Thursday, December 21, 2017

Observations and Sample of Recent Trades: BPFHP, ENB, FHB, GIS, PRPFX

Economy

While I view the GOP's "tax reform" to be a significant negative for homebuilders and companies who significantly depend on originating new mortgages or selling products used in new home construction, I do not expect the negative impacts to be felt until next year. The new tax law may have contributed to some late year buying of new and existing homes. 


In many localities, the changes in the tax code that will become effective 1/1/18 will increase the cost of home ownership and that will negatively impact affordability and financial incentives for home ownership. 


The SPDR S&P Homebuilders ETF and the iShares U.S. Home Construction ETF have been in a persistent uptrend over the past year, signaling that the Stock Jocks are not worried at all. If I am right, it still may take an ocean of Arctic Water to drench the Stock Jocks before their ardor is cooled on this sector. 


The GOP has undermined, in part, the government's financial incentives for home ownership that have been built into home prices for decades. (see discussion below)  


The ramifications of this shift will become apparent first in states where property and state income taxes are high. The problem will be aggravated by other factors that make home ownership less affordable, including a rise in mortgage interest rates from the currently abnormally low rates. Combining a normalized 30 year mortgage rate with the GOP's tax changes will make the problem clearer. 



30-Year Fixed Rate Mortgage Average in the United States-St. Louis Fed

30-Year Fixed-Rate Mortgages Since 1971 - Freddie Mac (When I built my home in 1982, where I still reside, the average 30 year rate was 16.04% with 2.2 points. I paid in cash)


The realtor's association predicts a 10% negative impact on home prices resulting from the GOP's tax reform. It is impossible to make that prediction now. Over time, I would expect the impact to be greater due to a persistent decline in new buyers. The negative impacts will be far greater than 10% in some localities and barely noticeable in others. 


I consequently would not pay much attention to the latest new home starts data: New Construction.pdf


Comcast joins AT&T in offering $1,000 employee bonuses - MarketWatch (one time for publicity?)  


The government revised third quarter GDP growth to 3.2% from 3.3%. Less consumer spending contributed to the lower revision. U.S. Third-Quarter Growth Revised Down to 3.2% Pace From 3.3%-Bloomberg Consumer spending was revised to +2.2% from +2.3% in this final revision, down from +3.3% in the second quarter. Core PCE inflation was revised down to 1.3% from 1.4%. 


News Release: Gross Domestic Product

For the week ending 12/16/17, initial unemployment claims-seasonally adjusted-increased 20,000 to 245,000. The consensus estimate was for 235K. Unadjusted initial claims totaled 287,103, up 1.5% from the previous week. News Release


The initial unemployment claims and GDP report has calmed the Bond Ghouls anxiety attack. 


Chicago Fed economic index cools from October’s best reading in nearly a decade - MarketWatch

Existing-Home Sales Soar 5.6 Percent in November to Strongest Pace in Over a Decade | www.nar.realtor

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Market Commentary and Markets

Why REITs may be worth a second look in 2018 - MarketWatch (the current uptrend in intermediate term interest rates, however, is a negative) 



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Trump and More GOP Welfare for the Rich


There was a last minute change in the GOP's "tax reform" legislation designed to lower Donald's taxes and to benefit some GOP senators.  


Trump, Real Estate Investors Get Late-Added Perk in Tax Bill - BloombergLast-Minute Real Estate Tax Break In GOP Bill Will Benefit Trump 


Trump claimed again this week that the purpose of the GOP's plan was to raise the average worker's pay and to give those middle income taxpayers a huge tax break. Trump is still campaigning as a Populist, but is governing as a Plutocrat. 


GOP Tax Bill Hands Biggest Benefits to Top Earners, Study Says - BloombergDistributional Analysis of the Conference Agreement for the Tax Cuts and Jobs Act | Full Report | Tax Policy Center


The new pass through provisions will provide much fodder for lawyers and accountants to significantly reduce the tax rates for the wealthy.  The Games They Will Play: An Update on the Conference Committee Tax Bill (download linked report for more) That report was an eye opener. 


I now expect that the GOP's plan will add closer to $2 trillion to the deficit over the next ten years rather than the current JCT forecast of $1+ trillion after taking into account tax revenues generated by growth directly linked to the GOP's "tax reform". If my forecast proves prescient, that will make it even more unlikely that the individual taxpayers provisions will be extended when they expire in 2025. 


The reduction in the top individual tax rate goes further than either the House or the Senate's bills. “Under current law, the highest rate is 39.6 percent for married couples earning over $470,700. The GOP bill would drop that to 37 percent and raise the threshold at which that top rate kicks in, to $500,000 for individuals and $600,000 for married couples." 


IMO, even that reduced top rate will be paid only by those who do not have good tax advice on the legal loopholes created by the GOP to lower their tax rates significantly below the highest nominal rate.   


Do U.S. corporations need more cash to create jobs? They are already sitting on a $2.3 trillion mound of cash. This Tax Bill Is a Trillion-Dollar Blunder-Bloomberg


Where companies' new tax savings will likely go - CBS News


Trump may delay signing the bill until January 2018 in order to delay the automatic spending cuts required by the PayGo law and caused by the GOP's tax reform, including a $25B cut to Medicare, to  2019 (after the 2018 mid-term election), rather than next year. No tax cuts for Christmas? Trump might delay bill signing - CBS NewsTrump Plans Tax Signing on Jan. 3 Due to Technical Issue - Bloomberg


Ryan Pushes Trump to Follow Tax Win With U.S. Welfare Revamp- Bloomberg (increase defense spending and cut spending on social programs are the next GOP objectives)

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Home Ownership,  The GOP's Tax Reform and Regional Banks:  


For a large number of regional banks, single family home lending represents a substantial percentage of their business. 


The business can become less profitable when there is a decline in new mortgage loans. 


In the past,  the main cause for declines was  a spike in interest rates that led to lower loan demand. 


More recently, there has been a trend to delay household formations that are frequently the precursor to buying a first home and other factors have contributed to a fall off  in demand for home ownership as well. Those other factors would include lack of affordability and an unwillingness to assume the many disadvantages of home ownership (pluses and minuses to just about everything).        




Sourced from Quarterly Residential Vacancies and Homeownership, Third Quarter 2017


While the home ownership rate has been moving up some starting in 2016, something is about to happen that could easily reverse that upward trend.  


A new negative factor is about to occur with the passage of the GOP's tax reform that takes away some benefits to home ownership. The reasons are summarized in this NYT article: Homeowners Have Had It Good. Too Good, Says the Tax Bill. - The New York Times 


The first problem starts with increasing the standard deduction ("SD") to $12K for singles and $24K for couples. And it is important to keep in mind, since republicans will never mention this fact, most of the increase in the SD is taken away by eliminating all exemptions. 


Currently, about half of home owners pay enough in property taxes, state income taxes and mortgage interest to justify itemizing their deductions on Schedule B. 


The increase in SD will reduce that number to about 14% according to Zillow. Tax Reform With $750k Cap on Mortgage Interest Deduction Would Leave 1 in 7 U.S. Homes Eligible - Zillow Research Think of it in this manner. Those families who no longer will itemize lose all of their exemptions and their deductions for state income taxes and property taxes and gain the lesser amount of an increase in their SD.  


While taxpayers do not view those deductions as a tax subsidies or entitlements, that is what they are. The federal government is subsidizing home ownership through the mortgage interest and property tax deductions, and indirectly through the deduction for state income taxes that causes the total deduction amount to easily exceed the SD. It is the combination of those tax subsidies that help taxpayers pay for their homes. Remember that the increase in the SD in the GOP's is largely taken away by eliminating the exemptions and the extra SD for those over 65. 


It would not be any different if the government gave those taxpayers the equivalent tax savings in a check rather than in a deduction from their income tax liability. Those deductions are what is appropriately called tax expenditures. 


But, for a large number of taxpayers, that subsidy is about to be taken away by increasing the SD, eliminating the exemptions, and capping the deduction at $10K for state income and property taxes. 


Over time, this kind of massive change will have an adverse impact on the percentage of households owning their homes, and everything that goes with home ownership including mortgage loans originated by regional banks.   

Another GOP effort to take the government out of encouraging home ownership is the new cap on the mortgage interest deduction for new home purchases. The new cap will allow only interest to be deducted on $750K in mortgages (first and second home) starting on 1/1/18. 

Existing mortgages are grandfathered under existing law, but that is not the important point for the economy. It is important to some individuals who have existing mortgages between $750 and $1M. What's in the GOP's Final tax bill: USA TodayEverything You Need to Know About the GOP Tax Bill - Bloomberg  


The point for the economy going forward is that there will be less new home construction and less demand for existing homes in localities where homes are priced above that cap. There would also be a negative impact on home construction and existing home prices where the combined property tax and state income tax payments materially exceed the new $10K cap even when the mortgage is less than $750K.  


A significant part of this tax legislation aims to punish several blue states. 


Perhaps the Democrats will target the red states for their "tax reform" package. Wait. Squash that thought. I live in a red state. 


Yes, most Tennesseans will benefit from this bill. Property taxes are low. There is no state income tax except on some dividends and interest payments over a deduction threshold and that is being phased out. Some residents will think twice before selling their existing home for $750K with a grandfathered mortgage and buying a bigger and more expensive one that has to financed with a mortgage greater than $750K. You can buy a big house in Brentwood, TN for $750K to $1M. Brentwood Real Estate - Brentwood TN Homes For Sale | Zillow Here is an example listed at $734+K found by clicking a circle randomly: 9405 Atherton Ct, Brentwood, TN 37027 | MLS #1867597 - Zillow


It is important to evaluate how this tax bill will negatively impact certain businesses that are core to the U.S. economy. New home construction is a major source of U.S. economic activity and that sector will be hit by this legislation. The only question is how bad.  


Stockowners are big winners as corporations will use the extra cash to buy back stock and increase dividends. E.P.S. will go up all other items impacting earnings remaining equal. But, the stock market is not the same as the real economy. The reduction in tax rates give an artificial boost to earnings unrelated to operations and the benefits will flow primarily to foreigners and the top income quintile of  U.S. taxpayers. 


Trump’s Tax Plan Gives $520 Billion to Wealthy Foreigners at the Expense of American Middle Class


Slashing Corporate Taxes: Foreign Investors Are Surprise Winners | Full Report | Tax Policy Center

Only 10% of Republican tax cut goes to middle class, congressional monitor says - MarketWatch


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Reducing Stock Allocation By Taking Fund Distributions in Cash:  


I received this week the 4th quarter dividend payments from the Vanguard Equity Income Fund (VEIRX). The December payments include both the quarterly income payment plus the short term and long term capital gain distributions for the year. 



+$946.39
I have been decreasing my share number in this fund by selling $1K  whenever the total value exceeds $51K. Taking this last distribution in cash is just another way to reduce my stock allocation. The $946.39 total dividend was transferred to my Vanguard Prime Money Market Fund that is currently paying 1.31% which will continue to trend up as lower yielding securities mature and are replaced by higher yielding ones (assuming the FED continues to raise the FF rate).   

Another example is my Vanguard Capital Opportunity Fund-Investor Class (VHCOX)where I recently pared my position by selling shares purchased with dividends. Item # 6 (12/4/2017 Post)




The only other Vanguard mutual fund currently owned is Vanguard Health Care Fund-Investor Classwhich has not yet paid its year end distribution. 


The largest cash dividend amounts originate from the funds owned in my T. Rowe Price account where I anticipate the tally will exceed $7K by year end. 


I am not likely to redirect the cash back into the funds that have performed extremely well. 


I did send back $250 to the worst performing fund that owns commodity stocks. I am referring here to the inappropriately named T Rowe Price New Era Fund (PRNEX) While I admit to being an old fashioned investor, New Era means something different even to me than Exxon, DuPont, Baker Hughes, and Southern Cooper. 


While I have meaningfully reduced my stock allocation this year, the overall dollar amount is higher than my allocation in 2006-2007. The percentage allocation of total investable assets is what has gone down. So I still have a meaningful stock allocation after taking chips off the table in a slow and methodical manner.  


I will increase my stock allocation temporarily, usually as a trade but also in a reallocation among stock sectors that starts with a buy with the sell coming later. An example of the later is the First Hawaiian (FHB) purchases discussed below. 


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Boston Private Financial Holdings Inc. 6.95% Non-Cumulative Preferred Series D (BPFHP) 


I have been using commission free trades to sell exchange traded bonds or preferred stocks where I believed the issuer was about to call the security at the $25 par value and 3 other conditions were met: 


(1) I could sell at a priced greater than the accrued and unpaid dividend;  


(2) I could sell at a profit; and 


(3) A redemption at par value would result in a loss or a barely  profitable trade. 


BPFHP is likely to be called on 6/15/18: 




If called next June, there will be two more quarterly dividends of $.4344 per share remaining or $.8688 per share. I could sell this security now at $25.6 but that would be less than the total dividend amount. That price indicates a consensus opinion that this security will be called in June 2018. If the security was not subject to a redemption at its $25 par value, the price would be significantly higher. 


I am down to owning 50 shares in an account where I have commission free trades, but 2 of the 3 conditions outlined above are not applicable to this position (numbers 1 and 3): 




So I am likely to hold this one until the issuer redeems at par. 


I initially bought shares during the 2013 interest rate spike and discussed one purchase here: Item # 2 Bought: 50 BPFHP at $22 (12/10/13 Post)


I have owned as part of my regional bank strategy the common shares but no longer have a position: Bought: 50 BPFH at $12.35 (5/10/14 Post)


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Portfolio Management


A new wrinkle in my portfolio management strategy utilizes my outstanding commission free trades that will expire next August. I have about 3 times as many free trades left in my Fidelity account compared to my Schwab account.   


I will be buying the same stock in both accounts. The lots will be 10 shares in the Fidelity account where I will average down and a larger lot bought in the Schwab account where I will not average down. 


An example of this trade is the stock discussed in Item # 1 below. 


Given the recent pop in interest rates, I am not likely to sell another intermediate term bond until there is a major reversal in the uptrend. I have already pared my allocation by over $100K. I discuss selling $3K in principal amount in Item #5 below. I have sold another $12K in principal amount that I have not yet discussed here. Those trades will be discussed in subsequent posts. I am way behind in discussing CD/Bond trades.  


For maturities in the 1/1/25 to 12/31/27 time frame, I have reduced my investment grade corporate bond allocation down to $39K in principal amount. The 2024 maturities have been reduced to $12K.  


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1. REGIONAL BANK BASKET STRATEGY


A. Bought 50 First Hawaiian Shares at $29 and 10 First Hawaiian at $29.11: Usd Commission Free Trades


10 share purchase in Fidelity Account-Commission Free




I will buy more only at lower prices, adding no more than 40 more shares in this account.  The next purchase would be at a press less than $28.5. 


50 Share purchase at $29: Schwab Account






Closing Price 12/20/17: FHB $29.07 -$0.34 -1.16%

52 Week Range: $26.3 to $35.47

Quote: First Hawaiian Inc. (FHB)


Consensus 2018 E.P.S. on Purchase Dates: $1.74 (probably does not include the tax cut benefit yet since the 2017 E.P.S. estimate is at $1.63)
FHB Analyst Estimates 

Branches: Owned and Leased


First Hawaiian Bank: Hawaii's Largest and Oldest Bank - First Hawaiian Bank (57 branches throughout Hawaii, 3 in Guam and 2 in Saipan)  


I looked at the 2016 Annual Report to see how many of the bank offices are owned which may be material given the value of office properties in Hawaii (25 branches are owned as is the main office):  




Sourced: Page 49 of 10-K


There is no way for me to assess the value of owned real estate. I did look at the Main Office located at 999 Bishop Street in Honolulu: Google Maps


Recent Article3 Top Bank Stocks to Buy in December: Motley Fool


Dividend: The current quarterly rate is $.22 per share. At that rate and a $29.11 total cost per share, the yield is about 3.023%. At a $29 TC, the yield rises slightly to 3.0345%. 


Relationship to BNP Paribas S.A. (Paris): BNP bought this bank back in 2011 and took FHB public again in 2016 by selling some of its shares. Timeline of FHB - First Hawaiian Bank


BNP intends to continue selling shares until it no longer has a "controlling interest". This snapshot contains information about BNP's stock sales to date:  




As noted in that excerpt, BNP still owns about 62% of FHB's stock. So there is an ongoing stock overhang. 


Sourced:  10-Q for the Q/E 9/30/17


Effective Tax Rate: This number was high at "37.7% compared with 37.1% in the previous quarter and 38.4% percent in the same quarter last year.  The increase in the effective tax rate in the third quarter of 2017 compared to the prior quarter was primarily due to a $0.75 million release of tax reserves during the prior quarter. The higher effective tax rate in the third quarter of 2016 was due to non-deductible offering expenses incurred during the quarter." This quote is from the 2016 third quarter earnings report.


Effective Tax Rates for 2014, 2015 and 2016:




Sourced: Page 139 10-K


Last Earnings Report: Of concern here is the lack of E.P.S. growth Y-O-Y, the relatively low NIM numbers, and a slight contraction in NIM:  



The efficiency ratio is excellent. ROA is above 1%. ROE is at 9.03%, below my preference for greater than 10%. The capital ratios are okay. The non-accrual loan to total loans ratio is excellent at .06%. The net charge off ratio was good at .13%.  

Loan and deposit growth is good


Quote from 10-Q at pages 50-51: 10-Q for the Q/E 9/30/17 


"Total loans and leases were $12.1 billion as of September 30, 2017, an increase of $629.3 million or 6% from December 31, 2016. We experienced strong growth in our commercial real estate portfolio as corporations continued to invest in their businesses and sought to acquire new real estate assets to expand their businesses. We also continued to experience strong growth in our residential real estate portfolio as housing demand continued to remain strong. 


Total deposits were $17.6 billion as of September 30, 2017, an increase of $801.0 million or 5% from December 31, 2016."


End of Quote: 


The ratio of non-interest bearing deposits to total deposits is relevant on NIM as is the maturity lengths of timed deposits: 




About 33% of deposits are non-interest bearing. There will be considerable turnover at higher rates for timed deposits. Timed deposits with maturities less than 6 month amounted to $3.29+ billion out of a $4.645+B total in that category. 


Visa Restricted Shares




Sourced: First Hawaiian, Inc. Reports Third Quarter 2017 Financial Results and Declares Dividend and 10-Q


Chart: The stock has declined in price over the past year:



Loan Categories:



Hawaii is one of the blue states targeted by the GOP in their tax legislation that just passed. Hawaii Income Tax Brackets 2018 The bank has a diversified loan book however as shown in the previous snapshot.


The best possible world for banks next year would include an expanding yield curve, lower taxes than in 2017 which is now a given, less regulation which is probable, growth in loans and deposits, and charge-offs remaining near historic lows with the NPL and NPA ratios remaining at or falling below historical numbers for an expansion.  


For First Hawaiian, the charge off and NPL ratios are already near rock bottom. I doubt that the efficiency ratio could be prudently improved unless it results from branch consolidation. To improve earnings growth, NIM needs to expand along with loan growth and more profits in non-lending parts of the banking business (e.g. trust management) 


I do not believe the FHB price currently reflects either possible meaningful improvements in those areas or the increase in net income directly related to the slash in FHB's effective federal tax rate. NIM expansion remains the big no show and investors want to actually see improvement before pricing related E.P.S. growth. 

2. Small Ball

A. Sold 10 of 25 GIS at $56.18-Used Commission Free Trade




Profit Snapshot: +$54.83




Item # 1.B. Bought 10 GIS at $50.7 (10/31/17 Post) 


Quote: General Mills Inc. (GIS)


While the GIS stock price increased by 11.85% from $50.7 to $56.18 over a short period, the fundamental problems faced by GIS and other packaged food companies have not changed.


I knew that GIS was going to report earnings on 12/20 when I sold this lot and was concerned that another negative earnings report was in the offing.  


General Mills met the previously lowered consensus E.P.S. forecast for its second fiscal quarter and revised up its 2018 F/Y organic sales forecast to a range between flat and down 1% compared to a previous range of a decline between 1 and 2 percent. E.P.S. declined in the quarter by 8% to $.74. Adjusted E.P.S. was down 5% in constant currency at $.82. Net sales increased by 2% with organic sales rising 1% in the second fiscal quarter. "Net sales for the U.S. Meals & Baking operating unit declined 2 percent, and U.S. Yogurt net sales were down 11 percent." 


General Mills Reports Fiscal 2018 Second-Quarter Results


This leaves me with 15 shares held in my Fidelity account that have been bought using commission free trades: 




Owning 15 shares feels about right to me taking into account my investment objectives. The Stock Jocks were apparently almost thrilled with the report: 


Closing Price 12/20/17: GIS $58.76 +$1.13 +1.96% 


GIS Annual Effective Tax Rates: Fiscal Years Ending in May 



Sourced Page 44  Form 10-K

B. Added $100 to PRPFX



SEC Filed Semi-Annual Report for the Period Ending 7/31/17 


This fund has significantly underperformed the S & P 500 over the past five years due primarily to its unique asset allocation scheme which caused me to liquidate my position in two accounts as noted below. 


5 Year Average Annual Total Return (through 12/15/17) 


Permanent Portfolio Permanent Portfolio Class I (PRPFX) = +1.82%

SPDR® S&P 500 ETF (SPY) = +15.87%

It would be fair to say that this fund has some catching up to do. One way to catch up is far the SPY to lose almost 37%, which happened in 2008, while PRPFX lost only -8.36%.


And, there are years when PRPFX will outperform the S & P 500 as well.


E.G.

2007:
SPY +5.14%
PRPFX +12.43%

2010:

SPY 15.06%
PRPFX 19.31%

2011:

SPY  +1.89%
PRPFX +2.12% 

The problems started in 2012:


PRPFX Total Returns: Date Through 12/15/17




SPY Total Returns




Schwab allows me to add as little as $1 to a mutual fund. The minimum at Fidelity is $250 and $1K at Vanguard for a non-Vanguard mutual fund. 


I just received this fund's annual dividend and simply added to it with this small purchase. 


I will frequently buy a few shares after a fund goes ex dividend for a large year end distribution or an annual distribution.  


I have not sold any shares in my Schwab account. 


In my Vanguard account, I liquidated my position earlier this year: 



In my Fidelity account, I liquidated my position in 2015: 



This fund maintains close to a 25% allocation in gold and silver bullion. 




The "dollar assets" are kept in low yielding U.S. treasuries and short term investment grade corporate bonds. Those assets have contributed insignificant amounts to total returns over the past five years after subtracting the fund's expense ratio of .82% per the last Annual Report. 


The Swiss Franc assets are in Swiss government bonds. Those bonds pay almost nothing and the CHF/USD has been in a bear market since the SNB declared a Jihad against its own currency in 2011 which is still ongoing. 


National resource stocks have been in a bear market starting in the 2014 summer, when crude oil prices started to crash. The fund also suffered from some poor stock selections in this sector. 


The precious metals have been in a bear market since 2011 with short term cyclical bull moves within the confines of that long term secular downtrend. The last bull market started in 2002 and ended in 2011. When gold and silver prices started to decline, and overall performance became at best anemic, investors started to pull money out of this fund. The fund had to downsize its positions that resulted in unusually large capital gain distributions in 2013, 2014, 2015 totaling $9.38 per share. 




The 2017 annual dividend consisted of $.33584 per share classified as ordinary income and $.54359 in capital gains per share. 


In short, the fund's allocation scheme just has not worked for over five years now due to bear markets in gold, silver, the CHF/USD, and natural resource stocks and low interest rates on its dollar assets. Things change of course, but who knows when.   


3. Pared ENB: Sold 50 shares at $39.03: This disposition is a tad more than small ball. 




Item 3. Added 20 ENB at $36.5 (11/17/17 Post) 


Profit Snapshot: = +$72.48




QUOTE: Enbridge Inc. (ENB)


I have kept these shares held in my Fidelity account, where I will average down in small lots. I will sell the highest cost lot at over $42 per share and will continue reinvesting the dividend: 




Closing Price 12/20/17:  ENB $38.53 -$0.30 -0.77% 


4. Short Term Bond/CD Ladder Basket Strategy

A. Added 1 Anheuser Busch 1.9% SU Bond Maturing on 2/1/19


I now own two bonds.


FINRA Page: Bond Detail


Bought at a Total Cost of 99.991

YTM Then at 1.907%
Current Yield at 1.9%

B. Added 1 McDonalds 1.875% SU Bond Maturing on 5/29/19


FINRA Page: Bond Detail


Bought at a Total Cost of 99.978

YTM Then at 1.89%
Current Yield at 1.8754%

C. Added 1 McDonalds 1.875% SU Bond Maturing on 5/29/19-A ROTH IRA Account


Bond Detail


I now own 4 bonds.


Issuer: McDonald's Corp. (MCD)

MCD Analyst Estimates
McDonald’s Reports Third Quarter 2017 Results

Bought at a TC of 99.952

YTM Then at 1.908%
Current Yield at  1.8759%

D. Bought 2 Nova Scotia 1.65% SU Bonds Maturing on 6/14/2019



Issuer: Bank of Nova Scotia (BNS)

BNS Analyst Estimates

Finra Page: Bond Detail (prospectus linked)


Credit Ratings:



Investor Presentation and Credit Ratings | Scotiabank

Bought at a Total Cost of 99.47

YTM Then at 2%
Current Yield at 1.6588%

I also own 2 Bank of Nova Scotia 1.45% SU bonds maturing on 4/15/18.


E. Added 1 Treasury 1.375% Coupon Maturing on 6/30/18:

YTM at 1.396%
I now own 2.

F. Bought 1 Treasury 1% Coupon Maturing on 5/31/18:

YTM at 1.346%

G. Added 1 Treasury 1% Coupon Maturing on 11/30/18:

YTM at 1.611%
I now own 2.

5. Intermediate Term Bond/CD Ladder Basket Strategy:


I am continuing to move some funds out of corporate bonds maturing in 2021-2023 and reallocating the proceeds into bonds maturing in 2019.


Note that the 1/2023 BUD bond discussed below had a current yield of 2.66% at my sale's price, while the 2/2019 BUD bond discussed above had a 1.9% current yield and matures almost 4 years sooner.


My expectations are that I will be able to buy the 2023 bond back at less than 96 within the next six months and the 2019 bond, which matures in slightly more than 1 year, will hold its price pretty close to what I paid for it. 


A. Sold 1 Anheuser Busch 2.65% SU Bond Maturing on 1/17/23:




Profit Snapshot: +$9.36



Finra Page: Bond Detail

Issuer: Anheuser-Busch InBev S.A. ADR (BUD) 


Sold at 99.536

YTM Then at 2.722%
Current Yield at 2.66%

B. Sold 2 Capital One 3.75% Junior Bonds Maturing on 7/28/26


As previously discussed, I am lowering my allocation to corporate bonds maturing in the 2020-2027 time range due to interest rate risk concerns and a belief that the bonds can be repurchased at better prices within six months. 





Profit Snapshot: +$11.34




Finra Page:  Bond Detail


Issuer: Capital One Financial Corp.  (COF)

COF Analyst Estimates

Sold at 99.6

YTM Then at 3.804%
Current Yield at 3.765

Bought at a Total Cost of 

Stocks, Bonds & Politics: Item 3.A. 
YTM then at TC = 3.892%
Current yield at TC =  3.79%


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

8 comments:

  1. I noticed yesterday that the California utility company PG & E suspended both its common and preferred share dividends. I have never own those stocks.

    PG&E Corp.
    $42.79 -$8.31% -16.29%
    Last Updated: Dec 21, 2017 at 10:59 a.m. EST
    https://www.marketwatch.com/investing/stock/pcg

    The problem involves the California wild fires and a California law that imposes liability for damages on an electric when it is determined that its equipment caused the fire. That creates a large potential liability given the extend of the damages.

    https://www.businesswire.com/news/home/20171220006123/en/

    This utility has several equity preferred stocks. I picked this one to highlight the downdraft in price:

    Pacific Gas & Electric Co. 5% Cum. Redeem. Pfd.
    $23.75 -$2.90 -10.88%
    Last Updated: Dec 21, 2017 10:44 a.m. EST
    https://www.marketwatch.com/investing/stock/pcg.pe

    Since the litigation is in its early stages and may take years to resolve, I would not anticipate a resumption of dividend payments until PG & E can reasonably quantify the potential liability and the sum is manageable with the resumption of dividend payments.

    I did also notice that the California Utilities Commission did not allow Sempra to include most of the losses from a 2007 wildfire in its rate base which would have allowed recovery from its customers over a six year period. Sempra decided to take a $208M charge in its 2017 third quarter report. While I am not familiar with that incident, my memory of it is that Sempra was not even at fault.

    http://www.sandiegouniontribune.com/business/energy-green/sd-fi-sempra-earnings-20171030-story.html

    ReplyDelete
    Replies
    1. According to this 2012 story, Sempra -owned San Diego Gas & Electric was at fault.
      http://www.sandiegouniontribune.com/sdut-sempra-customers-will-pay-463m-for-fire-costs-2012feb08-htmlstory.html
      "Two state investigations found that SDG&E lines, and to a lesser degree Cox Communications equipment, caused the fires, which spread quickly under dry conditions and gusting Santa Ana winds.San Diego Gas & Electric denies it was ever at fault, but apologized previously for obstructing investigators looking into the root causes."

      Delete
  2. When checking my Vanguard accounts this morning, I noticed that the Vanguard Health Care Fund (VGHCX) credited the following per share dividends to my account today:

    Dividend $2.01940
    ST Cap Gain $0.55040
    LT Cap Gain $6.86850

    Those distributions were taken in cash. After the price was adjusted for those distributions, I still have an unrealized gain of almost $2500.

    ReplyDelete
  3. The three month CD rate has finally returned to 1.5%. I noticed one yesterday being offered by Banc of California that can be bought at either Fidelity or Schwab.

    +++++++++

    The price of Bitcoin fell intra-day so fast that it was estimated that $150 billion of real money went up in smoke.

    The price rallied later in the day, closing at $14,362 and down -$1,281 or 8.20%. The price intraday fell slightly below $11K.

    https://www.marketwatch.com/investing/cryptocurrency/btcusd

    I was thinking about starting my own version, calling it the SGCoin.

    Right brain is working on the design and wants to use the likeness of W.C. Fields.

    The coin design is just for show since they would not exist of course except in my mind.

    I will "mine" 100 SGCoins, which doesn't mean that I am going to take a shovel and dig a whole in my backyard hoping to hit gold or black gold.

    Trading will start when I figure out that blockchain software stuff.

    The price for the first SGCoin will be cheaper than the Bitcoin, probably somewhere around $10K in cash paid to me.

    When I feel like it, however, I will mine more coins to meet demand. Meaning, whenever I want more of other people's money.

    The coins will be legal tender whenever anyone is willing to accept them as payment for goods and service.

    My coins will not be backed by anything in reality and no "full faith and credit" mumbo jumbo either.

    Caveat Emptor.

    Though I was thinking that maybe the coin could be backed by ethereal world of the Alternate Reality that is so in vogue today.

    ReplyDelete
    Replies
    1. Brilliant plan.

      Ethereal is right. In fact, I always get a laugh when I see mention of that cryptocurrency called "Etherium".

      The Bitcoin bubble popping could turn out to be a thing that triggers a cascade of Unfortunate Events. We won't know the adverse "unlikely" side-effects of the crash until it has already happened.

      There are plenty of bets being placed, but I am watching from the peanut gallery as usual.

      Delete
  4. Hi Southgent - stopping in to say Merry Christmas! Hope it's a good year!

    I haven't been around much for a while. But that doesn't mean I can't wish a happy holiday!

    ReplyDelete
  5. The entire information is really good and some good insights available. Looking forward to do more clicks.

    ReplyDelete
  6. I have published a new post:

    https://tennesseeindependent.blogspot.com/2017/12/observations-and-sample-of-recent_26.html

    ReplyDelete