Observations and Sample of Recent Trades (GJS & GJT: Synthetic Floaters); KGFHY

Economic Reports: 

According to the BLS, the economy added 222K jobs last month, significantly higher than the median forecast of 180K. "The change in total nonfarm payroll employment for April was revised up from +174,000 to +207,000, and the change for May was revised up from +138,000 to +152,000. With these revisions, employment gains in April and May combined were 47,000 more than previously reported." There was a higher than expected increase in local government jobs which was at the highest rate in almost a year.  

While job growth was higher than expected, wage growth was lower than the consensus estimate. U.S. Hiring Accelerates While Wage Growth Stays Flat - Bloomberg  Over the past year through June, the average hourly wage rose 2.5%. However, the increase over the past three months is lower at 2%. 

Employment Situation Summary

The U-6 number rose to 8.6% from 8.4%. Table A-15. Alternative measures of labor underutilization

Job growth in the first six months is almost identical to last year.  

BLS.pdf

January - June Average Monthly
2016 180K
2017 179K

Bureau of Labor Statistics Data

My conclusion looking at an array of data is that the numbers this year are consistent with the mere continuation of the economy under Obama.

New orders for manufactured goods fell .8% in May after falling .3% in April. Inventories for manufactured durable goods, increased .2% and have increased in ten out of the last eleven months through May 2017. 

New orders for manufactured goods.pdf

The FED minutes for the last meeting were released on Wednesday. The Fed - Monetary Policy Several members are concerned about high equity valuations and the market's response to rising short term rates:

There was disagreement on when the FED would commence reducing its balance sheet:

Now Fed Officials Are Starting to Wonder If the VIX Is Too Low - Bloomberg

Fed minutes suggest increasing tensions on inflation shortfall | Reuters

Is the Stock Market Cheap? - dshort - Advisor Perspectives

ADP reported that the private sector added 153K jobs last month, compared to the consensus estimate of 180K. ADP National Employment Report | June 2017 The May number was revised down from 253K to 230K.

The New York Fed's model for forecasting GDP, called "NOWCAST", predicts as of 6/30/17 real GDP growth of 1.9% in the second quarter and 1.6% growth in the third quarter. FEDERAL RESERVE BANK of NEW YORK

The ISM service sector PMI for May rose to 57.4% from 56.9% in May. The employment component, however, fell two points to 55.8%. New orders rose 2.8 points to 60.5. ISM - ISM Report - June 2017 Non-Manufacturing ISM® Report On Business®

40 S&P 500 stocks have slumped 20% or more in 2017 - MarketWatch

++++

Trump: 

In Trump's speech in Poland, he refused to recognize that Russia interfered in the U.S. election and then stated that the Obama administration choked in responding to Russia's interference in the election. He of course sees no inconsistency in those two comments. 

Donald Trump is excusing Russian election interference right before our eyes - Vox

If Obama had publicly stated that Russia was trying to elect Donald on Putin's orders, you would have had your ears punctured by squealing coming from Donald and his True Believers.   

In his meeting with Putin yesterday, Trump claims that he brought up election interference. The Russian Foreign Minister stated that Trump raised the subject and accepted Putin's denial of any interference. Donald stated that "some circles continue to pump up the topic of Russian interference in the American elections though they can't prove it." Trump-Putin discussion on election hacking yields clashing accounts - CBS News; Russia and US disagree over Trump-Putin election talk - CNN; Trump Raises Election Meddling in First Meeting With Putin - Bloomberg (“Trump said he’d heard President Putin’s clear statements that that wasn’t true and that the Russian government didn’t interfere in these elections, and that he accepts these statements ... President Trump noted that in the United States some circles continue to pump up the topic of Russian interference in the American elections, though they can’t prove it,” Lavrov said.)  

Trump is not going to accept the proof presented to him that Russia interfered in the election to help Trump win. Trump was disrespecting U.S. intelligence services by rejecting their evidence and agreeing with Russia's denial.   

+++

Some Trump supporters thought NPR tweeted ‘propaganda.’ It was the Declaration of Independence. - The Washington Post

Iowa woman who tried to vote for Trump twice pleads guilty to election misconduct - CBS News

Fact Check: Long Before Trump Took Credit, NATO Spending Was Up - NBC News

At G-20, world aligns against Trump policies ranging from free trade to climate change - The Washington Post

In his first 162 days in office, Trump has made 744 false claims:  The Fact Checker’s tally of Trump’s false claims since becoming president-Washington Post This is an understatement since the tally often characterizes a tweet with 2 or 3 false statements as having just one.  

FBI and DHS issue warning about potential cyberattacks on U.S. nuclear plants - CBS News

++


The republican governor of Maine, Paul LePage, was channeling Donald when he recently made this statement: "I'd tell you the sooner the print press goes away the better society will be".  

In Trump's press conference held in Poland, he called upon first the Daily Mail's David Martosko, who was in consideration for Trump's press secretary and who is viewed by many as a Trump loyalist. This is the exchange that followed: 

Martosko: “Since you started the whole wrestling thing, what are your thoughts about what has happened since then? I mean CNN went after you and has threatened to expose the identity of a person they said was responsible for it. I'd like your thoughts on that.”

Trump: “Yeah, I think what CNN did was unfortunate for them. As you know, now they have some pretty serious problems. They have been fake news for a long time. They've been covering me in a very, uh, very dishonest way. But CNN and others — and others; I mean NBC is equally as bad, despite the fact that I made them a fortune with 'The Apprentice,' but they forgot that. But I will say that CNN has really taken it too seriously, and I think they've hurt themselves very badly, very, very badly. And what we want to see in the United States is honest, beautiful, free — but honest — press. We want to see fair press. I think it's a very important thing. We don't want fake news. And by the way, not everybody is fake news. But we don't want fake news. Bad thing. Very bad for our country.” (emphasis added)

Poland's right wing government is restricting press freedom: Poland-Freedom of the Press    

Fighting for press freedom with the Polish national anthem | Public Radio International

For Donald and the GOP in general, news is not fake when a faux blonde repeats GOP propaganda and reality creations  without any reservation, question or rebuttal. It is also a requirement to avoid the Fake News tag that the news personalities fawn all over The Donald.   

Trump routinely makes false statements and is consequently the creator of Fake News. 

A recent tweet made yesterday had three false statements. That Trump tweet on the DNC hack has 3 errors - CNN; Trump: 'Everyone here is talking about' DNC, Podesta | TheHill

Three false statements in a tweet is not at all unusual for Trump, as I have documented in the past. I am not yet aware of  Trump making 4 false statements in one tweet. I am sure that he will achieve that milestone soon enough. 

 ++++++++

1. Long Term Bond Basket-Tennessee Municipal Bonds: 

A. Bought 5 Williamson County Tennessee 3.25% GO Bonds Maturing on 4/1/32:

EMMA PAGE

Credit Rating: 

Moody's at Aaa

Moody's Assigns Aaa to Williamson Cnty, TN's $9.0M GO Refunding Bonds

Moody's Assigns Aaa to Williamson Cnty, TN's $59.5M GO Bonds

YTM at Total Cost (102.99) = 2.818%

Current Tax Free Yield = 3.16%

Bond Details: 

2. Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Sold 2 Georgia Power 3.25% SU Bonds Maturing on 4/1/26: 

Trade Snapshot: 

Profit Snapshot: +$26.94

FINRA Page: Bond  Detail
Credit Ratings
Moody's at A3
Moody's changes Georgia Power outlook to negative, affirms at A3
S & P at A-
Prospectus

Sold at 100.643 YTM = 3.162%
Proceeds at 100.543
Current Yield at 100.543= 3.22%

I bought these bonds at a total cost of 99.206. Stocks,  Item # 1.D. The YTM at my total cost number was 3.353%, with the current yield at 3.276%.

I would not be surprised by a rating's downgrade for the reasons related to events discussing in the Moody's report linked above.

B. Bought 2 JP Morgan 3.2% SU Bonds Maturing on 6/16/26: 

Issuer:  JPMorgan Chase & Co. (JPM)
Finra Page: Bond Detail (prospectus linked)

Credit Ratings: 
Moody's at A3
S & P at A-

YTM at Total Cost (99.322)= 3.288%
Current yield= 3.22%  

JPM Analyst Estimates 

C. SOLD 2 Comcast 2.85% SU Bonds Maturing on 1/15/23: 

Trade Snapshot: 

Profit Snapshot: +$41.98

Issuer:  Comcast Corp. Cl A  (CMCSA) - MarketWatch
Finra Page: Bond Detail

SOLD at 101.965
YTM at 101.965 = 2.47%
Current yield at 2.795%
Net Proceeds at 101.895 ($2 Commission)

Bought at a Total Cost at 99.766
Discussed Purchase at Item # 2.C. 
YTM at 99.766 = 2.893%

CMCSA Analyst Estimates 

D. Sold 2 CVS 2.875% SU Bonds Maturing on 6/1/26: 

Trade Snapshot: 

In the preceding snapshot, taken from my IB account, the yield shown therein is a YTM of 3.152%. 

Profit Snapshot: +$36.43

Finra Page: Bond Detail
CVS Stock Price - CVS Health Corp. 

Bought at a Total Cost of 95.933
Item # 1.A. 
YTM Then at 3.388%
Current Yield at 95.933 = 3%

Sold at 97.952
The Current yield at 97.952 is 2.94%
Proceeds at 97.852

Moody's affirms CVS Health's Baa1 senior unsecured rating

CVS Analyst Estimates

As previously discussed, I see CVS as having two major long term problems. First, the products sold in the stores are priced too high. Second, the Pharmacy Benefits Management business is competitive, with frequent losses of a major contracts, and may be a business model that is not sustainable long term due to pricing opaqueness and pay-to-play attributes.

Reduce drug prices by eliminating PBM rebates | TheHill

Rebates to pharmacy benefit managers are contributing to high drug prices: STAT

Gilead Executive Says Pharmacy Benefit Managers Keep Prices High - Bloomberg

Understanding the hidden villain of Big Pharma: pharmacy benefit managers: Newsweek 

The foregoing dispositions, a net of $6K, was basically a response to my gut feeling that interest rates had fallen too much. 

The 2026 Georgia Power bonds were sold on 6/15/17. The 2 CVS 2026 bonds and the 2 Comcast bonds were sold on 6/16. The ten year treasury had not yet started to spike up which explains why I sold $6K and bought $2K. I was not yet certain that a change in direction was imminent but believed one was likely.  

10 year Treasury: 

6/15   2.16%
6/16   2.16%
6/30  2.31%
7/7     2.39%

Daily Treasury Yield Curve Rates

The synthetic floater purchases discussed below were bought as trades and as a hedge that short term rates will rise faster than the market currently expects.  I have been trading these securities since I first started to buy them in 2009.  

Gundlach Sees More Pain for Bond Bulls as Hedge Funds Make Exit - Bloomberg

Surge in German Bond Yields Triggers Fresh Rout in Global Debt - Bloomberg

3. Synthetic Floaters: 

Stocks, Bonds & Politics: Synthetic Floaters

Synthetic Floaters is a niche category of Exchange Traded Bonds. They are in the Trust Certificate legal form of ownership. 

Volume is extremely light, or non-existent, with large bid/ask spreads. Limit orders have to be used. 

The floating rate is synthetic which simply means that it is created by a contractual agreement between a trustee and the swap counterparty.  

The synthetic floater adds levels of complexity and risk to the trust certificate legal form of ownership however. A brokerage company will buy fixed coupon bonds in the secondary market and transfer ownership to the Grantor Trust. When that trust is formed, the trust and the brokerage company also execute a swap agreement, where the trustee will "swap" the interest paid by the bonds for the amount due the owners of the TC. The owner of the synthetic floater is exposed to the credit risk of the underlying bond owned by the Grantor Trust. 

Stocks, Bonds & Politics: Ongoing Reassessment of Synthetic Floaters (7/28/12 Post)

A. Added 50 GJT at $19.48-Used Commission Free Trade:

This brings me up to 200 shares

Trade Snapshot: 

Stocks, Bonds & Politics: Synthetic Floaters

Quote: Synthetic Fixed-Income Securities Inc. STRATS Trust for Allstate Corp. Securities, Series 2006-3  (GJT) 

GJT Prospectus 

Interest Rate:  .8% float over the 3 month treasury bill with a maximum coupon of 8%

Frequency: Monthly 

Par Value: $25

Maturity:  4/1/36

Underlying Security: Allstate Senior Unsecured Bond Maturing on 4/1/36 subject to a make whole provision.

FINRA Page for 2036 Allstate SU Bond

Credit Ratings for Underlying Bond:
Moody's at Aa3
S & P at AA-
A.M. Best at A+

Financial Strength Ratings | Allstate Insurance Company

Allstate Bond Prospectus

Total Trading Profits: $575.95

I am still in a constant flipping mode for the synthetic floaters. Even the yields of the "pure" synthetic floaters have been rising, they are still low. By "pure", I am referring to those synthetic floaters like GJS, GJR, GJO, GJR, and GJT that do not have minimum coupons, but whose coupons simply float at a spread to a short term rate, either the 3 month treasury bill or the 3 month Libor rate. 

Prior Discussions:  

Item # 3 Bought 50 GJT at $17.97-Roth IRA (3/28/15 Post)(contains snapshots of prior trading activity) 

Item # 2. Added 50 GJT at $17.55: Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 4/14/16 - South Gent | Seeking Alpha

I have discussed the risks inherent in this type of security in those prior posts.

The first monthly interest payment for the 50 shares bought in the Roth IRA was $.85 (4/1/15). As the FED raised the FF rate, the three month treasury bill has risen from near zero to over 1%. On 6/1/17, the interest payment was $1.73 for that 50 share lot.

At a 4% 3 month treasury bill rate, the coupon would be 4.8%. At a total cost of $19.5 per share, that coupon would create a dividend yield of 6.15%. The 8% maximum coupon rate would be hit with a 3 month treasury bill rate at 7.2%. The 8% coupon would create a 10.26% yield.

B. Bought 50 GJS in Roth IRA and Added 50 in Taxable IB Account: Both buys were at at $19.26:

This brings me up to 250 GJS shares.

Roth IRA:

IB Taxable:

The earlier buy in the IB account was at $18.4: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 11/11/15 - South Gent | Seeking Alpha

Quote: Synthetic Fixed-Income Securities Inc. Floating Rate STRATS Series 2006-2 for Goldman Sachs Group (GJS)

GJS is similar to GJT except the float is .9% over the three month treasury bill rate with a 7.5% maximum coupon. Par value is $25. The GJS TC represents a beneficial interest in a 6.125% senior unsecured bond issued by Goldman Sachs that matures on 2/15/2033 that is owned by a grantor trust administered by an independent bank trustee.

Underlying Bond-Finra 

Credit Ratings Underlying Bond: 
Moody's at A3
S & P at BBB+
Fitch at A

GS Entity Ratings 3-24-17

On the day of my purchase the underlying bond was trading near 126, creating a 3.9% YTM. The current yield at that price is about 4.86%. 

Assuming GS survives to pay off this bond's $1,000 par value at maturity, then the owners of GJS will receive their $25 par value. GJS consequently matures on the same day as the underlying bond.

The trustee will collect the coupon payments on the 2033 senior bond from Goldman Sachs and swap it with a brokerage company for the payment due the owners of GJS. The brokerage company is called the swap counterparty

GJS Prospectus

2033 Bond Prospectus 

The bond's prospectus has a make provision that makes it unlikely that GS will redeem this bond:

Quote: "We will have the option to redeem the notes, in whole or in part, at our option at any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the notes to be redeemed or (2) as determined by the quotation agent described below, the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed, not including any portion of these payments of interest accrued as of the date on which the notes are to be redeemed, discounted to the date on which the notes are to be redeemed on a semi-annual basis assuming a 360-day year consisting of twelve 30-day months, at the adjusted treasury rate described below plus 20 basis points, plus, in each case, accrued interest on the notes to be redeemed to the date on which the notes are to be redeemed. ... The quotation agent will select a United States Treasury security which has a maturity comparable to the remaining maturity of our notes which would be used in accordance with customary financial practice to price new issues of corporate debt securities with a maturity comparable to the remaining maturity of our notes." (emphasis added)

That make whole payment would be huge given that the sum of both the principal and all remaining interest payments is being discounted at an abnormally low treasury rate.

Total GJS Trading Profits to Date: $631.24

Round trip trade snapshots for synthetic floaters are included in my Trust Certificate gateway post. 

I own 100 shares in my Schwab Taxable account. The average cost per share is $18.46 with the last 50 share lot bought at a total cost of $18.35 per share (1/25/17). As with GJT, the interest payments of GJS have been trending up since December 2015, when the FED first increased the FF rate off of ZIRP. 

4. Short Term Bond/CD Ladder Basket Strategy:

A. Bought 2 Bar Harbor Bank (BHB) 1.45% CDs Maturing on 9/28/18 (monthly interest payments):

All CD purchases are FDIC insured.

I own 225 BHB common shares.

B. Bought 3 Bar Harbor (BHB) 1.65% CDs Maturing on 7/1/19 (monthly interest payments):

5. Bought Back 100 KGFHY at $8:

Trade Snapshot: Used Commission Free Trade

Quote: Kingfisher (KGFHY)
1 ADR = 2 Ordinary Shares
Traded on the Pink Sheet Exchange (now called the OTC Markets)

London Quote In PENCE:  Kingfisher PLC (U.K.: London)

Website: Kingfisher plc
Kingfisher plc - About us - Company overview - Our history

Think of Kingfisher as the Lowes or Home Depot of the U.K., Ireland, and Parts of Europe:

Recent Results: The results are improving from a rough patch:

Sourced:  Annual Report.pdf

The last three years through my date of purchase have not been kind to Kingfisher share owners:

Blue Line Ordinary Shares Priced In Pence (100 Pence = 1 Pound)
Green Line: USD Priced ADR

KGF Stock Chart - Kingfisher PLC

This chart immediately tells me that the British Pound has dropped significantly in value over the past three years against the USD. Maybe the next three years will be better.

My last entry point was at $10.44 back in September 2014. Those shares were later sold in May 2015 at over $11, generating a $65.57 profit. The buy and sell snapshots are both contained in this post: Bought  100 KGFHY at $10.44 (9/6/14 Post)

Dividends are paid semi-annually. The dividend yield at my $8 total cost per share will depend on both the penny rate and the conversion rate. The U.K. does not withhold a dividend tax for non-pass through entities: United Kingdom Highlights 2017 A decline the GBP/USD after purchase will have the same effect as a dividend cut with the penny rate remaining unchanged, whereas a rise in the currency conversion rate has the same impact as a dividend increase.

Kingfisher plc - Investors - Financial information - Dividend - Historical dividends

U.K. stocks swing higher as pound falters after trio of disappointing data (7/7/17)- MarketWatch

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.