Sunday, September 3, 2017

Observations and Sample of Recent Trades: CYSPRA, CYSPRB, FIE:CA, GILD, RHHBY, TANNZ

Market Commentary

The Bond Ghouls started to have second thoughts last Friday about pushing interest rates even lower. The ten year treasury rose to a 2.16% yield from 2.12% last Thursday. The closing yield on 1/3/17 was at 2.45%. Daily Treasury Yield Curve Rates 

There are a lot of securities that will not respond well to even a spike back to 2.6%, let alone a return to normal historical spreads to inflation and inflation expectations which is about a 2% spread for the ten year treasury.

It is an historical oddity to have a 2.15% ten year treasury yield 8 years into an economic recovery, with real GDP expanding close to an average annual pace of 2%, inflation in the 1.5% to 2% annual average range, and unemployment near historical lows. 

Without thinking this issue to death to arrive at an explanation for this striking abnormality, I believe the only rational explanation is that the central bankers are setting interest rates throughout the developed world rather than a free market. 

The result is economic growth and low unemployment in the U.S. with interest rates similar to those prevailing during the Great Depression. Interest rates are even lower now in many European countries than comparable rates from the Great Depression. {the German 10 year was above 4% in 2007 and is now at .38%:  
Germany Government Bond 10Y | 1980-2017

It has already been established by historical example that the FED can control interest rates regardless of the inflation rate, though the time period for such control is open to debate. The clearest example is the successful pegging of the 10 year treasury at 2.5% between 1945 to 1951 when there were several hot inflation numbers. Before the Accord: U.S. Monetary-Financial Policy, 1945-51

The question is for long can extremely abnormal monetary policies keep in check interest rates.

Possibly central bankers have hit on tools that can distort normal market mechanisms for longer than previously thought possible. 

And, those policies may actually be contributing to the low inflation numbers according to economists who describe themselves as neo-Fisherites. Neo-Fisherism and Unconventional Monetary PolicyMonetarists Are Out of Ideas - Bloomberg 

While those theories are interesting, I would just note that consumer income and consequently consumer purchasing power has been sapped by abnormally low interest rates. 

If the average rate on savings accounts had been 3% rather than almost zero for most of the past 10 years, consumers would have had hundreds of billions of additional dollars to spend and/or to save through risk free investments. 

{Those numbers can be calculated more precisely using the FED's H.6 numbers. For example the latest release 8/31/17 shows $8.9805 trillion in U.S. Savings; $696.6 billion in retail, non-institutional money money accounts and $364.4 billion in small denomination time deposits as of 8/21/17 (Table 4). If I multiply 3% by $10 trillion, I arrive at $300 billion in income for one year. Given ZIRP and QE, the actual income numbers from risk free investments have been inconsequential between late 2008 through 2015 and is inching up now only to less extremely abnormal rates.}   

The low interest rates also channel more money into non-productive assets and financial engineering rather than into the real economy.  While this helps the top 10% by driving up risk asset prices, the benefit to the real economy is mooted by the unequal distribution to those who are already well off  
who spend a lower proportion of their income. 

And, in some sectors, excessive amounts of money are spent to bring new supply to market (e.g. energy products) that drives prices down.  

It is also important that the abnormal monetary policies have been in existence for almost a decade and a return to policies approaching normal remains in the future, as central bankers fear that an end to QE or the rise in benchmark rates by a quarter point might cause a collapse for which they will be blamed by those who have grown accustomed to real negative interest rates.   

It does appear that the U.S. FED is gradually providing an umbrella for other CBs to slowly abandon their extreme interference in the market's rate setting mechanisms.

The Fed of course has started to raise the federal funds rate that was kept at zero for 6 years or so, and will probably soon start to shrink its balance sheet by refusing to reinvest the proceeds from maturing securities. As far as I am concerned the FED is still engaged in QE for as long as it reinvests the proceeds from maturing securities. And Mario may run out of bonds to buy in Europe.  

Once those policies are winded down, we may gradually see the long term implication of this extraordinary period of extremely abnormal monetary policies that have distorted a free market and caused misallocations of resources. 

The end result  may end up being similar to what happened after the FED ceased its interference in 1951. The ten year treasury quickly moved to a 4.5% yield, which turned out to be the beginning of a long term bond bear market that ultimately lasted 32 years. We shall see in the fullness of time. 

If I am correct in this assessment, interest rates will remain muted until major central banks including the ECB express a clear end to this extraordinary period with actions rather than mere words.  

Meanwhile, it is hard to become enamored with high quality corporate bonds that mature in 10 years that have around 3% yields. 

That is a long way to go out to find a likely real rate of return. 

One of the most annoying repercussion of extremely abnormal CB monetary policies is that an inordinate amount of credit and/or interest rate risk has to be assumed just to receive a real rate of return after taxes in a bond. Carnage is certainly possible within the next two years in bond land as rates reset to more traditional spreads to inflation and inflation expectations.   

So I have been reducing my interest rate risk some by selling profitably some corporate bonds maturing mostly in the 2022-2026 range that will likely not provide a real rate of return after taxes or a negligible one. I would just as soon sit in cash or short term CDs. 



I did not see a tweet from Trump taking credit for the August jobs report. 

The government reported last Friday (9/1/17) that the economy created 156K jobs last month, well below the consensus estimate. The numbers for June and July were reduced by 41K.  Employment Situation Summary Notwithstanding the relatively tight labor market, wage gains remain stuck at a 2.5% Y-O-Y increase. Importantly, the average work week declined by .1 to 34.4 hours last month. It is all about time worked multiplied by the wage. A .1hr decline in the work week takes a lot of consumer income away that could otherwise be saved or spent. Table A-15. Alternative measures of labor underutilization (the U-6 number was 8.6, unchanged from the prior month) 

Of the 160.571M people in the U.S. labor force, 153.439M are employed, so that .1hr shorter work week adds up. Table A-1. Employment status of the civilian population by sex and age

While Trump will take credit for anything that is positive and will blame others for negative news, it is clear that Trump merely inherited a downward trending unemployment and the U-6 rates. Unemployment did tick up .1 to 4.4% last month. 

In prior posts, I have compared the first several months in Trump's term to similar periods during Obama's second term. 

This was my tally through the first seven months: 

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

I will now add August and redo the computation just for 2014, 2015, 2016 and 2017:  

2017: 1.405M (last two months are subject to revision)

2016: 1.548M
2015: 1.781M
2014: 1.924M

Bureau of Labor Statistics Data

The trend is down which is the major point to make here and is not surprising given the downtrend in the unemployment rate, the aging of the workforce and demographics, and the probable number of desirable employees who remain unemployed and still looking for a job:

Civilian Unemployment Rate-St. Louis Fed

The ISM manufacturing report for August rose to 58.8% in August:  August 2017 Manufacturing ISM® Report The new orders component was reported at 60.3 while employment rose to 59.9 from 55.2 in July. This was a good report. I would emphasize that this report is merely a survey of purchasing managers. And, it is important to point out the ISM's competitor Markit reported a decline to 52.8 in August from 53.3 in July.


Environmental Changes and the Severity of the Harvey Hurricane:

Many years ago, republican politicians were concerned about the environment but that is now in the distant past. I seriously doubt that a single republican politician will link the severity of Harvey to climate change and the destruction of wetlands in eastern Texas.

The EPA was started under President Nixon and is being gutted under President Trump. Regulations are being repealed or will be repealed that will allow for more greenhouse gases and an increase in pollution of America's waterways as part of what the GOP calls balancing job growth with environmental protections. The proper translation of that argument is that a few jobs will be created in exchange for significant increases in pollution and profits for the polluters that contribute to the GOP's coffers.

The Gulf of Mexico's water temperature rose was 7.2 decrees Fahrenheit above normal.  It was the warm water that fed Hurricane Harvey.  The second factor contributing to the severity of the flooding is the paving over of wetlands that acted as a sponge for water outflow in the past.

Republicans will never admit the facts relating to climate change that they wish to accelerate and exacerbate. Harvey is the third 500 hundred year flood to hit Houston in the past three years: 

Harvey Is What Climate Change Looks Like - POLITICO Magazine

The “500-year” flood, explained: why Houston was so underprepared for Hurricane Harvey - Vox

How Climate Change Fueled Hurricane Harvey | WIRED

How Climate Change Helped Shape Hurricane Harvey : The Two-Way : NPR

"We've covered our sponge up": Harvey reveals problem decades in the making - CBS News

Storms like Harvey (2017), Katrina (2005), Sandy (2012), Camille (1969), Rita (2005), and Andrew (1992) are becoming more commonplace.  I would anticipate that the pace will quicken in coming years. 

Future Hurricanes Will Be Worse Than Harvey - Bloomberg

Yet Ann Coulter, one of the Alt-Right's leading "intellectuals", said that it is more credible that  the hurricane was God's reaction to the election of a lesbian mayor in Houston than to climate change:

Ms. Coulter was referring to Houston's mayor Annise Parker, who was in office between 2010-2016, and who was openly gay.  

The True Believers may accept climate change science shortly before they are burned to a crisp or drowned while heavily laden with oxygen tanks.

Trump Wants to Cut FEMA Budget Before the Next Major Hurricane: Newsweek 

Harvey Triggers Gasoline-Price Surge Ahead of Labor Day Weekend - Bloomberg


North and South Korea

In my view which is based on history since WWII, China and Russia are responsible for a divided Korea and the family dynasty in N.K.  

North Korea detonated over the weekend its most powerful nuclear device and claimed to be able to install that device on an ICBM. 
North Korea tests most powerful nuclear bomb yet - CNNNorth Korea Says it Tested Hydrogen Bomb That Can Fit on ICBM - NBC NewsNorth Korea Says It Tested a Hydrogen Bomb Meant for Missiles

As previously stated, I do not anticipate that the U.N. sanctions or Trump's bombast will stop N.K. from an accelerated development of its nuclear capabilities. Possibly, cutting off oil shipments would produce a favorable result along those lines.  

Amid the escalating tensions with North Korea, White House officials have the told several news organizations that Trump is considering terminating the U.S. trade treaty with South Korea next week.  Trump considering ending South Korea trade pact-Axios SK apparently told Donald that it had no interest in renegotiating that trade treaty. South Korea Rejects U.S. Request to Revise Trade Agreement - Bloomberg

Donald also criticized South Korea's new President wanting to talk with Pyongyangwhich Donald called appeasement. 

Mattis warns of 'massive military response' to NK nuclear threat - CNN 

If Donald issues a termination notice for NAFTA, which he has threatened to do many times, Mexico has told Donald that it will just walk away from trade talks. 

I did recently reduce my position in the Permanent Portfolio, keeping my position in one account while eliminating my position in another. Stocks, Bonds & Politics: Item # 2.A. Pared PRPFX Sold 125+ Shares in Vanguard Taxable Account The larger and remaining position is held in my Schwab taxable account.

This fund maintains a fairly constant allocation to gold and silver bullion:

Since that elimination, I have added to my remaining position.


McCain rips ‘poorly informed’ Trump in blistering op-ed - MarketWatchJohn McCain: It’s time Congress returns to regular order - The Washington Post

Trump Is Rich and Educated—Why Can't He Spell Simple Words Correctly? Newsweek (why, because he is just plain ignorant); Donald Trump spelled heal wrong again in a tweet: EW

Trump Halted Obama's Equal Pay Rule. What it Means for Working Women - NBC News

Trump Administration Slashes Funds for Obamacare Enrollment - NBC News

Report: Congress is eyeing cuts to FEMA’s budget to pay for Trump’s wall - Vox

Trump would slash disaster funding to the very agencies he’s praising for Harvey response - The Washington Post

Republicans Divided in Views of Trump’s Conduct; Democrats Are Broadly Critical | Pew Research Center

Ending DACA Will Impose Billions in Employer Compliance Costs | Cato @ Liberty

No evidence to support Trump's claim that Obama wiretapped Trump Tower, DOJ says - CBS News (just another Trump lie spewed out to distract from his own problems) 


1. Healthcare Basket Strategy:

A.. Bought Back 50 RHHBY-Used Commission Free Trade:

Quote:  Roche Holding AG ADR (RHHBY)

1 ADR = .125 Ordinary Shares

CHF Priced Ordinary Share Quote: Roche Holding AG  (Switzerland: SWX Europe)

Closed at CHF241.2

241.2 CHF  = CHF30.15

Convert CHF/USD. Switzerland Franc to United States Dollar

I will generally buy some shares before Roche pays the annual dividend and then sell after the ex dividend, rinse and repeat.  

The stock has not been a worthwhile long term hold for the past five years.  Roche Holding AG ADR Interactive Chart 

The problem has been concerns about generic competition for Roche's key legacy biologics that have lost patent exclusivity. 

The company is experiencing a pickup in revenues for new drugs and has had some favorable recent news highlighted in the news releases linked below:  

FDA approves Roche’s Actemra/RoActemra (tocilizumab) for the treatment of CAR T cell-induced cytokine release syndrome (8/30/17 Press Release) “Until today, there has never been an FDA-approved treatment to manage severe cytokine release syndrome associated with CAR T cell therapy, which is marked by a rapid onset and can cause life-threatening complications.”)

FDA grants Priority Review to Roche’s emicizumab for haemophilia A with inhibitors (8/24/17 Press Release)(FDA is expected to make a decision on or before 2/23/18) 

Roche gains positive CHMP opinion for Actemra / RoActemra in giant cell arteritis (7/21/17 Press Release)

CHMP recommends EU approval of Roche’s Gazyvaro for people with previously untreated advanced follicular lymphoma (7/21/17 Press Release) 

CHMP recommends EU approval for Roche’s TECENTRIQ (atezolizumab) in a specific type of metastatic lung and two types of metastatic bladder cancer (7/21/17 Press Release)

New Approvals in Second Quarter: 

First Half Results: 

Roche reports strong performance in the first half of 2017

One headwind is that Novartis owns a lot of Roche stock and has expressed a desire to unload it. The Hoffman-Oeri clan who have resisted so far offers to acquire the company. 

The annual distribution goes ex dividend usually in March:  Roche - Dividend calendar The amount will depend on the CHF/USD conversion rate when the Swiss Francs are converted into USDs for the ADR owners. 

Historical Dividends in CHFs for Ordinary Shares (1 ADR =.125 ordinary shares)

Roche - Pharmaceutical Product list

Roche - Diagnostic Product list

I last sold 30 shares at $33.35 (5/11/17), and that lot was bought at $27.75 on 12/2/16. I received the annual dividend payment. Stocks, Bonds & Politics: Item #3.B. ($178.87 profit)

As explained more fully in the previous linked post, IB did not assert my U.S. citizenship treaty right to a 15% tax withholding. As a result, Switzerland treated me as a person who was basically stateless and withheld 35% of the dividend as a tax. IB does assert U.S. citizenship for dividend payments made by Canadian companies but that is almost the extent of their effort to claim treaty tax rates for their U.S. customers. 

I sold another 100 share at $31.6 shortly after the 2017 annual ex dividend date. Stocks, Bonds & Politics: Item # 3.A  ($128.93 profit)

I call these trades dividend harvesting or dividend capture, where I try to capture for several European stocks their annual dividend and then sell the stock for a profit. 

A similar trade was made in 2015 where I sold 50 shares bought at $32.99 and sold at $34.825 after harvesting the annual dividend. 

That lot was owned in my Fidelity account. That broker did claim my tax treaty right to a 15% rate which is what Switzerland withheld. I will not buy RHHBY in my IB account anymore  due to that firm's unacceptable laziness. This last trade was in my Fidelity account. 

Some prior Roche discussions can be found in these posts: 

Item # 2 Update For Healthcare Basket Strategy As Of 3/21/16 - South Gent | Seeking Alpha

Dividend Growth And Diversification Strategies: Bought 50 Roche (RHHBY) At $32.99 - South Gent | Seeking Alpha

B. Sold 30+ GILD at $80: I sold too soon

Quote: Gilead Sciences Inc.  (GILD) 

Profit Snapshot: +$103.38

Dividends= $63.96

Total Return = +$167.34 
Out-of-Pocket Investment= $2,291.78
Total Return = 7.3%

This position was acquired in three 10 share open market purchases starting at $79.74 (8/12/16) and ending at $71.36 (10/12/16). Dividends were used to purchase shares and those shares were sold profitably. 

Given the holding period and total return, this was not a successful trade, though the total return comfortably exceeded what I am earning on CDs. If I put money at risk, I simply want a higher return which would have been achieved if Left Brain had held onto this odd lot for a few more days. My problem with GILD was that it continued to decline after I made three separate purchases, with two of those being average downs, and that is bad psychologically for me given my capital preservation objective. That kind of action just puts me into a frame of mind to sell when and if I can do so profitably. 

Institutions drove the price up on 8/30/17: GILD $81.23 +$5.49 +7.25% (day's range was between $75.74 and $81.44!). GILD closed at $83.71 on 8/31/17. Some of the upside may be due to short covering. The price did retreat some last Friday. Yahoo Finance shows 16.85M shares sold short based on the last reported data.

That rise was probably triggered in part by the FDA approving the first CAR-T drug on 8/30/17, which relieved investors anxiety about the FDA approving Kite's  CAR-T therapies. Novartis’ CAR-T gene therapy, the first approved by FDA, to cost $475,000- MarketWatch

KITE has one CAR-A drug that is now pending the FDA's action. The market may be thinking that the approval of the Novartis drug is a positive for approval of the KITE drug which reduces the anxiety level about GILD's acquisition. Kite Files the Industry's First CAR-T Marketing Authorization Application in Europe for Axicabtagene Ciloleucel (PDUFA action is 11/29/17); Kite completes FDA CAR-T filing, posts improved data | FierceBiotech

Interestingly, Novartis declined on the day the FDA approved its CAR-A drug Kymriah: 

8/30/2017 Closing Price: NVS $82.75 -$0.87 -1.04% : Novartis AG

FDA announces first US gene therapy approval for cancer treatment - CNN

Press Announcements > FDA approval brings first gene therapy to the United States

2. ADDED 200 FIE:CA at C$7.13 (C$2 Commission at IB):  

Quote: iShares Canadian Financial Monthly Income ETF 

This ETF owns Canadian banks, insurance companies and REITs along with two Canadian ETFs that invest in Canadian bonds and preferred stocks respectively.

Holdings as of 8/30/17: 

iShares Canadian Financial Monthly Income ETF

This purchase brings me up to 400 shares. I sold 1700 shares earlier this year, with the last 200 share disposition discussed here: Item # 4 A. Sold 200 FIE:CA at C$7.54-Stocks, Bonds & Politics (total realized gain on 1700 shares was for USD$557.32.). I discussed selling the 1500 share lot in a 1/5/17 comment.

I last discussed purchases in Item # 5 (6/1/17 Post)

Dividends at paid monthly at a current rate of C$.04 per share. At a total cost of C$7.13 per share, the dividend yield would be about 6.73%.

This purchase was made in response to Canadian bank earnings for the second quarter and to the report, released last Thursday, that Canada's GDP increased at an annualized rate of 4.5% in the second quarter. Canada's GDP grew at 4.5% annual pace in 2nd quarter, fastest since 2011 - Business - CBC News  

I mentioned in a comment that Toronto Dominion (TD), which I own, reported better than expected earnings for the second quarter last Thursday. Toronto-Dominion No Longer a Laggard in Canadian Banking - BloombergTD Bank Group Reports Third Quarter 2017 Results

3. Short Term Bond/CD Ladder Basket Strategy

A. Bought 2 First Commercial 1.45% CDs (monthly interest) Maturing on 11/30/18 (15 month CDs):

Bankrate has assigned a 4 star rating to this bank: FIRST COMMERCIAL BANK Review

B. Bought 2 Beal Bank 1.5% CDs (semi-annual interest) Maturing on 12/5/18 (15 month CDs):

Bankrate gives this bank a 4 star rating: BEAL BANK USA Review

C. Bought 2 Bank of Hope 1.45% CDs (monthly interest) Maturing on 9/18/18 (1 Year CD):

Holding Company: Hope Bancorp Inc. (HOPE)

HOPE Analyst Estimates

D. Bought 2 Citizens Bank PA. 1.1% CDs Maturing on 10/30/17 (2 month CD):

Holding Company: CFG Stock Price - Citizens Financial Group Inc.  (U.S.: NYSE)

CFG Analyst Estimates 

E. Bought 2 Hanmi 1.35% CDs (monthly interest) Maturing on 5/30/18 (9 Month CD)

This bank has a five star rating from Bankrate: HANMI BANK Review

Holding Company: Hanmi Financial Corp. (HAFC)

HAFC Analyst Estimates
Hanmi Reports Strong Loan Production and 4.9% Increase in Net Income for Second Quarter 2017

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

4. Reduced Exposure to CYC Equity Preferred Stocks

A. Sold 50 CYSPRA at $25.33:

Profit Snapshot: +$71.61

Quote: CYS.PA Stock Price - CYS Investments Inc. 7.75% Cumulative Preferred Series A  Quote (U.S.: NYSE)

Issuer:  CYS Investments Inc.  (CYS)-A MORTGAGE REIT

Prospectus Supplement


Dividends: Cumulative and Non-Qualified (pass through entity)

Optional Call: On or after 8/3/17

I still own 50 CYSPRA shares in a Roth IRA account. 

B. Sold 50 CYSPRB at $24.99

Profit Snapshot: +$100.03

Quote:  CYS Investments Inc. 7.5% Cumulative Preferred Stock Series B (CYSPRB) 

CYSPRB pays cumulative and non-qualified dividends at a fixed coupon rate of 7.5%. Par value is $25. The issuer has the option to redeem on or after 8/3/17. Prospectus Supplement

Shortly after CYSPRB was sold to the public in 2013, intermediate term interest rates started to spike. CYSPRB plummeted in price, sinking as low as $19.5 by year end. The precipitating cause was a rise in the ten year treasury yield to 3.04% by 12/31/13 from 1.66% in early May 2013. The share price also sunk below $22 in late 2015 and early 2016. Within the past year, the price touched $22.5. CYS.PB Stock Chart  

5. Bond Lottery Ticket Purchase

A. Bought 30 TANNZ AT $17.25 (IB Account $1 Commission):

Quote:  TravelCenters of America LLC 8% Senior Unsecured Notes Maturing on 10/15/30.

My last transaction was to sell 50 shares at $25.72 (2/16/17): Stocks, Bonds & Politics: Item # 4.A.

Shortly before that transaction, I sold another 50 at $25.65 (3/27/17): Stocks, Bonds & Politics:  Item # 4.A (IB Account)(profit snapshot = $95.47). At least I had a profit to harvest then. So far, I have not lost money YET on a TravelCenters bond. I have a realized total gain of $243.77 trading them which is fine given their yields and my small lot trades. 

Prospectus (risk factor discussion which is material and has to be reviewed starts at page S-5).

Unless redeemed early by the issuer, this security will mature on 10/15/2030. The issuer may redeem at par plus accrued interest on or after 10/15/18. 

This bond was sold to the public in October 2015. Coming out of the gate, the price cascaded down to about $21.5. TANNZ Stock Chart The bond is not rated but would IMO be well into junk territory if it was rated by Moody's or S & P. 

Since I am not into bonds with significant credit risk presently, which would definitely include this bond, I bought back only 30 of the previously sold 50 shares. It took a 32.94% decline from my last sale price to induce me to risk less money now. 

TA SEC Filings

TA 2016 Annual Report (long term debt discussed at page F-15)

The last earnings report was a bad one: TravelCenters of America LLC Announces Second Quarter 2017 Financial Results 

Stocks, Bonds & Politics: Exchange Traded Bonds: New Gateway Post

Stocks, Bonds & Politics: Exchange Traded Baby Bonds (my "baby bond" category excludes Trust Certificates, Trust Preferred, "Principal Protected" Notes, and European "Hybrids" which have separate Gateway Posts)

I may not hold onto this for long. The next quarterly ex interest date is 9/29/17.   

Closing Price Last Friday: TANNZ $22.15 $0.19 + 0.87%

6. Intermediate Bond/CD Ladder Basket Strategy

A. Sold 2 Duke Carolinas 2.5% First Mortgage Bond Maturing on 3/15/23 ($2 Fidelity Commission)

The price shown in the snapshot is adjusted for the $2 Fidelity commission. The bonds were sold at 101.4. 

Profit Snapshot: +$42.34

FINRA Page: Bond Detail

ISSUER: Duke Energy Carolinas, a wholly owned subsidiary of  Duke Energy Corp. (DUK)

DUK Analyst Estimates

Sold at 101.4  

YTM Then at 2.222%
Current Yield at 2.466%

Bought at a Total Cost of 99.183

Stocks, Bonds & Politics: ITEM # 1.C. 
YTM Then at 2.648%
Current Yield at 2.52%

I still own 2 Duke Carolinas 2.9% First Mortgage bonds in a Roth IRA that mature in 2026: Stocks, Bonds & Politics: Item # 1.E. I am inclined to keep that bond because it is held in an IRA account which turns the taxable interest into a tax free yield; the total cost per bond is 98.857 creating a 3.097% YTM; and Moody's has a Aa2 rating on this first mortgage bond. Moody's downgrades Duke, Progress, and Duke Energy Progress; Duke outlook negative (January 2016); Moody's revises outlook for Duke Energy to stable; affirms Duke and key subsidiaries (May 2017)(senior secured reaffirmed at Aa2).

B. Sold 2 Norfolk Southern 2.9% SU Bonds Maturing on 6/15/26 ($4 Vanguard Commission)

Profit Snapshot: $47.36

FINRA Page: Bond Detail

Issuer:  Norfolk Southern Corp. (NSC)

NSC Analyst Estimates
Norfolk Southern reports second-quarter 2017 results

Sold at 99.949

YTM Then at 2.906%
Current Yield at 2.902%
Net After $4 Commission 99.749

Bought at a Total Cost of 97.280

Stocks, Bonds & Politics: Item 1.C. 
YTM Then at 3.245%
Current Yield at 2.98%

C. Brunswick 7.37% 2023 SU Bond Upgraded to Baa2

I have sold all of my 2023 Brunswick bonds except for this one: Item # 1 Bought 1 Brunswick 7.375% Senior Bond Maturing 9/1/2023 at 94.2 (4/4/11) When I bought that bond, Moody's had a Caa1 rating. 

Bond Detail

DisclaimerI am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members. 


  1. "who spend a lower proportion of their income."

    I have never understood this whole concept of people slowing down growth by refusing to spend. Most people will refuse to spend their money by putting it into bank accounts, even zero-interest bank accounts. The banks will then lend out the money to people who want to enlarge their businesses, or build themselves new homes, or whatever, thus returning the money to the active economy. The only exceptions will be a few strange people who keep gold ingots under their bed, or those who buy land for land's sake, or those who invest a significant part of their assets in artwoks, jewelry, etc.

    Please explain.


    1. D.: For most households, disposable income is spent because it has to be spent.

      For the top ten percent, less has to be spent on survival and can consequently be invested in stocks, bonds and other risk assets that insure a continuation of wealth for the current generation and those that follow.

      The top 1% in the U.S. control about 38% of the wealth while the bottom 90% have 73% of the debt. Debt service payments lower the amount of disposable personal income that can be spent or saved elsewhere.

      Wealth Concentration U.S. Using FED Data:

      When the economy is dependent on personal consumption expenditures, which amounts to about 70% of GDP, and with a large proportion of the population have trouble making ends meet, then the source of the spending/consumer demand problem has been, is currently and will likely continue to be a lack of real disposable income growth for most of the population.

      The wealthy are not going to drive consumer demand, given their small numbers and spending habits. The growth has to come from the lower and middle classes.

      Income on risk free investments is simply one way for economically stressed households to increase disposable income.

      Another way is real wage growth which has not been happening for most of the past 4 decades.

      The end result is more consumer debt that will crimp future spending as more consumers hit and exceed the limits of their borrowing power. Consumer debt just exceeded 2007 levels and is growing. Credit card 90+ delinquency rates rose to 7.5% in the last quarter.

      The personal savings rate is falling.

      The situation may be manageable for the time being given the tsunami in mortgage refinancings at historically low levels that have in the aggregate reduced debt service payments as a percentage of disposable income.

      I would say that economic stress for those in the bottom 50% is increasing. Significant cuts in government transfer programs as currently envisioned by one political tribe would accelerate that stress and make it more acute. Those households have not participated in the stock and bond bull markets and have had their meagre savings squashed in what amounts in part a wealth transfer from those who are economically stressed through lower than normal interest payments on savings to those who are not through increases in wealth generated by high exposures to risk assets.

  2. Bond prices rose again today with the ten year treasury falling to a 2.06+% yield.

    It is a lot easier to sell high quality bonds during a bond rally like the one experienced today when the investor owns 1 or 2 bond lots as I do. I continued to sell into strength today.

    The slight downdraft today probably had multiple causes.

    IMO, the main culprit was Donald's decision to rescind DACA which will have a negative impact on the economy. A lot depends on whether Trump and Sessions decide next year to start rounding up those youngsters and to send them back to their respective countries of origin after they have been thoroughly Americanized and totally unfamiliar with the home country that they left when a child. That will probably not be a high priority item for them prior to the 2018 elections.

    A few GOP House representatives claimed to have a soft spot for those children, which I find to be insincere, since they voted overwhelmingly to repeal DOCA in 2014 and their opposition to anything that humanely deals with this issue is what caused Obama to deal with this problem with an EO. The GOP's base wants to send these kinds back to their homeland. Make no mistake about that.

    The Stock Jocks may have taken the market down a few points based on NK, but my feel on that issue is that NK is a non-issue for them until the shooting starts. The reaction is the same to Trump's threats to launch trade wars. Until it actually happens, the Stock Jocks are not going to pay attention.

    There was some specific news that drove UTX, a DJIA component down today, involving its acquisition of
    Rockwell Collins.

    UTX +$111.215 -$6.705 - 5.69%

    A poor performance from GS also caused the DJIA to underperform SPX which was down an insignificant .76%.

    Travelers, another DJIA component, has been week lately including today for obvious reasons: Harvey and Now Irma may threaten

    $115.43 -4.47 -3.73%

    That stock closed at $130+ in early August.

    JPM, a DJIA component, and the banks in general were hit as interest rates declined, a trend that does not forebode well for NIM expansion.

    JPMorgan Chase & Co.
    $89.51 -$2.19 -2.39%

    SPDR S&P Regional Banking ETF (KRE)
    $50.85 -$1.63 -3.11%

    Notwithstanding several drags, the DJIA declined a mere 1.07% today. Gainers included Exxon, Chevron, Coca Cola, Home Depot and Wal-Mart.

    Bond yields have fallen so much that I am considering selling a few for the express purpose of using the proceeds to buy higher yielding common from the same issuer. I have made that kind of small allocation change in the past.

    I own several AT & T bonds for example that yield less than the common shares, which fell in price today and has been in a downtrend since early January in spite of a brief pop after its last earnings report.

    One of the highest yielding AT & T bonds that I own matures in 2025 and has a current yield almost 2% less than the common.

    To do that trade, I would sell the bonds into their current strength and then simply wait for a better opportunity to buy the common shares at lower prices.

    1. I did sell earlier today 2 AT & T 3.4% SU bonds maturing in 2025 at 100:

      Those bonds were bought at a total cost of 97.683:

      Item 1.B.

      AT & T SU bonds have Baa1 and BBB+ credit ratings. They are being priced by the Bond Ghouls in a manner more consistent with a lower credit rating. Just eyeballing the yields for the same rated bonds from other issuers, the average would be close to .4% to .5% lower than the AT & T 2025 bond.

      I intend to use the proceeds at some point to buy AT & T's common stock, though I am in no hurry to do so.

      Based on how my two largest accounts responded to yesterday's downdraft (DJIA down 1.07%), with the combined gain being about +$500, I can see in real time how my portfolio positioning which is diving deeper into capital preservation mode is working. I was pleased with the result.

  3. Given my strong tendency toward capital preservation, I have jettisoned every exchange traded bond issued by a property and casualty issuer. Several of those bonds were junior bonds and all were sold profitably at above par value.

    Those bonds have the symbols SGZA, GBLIZ, NGHCZ and THGA.

  4. CAD/USD

    0.8192+0.0115 (+1.42%)
    As of 3:29PM BST.

    The rise in the CAD vs. the USD today will cause Canadian stocks priced in USDs to outperform the same shares priced in CADs and traded in Toronto (up more or down less or up when the CAD price shares are down)


    The Toronto-Dominion Bank (TD)
    NYSE $54.79 +$0.72 (+1.33%)
    As of 10:31AM EDT.

    The Toronto-Dominion Bank (TD.TO)
    Toronto (delayed quote)
    $66.63-0.31 (-0.46%)
    As of 10:16AM EDT

  5. As I mentioned in a prior comment, it is easy to find stocks with higher yields than the bonds issued by the same company.

    I also read today what Goldman Sachs CEO said about this phenomenon.

    "When yields on corporate bonds are lower than dividends on stocks, that unnerves me."

  6. I have published a new post: