Portfolio Management:
I have a slight change in my portfolio management strategy that involves bonds and CDs.
(1) I will be aggregating the interest income paid by my Tennessee municipal bonds and will use those funds solely to buy more of the same.
Since municipal bonds have $1K par values and are sold in five bond lots, this will result in the purchase of 5 bonds annually initially, then 10 bonds annually and so on.
My current total as of today is broken down as follows which includes two purchases discussed in Item # 8 below:
Par Value Totals/ Cost Numbers / Estimated Annual Tax Free Income
Fidelity: $115K/$115.038K/ $3,277
Schwab: $100K / $99.28K /$3,172
Vanguard: $25K /$24.044K / $750
Total Principal Amount: $240K
Total Cost: $238.352K
Total Tax Free Income: $7,199 (does not include profits)
Current Tax Free Yield Based on Cost = 3.02%
The first $5K purchase using those proceeds will be made in the 2018 first quarter based on the current annual income number. Any unused amount in one year will be carried over into the next year, so a 10 bond purchase in 2019 will likely be possible.
Other than the purchases made as outlined above, I will be adding to the Tennessee Municipal Bond position only when interest rates move progressively higher. For example, I would consider buying another $10K when I can acquire an AA or higher rated bond that has a current tax free yield of greater than 3.5% and another $10K when the current yield hits 4%.
All of my Tennessee municipal bonds have been purchased this year, mostly using cash reserves held at Schwab and Fidelity. Cash at Schwab currently yields 1/10th of 1%:
My first maturities are as follows:
2026 $ 5K
2027 $40K
2028 $ 5K
2029 $ 5K
2030 $10K
Given my financial situation, I do not view those bonds maturing in 2026 to 2030 as involving serious interest rate risk issues.
I am assuming more interest rate risk with those bonds, compared to the lower duration corporate bonds that have been sold. A majority of maturities are in the 2034 to 2042 range. The bonds in that range will go down significantly in value with a persistent and meaningful rise in interest rates for similar duration and quality bonds. I would not be buying any of those long duration bonds if it was possible that I would be forced to sell them at an inopportune time.
In exchange for more interest rate risk, I am receiving a greater after tax current yield and YTM.
I have attempted to mitigate the overall portfolio interest rate risk issue by selling intermediate term corporate bonds, fixed coupon equity preferred stocks, long duration exchange traded bonds and by substantially increasing my allocation to short term CDs where I can take advantage of a rising rate period and earn much higher yields than what is is now, and likely to be available over the short term in my Fidelity and Schwab cash reserve funds.
The desirability of municipal bonds could decline some in the event the GOP's proposed tax plan is implemented as proposed, since the top tax bracket would then be reduced to 35% with many 35% high bracket taxpayers receiving a further reduction to 25% for income earned through a pass through entity.
(2) I have significantly increased my allocation to short term CDs using a ladder strategy, since I am anticipating a persistent rise in short term rates.
I will have short term CDs maturing every week. Most weeks will have multiple maturities.
When proceeds are received, I have four primary options.
I can buy more short term CDs, intermediate term bonds, exchange traded bonds and fixed coupon equity preferred stocks, and/or more Tennessee municipal bonds provided my buy target yields are hit for the bonds and preferred stocks.
The secondary option would be to buy stocks which would require a substantial decline before I would meaningfully add to that category.
I have significantly reduced the intermediate term basket over the past two months. Proceeds have been redirected to short term CDs and longer term, high quality Tennessee municipal bonds.
For the Tennessee municipal bonds, I secure a double tax free current yield higher than the taxable yield in most of the intermediate term corporate bonds that have been sold. Tennessee does not tax earned income, but still have a tax on interest and dividend income that is being phased out gradually. It is possible that long term rates will fall if the FED persistently raises short term rates with inflation and inflation expectations remaining below normal trends.
{Tennessee federally tax free municipal interest income is not subject to that levy. The tax rate after a standard deduction was 6% for several decades and will be at 4% this year, then 3% in 2018; 2% in 2019; 1% in 2020 and zero thereafter. Hall Income Tax Important Notice While there is some benefit to the double tax free status for me, I focus on Tennessee municipals primarily since I am familiar with the territory, the issuers are governed competently, and the credit quality is high with most bonds that I have bought rated AA or better.}
Starting with the 6/29/17 through 9/29/17, my net reduction in $1,000 par value corporate bonds is $91K. Some trades included in that amount will be discussed in the next two posts.
During that period, there were several intermediate term bond buys that improved the current yield compared to the bonds that were sold.
I have also knocked down significantly my exchange traded bond and fixed coupon preferred stocks. Proceeds from those sums have been directed in a similar manner, except that the proceeds from sales in my Vanguard account have been redirected into my Vanguard MM Prime Fund where I do not suffer much diminution in income and see no reason to buy low yielding CDs given that fund's yield.
Vanguard Prime Money Market Fund
++++++++
Market Commentary:
Stocks—at their 4th-most expensive level ever—are ‘smack-dab’ in ‘bubble territory’ - MarketWatch
Treasurys extend selloff on Trump’s tax plan - MarketWatch
Both political tribes will continue to make roughly equal contributions to the fiscal train wreck that lies ahead.
The methods used to cause budget deficits to explode differ in some ways, but the end result is the same.
The similarities would involve wars of choice, like Vietnam and Iraq, that are financed with debt and have questionable relationships to national security. In the case of Vietnam, there was no legitimate national security reason IMO for U.S. involvement. National security problems probably increased due to the IRAQ war.
Total U.S. debt was less than $1 trillion shortly before Reagan became President. And, to emphasize the obvious, that number was achieved only after 200 years. The U.S. government debt is now over 20 trillion. Debt to the Penny (Daily History Search Application) Interest on the national debt will exceed $1 trillion per year IMO at some point within 7 to 10 years. Government - Interest Expense on the Debt Outstanding It is just hard for me to even imagine the two political tribes doing anything other than accelerating the day of reckoning.
This is the time to protect your capital, not to take big bets in the markets - MarketWatch
++++++++++++
Economy:
The government revised its estimate for second quarter GDP up to 3.1% from 3%. News Release: Gross Domestic Product I am anticipating that the pace will slow in the current quarter due in part to the two hurricanes.
New home sales declined in August. New Home Sales.pdf The numbers for June and July were revised down. The median sales price in August was $300,200 with the average price at $368,100. New-home sales swoon to 8-month low in August-MarketWatch; U.S. consumer confidence slips; new home sales hit eight-month low: Reuters
Bankers Advising Fed Board See No Trump Bump in Bank Lending - Bloomberg
Home-price gains accelerate in July as a reminder of the housing bubble stirs to life - MarketWatch
I have a slight change in my portfolio management strategy that involves bonds and CDs.
(1) I will be aggregating the interest income paid by my Tennessee municipal bonds and will use those funds solely to buy more of the same.
Since municipal bonds have $1K par values and are sold in five bond lots, this will result in the purchase of 5 bonds annually initially, then 10 bonds annually and so on.
My current total as of today is broken down as follows which includes two purchases discussed in Item # 8 below:
Par Value Totals/ Cost Numbers / Estimated Annual Tax Free Income
Fidelity: $115K/$115.038K/ $3,277
Schwab: $100K / $99.28K /$3,172
Vanguard: $25K /$24.044K / $750
Total Principal Amount: $240K
Total Cost: $238.352K
Total Tax Free Income: $7,199 (does not include profits)
Current Tax Free Yield Based on Cost = 3.02%
The first $5K purchase using those proceeds will be made in the 2018 first quarter based on the current annual income number. Any unused amount in one year will be carried over into the next year, so a 10 bond purchase in 2019 will likely be possible.
Other than the purchases made as outlined above, I will be adding to the Tennessee Municipal Bond position only when interest rates move progressively higher. For example, I would consider buying another $10K when I can acquire an AA or higher rated bond that has a current tax free yield of greater than 3.5% and another $10K when the current yield hits 4%.
All of my Tennessee municipal bonds have been purchased this year, mostly using cash reserves held at Schwab and Fidelity. Cash at Schwab currently yields 1/10th of 1%:
My first maturities are as follows:
2026 $ 5K
2027 $40K
2028 $ 5K
2029 $ 5K
2030 $10K
Given my financial situation, I do not view those bonds maturing in 2026 to 2030 as involving serious interest rate risk issues.
I am assuming more interest rate risk with those bonds, compared to the lower duration corporate bonds that have been sold. A majority of maturities are in the 2034 to 2042 range. The bonds in that range will go down significantly in value with a persistent and meaningful rise in interest rates for similar duration and quality bonds. I would not be buying any of those long duration bonds if it was possible that I would be forced to sell them at an inopportune time.
In exchange for more interest rate risk, I am receiving a greater after tax current yield and YTM.
I have attempted to mitigate the overall portfolio interest rate risk issue by selling intermediate term corporate bonds, fixed coupon equity preferred stocks, long duration exchange traded bonds and by substantially increasing my allocation to short term CDs where I can take advantage of a rising rate period and earn much higher yields than what is is now, and likely to be available over the short term in my Fidelity and Schwab cash reserve funds.
The desirability of municipal bonds could decline some in the event the GOP's proposed tax plan is implemented as proposed, since the top tax bracket would then be reduced to 35% with many 35% high bracket taxpayers receiving a further reduction to 25% for income earned through a pass through entity.
(2) I have significantly increased my allocation to short term CDs using a ladder strategy, since I am anticipating a persistent rise in short term rates.
I will have short term CDs maturing every week. Most weeks will have multiple maturities.
When proceeds are received, I have four primary options.
I can buy more short term CDs, intermediate term bonds, exchange traded bonds and fixed coupon equity preferred stocks, and/or more Tennessee municipal bonds provided my buy target yields are hit for the bonds and preferred stocks.
The secondary option would be to buy stocks which would require a substantial decline before I would meaningfully add to that category.
I have significantly reduced the intermediate term basket over the past two months. Proceeds have been redirected to short term CDs and longer term, high quality Tennessee municipal bonds.
For the Tennessee municipal bonds, I secure a double tax free current yield higher than the taxable yield in most of the intermediate term corporate bonds that have been sold. Tennessee does not tax earned income, but still have a tax on interest and dividend income that is being phased out gradually. It is possible that long term rates will fall if the FED persistently raises short term rates with inflation and inflation expectations remaining below normal trends.
{Tennessee federally tax free municipal interest income is not subject to that levy. The tax rate after a standard deduction was 6% for several decades and will be at 4% this year, then 3% in 2018; 2% in 2019; 1% in 2020 and zero thereafter. Hall Income Tax Important Notice While there is some benefit to the double tax free status for me, I focus on Tennessee municipals primarily since I am familiar with the territory, the issuers are governed competently, and the credit quality is high with most bonds that I have bought rated AA or better.}
Starting with the 6/29/17 through 9/29/17, my net reduction in $1,000 par value corporate bonds is $91K. Some trades included in that amount will be discussed in the next two posts.
During that period, there were several intermediate term bond buys that improved the current yield compared to the bonds that were sold.
I have also knocked down significantly my exchange traded bond and fixed coupon preferred stocks. Proceeds from those sums have been directed in a similar manner, except that the proceeds from sales in my Vanguard account have been redirected into my Vanguard MM Prime Fund where I do not suffer much diminution in income and see no reason to buy low yielding CDs given that fund's yield.
Vanguard Prime Money Market Fund
++++++++
Market Commentary:
Stocks—at their 4th-most expensive level ever—are ‘smack-dab’ in ‘bubble territory’ - MarketWatch
Treasurys extend selloff on Trump’s tax plan - MarketWatch
Both political tribes will continue to make roughly equal contributions to the fiscal train wreck that lies ahead.
The methods used to cause budget deficits to explode differ in some ways, but the end result is the same.
The similarities would involve wars of choice, like Vietnam and Iraq, that are financed with debt and have questionable relationships to national security. In the case of Vietnam, there was no legitimate national security reason IMO for U.S. involvement. National security problems probably increased due to the IRAQ war.
Total U.S. debt was less than $1 trillion shortly before Reagan became President. And, to emphasize the obvious, that number was achieved only after 200 years. The U.S. government debt is now over 20 trillion. Debt to the Penny (Daily History Search Application) Interest on the national debt will exceed $1 trillion per year IMO at some point within 7 to 10 years. Government - Interest Expense on the Debt Outstanding It is just hard for me to even imagine the two political tribes doing anything other than accelerating the day of reckoning.
This is the time to protect your capital, not to take big bets in the markets - MarketWatch
++++++++++++
Economy:
The government revised its estimate for second quarter GDP up to 3.1% from 3%. News Release: Gross Domestic Product I am anticipating that the pace will slow in the current quarter due in part to the two hurricanes.
New home sales declined in August. New Home Sales.pdf The numbers for June and July were revised down. The median sales price in August was $300,200 with the average price at $368,100. New-home sales swoon to 8-month low in August-MarketWatch; U.S. consumer confidence slips; new home sales hit eight-month low: Reuters
Bankers Advising Fed Board See No Trump Bump in Bank Lending - Bloomberg
Home-price gains accelerate in July as a reminder of the housing bubble stirs to life - MarketWatch
CoreLogic Reports 2.8 Million Residential Properties with a Mortgage Still in Negative Equity
+++++
Private Jet Travel by Trump Cabinet Secretaries: First Class Travel on Commercial Airlines is Not Good Enough For Them:
Price traveled by private plane at least 24 times - POLITICO
Trump Administration: The Most Corrupt and Unethical in American History? Newweek
Mnuchin, Price and others on Trump's team are getting taxpayer-funded travel perks – but where's the outrage? - LA Times
EPA's Scott Pruitt took non-commercial flights totaling more than $58,000 - CBS News
+++++++++
GOP's Tax Plan:
Trump says ‘phenomenal’ tax announcement coming in weeks - MarketWatch
That story was published on 2/9/17.
The GOP has had years to come up with a detailed tax plan, but continues to flounder. It is easier for them to howl at the wind than to govern. Reagan was successful in working with Democrats on his tax package.
H.R.4242 - 97th Congress (1981-1982): Economic Recovery Tax Act of 1981 | Congress.gov | Library of Congress (passed the House 323-107, the Democrats controlled the House-only 191 republicans in the 97th Congress); Economic Recovery Tax Act of 1981 - Wikipedia
Reagan was sworn in as President on 1/20/1981. The Economic Recovery Act of 1981 was signed into law by him on August 13, 1981. The comparison with the current GOP President, who has republican majorities in both houses of Congress, is striking. Tip O'Neill (D.MASS) was the Speaker of the House in 1981.
Trump, on the other hand, does his best to antagonize anyone who is not a True Believer firmly entrenched in an alternate reality.
The GOP still does not have a detailed plan, but only an outline of tax principles that has an abundance of gaps: GOP tax plan I found this document to be misleading which is to be expected.
The argument is, as always, that the tax cuts will largely pay for themselves. That is possible only in a fantasy world. Do Tax Cuts Pay For Themselves? | Committee for a Responsible Federal Budget; Trump's tax cut plan only pays for itself with growth in 'fairyland'
The GOP has at least thought about raising revenue in a tax package that substantially lowers the corporate tax rate. The problem with their two major ideas-ending the deductibility of state taxes and the border tax-is that those proposals increase individual taxes to pay in part for the cut in corporate taxes which does not sound like the best plan for willing elections. The GOP has apparently abandoned the border tax idea and is now going for now with eliminating the deduction for state taxes.
Trump, Republicans to propose scrapping state and local deduction in tax overhaul- MarketWatch
How does the deduction for state and local taxes work?-Tax Policy Center
A Trillion-Dollar Deduction Could Get Axed to Fund Trump Tax Plan: Bloomberg
I do not see how GOP congressman in states like New Jersey, California and New York could vote for a tax package that eliminates the deductibility of state and local taxes. Trump's State-Tax Plan Could Cause Headaches for 52 Republican Lawmakers- Bloomberg Residents from those three states and three others (Pennsylvania, Illinois, and Texas) claim more than half of that deduction.
Some Trump voters who pay state and local taxes in high tax states will notice the end of their deductibility when their tax bill goes up even as their incomes remain relatively static.
On a net basis, federal income tax liability would rise for millions under Trump's plan if state and local taxes can no longer be deducted.
Increasing the standard deduction will not help those whose deductions under existing law would have exceeded the standard deduction as upwardly revised under the GOP's plan. That would include those who are able to deduct mortgage interest and state tax payments under existing law (plus charitable contributions, etc.).
The increase in the standard deduction, which the GOP claims is a near doubling, would help retired folks who no longer itemize since the unrevised standard deduction already exceeds what can be now deducted in Schedule B and those whose standard deduction as revised would exceed what could have been deducted under current law. I would be an example of the former. My property taxes are low, around $2100 per year, and I own my home free and clear. Most of my charitable contributions will be made in my will. I have been a major beneficiary of every GOP tax cut starting with those in the 1981 law mentioned above.
The alleged near doubling of the standard deduction will also reduce the revenues raised by eliminating the state/local tax deduction as more taxpayers will use the standard deduction rather than to itemize. It would also have a negative impact on growth in that it will remove for many the benefits of buying a home.
The GOP is misleading the middle class voters-again-about the benefits of their plan to them. The plan consolidates exemptions into the increased standard deduction which is just another way of saying that the exemption amount is eliminated. The additional deduction for those over 65 would likewise be eliminated (the blind are entitled to an extra deduction as well). In addition, the 10% tax rate is raised to 12% as the GOP cuts the top rate to 35% from 39.6%. Trump tax plan: 'Doubled standard deduction' is misleading - Business Insider I give the GOP an A+ for subterfuge. Most of my grades for the GOP are A or higher in the subterfuge department. Lying works so well for that party since millions are so easily manipulated with false information.
The GOP proposes to eliminate the AMT that has required Trump in the past to pay taxes.
The top tax rate is reduced to 35% from 39.6% under the plan. Tax Brackets in 2017 - Tax Foundation
However, and this is a huge exception, the cap would be 25% for income received from pass through entities.
That last reduction would effectively reduce the individual rate by another 10% for those in the new 35% tax bracket that use those vehicles to conduct their business such as Donald.
I doubt that the further reduction to a 25% cap for the well to do will be widely understood, except by those who stand to benefit. Anyone in a higher than 25% bracket who receives income through pass through structures would benefit. A good example would be pass through entities created by professionals who provide services.
Those businesses would include partnerships, sole proprietorships and SubChapter S corporations.
The uber wealthy would also benefit by the elimination of the estate tax that only a tiny percentage now pay due to increases in the maximum deduction.
The reduction in the corporate tax rate to 20% will benefit the top 20% since it is the top quintile where stock ownership is concentrated. Publicly traded corporations will use most of the extra cash to buy back stock, to increase the dividends, and to fund more generous management compensation.
Dow Hits 21,000, Trump Touts Stock Market Success, But Many Left Out Of Gains : NPR (top 1% own 38% with the top 20% owning 92%); U.S. Stock Ownership Down Among All but Older, Higher-Income More than 1/2 of households own no individual stocks or stock funds.
Almost 44% of taxpayers do not pay any federal income taxes now. A majority of those who pay no federal income taxes now do pay payroll taxes to support social security and medicare, and the GOP plan does not reduce that tax obligation. A Closer Look At Those Who Pay No Income Or Payroll Taxes | Tax Policy Center
Most Americans don’t want — or need — a cut in their federal tax rate - MarketWatch (the true believer comments are typical and indicate an unwillingness to look at the plan in its totality including the take away items for individuals discussed here)
Notwithstanding the statement made by Trump a few days ago that the wealthy will not benefit, this proposal is primarily just another GOP tax break for the already rich and their corporate donors, with crumbs thrown to everyone else.
The proposal would also accelerate the budget deficits and hasten the day of our nation's fiscal reckoning.
The GOP knows that a tax plan can not be sold to most of their voters by admitting that the benefits are intended for, and will flow to the already wealthy, making them even wealthier. The plan will be sold by falsely portraying the actual meager or negative benefits to the middle class.
I do not see a clear path to passage of this proposal. A trimmed down package, which does not include the repeal of major individual deductions, and is less favorable to the rich and to corporations, could be passed next year. Any GOP congressman from the high tax states who votes for a repeal of the state tax deduction will be vulnerable to defeat in 2018. While California is a blue state, I counted 14 GOP representatives from that state: California: Congressional Delegation | OpenSecrets
Tax cuts for corporations will not have the same economic impact as lowering the individual tax burden for those currently in the second, third and fourth quintiles by an equivalent dollar amount IMO, thereby increasing their disposable personal income that would mostly be spent.
It is important to remember that the worst jobs record of any modern President occurred during Bush's two terms after substantial tax breaks for the wealthy become law. Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ
The border tax idea would have also indirectly raised taxes on individuals by significantly raising the costs of imported goods, but the overall net negative impact on their finances might not be noticed by most Trump voters.
Why the Trump tax plan’s fuzzy math doesn’t add up - MarketWatch
GOP tax plan calls for massive cuts, preserves key deductions - The Washington Post
The Job Market Under President Obama, In 8 Charts : NPR
Stocks, Bonds & Politics: Trump and the Upcoming Phenomenal Tax Cut: Economic Nirvana Just Around the Corner?
Stocks, Bonds & Politics: Bush Tax Cuts and Jobs
Donald claimed yesterday that the GOP's tax plan was "not good for me".
Trump enjoys lying IMO particularly when the lie so easily manipulates voters.
Trump is lying about the impact of the GOP's tax plan on him. And his false representation could easily be proven to be a lie when and if Donald produces his tax returns which he will never voluntarily do.
In the only Trump tax return released to my knowledge (and it may have surreptitously been released by Donald to show that he paid taxes in one year), which was from 2005, the AMT alone caused Trump's tax rate to increase to 24% from 4% without the AMT. Donald Trump-GOP Tax Reform: It Has Big Tax Cuts—For Trump | Fortune; How Trump's tax plan could benefit him, wealthy - Business Insider Trump's tax cut plan could actually benefit wealthy people like him: USA Today
Trump also uses pass through entities which explains the new and favorable loophole being created for income received through them. And, in the unlikely event Trump falls into the highest tax bracket, the top rate would be reduced by 4.6%. Then there are the increase in dividends that could be reasonably expected from the lower corporate tax rates and the end to the inheritance tax. Maybe some Trump voters will tire of being manipulated and misled by Donald.
Just as a reminder, when Congress lowered the tax on repatriated funds temporarily to 5.25%, about 92% of the $300+B brought back to the U.S. went to shareholders. National Bureau of Economic Research.pdf And this is the kicker. U.S. jobs were CUT during a period of economic expansion by the companies that brought back the most. Senate report says repatriation tax holiday failed to create jobs in US | TheHill (the 15 companies that repatriated the most cut 20K jobs from 2004-2007). What is generally known, even among republican politicians, is that publicly traded U.S. corporations will continue to hire employees and to build plant outside of the U.S. for reasons that have nothing to do with taxes, including but not limited to lower wages, lower or non-existence other compensation (e.g. employer retirement contributions, health insurance, worker's compensation, etc.), and and far more liberal laws relating to the environment and worker safeguards.
Trump Administration: The Most Corrupt and Unethical in American History? Newweek
EPA's Scott Pruitt took non-commercial flights totaling more than $58,000 - CBS News
GOP's Tax Plan:
Trump says ‘phenomenal’ tax announcement coming in weeks - MarketWatch
That story was published on 2/9/17.
The GOP has had years to come up with a detailed tax plan, but continues to flounder. It is easier for them to howl at the wind than to govern. Reagan was successful in working with Democrats on his tax package.
H.R.4242 - 97th Congress (1981-1982): Economic Recovery Tax Act of 1981 | Congress.gov | Library of Congress (passed the House 323-107, the Democrats controlled the House-only 191 republicans in the 97th Congress); Economic Recovery Tax Act of 1981 - Wikipedia
Reagan was sworn in as President on 1/20/1981. The Economic Recovery Act of 1981 was signed into law by him on August 13, 1981. The comparison with the current GOP President, who has republican majorities in both houses of Congress, is striking. Tip O'Neill (D.MASS) was the Speaker of the House in 1981.
Trump, on the other hand, does his best to antagonize anyone who is not a True Believer firmly entrenched in an alternate reality.
The GOP still does not have a detailed plan, but only an outline of tax principles that has an abundance of gaps: GOP tax plan I found this document to be misleading which is to be expected.
The argument is, as always, that the tax cuts will largely pay for themselves. That is possible only in a fantasy world. Do Tax Cuts Pay For Themselves? | Committee for a Responsible Federal Budget; Trump's tax cut plan only pays for itself with growth in 'fairyland'
The GOP has at least thought about raising revenue in a tax package that substantially lowers the corporate tax rate. The problem with their two major ideas-ending the deductibility of state taxes and the border tax-is that those proposals increase individual taxes to pay in part for the cut in corporate taxes which does not sound like the best plan for willing elections. The GOP has apparently abandoned the border tax idea and is now going for now with eliminating the deduction for state taxes.
Trump, Republicans to propose scrapping state and local deduction in tax overhaul- MarketWatch
How does the deduction for state and local taxes work?-Tax Policy Center
A Trillion-Dollar Deduction Could Get Axed to Fund Trump Tax Plan: Bloomberg
I do not see how GOP congressman in states like New Jersey, California and New York could vote for a tax package that eliminates the deductibility of state and local taxes. Trump's State-Tax Plan Could Cause Headaches for 52 Republican Lawmakers- Bloomberg Residents from those three states and three others (Pennsylvania, Illinois, and Texas) claim more than half of that deduction.
Some Trump voters who pay state and local taxes in high tax states will notice the end of their deductibility when their tax bill goes up even as their incomes remain relatively static.
On a net basis, federal income tax liability would rise for millions under Trump's plan if state and local taxes can no longer be deducted.
Increasing the standard deduction will not help those whose deductions under existing law would have exceeded the standard deduction as upwardly revised under the GOP's plan. That would include those who are able to deduct mortgage interest and state tax payments under existing law (plus charitable contributions, etc.).
The increase in the standard deduction, which the GOP claims is a near doubling, would help retired folks who no longer itemize since the unrevised standard deduction already exceeds what can be now deducted in Schedule B and those whose standard deduction as revised would exceed what could have been deducted under current law. I would be an example of the former. My property taxes are low, around $2100 per year, and I own my home free and clear. Most of my charitable contributions will be made in my will. I have been a major beneficiary of every GOP tax cut starting with those in the 1981 law mentioned above.
The alleged near doubling of the standard deduction will also reduce the revenues raised by eliminating the state/local tax deduction as more taxpayers will use the standard deduction rather than to itemize. It would also have a negative impact on growth in that it will remove for many the benefits of buying a home.
The GOP is misleading the middle class voters-again-about the benefits of their plan to them. The plan consolidates exemptions into the increased standard deduction which is just another way of saying that the exemption amount is eliminated. The additional deduction for those over 65 would likewise be eliminated (the blind are entitled to an extra deduction as well). In addition, the 10% tax rate is raised to 12% as the GOP cuts the top rate to 35% from 39.6%. Trump tax plan: 'Doubled standard deduction' is misleading - Business Insider I give the GOP an A+ for subterfuge. Most of my grades for the GOP are A or higher in the subterfuge department. Lying works so well for that party since millions are so easily manipulated with false information.
The GOP proposes to eliminate the AMT that has required Trump in the past to pay taxes.
The top tax rate is reduced to 35% from 39.6% under the plan. Tax Brackets in 2017 - Tax Foundation
However, and this is a huge exception, the cap would be 25% for income received from pass through entities.
That last reduction would effectively reduce the individual rate by another 10% for those in the new 35% tax bracket that use those vehicles to conduct their business such as Donald.
I doubt that the further reduction to a 25% cap for the well to do will be widely understood, except by those who stand to benefit. Anyone in a higher than 25% bracket who receives income through pass through structures would benefit. A good example would be pass through entities created by professionals who provide services.
Those businesses would include partnerships, sole proprietorships and SubChapter S corporations.
The uber wealthy would also benefit by the elimination of the estate tax that only a tiny percentage now pay due to increases in the maximum deduction.
The reduction in the corporate tax rate to 20% will benefit the top 20% since it is the top quintile where stock ownership is concentrated. Publicly traded corporations will use most of the extra cash to buy back stock, to increase the dividends, and to fund more generous management compensation.
Dow Hits 21,000, Trump Touts Stock Market Success, But Many Left Out Of Gains : NPR (top 1% own 38% with the top 20% owning 92%); U.S. Stock Ownership Down Among All but Older, Higher-Income More than 1/2 of households own no individual stocks or stock funds.
Almost 44% of taxpayers do not pay any federal income taxes now. A majority of those who pay no federal income taxes now do pay payroll taxes to support social security and medicare, and the GOP plan does not reduce that tax obligation. A Closer Look At Those Who Pay No Income Or Payroll Taxes | Tax Policy Center
Most Americans don’t want — or need — a cut in their federal tax rate - MarketWatch (the true believer comments are typical and indicate an unwillingness to look at the plan in its totality including the take away items for individuals discussed here)
Notwithstanding the statement made by Trump a few days ago that the wealthy will not benefit, this proposal is primarily just another GOP tax break for the already rich and their corporate donors, with crumbs thrown to everyone else.
The proposal would also accelerate the budget deficits and hasten the day of our nation's fiscal reckoning.
The GOP knows that a tax plan can not be sold to most of their voters by admitting that the benefits are intended for, and will flow to the already wealthy, making them even wealthier. The plan will be sold by falsely portraying the actual meager or negative benefits to the middle class.
I do not see a clear path to passage of this proposal. A trimmed down package, which does not include the repeal of major individual deductions, and is less favorable to the rich and to corporations, could be passed next year. Any GOP congressman from the high tax states who votes for a repeal of the state tax deduction will be vulnerable to defeat in 2018. While California is a blue state, I counted 14 GOP representatives from that state: California: Congressional Delegation | OpenSecrets
Tax cuts for corporations will not have the same economic impact as lowering the individual tax burden for those currently in the second, third and fourth quintiles by an equivalent dollar amount IMO, thereby increasing their disposable personal income that would mostly be spent.
It is important to remember that the worst jobs record of any modern President occurred during Bush's two terms after substantial tax breaks for the wealthy become law. Bush On Jobs: The Worst Track Record On Record - Real Time Economics - WSJ
The border tax idea would have also indirectly raised taxes on individuals by significantly raising the costs of imported goods, but the overall net negative impact on their finances might not be noticed by most Trump voters.
Why the Trump tax plan’s fuzzy math doesn’t add up - MarketWatch
GOP tax plan calls for massive cuts, preserves key deductions - The Washington Post
The Job Market Under President Obama, In 8 Charts : NPR
Stocks, Bonds & Politics: Trump and the Upcoming Phenomenal Tax Cut: Economic Nirvana Just Around the Corner?
Stocks, Bonds & Politics: Bush Tax Cuts and Jobs
Donald claimed yesterday that the GOP's tax plan was "not good for me".
Trump enjoys lying IMO particularly when the lie so easily manipulates voters.
Trump is lying about the impact of the GOP's tax plan on him. And his false representation could easily be proven to be a lie when and if Donald produces his tax returns which he will never voluntarily do.
In the only Trump tax return released to my knowledge (and it may have surreptitously been released by Donald to show that he paid taxes in one year), which was from 2005, the AMT alone caused Trump's tax rate to increase to 24% from 4% without the AMT. Donald Trump-GOP Tax Reform: It Has Big Tax Cuts—For Trump | Fortune; How Trump's tax plan could benefit him, wealthy - Business Insider Trump's tax cut plan could actually benefit wealthy people like him: USA Today
Trump also uses pass through entities which explains the new and favorable loophole being created for income received through them. And, in the unlikely event Trump falls into the highest tax bracket, the top rate would be reduced by 4.6%. Then there are the increase in dividends that could be reasonably expected from the lower corporate tax rates and the end to the inheritance tax. Maybe some Trump voters will tire of being manipulated and misled by Donald.
Just as a reminder, when Congress lowered the tax on repatriated funds temporarily to 5.25%, about 92% of the $300+B brought back to the U.S. went to shareholders. National Bureau of Economic Research.pdf And this is the kicker. U.S. jobs were CUT during a period of economic expansion by the companies that brought back the most. Senate report says repatriation tax holiday failed to create jobs in US | TheHill (the 15 companies that repatriated the most cut 20K jobs from 2004-2007). What is generally known, even among republican politicians, is that publicly traded U.S. corporations will continue to hire employees and to build plant outside of the U.S. for reasons that have nothing to do with taxes, including but not limited to lower wages, lower or non-existence other compensation (e.g. employer retirement contributions, health insurance, worker's compensation, etc.), and and far more liberal laws relating to the environment and worker safeguards.
+++++
Running Count of Trump's False Statements Since Inauguration:
The WP has now documented 1,145 false statements made by Donald since his inauguration through 9/8/2017. The Fact Checker’s tally of Trump’s false claims since becoming president - Washington Post The Post is undercounting IMO. Trump knows that the Trump voters either do not believe that he is lying or do not care. GOP voters know Trump is telling them the truth, and the media is lying to them - The Washington Post
++++++++++
Ray Moore Wins and Bob Corker Retires:
Ray Moore is a Theocrat who would substitute his personal religious beliefs for the Constitution and respect for the rule of law.
Moore Trounces Trump-Backed Candidate in Alabama Senate Race - NBC News
He has twice been removed or suspended from the Alabama Supreme Court for refusing to obey the law because of his personal religious beliefs. Roy Moore - Wikipedia Ray also suggested that 9/11 was divine retribution for America's sins. The Resurrection of Roy Moore - POLITICO Magazine
This is a typical statement from Ray:
“We’ve been deceived by a government that tells us we cannot worship God".
I must have missed that government interference. When I leave my house and drive along Franklin Road for about 3 miles, I pass 7 churches that do seem to have a lot of activity.
What does Ray really mean? The government so far has not allowed-yet-the evangelicals to turn public schools into Americanized madrassas where students memorize the bible and spend most of school hours reciting lines from memory as their heads bob up and down.
I have lived in Alabama. I am not surprised that Moore won. He will probably win the general election, though his Democrat opponent will likely receive a greater percentage of the vote than the combined opposition to Jeff Sessions when he ran in 2014:
Jeff Sessions - Ballotpedia
I am not surprised that Bob Corker will not seek re-election. He is a sensible republican who is somewhat grounded in reality, a conservative in a party that is no longer a conservative one. There are several potential far right candidates who will be jockeying for this seat including several House representatives. The worst of the worst would be my representative Marsha Blackburn, a reactionary zealot.
++++++++
Running Count of Trump's False Statements Since Inauguration:
The WP has now documented 1,145 false statements made by Donald since his inauguration through 9/8/2017. The Fact Checker’s tally of Trump’s false claims since becoming president - Washington Post The Post is undercounting IMO. Trump knows that the Trump voters either do not believe that he is lying or do not care. GOP voters know Trump is telling them the truth, and the media is lying to them - The Washington Post
++++++++++
Ray Moore Wins and Bob Corker Retires:
Ray Moore is a Theocrat who would substitute his personal religious beliefs for the Constitution and respect for the rule of law.
Moore Trounces Trump-Backed Candidate in Alabama Senate Race - NBC News
He has twice been removed or suspended from the Alabama Supreme Court for refusing to obey the law because of his personal religious beliefs. Roy Moore - Wikipedia Ray also suggested that 9/11 was divine retribution for America's sins. The Resurrection of Roy Moore - POLITICO Magazine
This is a typical statement from Ray:
“We’ve been deceived by a government that tells us we cannot worship God".
I must have missed that government interference. When I leave my house and drive along Franklin Road for about 3 miles, I pass 7 churches that do seem to have a lot of activity.
What does Ray really mean? The government so far has not allowed-yet-the evangelicals to turn public schools into Americanized madrassas where students memorize the bible and spend most of school hours reciting lines from memory as their heads bob up and down.
I have lived in Alabama. I am not surprised that Moore won. He will probably win the general election, though his Democrat opponent will likely receive a greater percentage of the vote than the combined opposition to Jeff Sessions when he ran in 2014:
Jeff Sessions - Ballotpedia
I am not surprised that Bob Corker will not seek re-election. He is a sensible republican who is somewhat grounded in reality, a conservative in a party that is no longer a conservative one. There are several potential far right candidates who will be jockeying for this seat including several House representatives. The worst of the worst would be my representative Marsha Blackburn, a reactionary zealot.
++++++++
1. Eliminated COFPRH:
A. Sold 50 COFPRH at $26.78:
A. Sold 50 COFPRH at $26.78:
Profit Snapshot: +$115.3
South Gent's Comment Blog # 6: Bought 50 COFPRH at $24.46
I used commission free trades round trip.
History:
Quote: Capital One Financial Corp. Non-Cumulative Equity Preferred Series H Stock
Par Value: $25
Coupon: 6%
Dividends: Qualified and Non-Cumulative
Optional Redemption: At Par on or after 12/1/21
Prospectus
Issuer: Capital One Financial Corp. (COF)
COF Analyst Estimates
Quote: Capital One Financial Corp. Non-Cumulative Equity Preferred Series H Stock
Par Value: $25
Coupon: 6%
Dividends: Qualified and Non-Cumulative
Optional Redemption: At Par on or after 12/1/21
Prospectus
Issuer: Capital One Financial Corp. (COF)
COF Analyst Estimates
2. Eliminated RNRPRC:
A. Sold 50 at $25.68:
Profit Snapshot: +$45.96
Quote: RenaissanceRe Holdings Ltd. 6.08% Preferred Series C Stock (U.S.: NYSE)
A. Sold 50 at $25.68:
Profit Snapshot: +$45.96
Quote: RenaissanceRe Holdings Ltd. 6.08% Preferred Series C Stock (U.S.: NYSE)
South Gent's Comment Blog # 6: Bought 50 RNRPRC at $24.72 (also contains a history of my positions in RNR issued securities that are no longer owned)
Issuer: RenaissanceRe Holdings Ltd. (RNR)
RNR Analyst Estimates
PAR VALUE: $25
Coupon 6.08%
Optional Redemption: At Par Value plus accrued and unpaid dividends at anytime (already partially redeemed by issuer)
Last Ex Dividend Date: 8/29/17 (captured)
Dividends: Cumulative and Qualified
Last Discussed: Stocks, Bonds & Politics: Item # 5.B. Sold 50 RNRPRC at $25.75
Prospectus
3. Eliminated WFCPRV:
A. Sold 50 WFCPRV at $26.51:
Profit Snapshot: +$72.21
South Gent's Comment Blog # 6: Bought 50 WFCPRV at $25.03
Quote. Wells Fargo & Co. 6% Non-Cumulative Equity Preferred Series V
Definitive Prospectus Supplement
4. Eliminated ELC:
A. Sold 30 ELC at $24.84:
Profit Snapshot: +$107.22
South Gent's Comment Blog # 6: Bought 30 ELC at $21.2
Quote: Entergy Louisiana LLC First Mortgage Bonds 4.875% Series due 2066
ELC was sold to the public at $25 on 8/10/16 and has lost 15.2% of its value since that time to when I purchased today at $21.2. It took that much of a decline to give me slightly lower current yield to the two bonds that I lost in September 2016 to this issuer's early redemptions.
Prospectus
Optional Call: On or After 9/1/21 at par value plus accrued and unpaid interest
I have been trading Entergy Louisiana first mortgage bonds since the 2008 fall.
I currently own its First Mortgage bond, maturing in 2026, that has a $1K par value and a 2.4% coupon. I can hold that bond until maturity.
I last discussed this bond in an August post: Stocks, Bonds & Politics: Item # 3.B. Sold 50 ELC at $24.77-Item #2.B. Added 50 ELC at $22.88 purchased on 4/13/17 (May 15, 2017 Post).
I am underlining the purchase prices to highlight the downside risk with only a minor increase in interest rates which had already started to move back down in March 2017. Daily Treasury Yield Curve Rates for 2017
A. Sold 50 WFCPRV at $26.51:
Profit Snapshot: +$72.21
South Gent's Comment Blog # 6: Bought 50 WFCPRV at $25.03
Quote. Wells Fargo & Co. 6% Non-Cumulative Equity Preferred Series V
WFCPRV is a non-cumulative equity preferred stock, issued by Wells Fargo, that pays qualified dividends based on a 6% coupon applied to a $25 par value. The issuer may call on or after 12/15/20 at par value plus accrued and unpaid dividends.
The Stopper Clause, the means by which the preferred shareholder's superior claim to cash is enforced against the common shareholder, can be found at the bottom of page S-16 and top of page S-17.
This security was sold to the public in September 2015 at the $25 par value. The price hit $28.25 in August 2013 and shortly thereafter declined below par value in December. WFC.PV Stock Chart
The price decline was due to the spike in interest rates that started in retrospect on May 3, 2013 and ended on 12/31/13. The ten year treasury went from a 1.66% yield on 5/2/13 to a 3.04% yield during that short period. Daily Treasury Yield Curve Rates for 2013 Sooner or later, there will be an interest spike that will keep on trucking beyond 3.04% to normal spreads to CPI and anticipated inflation. For the ten year the normal spread now would be close to a 4% nominal yield.
A consider to repurchase price is below $24.5.
A consider to repurchase price is below $24.5.
A. Sold 30 ELC at $24.84:
Profit Snapshot: +$107.22
South Gent's Comment Blog # 6: Bought 30 ELC at $21.2
Quote: Entergy Louisiana LLC First Mortgage Bonds 4.875% Series due 2066
ELC was sold to the public at $25 on 8/10/16 and has lost 15.2% of its value since that time to when I purchased today at $21.2. It took that much of a decline to give me slightly lower current yield to the two bonds that I lost in September 2016 to this issuer's early redemptions.
Prospectus
Optional Call: On or After 9/1/21 at par value plus accrued and unpaid interest
I have been trading Entergy Louisiana first mortgage bonds since the 2008 fall.
I currently own its First Mortgage bond, maturing in 2026, that has a $1K par value and a 2.4% coupon. I can hold that bond until maturity.
I last discussed this bond in an August post: Stocks, Bonds & Politics: Item # 3.B. Sold 50 ELC at $24.77-Item #2.B. Added 50 ELC at $22.88 purchased on 4/13/17 (May 15, 2017 Post).
I am underlining the purchase prices to highlight the downside risk with only a minor increase in interest rates which had already started to move back down in March 2017. Daily Treasury Yield Curve Rates for 2017
5. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 2 Thermo Fisher Scientific 3% SU Bonds Maturing on 4/15/23:
Profit Snapshot: +$38.28
Finra Page: Bond Detail
Issuer: Thermo Fisher Scientific Inc. (TMO)
TMO Analyst Estimates
Sold at 101.634
YTM Then at 2.674%
Current Yield at 2.58%
Bought at a Total Cost of 99.62
Stocks, Bonds & Politics: Item # 1.B.
YTM Then at 3.07%
Current Yield at 3.011%
Assuming no material change in the credit risk, I would consider buying back this lot at a total cost of less than 98. Any such buy at lower than 98 would also increase the YTM due to the larger discount and the shorter time to maturity. The same is true for the following First Mortgage bond.
B. Sold 1 Northern States 2.6% First Mortgage Bond Maturing on 5/15/23:
Profit Snapshot: +$4.85
Finra Page: Bond Detail
Sold at 100.5
YTM Then at 2.496%
Current Yield at 2.587%
Bought at a Total Cost of 99.541
Stocks, Bonds & Politics: Item # 1.B.
YTM Then at 2.682%
Current Yield at 2.612%
C. Sold 1 ERP 3% SU Bonds Maturing on 4/15/23-a Roth IRA account:
Profit Snapshot: +$23.49
FINRA Page: Bond Detail
Issuer: Operating Entity for Equity Residential (EQR)
Equity Residential (EQR) Investments - Credit Ratings
Sold at 102
YTM Then at 2.586%
Current Yield at 2.94%
Bought at a Total Cost of 99.591
Stocks, Bonds & Politics: Item # 1B.
YTM Then at 3.082%
Current Yield at 3%
This is another bond that I would consider buying back at less than a 98 total cost.
In Item 1.A. to the previously linked post, I discuss buying in another Roth IRA account 1 ERP SU bond maturing in 2026 which I still own.
D. Sold 1 USB 2.375% SU Bond Maturing on 7/22/26:
Profit Snapshot: +$17.12
FINRA Page: Bond Detail
Sold at 95.642
YTM Then at 2.938%
Current Yield at 2.48%
Bought at a Total Cost of 94.231
Stocks, Bonds & Politics: Item # 1.D.
YTM Then at 3.087%
Current Yield at 2.52%
I am targeting a possible repurchase at less than 90.
E. Sold 1 WFC 3% SU Bond Maturing on 2/19/2025:
Profit Snapshot: +$19.2
Finra Page: Bond Detail
Sold at 99.545
YTM Then at 3.069%
Current Then at 3.014%
Bought at a Total Cost of 97.266
Stocks, Bonds & Politics: Item 1.A.
YTM THEN at 3.395%
Current Yield at 3.084%
My target repurchase is currently at less than 95.
$6K Outflow from Intermediate Term Bond/CD Ladder Basket
6. Added 50 BKLN at $23.04 (Commission Free ETF at Schwab):
I bought on the ex dividend day.
Quote: PowerShares Senior Loan Portfolio (BKLN)
Dividends are paid monthly at a variable rate.
This ETF is primarily a play on rising short term rates.
"The PowerShares Senior Loan Portfolio tracks the S&P/LSTA U.S. Leverage Loan Index, comprising the 100 largest bank loans with floating rate coupons. Unlike fixed-rate instruments, the coupons of floating rate bank loans adjust upward as interest rates rise" Sponsor's website (expense ratio is high at .65%)
These loans will generally use the 3 month Libor rate, paying a coupon at a spread to Libor. There may be an issue when Libor rates are no longer being quoted which is expected by 2021. I have not seen the loan documents to determine whether alternative rates will be used. Many of these loans will mature prior to that time. The weighted average maturity of the senior loans owned by this fund was 5.3 years as of 9/14/17.
The Death Of LIBOR - A Bank Loan Perspective; The Potential Impact of a LIBOR Phase-Out | OppenheimerFunds
More Senior Than What? Potential Risks in Senior Bank Loans | PIMCO Blog
Available Floating Rate ETFs
Do Senior Bank Loan ETFs Provide a Cushion? - Market Realist
Even though most of these loans are secured by first liens, the loans are still rated in junk territory:
Stocks, Bonds & Politics: Item # 4 Bought 50 BKLN
Prior Discussion: Stocks, Bonds & Politics: Item # 1 Paired Trade Sold 50 BKLN at $24.7 and Bought 50 TCBIP at $22.64 (that paired trade worked, TCBIP moved up to over its $25 par value while BKLN went down)
7. Short Term Bond/CD Ladder Strategy:
I am starting to cluster more maturities in December 2017 in case there is another .25% hike in the FF rate that month.
The Bank of China and Bank of India CDs are issued by their respective U.S. bank and are FDIC insured deposits.
A. Bought 2 Bank of India 1.25% CDs Maturing on 12/28/17 (3 month CD):
Bank of India - Wikipedia; Bank of India - USA- about
B. Sold 1 Southern Company 2.125% SU Bond Maturing on 9/1/2019-A Roth IRA Account:
Just raising cash here in my IRA account hoping to buy bonds with higher YTMs before yearend.
Profit Snapshot:
FINRA Page: Bond Detail
Sold at 100.367
YTM THEN at 1.949%
Current Yield at 2.117%
Bought at a Total Cost of 100.015
YTM Then at 2.143%
Current Yield at 2.149%
C. Bought 2 Bank of China 1.25% CDs Maturing on 12/28/17 (3 month CD):
Bank of China - Wikipedia; Bank of China (New York)
D. Bought 2 Compass Bank 1.45% CDs Maturing on 9/21/18 (1 Year CD):
E. Bought 2 Whitney Bank 1.25% CDs Maturing on 12/29/17 (3 month CD):
Holding Company: Hancock Holding Co. (HBHC)
HBHC Analyst Estimates
Hancock reports second quarter 2017 EPS of $.60 Nasdaq:HBHC
Whitney Bank has a 4 star rating from Bankrate: WHITNEY BANK Review
$7K Inflow into Short Term Bond/CD Ladder Basket
8. Long Term Bond Basket-Tennessee Municipal Bonds:
A. Bought 5 City of Knoxville 3% Electric Revenue Bonds Maturing on 7/1/39:
EMMA Page (new issue, sold at 97.029 with a 9/15/17 Dated Date)
Bought at a Total Cost of 96.097
YTM Then at 3.251%
Current Tax Free Yield: 3.12%
Credit Ratings:
Moody's at Aa2
S & P at AA+
Optional Redemption: At par value on or after 7/1/2025
Security:
Tax Matters:
B. Bought 5 Kingsport Tennessee 3% GO Bonds Maturing on 3/1/36:
Kingsport - Google Maps
Kingsport, Tennessee - Wikipedia
EMMA Page
YTM at Total Cost (98.524): 3.105%
Tax Free Current Yield: 3.045%
Credit Ratings:
Optional Redemption: At par value on or after 3/1/25
Security:
This bond is a Series B bond secured by ad valorem property taxes and will also be payable "from, but not secured by, revenues from the operation of the Municipality's water and sewer system" to the extent the proceeds are used fund those projects.
Taxes:
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.
A. Sold 2 Thermo Fisher Scientific 3% SU Bonds Maturing on 4/15/23:
Profit Snapshot: +$38.28
Issuer: Thermo Fisher Scientific Inc. (TMO)
TMO Analyst Estimates
Sold at 101.634
YTM Then at 2.674%
Current Yield at 2.58%
Bought at a Total Cost of 99.62
Stocks, Bonds & Politics: Item # 1.B.
YTM Then at 3.07%
Current Yield at 3.011%
Assuming no material change in the credit risk, I would consider buying back this lot at a total cost of less than 98. Any such buy at lower than 98 would also increase the YTM due to the larger discount and the shorter time to maturity. The same is true for the following First Mortgage bond.
B. Sold 1 Northern States 2.6% First Mortgage Bond Maturing on 5/15/23:
Profit Snapshot: +$4.85
Sold at 100.5
YTM Then at 2.496%
Current Yield at 2.587%
Bought at a Total Cost of 99.541
Stocks, Bonds & Politics: Item # 1.B.
YTM Then at 2.682%
Current Yield at 2.612%
C. Sold 1 ERP 3% SU Bonds Maturing on 4/15/23-a Roth IRA account:
Profit Snapshot: +$23.49
FINRA Page: Bond Detail
Issuer: Operating Entity for Equity Residential (EQR)
Equity Residential (EQR) Investments - Credit Ratings
Sold at 102
YTM Then at 2.586%
Current Yield at 2.94%
Bought at a Total Cost of 99.591
Stocks, Bonds & Politics: Item # 1B.
YTM Then at 3.082%
Current Yield at 3%
This is another bond that I would consider buying back at less than a 98 total cost.
In Item 1.A. to the previously linked post, I discuss buying in another Roth IRA account 1 ERP SU bond maturing in 2026 which I still own.
D. Sold 1 USB 2.375% SU Bond Maturing on 7/22/26:
Profit Snapshot: +$17.12
FINRA Page: Bond Detail
Sold at 95.642
YTM Then at 2.938%
Current Yield at 2.48%
Bought at a Total Cost of 94.231
Stocks, Bonds & Politics: Item # 1.D.
YTM Then at 3.087%
Current Yield at 2.52%
I am targeting a possible repurchase at less than 90.
E. Sold 1 WFC 3% SU Bond Maturing on 2/19/2025:
Profit Snapshot: +$19.2
Sold at 99.545
YTM Then at 3.069%
Current Then at 3.014%
Bought at a Total Cost of 97.266
Stocks, Bonds & Politics: Item 1.A.
YTM THEN at 3.395%
Current Yield at 3.084%
My target repurchase is currently at less than 95.
$6K Outflow from Intermediate Term Bond/CD Ladder Basket
6. Added 50 BKLN at $23.04 (Commission Free ETF at Schwab):
I bought on the ex dividend day.
Quote: PowerShares Senior Loan Portfolio (BKLN)
Dividends are paid monthly at a variable rate.
This ETF is primarily a play on rising short term rates.
"The PowerShares Senior Loan Portfolio tracks the S&P/LSTA U.S. Leverage Loan Index, comprising the 100 largest bank loans with floating rate coupons. Unlike fixed-rate instruments, the coupons of floating rate bank loans adjust upward as interest rates rise" Sponsor's website (expense ratio is high at .65%)
These loans will generally use the 3 month Libor rate, paying a coupon at a spread to Libor. There may be an issue when Libor rates are no longer being quoted which is expected by 2021. I have not seen the loan documents to determine whether alternative rates will be used. Many of these loans will mature prior to that time. The weighted average maturity of the senior loans owned by this fund was 5.3 years as of 9/14/17.
The Death Of LIBOR - A Bank Loan Perspective; The Potential Impact of a LIBOR Phase-Out | OppenheimerFunds
More Senior Than What? Potential Risks in Senior Bank Loans | PIMCO Blog
Available Floating Rate ETFs
Do Senior Bank Loan ETFs Provide a Cushion? - Market Realist
Even though most of these loans are secured by first liens, the loans are still rated in junk territory:
Stocks, Bonds & Politics: Item # 4 Bought 50 BKLN
Prior Discussion: Stocks, Bonds & Politics: Item # 1 Paired Trade Sold 50 BKLN at $24.7 and Bought 50 TCBIP at $22.64 (that paired trade worked, TCBIP moved up to over its $25 par value while BKLN went down)
7. Short Term Bond/CD Ladder Strategy:
I am starting to cluster more maturities in December 2017 in case there is another .25% hike in the FF rate that month.
The Bank of China and Bank of India CDs are issued by their respective U.S. bank and are FDIC insured deposits.
A. Bought 2 Bank of India 1.25% CDs Maturing on 12/28/17 (3 month CD):
Bank of India - Wikipedia; Bank of India - USA- about
B. Sold 1 Southern Company 2.125% SU Bond Maturing on 9/1/2019-A Roth IRA Account:
Just raising cash here in my IRA account hoping to buy bonds with higher YTMs before yearend.
Profit Snapshot:
FINRA Page: Bond Detail
Sold at 100.367
YTM THEN at 1.949%
Current Yield at 2.117%
Bought at a Total Cost of 100.015
YTM Then at 2.143%
Current Yield at 2.149%
C. Bought 2 Bank of China 1.25% CDs Maturing on 12/28/17 (3 month CD):
D. Bought 2 Compass Bank 1.45% CDs Maturing on 9/21/18 (1 Year CD):
Holding Company: Banco Bilbao Vizcaya Argentaria S.A. ADR (BBVA)
E. Bought 2 Whitney Bank 1.25% CDs Maturing on 12/29/17 (3 month CD):
Holding Company: Hancock Holding Co. (HBHC)
HBHC Analyst Estimates
Hancock reports second quarter 2017 EPS of $.60 Nasdaq:HBHC
Whitney Bank has a 4 star rating from Bankrate: WHITNEY BANK Review
$7K Inflow into Short Term Bond/CD Ladder Basket
8. Long Term Bond Basket-Tennessee Municipal Bonds:
A. Bought 5 City of Knoxville 3% Electric Revenue Bonds Maturing on 7/1/39:
EMMA Page (new issue, sold at 97.029 with a 9/15/17 Dated Date)
Bought at a Total Cost of 96.097
YTM Then at 3.251%
Current Tax Free Yield: 3.12%
Credit Ratings:
Moody's at Aa2
S & P at AA+
Optional Redemption: At par value on or after 7/1/2025
Security:
Tax Matters:
B. Bought 5 Kingsport Tennessee 3% GO Bonds Maturing on 3/1/36:
Kingsport - Google Maps
Kingsport, Tennessee - Wikipedia
EMMA Page
YTM at Total Cost (98.524): 3.105%
Tax Free Current Yield: 3.045%
Credit Ratings:
Optional Redemption: At par value on or after 3/1/25
Security:
Taxes:
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.
