Monday, June 12, 2017

Observations and Recent Trades: 6/12/17

GE's Immelt is going to "retire" as of 8/1/17 and will be replaced by John Flannery who is currently the CEO of GE Healthcare. Immelt is 61 years old. Jeff Immelt to retire as GE CEO, Flannery to succeed | Reuters Perhaps GE will invest more in that sector as a result.

GE's stock price is up about 3% in pre-market trading as of 8:00 A.M. EST. GE Stock Price

I am down to owning 164+ GE shares after selling 80 shares last April. My average cost per share is now at $12.53. Item # 3.A


1. Long Term Bond Strategy-Primarily Tennessee Municipal Bonds (with funding sources identified)-Some Funding from Selling Intermediate and Short Term Corporate Bonds:  

The purchases of the Harpeth Valley Utility District Bond and the other municipal bonds discussed in this section were funded from the following:

Sold 2 American Express 2.25% SU Bonds 5/15/21
Sold 2 Merck 1.3% SU Bonds 5/18/18
Sold 2 CVS 2.125% SU Bonds 6/1/21
Sold 1 Consolidated Edison 2% SU Bond 5/15/21
1 Bank of China .85% CD 10/30/17
2 Enterprise Bank .7% CDs 10/31/17
5 of 6 USTs .75% 10/31/17
$5K Recently Raised Cash-Vanguard Taxable Account


I am using the proceeds to buy the higher current yield bonds discussed in this section, as I play for incremental additions to current, after tax income generation. The short bond bonds and CDs referenced above will likely have negative total returns before adjusting for taxes and inflation. It is possible that the American Express and CVS 2021 bonds will have positive total return numbers, based on my total cost number, after adjusting for inflation only.

A. Sold 2 American Express 2.25% Senior Unsecured Bonds Maturing on 5/15/21

Profit Snapshot: + $12.24

Finra Page: Bond  Detail

I discussed this purchase at Item # 1.A. I bought this bond at a total cost of 99.288. The current yield at that total cost number was 2.266%, with the YTM at 2.427%. I sold the bond on 5/18/17 at 100, or 99.9 adjusted for the commission. The YTM then was at 2.276%.

B. Sold 2 Merck 1.3% Senior Unsecured Bonds Maturing on 5/18/18:

Sold at 100-Break-even/Proceeds at 99.9 after $2 Commission

C. Sold 2 CVS 2.125% Senior Unsecured Bonds Maturing on 6/1/21:

Profit Snapshot: +$12.64

Finra Page: Bond Detail

I sold this bond at 99.048 or 98.948 adjusting for the $2 commission. I bought these two bonds at a total cost of 98.316 (2/2/17). The current yield at that total cost number is 2.161%. The YTM is higher at 2.538%, but part of that additional yield was captured when I sold the two bonds at 99.048.

I discussed the purchase at Item # 2.C.

D. Sold 1 Consolidated Edison 2% Senior Unsecured Bond Maturing on 5/15/21:

Profit Snapshot: +$3.73

I sold this bond at $98.578 or $98.478 adjusting for the $1 commission. I bought this bond on 3/1/17 at a total cost of 98.105. Item # 1.E. The current yield at that total cost number was 2.038%.

I still own 1 bond held in an IRA account that was bought at a total cost of 98.08 (1/18/17). Item # 3.A

I have not owned the common stock since I sold a position back in 2011. Item # 2 Eliminated Position in ED at $53.7 (714/11 Post)(153+ Shares/profit $789.28) 

E. Bought 5 Harpeth Valley Utility District 4% Water/Sewer Revenue Bonds Maturing on 9/1/40

YTM at Total Cost (105.406) = 2.886%
Current Tax Free Yield = 3.79+

Credit Rating:
S & P at AA

Service Territory (near HQ): 

Map of Service Territory:


Tax Matters:  Federally Tax Free/AMT Free

Optional Redemption: AT PAR on or after 9/1/22 (call considerations apply given the coupon and reasonably anticipated interest rate conditions on the optional call date)

F. Bought 10 Metro Nashville Health and Education Facilities Board for Vanderbilt University 3.25% Bonds Maturing on 10/1/2037:

Vanderbilt University | Nashville, Tennessee

Bought 5 in Schwab Taxable Account:

Credit Ratings:
Moody's at Aa2
S & P at AA
Fitch at AAA

YTM at Total Cost (99.95) = 3.266% (price includes $10 Commission)
Current Tax Free Yield = 3.25%

Bought 5 Vanguard Taxable Account (several days thereafter):

YTM at Total Cost (99.96) = 3.252%   ($10 Commission)

Optional Redemption: AT PAR on or after 10/1/22

Source of Payments:

The proceeds raised from selling the bonds are loaned to Vanderbilt University pursuant to an unsecured and unconditional loan agreement.

Tax Matters: Bond counsel states that the interest is tax free and AMT free for individuals.

A description of Vanderbilt University starts at page A-1 of the Offering Statement.

Offering Statement.pdf

This bond has not been available for purchase at Fidelity.

G. Bought 5 Knox County Tennessee 3% GO Bonds Maturing on 6/1/34:

Credit Ratings:
Moody's at Aa1
S & P at AA+

YTM at Total Cost (99.252) = 3.056%
Current Tax Free Yield: 3.02%


TM: Federally Tax Free/AMT Free According to Bond Counsel.

Optional Redemption: AT PAR on or after 6/1/25

Official Statement.pdf

I have previously bought and discussed buying 10K in Knox County GOs:

Item 1.A Bought 5 Knox County Tennessee 3% GO Bonds Maturing on 6/1/33 at Stocks, Bonds & Politics: Tennessee Municipal Bonds

A. Bought 2 Bank of China 1% CDs Maturing on 8/30/17 (proceeds from redemption will not be applied to Tennessee Municipal Bond purchases BUT TO Another SHORT TERM CD)

This may be the highest yield for a 3 month CD that I have received since the Near Depression. 

For comparison purposes, I have a 6 month Merrick Bank CD maturing on 8/28/17 that has a .7% coupon.

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.


  1. South Gent,

    Good analysis on LXP. The sell side is also not very enthusiastic about the company; however, I did find one semi-positive comment from Evercore, "... analyst Sheila McGrath upgraded Lexington Realty to Outperform and maintained a $10.75 price target to reflect relative share underperformance, low leverage and a high cash position, and a shift more towards 50-50 industrial and long-term office....".

    It seems that the Data Center, Retail and Office REITs will continue to decline as a result of digitalization. Healthcare REIT is hurting from the political environment. Maybe Industrial, Infrastructure, Lodging, Multi-family, and Storage REITs are more stable.

  2. Y: An investor needs to pick their entry and exit points for LXP. There is no other conclusion to draw IMO looking at a 5 or 10 year chart.

    LXP is having so far what I would call a good day for this stock:

    $10.25 +$0.24 2.40%
    June 12, 2017 at 11:02 a.m. EDT

    The hotel REITs have been doing better over the past few days. I recently bought back a few shares of APLE and XHR.

    The recent positive price action is captured in the DJIA Index for Hotel REITS:

    112 on 5/15
    119+ now

    I did not buy back HT and added to that hotel REIT's 6.5% cumulative preferred stock last week which has a higher yield than the common.

    Hersha Hospitality Trust 6.5% Cum. Redeem. Pfd. Series D

    I think that I own 350 shares at the moment.

  3. Omeros (OMER):

    $17.10 +$1.81 (+11.84%)
    Volume 1,252,279
    Avg. Volume 627,933
    Day's Range 15.14 - 17.13
    52 Week Range 7.20 - 17.19
    At close: 4:00PM EDT

    I own 60 shares as part of my small cap biotech lottery ticket basket.

    I discussed buying 30 shares at $9.03 here:

    I did not see any news to account for today's surge. In those circumstances, where there is significantly higher than normal volume and a pop in the share price, I attribute the action to one or more institutions buying in bulk.

    A firm called Ingalls & Snyder owned 11.87% of the outstanding shares as of 3/30/17.


    While the Nasdaq Composite had another decline today, there was a bounce up into the close.

    6,175.46 -32.45 -0.52%
    6,110.66 - 6,183.81

    Apple did breach its 50 day SMA line to the downside today:

    IBM, one of the weakest big cap technology stocks, bucked the downtrend last Friday and today.

    June 12, 2017 $155.18
    June 09, 2017 $154.10
    June 8, 2017 $152.1
    June 7, 2017 $150.98

    IBM's YTD total return through today is -4.77% and a -1.75 annual average total return over the past five years.

    Apple has a YTD total return of 29.67% and an annual average total return of 13.87% over the past five years.

    There may be some institutional investors redeploying some money out of technology stocks that have worked into those that have not which is certainly the case for IBM. I do not own IBM and have no intention to buy at current levels.

    1. OMER:

      $19.25 +$2.15 (+12.57%)
      As of 2:35PM EDT

      There is news this morning:

      "FDA Grants Breakthrough Therapy Designation to Omeros’ MASP-2 Inhibitor OMS721 for the Treatment of IgA Nephropathy"

      The FDA based its decision on data from OMER's Phase 2 trial data that was presented at the European Renal Association-European Dialysis and Transplant Association meeting in Madrid on June 4th. I had noticed that the news release announcing that presentation yesterday, but could not find any slides or details about that presentation.



      Investors do not like the presentations made by Advaxis (ADXS) today.

      $7.20-$0.60 (-7.69%)
      As of 2:36PM EDT

  4. It is fairly common now for U.S. corporations to borrow money to pay dividends and/or to buy back stock.

    For example, Costco recently paid in common stock owners a $7 per share cash dividend.

    That dividend was funded by selling $3.8B in new debt.

    See Use of Proceeds section at page S-7

    1.1B of the proceeds will be used to retire a 1.125% senior unsecured bond, which I own, that matures on 12/15/17.

    The new debt has the following coupons:

    $1,000,000,000 2.150% Senior Notes due May 18, 2021
    $800,000,000 2.300% Senior Notes due May 18, 2022
    $1,000,000,000 2.750% Senior Notes due May 18, 2024
    $1,000,000,000 3.000% Senior Notes due May 18, 2027

    The new bonds are already trading in the bond market. The 2024 bond last traded at 100.9:

    So the $2.7B in new borrowed money has now been paid to the common shareholders, but the corporation has 2.7B in new debt that will incur interest charges probably until the end of days or bankruptcy, whichever occurs first.

    I received a notice that the 1.125% SU bond is scheduled to be called on 6/15/17 which is fine since I can reinvest the proceeds at a higher rate. I bought this bond slightly under par value.


  5. Hello southgent,

    Maybe you could help me understand an argument. Bill Gross was on today CNBC. He postulated the reason for the markets rise is that the ECB and the Bank of Japan are still injecting 60 billion of currency monthly. Rates in these areas remain extremely low. He said this was manipulation of the markets by fiscal and monetary policy.

    We have no choice at the moment if we have to take risks to not be in the stock market.

    He believed that when this phenomenon stopped that markets would fall.

    He also stated that although the Fed will raise it will be so gradual that the average rate would be 3% of the Fed funds rate in the future and no higher. He said the Fed will be dovish.

    For some reason which I do not understand he said this sort of pegs the 10 year treasury rate at about 2.2%.

    The second speaker was I believe a guy named Goluch, a market strategist. He postulated that earnings of the S&P this year would be up 7-9%. That there is no sign of recession. And postulated a possible rise of the market this year with multiple expansion and earnings growth of about 12% give or take.

    He believed that artificially lowering rates and injecting money was actually bad for the economy. He stated that it strained banks net interest margins [although he did not use those words exactly] and also the low rate of return on fixed income has restrained consumer buying habits and was actually bad for GDP.

    I wondered what you thought of these basic arguments if I have them correctly.

    Thanks a lot, Sam Atman

  6. Sam: Contrary to what many people believe, the market is not setting intermediate and longer term rates. Those rates are being peg by extremely abnormal central bank policies throughout the developed world. That would include the FED, ECB, BOJ, SNB, Bank of Canada, Bank of England, and the Nordic CBs.

    I have discussed several times in the past how the FED was successful in pegging the ten year treasury near 2.5% through abnormal monetary policies in the 1946 to 1951 period when inflation was much higher than now.

    Now, the FED is being given major assists in keeping intermediate and longer term rates abnormally low by the monetary policies of several other CBs who are continuing NIRP and QE programs.

    Those extremely abnormal policies drive down foreign sovereign rates throughout Europe and in Japan.

    While the Bank of Canada is not engaged in QE, it has
    has held its benchmark rate at .5% for an extended period, a level that was only briefly hit during the last Great Depression.

    All of those policies contribute to abnormally low rates for sovereign debt and unnatural demand for U.S. Treasuries when several other sovereign debt issues have negative nominal yields or barely positive, like the 10 year German government bond at around .27%.

    By keeping rates abnormally low, the CBs are encouraging massive amounts of new borrowing and large parts of that new debt is being used to buy back stock, to pay dividends, and other non-productive uses. The excess cash created by the CBs are not being used in real economy to any significant degree but are being plowed into financial assets.

    The abnormally low rates also contributes to the high stock valuations and abnormally yields throughout the bond market. Junk bonds do not provide yields sufficient to compensate for their risks IMO but are being priced off abnormally low treasury yields as are investment grade bonds.

    While the FED may raise the FF rate slightly, it is a long way from being normal for 2% annual inflation rates. The normal FF rate would normally be about 3% with 2% inflation, and a free market set 10 year treasury yield would be in the 4% to 4.5% range.

    I do not see a return to normality anytime soon. The CBs are going to find it hard to end their massive rate manipulations.

    Consequently, the CBs have created and will continue to foster a massive misallocation of capital worldwide and an unhealthy grow in debt for non-productive purposes. In a matter of years, probably not months, it will pop in a big way through yet another credit default and deleveraging cycle, except the next one will make the last one look tame in comparison.

  7. Hello southgent,

    Thank you for your answer. I have to tell you that I'm fairly new to understanding financial markets. Having been dependent on others to lose money for me!

    What you describe here is clearly the description of a debt bubble.

    I wondered if you could give an example or two of how one might identify the beginnings of bubble bursting.

    The reason I'm asking is that as a retired person, a dividend investor, I am depending on my dividend stream to augment Social Security, pension. In order to meet my expenses.

    What you surmise and others have stated , is that the bursting of this bubble may be unlike anything previous, perhaps except the Great Depression.

    There will be no financial: fiscal or monetary tools to unravel the damage of massive, cheap, debt and the obvious side effects of anomalies in asset pricing.

    I certainly don't want to be caught in the middle of this if at all possible. Any prudent investor needs to look at the whole picture .

    I note that you are slowly and methodically moving out of assets of stocks and stock CEF's etc.

    Some people do not have the financial asset amount of being out of the stock market. Of course being out may be prudent vs asset destruction.

    So what I'm asking is for any help in identifying any hint of a bursting beginning.

    I know in the past you have referred to massive declines in the stock market as a valuation correction in 1987 without any warning. So I am aware of the pitfalls of trying to make rational observations of an irrational phenomenon.

    Any perspective on past bubbles bursting, the possible precursor warnings and the aftermath (in your opinion) would be helpful.

    Thanks a lot

    1. Sam: There have been a series of asset bubbles linked to debt starting with the 1997 Asian Contagion that spread to Russia in 1998:

      As to spotting the problems just in time to exit security positions that would likely be smashed, that is a tall order.

      I recognized the problems that led to the 2008 crisis, but did not fully understand either the pervasiveness of those problems or their impact on asset prices. I was anticipating a bear market rather than a catastrophic event.

      There was an abundance of information appearing in the financial news media prior to 2008, including free sites like Bloomberg, about the emerging problems.

      The problems leading to the 1997 crisis were far less obvious to me for several reasons including the lack of internet access that severely limited my information acquisition compared to 2007 and the fact that the epicenter was outside the U.S. I am sitting a desk in Brentwood, TN. and what is happening in Thailand's economy is not a matter of focus.

      What you are likely to see is a series of precipitating events rather than just one. The debt bomb is now worldwide. The potential negative repercussions are being delayed due to central banks keeping rates low, which is a fertilizer for more non-productive debt being acquired, and their massive accumulation of debt through QE programs.

      The precipitating events for another credit default and deleveraging cycle may include a combination of the following:

      (1) an unanticipated rise in inflation and interest rates that place substantial strains on the ability of too many borrowers to service their debt obligations;

      (2) a worldwide recession that exposes the recklessness of lending;

      (3) the contraction of credit availability that will normally precede a recession and can make it far worse by causing marginal borrowers to default;

      (4) a massive correction in asset prices pumped up by improvident debt accumulation;

      (5) emerging market debt defaults;

      (6) the inability to grow through more debt acquisition which may show up first in places like China; and

      (7) Black Swan events

      I would just recommend staying informed, expand your information acquisition beyond CNBC which I rarely even watch, and exercise some common sense which was in short supply in the period leading up to the Near Depression.

      You have been telling me that the only place to secure adequate returns is the stock market. That would be true for most households. And, that is part of the problem too.

  8. I have published a new post that focuses again on changes in my bond portfolio.