Market Commentary:
Low inflation and interest rates, and their impact on bond prices, continue to provide major support for stock prices. By this measure, stocks look fairly cheap: BMO: CNBC ("The market looks expensive relative to its history when you look at a lot of the traditional measures like price to sales, price to earnings and so forth," said Jack Ablin on CNBC's "Futures Now" this week. "But when you look at the stock market through the lens of bonds, the stock market still looks cheap.")
Stock prices look attractive now — compared to bonds - MarketWatch
Rob Arnott: Dump U.S. Stocks, Buy Emerging Markets - Barron's
Fed's Big Bond Unwind May Clobber U.S. Stocks, Corporate Debt - Bloomberg
I would not use the word clobber. A persistent rise in inflation and interest rates could easily spark a 20% correction at some point in that rise.
The Stock Jocks soon concluded after the election that small cap U.S. stocks and regional banks were two sectors likely to benefit from a Trump administration. The rationale was similar. Trump's policies would be fiscally stimulative for the U.S. economy. Small caps in general are far more dependent on growth in the U.S. economy compared to those that are components of the DJIA or the S & P 500. Those anticipated fiscal policies would primarily be a major tax cuts and massive increases in infrastructure spending. The increased demand fostered by those fiscally stimulative policies would also cause interest rate spreads to widen, helping the regional banks.
Both banks and small caps started to turn south earlier this year, indicating to me that more investors have come to the conclusion that the Trump trade is kaput.
The Russell 2000 index closed in negative territory for the year last Monday. That index is frequently the most volatile of the major broad stock indexes and the first to start a correction.
At the Close on 8/21/17: RUT 1,356.90 -0.89 -0.07% : Russell 2000
Close 12/30/16 (last trading day): 1357.13
52 week high = 1,452.09
Off 6.55% from 52 Week High as of the Close on 8/21/17
The Russell 2000 had a good rally today and is now down 5.55% from its 52 week high, hardly a downdraft that would cause me to conclude that the uptrend is over rather than just paused for consolidation: ^RUT 1,371.54 +14.63 1.08%
Correction Becomes More Likely As U.S. Transports, Russell 2000 Lose 2017 Gains: Forbes
The CBOE volatility index for the RUT is still comfortably below 20.
Close on 8/21/17: ^RVX 17.61 -0.15 -0.84%
Close on 8/22/17: ^RVX 16.17 -1.44 -8.18%
As with the other major stock indexes, RVX is well within its Stable Volatility Pattern. Given the larger ranges of what is historically stable readings compared to the VIX, I have adjusted the VIX Model ranges to take into account RUT's inherently more volatile nature as explained in a 1/1/2009 Post. Stocks, Bonds & Politics: Small Caps and RVX model
When the entire market is moving toward a correction, the RVX will generally be the first volatility index to spike over 20, followed by the CBOE NASDAQ 100 Volatility (VXN), and then the VIX, with the DJIA VOLATILITY Index (DXD) being the last.
There is no major difference in the U.S. economy in 2017 compared to the last four years of Obama's term other than a slowdown in job growth under Trump.
First Seven Months: Job Additions
2017: 1.29M (last two months are preliminary estimates)
2016: 1.372M
2015: 1.624M
2014: 1.694M
2013: 1.344M
2012: 1.24M
2011: 1.174M
Bureau of Labor Statistics Data
The True Believers have a different take on this data. For them Trump is a job creating machine.
Yet the stock market has skyrocketed after Trump's election. Maybe Trump will deliver something that the Stock Jocks want, but that is far from clear. Most likely, we will see a watered down "tax reform" bill that will be inadequate to move the GDP needle much and could easily be overwhelmed by other secular forces that turn more anemic.
The market is more likely reacting to a synchronized upturn worldwide with the U.S. continuing to provide 2% or so real GDP growth as in prior years.
The market needs at a minimum a 10% to 15% correction soon IMO. The problem with these parabolic rises occurring years into a bull cycle is that more downside can be created when there is a trend reversal. It needs to at least be remembered that the 50% decline in 2000-2002 was primarily a readjustment of the high multiples built up in the last 1990s. Big declines can be set up by too big of runups.
+++++
Market News:
Metals: Copper prices hit highest since Nov. 2014 - MarketWatch
Auto trade emerges as roadblock as first round of Nafta negotiations wraps up - MarketWatch
++++++
More on North Korea and Trump:
Trump promises North Korea 'fire and fury' over threats- 8/9/17 ("North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen... he has been very threatening beyond a normal state. They will be met with fire, fury and frankly power the likes of which this world has never seen before""
North Korea warns of 'merciless strike' ahead of US, South Korea drills-August 20, 2017; North Korea says US causing 'uncontrollable phase of a nuclear war' with military drills | The Independent
Has anyone noticed any change in North Korea's threats since Donald ramped up his rhetoric?
++++++++
Trump and General Pershing:
Once again, Trump gave confirmatory evidence that he inhabits a self created alternate reality.
Trump creates his own reality. Trump voters willing inhabit that alternate universe created by Donald and become most annoyed when anyone dares to pierce that bubble with accurate information. Those who pierce the bubble with accurate information are known as the Fake News Media and liberals. So here we are: True is False and False is True.
After the terrorist attack in Spain, Trump published the following tweet recalling his previously invented story about General Pershing dipping bullets in pigs blood and shooting Muslims in the Philippines:
Besides being a totally inappropriate response to that terrorist attack, there is no factual support for Trump's reality creation.
He told the same story to cheering supporters during the campaign. In Trump's story, Pershing's forces captured 50 Muslim insurgents in the Philippines. Pershing then allegedly ordered his men to dip their bullets in pig's blood and to execute 49 of the 50 unarmed prisoners, allowing one to survive to tell the tale. According to Donald, who knows nothing about American history that is real, that stopped Muslim terrorism for 35 years.
The fact that Donald makes things up is hardly news. What's his point? That the U.S. execute suspected Muslim terrorists by shooting them with bullets dipped in pig's blood?
The fact that Donald uses this kind of made up violent story as an Aesop type fable with a happy ending (no more Muslin terrorists) is just a deeper, more troubling dimension to the story without historical backing.
And, if Donald actually knew anything about Islam, there is no adverse, hereafter consequences flowing from being shot by bullet dipped in pig's blood. Trump responds to Barcelona terror attack by spreading debunked rumor - Aug. 17, 2017;
PolitiFact gave Donald's reality creation a pants on fire rating.
After Barcelona attack, Trump said we should study John J. Pershing. Here's what Trump got wrong. - The Washington Post ("The Philippines were acquired after the United States won the Spanish-American War in 1898, and an insurrection arose following attempts to pacify the country as it sought independence from colonial rule. Pershing studied the Koran and drank tea with tribal leaders to emphasize he was there to put down violence, not continue a religious war the Spanish had waged for centuries. . . . In one series of campaigns between 1902 and 1903 around Lake Lanao on the southern island, Pershing would focus on more violent religious groups in fortified positions, allowing them room to escape " The story recounted about Pershing was made up by strongly anti-Muslim internet users after 9/11)
Study Pershing, Trump Said. But the Story Doesn’t Add Up. - The New York Times
+++++
The GOP Is Not a Conservative Party:
IMO, Donald Trump would close down the free press and name himself dictator for life if he could get away it.
A recent poll found that 52% of republicans would allow Donald to continue being President without having to run for re-election, which is a requirement in Article 2 of the U.S. Constitution and the Twelfth Amendment. Analysis | In a new poll, half of Republicans say they would support postponing the 2020 election if Trump proposed it
What are the differences between a true conservative and a reactionary?
One major difference is that true conservatives have a deep and abiding respect for the conservative values embodied in the U.S. Constitutions.
The republicans who would support Donald remaining as President without an election are not conservatives. They are reactionaries and the GOP is now a reactionary party.
Reactionary in this context simply means to return to a distant historical point when conditions were much different than now and believed by the reactionaries to be much better. For many republicans that would be a some point before the Progressive Era started with the GOP President Teddy Roosevelt and certainly before FDR. Others would go back much further in time.
In the case of those 52% of republicans who would support Donald postponing the next election, the back to the past period would be when King George III of the United Kingdom - ruled America. The King George coronation portrait reproduced in the proceeding link shows George decked out in gold cloth. George also suffered from mental illness late in his life.
What happened to all of those King George VII statutes. Well, that is an easy one. They were generally viewed as inappropriate after England lost the Revolutionary War in 1785.
6 in 10 Trump approvers say they will never, ever, ever stop approving of Trump - CNN (perhaps that would include hanging CNN journalists on the White House lawn)
Given the strength of the U.S. military, the greatest danger to the Republic comes from within, particularly among those who no respect for the True Conservative values embodied in the Constitution, and that threat is growing exponentially.
IMO, White Nationalists far outnumber liberals, properly identified as such, and are a more dominant political force that is not understood by college educated persons who live in places like NYC, Boston, and San Francisco.
FYI:
150 Years Later, 23% Of Americans, 40% Of Southerners, Side With Confederacy
Poll: Majority sees Confederate flag as Southern pride - CNN
The Democrats who live in the large coastal metropolitan areas do not understand the strength of White Nationalism or how to peel off white voters from the GOP who panders to their fears. That is shown vividly by the inept campaign run by Hillary.
Those confederate statues throughout the South, other than being places for pigeons to alight, are memorials to White Nationalism and Supremacy. It is just that simple. Statues are not built to teach history or culture but to make a statement that we venerate the persons depicted and celebrate their acts. For southern generals, their acts were treason against the USA.
The statues do not discuss history or provide historical lessons. Removing them does not change the White Nationalist culture or any historical facts.
There is plenty of room in confederate cemeteries to place those statutes in historical context.
One of my great++ grandfathers was under General J.B. Hood's command at the Battle of Franklin (1864). Moving one of JB's statues to the McGavock Confederate Cemetery at Franklin will enable JB to at long last rejoin the men, many in mass graves, that died carrying out his order to charge entrenched Union positions, or what many call the Southern version of Pickett's Gettysburg charge.
Most of those statues will still be in public places throughout the South 100 years from now.
Low inflation and interest rates, and their impact on bond prices, continue to provide major support for stock prices. By this measure, stocks look fairly cheap: BMO: CNBC ("The market looks expensive relative to its history when you look at a lot of the traditional measures like price to sales, price to earnings and so forth," said Jack Ablin on CNBC's "Futures Now" this week. "But when you look at the stock market through the lens of bonds, the stock market still looks cheap.")
Stock prices look attractive now — compared to bonds - MarketWatch
Rob Arnott: Dump U.S. Stocks, Buy Emerging Markets - Barron's
Fed's Big Bond Unwind May Clobber U.S. Stocks, Corporate Debt - Bloomberg
I would not use the word clobber. A persistent rise in inflation and interest rates could easily spark a 20% correction at some point in that rise.
The Stock Jocks soon concluded after the election that small cap U.S. stocks and regional banks were two sectors likely to benefit from a Trump administration. The rationale was similar. Trump's policies would be fiscally stimulative for the U.S. economy. Small caps in general are far more dependent on growth in the U.S. economy compared to those that are components of the DJIA or the S & P 500. Those anticipated fiscal policies would primarily be a major tax cuts and massive increases in infrastructure spending. The increased demand fostered by those fiscally stimulative policies would also cause interest rate spreads to widen, helping the regional banks.
Both banks and small caps started to turn south earlier this year, indicating to me that more investors have come to the conclusion that the Trump trade is kaput.
The Russell 2000 index closed in negative territory for the year last Monday. That index is frequently the most volatile of the major broad stock indexes and the first to start a correction.
At the Close on 8/21/17: RUT 1,356.90 -0.89 -0.07% : Russell 2000
Close 12/30/16 (last trading day): 1357.13
52 week high = 1,452.09
Off 6.55% from 52 Week High as of the Close on 8/21/17
The Russell 2000 had a good rally today and is now down 5.55% from its 52 week high, hardly a downdraft that would cause me to conclude that the uptrend is over rather than just paused for consolidation: ^RUT 1,371.54 +14.63 1.08%
Correction Becomes More Likely As U.S. Transports, Russell 2000 Lose 2017 Gains: Forbes
The CBOE volatility index for the RUT is still comfortably below 20.
Close on 8/21/17: ^RVX 17.61 -0.15 -0.84%
Close on 8/22/17: ^RVX 16.17 -1.44 -8.18%
As with the other major stock indexes, RVX is well within its Stable Volatility Pattern. Given the larger ranges of what is historically stable readings compared to the VIX, I have adjusted the VIX Model ranges to take into account RUT's inherently more volatile nature as explained in a 1/1/2009 Post. Stocks, Bonds & Politics: Small Caps and RVX model
When the entire market is moving toward a correction, the RVX will generally be the first volatility index to spike over 20, followed by the CBOE NASDAQ 100 Volatility (VXN), and then the VIX, with the DJIA VOLATILITY Index (DXD) being the last.
There is no major difference in the U.S. economy in 2017 compared to the last four years of Obama's term other than a slowdown in job growth under Trump.
First Seven Months: Job Additions
2017: 1.29M (last two months are preliminary estimates)
2016: 1.372M
2015: 1.624M
2014: 1.694M
2013: 1.344M
2012: 1.24M
2011: 1.174M
Bureau of Labor Statistics Data
The True Believers have a different take on this data. For them Trump is a job creating machine.
Yet the stock market has skyrocketed after Trump's election. Maybe Trump will deliver something that the Stock Jocks want, but that is far from clear. Most likely, we will see a watered down "tax reform" bill that will be inadequate to move the GDP needle much and could easily be overwhelmed by other secular forces that turn more anemic.
The market is more likely reacting to a synchronized upturn worldwide with the U.S. continuing to provide 2% or so real GDP growth as in prior years.
The market needs at a minimum a 10% to 15% correction soon IMO. The problem with these parabolic rises occurring years into a bull cycle is that more downside can be created when there is a trend reversal. It needs to at least be remembered that the 50% decline in 2000-2002 was primarily a readjustment of the high multiples built up in the last 1990s. Big declines can be set up by too big of runups.
+++++
Market News:
Metals: Copper prices hit highest since Nov. 2014 - MarketWatch
Auto trade emerges as roadblock as first round of Nafta negotiations wraps up - MarketWatch
++++++
More on North Korea and Trump:
Trump promises North Korea 'fire and fury' over threats- 8/9/17 ("North Korea best not make any more threats to the United States. They will be met with fire and fury like the world has never seen... he has been very threatening beyond a normal state. They will be met with fire, fury and frankly power the likes of which this world has never seen before""
North Korea warns of 'merciless strike' ahead of US, South Korea drills-August 20, 2017; North Korea says US causing 'uncontrollable phase of a nuclear war' with military drills | The Independent
Has anyone noticed any change in North Korea's threats since Donald ramped up his rhetoric?
++++++++
Trump and General Pershing:
Once again, Trump gave confirmatory evidence that he inhabits a self created alternate reality.
Trump creates his own reality. Trump voters willing inhabit that alternate universe created by Donald and become most annoyed when anyone dares to pierce that bubble with accurate information. Those who pierce the bubble with accurate information are known as the Fake News Media and liberals. So here we are: True is False and False is True.
After the terrorist attack in Spain, Trump published the following tweet recalling his previously invented story about General Pershing dipping bullets in pigs blood and shooting Muslims in the Philippines:
Besides being a totally inappropriate response to that terrorist attack, there is no factual support for Trump's reality creation.
He told the same story to cheering supporters during the campaign. In Trump's story, Pershing's forces captured 50 Muslim insurgents in the Philippines. Pershing then allegedly ordered his men to dip their bullets in pig's blood and to execute 49 of the 50 unarmed prisoners, allowing one to survive to tell the tale. According to Donald, who knows nothing about American history that is real, that stopped Muslim terrorism for 35 years.
The fact that Donald makes things up is hardly news. What's his point? That the U.S. execute suspected Muslim terrorists by shooting them with bullets dipped in pig's blood?
The fact that Donald uses this kind of made up violent story as an Aesop type fable with a happy ending (no more Muslin terrorists) is just a deeper, more troubling dimension to the story without historical backing.
And, if Donald actually knew anything about Islam, there is no adverse, hereafter consequences flowing from being shot by bullet dipped in pig's blood. Trump responds to Barcelona terror attack by spreading debunked rumor - Aug. 17, 2017;
PolitiFact gave Donald's reality creation a pants on fire rating.
After Barcelona attack, Trump said we should study John J. Pershing. Here's what Trump got wrong. - The Washington Post ("The Philippines were acquired after the United States won the Spanish-American War in 1898, and an insurrection arose following attempts to pacify the country as it sought independence from colonial rule. Pershing studied the Koran and drank tea with tribal leaders to emphasize he was there to put down violence, not continue a religious war the Spanish had waged for centuries. . . . In one series of campaigns between 1902 and 1903 around Lake Lanao on the southern island, Pershing would focus on more violent religious groups in fortified positions, allowing them room to escape " The story recounted about Pershing was made up by strongly anti-Muslim internet users after 9/11)
Study Pershing, Trump Said. But the Story Doesn’t Add Up. - The New York Times
+++++
The GOP Is Not a Conservative Party:
IMO, Donald Trump would close down the free press and name himself dictator for life if he could get away it.
A recent poll found that 52% of republicans would allow Donald to continue being President without having to run for re-election, which is a requirement in Article 2 of the U.S. Constitution and the Twelfth Amendment. Analysis | In a new poll, half of Republicans say they would support postponing the 2020 election if Trump proposed it
What are the differences between a true conservative and a reactionary?
One major difference is that true conservatives have a deep and abiding respect for the conservative values embodied in the U.S. Constitutions.
The republicans who would support Donald remaining as President without an election are not conservatives. They are reactionaries and the GOP is now a reactionary party.
Reactionary in this context simply means to return to a distant historical point when conditions were much different than now and believed by the reactionaries to be much better. For many republicans that would be a some point before the Progressive Era started with the GOP President Teddy Roosevelt and certainly before FDR. Others would go back much further in time.
In the case of those 52% of republicans who would support Donald postponing the next election, the back to the past period would be when King George III of the United Kingdom - ruled America. The King George coronation portrait reproduced in the proceeding link shows George decked out in gold cloth. George also suffered from mental illness late in his life.
What happened to all of those King George VII statutes. Well, that is an easy one. They were generally viewed as inappropriate after England lost the Revolutionary War in 1785.
6 in 10 Trump approvers say they will never, ever, ever stop approving of Trump - CNN (perhaps that would include hanging CNN journalists on the White House lawn)
Given the strength of the U.S. military, the greatest danger to the Republic comes from within, particularly among those who no respect for the True Conservative values embodied in the Constitution, and that threat is growing exponentially.
IMO, White Nationalists far outnumber liberals, properly identified as such, and are a more dominant political force that is not understood by college educated persons who live in places like NYC, Boston, and San Francisco.
FYI:
150 Years Later, 23% Of Americans, 40% Of Southerners, Side With Confederacy
Poll: Majority sees Confederate flag as Southern pride - CNN
The Democrats who live in the large coastal metropolitan areas do not understand the strength of White Nationalism or how to peel off white voters from the GOP who panders to their fears. That is shown vividly by the inept campaign run by Hillary.
Those confederate statues throughout the South, other than being places for pigeons to alight, are memorials to White Nationalism and Supremacy. It is just that simple. Statues are not built to teach history or culture but to make a statement that we venerate the persons depicted and celebrate their acts. For southern generals, their acts were treason against the USA.
The statues do not discuss history or provide historical lessons. Removing them does not change the White Nationalist culture or any historical facts.
There is plenty of room in confederate cemeteries to place those statutes in historical context.
One of my great++ grandfathers was under General J.B. Hood's command at the Battle of Franklin (1864). Moving one of JB's statues to the McGavock Confederate Cemetery at Franklin will enable JB to at long last rejoin the men, many in mass graves, that died carrying out his order to charge entrenched Union positions, or what many call the Southern version of Pickett's Gettysburg charge.
Most of those statues will still be in public places throughout the South 100 years from now.
++++
Paul Allen and the U.S.S. Indianapolis:
The cruiser U.S.S. Indianapolis was sunk by a Japanese submarine a few days before Japan surrendered in 1945. An expedition funded by Paul Allen, a founder of Microsoft, found the remains 18,000 feet deep in the Philippine Sea. Allen furnishes some pictures at WWII Battleship USS Indianapolis Discovered | Paul Allen
400 of the 1196 sailors and marines on board died in the initial attack and others died in the water, some eaten by sharks, before an alert pilot, who was not looking for the ship, saw evidence of the wreckage and 316 persons were then rescued. The shark aspect entered movie folklore in Jaws (1975) - Quotes - IMDb.
Wreckage of U.S.S. Indianapolis, Lost for 72 Years, Is Found in the Pacific - The New York Times
The article linked above briefly mentions that the Captain of the Indianapolis, Charles Butler McVay was court martialed by the Navy, but was officially exonerated by the Navy in 2001-The New York Times. However, that was the result of a Congressional Resolution that cleared the Captain after a Congressional investigation. USS Indianapolis CA-35
What is not mentioned in the news stories is that the Navy used the Captain as a scapegoat, knowingly withheld information from the defense that would have exonerated the Captain, gave the defense almost no time to prepare, knew that the charge was bogus, and just plain and simple railroaded the Captain. The Captain killed himself in 1968. USS Indianapolis CA-35
‘We knew the ship was doomed’: USS Indianapolis survivor recalls four days in shark-filled sea
There was a recent, bad movie made about this disaster: USS Indianapolis: Men of Courage - Wikipedia
++++++++
Secret Service and Trump:
Trump’s clubs charge $60K to rent carts to Secret Service as agency runs out of money - MarketWatch
As The Trumps Travel, The Secret Service Can't Even Afford To Pay Some Agents
Paul Allen and the U.S.S. Indianapolis:
The cruiser U.S.S. Indianapolis was sunk by a Japanese submarine a few days before Japan surrendered in 1945. An expedition funded by Paul Allen, a founder of Microsoft, found the remains 18,000 feet deep in the Philippine Sea. Allen furnishes some pictures at WWII Battleship USS Indianapolis Discovered | Paul Allen
400 of the 1196 sailors and marines on board died in the initial attack and others died in the water, some eaten by sharks, before an alert pilot, who was not looking for the ship, saw evidence of the wreckage and 316 persons were then rescued. The shark aspect entered movie folklore in Jaws (1975) - Quotes - IMDb.
Wreckage of U.S.S. Indianapolis, Lost for 72 Years, Is Found in the Pacific - The New York Times
The article linked above briefly mentions that the Captain of the Indianapolis, Charles Butler McVay was court martialed by the Navy, but was officially exonerated by the Navy in 2001-The New York Times. However, that was the result of a Congressional Resolution that cleared the Captain after a Congressional investigation. USS Indianapolis CA-35
What is not mentioned in the news stories is that the Navy used the Captain as a scapegoat, knowingly withheld information from the defense that would have exonerated the Captain, gave the defense almost no time to prepare, knew that the charge was bogus, and just plain and simple railroaded the Captain. The Captain killed himself in 1968. USS Indianapolis CA-35
‘We knew the ship was doomed’: USS Indianapolis survivor recalls four days in shark-filled sea
There was a recent, bad movie made about this disaster: USS Indianapolis: Men of Courage - Wikipedia
++++++++
Secret Service and Trump:
Trump’s clubs charge $60K to rent carts to Secret Service as agency runs out of money - MarketWatch
As The Trumps Travel, The Secret Service Can't Even Afford To Pay Some Agents
++++++
1. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Lake City Bank 1.7% CDs (monthly interest) Maturing on 9/9/19 (2 year CDs):
B. Bought 2 Lake City Bank 1.5% CDs (monthly interest) Maturing on 9/7/18 (1 Year CD):
C. Bought 2 Compass Bank 1.35% CDs Maturing on 2/20/18 (6 month CDs):
D. Bought 2 American Express Bank 1.85% CDs (semi-annual interest) Maturing on 2/24/20:
E. Bought 2 Bank West 1.45% CDs Maturing on 5/21/18 (9 month CD):
The current MM rate at Schwab is .1%. This brings me up to 6 Bank West CDs maturing at various intervals in May 2018. All of those CDs have 1.45% coupons and pay interest at maturity.
$10K Inflow into Short Term Bond/CD Ladder Basket
While the Fidelity MM fund has ticked up to over .6%.
Schwab is at .1%. That rate was at .5% a few weeks ago. So any CD purchase at Schwab produces much higher income streams than leaving the funds in Schwab's MM sweep account.
2. Long Term Bond Basket Strategy:
A. Sold 1 TIP 1% Coupon Maturing on 2/15/46-ROTH IRA:
Profit Snapshot: $51.44
Stocks, Bonds & Politics: TIP Trading in the Secondary Market
Update On Buying TIPs In The Secondary Market - South Gent | Seeking Alpha
The Mechanics Of Purchasing A TIP In The Secondary Market - South Gent | Seeking Alpha
30-year Breakeven Inflation Rate Chart-St. Louis Fed
30 year non-inflation protected Treasury Rates
Purchase Date 12/19/16: 3.12%
Sell Date 8/11/17: 2.79%
It was the decline in the 30 year nominal yield that produced virtually all or all of the $51.44 profit. If the nominal treasury yield had gone up, I would have had a loss.
30 Year Break-Even Inflation Rates
12/19/16 1.99% 30 Year TIP Yield at 1.13%
8/11/17 1.88% 30 Year TIP Yield at .91%
B. Bought 5 Montgomery County Tennessee 2.125% GO Bonds Maturing on 4/1/26:
EMMA Page
Credit Ratings:
S & P at AA+
YTM at Total Cost (99.939): 2.132%
Tax Free Current Yield = 2.126%
Montgomery County TN. - Google Maps
Optional Redemption: At par value on or after 4/1/23:
Security:
Tax Matters: Federally Tax Free/No AMT
I also own 15 Montgomery County GO bonds with a 3% coupon maturing on 4/1/27: EMMA
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 1 Dynegy 8.034% SU Note Maturing on 2/2/24:
I am just not comfortable owning bonds rated deep into junk territory now.
Profit Snapshot: +$18
Issuer: Dynegy Inc. (DYN)
DYN Analyst Estimates
FINRA Page: Bond Detail
Credit Ratings:
Moody's at B3 for Senior Unsecured Moody's affirms Dynegy's B2 CFR; assigns Ba3 rating to $2 billion secured term loan; outlook is stable
S & P at B+
Sold at 97.5
YTM Then at 8.546%
Current Yield at 8.24%
Bought at a Total Cost of 95.6
Stocks, Bonds & Politics: Item # 1. E.
YTM Then At 8.928%
Current Yield At 8.4%
B. Sold 2 Tucson Electric Power 3.05% SU Bonds Maturing on 3/15/25:
Profit Snapshot: +$63.92
Tucson Electric is now a subsidiary of the Canadian utility Fortis.
Fortis Inc. Stock Quote (Canada: Toronto)
FINRA Page: Bond Detail
Credit Ratings:
Moody's at A3
S & P at A-
Sold at 99.573
YTM Then at 3.113%
Current Yield at 3.06%
Fidelity uses a third party service to value the bonds owned in my account rather than the market prices. The end result is that bond values show in my holdings page are invariably lower than the market prices.
This Tuscon Electric bond was valued by Fidelity at 99.069 on the day that I sold my two bonds.
I hit the bid price which was 99.573.
Bought at 96.277
Stocks, Bonds & Politics: Item # 1.C.
YTM Then at 3.592%
Current Yield at 3.17%
4. Small Cap Biotech Lottery Ticket Basket Strategy:
A. Sold 30 AKBA at $15.27:
Item # 3.A. Bought at $9.17 on 3/30/17
Profit Snapshot: +$181.03
Bret Jensen published an article about this company last July: Revisiting Akebia Therapeutics - Akebia Therapeutics, Inc.-Seeking Alpha
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
C. Bought 2 Compass Bank 1.35% CDs Maturing on 2/20/18 (6 month CDs):
D. Bought 2 American Express Bank 1.85% CDs (semi-annual interest) Maturing on 2/24/20:
E. Bought 2 Bank West 1.45% CDs Maturing on 5/21/18 (9 month CD):
The current MM rate at Schwab is .1%. This brings me up to 6 Bank West CDs maturing at various intervals in May 2018. All of those CDs have 1.45% coupons and pay interest at maturity.
$10K Inflow into Short Term Bond/CD Ladder Basket
While the Fidelity MM fund has ticked up to over .6%.
Schwab is at .1%. That rate was at .5% a few weeks ago. So any CD purchase at Schwab produces much higher income streams than leaving the funds in Schwab's MM sweep account.
2. Long Term Bond Basket Strategy:
A. Sold 1 TIP 1% Coupon Maturing on 2/15/46-ROTH IRA:
Profit Snapshot: $51.44
Stocks, Bonds & Politics: TIP Trading in the Secondary Market
Update On Buying TIPs In The Secondary Market - South Gent | Seeking Alpha
The Mechanics Of Purchasing A TIP In The Secondary Market - South Gent | Seeking Alpha
30-year Breakeven Inflation Rate Chart-St. Louis Fed
30 year non-inflation protected Treasury Rates
Purchase Date 12/19/16: 3.12%
Sell Date 8/11/17: 2.79%
It was the decline in the 30 year nominal yield that produced virtually all or all of the $51.44 profit. If the nominal treasury yield had gone up, I would have had a loss.
30 Year Break-Even Inflation Rates
12/19/16 1.99% 30 Year TIP Yield at 1.13%
8/11/17 1.88% 30 Year TIP Yield at .91%
B. Bought 5 Montgomery County Tennessee 2.125% GO Bonds Maturing on 4/1/26:
EMMA Page
Credit Ratings:
S & P at AA+
YTM at Total Cost (99.939): 2.132%
Tax Free Current Yield = 2.126%
Montgomery County TN. - Google Maps
Optional Redemption: At par value on or after 4/1/23:
Tax Matters: Federally Tax Free/No AMT
I also own 15 Montgomery County GO bonds with a 3% coupon maturing on 4/1/27: EMMA
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 1 Dynegy 8.034% SU Note Maturing on 2/2/24:
I am just not comfortable owning bonds rated deep into junk territory now.
Profit Snapshot: +$18
Issuer: Dynegy Inc. (DYN)
DYN Analyst Estimates
Credit Ratings:
Moody's at B3 for Senior Unsecured Moody's affirms Dynegy's B2 CFR; assigns Ba3 rating to $2 billion secured term loan; outlook is stable
S & P at B+
Sold at 97.5
YTM Then at 8.546%
Current Yield at 8.24%
Bought at a Total Cost of 95.6
Stocks, Bonds & Politics: Item # 1. E.
YTM Then At 8.928%
Current Yield At 8.4%
B. Sold 2 Tucson Electric Power 3.05% SU Bonds Maturing on 3/15/25:
Profit Snapshot: +$63.92
 |
Tucson Electric is now a subsidiary of the Canadian utility Fortis.
Fortis Inc. Stock Quote (Canada: Toronto)
FINRA Page: Bond Detail
Credit Ratings:
Moody's at A3
S & P at A-
Sold at 99.573
YTM Then at 3.113%
Current Yield at 3.06%
Fidelity uses a third party service to value the bonds owned in my account rather than the market prices. The end result is that bond values show in my holdings page are invariably lower than the market prices.
This Tuscon Electric bond was valued by Fidelity at 99.069 on the day that I sold my two bonds.
I hit the bid price which was 99.573.
Bought at 96.277
Stocks, Bonds & Politics: Item # 1.C.
YTM Then at 3.592%
Current Yield at 3.17%
4. Small Cap Biotech Lottery Ticket Basket Strategy:
A. Sold 30 AKBA at $15.27:
Item # 3.A. Bought at $9.17 on 3/30/17
Profit Snapshot: +$181.03
Bret Jensen published an article about this company last July: Revisiting Akebia Therapeutics - Akebia Therapeutics, Inc.-Seeking Alpha
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
GMRE is a relatively new and very small cap REIT that owns medical office buildings ("MOBs").
ReplyDeleteI have dabbled in small lots and do not currently own a position.
My last transaction was to sell 50 shares, the last remaining lot, at $10.01:
Item # 3.C
https://tennesseeindependent.blogspot.com/search?q=gmre&max-results=20&by-date=true
The price has fallen recently and accelerated to the downside today.
Global Medical REIT, Inc. (GMRE)
$8.36 -$0.62 (-6.90%)
Volume 394,419
Avg. Volume 152,446
Both the CEO and CFO have been replaced as the Board apparently wants a change in direction. The only direction undertaken since the IPO at $10 was to buy some MOB's and at least one hospital.
"On June 30, 2017, the Company closed on the acquisition of a hospital located in Sherman, Texas for a purchase price of $26 million. Upon closing of this acquisition, the Company leased the property back to the seller, SDB Partners, by entering into a new triple-net lease with SDB Partners with an initial term of twenty years and two ten-year extension options. The Company funded this acquisition using borrowings from its revolving credit facility."
So investors could reasonably draw the conclusion that the Board does not like one or more of those acquisition or the strategy that they represent.
In other words, the only reasonable conclusion seems to be, at least to me, is that things are not so good which is not so good for the stock price.
An announcement that the CFO was leaving made on 8/14/17, effective on 8/23, and a new CFO had already been hired as a replacement. The new CFO would report to the CEO David Young according to that 8/14/17 announcement: .
http://www.businesswire.com/news/home/20170814005478/en/
David Young, the CEO, then resigned as CEO on the 16th but that was not reported until the 21st:
"Jeffrey Busch, Chairman of the Board of Directors of Global Medical REIT, stated, “Our Board of Directors determined that a change in leadership offered the best avenue for future success and thus we have made this move. Our singular focus will be to determine and execute on those courses of action that best align the Company for success."
http://www.businesswire.com/news/home/20170821005748/en/Global-Medical-REIT-Announces-Management-Change
The second quarter financial report was released on August 10:
http://www.businesswire.com/news/home/20170810005171/en/Global-Medical-REIT-Announces-Quarter-2017-Financial
This externally managed REIT has a ways to go before covering its $.20 per share quarterly dividend per share with free cash flow.
While cognizant of the admonition that the future is unknowable, I doubt that the slide is over. All that I can say for sure now that I will not buy that 50 share lot back north of $8.
The REIT recently raised some cash with a 4.025M stock offering at $9 to the public, and a net per share of $8.505 after the underwriters' discount.
https://www.sec.gov/Archives/edgar/data/1533615/000114420417034681/v469895_424b5.htm
In a new NYT article, it is claimed that Mitch McConnell does not believe the Trump Presidency can be saved.
ReplyDeleteBuried in that article, there is an interesting factual claim about what Trump told McConnell in a Trump initiated phone conversation on 8/9:
"the president accused Mr. McConnell of bungling the health care issue. He was even more animated about what he intimated was the Senate leader’s refusal to protect him from investigations of Russian interference in the 2016 election, according to Republicans briefed on the conversation."
So did Trump demand that the Senate's Majority Leader put a halt to the Senate Intelligence Committee's investigation?
It would hardly be surprising. Trump views himself above the law. If the President does it, then it is legal, formerly known as the Nixon Doctrine and appropriately renamed the Trump Doctrine.
https://www.youtube.com/watch?v=HiHN3IJ_j8A
Ashford Hospitality Trust has called AHTPRA and has partially called AHTPRD:
ReplyDeletehttp://www.prnewswire.com/news-releases/ashford-trust-announces-redemption-of-series-a-and-partial-redemption-of-series-d-preferred-stock-300505733.html
I thought that I owned AHTPRA (8.55% coupon) but I had bought that stock only in a family member's account. I also bought in that account AHTPRD (8.45% coupon).
I own 50 only AHTPRD bought at less than its $25 par value on 11/28/16.
IB has set aside 9 of the 50 shares to meet the partial redemption. When that is done, I can only trade 41 trades and have to wait to receive the proceeds for the other 9.
AHT sold a lower coupon preferred stock last fall and said then that it may use at some point the proceeds to redeem in whole or in part higher coupon preferred issues:
https://seekingalpha.com/instablog/434935-south-gent/4932974-south-gents-comment-blog-5-reits-preferred-stocks-bonds-regional-banks-healthcare-and#comment-73613033
South Gent,
ReplyDeleteHSBC, Citigroup, Morgan Stanley say end of market boom is nigh
https://www.bloomberg.com/news/articles/2017-08-22/wall-street-banks-warn-winter-is-coming-as-business-cycle-peaks
As you said "It is difficult to predict the timing of a major market correction", but I think you would agree that it is now closer to a major market correction than last year when S&P closed at 2238. The S&P low point in early 2016 was 1810 and that correction only lasted 3-4 months. People seem to have too short a memory.
Y: For me, the overriding consideration is preservation of capital. I do not need to be right on the timing. I have been right in the past at major turning points (e.g. 1982, 1999, 2007, March 2009), but have not been right about the strength and duration of bull and bear cycles. The depth of the decline in 2008, for example, did surprise me. I was projecting 20% to 25% and we go 50%.
ReplyDeleteI have participated in the market's ascent since March 2008 and took profits in 2007. I have been harvesting profits this year as well.
I would benefit now by a rapid 20%+ decline in the market.
Internally, there are a large number of stocks that are more than 20% below their 52 week highs now. The energy sector has not come close to recovering from its mauling that started in the 2014 summer.
The transports have been hit hard recently with several major airline stocks now down over 20% from recent highs. The same is true for a number of regional banks who soared too high after Trump's election.
An article in early August noted there were then 79 S & P 500 components at least 20% below their 52 week highs. Six percent of the stocks hit new 52 week lows when the major market indexes hit new highs which is a high number. Similar spikes in that number occurred twice before: 1973 and 1999.
http://www.marketwatch.com/story/beneath-the-glow-of-stock-market-records-darkly-bearish-trends-are-lurking-2017-08-04
I certainly do not want to have a large stock allocation when and if there is another 50% or so downdraft. We have had two of those in the past 17 years. While I recovered quickly from the last two, I am no mood to manage another comeback.
We have not yet experienced a period like 1966-1982 when both major asset classes failed, producing annual average negative real rates of return. The SPX had an inflation adjusted annual average total return of almost -2% during that period. Bonds were crushed as well. That kind of period is likely to happen, perhaps not as long, at some point in my remaining years.
In my next post, I will discuss briefly my current portfolio management. The goals are as follows:
$15K to $25K in short term net trading profits annually (already hit at the high this year)
5+% growth in dividend (excluding capital gains distributions) and interest income Y-O-Y.
I have written down my total dividend and interest income number from last year and will exceed that bogey this year. I just take the information off my tax return.
On a day like today, I was up in my major accounts.
Asaleo Care (own 1000 shares): Asaleo reported results for the six month period ending 6/30/17. The results are discussed in this Motley Fool Australia articles:
ReplyDeletehttps://www.fool.com.au/2017/08/24/asaleo-care-ltd-share-price-climbs-higher-on-return-to-profit-growth/
The interim dividend was declared at A$.04 which is 50% franked. That simply means that Australia will not tax 50% of the dividend.
http://www.investopedia.com/terms/f/frankeddividend.asp
Media Release:
https://www.asaleocare.com/globalassets/briefcase-assets/2017/media-release-1h17-final.pdf
Asaleo Care Limited (AHY.AX)
A$1.44-0.01 (-0.69%)
Day's Range 1.395 - 1.49
52 Week Range 1.30 - 1.93
Volume 473,204
Avg. Volume 2,005,360
https://finance.yahoo.com/quote/AHY.AX?ql=1&p=AHY.AX
As of 11:15AM AEST.
I bought at A$1.35:
https://tennesseeindependent.blogspot.com/2017/08/observations-and-sample-of-recent.html
Asaleo: I was surprised by the market's reaction to the earnings report yesterday. The initial reaction at the market's open was to take the stock down and then the price struggled thereafter to remain unchanged for the day.
DeleteToday, there is a different reaction so far:
A$1.565 +A$0.115 +7.93%
Last Updated: Aug 25, 2017 at 10:21 a.m. AEST
http://www.marketwatch.com/investing/stock/ahy?countrycode=au
South Gent,
ReplyDeleteAfter going through two market crashes in the past 17 years and considering your current stage of life what would you be focusing on during and after the next crash? Would you go after the higher risk/reward type of allocation?
Y: I do not see any reason, based on my current financial condition, to take many risks.
ReplyDeleteIn the last meltdown, I first gravitated to exchange traded bonds and preferred stocks that had been smashed more than 50% below their par values.
The initial foray into stocks was in blue chip names. I focused on consumer staples first buying Nestle, Pepsico, Coca Cola, PG, Unilever, Sysco, etc. I branched out to DD, DIS, MSFT, several REITs, etc. Mostly, it was buying distressed blue chip stocks that pay dividends.
The exchange traded bond and preferred stock purchases gave me an immediate boost since many of those securities went up over 100% within a year, with some rising over 200% or 300%.
So it depends on what is presented as good value to a conservative income investor focused on preservation of capital. The real money is made when stocks have been smashed 45%+, the more the better, and the investor has capital to invest.
So 1932 was a good time to buy, as was 1974 and March 2009. I recall that Berkshire Hathaway fell to about $16 per share in 1974. Only one 100 share purchase then, with a hold until now, would be sufficient.
Berkshire Hathaway Inc. (BRK-A)
$270,430.00 -$530.00 (-0.20%)
At close: 4:00PM EDT
There was only one class of Berkshire shares back then, now there are two.
South Gent,
ReplyDeleteYou sold RFTA back in Feb 2017 at $25.10. Look what a downgrade of RAS has done to its price and RFTA price. RAS dividend is over 20%, which is obviously unsustainable. How safe do you think is RFTA or RAPRA dividend?
Y: As I move deeper into my bunker, junk bonds have been jettisoned given their credit risk and high positive correlation with stocks.
DeleteJunk bond yields do not IMO currently compensate for their credit risk.
The RAS equity preferred stocks and senior bonds are highly risky IMO. Given the high leverage, what, if anything, would be left to pay the preferred stock and bond owners in the event of a BK?
See note 5 Debt at page 25:
https://www.sec.gov/Archives/edgar/data/1045425/000156459017016934/ras-10q_20170630.htm
I looked at RAIT Financial's last earnings report this evening. It was that earnings report that precipitated the downgrades.
DeleteCash available for distribution was a negative 4 cents in quarter. RAIT continued to write-off the value of investments, taking a "non-cash asset and goodwill impairment charges of $94.2 million for the quarter ended June 30, 2017 primarily related to an adjustment to the carrying value of certain legacy properties that RAIT is seeking to divest in connection with its divestment of assets unrelated to its core commercial real estate lending business. RAIT also recorded a provision for loan losses against certain legacy CRE loans of $20.9 million for the quarter ended June 30, 2017."
https://www.sec.gov/Archives/edgar/data/1045425/000156459017016584/ras-ex991_6.htm
RAIT should not be paying any common share dividend IMO.
I sold out of RFT and RFTA, two exchange traded senior unsecured bonds issued by RAIT, earlier this.
I sold 100 RFT shares, which matures in 2024, at $24.75:
Item 1.C. https://tennesseeindependent.blogspot.com/2017/03/observations-and-sample-of-recent_1.html
I also mentioned in that post selling 50 TANNZ, a senior unsecured bond issued by Travelcenters at $25.53, viewing that bond as being too risky also.
I eliminated RFTA at 25.10 and that one matures in 2019:
Item 1.E.
https://tennesseeindependent.blogspot.com/2017/02/observations-and-sample-of-recent_27.html
RFTA closed today at $20.1, a price that indicates concerns about a potential bankruptcy prior to the maturity date.
http://www.marketwatch.com/investing/stock/rfta
That bond matures on 8/30/2019. The YTM at a total cost per share of $20.1 is about 19.14% using Fidelity YTM calculator:
https://gpi.fidelity.com/ftgw/interfaces/pyc/
That of course indicates trouble. It is so juiced due to the discount to par value and the short two year period to maturity on top of the coupon amount.
YTM assumes that all interest payments are made and the $25 par value is paid at maturity. The market is saying that may not happen.
The 2 year treasury note closed today at a 1.33% yield.
I currently have no position in TA or RAS bonds.
South Gent,
ReplyDeleteYou had mentioned in an earlier blog that RFTA is less risky than RFT because it matures in 2019 (vs. 2024). Looking at TA's financials would you say TANNZ will be less risky than RFTA (relatively speaking)?
Y: Based on the recent results, both senior unsecured bonds issued by RAIT are being priced with bankruptcy risk in play. That is not to say that a BK will occur for certain, but the odds of one occurring before RFTA matures is evident in its price and YTM. RFT is still viewed as more risky given its longer maturity, lower current price and higher coupon. How will RAIT refinance RFTA when it matures in August 2019? The coupon can reach a point where a BK is the only recourse.
DeleteI would view the Travelcenter senior unsecured bonds as high credit risk securities as well, but somewhat less so than the RAIT senior debt looking at recent TA results:
https://www.sec.gov/Archives/edgar/data/1378453/000137845317000043/a20170630exhibit991.htm
The problem with TA, as I mentioned somewhere, is that results are deteriorating. An important difference compared to RAIT is that TA's senior unsecured notes mature in 2028, 2029 and 2030:
See Note 6 at page F-15:
https://www.sec.gov/Archives/edgar/data/1378453/000137845317000008/a2016123110k.htm
TA has property that it can sell.
" As of December 31, 2016, our business included 233 convenience stores in 11 states in the U.S. We operate our convenience stores primarily under the "Minit Mart" brand name, or the Minit Mart brand. Of these 233 convenience stores at December 31, 2016, we owned 198, we leased 32 and we operated three for a joint venture in which we own a noncontrolling interest"
"As of December 31, 2016, our business included 255 travel centers in 43 states in the United States, or U.S., primarily along the U.S. interstate highway system, and the province of Ontario, Canada. Our travel centers included 178 operated under the "TravelCenters of America" and "TA" brand names, or the TA brand, and 77 operated under the "Petro Stopping Centers" and "Petro" brand names, or the Petro brand. Of our 255 travel centers at December 31, 2016, we owned 29, we leased 199, we operated two for a joint venture in which we own a noncontrolling interest and 25 were owned or leased from others by our franchisees. We operated 225 of our travel centers and franchisees operated 30 travel centers, including five we leased to franchisees."
Page 7 of Annual Report
I do not have any positions in TA senior unsecured exchange traded debt.
Another liquidation of TA bonds was the disposition of 50 TANNZ at $25.65 and 50 TANNL at $25.46, using the following descriptive heading follows:
4. Continued to Pare Longer Duration and Risky Exchange Traded Bonds:
A. Sold 50 TANNZ at $25.65 ($1 Commission at IB):
B. B. Sold Remaining 50 Shares of TANNL at $25.46-Used Commission Free Trade:
https://tennesseeindependent.blogspot.com/2017/04/observations-and-sample-of-recent_14.html
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2017/08/observations-and-sample-of-recent_25.html