and Leased Generation by ETR Subsidiary:
Pages 241-242 ("Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility")
Entergy Arkansas Purchases Hot Spring Energy Facility (2012)
C. Bought 2 Centerpoint 2.4% General Mortgage Bond Maturing on 9/1/2026:
One bond was bought in a Roth IRA account ($2 Commission):
Issuer: CenterPoint Energy Inc. (CNP)
FINRA Page:Bond Detail (prospectus linked/ranking and make whole provisions described at page S-2)
CNP CenterPoint Energy Inc Page at Morningstar
Credit Ratings:
Moody's at A1
S & P at A
YTM at Total Cost (95.726) = 2.926%
Another bond was bought in a taxable account ($1 Commission):
YTM at Total Cost (96.762): 2.922%
As explained earlier, Centerpoint's General Mortgage Bonds are junior to its First Mortgage Bonds. The company has $102M in outstanding First Mortgage Bonds as of 12/31/16. The 9.15% first mortgage bond matures in 2021. The general mortgage bonds would then become first mortgage bonds, assuming, as I anticipate, no superior secured bond issuances.
Last January, Centerpoint sold $300M 3% general mortgage bonds maturing in 2027.
CenterPoint Energy reports first quarter 2017 earnings of $0.44 per diluted share CNP Analyst Estimates
10-Q for the Q/E 3/31/17
CNP 2016 Annual Report (debt discussed at page 45)
CNP SEC Filings
D. Bought 2 Walgreens 3.45% Senior Unsecured Bonds Maturing on 6/1/26:
Issuer: Walgreens Boots Alliance Inc. (WBA)
WBA Walgreens Boots Alliance Inc Page at Morningstar
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Moody's at Baa2
S & P at BBB
YTM at Total Cost (98.925) = 3.589%
10-Q for the Q/E 2/28/17
Earnings for Q/E 2/28/17
WBA Analyst Estimates - Walgreens Boots Alliance Inc.
E. Bought 2 Entergy Arkansas 3.05% First Mortgage Bond Maturing on 6/1/23:
Bought 1 in a Taxable Account ($2 Commission)
YTM at Total Cost (101.464) = 2.778%
I later bought 1 in a Roth IRA Account ($1 Commission):
YTM at Total Cost (101.013) = 2.842%
Issuer: Wholly Owned Distribution/Generation Subsidiary of Entergy Corp. (ETR)
"Entergy Arkansas owns and operates, through an affiliate, the ANO 1 and ANO 2 nuclear power plants." (page 316)
Finra Page: Bond Detail (prospectus linked)
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
Entergy Arkansas SEC Filings
Owned and Leased Generation by ETR Subsidiary:
Pages 241-242 ("Entergy Arkansas’s November 2012 purchase of the 620 MW, combined-cycle, gas-fired Hot Spring Energy facility")
Entergy Arkansas Purchases Hot Spring Energy Facility (2012)
Entergy Arkansas also has first mortgage baby bonds that trade on the NYSE.
EAB Stock Price - Entergy Arkansas Inc. First Mortgage Bonds 4.90% Series due 12/1/52
EAE Stock Price - Entergy Arkansas Inc. First Mortgage Bonds 4.75% Series Due June 1, 2063
Those two have 25 par values and may be redeemed at the issuer's option at par value. If interest rates rise sufficiently, the issuer will allow the owners to keep the bonds declining in price. If interest fall sufficiently, enabling the issuer to refinance at a lower cost and usually to extend the maturity as well, then the bond will be snatched away at par value.
The first mortgage bonds traded in the bond market have make whole provisions that penalizes an optional redemption in a declining rate environmental, making an optional redemption unlikely until the bond nears maturity. The interest rate risk for the owner can be controlled somewhat by picking shorter term first mortgage bonds.
Optional Redemption-Make Whole Provision at page S-4 of the Prospectus:
Security:
Customers of Entergy Subsidiaries:
A. Bought 50 EMP at $22.91-Used Commission Free Trade:
EAB Stock Price - Entergy Arkansas Inc. First Mortgage Bonds 4.90% Series due 12/1/52
EAE Stock Price - Entergy Arkansas Inc. First Mortgage Bonds 4.75% Series Due June 1, 2063
Those two have 25 par values and may be redeemed at the issuer's option at par value. If interest rates rise sufficiently, the issuer will allow the owners to keep the bonds declining in price. If interest fall sufficiently, enabling the issuer to refinance at a lower cost and usually to extend the maturity as well, then the bond will be snatched away at par value.
The first mortgage bonds traded in the bond market have make whole provisions that penalizes an optional redemption in a declining rate environmental, making an optional redemption unlikely until the bond nears maturity. The interest rate risk for the owner can be controlled somewhat by picking shorter term first mortgage bonds.
Optional Redemption-Make Whole Provision at page S-4 of the Prospectus:
F. Intermediate Term Bond Basket Dollar Weightings by Year (additions since 12/1/16):
2020: $13K
2021: $36K
2022: $51K
2023: $52K
2024: $ 9K (unable to find satisfactory to me buys)
2025: $30K
2026: $58K
2027: $29K ($20K in Tennessee Municipal Bonds)
2020: $13K
2021: $36K
2022: $51K
2023: $52K
2024: $ 9K (unable to find satisfactory to me buys)
2025: $30K
2026: $58K
2027: $29K ($20K in Tennessee Municipal Bonds)
I have not yet discussed the purchase of some bonds included in that list and some recent dispositions that are no longer included.
Part of this reallocation into high quality bonds is due to low yields in broker sweep accounts.
E.G. Schwab Sweep Account:
Lower brokerage commissions can in part be justified due to the miserly yields paid on customer cash.
2. Long Term Bond Strategy-Moved From Immaterial to Underweighted:Part of this reallocation into high quality bonds is due to low yields in broker sweep accounts.
E.G. Schwab Sweep Account:
Lower brokerage commissions can in part be justified due to the miserly yields paid on customer cash.
A. Bought 50 EMP at $22.91-Used Commission Free Trade:
B. Bought 50 EMP at $22.85-A Roth IRA Account:
Quote: Entergy Mississippi Inc. 4.9% First Mortgage Bonds (U.S.: NYSE)
The current yield at a $22.85 total cost per share is about 5.36%.
The EMP purchases are trades. It just looked to me like long term interest rates were headed back down.
Entergy Mississippi is a distribution/generation subsidiary of Entergy.
Entergy Mississippi's senior secured debt is rated A2: Moody's Places Entergy Corp. on Review for Upgrade; Entergy Mississippi Senior Unsecured Upgraded to Baa1 from Baa2 and Senior Secured Upgraded to A2 from A3 with Stable Outlook
Quatumonline has the old A3 rating.
EMP is an Exchange Traded first mortgage bond that matures on 10/1/2066, but the issuer has the right to call at par "at any time on or after October 1, 2021" by simply paying the $25 par value plus accrued and unpaid interest "to, but not including, the redemption date." Since I bought at a discount to par, bring on that redemption. I am unlikely to own this bond with its potential long duration for long. This kind of provision creates asymmetric interest rate risk that favors the issuer.
This bond was sold to the public at $25 last September.
I previously bought and sold a 30 share lot for a $56.89 profit:
I held that lot long enough to harvest one quarterly interest payment of $10.82.
Entergy Mississippi - Service Area
Entergy Mississippi SEC Filings
My first purchase of an Entergy Mississippi first mortgage bond was in December 2008: Stocks, Bonds & Politics: First Mortgage Bond EMO
The coupon was 7.2%. As interest rates continued to decline, the issuer exercised its option to call this bond at par value.
Entergy Mississippi Operating Results:
The proceeds from selling this bond were used to redeem higher coupon first mortgage bonds and to lengthen the maturity date.
Use of Proceeds Section of the Prospectus:
3. Continued to Pare Stock Allocation:
A. Sold 276+ RMT at $8.4-Used Commission Free Trade:
Quote: Royce Micro-Cap Trust Inc. (RMT)-A Closed End Fund
Profit Snapshot: $61.77
The last quarterly dividend and the one paid in the 2015 4th quarter were taken in cash.
The 2015 year end distribution was $.61 per share. The fund paid a $.16 per share dividend in the 2017 first quarter. Royce Micro-Cap Trust (RMT)
2016 Annual Report
RMT Royce Micro Cap Trust CEF Page at Morningstar
RMT Royce Micro Cap Trust, closed-end fund summary - CEF Connect
Trading Gains To Date: $2,415.95
I still own shares in other accounts.
4. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 WFC 1.85% CDs (monthly interest) Maturing on 4/27/20:
The order was placed on 4/12/17 but the 3 year period for this CD starts on 4/27/17.
This purchase now fits at the tail end of the 3 year short term period.
5. Continued to Pare Canadian Reset Equity Preferred Stock Allocation:
A. Sold 100 TRPPRH at C$14.2:
Profit Snapshot: +C$393
Quote: TransCanada Preferred Series 4
Purchase Discussion: Item # 2. Bought 100 TRPPRH at C$10.25-Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 5/26/2016 - South Gent | Seeking Alpha
Security Description: This equity preferred stock pays quarterly cumulative dividends at a 1.28% spread to the 3 month Canadian treasury bill on a C$25 par value. The current three month T Bill is abnormally low: Canada 3 Month
This is just profit taking motivated in part by the low spread to the 3 month Canadian T Bill which continues to remain at historically low levels.
Entergy Mississippi SEC Filings
My first purchase of an Entergy Mississippi first mortgage bond was in December 2008: Stocks, Bonds & Politics: First Mortgage Bond EMO
The coupon was 7.2%. As interest rates continued to decline, the issuer exercised its option to call this bond at par value.
Entergy Mississippi Operating Results:
The proceeds from selling this bond were used to redeem higher coupon first mortgage bonds and to lengthen the maturity date.
Use of Proceeds Section of the Prospectus:
3. Continued to Pare Stock Allocation:
A. Sold 276+ RMT at $8.4-Used Commission Free Trade:
Quote: Royce Micro-Cap Trust Inc. (RMT)-A Closed End Fund
Profit Snapshot: $61.77
The last quarterly dividend and the one paid in the 2015 4th quarter were taken in cash.
 |
| $154.18 4th Quarter 2015 |
 |
| $44.18 1st Quarter 2017 |
2016 Annual Report
RMT Royce Micro Cap Trust CEF Page at Morningstar
RMT Royce Micro Cap Trust, closed-end fund summary - CEF Connect
Trading Gains To Date: $2,415.95
 |
| 2014 RMT 759+ Shares +$2,269.81 |
 |
| 2012 IRA 200 Shares +$84.37 |
I still own shares in other accounts.
4. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 WFC 1.85% CDs (monthly interest) Maturing on 4/27/20:
The order was placed on 4/12/17 but the 3 year period for this CD starts on 4/27/17.
This purchase now fits at the tail end of the 3 year short term period.
5. Continued to Pare Canadian Reset Equity Preferred Stock Allocation:
A. Sold 100 TRPPRH at C$14.2:
Profit Snapshot: +C$393
Quote: TransCanada Preferred Series 4
Purchase Discussion: Item # 2. Bought 100 TRPPRH at C$10.25-Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 5/26/2016 - South Gent | Seeking Alpha
Security Description: This equity preferred stock pays quarterly cumulative dividends at a 1.28% spread to the 3 month Canadian treasury bill on a C$25 par value. The current three month T Bill is abnormally low: Canada 3 Month
This is just profit taking motivated in part by the low spread to the 3 month Canadian T Bill which continues to remain at historically low levels.
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
South Gent,
ReplyDeleteEMP trades like a stock. It dropped almost 18% at its December 2016 low, 3 month after its offering at $25. It could happen again with another round of rate hikes and/or some determined sellers and if the price drops and stays low for long would you be willing to wait it out?
Re. RMT I was thinking RMT might have more room to go higher; however, with the current political uncertainty it might not be a bad idea to exit and come back in at a lower re-entry point.
Y: I still own RMT shares. When reducing my stock allocation, as I have been doing, stock funds will be sold as I have done in the past. The last time was in 2007.
DeletePotentially long duration exchange traded bonds will be more volatile than similar bonds traded in the bond market. That goes with the territory of being owned primarily by individuals rather than large institutions.
A similar first mortgage bond, traded in the bond market, is the A3 rated one issued by South Carolina E & G which has a 4.664% YTM and a 2064 maturity date.
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C611537&symbol=SCG4127735
EMP has a higher YTM and current yield, but does not have the make whole protection found in the SCE & G bond.
A little bit going on?
ReplyDeleteIt looks like the special investigation has calmed the waters and ended the market worries by compartmentalizing for a while.
The providing of classified info keeps reminding me of Eli Cohen. He was a spy embedded high into Syria that enabled Israel to survive the 6 day war. He was caught, and tortured and hanged.
http://www.jewishvirtuallibrary.org/eli-cohen
He wasn't outed. This action could make the US and world less safe.
I'm still not sure this was just blurted out by a lost soul, and not on purpose. I wonder if he started to talk, why someone didn't go into a coughing fit and interrupt.
LMH: The appointment of Mueller will lower the noise volume in Washington.
DeleteHowever, as I noted in the post, it is bad news for Trump and the GOP agenda if Mueller finds collusion between the Trump campaign and Russia's interference in the election. So if there is evidence out there, it is now more likely to be found and exposed rather than buried by GOP politicians.
Mueller can be fired by Trump by the way. I don't think that will happen but the special prosecutor in the Watergate scandal, Archibald Cox, was fired by Nixon (the Saturday Night Massacre) which slowed down some his day of reckoning.
+++
I mentioned the poor guidance given by Cisco in a previous comment.
" Cisco shows effects of Trump uncertainty"
http://www.marketwatch.com/story/cisco-shows-effects-of-trump-uncertainty-2017-05-17
What do you think of the economic reports?
ReplyDeleteLMH: I am a "context" investor. What is the context of the FED's capacity utilization number which is 3.2% below its long run average? The context is that the U.S. economy is now eight years into a economic recovery and is still significantly below its long term average number.
DeleteNew home construction looks like it may not be a major contributor to GDP growth this year.
New car sales have probably peaked as consumers hold onto to their cars longer. The government, as usual, is behind in collecting that data:
https://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_26.html_mfd
A private company collects data more quickly and now has data through 2015:
http://news.ihsmarkit.com/press-release/automotive/vehicles-getting-older-average-age-light-cars-and-trucks-us-rises-again-201
The evidence so far is pointing to those two large sectors, new car and home sales, being close to stagnant or anemic growth.
The problems in Washington may easily translate into lower consumer spending.
I am not seeing anything that would point to higher real GDP growth this year compared to last year.
Here are some excerpts from conference calls:
“Loan growth, despite the optimism for change in a more business-friendly administration, has yet to materialize in a meaningful way…The net result is that our outlook for loan growth for the full year of 2017 is a little lower than it was in January.” —M&T Bank
“During the first quarter of 2017, commercial loan growth was sluggish across the industry. Our large corporate customers tell us that they are optimistic about the future, but are awaiting more clarity regarding potential changes in tax and regulatory reform, infrastructure spend and trade policies.” —US Bancorp
“On the US, I think there’s a general observation here and that is pretty weak consumer demand and that’s not a particular issue here for Nestle. I think that’s all throughout…category by category, whether it’s us or anyone else, what you’re seeing is fairly soft demand, even in the face of pretty good fundamental economic data.” —Nestle
“April frankly is slowing a little bit. I don’t know what that means.” —Procter & Gamble
“As we think about some of the headwinds, we think that auto production is clearly flattening out, and we think for the rest of the year relatively flat.” —CSX
“passenger car inventory remains heavy and we have been working to bring that down to more appropriate levels by cutting production, and we remain committed to match supply and demand. We expect to end…with significantly reduced passenger car levels.” —General Motors
“If they make no progress in Washington at all then eventually that optimism will turn to pessimism and…capable of a return into recession… I don’t think it will wane immediately, but by the end of the year let’s say if there’s been no positive movement on taxes regulation, healthcare and all that combined then I will be very worried to be honest.” —BB&T
"So certainly we are as hopeful as anyone that there in fact is stronger economic growth to come in the future. I just can’t say I’d see any evidence of it right now in our results" American Express
I was not impressed by the bounce back rally today. Maybe tomorrow will be better.
ReplyDeleteI previously mentioned that I place things in context. IMO, most people never do.
The context of my current stock allocation reduction, when viewed as a percentage of my investable assets, involves a substantially less reduction than the one made in late 2006 and throughout 2007.
See Snapshot near the end of this post:
https://tennesseeindependent.blogspot.com/2013/06/updated-stock-fund-table-as-of-662013.html
I simply have experienced good growth in my portfolio since 2007 and my portfolio recovered quickly from the Near Depression in 2008 given the rotation out of stocks into cash and short term investment grade bonds and a willingness to rotate back into stocks in late February 2009.
Given the portfolio growth during the current bull cycle that started in March 2009, I can now reduce the size of my stock portfolio far more now, when expressed in dollars, compared to 2007 and still have a considerably larger stock portfolio in dollar terms when the paring is complete. That is the context of what I am doing now.
I did add another $5K to my Tennessee municipal bond allocation today.
Bank of China has a 3 month CD with a 1.1% coupon. That is the highest rate that I have received for a 3 month CD since the Near Depression. I am receiving incrementally higher rate for short term CDs, paid on shorter terms, but longer term CDs (2+ years) have come down in yield since my purchases earlier this year.
The Bond Ghouls do not see economic nirvana being delivered by Trump and his republican colleagues. The ten year bond closed today at a 2.23% yield. The thirty year is at 2.9%:
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
The muni that I bought today was issued by the Harpeth Valley Utility District and has a 4% coupon. There is a possibility that this one will be called early, with the optional redemption date starting in 2022. Interest payments are federal tax and AMT free. The security is water and sewer revenues. The service area is shown in a map that can be viewed in the offering statement.
Page A-9
https://emma.msrb.org/EP661735-EP515939-EP917107.pdf
The area is in several middle Tennessee counties, close to where I live.
Rated AA by S & P
https://emma.msrb.org/SecurityView/SecurityDetails.aspx?cusip=AF1B007850EF8E95F7E24292DAE66BCC7
The maturity date is in 2040.
South Gent,
ReplyDeleteWhat is the cusip for Bank of China's 3 month CD with a 1.1% coupon? I bought some Bank of China CD at 1.1% today (when issued 17312QF20 CD7CTN), but the maturity date stretches out to 12/26/2017.
Since the brokerage houses get paid 0.05% fee by the issuer I would hope the investors can buy the CDs at the same coupon rate/maturity date, regardless of the broker they use.
I bought that one at Schwab today. It was 1% rather than 1.1%. CUSIP 06426WGE6
DeleteI also bought one from Towne Bank, VA. that was 1.1% that matured on December 12/7/17. I got the two confused. Still that 1% is the highest rate on a 3 month CD that I have received in several years.
Both of those CDs are available at Fidelity as well.
You can pick up about a .91% YTM buying the .625% treasury maturing on 8/31/17 so the CD gives me about .1% more. Either the Bank of China CD or the 3 month treasury bill is better than Schwab .05% on idle funds.
There is no reason for me to fool with these instruments in my Vanguard account where their prime money market fund is now paying me
.96%:
https://personal.vanguard.com/us/funds/snapshot?FundId=0030&FundIntExt=INT
South Gent,
DeleteThanks for the clarification. I will also look into the treasuries when the market opens tomorrow.
I am gradually using more CDs in my ST ladder. It is easier to roll a CD, but I am giving up some yield. I wonder how long we will have to wait to see the normal interest rate level again.
Y: I would not hold your breath waiting for short term rates to normalize to historically average numbers.
DeleteThe probabilities of FF increases this year have gone down some based on the political turmoil.
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
A .25% increase in June is still viewed as probable at 73.8%, but two increases on or before the December meeting is down to 40%.
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
The June meeting is less than a month away. If there is a .25% increase then, there should be a slight uptick in 3 and 6 month CD rates shortly thereafter.
Fidelity is showing the .625% treasury maturing on 8/31/17 at .906% but the minimum order is 10 bonds. For a 1 to 9 bond order, the best price results in a .81% yield. The FDIC insured Bank of China CD maturing that month, with its 1% coupon, is better.
DeletePolitics, a funny image.
ReplyDeleteJust listening to All in with Chris Hayes. Trump is still scheduled for his international trip. One stop is Israel. He's scheduled for 15 mins at Yad Vashem. However his stop at Masada (a dirt plateau with some archeological remnants, famous because a group of Jews took a last stand there against the Romans - and probably more because it's spectacular to climb up and see the sunrise.) Well, Trump's stop was cancelled because he was not given permission to land his helicopter on top of this... delicate UNESCO heritage site.
---
On rates - do you image anytime line for when higher rates might occur?
There's that long term chart of rates that shows them diving over many years, long before 2000 and 2007 and until now.
Without that, I would expect a couple years as the shorter estimate if the earnings rally takes hold in spite of the politics, and 5 years for a change if the shorter doesn't get traction (with a dip in rates or recession in between.)
LMH: Bonds have been in a long term secular bull market since 1981.
DeleteYou can see that by looking at this chart. Just move the left cursor to 1981, slightly to the left of the grey recession line:
https://fred.stlouisfed.org/series/DGS10
The bond bull market may have ended in early July 2016 when the ten year treasury yield bottomed at a 1.37% yield.
I believe that the major central banks will have to end their extremely abnormal monetary policies before rates can rise in a sustained manner.
More time may be needed before the central banks
are comfortable returning to something resembling normal monetary policies.
With the FED gradually raising rates, this may provide an umbrella late this year or in 2018 for other central banks to raise their benchmark rates. The ECB's rate is a negative .4%. Switzerland's central bank is at a -.7%. Canada is still at a rate last seen briefly during the Great Depression. Japan is negative as well.
The primary reason for those monetary policies is to devalue their respective currencies, make them as unattractive as possible, which then improves the overall competitive positions of their exporters. Those policies are instruments of an ongoing trade war which may turn hotter when and if Trump starts imposing tariffs or border taxes.
There is also an economic argument that these abnormal monetary policies are contributing to low inflation numbers.
Since those policies have not produced meaningful and sustained inflation over the past eight years, it may occur to a few that those policies are actually deflationary rather than inflationary. This argument is being advanced by economists using a theory called neo-fisherism.
https://www.stlouisfed.org/publications/regional-economist/july-2016/neo-fisherism-a-radical-idea-or-the-most-obvious-solution-to-the-low-inflation-problem
Looking at that bond chart - going back to it's first data in 1962... Looks like bonds are at the top of it's ongoing trading range channel.
DeleteIt's well below historic norms. So I'd have to ascribe it to CB policies and to slow growth economy that we're living with.
So I'd adopt your explanation - this isn't going to normal for a long time on it's own. Definitely not with out CB normalizing. The only thing that would get us back to 4-5% is one that hasn't appeared yet - namely something to accelerate our economy. While Trump talks about it, the plans put forth and then the "skill" behind them, doesn't look like it will success at that type of paradigm shift in our economy. IF that starts, THEN I'll believe rates can come back up.
So you're saying we already have a trade war. Media doesn't talk like it exists yet - but it's evident in the actions.
The inflation idea was that freely available money for lending, big liquidity would be inflationary. I assumed that made sense. But in hinge sight - it doesn't. It's only inflationary if an economy starts heating up, and only reason CBs got started was because economy was cold and tepid. You're not going to see the same effect by adding a lot of liquidity at a point where money and activity is stalled for reasons besides rates.
On the neo-fisher - for the part that I understood, I suppose it could be that the wearing off effect is a factor in each direction. I'd put it at "expectation." People expect tepid return on money, that tepid return that happens at low rates, filters into everything and that prompts business not to take risks nor to expect bigger returns on investments. In other words, if we're at 5% rates, then business margins and returns are calibrated to compete in a 5% return arena. We you set it up so they are competing in a 1% arena, business profits will be calibrated to that. (Prices will rise at that rate, job wages will reflect that, and so on, in the various complex ways that this happens.) So with a CB lowering rates to get liquidity, they are also setting up lower returns for businesses and lower inflation throughout the economy. In other words, liquidity isn't king nor everything. There's another accordion aspect to economy. So in hindsight, I'd guess something like this has been happening. Maybe add in something from the family of lowered currencies.
So I don't know if that's what the article said, but that'd be my best guess.
So back to your point. It will take CB's stopping their low rate policies in order to get the economy to heat up for real. Or it will take some heat showing up for CBs to take a risk on rising. That in turn will lead to an upward spiral.
Based on all this - then the current rally while sort of on the idea of Trump, it started in a way before him, and would be a realistic expectation in neo-fisherism, that the economy would accelerate in it's heating up (from it's very cool starting point), when the Fed finally raised rates. So in spite of themselves, the Fed was a significant trigger to the current raising economy at a more accelerated (delta) rate than it's been in a while.
And that would be my theory, such as it is.
It would say that when the economy is hot, then once again raising would have the usual recessionary effect.
But by contrast from here, if Fed slows down it's raises, we actually could see the earnings slow down again. Depends how much liquidity is needed by businesses.
Instead of the Fed being a chaser of heat as it raises, it's a cause. Instead of the Fed being a chaser as it lowers, it's moved into being a cause.
Hum that changes the way I've been looking at things.
Did this line of thinking sound somewhat reasonable to you?
DeleteA just published article in the Washington Post has taken some air out of the rally today. The S & P 500 was at about 2389 when the story hit and is now at 2381.
ReplyDelete2,381.26 +15.54 +0.66
Last Updated: May 19, 2017 at 3:20 p.m. EDT
The story is that a current senior White House advisor close to Trump is a significant person of interest in the collusion part of the Russian investigation. The sources are anonymous and are simply identified as persons who have knowledge.
"The law enforcement investigation into possible coordination between Russia and the Trump campaign has identified a current White House official as a significant person of interest, showing that the probe is reaching into the highest levels of government, according to people familiar with the matter.
The senior White House adviser under scrutiny by investigators is someone close to the president, according to these people, who would not further identify the official."
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2017/05/observations-and-sample-of-recent_20.html