Wednesday, June 14, 2017

Observations and Sample of Recent Trades: 6/14/17

Election databases in several states were at risk during 2016 presidential campaign - CBS News

Russian Cyber Hacks on U.S. Electoral System Far Wider Than Previously Known - Bloomberg

Reach of Russian Election Hack Extends to 39 States - Bloomberg 

Putin and Trump at least share a common desire to question and undermine the legitimacy of U.S. voting results. Perhaps Putin needs to concentrate more on improving the Russian economy, a non-kleptocracy would be a good start. Russia's GDP is about 1/2 of California's GDP and less than that of Texas as well. Comparison between U.S. states and countries by GDP (nominal) - Wikipedia

Putin's Kleptocracy: Who Owns Russia?: Books

Stocks, Bonds & Politics: Trump and Massive Voter Fraud Allegations-Cover For Voter Suppression

Stocks, Bonds & Politics: The GOP and First Amendment Conservative Values

Trump's voting commission, headed by Kris Kobach, has a clear, though unstated goal to justify voter suppression by groups that do not vote for the right candidates, particularly the non-white segments of the population. The Man Behind Trump’s Voter-Fraud Obsession - The New York Times  ("Kobach has inverted the priorities, using elections, and advocating voting restrictions that make it easier for Republicans to win them, as the vehicle for implementing policies that protect the interests and aims of a shrinking white majority.")

Trump Pondered Firing Mueller; His Aides Pushed Back (NYT article republished at MSN)

Congress Set to Prod Trump, Who Denies Russia Meddled, to Punish Moscow (NYT article republished at MSN)

Trump Called House Health Care Bill 'Mean' in Meeting with Senators - NBC News


1. Intermediate Term Bond/CD Ladder Basket Strategy:

In this section, I will be discussing selling 2 MSFT and 2 Westpac Banking senior unsecured bonds and buying 2 Select Income, 1 Duke Energy and 1 GATX senior unsecured bonds.

In this kind of swap trade, I am picking up more current yield and a higher YTM while taking on more interest rate and credit risks.  

A. Bought 2 Select Income 4.25% Senior Unsecured Bonds Maturing on 5/15/24

This note was sold to the public shortly before my purchase: Prospectus (dated date 5/15/17). The public offering price was 98.684.  

SIR Select Income REIT Page at Morningstar 
Finra Page: Bond  Detail (prospectus linked)
Credit Ratings: 
Moody's at Baa2

YTM Based on Total Cost (99.941) = 4.26%
Current Yield = 4.253%

SIR Analyst Estimates (not based on cash flow numbers)

I also currently own 2 SIR SU bonds maturing in 2025: 

Item # 1. Bought 2 Select Income REIT 4.5% Senior Unsecured Notes Maturing on 2/1/2025 at $97.939Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 6/24/16 - South Gent | Seeking Alpha

I briefly owned the common stock in 2012: Item # 2 Sold 50 SIR at $25.17 (8/4/12 Post)(profit =$149.58)

I may at some point sell the 2025 maturity and keep the 2024. 

B. Bought 1 GATX 3.25% SU Bond Maturing on 9/15/26

Issuer:  GATX Corp. (GATX).

FINRA PAGE: Bond Detail (prospectus not linked)
GATX GATX Corp Page at Morningstar
Credit Ratings:
Moody's at Baa2
S & P at BBB

YTM at Total Cost (97.222) = 3.604%

Current Yield = 3.343%

GATX Analyst Estimates

2017 GATX First Quarter Report
2016 GATX Annual Report (debt discussed starting at page 79)

In February 2017, GATX sold $300M in 3.85% SU bonds maturing in 2027.

I also own 1 GATX $1K par value bond maturing in 2025: Item # 1.E.

After paring my position, I also still GMTA, a senior unsecured exchange traded bond. GATX Corp. 5.625% Senior Notes due 2066 Stock Quote (GMTA) I own 50 GMTA shares bought at $22.23 (12/14/16).

C. Bought 1 Duke Energy 3% Senior Unsecured Bonds Maturing on 6/15/2025:

Issuer: DUK Stock Price - Duke Energy Corp.

Finra Page:  Bond Detail (prospectus linked)

Credit Ratings:
Moody's at Baa1
S & P at BBB+

YTM at Total Cost (98.829) = 3.166%

Current Yield = 3.04%

DUK Analyst Estimates

2017 First Quarter Report
2016 Annual Report

D. Sold 2 Microsoft 2% Senior Unsecured Bonds Maturing on 8/8/23

Profit Snapshot:  $28.48

FINRA Page: Bond Detail

I bought these 2% coupon bonds at a total cost of 96.105 per bond. The current yield at that price is 2.08%. The YTM on the date of purchase was 2.636%. 

I sold these bonds at 97.433 or and 97.243 adjusted for a $4 brokerage commission. At the commission adjusted price the YTM is 2.483%. 

2. Short Term Bond/CD Ladder Basket Strategy

A. Sold 2 Westpac Banking 1.65% Senior Unsecured Bonds Maturing on 5/13/19

Common Stock ADR: Westpac Banking Corp. ADR (WBK)

Profit Snapshot: +$7.66

I discussed this bond purchase here: Item # 2.C. Stocks, Bonds & Politics: Observations and Sample Trades (VIVHY, ADX, HTGZ): January 24, 2017/Donald Trump and the Beginning of the End of the Progressive Era

I sold at 99.8. 

I bought this bond at a total cost of 99.317 (1/18/17). The current yield at that total cost number is 1.661% with the YTM at 1.953%. 

The YTM at my proceeds number (99.7) is 1.806% as of 5/23/17. 

FINRA Page: Bond Detail (Moody's at Aa2)

3. Long Term Bond Strategy-Primarily  Tennessee Municipal Bonds

The municipal bond purchases discussed below were financed by a reallocation of proceeds out of the following short term bond/CD ladder basket strategy.  

1 of 6 USTs .75% 10/31/17

2 Verizon 1.1% SUs 11/1/17
1 Statoil 1.25% SU 11/9/17 
1 TransCanada 1.625% SU 11/9/17 
2 Microsoft .875% SUs 11/15/17
1 Southern California Edison 1.25% First Mortgage Bond 11/1/17
2 Great Southern .75% CDs 11/22/17

A. Bought 5 Wilson County 3% GO Bonds Maturing on 4/1/2032


Credit Ratings: 
S & P at AA+

Wilson County is adjacent to Nashville/Davidson county. 

Wilson County - Google Maps

The county seat is Lebanon, Tennessee, located about 25 miles east of downtown Nashville.  The other largest city Mount Juliet, Tennessee located 17 miles from downtown with Interstate 40 providing a commute into the city.

YTM at a Total Cost (100.7): 2.868%

Current Tax Free Yield: 2.98%

Tax Equivalent Yield Calculator

Optional Redemption: AT PAR Value on or after 4/1/23

Schwab Summary: 

I previously discussed buying 15  Wilson County 4% GO bonds maturing in 2039:  Item # C Stocks, Bonds & Politics: Tennessee Municipal Bonds

B. Bought 5 Sumner County Tennessee 3% GO Bonds Maturing on 12/1/33:

The quoted price referenced in the preceding snapshot includes the $10 Schwab commission. Schwab charges $1 per bond but has a $10 minimum. This bond was not available at Fidelity. 


Credit Ratings: 
S & P at AA+

Sumner county is another Tennessee county that is part of the greater Nashville metropolitan area. 

Sumner County - Google Maps

The largest cities are Hendersonville  and Gallatin. Another city, Goodlettsville, is partially located in both Davidson (Nashville) and Sumner counties. 

YTM at Total Cost (98.032) = 3.153%

Current Tax Free Yield = 3.06%

Security: Standard for County GO Bond

Tax Matters: Federal Tax Free and AMT Free (free from TN Hall Interest Tax)

Optional Redemption: AT PAR on or after 12/1/2024

Official Statement.pdf

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. CPI: The government reported that the seasonally adjusted CPI number decreased .1% in May. The unadjusted Y-O-Y rate was +1.9%. Core CPI was up .1% in May and 1.7% Y-O-Y.

    CPI was led lower by energy costs whose rise late last year and into the first quarter of 2017 contributed to a short term Y-O-Y spike in the headline CPI number.

    The U.S. Dollar Index, which has been declining since January, spiked down some after the D.C. shootings:

    Gold rose in response:

    The Bond Ghouls received solace from a declining CPI trend and a flight to safety:

  2. OMER:

    $21.92 +$2.34 (+11.95%)
    As of 1:14PM EDT

    I do not know what to do with my 60 OMER shares other than possibly selling 30 and keeping 30. My current inclination is do nothing.

    This article at SmartAnalyst summarizes the reasons given by one analyst for his $75 price target.

    RDHL, which is another small cap biotech lottery ticket, had some news earlier today but the stock was not able to hold onto early morning gains:

    RedHill Biopharma Ltd. (RDHL)
    $9.39-0.08 (-0.89%)
    As of 1:18PM EDT
    Day's Range $9.13 - $10.60

    I would note that a large percentage of the placebo group reported positive outcomes.

    "BEKINDA® improved the efficacy outcome by 21%; 65.6% of BEKINDA® treated patients as compared to 54.3% of placebo patients (p = 0.04; n=192 in the BEKINDA® group and n=129 in the placebo group). Correcting for a randomization error, the difference in effect is greater with 65.8% vs. 53.9% favoring BEKINDA® vs. placebo in reaching the primary endpoint of the study (p = 0.03)."

    So that may be tempering the enthusiasm.

  3. The Bond Ghouls reacted to the FF increase by taking treasury yields down for all maturities between 1 year and 30 years. The 1 month and 3 month bills rose .01% in yield.

    Gold which was up $10 an ounce fell after the FED announcement by about $26 and the USD rallied, though the bounce up in the DXY was without much conviction.

    While all of those moves were timed off the Fed's announcement, I would not tie those movements to the .25% in the FF range which was a certainty today.

    Instead, assuming the market was acting rationally, which I would not assume, the movement appears to be linked to the Dot Plot released with the Fed's press release.

    By a 12 to 4 margin the FED members see another .25% increase this year. And by a similar margin, the members see at least three more .25% increases in 2018:

    The market sees a 47% probability of another hike this year. Those odds rise only to 70% by June 2018.

    So the market says pooh on those FED projections when looking just at interest rates.

    The break-even inflation rate for the 10 year TIP closed today at 1.71%. That would be the annual average CPI necessary for the 10 year TIP buyer to break-even with the buyer of the non-inflation protected 10 year. The break-even inflation rate is viewed as the market's forecast for future inflation. If that inflation forecast is accurate, then that kind of average inflation rate provides a positive environment for stocks (refer back to the 1950 to 1966 period).

    It would also mean that high quality bonds will provide negative real returns or barely positive.

    The forecast embodied in the 10 year TIP price would have the real annual return before taxes at .44% for the ten year treasury.

    2.15% closing yield -1.71% = .44% (the real yield for the ten year TIP and the anticipated real yield for the 10 year nominal treasury)

    I am not sure why the USD gained in value after the announcement when U.S. interest rates fell; or why the USD would rise with a further contraction in the yield curve caused by longer maturities declining more in yields than the shorter ones or the longer maturities declining in yield as the shorter term ones rise some which is what has been happening overall this year.

    The initial reactions may turn out to be short lived.


    Sources tell the Washington Post that Trump is under investigation by the Special Counsel for obstruction of justice, as he should be.

    The story was just published in the WP.

    1. The WP story has been republished at MSN which is not a subscription website:

  4. "Special counsel is investigating Jared Kushner’s business dealings"

    WP article republished at MSN:

  5. Argo Group International Holdings Ltd. 6.5% Sr. Notes Due 2042 (AGIIL)
    $25.32 June 16, 2017 3:19 p.m. EDT

    This senior unsecured exchange traded bond went ex-interest on 6/1/17. Interest payments are made quarterly.

    The closing price today of $25.32 suggests a belief that the issuer will likely soon redeem this bond at its $25 par value plus accrued and unpaid interest. Argo has the option to redeem on or after 9/15/17.

    This bond is rated BBB- by S & P.

    The yield at $25.32 is 6.42%, which is significantly higher than $1K par value bonds, rated at BBB- or Baa3, maturing at about the same time. Most of the similarly rated corporate debt maturing in the 2040-2044 period has YTMs in the 4.5% to 5.2% range.

    I own 100 shares bought at below par value, and one 50 share lot bought slightly over par value. The net impact of a redemption will be a slight profit on the shares.

    My last trade was to sell 50 shares at $26.69:

    My last two buys were at $24.6 and $24.96 using a commission free trade for the later:

    Buy at $24.96

    Item # 5 Buy at $24.6

    I would not buy this bond now at the current price though I would consider buying another 50 share lot below par value since it is not certain that ARGO will redeem. The market is saying with the current price that it is likely to redeem on 9/15/17.

    If there is a pop over $25.5, I may sell for a profit the highest cost lot which was bought slightly over the $25 par value.

  6. Good morning southgent,

    I know you are not presently actively investing in stocks. But rather selling. I did however think of how you view the takeover of whole foods by Amazon. I know yesterday was frenzy of readjustment of expected earnings and competition and shift in retail and even mall space related to Amazon's first true foray into bricks and mortar's.

    There are many interesting articles on the pitfalls of Amazon's attempt to capture part of this market. I have never heard in general your views of how the Internet has profoundly altered the way we, shop, socialize, gather news and how it affects the previous way we interacted with the world.

    I remember so clearly the YouTube video of Steve Ballmer disparaging the iPhone because it did not have a keyboard

    Any thoughts would be appreciated!!

    1. SAM: I would estimate that 90% of my consumer product purchases are at Kroger and Amazon. I am starting to buy more at WMT online which frequently has lower prices than Amazon. My buying habits have already undergone a sea change due to the internet coupled with free shipping to my doorstep.

      I will buy Amazon gift cards at Kroger when I can receive 4 fuel points for each $1 in face amount. (100 fuel points= $.10 off gas price).

      When I next fill up at Kroger's fuel station in Franklin, TN., I will pay 1 cent per gallon using my Kroger fuel points mostly acquired through Amazon gift card purchases for myself. The fuel points are good at Shell stations as well; and I will buy Shell gift cards to cover those purchases. Itunes purchases are funded with Apple gift card purchases when I get 4 times the face amount of the card in fuel points.

      I will not be buying groceries at Whole Foods, assuming one opens up here in Brentwood, TN. I am surprised that one has not opened yet since this is an affluent community.

      The Fresh Market has a store but it is too expensive.

      Kroger is already under a lot of competitive pricing pressure from WMT as shown by its recent earnings warning. Food inflation has mostly been a no show for some time and that aggravates the competitive pricing pressures in that sector.

      I suspect that Bezos will drive prices down at Whole Foods, vastly expand its footprint, and create more deflationary pressures in that sector of the economy.

      Bezos may also introduce more pricing pressures in the drug retailing business. I would focus on what he does in that sector in coming months and years.

      I previously told you that I do not like the pricing models of the pharmacy benefit managers such as CVS and Express Scripts. There use of secretive rebates appears vulnerable to me. It is possible that Bezos may targeting them and their methods for artificially creating inflation in drug prices.

      There may also soon be growing pressure on the PBM's from Trump:

  7. I have published a new post: