Observations and Sample of Recent Trades: (APLE, ENBPRP, SVNLY, )

FED Minutes of May Meeting:

Minutes of May 2-3, 2017 Meeting:

Nearly all policy members agreed to reduce the FED's bloated balance sheet as follows:

"Under the proposed approach, the Committee would announce a set of gradually increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month, and only the amounts of securities repayments that exceeded the caps would be reinvested each month. As the caps increased, reinvestments would decline, and the monthly reductions in the Federal Reserve's securities holdings would become larger. The caps would initially be set at low levels and then be raised every three months, over a set period of time, to their fully phased-in levels. The final values of the caps would then be maintained until the size of the balance sheet was normalized.

Nearly all policymakers expressed a favorable view of this general approach. Policymakers noted that preannouncing a schedule of gradually increasing caps to limit the amounts of securities that could run off in any given month was consistent with the Committee's intention to reduce the Federal Reserve's securities holdings in a gradual and predictable manner as stated in the Committee's Policy Normalization Principles and Plans. Limiting the magnitude of the monthly reductions in the Federal Reserve's securities holdings on an ongoing basis could help mitigate the risk of adverse effects on market functioning or outsized effects on interest rates. The approach would also likely be fairly straightforward to communicate."

 The FED's balance sheet currently stands at $4.233+ trillion. System Open Market Account Holdings - FEDERAL RESERVE BANK of NEW YORK



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U.S. Dollar Index:

Black Line: 50 day SMA
Green Line 200 day SMA

97.17 as of 10:45 A.M E.S.T 5/25/17

U.S. Dollar Index (DXY) Interactive Chart 

A decline in the DXY occurs when the U.S. Dollar falls in value against 6 major currencies heavily weighted in the Euro. 

The DXY peaked at around 103 shortly after the U.S. election last year. The dominant trend in 2017 has been down, with a series of lower highs and lower lows. 

One reason why USD priced international funds are doing better than the SPY so far this year is due to USD weakness. International markets are generally cheaper than the U.S. using traditional valuation criteria.
  
Year-to Date Total Return Data Through 5/24/17 Based on Price:

SPDR® S&P 500 ETF (SPY) Total Returns = 8.11%
Vanguard FTSE Europe Index Fund ETF Shares (VGK) Total Returns = 18.24%
Vanguard FTSE Emerging Markets Index Fund ETF Shares (VWO) Total Returns = 14.23%
Vanguard FTSE Developed Markets Index Fund ETF Shares (VEA) Total Returns = 14.42%

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Trump's 3% Real GDP Growth Projection: 

What 10 million simulations tell us about President Trump’s chances of achieving 3% economic growth - MarketWatch

Trump 3% GDP growth plan makes no sense - Business Insider


There is also the issue of how high interest rates would go with consistent 3% growth. A sufficiently high interest rate level will start to retard growth through economic activities sensitive to interest rates such as large ticket purchases financed with debt (homes, cares,etc.)    

How does the GOP sell large tax cuts for corporations and high earners to the high school educated working class? 

Corporations can not vote, and there are an insufficient number of voters in the top 10%. The GOP's pitch is their trickle down economic theory, where those tax cuts (along with regulation eliminations) unleash faster growth than the nation has experienced in 7 decades, which increases the number of jobs and pay for the average middle class and poor family. 

Will the tax cuts actually stimulate the economy in the way predicted? 

Tax cuts will generate more GDP growth, but the impact predicted by the GOP is way out-of-line with the historical evidence. 

Corporate tax cuts will be used in large part to increase dividends, to buy other companies and "rationalize" the workforce, and to buy back stock. None of those activities contribute to GDP growth. They do enhance the unspent wealth of the top 1% who are invested in risk assets. 

Trump's tax cut plan only pays for itself with growth in 'fairyland"- CNBC 

Trump Tax Plan’s Pass-Through Tax Break Would Provide Massive Windfall to the Wealthy | Center on Budget and Policy Priorities

Economists See Little Magic in Tax Cuts to Promote Growth - The New York Times

As I have pointed out in the past, large publicly traded companies promised to hire workers with repatriated foreign cash after Congress temporarily lowered the repatriation tax rate back in 2004. The result was that those companies used the cash to buy back stock and to increase dividends, and many had a net loss of jobs during an upswing in the economy. 

Senate report says repatriation tax holiday failed to create jobs in US | TheHill

Detailed Senate Report on 2004 Repatriation Holiday

Tax Analysts -- Effects of 2004 Int'l Tax Holiday, Recommendations Going Forward

Foreign profit tax break was costly bomb: report | Reuters

U.S. publicly traded companies will frequently see more benefits flowing from stock purchases and/or dividend increases than investments in new plant and equipment. The advantages relate to the generous options granted high level employees who benefit more from the buybacks and dividend increases.

President Trump's Budget Includes a $2 Trillion Math Mistake | Time.com

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The three numbers you need to understand the CBO report on Republicans’ health-care bill - The Washington Post ("Republicans said their bill will make health insurance cheaper. Except, they'll have to figure out a way to explain why, under Obamacare, 64-year-olds making $26,500 a year are on track to pay $1,700 in annual premiums in 2026. And under the GOP bill, they would pay anywhere between $13,600 to $16,100.")

The preceding article can also be found at MSN currently: Analysis | The three numbers you need to understand the CBO report on Republicans’ health-care bill

CBO: Republican health care bill raises premiums for older, poor Americans by as much as 850%

As I pointed out in my last blog, the republican James Comer from Kentucky was asked by a constituent whether premiums would skyrocket for older Americans under Trumpcare. He started to say no and then claimed he did not know. A GOP congressman from Kentucky wonders: Is ‘this Trump thing’ sustainable? - The Washington Post (Quote from article: “What about people between 60 and 65?” a woman said, her tone sharp. “I’m hearing we’re going to get slammed” by higher health-care costs. Comer started off by saying costs would not rise but then backed off. “I don’t know the answer,” he said, “but I’m going to try to find that out.”)

Stocks, Bonds & Politics:  GOP's Plan To Bankrupt the Middle Class (7/15/11 Post)

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Trump praises Duterte's deadly drug war in leaked transcript - CNN; Trump praises Duterte for 'unbelievable job' cracking down on drugs in the Philippines - POLITICO

FULL TEXT: Leaked transcript of Trump-Duterte phone call

Trump tells Duterte of two U.S. nuclear subs in Korean waters: NYT | Reuters

May to confront Trump as UK police stop sharing attack information with U.S. | Reuters

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GOP's Full Throttle Assault on the Free Press Turns Physical:  

Greg Gianforte, Montana G.O.P. Candidate, Is Charged in Attack on Reporter - The New York Times

Greg Gianforte: Fox News team witnesses GOP House candidate 'body slam' reporter | Fox News

I would not be surprised to see Gianforte win the congressional election today in Montana. Didn't that "libtard" reporter deserve to be attacked for asking Gianforte a question? Lock him up, lock him up, not Gianforte of course, but the reporter.  

The audio of the assault proves that the reporter committed a cardinal sin by asking this republican about the CBO report released yesterday. 

The GOP's candidate for Congress was charge with misdemeanor assault: MCA § 5-201. Assault.

Trump carried Montana with 56.2% of the vote (Final Tally Federal Election Commission.pdf:  279,240 votes out of 497,147)

Presidential election in Montana, 2016 - Ballotpedia (3 pivot counties that voted for Obama in 2012 went for Trump in 2016)

I do not view the modern republican party as a conservative one.

 WATCH: Trump security guard hits protester in face - NY Daily News

The Trump security guard who hit that protester is now one of Trump's closest WH advisors. Who is Keith Schiller, the man Trump sent to fire Comey? - CNN Schiller is now the WH Director of Operations.


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1. Short Term Bond/CD Ladder Basket Strategy:

The market is currently forecasting an 83.1% chance that the FED will raise the federal funds rate by .25% next month. 

Countdown to FOMC: CME FedWatch Tool

The probability of two .25% increases on or before the December 2017 meeting is currently at 46.1%.

A. Added 2 USTs .625% Maturing on 9/30/17: 

YTM at Total Cost (99.886) = .891%

I now own 4. 

When my purchased T Bills mature, I may start buying in ten bond lots when and if I can receive at least a .1% or greater yield compared to a 1 to 9 bonds-more small ball. 

I could buy the fixed coupon treasury securities commission free in my Schwab, Fidelity and Vanguard accounts.   

B. Added 1 Caterpillar 1.3% Senior Unsecured Note Maturing 3/1/2018: 

Issuer:  Caterpillar Inc.  (CAT)
FINRA Page: Bond Detail (prospectus linked)
Moody's Downgrades Caterpillar ratings to A3/Prime-2; outlook is stable.
Credit Ratings: 
Moody's at A3

S & P at A

YTM at Total Cost (99.991) = 1.31%

On the date of purchase (4/25/17), the 1.31% YTM was at about a .27% spread to a UST maturing on 2/28/18.  

Without the $1 commission, the YTM would have been 1.433%.

Caterpillar reported better than expected earnings on my purchase date.

Closing Price 4/25/17:  CAT $104.42 $7.61 7.86%

Cat Financial Announces First-Quarter 2017 Results
CAT 2016 Annual Report

C. Bought 1 UST 1% Maturing on 12/31/17:

YTM at Total Cost (99.988) = 1.017%

2. Continued to Pare Stock Allocation: 

A. Sold 50 of 200 SVNLY at $7.05 ($1 Commission): 

The purchase of this 50 share SVNLY lot was a test on how Interactive Brokers would handle the dividend withholding. The test failed in that 30% was withheld by Sweden from SVNLY's annual dividend payment. When the test fails for a broker, I will dump the shares bought to conduct the test.   

I received the annual dividend after a 30% Swedish withholding tax. The correct withholding rate is 15% under Article 10 of Sweden's tax treaty with the U.S. U.S-Sweden Tax Treaty.pdf

Profit Snapshot:  +$5.99

B. Sold 100  APLE at $19.43 ($1 Commission): 

Profit Snapshot: +$24.85 (TRADE on 4/26/17) 

Quote: APLE Stock Price - Apple Hospitality REIT Inc.

Hotel Map - Apple Hospitality Reit

SEC Filings

"Apple Hospitality REIT, Inc. (NYSE: APLE) is a publicly traded real estate investment trust (REIT) that owns one of the largest portfolios of upscale, select service hotels in the United States. The Company’s portfolio consists of 235 hotels, with approximately 30,000 guestrooms, diversified across the Hilton® and Marriott® families of brands with locations in urban, high-end suburban and developing markets throughout 33 states" 

In this kind of trade, I am simply attempting to lower my average cost per share and to manage my risk. 

After I sold the 100 shares, Apple reported 2017 first quarter results: 

Apple Hospitality REIT Reports Results of Operations for First Quarter 2017

C. Bought Back 50 APLE in a Roth IRA Account at $18.3:  

This trade is being discussed out of sequence. It occurred on 5/17/17, shortly after I sold the 100 share lot discussed above at $19.43: 

I sold 100+ shares in this IRA account last December at $19.75: 

These trades represent a typical pattern for me. I will consider buying another 50 shares when and if the stock falls below $17.75. 

APLE is currently paying a $.10 per share monthly dividend. Apple Hospitality REIT Announces May 2017 Distribution 

At that rate, the dividend yield is about 6.56% at a total cost of $18.3 per share. That would be tax free when the stock is held in a Roth IRA. 

Last year, APLE characterized 24% of its dividend payments as a return of capital that lowered the cost basis by $.29 per share. PDF The ROC designation has no relevance when the stock is held in a retirement account. 

When held in a taxable account by high marginal tax rate investors, the ROC classification does at least increase the after tax dividend yield until the stock is sold and provides the potential to convert the ROC component into a long term capital gain. The taxable portion of REIT dividends will ordinarily be taxed at ordinary income rates, though some minor portion of taxable income may be characterized as a qualified dividend.   

Closing Price 5/24/17: APLE  $19.05 +$.24

3. Pared Intermediate Term Bond Allocation in the Vanguard Taxable Account as the Vanguard Prime MM Fund Approached a 1% Yield: 

A. Sold 2 Equifax 2.3% Senior Unsecured Bonds Maturing on 6/1/21 and 2 Cisco 2.2% Senior Unsecured Bonds Maturing on 9/20/23: 

Profit Snapshots: +$22.6

I will probably buy these or similar bonds in my IB account ($1 per bond commission). I will want a decline below my last purchase price before repurchasing these bonds.  

The Cisco bond purchase was discussed in Item # 1.A.: Stocks, Bonds & Politics: Observations and Sample of Recent Trades-4/8/17 (RHHBY)

The Equifax bond purchase was discussed in Item # 1.B.: Stocks, Bonds & Politics: Observations and Sample of Recent Trades (SCHE,TPVG, ADX, PFK) 3/4/17/Trump's Conspiracy Theory Ladened Universe/

I am expecting at least one more FF increase this year. 

When and if the FF rate is raised, the Vanguard Prime MM fund will gradually rise in yield as maturing paper is replaced with higher yielding ones. 

Vanguard - Vanguard Prime Money Market Fund

That increase will reduce the yield spread difference further between the Vanguard Prime MM fund and these bonds, thereby making them less desirable in the Vanguard account due to their low coupons and maturities in 2021 and 2023.

4. Continued to Harvest Profits in Canadian Reset Equity Preferred Stocks:

A. Sold 200 ENBPRP at C$19.91 (C$2 Commission):

ENB.PR.P Stock Price - Enbridge Inc. Fixed-to-Floating Rate Cumulative Preferred  Series P Stock (Canada: Toronto)

Profit Snapshot: +C$963

This trade included two one hundred share purchases: 

Item # 5. Added 100 ENBPRP at C$14.54:Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 7/13/16 - South Gent | Seeking Alpha

The other 100 share lot was bought at C$15.61 and discussed in a Comment Blog. That link also contains a discussion of equity preferred floaters.



I previously sold 300 ENBPRP for a US$1,458.25 profit:

2017 ENBPRP 300 Shares +USD$1,458.25 

Those shares were bought at C$12.39: Item # 1 Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 2/29/16 - South Gent | Seeking Alpha

I sold that 300 share lot at C$18.5 and discussed that transaction here. Fidelity converts the CAD values into USDs. 

ENBPRP is an equity preferred stock issued by the Canadian energy infrastructure company Enbridge Inc. (NYSE:ENB) that pays initially a 4% cumulative dividend on a C$25 par value. Effective 3/1/19, the coupon will reset at a 2.5% spread to the 5 year Canadian government bond. The reset rate would remain in effect for five years whereupon it would be reset again. On 3/1/2019 and on March 1 "in every fifth year thereafter", Enbridge may redeem for $25 per share.

I have also bought and sold two Enbridge senior unsecured bonds: 

Item # 2. Bought 2 Enbridge 3.5% Senior Unsecured Bonds Maturing on 6/10/2024 at 93.658: Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 5/10/16 - South Gent | Seeking Alpha

Item # 2. Bought 2 Enbridge 4% Senior Unsecured Bonds Maturing in 2023: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 6/17/16 - South Gent | Seeking Alpha  

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.