Economy:
Interest rates declined last Friday after the FED released a statement that many participants were starting to question whether inflation would reach the FED's 2% target. The Fed - Monetary Policy
Excerpt:
"With core inflation readings continuing to surprise on the downside, however, many participants observed that there was some likelihood that inflation might remain below 2 percent for longer than they currently expected, and they discussed possible reasons for the recent shortfall. Several participants pointed to a diminished responsiveness of inflation to resource utilization, to the possibility that the degree of labor market tightness was less than currently estimated, or to lags in the response of inflation to greater resource utilization as plausible explanations for the continued soft readings on inflation. A few noted that secular influences, such as the effect of technological innovation in disrupting existing business models, were likely offsetting cyclical upward pressure on inflation and contributing to below-target inflation.
In discussing the implications of these developments, several participants expressed concern that the persistently weak inflation data could lead to a decline in longer-term inflation expectations or may have done so already; they pointed to low market-based measures of inflation compensation, declines in some survey measures of inflation expectations, or evidence from statistical models suggesting that the underlying trend in inflation had fallen in recent years. In addition, the possibility was raised that monetary policy actions or communications over the past couple of years, while inflation was below the Committee's 2 percent objective, may have contributed to a decline in longer-run inflation expectations below a level consistent with that objective. Some other participants, however, noted that measures of inflation expectations had remained stable this year despite the low readings on inflation and judged that this stability should support the return of inflation to the Committee's objective."
Closing Prices Wednesday 11/22/17:
IEF $106.37 $+0.34 +0.32%: iShares 7-10 Year Treasury Bond ETF
TLT $127.15 +$0.41 +0.32%: iShares 20+ Year Treasury Bond ETF
ZROZ $120.89 +$0.62 +0.52%: PIMCO 25 Year Zero Coupon U.S. ETF
LQD +$121.33 +0.47 +0.39%: iShares Investment Grade Corporate Bond ETF
Existing-Home Sales Grow 2.0 Percent in October-nar.realtor;
Existing-home sales rebound in October even as inventory crunch worsens- MarketWatch
Durable Goods:
The Markit's Composite PMI for the Eurozone, which combines manufacturing and services, hit its highest level in more than 6½ years. markiteconomics.com
Eurozone business 'booming' as PMIs jump - MarketWatch
ECB officials are at odds over end date for QE - MarketWatch
++++
The market is in one of its ebullient moods that eventually lead to a blowoff and a catastrophic decline.
It is hard to predict when the worm will turn.
A correction now would simply be viewed as a buying opportunity.
I suspect that a major bear market will occur only when the factors underlying the bullish thesis are undermined by current facts, a hurricane of ice cold water.
Goldman: ‘Rational exuberance’ to drive stock market in 2018 - MarketWatch I would call Goldman's opinion as a mere reflection of the herd's consensus. The tax cuts for corporations will be a positive for earnings, all other factors being equal, but will not be a driving force for the real economy that is already near or at full employment before the tax cuts. A more important factor would be a continuation of synchronized worldwide GDP growth. By all other things being equal, I am referring to certain events, which could cause a drag on U.S. growth, continuing to be absent, including a recession, a trade war with Canada and Mexico, and/or a meaningful decline in U.S. consumer spending.
Trump’s trade negotiator says Nafta talks are not making headway - MarketWatch
Fed Debate Over Rate-Hike Pace in Focus Amid Strong Job Market - Bloomberg
++++
GOP's "Tax Reform"-Just More Trickle Down Rather Than Trickle Up:
Senate GOP tax plan to ultimately raise taxes for half of US: Tax Policy Center
The TPC estimates that the GOP's "tax reform" plan will generate $169B in additional revenue derived from increases in GDP over the 2018-2027 period and only $136B between 2028 to 2037. Analysis of the Tax Cuts and Jobs Act | Tax Policy Center Using this prediction, federal revenues could fall by close to $2 trillion over the next ten years compared to existing law.
Compared to current law, 9% of taxpayers would pay more in 2019, 12% in 2025 and 50% in 2027.
It only gets worse for those in the bottom three quintiles when the GOP starts to slash social programs that benefit them.
The GOP's tax plan is designed by rich people for rich people. It is more of an establishment republican tax plan than a populist one, designed to appease their wealthiest donors, more so than any prior GOP tax plan enacted into law.
The Secretary of the Treasury Mnuchin claims the tax cuts will pay for themselves. There’s Still No Evidence That Tax Cuts Pay for Themselves | The Fiscal Times
Mnuchin and Trump's economic advisor Gary Cohn, who are spearheading the GOP's tax reform bill, can be expected to make that claim given their wealth. Two Bankers Are Selling Trump’s Tax Plan. Is Congress Buying? - The New York Times
Mnuchin's net worth is close to $300M. He and his wife like to show it too.
Cohn's net worth, which may not include his offshore tax shelters, is estimated at $600M. Cohn received $285M from Goldman Sachs earlier this year. Cohn will probably be remembered by history for this pithy saying "Only morons pay the estate tax", meaning really rich morons.
Both Mnuchin and Cohn claim that the entire purpose of this legislation has nothing to do with causing their net worth to climb through lower tax payments. No, just put that thought out of your head. Instead, it is their most earnest desire to reduce the tax burden for the working stiffs who are barely making ends meet.
Mnuchin Asked to Use $25,000/Hour Government Jet for His Honeymoon | Vanity Fair
A tax plan that is far more trickle up-than trickle down-is more likely to produce far better results for GDP growth, simply due to more disposable income is given to those likely to spend it. Placing additional tax burdens on those who need tax cuts the most will detract from GDP growth and U.S. corporate profits over time.
Publicly traded corporations will use most of the excess cash to buy back stock, increase dividends, buy other companies that results in job losses, and increase executive compensation. None of those uses will have a material positive impact on the real economy whose growth is dependent on consumer spending.
States Warn of Budget Crunch Under Republican Tax Plan - The New York Times
House Bill Would Raise Taxes on Teachers by $210M Annually: Newsmax; House Republicans have a little-known plan to raise taxes on teachers by $2 billion - Chicago Tribune
Expiring provisions threaten to upend promised tax relief - The Washington Post
++++++++
Trump and Roy Moore:
In Trump's world, a denial of sexual misconduct is equivalent to being innocent.
After attacking Senator Franken's conduct, a reporter asked Trump's press secretary what was the difference between Trump's conduct and that of Senator Franken. She replied that the difference is that Donald denied the accusations made by 15 or so women, while Franken admitted to inappropriate behavior with one. Trump vs. Franken: White House says there's a 'very clear distinction' So as long as Trump never admits to wrongdoing, it never happened.
In a similar vein, Trump came to the defense to Roy Moore.
"He denies it. Look, he denies it. If you look at all the things that have happened over the last 48 hours. He totally denies it. He says it didn't happen. And look, you have to look at him also. .. Well, he denies. I mean, he denies. I mean, Roy Moore denies it. And by the way, it is a total denial. And I do have to say 40 years is a long time. He's run eight races and this has never come up. Forty years is a long time." Trump also called the centrist Democrat running against Moore as a "liberal" who Trump says is "terrible on crime .. terrible on the border ... terrible on military" without offering any specifics on those issues. Trump all but endorses Roy Moore - CNN; Trump says Republican Roy Moore must be elected in Alabama - NBC News Facts do not matter in the modern day GOP.
I would call Donald's diatribe an endorsement of Moore and a belittling of the multiple claims that Moore had inappropriate contacts with children.
President Trump and accusations of sexual misconduct: The complete list - The Washington Post
Roy Moore campaign refuses to substantiate claims about accuser - The Washington Post (when the Moore campaign was confronted by the WP with evidence refuting the campaign's claim about an accuser and was asked to provide evidence supporting its claims, Brett Doster, the Moore campaign strategist, replied as follows: “The Washington Post is a worthless piece of crap that has gone out of its way to railroad Roy Moore. There is no need for anyone at the Washington Post to ever reach out to the Roy Moore campaign again because we will not respond to anyone from the Post now or in the future. Happy Thanksgiving.”)
Roy also denied that this was his signature written on an accuser's high school yearbook:
++++
Solar Capital Ltd. to Redeem Remaining $75 Million of 6.75% Senior Unsecured Notes due 2042; Increases Expected 2018 Net Investment Income by $0.04 Per Share
I owned 50 shares of this exchange traded SU bond. The issuer partially redeemed 13 shares and I received the proceeds from that redemption last Friday:
The remaining 37 shares will be redeemed by Solar using the proceeds of a 4.5% note maturing in 2023. Solar Capital Ltd. Prices Public Offering of $75 Million 4.50% Notes Due 2023 Nasdaq:SLRC
+++++++
Senate GOP tax plan to ultimately raise taxes for half of US: Tax Policy Center
The TPC estimates that the GOP's "tax reform" plan will generate $169B in additional revenue derived from increases in GDP over the 2018-2027 period and only $136B between 2028 to 2037. Analysis of the Tax Cuts and Jobs Act | Tax Policy Center Using this prediction, federal revenues could fall by close to $2 trillion over the next ten years compared to existing law.
Compared to current law, 9% of taxpayers would pay more in 2019, 12% in 2025 and 50% in 2027.
It only gets worse for those in the bottom three quintiles when the GOP starts to slash social programs that benefit them.
The GOP's tax plan is designed by rich people for rich people. It is more of an establishment republican tax plan than a populist one, designed to appease their wealthiest donors, more so than any prior GOP tax plan enacted into law.
The Secretary of the Treasury Mnuchin claims the tax cuts will pay for themselves. There’s Still No Evidence That Tax Cuts Pay for Themselves | The Fiscal Times
Mnuchin and Trump's economic advisor Gary Cohn, who are spearheading the GOP's tax reform bill, can be expected to make that claim given their wealth. Two Bankers Are Selling Trump’s Tax Plan. Is Congress Buying? - The New York Times
Mnuchin's net worth is close to $300M. He and his wife like to show it too.
Cohn's net worth, which may not include his offshore tax shelters, is estimated at $600M. Cohn received $285M from Goldman Sachs earlier this year. Cohn will probably be remembered by history for this pithy saying "Only morons pay the estate tax", meaning really rich morons.
Both Mnuchin and Cohn claim that the entire purpose of this legislation has nothing to do with causing their net worth to climb through lower tax payments. No, just put that thought out of your head. Instead, it is their most earnest desire to reduce the tax burden for the working stiffs who are barely making ends meet.
Mnuchin Asked to Use $25,000/Hour Government Jet for His Honeymoon | Vanity Fair
A tax plan that is far more trickle up-than trickle down-is more likely to produce far better results for GDP growth, simply due to more disposable income is given to those likely to spend it. Placing additional tax burdens on those who need tax cuts the most will detract from GDP growth and U.S. corporate profits over time.
Publicly traded corporations will use most of the excess cash to buy back stock, increase dividends, buy other companies that results in job losses, and increase executive compensation. None of those uses will have a material positive impact on the real economy whose growth is dependent on consumer spending.
States Warn of Budget Crunch Under Republican Tax Plan - The New York Times
House Bill Would Raise Taxes on Teachers by $210M Annually: Newsmax; House Republicans have a little-known plan to raise taxes on teachers by $2 billion - Chicago Tribune
Expiring provisions threaten to upend promised tax relief - The Washington Post
++++++++
Trump and Roy Moore:
In Trump's world, a denial of sexual misconduct is equivalent to being innocent.
After attacking Senator Franken's conduct, a reporter asked Trump's press secretary what was the difference between Trump's conduct and that of Senator Franken. She replied that the difference is that Donald denied the accusations made by 15 or so women, while Franken admitted to inappropriate behavior with one. Trump vs. Franken: White House says there's a 'very clear distinction' So as long as Trump never admits to wrongdoing, it never happened.
In a similar vein, Trump came to the defense to Roy Moore.
"He denies it. Look, he denies it. If you look at all the things that have happened over the last 48 hours. He totally denies it. He says it didn't happen. And look, you have to look at him also. .. Well, he denies. I mean, he denies. I mean, Roy Moore denies it. And by the way, it is a total denial. And I do have to say 40 years is a long time. He's run eight races and this has never come up. Forty years is a long time." Trump also called the centrist Democrat running against Moore as a "liberal" who Trump says is "terrible on crime .. terrible on the border ... terrible on military" without offering any specifics on those issues. Trump all but endorses Roy Moore - CNN; Trump says Republican Roy Moore must be elected in Alabama - NBC News Facts do not matter in the modern day GOP.
I would call Donald's diatribe an endorsement of Moore and a belittling of the multiple claims that Moore had inappropriate contacts with children.
President Trump and accusations of sexual misconduct: The complete list - The Washington Post
Roy Moore campaign refuses to substantiate claims about accuser - The Washington Post (when the Moore campaign was confronted by the WP with evidence refuting the campaign's claim about an accuser and was asked to provide evidence supporting its claims, Brett Doster, the Moore campaign strategist, replied as follows: “The Washington Post is a worthless piece of crap that has gone out of its way to railroad Roy Moore. There is no need for anyone at the Washington Post to ever reach out to the Roy Moore campaign again because we will not respond to anyone from the Post now or in the future. Happy Thanksgiving.”)
Roy also denied that this was his signature written on an accuser's high school yearbook:
++++
Solar Capital Ltd. to Redeem Remaining $75 Million of 6.75% Senior Unsecured Notes due 2042; Increases Expected 2018 Net Investment Income by $0.04 Per Share
I owned 50 shares of this exchange traded SU bond. The issuer partially redeemed 13 shares and I received the proceeds from that redemption last Friday:
The remaining 37 shares will be redeemed by Solar using the proceeds of a 4.5% note maturing in 2023. Solar Capital Ltd. Prices Public Offering of $75 Million 4.50% Notes Due 2023 Nasdaq:SLRC
+++++++
1. Small Ball:
A. Added 20 ENY at $8.32-Used Commission Free Trade:
This brings me up to 244+ shares in this Schwab account.
Quote: Guggenheim Canadian Energy Income ETF
Earlier this year, I decided to exit my small position in my IB account and to use my Schwab commission free trades to buy back those shares. I sold 100 ENY shares at $8.8 (9/21/17) that had been bought at $8.63 (2/8/17).
This brings me up to 244+ shares in this Schwab account.
Quote: Guggenheim Canadian Energy Income ETF
Earlier this year, I decided to exit my small position in my IB account and to use my Schwab commission free trades to buy back those shares. I sold 100 ENY shares at $8.8 (9/21/17) that had been bought at $8.63 (2/8/17).
Last Discussed: Stocks, Bonds & Politics: Item # 3.B. Bought 100 ENY at $8.63 (2/10/17 Post)(contains snapshots of prior trades).
As noted in that post, my most fortunate trade was to sell 150 shares at $17.44 shortly before crude oil started to crater in the 2014 summer. Stocks, Bonds & Politics; Item # 7 Sold 155+ ENY at $17.55 (profit snapshot = $296.37).
Sponsor's Webpage: Guggenheim Canadian Energy Income ETF
All Holdings
Dividends are paid quarterly at a variable rate. I am reinvesting the dividends to buy additional shares.
The recent price has been negatively impacted by a decline in the CAD/USD and declines primarily in the Canadian infrastructure stocks including Enbridge, Enbridge Holdings, and Inter-Pipeline. TransCanada has been mostly in a flat trading range.
CAD / USD Currency Chart. Canadian Dollar to US Dollar Rates
Canadian Dollar Price Charts:
Enbridge Inc. Interactive Charts
Enbridge Income Fund Holdings Inc. Interactive Chart
Inter Pipeline Ltd. Interactive Chart
TransCanada Corp. Interactive Chart
B. Bought 5 OHI Shares at $26.6-Used Commission Free Trade:
Quote: Omega Healthcare Investors Inc. (OHI)
OHI History in This Account:
Last Three Transactions:
Stocks, Bonds & Politics: Item # 6 Sold 39 Shares at $32.56 (10/5/17 POST)-see above
Stocks, Bonds & Politics: Item #5.A. Sold 107 OHI at $34.55 (7/15/17 Post)-see above
Stocks, Bonds & Politics: Item 2.A. Sold 52+ OHI at $33.6-Eliminated Position in Roth IRA account (5/8/17 Post)-Vanguard account
I have been lowering my sell price target ranges as I digest a worrisome news flow. The first dispositions were over $37 back in 2016, while any price over $30 would cause me to consider selling my highest cost lots now.
The largest realized gain was on this 101+ share lot sold at $37.52 in a satellite taxable account:
The 100 share lot shown in the preceding snapshot was bought in December 2013 at $29.85: Item # 2: Bought 100 OHI at $29.85. If I had held onto that lot until now, I would have an unrealized loss rather than the realized gain shown above.
Item # 6. Sold 100 OHI at $37.28: Update For Equity REIT Basket Strategy As Of 8/27/16 - South Gent | Seeking Alpha
OHI Trading Profits To Date: $1,346.79
I have sold 2 of my 4 OHI SU bonds. Stocks, Bonds & Politics: Item # 1.D. Sold 2 OHI 4.375% SU Bonds Maturing 8/1/23 at 102.92 (6/29/17 Post)
I currently own 2 maturing in 2025 and am currently close to break-even on price: Item # 2 Bought 2 Omega Healthcare 4.5% Senior Unsecured Bonds Maturing on 1/15/2025: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 6/24/16 - South Gent | Seeking Alpha
Depending on the maturity, the price of OHI's senior unsecured debt has remained relatively stable or drifted down slightly since the common stock started to crater from the mid-30s. The SU bonds are still rated Baa3 and BBB-, both the lowest notch investment grade ratings.
See generally: Stocks, Bonds & Politics: Omega Healthcare (OHI)(1/14/17 Post)
I view OHI as potentially being toxic. OHI became toxic back in 1999-2002, when OHI experienced several tenant bankruptcies. The dividend was eliminated for several years and the stock price fell to the low single digits.
The bulls on this stock downplay that scenario happening again, but that risk is always present with REITs that lease properties to nursing home operators.
A casual reading of SA articles and comments to those articles highlight the bullish mindset of individual investors regarding OHI, which encompasses downplaying all of the currently known negatives. OHI Analysis - Omega Healthcare Investors, Inc | Seeking Alpha
Judging just from the short interest in this stock, professional investors do not share that enthusiasm. Omega Healthcare Investors Inc (OHI) Historical Data of Short Interest, Institutional Ownership, and Insider Ownership
Institutional ownership is concentrated in index funds. The Vanguard REIT Index fund owns 7.49% of the outstanding shares for example. Holders
Many of those operators are challenged financially even before some event pushes them over the edge. That is just a basic fact of life in this business sector.
An adverse change in government reimbursements or lawsuits are two among many such events. The government is becoming more aggressive in demanding large settlements for alleged billing irregularities and billing fraud.
Wage inflation, occupancy issues, and rent escalations can add to the woes of marginal operators.
A number of these problems are front and center now for OHI. Two of its largest tenants are in financial difficulty and one appears headed for bankruptcy or something very close to one.
Omega Announces Third Quarter 2017 Financial Results; Increased Dividend Rate for 21st Consecutive Quarter
CEO Taylor Pickett on Q3 2017 Results - Earnings Call Transcript | Seeking Alpha
Several tenants are facing government investigations.
During the recent conference call, management disclosed a non-top 10 tenant who was in arrears.
Over the longer term, the government has not prepared for burgeoning healthcare expenditures for the baby boom generation.
Retirement savings for over one-half of the baby boom generation is clearly inadequate. A more appropriate description would be woefully inadequate.
Where did baby boomers go wrong? This generation isn’t financially prepared for retirement - MarketWatch; Baby Boomer Expectations for Retirement 2017: IRI; Are We in a Baby Boomer Retirement Crisis? | Investopedia; Saving Habits: Baby Boomers Least Likely to Have Emergency Fund | Fortune.com
That is not a good mixture for the future, especially when healthcare costs are rising at a faster rate than inflation and will likely continue to do so.
The GOP looks like it wants to take an ax to government spending on healthcare, particularly Medicaid.
Every proposal that the GOP offered earlier this year to repeal and replace Obamacare, which included the Medicaid expansion, would have been bad news for nursing home operators if passed and signed by Trump into law.
While the need for stays at nursing homes will grow in the coming years, the cost is so high now, and is rising at such a rapid rate, that demand may fall simply due to a lack of affordability, and that adverse supply/demand scenario would be aggravated by likely tighter Medicaid eligibility standards in the years to come.
Will OHI rebound? Maybe it will but I will always have my eye on the exit when making purchases of this stock which I view as permeated with warning signs.
I have been lowering my sell price target ranges as I digest a worrisome news flow. The first dispositions were over $37 back in 2016, while any price over $30 would cause me to consider selling my highest cost lots now.
The largest realized gain was on this 101+ share lot sold at $37.52 in a satellite taxable account:
 |
| Sold 9/6/16 101+ Shares +$887.91 |
Item # 6. Sold 100 OHI at $37.28: Update For Equity REIT Basket Strategy As Of 8/27/16 - South Gent | Seeking Alpha
OHI Trading Profits To Date: $1,346.79
I have sold 2 of my 4 OHI SU bonds. Stocks, Bonds & Politics: Item # 1.D. Sold 2 OHI 4.375% SU Bonds Maturing 8/1/23 at 102.92 (6/29/17 Post)
I currently own 2 maturing in 2025 and am currently close to break-even on price: Item # 2 Bought 2 Omega Healthcare 4.5% Senior Unsecured Bonds Maturing on 1/15/2025: Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 6/24/16 - South Gent | Seeking Alpha
Depending on the maturity, the price of OHI's senior unsecured debt has remained relatively stable or drifted down slightly since the common stock started to crater from the mid-30s. The SU bonds are still rated Baa3 and BBB-, both the lowest notch investment grade ratings.
See generally: Stocks, Bonds & Politics: Omega Healthcare (OHI)(1/14/17 Post)
I view OHI as potentially being toxic. OHI became toxic back in 1999-2002, when OHI experienced several tenant bankruptcies. The dividend was eliminated for several years and the stock price fell to the low single digits.
The bulls on this stock downplay that scenario happening again, but that risk is always present with REITs that lease properties to nursing home operators.
A casual reading of SA articles and comments to those articles highlight the bullish mindset of individual investors regarding OHI, which encompasses downplaying all of the currently known negatives. OHI Analysis - Omega Healthcare Investors, Inc | Seeking Alpha
Judging just from the short interest in this stock, professional investors do not share that enthusiasm. Omega Healthcare Investors Inc (OHI) Historical Data of Short Interest, Institutional Ownership, and Insider Ownership
Institutional ownership is concentrated in index funds. The Vanguard REIT Index fund owns 7.49% of the outstanding shares for example. Holders
Many of those operators are challenged financially even before some event pushes them over the edge. That is just a basic fact of life in this business sector.
An adverse change in government reimbursements or lawsuits are two among many such events. The government is becoming more aggressive in demanding large settlements for alleged billing irregularities and billing fraud.
Wage inflation, occupancy issues, and rent escalations can add to the woes of marginal operators.
A number of these problems are front and center now for OHI. Two of its largest tenants are in financial difficulty and one appears headed for bankruptcy or something very close to one.
Omega Announces Third Quarter 2017 Financial Results; Increased Dividend Rate for 21st Consecutive Quarter
CEO Taylor Pickett on Q3 2017 Results - Earnings Call Transcript | Seeking Alpha
Several tenants are facing government investigations.
During the recent conference call, management disclosed a non-top 10 tenant who was in arrears.
Over the longer term, the government has not prepared for burgeoning healthcare expenditures for the baby boom generation.
Retirement savings for over one-half of the baby boom generation is clearly inadequate. A more appropriate description would be woefully inadequate.
Where did baby boomers go wrong? This generation isn’t financially prepared for retirement - MarketWatch; Baby Boomer Expectations for Retirement 2017: IRI; Are We in a Baby Boomer Retirement Crisis? | Investopedia; Saving Habits: Baby Boomers Least Likely to Have Emergency Fund | Fortune.com
That is not a good mixture for the future, especially when healthcare costs are rising at a faster rate than inflation and will likely continue to do so.
The GOP looks like it wants to take an ax to government spending on healthcare, particularly Medicaid.
Every proposal that the GOP offered earlier this year to repeal and replace Obamacare, which included the Medicaid expansion, would have been bad news for nursing home operators if passed and signed by Trump into law.
While the need for stays at nursing homes will grow in the coming years, the cost is so high now, and is rising at such a rapid rate, that demand may fall simply due to a lack of affordability, and that adverse supply/demand scenario would be aggravated by likely tighter Medicaid eligibility standards in the years to come.
Will OHI rebound? Maybe it will but I will always have my eye on the exit when making purchases of this stock which I view as permeated with warning signs.
2. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Boston Private Bank 1.6% CDs (monthly interest) Maturing on 5/14/19 (18 month CDs):
Holding Company: Boston Private Financial Holdings Inc. (BPFH)
I have owned BPFH in the past.
Currently, I own BPFH's Series D equity preferred stock: Boston Private Financial Holdings Inc. Non-Cumulative Preferred Series D (BPFHP)
I have sold some BPFHP shares. Stocks, Bonds & Politics: Item # 2 Sold 50 BPFHP AT $24.84 (7/19/2014) As mentioned in that post, I thought then that this was my last remaining lot, having sold earlier another 50 share lot, but another 50 shares was later discovered hiding in my Schwab account. That lot was purchased at a total cost of $22.18 (12/16/13).
B. Bought 1 Treasury .75% Coupon Maturing on 4/15/18:
YTM at 1.228%
Current Yield .7515%
When I placed this order, this is what the Fidelity order book looked like:
Note that slightly better interest rates apply with larger lot purchases.
For a 1 bond purchase, however, the difference between 99.781 and 99.800 would be $.45 over a one year period. At the interest rates shown in that table, I simply would not want to tie up almost $25K buying 25 bonds (exactly $24,945.25 plus accrued interest paid to the seller) at 99.781 to secure a 1.273% YTM vs. the 1.228% for 1 bond. The one bond purchase maturing in mid-May 2018 at least serves a purpose in my short term term bond/CD ladder. Neither interest rate will be sufficient for most households to meet their financial objectives and needs.
I bought back in January 2017 in my Schwab account and still own it:
Schwab does not charge a brokerage commission for plain vanilla treasury trades.
I will frequently buy the same treasury several times prior to maturity, usually in 1 or 2 bond lots, in my Schwab, Fidelity and Vanguard accounts.
None of those brokers charge a commission for plain vanilla treasury trades.
Schwab does charge a commission for trades in TIPs and Zero Coupon Treasuries including Treasury Strips so I will never use that broker to buy those securities. Investing Costs and Pricing | Charles Schwab
I own TIPs only in my Fidelity and Vanguard Roth IRAs where no brokerage commission is levied.
C. Bought 1 Treasury 1.5% Coupon Maturing on 2/28/19:
YTM: 1.567%
Current Yield 1.5%
D. Bought 1 Treasury 1.25% Coupon Maturing on 12/15/2018:
YTM: 1.5224%
Current Yield 1.254%
E. Bought 1 Treasury 1.625% Coupon Maturing on 7/31/2020:
YTM: 1.7464%
Current Yield at 1.63%
I am simply redeploying proceeds from maturing short term bonds and CDs into more of the same. I am picking up higher yields with the new short term instruments.
I am losing some low yielding short term bonds and CDs that were bought earlier this year. For example, two .875% Microsoft SU bonds matured on 11/15/17, and two Great Southern Bank .75% CDs that paid monthly interest matured on 11/22/17. That CD was a 9 month CD. Rates on similar maturity CDs now offer yields closer to 1.5% or almost double the coupon rate.
The 1 bond or CD purchases are more gap fillers in my ladder strategy.
Going beyond November 2018, the number of currently owned short term bonds and CDs are small with large gaps in maturities during every month.
So I am just starting to fill up those months between 11/18 through 11/20, and am cautious with my purchases now since I anticipate short term rates to rise in 2018.
The buys now reflect a balance between that opinion being accurate and wrong (i.e. rates falling or staying about the same).
F. Bought 1 Royal Bank of Canada 1.5% SU Bond Maturing on 7/29/19:
Issuer: Royal Bank of Canada Stock Quote (U.S.: NYSE); Royal Bank of Canada Stock Quote (Canada: Toronto)
Finra Page: Bond Detail
Credit Rating:
Moody's at A1
Moody's downgrades Canadian Banks
Fitch at AA
Fitch Affirms Royal Bank of Canada at 'AA/F1+'; Outlook Revised to Stable
Bought at a Total Cost of 99.179
YTM Then at 1.997%
Current Yield at TC = 1.51%
While I did not remember owning this bond when I bought this 1 bond lot, I later discovered that I sold a 1 bond lot at 99.516 (8/4/17): Stocks, Bonds & Politics: Item # 2.C. (8/13/17 Post)-Item # 1.B. Bought at a Total Cost of 98.906 (4/4/17 Post)
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 2 Mastec 4.875% SU Bonds Maturing on 3/15/23:
This was a junk rated bond when I bought it back in 2016 and is still rated in junk territory at Ba3 and BB-.
Profit Snapshot: +$96
FINRA Page: Bond Detail
Issuer: MasTec Inc. (MTZ)
MTZ Analyst Estimates
SOLD at 102
YTM Then at 4.224%
Current Yield at 4.78%
Bought at a Total Cost of 97.1
YTM Then at 5.398%
Current Yield at 5.02%
Item # 3: Bought 2 Mastec SU Bonds at a total cost of 97.1: Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 7/22/16 - South Gent | Seeking Alpha
4. Long Term Bond Strategy: Reaching for Yield in High Risk Junk-Minimum Exposure:
A. Bought Back 1 Qwest Capital 7.75% SU Bond Maturing on 2/15/31:
I may end up going to the well one too many times. This SU bond is now a CenturyLink Inc. (CTL) obligation and is rated deep into junk territory.
FINRA Page: Bond Detail (prospectus is not linked)
Prospectus
CTL Bond Ratings: Credit Ratings | CenturyLink
S & P at B+
Bought at a Total Cost of 87.681
YTM Then at 9.392%
Current yield at 8.84%
For any high risk bond, I pay more attention to the current yield than to the YTM.
My last round trip lasted slightly more than 1 month:
Stocks, Bonds & Politics: Item # 2.B. Sold 1 Qwest SU 2031 Bond.
I discussed that purchase here. As discussed in that comment, this 2031 bond was the underlying security in trust certificates that I previously owned. All of those trust certificates have been redeemed by the owners of the call warrants.
CTL acquired Qwest which had acquired U.S. West, one of the Baby Bells.
CTL needs to eliminate its overly generous dividend, which is easy for me to day since I do not own the common stock.
CTL's recently completed acquisition of Level 3, adding substantially to its debt load which was already too high IMO. All of the cash used to pay the common stock dividends needs to be redirected toward debt retirements.
CenturyLink completes acquisition of Level 3 - Nov 1, 2017 (CTL paid $26.25 in cash and 1.426 CTL shares for each share of Level 3)
Sourced: Page 14 10-Q for the Q/E 9/30/17
Qwest has a number of senior unsecured exchange traded bonds outstanding that have longer maturities. These bonds are what I call Baby Bonds in that their par value is $25 rather than $1K:
Qwest Corp. 6.125% Notes due 2053 (CTY)
Qwest Corp. 6.625% Notes due 2055 (CTZ)
Qwest Inc. 6.75% Notes due 2057 (CTDD)
Qwest Corp. 6.875% Notes due 2054 (CTV)
Qwest Corp. 7% Notes due 2056 (CTAA)
Qwest Corp. 7% Notes 205 (CTX)
Qwest Corp. 7% Notes due 2052 (CTU)
Qwest Corp. 7.5% Notes due 2051 Stock Quote (CTW)(partially called in May 2017)
Stocks, Bonds & Politics: Exchange Traded Baby Bonds
The Qwest Corporation SU bonds are rated higher than Qwest Capital SU bonds.
The Qwest Corporation bonds may still have a BBB- rating from S & P which assigns a BB rating to the remaining Qwest Capital bonds or two notches lower.
I am relying on Fidelity and Quantumonline for the Qwest bond ratings since I have not been to find any recent information on the S & P rating.
From Fidelity:
Qwest Corporation 2021:
Moody's no longer rates the Qwest Capital bonds and recently downgraded Qwest Corporation SU bonds to Ba2, slightly higher than CTL SU bonds: Moody's downgrades CenturyLink to Ba3; outlook negative
While Qwest bonds have substantial risks, Qwest Capital bonds are riskier as highlighted by the lower ratings and much higher yields.
There is also one CTL exchange traded bond: CenturyLink Inc. 6.5% Notes 2056 Stock Quote (CTBB)
CTL has outstanding $1K par value bonds. The 7.2% 2025 SU bond traded on 11/15/17, the day before my purchase, at $89.5, giving it a YTM of 9.067%. That bond is rated B2 by Moody's and BB by S & P.
Order Books for CTL Bonds as of 11/16/17:
The U.S. West SU bonds are rated Ba2 and BBB-. (e.g. 6.875% U.S. West 2033)
5. Sold 300 of the Canadian ETF FIE:CA at C$7.64:
Profit Snapshop: +C$160
The cost basis shown in the IB snapshots includes the brokerage commission.
Stocks, Bonds & Politics: Item # Added 200 FIE:CA at C$7.13 (9/3/17 Post); Stocks, Bonds & Politics: Item # 5.B. Bought 100 FIE:CA at C$7 (6/1/2017 Post)
Quote: iShares Canadian Financial Monthly Income ETF
Last Discussed: Stocks, Bonds & Politics: Item # 4.A. Sold 100 FIE:CA at C$7.57 (10/30/17 Post)(contains snapshots of prior round trip trades)
Sponsor's Website: iShares Canadian Financial Monthly Income ETF
Current Monthly Dividend: C$.04 per share
I have now sold 2100 shares this year.
I discussed selling 1500 shares at C$ 7.4 here.
I discussed selling 200 shares in this post: Stocks, Bonds & Politics: Item # 4.A. Sold 200 FIE:CA at C$7.54
6. Long Term Bond Strategy-U.S. TIPs in Roth IRA Accounts:
A. Sold 1 TIP .625% Coupon Maturing on 2/15/43:
Trading History In This Roth IRA Account:
The amount column includes the adjustments for accrued interest and the inflation factor accretion to principal.
Stocks, Bonds & Politics: Item 5.A. Bought Back 1 TIP .625% Coupon Maturing in 2043 at 93.375 (10/19/17 Post)
I do a significant amount of gut trading in long duration TIPs. At the moment, I have a hair trigger for long duration TIPs whose prices will go down when nominal interest rates for similar maturity, non-inflation protected treasuries go up.
I just bought this TIP a few weeks ago, but my gut informed me that long term interest rates are about to make a move up. If that proves prescient,
I may be able to buy this TIP back at a lower price than my previous purchases.
I am not sacrificing much in current yield with this disposition.
The lowest purchase price, unadjusted for the inflation factor, was at $90.41 (12/14/2016) during the interest rate spike occurring after Trump's election, when the Bond Ghouls believed that Trump would be introducing expansionary fiscal policy, including tax cuts and infrastructure spending, neither of which has yet to happen.
2017 Daily Treasury Yield Curve Rates
Note that the 20 and 30 year treasury yields started to move up on 9/8/17 and continued that uptrend until 10/26/17. Since then, the rates moved slightly down and then stabilized.
The real yield on the 20 and 30 year TIPs mimicked that movement of non-inflation protected treasuries.
The 30 year TIP's real yield was at .79% on 9/8/17 and hit its recent high of 1% on 10/26/17. The only way for a 30 year TIP bought on 9/8/17 to move from a .79% that day to a 1% real yield on 10/26/17 is to go down in price, just like the nominal treasury maturing at the same time which went from a 2.67% yield on 9/8 to a 2.96% on 10/26.
2017 Daily Treasury Real Yield Curve Rates
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.
YTM at 1.228%
Current Yield .7515%
When I placed this order, this is what the Fidelity order book looked like:
Note that slightly better interest rates apply with larger lot purchases.
For a 1 bond purchase, however, the difference between 99.781 and 99.800 would be $.45 over a one year period. At the interest rates shown in that table, I simply would not want to tie up almost $25K buying 25 bonds (exactly $24,945.25 plus accrued interest paid to the seller) at 99.781 to secure a 1.273% YTM vs. the 1.228% for 1 bond. The one bond purchase maturing in mid-May 2018 at least serves a purpose in my short term term bond/CD ladder. Neither interest rate will be sufficient for most households to meet their financial objectives and needs.
I bought back in January 2017 in my Schwab account and still own it:
I will frequently buy the same treasury several times prior to maturity, usually in 1 or 2 bond lots, in my Schwab, Fidelity and Vanguard accounts.
None of those brokers charge a commission for plain vanilla treasury trades.
Schwab does charge a commission for trades in TIPs and Zero Coupon Treasuries including Treasury Strips so I will never use that broker to buy those securities. Investing Costs and Pricing | Charles Schwab
I own TIPs only in my Fidelity and Vanguard Roth IRAs where no brokerage commission is levied.
C. Bought 1 Treasury 1.5% Coupon Maturing on 2/28/19:
YTM: 1.567%
Current Yield 1.5%
D. Bought 1 Treasury 1.25% Coupon Maturing on 12/15/2018:
YTM: 1.5224%
Current Yield 1.254%
E. Bought 1 Treasury 1.625% Coupon Maturing on 7/31/2020:
YTM: 1.7464%
Current Yield at 1.63%
I am simply redeploying proceeds from maturing short term bonds and CDs into more of the same. I am picking up higher yields with the new short term instruments.
I am losing some low yielding short term bonds and CDs that were bought earlier this year. For example, two .875% Microsoft SU bonds matured on 11/15/17, and two Great Southern Bank .75% CDs that paid monthly interest matured on 11/22/17. That CD was a 9 month CD. Rates on similar maturity CDs now offer yields closer to 1.5% or almost double the coupon rate.
The 1 bond or CD purchases are more gap fillers in my ladder strategy.
Going beyond November 2018, the number of currently owned short term bonds and CDs are small with large gaps in maturities during every month.
So I am just starting to fill up those months between 11/18 through 11/20, and am cautious with my purchases now since I anticipate short term rates to rise in 2018.
The buys now reflect a balance between that opinion being accurate and wrong (i.e. rates falling or staying about the same).
F. Bought 1 Royal Bank of Canada 1.5% SU Bond Maturing on 7/29/19:
Issuer: Royal Bank of Canada Stock Quote (U.S.: NYSE); Royal Bank of Canada Stock Quote (Canada: Toronto)
Finra Page: Bond Detail
Credit Rating:
Moody's at A1
Moody's downgrades Canadian Banks
Fitch at AA
Fitch Affirms Royal Bank of Canada at 'AA/F1+'; Outlook Revised to Stable
Bought at a Total Cost of 99.179
YTM Then at 1.997%
Current Yield at TC = 1.51%
While I did not remember owning this bond when I bought this 1 bond lot, I later discovered that I sold a 1 bond lot at 99.516 (8/4/17): Stocks, Bonds & Politics: Item # 2.C. (8/13/17 Post)-Item # 1.B. Bought at a Total Cost of 98.906 (4/4/17 Post)
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 2 Mastec 4.875% SU Bonds Maturing on 3/15/23:
This was a junk rated bond when I bought it back in 2016 and is still rated in junk territory at Ba3 and BB-.
Profit Snapshot: +$96
FINRA Page: Bond Detail
Issuer: MasTec Inc. (MTZ)
MTZ Analyst Estimates
SOLD at 102
YTM Then at 4.224%
Current Yield at 4.78%
Bought at a Total Cost of 97.1
YTM Then at 5.398%
Current Yield at 5.02%
Item # 3: Bought 2 Mastec SU Bonds at a total cost of 97.1: Update For Exchange Traded Bonds And Preferred Stocks Basket Strategy As Of 7/22/16 - South Gent | Seeking Alpha
4. Long Term Bond Strategy: Reaching for Yield in High Risk Junk-Minimum Exposure:
A. Bought Back 1 Qwest Capital 7.75% SU Bond Maturing on 2/15/31:
I may end up going to the well one too many times. This SU bond is now a CenturyLink Inc. (CTL) obligation and is rated deep into junk territory.
FINRA Page: Bond Detail (prospectus is not linked)
Prospectus
CTL Bond Ratings: Credit Ratings | CenturyLink
S & P at B+
Bought at a Total Cost of 87.681
YTM Then at 9.392%
Current yield at 8.84%
For any high risk bond, I pay more attention to the current yield than to the YTM.
My last round trip lasted slightly more than 1 month:
Stocks, Bonds & Politics: Item # 2.B. Sold 1 Qwest SU 2031 Bond.
I discussed that purchase here. As discussed in that comment, this 2031 bond was the underlying security in trust certificates that I previously owned. All of those trust certificates have been redeemed by the owners of the call warrants.
CTL acquired Qwest which had acquired U.S. West, one of the Baby Bells.
CTL needs to eliminate its overly generous dividend, which is easy for me to day since I do not own the common stock.
CTL's recently completed acquisition of Level 3, adding substantially to its debt load which was already too high IMO. All of the cash used to pay the common stock dividends needs to be redirected toward debt retirements.
CenturyLink completes acquisition of Level 3 - Nov 1, 2017 (CTL paid $26.25 in cash and 1.426 CTL shares for each share of Level 3)
Sourced: Page 14 10-Q for the Q/E 9/30/17
Qwest has a number of senior unsecured exchange traded bonds outstanding that have longer maturities. These bonds are what I call Baby Bonds in that their par value is $25 rather than $1K:
Qwest Corp. 6.125% Notes due 2053 (CTY)
Qwest Corp. 6.625% Notes due 2055 (CTZ)
Qwest Inc. 6.75% Notes due 2057 (CTDD)
Qwest Corp. 6.875% Notes due 2054 (CTV)
Qwest Corp. 7% Notes due 2056 (CTAA)
Qwest Corp. 7% Notes 205 (CTX)
Qwest Corp. 7% Notes due 2052 (CTU)
Qwest Corp. 7.5% Notes due 2051 Stock Quote (CTW)(partially called in May 2017)
Stocks, Bonds & Politics: Exchange Traded Baby Bonds
The Qwest Corporation SU bonds are rated higher than Qwest Capital SU bonds.
The Qwest Corporation bonds may still have a BBB- rating from S & P which assigns a BB rating to the remaining Qwest Capital bonds or two notches lower.
I am relying on Fidelity and Quantumonline for the Qwest bond ratings since I have not been to find any recent information on the S & P rating.
From Fidelity:
Qwest Corporation 2021:
While Qwest bonds have substantial risks, Qwest Capital bonds are riskier as highlighted by the lower ratings and much higher yields.
There is also one CTL exchange traded bond: CenturyLink Inc. 6.5% Notes 2056 Stock Quote (CTBB)
CTL has outstanding $1K par value bonds. The 7.2% 2025 SU bond traded on 11/15/17, the day before my purchase, at $89.5, giving it a YTM of 9.067%. That bond is rated B2 by Moody's and BB by S & P.
Order Books for CTL Bonds as of 11/16/17:
The U.S. West SU bonds are rated Ba2 and BBB-. (e.g. 6.875% U.S. West 2033)
5. Sold 300 of the Canadian ETF FIE:CA at C$7.64:
Profit Snapshop: +C$160
The cost basis shown in the IB snapshots includes the brokerage commission.
Stocks, Bonds & Politics: Item # Added 200 FIE:CA at C$7.13 (9/3/17 Post); Stocks, Bonds & Politics: Item # 5.B. Bought 100 FIE:CA at C$7 (6/1/2017 Post)
Quote: iShares Canadian Financial Monthly Income ETF
Last Discussed: Stocks, Bonds & Politics: Item # 4.A. Sold 100 FIE:CA at C$7.57 (10/30/17 Post)(contains snapshots of prior round trip trades)
Sponsor's Website: iShares Canadian Financial Monthly Income ETF
Current Monthly Dividend: C$.04 per share
I have now sold 2100 shares this year.
I discussed selling 1500 shares at C$ 7.4 here.
I discussed selling 200 shares in this post: Stocks, Bonds & Politics: Item # 4.A. Sold 200 FIE:CA at C$7.54
6. Long Term Bond Strategy-U.S. TIPs in Roth IRA Accounts:
A. Sold 1 TIP .625% Coupon Maturing on 2/15/43:
Trading History In This Roth IRA Account:
The amount column includes the adjustments for accrued interest and the inflation factor accretion to principal.
Stocks, Bonds & Politics: Item 5.A. Bought Back 1 TIP .625% Coupon Maturing in 2043 at 93.375 (10/19/17 Post)
I just bought this TIP a few weeks ago, but my gut informed me that long term interest rates are about to make a move up. If that proves prescient,
I may be able to buy this TIP back at a lower price than my previous purchases.
I am not sacrificing much in current yield with this disposition.
The lowest purchase price, unadjusted for the inflation factor, was at $90.41 (12/14/2016) during the interest rate spike occurring after Trump's election, when the Bond Ghouls believed that Trump would be introducing expansionary fiscal policy, including tax cuts and infrastructure spending, neither of which has yet to happen.
2017 Daily Treasury Yield Curve Rates
Note that the 20 and 30 year treasury yields started to move up on 9/8/17 and continued that uptrend until 10/26/17. Since then, the rates moved slightly down and then stabilized.
The real yield on the 20 and 30 year TIPs mimicked that movement of non-inflation protected treasuries.
The 30 year TIP's real yield was at .79% on 9/8/17 and hit its recent high of 1% on 10/26/17. The only way for a 30 year TIP bought on 9/8/17 to move from a .79% that day to a 1% real yield on 10/26/17 is to go down in price, just like the nominal treasury maturing at the same time which went from a 2.67% yield on 9/8 to a 2.96% on 10/26.
2017 Daily Treasury Real Yield Curve Rates
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.
Hello southgent,
ReplyDeleteI wanted to get your opinion on this:
https://www.marketwatch.com/story/when-one-of-historys-greatest-trades-finally-blows-up-it-could-get-ugly-all-over-2017-11-27
I was reviewing your Vix asset allocation model and I stumbled across the above link. After looking at some of the YouTube videos and the linked articles, I wondered what you thought of the systemic risk of the end bull run of the Vix.
Certainly I understand your theory of the growth to infinity concept and am not smart enough or bold enough to play this game, but I wondered what you thought the worst case scenario would be for the endgame.
Thanks a lot, Sam
Sam: There are a large number of derivative products, including VIX futures, that could act together to accelerate a stock market decline. Warren Buffett once called these derivatives "weapons of mass destruction" and a "time bomb".
ReplyDeletehttp://www.telegraph.co.uk/business/2016/05/01/warren-buffett-issues-a-fresh-warning-about-derivatives-timebomb/
Few investors will be out of stocks when the Big Bang hits that results in a catastrophic decline and far more would have exited too soon.
For now, there is no crack visible to me yet in the conditions that created the exuberance for stocks.
I mentioned in this post and elsewhere that it make take an hurricane of ice cold water splashed on the growing number of perma bulls before their ardor is cooled down.
The market's elevator down is always far faster than the one moving up. I have previously noted several events that could spark a correction or a bear market.
My Vix Model is currently flashing a green light. The Stable Vix Pattern is unusually bullish with a current trend below 10. Prior to the recent movement below 10, I defined the most stable pattern as 10 to 15.
https://finance.yahoo.com/quote/%5EVIX/chart?p=%5EVIX
The market received a lift today after the Senate Finance Committee voted 11 to 10 to send its version of "tax reform" to the Senate. Senator Corker voted yes based on assurances that there would end up being a trigger mechanism to raise taxes in the event there is a large shortfall in revenues. I do not see other republicans supporting an automatic tax increase in the event their wildly optimistic prediction about future revenues turns out to be substantially off to the downside which is likely to be the case IMO.
ReplyDeletehttps://www.bloomberg.com/news/articles/2017-11-28/gop-tax-cut-plan-heads-to-senate-floor-for-vote-likely-this-week
So the issue then becomes whether Corker and the remaining deficit hawks will vote for a bill that increases the debt by $1.4+ trillion over just a ten year period. The Senate bill will also open Alaska's Arctic National Wildlife Reserve to oil drilling-possibly a bone thrown to the GOP's senators from that state.
While the S & P 500 gained .98% today, regional bank stocks did much better, with KRE rising 3.4%.
https://www.marketwatch.com/investing/fund/kre
Regional banks will generally benefit from a reduction in the corporate tax bracket to 20% from 35%, since most probably pay north of 28%. The average through last year for those banks was 29.2%:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/taxrate.htm
The exceptions will generally be banks that had huge losses in 2008-2009 that are still being carried forward to offset income and other significant current loss items.
I have not yet discussed 4 recent regional bank stock purchases. The total amount spent is close to $2K. I will be discussing those small adds in the coming weeks.
Today was marked by a rotation out of the stocks that had done the heavy lifting in the S & P 500 and into stocks that would likely be prime beneficiaries of the corporate tax cut, primarily financial and media companies, retailers and a few healthcare stocks that provide services.
ReplyDeleteThis rotation caused the Nasdaq Composite Index to decline 87.97 points or .97% while the DJIA rose +103.97 or +0.44%.
Out of
Facebook, Inc. (FB) $175.13 -$7.29 (-4.00%)
Netflix, Inc. (NFLX) $188.15 -$11.03 (-5.54%)
Amazon.com, Inc. (AMZN) $1,161.27 -$32.33 (-2.71%)
Apple Inc. (AAPL) $169.48 -$3.59 (-2.07%)
Alphabet Inc. (GOOG) $1,021.66- $25.75 (-2.46%)
Into
DJIA Components:
JPMorgan Chase & Co. (JPM) $103.73 +2.37 (+2.34%)
Citigroup (C) $75.04 +$1.34 (+1.82%)
Wal-Mart Stores (WMT) $97.56 +$0.79 (+0.82%)
American Express (AXP) $96.60 +$1.32 (+1.39%)
Travelers Companies (TRV) $134.53+ $1.52 (+1.14%)
Walt Disney Company (DIS) $105.24 +$1.83 (+1.77%)
Home Depot, Inc. (HD) $177.25 +$1.57 (+0.89%)
The regional bank ETF continued to outperform the S & P 500:
SPDR S&P Regional Banking ETF (KRE) $59.84 +$1.90 (+3.28%)
S&P 500 2,626.07-0.97 (-0.04%)
Investors have started to price into the bank stocks three potential favorable developments: (1) easing of regulations; (2) expansion of the yield curve and NIM; and (3) lower taxes.
My regional bank stocks have popped for two consecutive days.
E.G.
My largest dollar position is in BBT:
BB&T Corporation (BBT)
Today's Close at $49.12 +$1.59 (+3.35%)
https://finance.yahoo.com/quote/BBT/?p=BBT
My largest percentage unrealized gain remains in WASH:
Washington Trust Bancorp, Inc. (WASH)
$58.35 +$2.35 (+4.20%)
https://finance.yahoo.com/quote/WASH/?p=WASH
I personally do not see these prices as being justified unless all 3 conditions come to pass. A failure to lower the corporate tax rate to 20% would be the most important.
Noise today in the FED's Beige Book about inflation rising helped in the hoped for yield curve expansion, but that hope has been dashed on multiple occasions for about 4 years running now.
Bonds took a hit:
iShares 20+ Year Treasury Bond ETF (TLT)
$125.54 -$1.25 (-0.99%)
If the GOP manages to pass its tax bill and then somehow pass a major infrastructure spending bill on top of the tax cuts, then I suspect that the FED will soon see more inflation than it wants.
What I am seeing now is the resurgence of the Trump trade that gelled immediately after his election. I mentioned in a post on 11/9 how that would play into regional bank stock outperformance.
https://seekingalpha.com/instablog/434935-south-gent/4931695-south-gents-comment-blog-4-reits-preferred-stocks-bonds-regional-banks-healthcare-and#comment-73572600
That trade petered out earlier this year when it become apparent, and could not be disputed by anyone still in possession of their senses, that the yield curve was contracting rather than expanding. The move is back into gear, with investors stomping down on the accelerator, but it remains to be seen for how long.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2017/11/observations-and-sample-of-recent_30.html