Observations and Sample of Recent Trades: AGIIL, GE

Climate Events, Inflation and Insurance Companies: 

Being just one person who has no ability to change or influence events that will impact my asset allocations, I can only plan for a series of possible and probable events.

One such event where I have zero influence is climate change. As with many other unfolding and catastrophic events, I doubt that humans will come to grips with this problem until it is too late.  

The recent hurricanes were probably not caused by climate change but that change did make them worse. Adverse and potentially catastrophic weather events will increase in severity and frequency over the coming years. 

This chart highlights the change in extreme storms since 1895: 

Extreme rainstorms are up about 1/3d since the 1980s. Increased water vapor caused by higher temperatures is causing more extreme water events.  

Page 45: Read the Draft of the Climate Change Report Dated June 28, 2017 - The New York Times ("Basic physics tells us that a warmer atmosphere can hold more water vapor; this is exactly what is measured by satellite data. At the same time, a warmer world means higher evaporation rates and major changes in the hydrological cycle, including increases in the prevalence of torrential downpours"." 

One portfolio portfolio change that I have made is simply to say no to insurance company stocks and bonds, at least until there is a substantial decline in prices that are more consistent with the likely extreme future weather events.

I also view that the increased severity and frequency of destructive weather events will contribute to inflationary pressures. Insurance premiums will rise, perhaps even skyrocket in many areas, and there will be a constant need to rebuild and prefer that will add to demand which would otherwise not exist. 

Yes, climate change made Harvey and Irma worse 

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Market Commentary: 

The one thing Shiller says is preventing a 1929-like crash: CNBC 

The U.S. stock market looks like it did before most of the previous 13 bear markets - MarketWatch

Jim Rogers says ETF holders will get mauled by ‘the worst’ bear market ever - MarketWatch

Longtime laggers, an ‘important turn is happening’ in energy stocks - MarketWatch

How the ‘great central bank unwind’ could ignite the next financial crisis - MarketWatch

I would agree that investors have become far too complacent and sanguine about central bankers reducing both their balance sheets and their extraordinarily abnormal monetary policies.  


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New Obamacare Replace Effort: 

The GOP wants to vote on the Cassidy-Graham bill before the CBO has a chance to score its likely impact. 

McCain has indicated that he will vote no since the bill has not gone through regular order. Rand Paul (R-KY) has indicated that he will vote no because the bill does not repeal Obamacare. Susan Collins (R-ME) will probably be another no vote. 

GOP leaders are trying to buy off Lisa Murkowski (R-Alaska) with a special deal for her state. A revision to the bill made over the weekend apparently gives more money to Alaska, Arizona, Kentucky and Maine in an obvious to buy votes from GOP senators from those states. GOP Revises Obamacare Repeal-Bloomberg The revision also gives the states the option to set their own healthcare standards without first receiving a waiver from the federal government. This will allow insurance companies to omit benefits, like maternity care, mental health and drug treatment that they are now required to provide. 

McCain to Oppose Obamacare Repeal, Possibly Dooming GOP Effort - Bloomberg

Cassidy-Graham bill would cut funding to 34 states, new report shows - The Washington Post ("the amount of federal money devoted to Medicaid and private insurance subsidies would shrink by $215 billion between 2020, when the plan would begin, and 2026, the last year money is provided in the bill," emphasis added)

Doctors Are Strongly Objecting to the Graham-Cassidy Health-Care Bill - The Atlantic 

Excerpt Letter From AMA Letter: 

The bill will allow the states to do whatever they want to with the money. The states could request waivers to allow insurance companies to charge more for pre-existing conditions and to offer meaningless policies that limit coverage and remove caps. What Are the Potential Effects of the Graham-Cassidy ACA Repeal-and-Replace Bill? Past Estimates Provide Some Clues - The Commonwealth Fund; The Graham-Cassidy Health-Care Bill Is a Clear Danger to People with Preëxisting Conditions | The New Yorker It does allow the republicans in Washington to blame the states, and their part time legislators, for health insurance coverage issues. Just another version of the GOP's states rights philosophy.  

The republicans could care less about the millions who lose coverage or are left with inadequate coverage. What matters to them is that big donors are furious with them. Behind New Obamacare Repeal Vote: ‘Furious’ G.O.P. Donors - The New York Times

Like Other ACA Repeal Bills, Cassidy-Graham Plan Would Add Millions to Uninsured, Destabilize Individual Market | Center on Budget and Policy Priorities

Insurers Come Out Swinging Against New Republican Health Care Bill - The New York Times

Big insurance lobby group opposes Graham-Cassidy Obamacare repeal: CNBC

Federal estimate shows states’ big win-loss gap by 2026 under Cassidy-Graham bill - The Washington Post

State-by-State Estimates of Changes in Federal Spending on Health Care Under the Graham-Cassidy Bill | The Henry J. Kaiser Family Foundation

GOP senators are rushing to pass Graham-Cassidy. We asked 9 to explain what it does. - Vox

This particular repeal and replace bill is designed to punish states that expanded Medicaid under Obamacare and to reward the republican states who did not.  

   

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Trump's Mental Health

It is really unnecessary to be a mental health expert to assess Donald Trump's fitness to be President. It is only necessary to observe and to use common sense.    

The Dangerous Case of Donald Trump: 27 Psychiatrists and Mental Health Experts Assess a President:  Amazon.com: Books

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Maria and Drug Manufacturing in Puerto Rico: 

Hurricane Maria brings drug manufacturing to a halt in Puerto Rico: USA Today

Hurricane Maria Aims at Island Hotbed of Medical Manufacturing - Bloomberg


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1.  Long Term Bond Basket-Tennessee Municipal Bonds: 

A. Bought 5 City of Knoxville  2.375% Wastewater  Revenue Bonds Maturing on 4/1/29: 

EMMA Page

Bought at a Total Cost of 98.853 ($10 Schwab Commission)

YTM Then at 2.489%

Current Tax Free Yield at 2.4%

Credit Ratings: 

Moody's at Aa2

S & P at AA+

Optional Call: At Par Value on or After 4/1/2025 with accrued and unpaid interest

Security: 

Tax Matters: 

B. Bought 5 City of Knoxville 3% Gas Revenue Bonds Maturing on 3/31/34:

I bought this bond as part of the IPO, paying par value for this lot.

EMMA Page

YTM and Current Tax Free Yield at 3%

Credit Ratings:
Moody's at Aa2
S & P at AA (one notch lower than the wastewater revenue bond)

Optional Call on or After 3/1/25 at Par plus accrued and unpaid interest

Security:

Tax Matters: Same as above  

2. Bought 30 GE in Roth IRA Account at $23.9:

Closing Price Day of Trade: GE $24.02 -$0.90 -3.61%

I placed my limit where the daily price decline would be about 4% and ten cents below the then existing bid price which helps to pay for the commission. The price also gave me a 4% dividend yield.

This was a falling knife, chicken buy that lacked conviction.

I have an unfavorable view of GE and its management which has been overrated for several decades. 

As I have argued in the past, Jack Welch was IMO the most overrated CEO in U.S. corporate history and his successor was without question a disaster. 

Maybe the passage of time will cause me change that opinion of Jeff Immelt based on how his GE configuration performs in the distant future.

I have been very negative on this stock for over a year now and have trimmed my taxable account position several times in 2016 and earlier this year when the price was significantly higher. My Fidelity account was sold down to 124+ shares with an average cost per share of $12.03.

I last sold 40 shares at $28.76, realizing a $587.38 gain and bringing my GE trading profits in my Fidelity taxable account up to $3,579.4 since 2006. Stocks, Bonds & Politics: Item 3.A. (7/12/17 Post).  I have some prior minor and profitable trades in IRA accounts.

As I mentioned in a previous comment, JPM lowered its price target to $22 in early September and kept its underperform rating on the stock which is what precipitated the decline on the day of purchase. The JPM analyst believes that $24 is likely to be a ceiling rather than a floor. GE’s stock tumbles to 2-year low after J.P. Morgan gets more bearish - MarketWatch The JPM analyst was already bearish and just became more so.  On 9/19/17, the JPM analyst reiterated his bearish opinion and the stock fell again. General Electric's stock falls after J.P. Morgan analyst reiterates bearish view - MarketWatch I am going to throw a flag for piling on.  

A few days earlier, a Morgan Stanley analyst, Nigel Coe, noted that the payout ratio for the current dividend is in the 75%-80% range and close to 100% of free cash flow. While that analyst views the dividend as safe for now, dividend coverage is uncomfortable, which is the case as I pointed out earlier. And, he expected a "classic kitchen sink" report for the current quarter as a new CEO takes charge. General Electric: Watch Out—Here Comes the Kitchen Sink-Barron's (subscription publication)

On the same day as my purchase, the Board declared GE's regular quarterly dividend of $.24 per share. General Electric Company: Dividend Declaration The ex dividend date was 9/15/17. 

While I will probably sell this lot when and if the price exceeds $28, I can afford to be patient and just wait to see whether GE can fix its problems and to grow earnings again.

I keep a tight trading range for GE when shares are bought in a Roth IRA. 

This is an example for this ROTH IRA account: 

As shown in that snapshot, a 30 share lot was bought on 1/30/15 at $23.86 and then sold at $26.85 on 5/16/15. I discussed the purchase in this post: Bought General Electric In Roth IRA At $23.86 - South Gent | Seeking Alpha

The last earnings report and forward guidance were not viewed favorably by the market. General electric Q2 2017 earnings: CNBC GE guided 2017 earnings to the low end of its $1.6 to $1.7 non-GAAP estimate.

2nd Quarter Results by Segment:

Sourced: SEC FILED PRESS RELEASE

The main problem is currently concentrated in the oil and gas segment.  

After the end of the second quarter, GE "completed the transaction to create Baker Hughes, a GE company (BHGE). Under the terms of the deal, which we announced in October 2016, we combined our Oil & Gas business and Baker Hughes Incorporated (Baker Hughes) to create a new company in which GE holds a 62.5% interest and former Baker Hughes shareholders hold a 37.5% interest. Baker Hughes shareholders also received a cash dividend funded by a $7.4 billion cash contribution from GE." Page 10: 10-Q for the Q/E 6/30/17 

The 10-Q has more detailed information about the business segments. For example, the following snapshot has information on  GE's power segment, which produced the highest revenues during the second quarter: 

I have previously discussed the trend toward replacing coal fired generation with combined cycled generation using gas and steam as sources for power generation. GE is in the sweet spot for that transition. Combined-Cycle Power Plant – How it Works | GE Power Generation

Aviation is currently the second largest segment by revenues. Service revenue is a key item in that segment.

CEO Jeff Immelt on Q2 2017 Results - Earnings Call Transcript | Seeking Alpha

The first unit disposition under GE's new CEO was announced over the weekend. GE to sell industrial unit to ABB for $2.6 bln - MarketWatch It is also noteworthy that the new CEO has grounded its fleet of corporate jets and intends to sell them. 

3.  Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Sold 1 WFC 2.1% SU Bond Maturing on 7/26/21: 

Profit Snapshot: $5.16

FINRA Page: Bond Detail

Sold at 99.591
YTM Then at 2.21% (2.265% at net of 99.391)
Current Yield at Gross = 2.1086%

Bought at a Total Cost of 98.103 (2/23/17)
Stocks, Bonds & Politics: Item # 1.D. 
YTM THEN at 2.553%
Current Yield at  2.14%

B. Sold 1 Alabama Power 2.8% SU Bond Maturing on 4/1/2025: 

Profit Snapshot: $30.59

FINRA Page: Bond Detail

Sold at 100.4
YTM Then at 2.739%
Current Yield at 2.789%

Bought at a Total Cost of 97.241
Stocks, Bonds & Politics: Item # 1.C. 
YTM Then at 3.191%
Current yield at 2.879%

$2K Outflow from Intermediate Term Bond/CD Ladder Basket


4. Sold 100 AGIIL at $25.11 (two 50 share lots): I still own 50 shares in a Roth IRA:

Quote: Argo Group International Holdings Ltd. 6.5% Senior Notes Due 2042 (AGIIL)


Par Value: $25
Last Quarterly Ex-Interest Date 8/31/17 
Optional Call on or after 9/15/17
Capital Structure: Senior Unsecured
Classification: Baby Bond Stocks, Bonds & Politics: Exchange Traded Baby Bonds
Final Prospectus Supplement

Stocks, Bonds & Politics: Exchange Traded Bonds

The issuer is a P & C company. AGII is an international underwriter of specialty insurance and reinsurance products in the property and casualty market. (Profile Page at Reuters: Argo Group International Holdings) Reinsurance companies make me nervous. I will generally avoid the common stocks altogether and will dabble only in their bonds.

Argo Group International Holdings Key Developments Page at Reuters

AGII Key Statistics Page at YF

Argo Group Reports 2017 Second Quarter Net Income of $46.0 Million or $1.48 per Diluted Share 

Last Substantive Blog Discussion: 

Item  4. Sold 50 AGIIL at $26.69-Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As 6/3/16 - South Gent | Seeking Alpha-Item # 2 BOUGHT 50 AGIIL at $24.86-Roth IRA: Update On Bond And Preferred Stock Basket Strategy As Of 9/29/15 - South Gent | Seeking Alpha

This bond was sold to the public at $25 back in September 2012. The bond traded mostly between $25 to $26 until May 2013, whereupon it slid rapidly to $21 as interest rates started to spike up. AGIIL Interactive Chart The price only stabilized at close to $21 after interest rates started to go back down, starting in January 2014.

During that 2013 price plunge, I did buy some shares. Item # 6 Bought 50 AGIIL at $20.2 (December 2013 Post) I sold that lot at $24.21: Item # 2 Sold 50 AGIIL at $24.21-Roth IRA (6/28/14 Post)(profit snapshot=$186.48 plus two quarterly interest payments totaling $40.62; total return 22.33% in about 6 months)

Another 50 share lot was bought in October 2013: Item # 3 Bought: 50 AGIIL at $21.11 (10/13/2013 Post). I sold the lot bought in October 2013 at $24.48: Item # 2 Sold: 50 AGIIL at $24.48 (6/7/14 Post)(profit snapshot=$152.58; total return of $193.2 or 18.17$ in about 7 months).

A. Sold 50 Using Commission Free Trade at Schwab: 

Profit Snapshot: +$6.62

South Gent's Comment Blog # 8: Bought 50 AGIIL at $24.98 (bought back 50 shares sold at $26.69 in May 2016)

B. Sold 50 in IB account: $1 Commission:

Profit Snapshot: +$23.47

Item # 5. Bought 50 AGIIL at $24.6 in IB Account-Update For Exchange Traded Bonds And Preferred Stock Basket Strategy As Of 1/22/16 - South Gent | Seeking Alpha

Quote:  Argo Group International Holdings Ltd. 6.5% Senior Notes Due 2042 (AGIIL) 

Total AGIIL Trading Profits: $598.2

5. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Safra National Bank 1.45% CDs (semi-annual interest) Maturing on 10/29/18 (13 month CD): 

B. Bought 2 Compass Bank 1.45% CDs Maturing on 9/14/18 (1 Year CD):

Compass is a U.S. based bank owned by Banco Bilbao Vizcaya Argentaria S.A. ADR (BBVA)

Our Company | BBVA Compass

C. Bought 2 TIAA Everbank 1.9% CDs (semi-annual interest payments) Maturing on 9/14/2020 (3 year CD):

Everbank was acquired by Teacher's Insurance and Annuity Association (TIAA), a non-profit organization that provides financial services. TIAA Completes Acquisition of EverBank | TIAA

D. Bought 2 Bank of China 1.15% CDs Maturing on 12/20/17 (3 month CD):

E. Bought 2 Bank of India 1.1% CDs Maturing on 12/19/17 (3 month CDs): 

$10K Inflow into Short Term Bond/CD Ladder Basket:

6. Roth IRA TIP Dispositions on 9/8/17: 

Total Gain: $170.63

The prices of TIPs will be influenced by the nominal yields on U.S. treasuries. With the ten and 20 year treasuries diving to 2.06% and 2.41% respectively on 9/8/17, I did not want to take a chance of a price drop caused by spike in rates. Besides, the inflation adjustment to principal is moving down.

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

Stocks, Bonds & Politics: Advantages and Disadvantages of Treasury Inflation Protected Securities (9/25/2009 Post) 

An Example of How TIPS Work


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.