In this post, I will be discussing some recent Tennessee municipal bond purchases.
Most readers would have little interest in purchasing Tennessee municipal bonds, but a few may have some interest in municipal bonds.
The importance of this post is more in the process used to select municipal bonds to buy, the material reviewed prior to each bond purchase and the routine problems encountered when trying to buy municipal bonds in the secondary market.
TAXATION:
Most readers would have little interest in purchasing Tennessee municipal bonds, but a few may have some interest in municipal bonds.
The importance of this post is more in the process used to select municipal bonds to buy, the material reviewed prior to each bond purchase and the routine problems encountered when trying to buy municipal bonds in the secondary market.
TAXATION:
Tennessee does not have an income tax on earned income.
There is currently a tax on interest and dividend income which is being phased out.
There is no state income tax on interest paid by the U.S. government or interest paid by Tennessee governmental entities.
There is currently a tax on interest and dividend income which is being phased out.
There is no state income tax on interest paid by the U.S. government or interest paid by Tennessee governmental entities.
Originally, the Tennessee tax on dividends and interest was 6% after a standard deduction, but that rate will be reduced by 1% each year until eliminated altogether. Success! Tennessee to Phase out the Hall Tax - Tax Foundation This is gift from the non-Republican controlled state government which has also eliminated the state estate and gift taxes.
The tax rate in 2016 was 5%. The elimination of this tax will slightly reduce the appeal of Tennessee municipal bonds to me.
However, since I know the territory, I will probably stick to buying Tennessee municipal bonds even after the state income tax is eliminated altogether by 2022.
I have included two snapshot of the bond counsel's opinion that the interest is federally tax free and not subject to the alternative minimum tax rules (see items # A and # E. below). That is a provision that I will always check in a municipal bond prospectus just to be sure on those tax issues. I am looking for totally tax free interest income (state and federal).
However, since I know the territory, I will probably stick to buying Tennessee municipal bonds even after the state income tax is eliminated altogether by 2022.
I have included two snapshot of the bond counsel's opinion that the interest is federally tax free and not subject to the alternative minimum tax rules (see items # A and # E. below). That is a provision that I will always check in a municipal bond prospectus just to be sure on those tax issues. I am looking for totally tax free interest income (state and federal).
CREDIT QUALITY:
I am only buying high quality municipal bonds from issuers that I know.
"Tennessee boosted its rainy day fund by $100 million in the past year to $668 million while reducing its overall state debt and not adding any new debt for the first time." S&P says Tennessee's recovery, rainy day fund and low debt makes state fiscally healthy | Times Free Press
"Tennessee boosted its rainy day fund by $100 million in the past year to $668 million while reducing its overall state debt and not adding any new debt for the first time." S&P says Tennessee's recovery, rainy day fund and low debt makes state fiscally healthy | Times Free Press
The Tennessee state government has a AAA rating as does my city, Brentwood, and my county, Williamson. Nearby Franklin, TN also has a AAA rating. Forbes: Williamson 17th richest county in the U.S. - Nashville Business Journal; America's 25 Richest Counties
I purchased 15 Williamson County bonds, noted in Item # D below.
RESEARCH:
I purchased 15 Williamson County bonds, noted in Item # D below.
RESEARCH:
I will start a search for municipal bonds at my broker's website. Both Fidelity and Schwab allow me to limit my search just to Tennessee bonds. I can see the basic price data and security information for all available Tennessee municipal bonds. Each bond entry at Fidelity has a link back to the EMMA data for the bond. EMMA is the municipal bond equivalent to FINRA.
By starting the search process using a broker's search, I can easily see what is available to purchase and the yields. I can also look at the recent trades, acquire the credit ratings and CUSIP numbers, and review the offering statements.
By starting the search process using a broker's search, I can easily see what is available to purchase and the yields. I can also look at the recent trades, acquire the credit ratings and CUSIP numbers, and review the offering statements.
I can also search by name and/or CUSIP at the EMMA site: Click "Find Prices" at Municipal Securities Rulemaking Board::EMMA That site also has a search function.
Schwab does not directly link the EMMA information, but provides links to a service that has the relevant information.
Fidelity has a link to any S & P credit report while Schwab links the Moody's report.
Fidelity has a link to any S & P credit report while Schwab links the Moody's report.
The most important document at the EMMA site is the Offering Statement which is the bond's prospectus. I will always review basic material information found in a prospectus, including the data mentioned below.
Prices and Purchasing:
Since Schwab has a $1 per bond commission rate, with a minimum commission of $10, I will use that broker only to buy 10 or more bonds or less than 10 bonds when the bond in question is not available elsewhere, which was the case for the Tennessee Housing Development Agency bonds discussed in Item # G below. I also bought 15 Wilson County, Tennessee GO bonds in my Schwab brokerage account as noted in Item # C below.
When the same bond is available for purchase at both Fidelity and Schwab, Fidelity will generally have the slightly better price.
The order book generally has no bid prices shown. I could enter a bid for a municipal bond below the ask price until I am blue in the face. There will be only one ask price. Frequently, the broker is selling the bonds to its customers. The municipal bond market is more unfriendly and less liquid than the corporate bond market.
Virtually all available Tennessee Municipal bonds sell at premium to par prices. I did find 4, discussed below, that were bought at a discount to par value ($1,000 per bond/pricing based on 1/10th of par value)
After purchase, the brokers do not use market prices to value the bonds. A third party provides price information that is invariably below, sometimes significantly, the market price. It would be rare for the third party price to be above the closing market price.
Rationale and Risks:
The reasons for these buys are bond diversification, preservation of capital, a potential for price appreciation during times of stock market stress which will happen (negative correlation with stocks), and tax free income generation. I am comfortable with the credit risks.
The primary risk is interest rate risk. I can hold these bonds until they mature or the issuer exercises their optional redemption right. My main interest rate risk is what I call the risk of lost opportunity. If interest rates rise, my two bad alternatives are to sell the bonds at a loss or to keep them and lose the opportunity to generate more income with the funds tied up in these bonds.
I may sell a position at a profit but will not sell when there is an unrealized caused by a rise in interest rates. I will assume the lost opportunity risk in that manner.
There is a liquidity risk.
With the purchases summarized below, I am in effect extending my duration by reinvesting the proceeds of short term bonds and CDs maturing in May-June.
SU= Senior Unsecured; U.S.T. = United States Treasury
Current as of 5/1/17
2 Trustmark CD .6% 5/2/17
2 Merchant's Bank .65% CDs 5/2/17
2 State Bank of India CD .65% 5/3/17
2 MidAmerican Energy 1.1% SU 5/15/17
1 Bank of China CD .7% 5/15/17
2 Peoples Savings CDs .55% 5/17/17
3 Citizens Bank PA CDs .65% 5/22/17
2 Citizens Bank CDs .65% 5/22/17
1 Bank of India CD .65% 5/24/17
2 Disney .875% SU 5/30/17
1 Bank of Baroda .65% CD 5/30/17
2 Bank of Baroda .8% CDs 5/30/17
3 State Bank of India .65% CD 5/30/17
2 USTs .625% 5/31/17
1 WFC 1.15% SU 6/2/17
2 FNB .6% CDs 6/5/07
3 Compass Bank .75% CDs 6/5/17
2 Banc of California CD .8% 6/14/17
1 U.S.T. .635% 6/15/17 (auction purchase)
2 Lakeside Bank .55% CD (monthly interest) 6/19/17
2 Bank of China .85% CD 6/19/17
3 USTs .772% 6/30/17 (auction purchase)
2 MMM 1% SU 6/26/17
2 Bank of Baroda .95% CDs 6/27/17
6 U.S.T. .625% 6/30/17
Total Maturing May and June 2017: $55K
Reinvested Before Maturities: $55K
At least I will be increasing my cash flow.
++++++++++++++
Prices and Purchasing:
Since Schwab has a $1 per bond commission rate, with a minimum commission of $10, I will use that broker only to buy 10 or more bonds or less than 10 bonds when the bond in question is not available elsewhere, which was the case for the Tennessee Housing Development Agency bonds discussed in Item # G below. I also bought 15 Wilson County, Tennessee GO bonds in my Schwab brokerage account as noted in Item # C below.
When the same bond is available for purchase at both Fidelity and Schwab, Fidelity will generally have the slightly better price.
The order book generally has no bid prices shown. I could enter a bid for a municipal bond below the ask price until I am blue in the face. There will be only one ask price. Frequently, the broker is selling the bonds to its customers. The municipal bond market is more unfriendly and less liquid than the corporate bond market.
Virtually all available Tennessee Municipal bonds sell at premium to par prices. I did find 4, discussed below, that were bought at a discount to par value ($1,000 per bond/pricing based on 1/10th of par value)
After purchase, the brokers do not use market prices to value the bonds. A third party provides price information that is invariably below, sometimes significantly, the market price. It would be rare for the third party price to be above the closing market price.
Rationale and Risks:
The reasons for these buys are bond diversification, preservation of capital, a potential for price appreciation during times of stock market stress which will happen (negative correlation with stocks), and tax free income generation. I am comfortable with the credit risks.
The primary risk is interest rate risk. I can hold these bonds until they mature or the issuer exercises their optional redemption right. My main interest rate risk is what I call the risk of lost opportunity. If interest rates rise, my two bad alternatives are to sell the bonds at a loss or to keep them and lose the opportunity to generate more income with the funds tied up in these bonds.
I may sell a position at a profit but will not sell when there is an unrealized caused by a rise in interest rates. I will assume the lost opportunity risk in that manner.
There is a liquidity risk.
With the purchases summarized below, I am in effect extending my duration by reinvesting the proceeds of short term bonds and CDs maturing in May-June.
SU= Senior Unsecured; U.S.T. = United States Treasury
Current as of 5/1/17
2 Trustmark CD .6% 5/2/17
2 Merchant's Bank .65% CDs 5/2/17
2 State Bank of India CD .65% 5/3/17
2 MidAmerican Energy 1.1% SU 5/15/17
1 Bank of China CD .7% 5/15/17
2 Peoples Savings CDs .55% 5/17/17
3 Citizens Bank PA CDs .65% 5/22/17
2 Citizens Bank CDs .65% 5/22/17
1 Bank of India CD .65% 5/24/17
2 Disney .875% SU 5/30/17
1 Bank of Baroda .65% CD 5/30/17
2 Bank of Baroda .8% CDs 5/30/17
3 State Bank of India .65% CD 5/30/17
2 USTs .625% 5/31/17
1 WFC 1.15% SU 6/2/17
2 FNB .6% CDs 6/5/07
3 Compass Bank .75% CDs 6/5/17
2 Banc of California CD .8% 6/14/17
1 U.S.T. .635% 6/15/17 (auction purchase)
2 Lakeside Bank .55% CD (monthly interest) 6/19/17
2 Bank of China .85% CD 6/19/17
3 USTs .772% 6/30/17 (auction purchase)
2 MMM 1% SU 6/26/17
2 Bank of Baroda .95% CDs 6/27/17
6 U.S.T. .625% 6/30/17
Total Maturing May and June 2017: $55K
Reinvested Before Maturities: $55K
At least I will be increasing my cash flow.
++++++++++++++
A. Bought 5 Knox County 3% General Obligation Bonds Maturing on 6/1/33:
EMMA Page for this Bond:
Credit Ratings:
Moody's at Aa1
S & P at AA+
YTM at Total Cost (98.168) = 3.153%
I paid Fidelity a $1 per bond commission which is built into the 98.168 price shown in the preceding snapshot. The original issued date was 5/1/17 so I had to pay the seller negligible accrued interest.
Knoxville, Tennessee is located in Knox County. The main campus of the University of Tennessee is located in Knoxville.
Knox County - Google Maps
Knox County, Tennessee - Wikipedia
Knox County - Google Maps
Knox County, Tennessee - Wikipedia
The following information is taken from the OFFICIAL STATEMENT. It can be found at the EMMA website. I certainly will not read 243 pages. I am mainly interested in the optional redemption and security information including historical revenues.
Security:
Public Pledge Act, Tennessee Code Annotated (TCA):
The bonds are issued pursuant to TCA Section 9-21-101 set seq.:
General Provisions Applicable to All Bonds and Notes Issued by Local Governments: Section 9--21-101 et seq.
Optional Redemption: The issuer may redeem after June 1, 2026 at par value plus accrued interest:
 |
| TCA Section 9-22-104 |
 |
| TCA Section 9-22-105 |
Optional Redemption: The issuer may redeem after June 1, 2026 at par value plus accrued interest:
Taxation: Exempt from Federal and Tennessee's Hall Income Tax In the Opinion of Bond Counsel:
B. Bought 5 Chattanooga Tennessee 4% Electric Revenue Bonds Maturing on 9/1/30:
B. Bought 5 Chattanooga Tennessee 4% Electric Revenue Bonds Maturing on 9/1/30:
Yield at Total Cost (109.33) = 2.777%
EMMA PAGE
Bond Details: AA+ S & P and Aa1 Moody's:
Welcome to Chattanooga.gov
Chattanooga TN. - Google Maps
Chattanooga, Tennessee - Wikipedia
Bond Details: AA+ S & P and Aa1 Moody's:
Welcome to Chattanooga.gov
Chattanooga TN. - Google Maps
Chattanooga, Tennessee - Wikipedia
Description of Issuer:
Security: Lien on Revenues, etc.
While Tennessee is currently a Red State, we are communists when it comes to electric power and no republicans can be heard to complain about it given the cost and reliability of the power supply.
Generation and high voltage transmission is provided by the Tennessee Valley Authority, a corporate agency of the U.S.
Distribution is handled by rural electric cooperatives, owned by their customers, or by municipalities. Part of the revenues supporting this bond are from Chattanooga's electric power system which distributes power bought from TVA. Power | EPB
All of the foregoing was established during FDR's administration by Democrats who were an integral part of FDR's coalition. TVA was established in 1933. The rural cooperatives came into being through a FDR Executive Order (#7037) signed in May 1935 that preceded the passage of the Rural Electrification Act of 1936. Many republicans railed against it at the time and for many years thereafter as socialism and communism. Republicans in Tennessee do not have in qualms about our 80 years of public power. My utility bill this month might be around $50-$60.
Optional Redemption: On or After 9/1/25 At Par Plus Accrued Interest:
Generation and high voltage transmission is provided by the Tennessee Valley Authority, a corporate agency of the U.S.
Distribution is handled by rural electric cooperatives, owned by their customers, or by municipalities. Part of the revenues supporting this bond are from Chattanooga's electric power system which distributes power bought from TVA. Power | EPB
All of the foregoing was established during FDR's administration by Democrats who were an integral part of FDR's coalition. TVA was established in 1933. The rural cooperatives came into being through a FDR Executive Order (#7037) signed in May 1935 that preceded the passage of the Rural Electrification Act of 1936. Many republicans railed against it at the time and for many years thereafter as socialism and communism. Republicans in Tennessee do not have in qualms about our 80 years of public power. My utility bill this month might be around $50-$60.
Optional Redemption: On or After 9/1/25 At Par Plus Accrued Interest:
C. Bought 10 Wilson County Tennessee 4% General Obligation ("GO") Bonds Maturing on 4/1/39:
Rated AA+ by S & P
EMMA Page
Wilson County borders Davidson County (Nashville).
Wilson County - Google Maps
Wilson County Government - Lebanon, TN
Yield at Total Cost (105.463) = 3.287%
Security:
Optional Redemption: At Par Value on or after 4/1/26
D. Bough 15 Williamson County Tennessee 2.5% GO Bonds Maturing on 4/1/27:
Rated at Aaa by Moody's
Moody's Assigns Aaa to Williamson Cnty, TN's $59.5M GO Bonds
EMMA Page
Williamson County TN. - Google Maps
Williamson County, TN - Official Site | Official Website
Yield at Total Cost (101.564)- 2.254%
Security:
Optional Redemption: At Par Value Plus Accrued Interest on or after 4/1/24
E. Bought 5 Maury County Tennessee 2% GO Bonds Maturing on 4/1/27:
Rated at Aa2 by Moody's
Moody's assigns Aa2 to Maury County, TN's $21.3M GO Bonds, Ser. 2016
EMMA Page
Maury County, TN : Home
Maury County TN - Google Maps
Yield at Total Cost (94.465) = 2.638%
Security:
Optional Redemption: At Par Value on or after 4/1/24
The coupon is sufficiently low that I would not anticipate a redemption prior to the 2027 maturity date.
Taxation: Bond Counsel says income is federally tax free and is not subject to the alternative minimum tax rules.
F. Bought 5 Memphis Tennessee 2.75% GO Bonds Maturing on 5/1/28:
EMMA Page
Memphis - Google Maps
Credit Ratings:
Moody's at Aa2
Moody's assigns Aa2 to Memphis, TN's $64.7M GO Bonds, Ser. 2016; outlook revised to stable
S & P at AA
Yield at Total Cost (99.629) = 2.789%
Security:
Optional Redemption: At par value plus accrued interest on or after 5/1/24
G. Bought 5 Tennessee Housing Development Agency 3.25% Bonds Maturing on 7/1/41:
YTM 3.507%
Credit Ratings:
Moody's at Aa1
S & P at AA+
EMMA Page
The State of Tennessee has a AAA credit rating but this bond is not a state general obligation bond. It is issued by a state agency and is secured only by the revenues received by the Tennessee Housing Development Agency (THDA), hence the lower rating.
Security:
THDA Housing Loans:
Optional Redemption: The provisions relating to optional redemption are more complex than with the other bonds mentioned above. The prospectus needs to be consulted to understand the variations. (e.g. sinking fund redemptions at page 5; loan prepayments at page 14)
The general optional redemption gives the issuer the right to redeem at par, plus accrued interest, on or after 1/1/26.
Since I bought at below par value, I am not concerned about a redemption at par.
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.
Wilson County borders Davidson County (Nashville).
Wilson County - Google Maps
Wilson County Government - Lebanon, TN
Yield at Total Cost (105.463) = 3.287%
Security:
Optional Redemption: At Par Value on or after 4/1/26
D. Bough 15 Williamson County Tennessee 2.5% GO Bonds Maturing on 4/1/27:
Rated at Aaa by Moody's
Moody's Assigns Aaa to Williamson Cnty, TN's $59.5M GO Bonds
EMMA Page
Williamson County TN. - Google Maps
Williamson County, TN - Official Site | Official Website
Yield at Total Cost (101.564)- 2.254%
Security:
Optional Redemption: At Par Value Plus Accrued Interest on or after 4/1/24
Rated at Aa2 by Moody's
Moody's assigns Aa2 to Maury County, TN's $21.3M GO Bonds, Ser. 2016
EMMA Page
Maury County, TN : Home
Maury County TN - Google Maps
Yield at Total Cost (94.465) = 2.638%
Security:
Optional Redemption: At Par Value on or after 4/1/24
The coupon is sufficiently low that I would not anticipate a redemption prior to the 2027 maturity date.
Taxation: Bond Counsel says income is federally tax free and is not subject to the alternative minimum tax rules.
F. Bought 5 Memphis Tennessee 2.75% GO Bonds Maturing on 5/1/28:
EMMA Page
Memphis - Google Maps
Credit Ratings:
Moody's at Aa2
Moody's assigns Aa2 to Memphis, TN's $64.7M GO Bonds, Ser. 2016; outlook revised to stable
S & P at AA
Yield at Total Cost (99.629) = 2.789%
Security:
Optional Redemption: At par value plus accrued interest on or after 5/1/24
G. Bought 5 Tennessee Housing Development Agency 3.25% Bonds Maturing on 7/1/41:
YTM 3.507%
Credit Ratings:
Moody's at Aa1
S & P at AA+
EMMA Page
The State of Tennessee has a AAA credit rating but this bond is not a state general obligation bond. It is issued by a state agency and is secured only by the revenues received by the Tennessee Housing Development Agency (THDA), hence the lower rating.
Security:
THDA Housing Loans:
Optional Redemption: The provisions relating to optional redemption are more complex than with the other bonds mentioned above. The prospectus needs to be consulted to understand the variations. (e.g. sinking fund redemptions at page 5; loan prepayments at page 14)
The general optional redemption gives the issuer the right to redeem at par, plus accrued interest, on or after 1/1/26.
Since I bought at below par value, I am not concerned about a redemption at par.
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.
As previously discussed many times, I hold precious metal bullion long term while trading the bullion ETFs.
ReplyDeleteI will add to and sell the bullion based on price, but those transactions are few and separated by years, sometimes a decade or more.
I last sold some gold bullion, for example, when the price went over $1900 back in September 2011 and again in January 2012 at a lower price.
https://tennesseeindependent.blogspot.com/2011/09/road-to-political-power-lying.html
https://tennesseeindependent.blogspot.com/2012/01/added-to-janus-balanced-washington.html
I do not recall buying either silver or gold bullion in over a decade. My last silver bullion buy was at a total cost of $7 per 1 ounce silver eagle.
My last foray into GLD was not to productive. I have now eliminated the position at a $177 profit.
I find gold and silver ETFs hard to trade. What is the fair value for gold? I do not have clue.
https://tennesseeindependent.blogspot.com/2013/04/what-is-golds-fair-valuereinhardt-and.html
The momentum appears to have changed so I will try again at lower levels.
As to bullion purchases, my current buy range is $800-$900 per ounce for gold and $12-$14 for silver. If the price does not get there, I am fine with that.
Gold will be pared again when and if the price surges over $2200. If that never happens before my DOD, then that is okay with me.
++++++
While a government shutdown has been averted for now, as Congress agreed to an extension through September as I earlier predicted, Trump is looking forward to a government shutdown after that debt limit increase period expires.
Tweet:
"either elect more Republican Senators in 2018 or change the rules now to 51%. Our country needs a good "shutdown" in September to fix mess!"
Threatening to shut down the government (or even actually shutting it down) is trotted out on a regular basis by our dysfunctional government. Three times during Reagan's administration, once during Bush Sr., Clinton had two, and Obama had one. Trump will certainly want to have more, and bigger, shutdowns during his administration.
DeleteCATHIE: Government shutdowns are symptoms of a dysfunctional government. The ones during the Reagan and Daddy Bush administrations lasted less than 48 hours or occurred over the weekend.
DeleteThe more serious shutdowns started when Newt Gingrich started to use the shutdown as a budget negotiating tool. The shutdowns during Clinton's presidency lasted 5 and 21 days. The GOP then shutdown the government again in 2013 for about 16 days. The GOP wanted the Democrats to repeal or defund Obamacare or they would destroy the credit rating of the U.S. They put a different a spin on their irresponsible behavior but that is what happened.
Prior to Trump, I do not recall a President recommending a shutdown unless he gets his way. Trump does have strong authoritarian and anti-democratic tendencies, demonstrated by his continuing efforts to undermine institutions necessary for a properly functioning democracy. He is certainly more at home with Putin or Duterte than the leaders of our traditional allies in Western Democracies.
http://www.npr.org/sections/thetwo-way/2017/04/30/526268975/trump-invites-controversial-philippines-leader-to-white-house
I suspect that the shutdowns will become more frequent and last longer as the fiscal problems become more onerous and intractable to any negotiated solution. I place 70% of the blame on the GOP, which is no longer a conservative party but a deeply reactionary one.
That view is shared by the authors of this book that go into that issue in depth:
https://www.amazon.com/gp/product/B01AFE3ABQ/ref=oh_aui_d_detailpage_o01_?ie=UTF8&psc=1
In short, it would be reasonable to predict an increase in dysfunctional and destructive behavior.
I am running an experiment with Fidelity today. I am attempting to buy 5 Rutherford County Water 3.125% Water Bonds maturing in 2031 with a limit order below the ask price. When I place the order, the ask price required a 10 bond minimum purchase and the price was at 101.4. The ask price is now 10 bond minimum purchase at 101.02. I am not going to budge.
ReplyDeleteThis bond is rated AAA by S & P:
https://emma.msrb.org/SecurityDetails/TradeActivity/A98BDAC20B2AD9EB108508295A4ADF8FB
Note that there was a 20 bond lot sold on 4/28 at a total cost of 100.005, so I am being generous here with a small lot offer.
The principal amount outstanding is only $1.51M which explains the infrequent trading.
EMR: Emerson Electric is getting plastered this morning after releasing its earnings report.
ReplyDelete$57.12 -$3.25 (-5.38%)
As of 12:48PM EDT.
http://www.businesswire.com/news/home/20170502005802/en/Emerson-Reports-Quarter-2017-Results
E.P.S. was basically in line with estimates with revenues slightly exceeding the consensus.
"All profitability measures increased in the second quarter. Gross profit margin of 43.6 percent improved 50 basis points versus the prior year primarily due to savings from restructuring activities in 2016. Pretax margin of 15.8 percent and EBIT margin of 17.0 percent increased 40 and 30 basis points respectively. Earnings per share from continuing operations of $0.58 increased 2 percent."
Sales in EMR's automated solutions segment were down 3% Y-O-Y. Morgan Stanley says the margins were "slightly softer" than expected due to this segment.
EMR "expects full-year net sales to be flat compared with its earlier forecast of down 1-3 percent."
I had an unrealized profit on my EMR position and I now have an unrealized loss so I bought a few shares near $57 to average down using a commission free trade.
Interesting day for EMR. Buyers did emerge at $57 and the stock closed at $59.17.
Delete$59.17-$1.20 (-1.99%)
At close: 4:00PM
Volume 12,632,383
Avg. Volume 3,844,496
Day's Range 56.77 - 59.19
52 Week Range 48.45 - 64.36
The high for the day was hit near the close.
OB: OneBeacon Insurance is being acquired for $18.1 per share in cash:
ReplyDeletehttp://www.marketwired.com/press-release/intact-financial-corporation-acquire-us-specialty-insurer-onebeacon-insurance-group-tsx-ifc-2213567.htm
I went ahead and sold my 101+ shares at $18.23 this morning. When I purchased this lot last August, I mentioned that OB was a takeover candidate:
C. Bond Like Stock-Nowhere Price Action For Five Years-Possible Turnaround in Motion and/or Possible Acquisition:
1. Bought 100 OB at $13.83:
https://seekingalpha.com/instablog/434935-south-gent/4905547-update-portfolio-positioning-management-8-21-16
OneBeacon Insurance Group, Ltd. (OB)
$18.21+2.51 (+15.99%)
As of 12:40PM EDT 5/3/17
South Gent,
ReplyDeleteI am not a chartist. However, looking at the EMR chart it has a relatively steady up and down movement every two years. So if that is the case and if 2016 is a trough EMR stock will continue to move higher.
Y: Emerson has required me to dig down deep in my shallow patience reservoir. The problem since 2014 has been EMR's exposure to the oil and gas industry.
DeleteEMR is a king in the dividend aristocrat club, having raised its dividend every year over the past 59 years.
http://www.suredividend.com/dividend-aristocrats-emr/
I own somewhere over 200 shares.
South Gent,
DeleteI had owned 100 shares for over 2 years but sold it at a small loss in February to build my cash position. I am still ahead when the dividends are counted.
The Fed concluded its May meeting today and left interest rates unchanged.
ReplyDelete“The FOMC views the slowing in growth during the first quarter as likely to be transitory.”
https://www.federalreserve.gov/newsevents/pressreleases/monetary20170503a.htm
That statement pushed the ten year treasury yield up slightly.
http://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx&mod=MW_story_quote
The thirty year treasury is holding onto to a slight gain:
http://www.marketwatch.com/investing/bond/tmubmusd30y?countrycode=bx
The probability of a .25% FF increase in June now stands at slightly over 70% using the CME FED Tool.
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
Unless there is some ugly data before the next meeting, which is scheduled for 6/14, I would anticipate an increase in the FF range to 1%-1.25% from the current .75%-1%.
TAHOE RESOURCES:
ReplyDeleteTahoe Resources Inc. (TAHO)
NYSE
$9.06 +$1.22 (+15.62%)
I own 150 TAHO.
Tahoe Resources Inc. (THO.TO)
Toronto
C$12.36+1.63 (+15.19%)
As of 2:57PM EST
I own 140 THO:CA shares which I will probably sell today.
The market is reacting to this earnings report:
http://www.tahoeresources.com/tahoe-reports-record-results-in-first-quarter-2017/
I have discussed here a 100 share purchase of THO:CA and a 100 share purchase of TAHO:
Item 5 Gold
A. Bought 100 Tahoe Resources at C$11.93 and Another 100 at USD$9.03
https://tennesseeindependent.blogspot.com/search/label/THO%3ACA%20%26%20TAHO
I later averaged down on both.
Gold is continuing to decline. I have eliminated both SLV and GLD and will just wait for lower prices before buying back.
Gold miners have been a tough space over the past several weeks.
I sold 100 of 140 THO:CA, keeping for now my lowest cost 40 share lot. The IB commission is C$1 for that 100 share lot.
DeleteI eliminated FIE:CA this year by selling 1700 shares and just restarted another position with a 100 share buy at C$7.2. I am a bit leery of Canadian banks at the moment.
iShares Canadian Financial Monthly Income ETF
http://www.marketwatch.com/investing/fund/fie?countrycode=ca
My last 200 share disposition was discussed in Item 4.A.
A. Sold 200 FIE:CA at C$7.54:
https://tennesseeindependent.blogspot.com/2017/03/observations-and-sample-of-recent_10.html
Sponsor's webpage:
https://www.blackrock.com/ca/individual/en/products/239476/
South Gent,
ReplyDeleteRe. "... a bit leery of Canadian banks at the moment..." is there any sign of troubles? I like them for their dividends but they are exposed to the Canadian economy (especially to the energy industry and now a potential trade war). Q1 2016 seems so far away, yet the Canadian banking industry suffered pretty badly back then.
Y: It is a combination of concerns. The ongoing weakness in the CAD/USD does not help matters. The chart is broken:
Deletehttp://www.marketwatch.com/investing/stock/td/charts
The primary concern is the high household debt to disposable income ratio.
http://www.tradingeconomics.com/canada/households-debt-to-income
It is not getting any better.
I mentioned a related concern when discussing the troubles of Canada's subprime housing lender Home Capital.
There is a SA article on this problem:
https://seekingalpha.com/article/4067314-canadas-subprime-lenders-collapse-bubble-popped
When I commented earlier about it, I noted that the real trouble in the U.S. housing market started with the collapse in subprime lending which was a major fuel in the rapidly escalating home prices. That started in a major way in February 2017. When unnatural buyers are removed from the market (meaning those who really can not afford the mortgage payments) and many median income families can no longer buy a median price house, then conditions are ripe for a major price correction. However, investors have been wringing there hands over that concern for years now, but that does not mean in my book that they will not be vindicated. Or, you could say that being years early is the same as being wrong.
I discussed some of those issues in a February 2015 post regarding a 50 TD purchase. I now own over 100 somewhere.
https://seekingalpha.com/article/2911246-dividend-growth-and-large-cap-valuation-strategies-bought-toronto-dominion-bank
I did use the rally in TD earlier to sell the 30 shares held in a Roth IRA and to virtually eliminate a family member's position.
I am assuming in the prior comment that the GOP will not initiate a meaningful trade war with Canada, the largest importer of U.S. goods who has a nearly equal balance of trade with the U.S.
DeleteI view the softwood lumber tariff to be a separate issue, and a long simmering one.
It is my understanding that this product is not covered by NAFTA, but by a series of bilateral trade agreements. The last one of those has expired with no agreement on renewal. Trump decided to continue negotiations after slapping a tariff averaging 20% or so, with some Canadian lumber companies being subjected to over 20%. The tariff is collected from U.S. buyers so the cost of lumber used in homebuilding will go up some, as I previously discussed.
https://fred.stlouisfed.org/series/WPU0811
If the GOP terminates the NAFTA agreement, and there is a trade war with each side leveling tit for tat tariffs, then the Canadian stock market is probably going to respond most negatively. The U.S. stock market will go down as well but not by as much. There will be no winners. But tearing up Nafta sounds good to Trump Nation.
There are Canadians that would like to erect trade barriers for U.S. products to protect domestic manufacturers and producers.
https://www.thestar.com/opinion/commentary/2016/11/11/if-donald-trump-kills-nafta-canada-could-benefit-walkom.html
http://business.financialpost.com/news/nafta-its-less-important-to-canada-than-you-might-think
Trump is as ignorant about Nafta as he is all other important issues.
https://www.thebalance.com/advantages-of-nafta-3306271
South Gent,
DeleteOut of Canadian banks and thanks for the warning. Let's see if there will be a lower reentry point down the road.
Byron Wein had some niffy information in his latest Barron's article.
ReplyDelete"According to a study by Ned Davis Research, world non-financial debt has increased from $37.5 trillion in 2000 to $103.5 trillion in 2016 . . .
In 2000, the total interest cost of servicing the federal debt was $360 billion, based on a blended interest rate on government bonds of 6%. Today, the blended interest rate is 2.1% and the total interest cost is $400 billion, only $40 billion more on a debt burden three times the size of its 2000 level. If interest rates on government securities rise 1%, the cost of debt service would increase almost $200 billion"
There are a lot of prices dependent on interest rates remaining low for an extended period of time. The fact that this is a consensus opinion which is barely questioned by the Stock Jocks or the Bond Ghouls does not make it the correct future forecast.
The federal debt may be near $25 trillion in 4 years. If the weighted average interest cost on that debt was 4%, which is far closer to normal than the current number, then the debt servicing cost would be $1 trillion for a year or more than the entire debt of the U.S. in 1979.
The ADP reported today that private payrolls increased by 177,000 last month:
ReplyDeletehttps://www.adpemploymentreport.com/2017/April/NER/NER-April-2017.aspx
The March number was revised from 263K to 255K.
The federal government's job report will be released on Friday. The current consensus is for +200,000, up from 98K in March.
http://www.marketwatch.com/Economy-Politics/Calendars/Economic
The ISM services PMI rose to 57.2% last month from 55.2.
http://www.marketwatch.com/story/a-big-part-of-the-us-economy-brightened-in-april-ism-services-gauge-finds-2017-05-03
The new orders component surged to 63.2 from 58.9. Employment was down .2 to 51.4 however. Prices rose meaningfully to 57.6 from 53.5.
+++++
The House is apparently going to vote on TrumpCare tomorrow which means that Ryan believes that he has the votes for passage. The GOP wants to pass the bill before the CBO has a chance to score it.
"Under the GOP plan, states could opt out of parts of the ACA, meaning that people with preexisting conditions could be denied coverage or charged more. Such states would have to set up “high-risk pools” to absorb some of the costs. . . . According to an analysis from the Kaiser Family Foundation, the temporary high-risk pool created by the ACA covered just 100,000 people; the government paid out $2 billion in subsidies to that pool in one year.
Far more people with preexisting conditions are likely to lose health coverage under the GOP health-care plan — some estimate about 5 million individuals. ... For subsidies to cover 68 percent of enrollees’ premium costs, as ACA tax credits do now in the individual market exchanges, the government would have to put up $32.7 billion annually ”
https://www.washingtonpost.com/powerpost/republicans-push-new-health-care-tweak-to-protect-preexisting-conditions--and-garner-votes/2017/05/03/41b4fca8-300a-11e7-9dec-764dc781686f_story.html?hpid=hp_hp-top-table-main_ahcachanges-1045a%3Ahomepage%2Fstory&utm_term=.f67f71a3b5e8
There are about 52M Americans with pre-existing conditions.
http://kff.org/health-reform/press-release/an-estimated-52-million-adults-have-pre-existing-conditions-that-would-make-them-uninsurable-pre-obamacare/
With a slight uptick in interest rates, today looks like a positive one for regional banks and a downer for REITs.
ReplyDeleteiShares 7-10 Year Treasury Bond ETF
$105.875 - $.335 -32%
May 4, 2017 at 10:51 a.m. EDT
S&P Regional Banking ETF (KRE)
$55.00+0.28 (+0.51%)
As of 10:51AM EDT
Vanguard REIT ETF (VNQ)
$80.89 -$1.14 (-1.39%)
As of 10:52AM EDT
Worker productivity growth has been a key factor in the dominant declining inflation trend since the early 1980s, but the rate of growth has been declining in recent years.
Today, the government reported that productivity declined at an annual rate of .6% in the first quarter.
https://www.bls.gov/news.release/prod2.nr0.htm
Table of Productivity Growth 1947 to Date (does not include first quarter data yet):
https://www.bls.gov/lpc/prodybar.htm
My regional bank basket has been slashed in size with a current market value of about $22.7K and an unrealized profit of $8.4+K. I am keeping for now the stocks with the largest unrealized gains which includes AROW, BDGE, BBT, BHB, and FNB and my current loser NYCB. I have recently pared BDGE and BBT.
Several of the stocks have come down in price off recent highs. AROW financial has a 52 week high at $41.7 and last traded at $34.55.
2017 First Quarter Report:
http://www.prnewswire.com/news-releases/arrow-reports-increased-net-income-strong-loan-growth-continues-300442951.html
E.P.S. was flat Y-O-Y as was NIM.
The market is assuming earnings growth from NIM expansion and I have not seen any evidence yet that this is occurring.
I bought 50 shares of AROW last year:
3. Bought 50 AROW at $26.25:
https://seekingalpha.com/instablog/434935-south-gent/4862016-update-regional-bank-basket-strategy-3-17-16
+++
I have mentioned in two comments that I have eliminated my gold and silver ETF positions. GLD was pared down to 15 shares when the price approached $123 and the remaining shares were eliminated shortly thereafter.
I am no hurry to buy back shares given the nasty recent price action. I will buy only small positions with pre-set average down price numbers. SLV for example would probably trigger a 50 share buy at less than $15.
iShares Silver Trust (SLV)
$15.46-0.13 (-0.81%)
SPDR® Gold Shares (GLD)
$117.04-0.94 (-0.80%)
As of 11:11AM EDT.
I do not yet have a re-entry price for GLD since the selloff appears to be gaining momentum rather than dissipating.
Retail REITs are suffering a smackdown today after SRC warned due to store closures and significantly cut back on its acquisition activity.
ReplyDeletehttp://www.prnewswire.com/news-releases/spirit-realty-capital-inc-announces-first-quarter-2017-financial-and-operating-results-300450890.html
Spirit Realty Capital, Inc. (SRC)
$6.99-1.93 (-21.58%)
As of 2:23PM EDT.
https://finance.yahoo.com/quote/SRC?ql=1&p=SRC
I have stayed away from SRC after eliminating my position at $11.17:
4. Sold 154+ Spirit Realty at $11.17+ Roth IRA:
https://seekingalpha.com/instablog/434935-south-gent/4864529-update-equity-reit-basket-strategy-3-21-16
Realty Income Corporation (O)
$55.65 -$2.18 (-3.77%)
As of 2:28PM EDT.
CBL & Associates Properties, Inc. (CBL)
$8.51-0.75 (-8.15%)
As of 2:29PM EDT.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2017/05/observations-and-sample-of-recent.html