Monday, October 23, 2017

Observations and Sample of Recent Trades: FNB, VLY


Market Commentary

Interest rose meaningfully last Friday after the Senate approved a bill that will make passage of "tax reform" easier. 

The general idea is to prevent a Senate filibuster of the GOP's tax bill provided the tax cuts do not add more than $1.5 trillion to the debt over a 10 year period. Senate passes budget plan: Here's what that means for tax cuts: USA Today The bill will have to be reconciled with the House bill that requires a budget neutral "tax reform".

The estimate of the impact will be massaged lower and the actual deficit increase will probably be well over $2.5T rather than $1.5 trillion looking back from 2028. Even when the deficit grows by far more than the $1.5T limit due to the tax cuts, the GOP will deny that their cuts had anything to do with the increase. 
The GOP Tried Trump-Style Tax Cuts in Kansas. What a Mess. - NBC News

Closing Prices 10/20/17: 

IEF $106.04 -$0.44 -0.41%: iShares 7-10 Year Treasury Bond ETF 

TLT $123.98 -$1.33 -1.06%: iShares 20+ Year Treasury Bond ETF 

KRE $57.33 +$0.76 1.34%: SPDR S&P Regional Banking ETF 

VNQ $83.65 -$0.48 -0.57%: Vanguard Reit Index ETF 

In a Barron's article published over the weekend, two bond managers pointed out two reasons why the 10 year treasury yield was so low: 

1. the 10-year bond is less of an “indication of growth and inflation expectations” due to the quantitative easing by the Federal Reserve and the yield is more of a reflection of the "amount of distortion that quantitative easing is creating.”

2. what happens in Europe and Japan impacts the U.S. ten year treasury yield.  

Is the 10-Year Treasury Signaling a Recession? - Barron's

No, the abnormally low ten year yield by all historical standards is not signaling a U.S. recession, but mostly reflects instead, as I have been saying, interest rate manipulation by the CBs. There may be a recession ahead, but the bond yields are not currently providing any signal. 


Portfolio Management

Reallocation Decision for CD Proceeds Received  in One Account (10/16/17): 

The following snapshot shows that I received on 10/16/1
7 $7K in redemption proceeds from maturing securities. The $3K Citizens Bank CD was only for two months. The $2K par value Air Products and Chemical Bond was bought at a total cost of 100.084 per bond (1/3/17) or $1.68 above the $2K par value. The Bank of China CD was for 3 months. All of those proceeds were received in my Fidelity taxable account.  

My current fixed income allocation is overweighted in short term securities. Those securities are maturing every week which simply means that I have to repeatedly make reallocation decisions for the proceeds. 

The Bond Ghouls are not cooperating at the moment with my upward sloping yield curve forecast as discussed above. 

Consequently, I redeployed the $7K in proceeds to longer term securities as discussed below. 

Of that amount, $5K was used to purchase a 3% tax free municipal bond purchased at a total cost of 97.1. The municipal bond, which matures in 2037, has a serious amount of interest rate risk attached to it. The trade-off is a much higher after tax current yield than from those maturing CDs. 

The other $2K was used to buy a 1.7% CD that pays monthly interest that matures on 10/24/19, a two year CD. 

More securities will becoming due in this account soon and in other accounts. The reallocation decisions will almost be a daily process.  

The other distributions shown in the preceding snapshot originated from CDs that pay monthly interest, interest paid by the maturing CDs, monthly interest payments made by the $1K par value bonds issued by the National Rural Utilities Cooperative Finance Corporation and Goldman Sachs, one monthly distribution from the REIT Apple Hospitality (owned in 4 accounts); and semi-annual interest payments from Autozone (2), ERP Operating (1), Kroger (2), and Ventas (2). 

Regarding the $1K par value bonds that make monthly interest payments, which are unusual, I own 1 GS 2024 bond, 2 National Rural 2022 bonds, and 1 National Rural 2027 bond in this account.  


Trump, Niger and Chad

Late last month, Trump put Chad, the most effective U.S. ally fighting against ISIS affiliated terror groups in central Africa, on his travel band list. Why Is Chad On Trump's Travel Ban List? : NPR

Shortly thereafter, Chad began to withdraw its troops from Niger that were successfully fighting the Jihadists in that country. Chad Withdraws Troops From Fight Against Boko Haram in Niger - The New York Times The withdrawal started in late September.

Prior to the Chad forces leaving, American patrols in Niger had not come under attack.

After the Chad forces started to leave, four American soldiers were killed in a surprise attack probably by a Jihadist militant group operating out of Mali.   

Chad Removes Hundreds of Soldiers From Nigerien Region Affected by Boko Haram | Council on Foreign Relations

After Trump Travel Ban, Chad Pulls Troops From Boko Haram Fight in Niger: Newsweek 

This probably needs to be investigated more fully to determine whether the withdrawal of Chad's army facilitated, in any way, the attack on U.S. forces.  

A second line of inquiry is why there were no surveillance aircraft overhead and no reserve force within striking distance in the event this patrol came under attack. Mysteries surround deadly Niger raid that killed 4 American soldiers - CBS NewsNiger Ambush Came After "Massive Intelligence Failure" -NBC News;

The Army General in charge of U.S. troops in Africa testified that the troops under his command had inadequate backup and air surveillance. Pentagon investigating troubling questions after deadly Niger ambush - LA Times ("Gen. Thomas Waldhauser, commander of U.S. Africa Command, documented to Congress in March his forces’ lack of needed resources on the continent. He said about 20% to 30% of requirements for “intelligence, surveillance, and reconnaissance” flights were being met". The general added that he did not even have enough helicopters to locate missing, wounded and killed soldiers.)  

Will Trey Gowdy (R-SC) and the House republicans now open another House Benghazi type inquiry, where 4 Americans were killed as in Niger, that lasts for the remainder of Trump's term?  Don't be silly.   

It is rare for events in Niger become dominant in a U.S. news cycle.  

In a blast from the past, I do recall Bush Jr. claiming that Iraq had tried to buy yellow cake from Niger as part of their then non-existent nuclear weapons program. 

The Niger documents were obvious forgeries and part of a disinformation campaign.   

Niger uranium forgeries-WikipediaCraig Unger on Yellowcake Uranium -Vanity Fair

I do believe that the U.S. would do better when our leaders start telling the truth and the electorate start making informed decisions based on facts rather than cliches and reality creations.  


Trump, General Kelly and Congresswoman Wilson (the one with the cowboy hats):  

What I am about to describe is very bad Presidential leadership. 

General Kelly is moving deeper into the Trump sycophant territory. He made this Fake News claim about remarks made by Congresswoman Wilson at the dedication of a new FBI building:  

“A congresswoman stood up, and in a long tradition of empty barrels making the most noise, stood up there in all of that and talked about how she was instrumental in getting the funding for that building, and how she took care of her constituents because she got the money, and she just called up President Obama, and on that phone call, he gave the money, the $20 million, to build the building, and she sat down.” 

Frederica Wilson says John Kelly lied from the White House podium

A Florida newspaper obtained a video of Ms. Wilson's remarks and that video proves that Kelly made the whole thing up. 

The funding for the building was approved by Congress prior to Wilson even being elected to Congress. The building did not cost $20M but around $194M. FBI and GSA Dedicate the New Benjamin P. Grogan and Jerry L. Dove Federal Building -FBI

The Congresswoman briefly mentioned both republicans and democrats who expedited the naming of building after two slain FBI agents. She spent most of her speech praising effusively the two slain FBI agents.  

It is time to take General Kelly off his pedestal and start viewing him as just another political hack willing to say just about anything as cover for his boss. 

Kelly stood behind his version of events according to the Sarah, notwithstanding the video evidence rebutting every single statement that he made. 

After I watched this video in its entirety, there can be no question that Kelly fabricated a story to demean Ms. Wilson, and his patently false statements were nothing more than a drive by shooting, a gratuitous ad hominem political hit job (and what Bush Jr. just called "casual cruelty"

Next time Trump pushes this guy out to the podium to defend him, hoping to cloak himself in the garb of a 4 star Marine general, Americans should see nothing more or less than just another political hatchet man and spinmeister. Those are common enough creatures in both political tribes and need to be identified as such.   

Wilson Says Kelly Lied, Used 'Racist Term' in His Emotional Briefing - NBC News

Frederica Wilson 2015 video shows John Kelly got it wrong - Sun Sentinel

Fact-checking the John Kelly-Frederica Wilson controversy - CBS News

John Kelly and the Language of the Military Coup | The New Yorker

What Does 'Empty Barrel' Mean and Where Does It Come From? Newsweek 

Sarah called Congresswoman Wilson an empty barrel as well. 

I do not regard that insult to be an inherently racial one. 
I would not have any objection if Kelly called his boss an "empty barrel". The phrase empty barrel will generally be understood to mean an ignorant and stupid person that incessantly makes loud annoying sounds. 

In this context, I would regard its use as racist in that it is being used as a dog whistle to convince Trump's white supporters that a black woman is just a loud mouth and a liar (even though she is telling the truth and Donald is the one lying) It will work on most of them. 

Another derogatory reference made by Sarah was to derisively label the Congresswoman as "all hat, no cattle" White House slams Rep. Wilson as 'all hat, no cattle' - POLITICO That is one of those American idioms that crop up from time to time; and generally means that the person lacks substance and is nothing more than a big talker. It is not an inherently racist remark either, but is IMO in this context.    

Trump asserted that Ms. Wilson was a "liar" and "wacky" and that she "secretly" listened to his call. It was the widow who received the call and placed the conversation on speaker phone mode so that others in the car, including Ms. Wilson, her mother and aunt, could listen. Ms Wilson was an old family friend and was accompanying the family to pick up the casket when Trump made his call. Other people in the car back up her statement that Trump made this statement to the widow: Johnson 
"knew what he signed up for, but I guess it still hurts." Rep. Frederica Wilson hits back at Trump: Niger is his Benghazi - CNN 

The widow backed up Wilson in an interview this morning claiming that Trump could not remember her husband's name: Fallen soldier's widow says Trump call left her "upset and hurt" - CBS News ("Johnson said that Wilson, a Florida Democrat, was telling the truth about the phone call she received from the president and that what she said was "100 percent correct.")

Trump then took issue with the widow's account of the conversation: 

Were Kelly and other WH personnel secretly listening to the conversation, unknown to the widow? Yes they were.  

Kelly: "It stuns me that a member of Congress would have listened in on that conversation." 

But it is not stunning, I suppose, for the Chief of Staff and other WH personnel to listen. Hypocrisy is not in short supply among those in the Trump Administration. 

Trump's tweets are almost entirely "Fake News", rarely adulterated with accurate information. 

His latest tweet suggests that Obama and Hillary put Ms. Wilson up to criticizing Donald, which has probably given the True Believers multiple orgasms (somewhat exaggerated): 

I would note that Ms. Wilson, who is 74, received a B.A. degree from Nashville's Fisk University and a M.A. from the University of Miami. 

Sarah graduated from a school called the Ouachita Baptist University. I have never heard of that college until I looked at Sarah's biography.   

The White House believes it is "highly inappropriate" for anyone to question General Kelly about his public statements.  

White House: It's 'highly inappropriate' to question Kelly's claims: CNBC 

Perhaps Sarah and her boss are yearning too much for an authoritarian state, where there is no more a free press, but only Donald's Fake News tweets and approved Fake News propaganda outlets like Fox and Friends, and where political dissidents turn up dead or missing. Donald  and Sarah can only dream of the U.S. becoming such a place-at least at the current moment.  

I would note that Ms. Wilson should not have made any part of Donald's conversation public unless the family requested her to do so. I have not seen a report yet whether or not she had been requested to make the family's reaction public. 

Donald's response to her tweet should have been that he did not mean to offend, etc., expressed only through his press secretary. 

Instead, he went directly into attack mode as usual, called Wilson a liar when she was telling the truth, continued to throw venom at her for days, caused his Press Secretary to do the same, and then used Kelly to provide cover for all of his false statements that resulted in Kelly engaging in fabrications as well. That is just one among way too many horrific examples of a bad leader. 


Trump and Puerto Rico:

Trump Gives Administration a '10' for Puerto Rico Recovery - NBC News-

How a slow response hurt Puerto Rico after Hurricane Maria | Miami Herald 

Puerto Rico: 1 million Americans without drinking water - CNN

Why It's So Hard To Turn The Lights Back On In Puerto Rico : NPR

Many Trump voters who got hurricane relief in Texas aren't sure about helping Puerto Rico - Chicago Tribune (now that is far from surprising, and it is not surprising that the GOP Texas representatives voted against the Sandy relief package but lined up with hat in hand when a hurricane hits Texas because they deserve it)

Does Puerto Rico pay taxes to the US government? Yes


Trump and the EPA

It would be an accurate assessment that those who engage in pollution and the production of hazardous waste now control the Environmental Protection Agency. Ideology now trumps science. 

Reality creations have been substituted for facts.

Facts are for losers.   

Trump picks coal lobbyist for EPA deputy role: Reuters 

E.P.A. Cancels Talk on Climate Change by Agency Scientists - The New York Times

Why Has the E.P.A. Shifted on Toxic Chemicals? An Industry Insider Helps Call the Shots - The New York Times

Ex-Trump campaign aide with little environmental policy experience makes final call on EPA’s grants - Chicago Tribune

Trump's justification for appointing industry lobbyists and employees to key EPA positions is that they know how to balance environmental protection with economic growth. 

The fact that there is no evidence in the historical record since the onset of the Industrial Revolution to support that theory is not relevant to making that assertion with an earnest face.  


FBI watched, then acted as Russian spy moved closer to Hillary Clinton (I viewed Hillary as the better of two very bad choices)

‘My pain is everyday’: After Weinstein’s fall, Trump accusers wonder: Why not him? - The Washington Post (Why, Trump is the Teflon Don. It would require his followers to exercise a slither of common sense to see him for what he truly is, an exceedingly disgusting person What do you do when caught on tape with an admission? Attack all of the accusers as liars and dismiss the admission of prior sexual assaults as "locker room talk". The non-brainwashed were, in General Kelly's words, just "stunned" that he got away with it)  

The Brits do not like this Trump tweet, though he did receive a thumbs up from a former British Apprentice Candidate Katie Hopkins

Trump links UK crime rise to 'spread of Islamic terror' | US news | The Guardian

The tax issue described in this WP article will probably not hurt Roy Moore's chances in Alabama: Charity’s promised back pay to Roy Moore was not reported to IRS as income - The Washington Post("Moore’s financial transaction with the charity became taxable the moment he was given the right to demand payment or foreclose on the group’s building.") 

One way to get fired at the IRS and Justice Department now would be to recommend prosecuting Roy for tax evasion or even to make an attempt to collect back taxes, interest and penalties from the next GOP senator from Alabama. God has blessed him as his Messenger and Disciple. 

IRS announces 2018 tax brackets, standard deduction amounts

2018 cost of living adjustment shortchanges America’s retirees | TheHill

2018 Social Security COLA Won't Meet Seniors' Needs

George W. Bush warns "bigotry seems emboldened" under Trump - CBS News-Steve Bannon delivers blistering attack on former President George W. Bush - CNN (Yes Donald, Steve is still with you, two peas from the same pod) 

O’Reilly Settled New Harassment Claims for $32M, Then Fox Renewed His Contract

The government's fiscal year ends on 9/30:

Deficit for 2017 hits $666 billion - Oct. 20, 2017 (the mark of you know who: 
Revelation 13)

It is interesting to me that many Christians oppose "globalization" because the AntiChrist forms a global government. Should a Christian be opposed to globalization?  Donald played into this belief with his America First theme and his pretense of being a Christian.  

Putin still likes Donald: Putin says Americans don't show Trump enough respect Sorry comrade, I only respect people who are worthy of respect and that excludes both you and Donald. 


1. Long Term Bond Basket-Tennessee Municipal Bonds

A. Bought to 5 Memphis 3% Water Revenue Bonds Maturing on 12/1/2037


Credit Ratings: 
Moodys at Aa1
S & P at AAA

Bought at a Total Cost of 97.1
YTM Then at 3.196%
Current Tax Free Yield at 3.09%

Optional Call: At par value on or after 12/1/2027

Tax Matters: 

2. Short Term Bond/CD Ladder Basket Strategy

A. Bought 2 Mainsource 1.7% CDs (monthly interest) Maturing on 10/24/2019)

I have cut my purchases of short term CDs way down. As interest rates rise, banks have lowered their coupon rates.  They are offering less yield since rates started to rise in early September than they were when rates were falling.   

3. Intermediate Term Bond/CD Ladder Basket

A. Sold 2 JPM 3.2% SU Notes Maturing on 6/15/26

Profit Snapshot: +$18.96

FINRA Page: Bond Detail

Sold at 100.356
YTM Then at 3.151%
Current Yield at 3.239%
Net after Commission at 100.256 

Bought at a Total Cost of 99.322
YTM Then at 3.288%
Current Yield at 3.22%


A. SOLD 100 FNB AT $13.94-A Satellite Taxable Account

Profit Snapshot: $137.21

Stocks, Bonds & Politics: Item # 1.A. Bought 100 FNB at $12.43 (9/14/17 Post) 

I did not hold this stock long enough to collect a quarterly dividend. 

FNB Trading Profits = $1,025.98  (prior transactions at $888.77)

In the previously linked post, I made the following comments about FNB: 

"I am not a fan of this bank, and have not liked it since I first bought shares back in 2010. . . One major drawback for this bank is that it sliced the dividend to $.12 from $.24 in 2009 AND has not raised the rate since that slash. This bank needs to quit expanding its geographic base with acquisitions at premium valuations using newly issued stock. The focus needs to be organic growth within its existing geographic territory. The end result of FNB's acquisitions has been no GAAP E.P.S. growth over the past five years. . . . The current P/E ratio probably contains a measure of hope that the Board and management will stop their empire building and focus instead on E.P.S. and dividend growth. ..The lack of E.P.S. growth is another reason to dislike this stock. I would probably view another significant acquisition to be a major negative for existing shareholders."

FNB will always be a trade for me. The price decline to my purchase price of $12.43 brought the stock within my consider to buy range. The shares started 2017 at around $16 which is well outside my current consider to buy range.  F.N.B. Corp. Interactive Chart

Regional Bank Basket Net Realized Gain (Start Date Spring 2009) = +$38,527.69


The stock declined after FNB reported third quarter earnings: 

Closing Price 10/19/17: FNB $13.50 -$0.45 -3.23% 

The stock did recover off an intra-day low of $13.11. Volume was heavy at 7.6+M vs. a 2.085M average daily volume. 

F.N.B. Corporation Reports Third Quarter 2017 Earnings

The report seemed to me to be more of the same. 

"Third quarter operating net income per diluted common share (non-GAAP) was $0.24, which excludes the after-tax impact of merger-related expenses of $0.9 million. Comparatively, second quarter operating net income per diluted common share was $0.23, excluding the after-tax impact of $0.9 million of merger-related expenses, and third quarter of 2016 operating net income per diluted common share was $0.24, excluding the after-tax impact of $0.2 million of merger-related expenses."

Possibly, investors were reacting negatively to this data: 

"net interest margin (FTE) (non-GAAP) expanded 2 basis points to 3.44% from 3.42%, reflecting $1.7 million of increased incremental purchase accounting accretion and $3.2 million of increased cash recoveries relative to the second quarter."

The two additions to NIM are not related to ongoing interest rate spreads in banking operations.  

Another explanation for today's downdraft is that investors have simply grown weary in the lack of earnings growth. 

Sourced Page 41 Form 10-K

Q3 2017 Results - Earnings Call Transcript | Seeking Alpha

B. Bought Back 50 Shares of FNB at $13.59-Used Commission Free Trade:

In this account, I still have have 357 free trades that expire in August 2018. I might as well use them in what will hopefully turn out to be successful trades. 

Over the past year, I have been buying mostly bonds and CDs in this account. I have been shifting out of intermediate term bonds which has left me with more idle cash in this particular account. 

I view this stock trade as low risk, given the (1) dividend yield, (2) P/E, (3) recent price correction, (4) the possibility of favorable Congressional action on corporate taxes and bank regulations, (5) FNB's inclusion in bank stock indexes that are seeing money inflows, (6) the fact that I am playing with the house's money, and (7) the immaterial purchase amount which is the primary reason for the low risk. 

All of the foregoing reasons apply to the purchase of VLY described below as well.

The dividend yield at $13.59 is about 3.53%. The next ex-dividend date is 11/30/17. 

The current E.P.S. consensus estimate is for $.94 this year and $1.06 next year: FNB Analyst Estimates If the $1.06 number proves to be right on the money, then the forward P/E would be 12.82. The Y-O-Y earnings growth would be about 12.77%.  

I do not expect a dividend increase this year or next year. Possibly the odds may be 50/50 in 2019, provided FNB is able to break out of its long term E.P.S. growth lethargy so that a quarterly raise to say $.14 per share from the current $.12 would leave the payout ratio at less than 50%. I would not take even odds on that happening.  

C. Bought 50 VLY at $11.89-Used Commission Free Trade:

Valley National is another out-of-favor bank that has had difficulty growing earnings. Hopefully, interest rate spreads will soon become more favorable for banks, compared to NIM compression that has been experienced for several years now.

In the early stages of an interest rate rise, deposit costs may reprice higher than loan yields. It just depends on a number of factors, including the amount of floating rate loans and the amount of deposits, mostly CDs, that are repricing higher compared to deposits that are not sensitive to rising short term rates such as no interest checking and very low interest checking.

Valley had close to a 100% dividend payout ratio as I recall, which was unsustainable, and the dividend was slashed effective for the 2013 4th quarter, The quarterly penny rate then went from $.1625 to the $.11 and has remained at that level since that time. Valley National Bank Even after that slash, the payout ratio is at 61%. I would put this stock in the same problematic basket as FNB.

At the $.44 per share annual rate, the dividend yield is about 3.7%, or slightly higher than FNB. The higher yield is probably deserved in this case.

Valley needs to break out of the earnings slump that is highlighted in this 5 year snapshot:

Sourced 2016 Annual Report at page 28

It is hardly a good sign that E.P.S. was $.73 in 2012, $.42 in 2015, and $.63 last year. When I see these kind of bank numbers over a five year period ending in 2016, my only firm conclusion is that the bank needs new management. The existing Board and managers have not delivered and need to retire in order to "spend more time with their families".

Starting in about 1994, the stock had a good run until the recent Near Depression:

Unlike other banks that I favor, it has been unworthy of attention since that event and can charitably characterized as a dog. I prefer saying cat here since I am a dog person.   

Nonetheless I have traded the shares. My last sell transaction was this one: 

2016 VLY 213+ Shares +$197.85
As with FNB, VLY has acquired other banks since the Near Depression, but those acquisitions have simply meant bigger rather than better on the earnings front-so far. 

The recent acquisition, which will soon be consummated, is USAmeriBancorp, Inc., which has 30 branches in Florida and a headquarters in Clearwater.  

When I bought this lot, I only had access to VLY's second quarter report, which did show some promise: Valley National Bancorp Reports A 28 Percent Increase In Second Quarter Net Income And $22 Million

"Valley National Bancorp, the holding company for Valley National Bank, today reported net income for the second quarter of 2017 of $50.1 million, or $0.18 per diluted common share, as compared to the second quarter of 2016 earnings of $39.0 million, or $0.15 per diluted common share, and net income of $46.1 million, or $0.17 per diluted common share, for the first quarter of 2017."

NIM = 3.20% FTE

Efficiency Ratio= 61.57% (a tad high IMO)  
Return on Tangible Equity: 11.88% (below average)
Return on Equity: 8.27% (below average)
Return on Assets: .86% (below average)
Coverage Ratio 276.24% (good for a new stock purchaser-well reserved)
NPL Ratio = .24% (good)
Charge-off Ratio = .06% (excellent)
Total Risk Based Capital= 11.89% (low for banks that I own)

Non-accrual loans appear to be concentrated in what is called medallion loans to taxi companies. 

However, the consensus estimate for next year is at $.83 per share, up from $.71 this year. If that estimates is right on the mark, it represent earnings growth of 16.9% Y-O-Y which would be excellent for a regional bank. Hope may indeed spring eternal. 

The bank sold a fixed to floating rate equity preferred stock back in July: Valley National Bancorp Announces Pricing Of Its Series B Preferred StockValley National Bancorp 5.5% Pfd. Series B Stock QuoteProspectus Supplement  

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. 


  1. Trump tweeted this morning that he would not support any change in the deductibility of retirement plan contributions.

    Since the GOP is operating in secret in crafting its "tax reform" bill, hoping to spring the final product shortly before putting the bill to a vote, opposition to this and other proposals is nonetheless leaking out to the press by those who oppose the ideas.

    I left this comment to a WP article on the subject as Tenn51:

    " The House Republicans have been floating a number of ideas to raise revenue in their "tax reform" effort.

    Their "border tax" idea was a hidden regressive tax on all U.S. consumers, impacting the lower and the middle class the most. The tax was generated by substantially raising the price of imported goods.

    After that proved untenable, the next primary idea was to eliminate the deductibility of state and local taxes and that has probably met too much opposition, including from republicans in high tax states.

    Then there was floated the idea of capping the deductibility of retirement contributions at $2,500 which would hurt the middle class the most since they financially need current deductibility to make retirement contributions.

    So what comes next to increase the tax burden on the middle class? The Senate's budget resolution only allows for "tax reform" to add $1.5 trillion to the debt over the next ten years while the House version requires revenue neutrality. It is becoming harder to reach either requirement by arguing that tax cuts for everybody will pay for themselves."

  2. Donald also cast doubt on whether he would support an extra individual tax bracket over 35%.

    A legitimate question to ask now is whether the GOP is going to come up with a plan internally when tax revenue measures keep get shot down one by one.

    Their approach so far on revenue raising items has been to surreptitiously raise middle class tax obligations, directly or indirectly.

    Their border tax was the most insidious and surreptitious tax on the lower and middle classes, regressive like the sales tax.

    I am not sure they will be able to sell, except to the True Believers, that any member of the middle class needs to finance tax cuts for the wealthy and corporations.

    So far their effort was to come up with a laughable argument that the corporate tax cut will increase “very conservatively” household income by $4K per year, a number apparently developed without regard to U.S. past economic history by someone named Kevin Hassett.

    The most recent non-U.S. case is when the U.K. repeatedly cut corporate taxes and real wages fell.

    A new analysis by the Tax Policy Center found that foreigners would benefit more the U.S. middle class from a cut in the U.S. corporate tax rate to 20%:

  3. I am continuing to observe what I would classify as a price reversal in the small cap biotech space. There was just too much enthusiasm.

    IBB appears to be rolling over as well starting in early October:


    The odds of a .25% FF hike at the December meeting is now at 98.2%. Call it 100%:

    If raised by .25% the range would become 1.25% to 1.5%.

    The average bank rate for 3 month CDs as fallen as the odds of that hike have increased. Fidelity currently has the median 3 month at 1.1% and the highest yield at 1.2%. I would have to go out 9 months at the moment to receive the median point in the 1.25% to 1.5% range.


    In some comments to NYT articles, I am been pointing out with some data that the GOP's tax raising sweet spot so far has been mostly those in the upper middle income group and perhaps as many as 30% in the lower part of the first quintile.

    The calculations made in the following linked article show how a middle class family would receive a tax increase under the GOP plan.

    The negative impact would be much greater for a single parent with three kids living in a high tax state and making the same income used in the example used in that article.

    For now, the tax raising items are directed at upper middle income families for the most part.

  4. The republicans say that their tax bill will be in final form in two or three weeks and hope to have a House vote on 11/13. Their focus is to help the middle class:

  5. The ten year treasury yield is spiking up this morning and has crossed the 2.4% threshold.

    I am anticipating that the move up since early September will soon challenge the 2.6%-2.62% ceiling that proved to be resistance on two earlier occasions within the past 52 weeks.

    The movement up this morning is due to the statements made by republicans late yesterday that they plan to vote on their tax legislation next month and better than expected earnings released this morning from MMM and CAT.

    The move up in yields could be thwarted if the tax bill push falls flat on its face in November.

    The German 10 year is moving up as well. Resistance has been firm in the .5% area.

    The current annual German inflation rate is 1.7%:

    The negative real rate of return for that bond over the past year has been -1.2%+ before taxes.

  6. IMDZ is a good recent example of risks in the clinical stage biotech space. A couple of weeks ago, I had a 100%+ gain in my 60 share lottery ticket position. I now have an unrealized loss:

    Immune Design Corp. (IMDZ)
    $4.55-0.65 (-12.50%)
    As of 9:59AM EDT.

    As previously discussed, IMDZ needed to raise capital.

    Rather than trying to sell shares when the price was at $10 to $13, which may have knocked the price down as low as $8-$9, the company elected instead to sell shares after the shares were smashed from earlier highs.

    I did not elect to round my position up to 100 shares when the price fell below $5.3, since there was no sign that the bottom was in place and I was expected a share offering to fund a phase 3 trial of the cancer vaccine.

    I will be going to a casino in a few days which will likely put me in a gambling mood and will probably throw caution to the wind and buy another 40 shares when and if the spirit moves me before leaving. I am not enthusiastic at the moment.

  7. Washington Trust Bancorp, Inc. (WASH)
    $54.60-2.40 (-4.21%)
    As of 12:16PM EDT
    Day's Range 52.05 - 55.90
    52 Week Range 43.55 - 59.10
    Volume 37,208
    Avg. Volume 33,020
    Market Cap 939.71M

    My average cost per share is $15.34.

    WASH reported a lackluster third quarter, possibly the only disappointing quarterly report since I bought shares back in 2010.

    "third quarter 2017 net income of $13.0 million, or $0.75 per diluted share, compared to $13.2 million, or $0.76 per diluted share, reported for the second quarter of 2017."

    E.P.S. was up 4.17% Y-O-Y.

    The bank reported 2016 third quarter E.P.S. of $.72.

    NIM contraction or lack of expansion continues to be an issue through the 2017 third quarter:

    "Excluding the impact of the loan prepayment fee income in each period, the net interest margin was 2.91%, down by 1 basis point from the second quarter of 2017."

    Return on average tangible equity-Non-GAAP 15.27%
    Return on average assets 1.18 %
    Total risk-based capital 12.53%
    Nonperforming assets to total assets 0.44%
    Nonaccrual loans to total loans 0.56 %
    Allowance for loan losses to nonaccrual loans 147.52%
    Net charge-offs to average loans (annualized) 0.08%

    The 52 week high was overt $59 and I do not anticipate that number being taken out anytime soon due in large part to the stagnant NIM.

  8. Omeros Corporation (OMER)
    $16.01 $-1.75 (-9.85%)
    Last Updated: Oct 24, 2017 at 1:11 p.m. EDT

    I did not see any news today.

    There was a share offering in August at $22.75.

    A presentation was made at a conference about OMS 721 on 10/20. The presentation had to do with one patient in an ongoing Phase 2 using OMS 721 in thrombotic microangiopathies:

    Recent SA Article (focusing on OMER's one approved drug and its pricing and a settlement with a generic manufacturer regarding that compound):

    I sold my last lot after becoming uncomfortable with the management and the glacier progress of the OMS 721 trial for the treatment of Immunoglobulin A (IgA) nephropathy. As a matter of common sense, if that drug was so great, why was the progress in starting a Phase 3 so slow and why were so few patients enrolled in Phase 2?

    Item 4.B. Sold Remaining 30 Shares of OMER at $21.88:

    That lot was bought at $9.35 last January.

    My lowest purchase price was at $9.03 last January and that lot was sold $20.61:

    Item 2.E.

    While I would consider, assuming no material adverse news, buying back shares at $9, I am not chomping at the bit to buy at $16.

  9. Concert Pharmaceuticals, Inc. (CNCE)
    $18.39 +$2.64 +16.70%
    Day's Range 16.06 - 18.44
    52 Week Range 7.1100 - 19.1130
    Volume 458,642
    Avg. Volume 152,058

    I own a Lotto and could not find any news to account for this move.

    There was news about 5 days ago:

    The chart does show an upside breakout starting on 10/18 which has stalled intraday at the 3/22 prior spike price.

    It is is hard to say what is causing it or whether,the parabolic price spurt will collapse upon itself, stabilize around the current level or head higher.

  10. The rise in the ten year treasury yield today to close near a 2.42% probably put a scare into the Bond Ghouls.

    The Stock Jocks see nothing but blue skies ahead.


    I would say that the GOP's tax plan is on less stable footing after today than was yesterday.

    Once they move beyond happy talk about tax cuts for everybody, and actually produce a concrete plan that may belie that happy talk, the going is likely to get rougher for them.

    The GOP is giving every indication that it is headed for a crack up between the traditional republicans and the nihilists/bomb throwers and wingnuts.

    Jeff Flake voted with Trump on everything as I recall that was important to Trump. Yet he became the enemy of Trump republicans in Arizona because he criticized Trump's character as any Christian would do. Flake is a mormon who is nice to people which does not sit well in Trump's America.


    The IMDZ stock offering went off better than I expected with the company upsizing the offering to 19.5 million shares from the announced 16, plus the standard over allotment for the underwriters. The price was about what I expected at $4.1.


    Today was a tale of two markets in the DJIA.

    DJIA +.72%

    Up Higher than the DJIA
    CAT 4.98%
    MMM 5.91%
    AXP 1.6%
    JPM 1.59% (closed over $100)
    BA 1.40%
    GS 1.12%
    VISA .82%
    HD .78%
    CSCO .67%
    APPL .6%

    Financials and Industrials were generally strong except for GE and Travelers for specific reasons and techs were on balance up


    IBM 2.3%
    GE 1.93%
    JNJ 1.38%
    TRV .94%
    WMT .76% (recently strong)
    MRK .46%
    NKE .45%
    DIS .42
    PFE .36%
    KO .36%

    Weak sectors include consumer staples, drugs, the two Dow dogs IBM and GE, P & C (hurricanes), Cable/Entertainment (drifting weaker for weeks)

    It appears to me that any analyst that previously had something positive to say about GE has now thrown in the towel. I do anticipate a dividend cut, probably down to a $.65 to $.72 annual range.

  11. Ten Year Treasury:

    2.456% + 0.039%
    Last Updated: Oct 25, 2017 at 9:33 a.m. EDT

    1. The ten year is now at a 2.432% yield. It looks like buyers emerged at 2.45%+, aided by a downdraft in stocks.

      S&P 500 Index
      2,545.87 -23.26 -0.91%

      Investors did not care for AT & T's earning report released earlier today.

      $33.47 -$1.39 -3.99%
      Last Updated: Oct 25, 2017 at 12:31 p.m. EDT

      The CAD is continuing it downtrend against the USD as the Bank of Canada sounded a dovish note this morning.

      There is also the potential threat that Donald may tire of the NAFTA renegotiation and start a trade war.

  12. Hope Bancorp, Inc. (HOPE)
    $18.51 +0.48 (+2.66%)
    As of 2:05PM EDT

    HOPE was one of my three 50 share purchases of out-of-favor regional banks. The other two, VLY and FNB, are discussed in this post.

    1.B. Bought 50 HOPE at $15.6:

    Item 1.A. in that post discussed a 100 share purchase of FNB at $12.43 that was later sold as discussed in this post.

    I am able to contain my enthusiasm for the HOPE third quarter report which did beat the consensus E.P.S. estimate:

    HOPE is the creation of a recent merger between two banks that cater to the Korean community. "The mergers of Wilshire Bancorp, Inc. (“Wilshire”) with and into BBCN Bancorp, Inc. (“BBCN”) and Wilshire Bank with and into BBCN Bank were completed on July 29, 2016." The 2016 third quarter does not contain a full 3 months of the combined banks.

    When an investor knows that a bank has engaged in recent merger activity, it is important to look at how NIM is temporarily being favorably impacted by accretion of loan discounts.

    Accretion on purchased non-impaired loans $4.566M
    Accretion on purchased credit-impaired loans $5,389M

    "Accretion benefits net interest income/net interest margin (NII/NIM) as the discount on acquired loans marked to future value (FV) (when a deal closes) is accreted back into interest income over the life of the loan (similar to accretion on a bond). Purchase accounting accretion (PAA) can be scheduled or accelerated where marked loans are resolved early through payoff or disposed at above FV levels. This PAA inflates loan yields, NIM and NII."

    Those numbers are added to interest income. Call it non-cash interest, similar in that respect to the non-cash revenue, included in FFO REIT calculation, that is created by the straight line rent adjustment.

    NIM 3.85% (juiced by accretion accounting)
    The efficiency ratio was good at 44.32%.
    Coverage Ratio: 77.05% (prefer over 100%)
    Charge Off Ratio: .07% (excellent)
    Return on assets (“ROA”) 1.30% (above average)
    Return on equity (“ROE”) 9.26% (below average)
    Total Risk-based Ratio 13.81% (okay, above minimum)
    Tangible common equity per share $10.72
    Tangible common equity to tangible assets 10.63% (good)
    NPA ratio: .89% Okay (prefer <.5%)
    NPL ratio: .99% Okay- - (rising, prefer to see below .5%)

  13. The Republican Chairman of the House Ways and Mean Committee Kevin Brady (R-Texas) stated this morning that changes in the 401 (K) rules are still on the table notwithstanding Trump's tweet.

    The congressional republicans are negotiating with Trump on this issue.

    Trump was then asked whether this was true. His response: “Maybe it is and maybe we’ll use it as negotiating.”

    The Congressional Committee on Taxation told the NYT that "regular 401(k) break when combined with other individual retirement set-asides results in a $115 billion in lost revenue for fiscal year 2018."

    Since the GOP is operating in secret and will not be holding public hearings with testimony before trying to pass its "tax reform" legislation, it is impossible to say what will be in their detailed plan about retirement plans when it is exposed to the light of day shortly before a vote is scheduled, possibly even before the CBO has time to score it.

    I suspect that what you may end up seeing is a tax credit for a $200 or $300 contribution to a regular IRA or possibly a Keogh and a cut back in the deductible amounts for the Keogh possibly based on an income test. I am just guessing.

    Part of this guess is linked to some statements made by Brady about encouraging saving and that most contributions to retirement plans contribute < $200 or less range annually.

    I would note that the average savings in a 401(K), according to Fidelity, is about $97.5K and the average annual contribution is $5,850:

    That is not going to cut it when spending on medical cost alone, with traditional medical care, would probably exceed $250K over the expected lifetimes of a couple retiring at age 65 this year.

    About 51% of adults participate in retirement plans. I learned about how unusual my individual bond ownership was after looking at this study.

    See Recently Published St. Louis Fed Study:

    See also Federal Reserve Annual Survey: Retirement

    Trump also said today that he is very intelligent, not in response to a question or a criticism, but just because he felt like praising himself again.

  14. I have published a new post: