Economy:
New single family home sales in December declined 9.3% from November, but were up 14.1% over the December 2016 numbers. The median sales price in December was $335,400 and the average sales price was reported at $398,900. New Sales.pdf
New One Family Houses Sold: United States -St. Louis Fed
The new home sales need to be watched closely now. There are a number of emerging and actual headwinds.
Real GDP growth was reported at 2.6% in the 2017 4th quarter. This was the government's first estimate. News Release: Gross Domestic Product I would not pay that much attention to the first estimate. I do view the decline in the savings rate to 2.6% as important. The rate was 3.3% in the third quarter and has been declining since October 2015. Personal Saving Rate | FRED | St. Louis Fed In November 2007, the rate had declined to 2.5%.
The current low savings rate is frequently seen at tops in consumer spending.
GDP growth of 2.6% falls short of Wall Street’s target - MarketWatch
Tax overhaul will have a limited effect on U.S. economy, Moody’s says - MarketWatch
New single family home sales in December declined 9.3% from November, but were up 14.1% over the December 2016 numbers. The median sales price in December was $335,400 and the average sales price was reported at $398,900. New Sales.pdf
New One Family Houses Sold: United States -St. Louis Fed
The new home sales need to be watched closely now. There are a number of emerging and actual headwinds.
Real GDP growth was reported at 2.6% in the 2017 4th quarter. This was the government's first estimate. News Release: Gross Domestic Product I would not pay that much attention to the first estimate. I do view the decline in the savings rate to 2.6% as important. The rate was 3.3% in the third quarter and has been declining since October 2015. Personal Saving Rate | FRED | St. Louis Fed In November 2007, the rate had declined to 2.5%.
The current low savings rate is frequently seen at tops in consumer spending.
GDP growth of 2.6% falls short of Wall Street’s target - MarketWatch
Tax overhaul will have a limited effect on U.S. economy, Moody’s says - MarketWatch
Worthless Auto Trade-Ins Signal Riskier Loans - Bloomberg
Trump hints at retaliation at 'very unfair' EU trade policies: Reuters
Trump threatens ‘very big’ trade retaliation against EU - MarketWatch
Trump hints at retaliation at 'very unfair' EU trade policies: Reuters
Trump threatens ‘very big’ trade retaliation against EU - MarketWatch
+++++++++
Market Commentary and Markets:
Trump Team at Davos Backs Weaker Dollar, Sharpens Trade War Talk - Bloomberg
The decline in the USD will provide a tailwind for U.S. inflation as will the imposition of tariffs.
Last week, the U.S. ten year treasury yield broke above the previous ceiling between 2.60%-2.63%, previously hit in mid-December 2016 and in mid-March 2017. U.S. 10 Year Treasury Note Interactive Chart (use 2 year chart, daily yields)
As previously discussed, several technicians believe that this break-out will result in the yield rising to 3%-3.05% with little resistance. A convincing move above 3.05% would break the long term trend-line going back to 1981, the start of the long term secular bull market in bonds.
The Bond Bookies currently see a 79.7% chance that the FED will increase the FF rate by .25% at its March meeting. That includes a 2.9% probability of a .5% increase.
The decline in the USD will provide a tailwind for U.S. inflation as will the imposition of tariffs.
Last week, the U.S. ten year treasury yield broke above the previous ceiling between 2.60%-2.63%, previously hit in mid-December 2016 and in mid-March 2017. U.S. 10 Year Treasury Note Interactive Chart (use 2 year chart, daily yields)
As previously discussed, several technicians believe that this break-out will result in the yield rising to 3%-3.05% with little resistance. A convincing move above 3.05% would break the long term trend-line going back to 1981, the start of the long term secular bull market in bonds.
The Bond Bookies currently see a 79.7% chance that the FED will increase the FF rate by .25% at its March meeting. That includes a 2.9% probability of a .5% increase.
Countdown to FOMC: CME FedWatch Tool
I would assign close to a 100% probability. The only reason why I would not now assign a 100% probability is due to the remote possibility of a Black Swan event that changes everything.
Probabilities by December 2018 (current target range at 125-150):
The Bond Ghouls see the odds of a .5% rise on or before the December meeting at 89.7%. The odds of a .75% increase is more probable than not at 60.9% with a meaningful though still low odds of a 1% increase that would take the range between 2.25% to 2.5%.
So, what is going to happen to the U.S. governments budget deficit in 2018 with that forecasted rise in short term interest rates (made worse by increasing in intermediate and longer term rates), the massive tax cuts and the overall continued substantial increases in government spending? Short term treasury bills and notes are already rolling over a much higher rates than one year ago.
I am at a loss to explain why politicians and others believe that foreigners are going to finance U.S. budget deficits in perpetuity. We may start to see a sea change in their willingness to do so as the year progresses and that may accelerate in the coming years in response to Trump's U.S. protectionist policies.
Does this sound like a republican idea to anyone? Trump administration mulls nationalizing 5G wireless network: reports-MarketWatch; Trump security team sees building U.S. 5G network as option: Reuters
At least Donald et. al. will be able to more effectively control the Fake News media when the U.S. government controls the spectrum.
++++++++
TRUMP:
Netflix will be airing a documentary titled "The Confidence Man" starting next Friday, part of its six month anthology documentary series called "Dirty Money". So who is the subject? Review: ‘The Confidence Man’-The New York Times
A Quinnipiac poll released last Thursday found that two-thirds of Americans believe Trump is not a good role model. A majority of every group, with one exception, believe that he is not a good role model. The one exception is of course republicans, with 72% saying Trump is a good role model for their children. National (US) Poll - January 25, 2018 - Trump Is No Role Model Personally, I think the republicans need to show the Access Hollywood tape to their grade school children once a week.
Both the WP and NYT reported that Trump ordered Donald F. McGahn II (White House Counsel) to fire Mueller back in June 2017, shortly after Trump fired Comey. According to those reports, McGahn refused and threatened to resign. Trump thereafter relented and made a public statement in August 2017 that he never even considered firing Mueller.
Trump Ordered Mueller Fired, but Backed Off When White House Counsel Threatened to Quit - The New York Times
Trump moved to fire Mueller in June, bringing White House counsel to the brink of leaving - The Washington Post
Trump said he hadn’t given ‘any thought’ to firing Mueller two months after he tried to do so - The Washington Post
CBS reported that Trump did not order McGahn to fire Mueller. Instead, he told senior staff, including Bannon and Priebus, neither of whom work for Donald now, that he favored that action. Marc Short disputes reports that Trump ordered Mueller fired - CBS News
Trump fired back that the reports are Fake News. Any news that Donald does not like is Fake News. Mueller has taken testimony from McCahn and other WH insiders including Priebus.
The purported "conflicts" that Donald was going to use as justifications were bogus. Donald dodged an obstruction of justice bullet by backing off.
Firing Mueller shortly just after firing Comey would have been tantamount to pleading guilty to obstruction of justice. What can you say about someone who actually thought about obstructing an obstruction of justice investigation in plain view. Idiot! That is what Trump would have done by firing Mueller. Trump can now at least argue that the idea came from one of his lawyers-maybe, and he did not carry though based on advice of counsel.
+++
GOP Demagoguery On Immigration:
Conservative voice Kristol says he’s been ‘mugged’ by Trump as he blasts Fox - MarketWatch (“Now Fox is sort of — 75% of it seems to be birther-like coverage of different issues.”)
I would agree with Bill Kristol that Trump is an "effective demagogue". Speakeasy with John Harwood: Bill Kristol on the age of Trump
Trump has effectively tapped into the persistently strong anti-immigrant bias that has existed in the U.S. since the beginning, which is odd of course since most Americans originate from immigrants. And, if you go back far enough in time, even the "native" Americans immigrated from another continent before nation states had come into being to block the borders. Native Americans migrated to the New World in three waves, Harvard-led DNA analysis shows
A history of American anti-immigrant bias, starting with Benjamin Franklin's hatred of Germans — Quartz
In a WP story, a republican congressman, Glenn Grothman (R-WIS), was asked by a constituent why can't all of the illegals just go back to their native country and then apply through proper channels for the legal right to immigrate. The WP quotes Grothman's response:
“I’ll do all I can to hold out for as tough a position as we can get. We’d rather shut down the government rather than go down the path of ruining America. And I think doing what some of those Democrats wanted — immediate legality for all these people and then just starting the open-borders thing again — could ruin America. I mean, it would be the end of America.”
That is the language of a Demagogue.
Forget Senate negotiators — House conservatives could have the last word on immigration - The Washington Post
I would make a couple of observations about Grothman's statement which is typical for GOP politicians.
First, it is simply false that Democrats want to immediately grant citizenship to all illegal immigrants and want to open the borders to whomever wants entry. Those statements are just lies which are to be expected from republicans engaged in demagoguery. The Obama Record on Deportations-migrationpolicy.org Democrats have voted to fund the existing walls, which total 580 miles in length, and to increase border security. Mexico–United States barrier-Wikipedia
Second, Mr. Grothman's White Nationalism and desire for racial "purity" are apparent from that quoted statement. Providing a path to citizenship for Dreamers, who have not committed serious crimes, would "ruin America" and "be the end of America." And it is merely a coincidence that those Dreamers have mostly brown skins while Mr. Grothman's constituents have mostly white skins.
Grothman's congressional district has about 600 registered Dreamers. Interactive Map-Center for the Study of Immigrant Integration (CSII) at USC That statistic alone proves that Grothman is engaged in demagoguery. The average population of a congressional district is 710,767. Many of those Dreamers have probably already figured out that they are not welcomed in Grothman's district.
My congressional district (Tennessee's 7th) has about 400 registered Dreamers. The GOP representative, Marsha Blackburn who is now running for Senator Corker's vacant seat, has similar views to Mr. Grothman.
It is interesting that the hard line immigration stand is dominant in rural America, which overwhelmingly supported Trump, where there are relatively few illegal immigrants.
Yet, as the republican story goes, it is those immigrants that lack Christian values (meaning protestant as opposed to Catholic) and are taking the jobs away from white people, committing crimes, selling drugs, living off the public dole, and just changing America for the worse (meaning more non-whites). If you go back in time in the U.S. the same would be said about the Irish, eastern Europeans, Germans, Chinese, Jews, Catholics, etc. and so on. The new "them" and "others" have brown skins.
The illegals in the rural areas work in jobs that whites would prefer to avoid, including farm and other hard labor jobs like working in chicken, hog and cattle slaughtering factories.
In a way, it would be fitting for the hardliners, who own small businesses that sell products and services, or own farms who depend on their labor, to lose the immigrants as customers and workers.
In rural America, fewer immigrants and less tolerance - The Washington Post
Kaiser Family Foundation/Washington Post Partnership Survey Probes Experiences and Views of Rural Americans | The Henry J. Kaiser Family Foundation
The job problems in rural America are not caused by the few illegal immigrants living in those areas, but to other causes including the loss of factory jobs to foreign competition and the relocation of plants to overseas locations. Job growth and opportunities lie elsewhere, so the best option, particularly for the young, is to just leave and go elsewhere. But, generation after generation remain in areas likely to suffer economic stagnation or worse and consequently unlikely to present financial opportunities. Trump and other republicans prey on their fears and insecurities through their immigration demagoguery.
Hillbilly Elegy: A Memoir of a Family and Culture in Crisis - Kindle edition by J. D. Vance @ Amazon.com.
The Role of Medicaid in Rural America | The Henry J. Kaiser Family Foundation
Rural families rely more on food stamps than those in metro areas
Did you know in rural America, disability benefit rates are twice as high as in urban areas? - The Washington Post
6 Charts That Illustrate the Divide Between Rural and Urban America | National News | US News
+++
Trump Eager to Testify Under Oath:
Will Trump ever testify notwithstanding his talk that he is looking forward to doing so under oath? I doubt it. Talk is cheap for Trump.
I also doubt that Trump's lawyers even want him to testify under oath. He is most likely to be a terrible witness for himself; and there is no telling how many false statements that he will make. Perjury and obstruction of justice charges are the major risks for Trump. Trump surprises his lawyers and alarms his friends by saying he will talk with Mueller - The Washington Post
I've Watched Trump Testify Under Oath. It Isn't Pretty. - Bloomberg
+++++++
1. Small Ball: I received one quarterly dividend for each stock mentioned below which I intend to use as a down payment on my first minute in a nursing home when that option becomes necessary.
I used commission free trades for all transactions.
I bought back 10 shares of PG at $88.33 that was sold at $91.59 a few days earlier. I just thought that the market slightly overreacted to the earnings report for the second fiscal quarter ending on 12/31/17. PG will benefit in its GAAP earnings from a declining USD.
A. Sold 10 MRK at $61.2-Used Commission Free Trade:
Profit Snapshot: +$69.17
Item # 2.A. Bought 10 MRK at $54.29 (12/7/17 POST)
Quote: Merck & Co. Inc. (MRK)
MRK Analyst Estimates
MRK shares received a lift in early January after this press release announcing positive results from an interim analysis involving Keytruda's use in combination with Lilly's drug pemetrexed and chemotherapy to treat non-small cell lung cancer:
Merck’s KEYTRUDA(R) (pembrolizumab) Significantly Improved Overall Survival and Progression-Free Survival as First-Line Treatment (Tuesday 1/16/18).
The share price jumped from a $58.66 close to $62.07 close on the first trading day after the announcement:
The price has leveled off since 1/16/18. MRK Historical Prices
The actual results were not detailed in this press release, but were scheduled to be presented later at a medical conference.
I would agree with the Morningstar analyst that this was an expected result.
Keytruda is the only reason that I will play Merck stock now. That drug does have first mover advantage in small cell lung cancer. Morningstar has a fair value estimate of $65, as of a 1/16/18 report.
2 Year MRK History in this Account: Shows Current Extreme Temerity Now
I am just raking up short term trading gains while the market is so hot. The general goal is to have a net short term trading profit between $15K to $25 by year end as a supplement to long term capital gains, dividend and interest income.
B. Sold 10 Proctor & Gamble at $91.59:
Profit Snapshot: +$46.08
Item # 4.B. Bought 10 PG at $86.99 (10/30/17 Post)
Quote: Procter & Gamble Co. (PG)
PG Analyst Estimates
PG reported earnings the day after I sold this lot. Investors did not like the slight decline in margins. Why Procter & Gamble’s 2Q Margins Disappointed Investors-Market Realist Margins were negatively impacted by competition and rising commodity costs. The shares closed at $91.89 prior to the earnings release and at $89.05 the next day or -$2.84 per share.
P&G Announces Second Quarter Earnings:
Q2 2018 Results - Earnings Call Transcript | Seeking Alpha
C. Bought Back 10 PG at $88.33:
My "buying program" for PG is to buy up to two more 10 share lots with the next purchase being below $86.5.
Closing Price Last Friday: PG $87.73 -$0.61 -0.69%
The decline last Friday was probably in sympathy with Colgate whose earnings reflected pricing pressures and challenging growth. Colgate Announces 4th Quarter 2017 Results; Colgate's sales disappoint despite price cuts, higher ad spending: Reuters I already knew about those issues, as did the market, from PG's report released earlier in the week. PG at least has several business segments showing organic growth.
I do not currently view PG favorably, but I will buy shares as trades. For the reasons discussed below, I did not have as unfavorable opinion about the last earnings report as the market.
The problem is tepid growth that is reflected in the stock's total return over the past decade or so compared to the S & P 500.
The current bull move started after the S & P 500 closed at 676.52 on 3/9/2009. Seems like ages ago. If I had bought SPY at the closing price on 3/9/2009, my total return through 1/25/18 would have been +384.44%. Buying PG on the same day would have produced a +165.75% total return. The price went up above 100%, rising from $44.18 to $88.31. The remainder of the PG's total return comes from the dividends and dividend reinvestment.
Starting in March 2009, I bought a number of consumer stable stocks.
That approach is my preference after a 40%+ decline in the market.
Consumer stable stocks would decline with the market, but the overall percentage decline would generally be less than the S & P 500. I did buy PG at $47.59 in March 2009 and then sold that lot at $56.49 about 4 months later. I then bought 100 PG shares at $52.85 in September 2009 and then sold that lot at $59.45 in November 2009 and so on. Considering that I sold a 100 share lot at $59.45 over 8 years ago proves sub-optimal performance compared to a low cost index fund since the Near Depression.
The under performance is justified IMO given the earnings growth. Even at $88.33, the P/E on the $4.2 E.P.S. consensus estimate for F/Y ending in June 2018 is high at 21.03. PG Analyst Estimates
In the past, my preference was to buy this stock in the 15-17 P/E range using a 12 month forward E.P.S. estimate. The E.P.S. estimate for the F/Y ending in June 2019 is $4.52, and that results in a 19.54 forward P/E. A 17 P/E on $4.52 would be $76.84, so the current price is well above what I would like to pay for this stock.
Basically, as I see it, PG is selling relatively high cost brand products that many consumers view as not worth the price. I have mentioned here, for example, that I have found razor blades as good or better IMO than Gillettes blades at a lower cost. PG had to reduce prices on Gillette razors during the quarter, and organic revenues in the shaving segment declined by 3%.
Our Brands | P&G
Before wringing my hands too much in response to that information, there were positive organic increases in the beauty, health care and fabric/home care segments as shown in the snapshot above.
PG also raised its outlook for core earnings from 5% to 7% to 5% to 9% for the fiscal year ending in June 2018 versus the 2017 core E.P.S. of $3.92.
Impact of Tax Reform:
PG took an accounting charge of $3.8B relating to the repatriation tax on foreign earnings that had not yet been repatriated to the U.S. This is an accounting charge. The tax will be paid over 8 years as stipulated in the recently passed tax legislation.
Partially offsetting this charge was a revaluation of PG's deferred tax liability which brought the overall charge to around $630M. The cash used to pay the repatriation tax "will be more than offset by the cash benefit from the lower ongoing tax rate." Q2 2018 Results - Earnings Call Transcript | Seeking Alpha
D Sold 20 COTY at $20.89:
Profit Snapshot: +$80.61
Item # 1.B. Bought 10 COTY at $16.94 and 10 at $16.78 (11/30/17 Post)
Quote: Coty Inc. Cl A (COTY)
COTY Analyst Estimates
E. Sold 10 T at $37.77:
Profit Snapshot: +$42.65
Item # 1.A. Bought 10 Shares of AT & T at $33.55 (10/31/17 Post)
I will consider buying back shares at less than $34.
Quote: AT&T Inc. (T)
AT&T Inc. Analyst Estimates
F. Bought 5 VNQ at $79.62-Commission Free ETF for Vanguard Customers:
Quote: Vanguard REIT ETF
SPONSOR'S WEBPAGE: Vanguard (Expense Ratio = .12%; 154 stocks)
The Vanguard REIT II Index Fund, the largest single holding, is for institutions and has a .08% expense ratio. The minimum investment is $100M. Vanguard REIT II Index Fund (VRTPX)
Closing Price Day of Trade (1/25/18): VNQ $79.93 -$0.18 -0.22%
The range on 1/25 was between $79.46 to $80.11. The 52 low was then at $78.2 with the 52 week high at $86.16.
On the days of purchase, it was an unusual correlation day between REIT prices and interest rates. The 10 year treasury bond yield declined to 2.63% from 2.65% the prior day. Daily Treasury Yield Curve Rates REIT prices were behaving as if the opposite was happening, a move from 2.65% to 2.67%. I thought that the incongruence was worth a 5 share buy of this low cost REIT ETF.
I have not discussed my small lot trades here in a long time. Apparently, my last transaction discussions involved the sell of 10 shares:
Item # 3 Sold at $83.36 Update For Equity REIT Basket Strategy As Of 3/21/16 - South Gent | Seeking Alpha; Item # 3 Sold 10 VNQ at $80.74: Update For Equity REIT Basket Strategy As Of 11/5/15 - South Gent | Seeking Alpha
I doubt that the downdraft in equity REIT stock is over, particularly if the ten year treasury makes a sudden move to 3% and then higher.
2. REGIONAL BANK BASKET STRATEGY:
A. Averaged Down-Bought 50 TRST at $8.65 (used commission free trade):
Quote: Trustco Bank Corp. (TRST)
I now own 150 shares, bought in 3 fifty share lots. This average down reduced my total cost per share slightly to $8.92. The other 50 share lots were purchased at $9.2 and $8.9. Of those two purchases, the only substantive discussion here was in connection with the $9.2 purchase. Item # 2.A. (12/30/17 Post)
TRST did report its 4th quarter earnings after my last purchase and possible some investors sold shares based on a misunderstanding.
I discussed that report in a previous comment. As noted there, the report contained the usual noise item about a revaluation of TRST's deferred tax asset.
The revaluation resulted in a non-cash charge to GAAP E.P.S. of $5.1M that was classified as an additional income tax expense even though no additional taxes were paid by the bank.
The reduction in the top corporate tax rate to 21% means that the deferred tax assets is worth less than under prior law. I have been explaining that item which screws up GAAP E.P.S., ROA and ROE numbers for the quarter. It is best just to ignore it which some individual investors may not be doing. TrustCo Announces Fourth Quarter and Full Year 2017 Results; Net Income Before Taxes Up 12.9% Over Prior Year Quarter The result is that GAAP E.P.S. declined to $.076 from $.113 in the 2016 4th quarter. However, net income before that charge was up 12.6% Y-O-Y.
The company is expecting a 2018 effective tax rate of 23.5%. In the 2017 third quarter, the effective tax rate was at 37.3% and at 37.6% in 2016:
Page 56 10-Q for the Q/E 9/30/17
Page 27 10-K
For the 2017 4th quarter, the efficiency ratio was good at 53.13%; the charge-off ratio was excellent at .02% annualized; the NPL ratio was at .67% which is okay at this stage in the credit cycle; the NIM expanded 16 basis points to 3.29% and the coverage ratio remained good at 1.8x.
If I buy another lot, it will be at lower price and placed in a Roth IRA account.
B. Sold 60 VLY at $12.52-Highest Cost Lots in Fidelity Account (Used Commission Free Trades All Transactions):
Profit Snapshot: $36.86
Item 1.B. Added 50 VLY in 3 Commission Free Trades (12/7/17 Post)
Item # 4 Bought 50 VLY at $11.89 (10/23/17 Post)
Position in Fidelity Account After Pare: Average Cost Per Share of $11.56
The market had a more favorable opinion about VLY's 4th quarter earnings report than I did.
Closing Price Day of Trade: VLY $12.45 +$0.28 +2.30% (intra-day high at $12.6)
I thought that the report was more of the same.
Excluding the non-cash charge relating to VLY's deferred tax asset, E.P.S. was reported at $.18, down from $.19 in the 2016 4th quarter. On a positive note, the company seems to be making progress in cutting expenses. Valley National Bancorp Reports Fourth Quarter Net Income And Solid Net Interest Margin; Earnings Call Slides; CEO Ira Robbins on Q4 2017 Results - Earnings Call Transcript | Seeking Alpha
VLY would have had an effective tax rate of 25.5% without that non-cash tax expense and expects an effective rate of 21% to 23% in 2018 taking into account "the impacts of the Tax Act, tax-exempt income, tax-advantaged investments and general business credits." So that decline is not that meaningful compared to other regional banks that I own.
Assuming a price decline to $11-$11.2 before the next ex dividend date, I will consider buying back some or all of the 60 shares sold in this account.
Closing Price 1/26/18: VLY $12.74 =$0.29 +2.33%
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Bought 1 Public Service of Colorado 2.5% First Mortgage Bond Maturing on 3/15/23-ROTH IRA:
I now own 2 bond, both in this IRA account.
Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Fitch Rates Public Service Co. of Colorado's FMBs 'A+'
Bought at a Total Cost of 98.858 ($2 Vanguard commission)
YTM at TC Then at 2.737%
Current Yield at TC = 2.5289%
Yes I know that this is an intermediate term bond, but it does give more yield than a MM account and the interest is tax free when owned in a Roth IRA. The credit risk is consistent with what I want to own now in my Roth IRA accounts.
+++++++++++++++++++++
I am about one month behind in discussing the short term bond/CD trades due to the volume of trades. Interest rates for these short maturities have inched up some since my purchases causing the bonds to drop a few basis points. I am not concerned about that decline and even welcome it given the constant flow of redemption proceeds that can then be used to buy higher yielding securities.
More current trades can be found simply by clicking the Finra links. The Cardinal Health bond discussed in Item #4.A. below closed last Friday at 99.263. My purchase was made on 12/28/17. I paid 99.570.
1. Small Ball: I received one quarterly dividend for each stock mentioned below which I intend to use as a down payment on my first minute in a nursing home when that option becomes necessary.
I used commission free trades for all transactions.
I bought back 10 shares of PG at $88.33 that was sold at $91.59 a few days earlier. I just thought that the market slightly overreacted to the earnings report for the second fiscal quarter ending on 12/31/17. PG will benefit in its GAAP earnings from a declining USD.
A. Sold 10 MRK at $61.2-Used Commission Free Trade:
Profit Snapshot: +$69.17
Item # 2.A. Bought 10 MRK at $54.29 (12/7/17 POST)
Quote: Merck & Co. Inc. (MRK)
MRK Analyst Estimates
MRK shares received a lift in early January after this press release announcing positive results from an interim analysis involving Keytruda's use in combination with Lilly's drug pemetrexed and chemotherapy to treat non-small cell lung cancer:
Merck’s KEYTRUDA(R) (pembrolizumab) Significantly Improved Overall Survival and Progression-Free Survival as First-Line Treatment (Tuesday 1/16/18).
The share price jumped from a $58.66 close to $62.07 close on the first trading day after the announcement:
The price has leveled off since 1/16/18. MRK Historical Prices
The actual results were not detailed in this press release, but were scheduled to be presented later at a medical conference.
I would agree with the Morningstar analyst that this was an expected result.
Keytruda is the only reason that I will play Merck stock now. That drug does have first mover advantage in small cell lung cancer. Morningstar has a fair value estimate of $65, as of a 1/16/18 report.
2 Year MRK History in this Account: Shows Current Extreme Temerity Now
I am just raking up short term trading gains while the market is so hot. The general goal is to have a net short term trading profit between $15K to $25 by year end as a supplement to long term capital gains, dividend and interest income.
B. Sold 10 Proctor & Gamble at $91.59:
Profit Snapshot: +$46.08
Item # 4.B. Bought 10 PG at $86.99 (10/30/17 Post)
Quote: Procter & Gamble Co. (PG)
PG Analyst Estimates
PG reported earnings the day after I sold this lot. Investors did not like the slight decline in margins. Why Procter & Gamble’s 2Q Margins Disappointed Investors-Market Realist Margins were negatively impacted by competition and rising commodity costs. The shares closed at $91.89 prior to the earnings release and at $89.05 the next day or -$2.84 per share.
P&G Announces Second Quarter Earnings:
Q2 2018 Results - Earnings Call Transcript | Seeking Alpha
C. Bought Back 10 PG at $88.33:
My "buying program" for PG is to buy up to two more 10 share lots with the next purchase being below $86.5.
Closing Price Last Friday: PG $87.73 -$0.61 -0.69%
The decline last Friday was probably in sympathy with Colgate whose earnings reflected pricing pressures and challenging growth. Colgate Announces 4th Quarter 2017 Results; Colgate's sales disappoint despite price cuts, higher ad spending: Reuters I already knew about those issues, as did the market, from PG's report released earlier in the week. PG at least has several business segments showing organic growth.
I do not currently view PG favorably, but I will buy shares as trades. For the reasons discussed below, I did not have as unfavorable opinion about the last earnings report as the market.
The problem is tepid growth that is reflected in the stock's total return over the past decade or so compared to the S & P 500.
The current bull move started after the S & P 500 closed at 676.52 on 3/9/2009. Seems like ages ago. If I had bought SPY at the closing price on 3/9/2009, my total return through 1/25/18 would have been +384.44%. Buying PG on the same day would have produced a +165.75% total return. The price went up above 100%, rising from $44.18 to $88.31. The remainder of the PG's total return comes from the dividends and dividend reinvestment.
Starting in March 2009, I bought a number of consumer stable stocks.
That approach is my preference after a 40%+ decline in the market.
Consumer stable stocks would decline with the market, but the overall percentage decline would generally be less than the S & P 500. I did buy PG at $47.59 in March 2009 and then sold that lot at $56.49 about 4 months later. I then bought 100 PG shares at $52.85 in September 2009 and then sold that lot at $59.45 in November 2009 and so on. Considering that I sold a 100 share lot at $59.45 over 8 years ago proves sub-optimal performance compared to a low cost index fund since the Near Depression.
The under performance is justified IMO given the earnings growth. Even at $88.33, the P/E on the $4.2 E.P.S. consensus estimate for F/Y ending in June 2018 is high at 21.03. PG Analyst Estimates
In the past, my preference was to buy this stock in the 15-17 P/E range using a 12 month forward E.P.S. estimate. The E.P.S. estimate for the F/Y ending in June 2019 is $4.52, and that results in a 19.54 forward P/E. A 17 P/E on $4.52 would be $76.84, so the current price is well above what I would like to pay for this stock.
Basically, as I see it, PG is selling relatively high cost brand products that many consumers view as not worth the price. I have mentioned here, for example, that I have found razor blades as good or better IMO than Gillettes blades at a lower cost. PG had to reduce prices on Gillette razors during the quarter, and organic revenues in the shaving segment declined by 3%.
Our Brands | P&G
Before wringing my hands too much in response to that information, there were positive organic increases in the beauty, health care and fabric/home care segments as shown in the snapshot above.
PG also raised its outlook for core earnings from 5% to 7% to 5% to 9% for the fiscal year ending in June 2018 versus the 2017 core E.P.S. of $3.92.
Impact of Tax Reform:
PG took an accounting charge of $3.8B relating to the repatriation tax on foreign earnings that had not yet been repatriated to the U.S. This is an accounting charge. The tax will be paid over 8 years as stipulated in the recently passed tax legislation.
Partially offsetting this charge was a revaluation of PG's deferred tax liability which brought the overall charge to around $630M. The cash used to pay the repatriation tax "will be more than offset by the cash benefit from the lower ongoing tax rate." Q2 2018 Results - Earnings Call Transcript | Seeking Alpha
D Sold 20 COTY at $20.89:
Profit Snapshot: +$80.61
Item # 1.B. Bought 10 COTY at $16.94 and 10 at $16.78 (11/30/17 Post)
Quote: Coty Inc. Cl A (COTY)
COTY Analyst Estimates
E. Sold 10 T at $37.77:
Profit Snapshot: +$42.65
Item # 1.A. Bought 10 Shares of AT & T at $33.55 (10/31/17 Post)
I will consider buying back shares at less than $34.
Quote: AT&T Inc. (T)
AT&T Inc. Analyst Estimates
F. Bought 5 VNQ at $79.62-Commission Free ETF for Vanguard Customers:
Quote: Vanguard REIT ETF
SPONSOR'S WEBPAGE: Vanguard (Expense Ratio = .12%; 154 stocks)
The Vanguard REIT II Index Fund, the largest single holding, is for institutions and has a .08% expense ratio. The minimum investment is $100M. Vanguard REIT II Index Fund (VRTPX)
Closing Price Day of Trade (1/25/18): VNQ $79.93 -$0.18 -0.22%
The range on 1/25 was between $79.46 to $80.11. The 52 low was then at $78.2 with the 52 week high at $86.16.
On the days of purchase, it was an unusual correlation day between REIT prices and interest rates. The 10 year treasury bond yield declined to 2.63% from 2.65% the prior day. Daily Treasury Yield Curve Rates REIT prices were behaving as if the opposite was happening, a move from 2.65% to 2.67%. I thought that the incongruence was worth a 5 share buy of this low cost REIT ETF.
I have not discussed my small lot trades here in a long time. Apparently, my last transaction discussions involved the sell of 10 shares:
Item # 3 Sold at $83.36 Update For Equity REIT Basket Strategy As Of 3/21/16 - South Gent | Seeking Alpha; Item # 3 Sold 10 VNQ at $80.74: Update For Equity REIT Basket Strategy As Of 11/5/15 - South Gent | Seeking Alpha
I doubt that the downdraft in equity REIT stock is over, particularly if the ten year treasury makes a sudden move to 3% and then higher.
2. REGIONAL BANK BASKET STRATEGY:
A. Averaged Down-Bought 50 TRST at $8.65 (used commission free trade):
Quote: Trustco Bank Corp. (TRST)
I now own 150 shares, bought in 3 fifty share lots. This average down reduced my total cost per share slightly to $8.92. The other 50 share lots were purchased at $9.2 and $8.9. Of those two purchases, the only substantive discussion here was in connection with the $9.2 purchase. Item # 2.A. (12/30/17 Post)
TRST did report its 4th quarter earnings after my last purchase and possible some investors sold shares based on a misunderstanding.
I discussed that report in a previous comment. As noted there, the report contained the usual noise item about a revaluation of TRST's deferred tax asset.
The revaluation resulted in a non-cash charge to GAAP E.P.S. of $5.1M that was classified as an additional income tax expense even though no additional taxes were paid by the bank.
The reduction in the top corporate tax rate to 21% means that the deferred tax assets is worth less than under prior law. I have been explaining that item which screws up GAAP E.P.S., ROA and ROE numbers for the quarter. It is best just to ignore it which some individual investors may not be doing. TrustCo Announces Fourth Quarter and Full Year 2017 Results; Net Income Before Taxes Up 12.9% Over Prior Year Quarter The result is that GAAP E.P.S. declined to $.076 from $.113 in the 2016 4th quarter. However, net income before that charge was up 12.6% Y-O-Y.
The company is expecting a 2018 effective tax rate of 23.5%. In the 2017 third quarter, the effective tax rate was at 37.3% and at 37.6% in 2016:
Page 56 10-Q for the Q/E 9/30/17
Page 27 10-K
For the 2017 4th quarter, the efficiency ratio was good at 53.13%; the charge-off ratio was excellent at .02% annualized; the NPL ratio was at .67% which is okay at this stage in the credit cycle; the NIM expanded 16 basis points to 3.29% and the coverage ratio remained good at 1.8x.
If I buy another lot, it will be at lower price and placed in a Roth IRA account.
B. Sold 60 VLY at $12.52-Highest Cost Lots in Fidelity Account (Used Commission Free Trades All Transactions):
Profit Snapshot: $36.86
Item 1.B. Added 50 VLY in 3 Commission Free Trades (12/7/17 Post)
Item # 4 Bought 50 VLY at $11.89 (10/23/17 Post)
Position in Fidelity Account After Pare: Average Cost Per Share of $11.56
The market had a more favorable opinion about VLY's 4th quarter earnings report than I did.
Closing Price Day of Trade: VLY $12.45 +$0.28 +2.30% (intra-day high at $12.6)
I thought that the report was more of the same.
Excluding the non-cash charge relating to VLY's deferred tax asset, E.P.S. was reported at $.18, down from $.19 in the 2016 4th quarter. On a positive note, the company seems to be making progress in cutting expenses. Valley National Bancorp Reports Fourth Quarter Net Income And Solid Net Interest Margin; Earnings Call Slides; CEO Ira Robbins on Q4 2017 Results - Earnings Call Transcript | Seeking Alpha
VLY would have had an effective tax rate of 25.5% without that non-cash tax expense and expects an effective rate of 21% to 23% in 2018 taking into account "the impacts of the Tax Act, tax-exempt income, tax-advantaged investments and general business credits." So that decline is not that meaningful compared to other regional banks that I own.
Assuming a price decline to $11-$11.2 before the next ex dividend date, I will consider buying back some or all of the 60 shares sold in this account.
Closing Price 1/26/18: VLY $12.74 =$0.29 +2.33%
3. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Bought 1 Public Service of Colorado 2.5% First Mortgage Bond Maturing on 3/15/23-ROTH IRA:
I now own 2 bond, both in this IRA account.
Finra Page: Bond Detail (prospectus linked)
Credit Ratings:
Fitch Rates Public Service Co. of Colorado's FMBs 'A+'
Bought at a Total Cost of 98.858 ($2 Vanguard commission)
YTM at TC Then at 2.737%
Current Yield at TC = 2.5289%
Yes I know that this is an intermediate term bond, but it does give more yield than a MM account and the interest is tax free when owned in a Roth IRA. The credit risk is consistent with what I want to own now in my Roth IRA accounts.
+++++++++++++++++++++
I am about one month behind in discussing the short term bond/CD trades due to the volume of trades. Interest rates for these short maturities have inched up some since my purchases causing the bonds to drop a few basis points. I am not concerned about that decline and even welcome it given the constant flow of redemption proceeds that can then be used to buy higher yielding securities.
More current trades can be found simply by clicking the Finra links. The Cardinal Health bond discussed in Item #4.A. below closed last Friday at 99.263. My purchase was made on 12/28/17. I paid 99.570.
4. Short Term Bond/CD Ladder Basket Strategy:
A. Bought 2 Cardinal Health 1.948% SU Bonds Maturing on 6/14/19:
FINRA Page: Bond Detail
Issuer: Cardinal Health Inc. (CAH)
Credit Ratings:
Bought at a Total Cost of 99.670
YTM Then at 2.18%
Current Yield at 1.9544%
B. Bought 2 Goldman Sachs 2% SU Bonds Maturing on 4/25/19:
FINRA Page: Bond Detail (prospectus linked)
Issuer: Goldman Sachs Group Inc. (GS)
GS Analyst Estimates
Credit Ratings:
Fitch Affirms Goldman Sachs' Long-Term IDR at 'A'; Outlook Stable
Bought at a Total Cost of 99.881
YTM at TC Then at 2.092%
Current Yield at 2%
I used the proceeds from this maturing CD to purchase this short term GS SU bond.
C. Bought 1 Deere 1.95% SU Bond Maturing on 3/4/19:
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Fitch Affirms Deere's IDR at 'A'; Outlook Stable
Issuer: Deere & Co. (DE)
DE Analyst Estimates
Bought at a Total Cost of 99.962
YTM at TC Then at 1.982%
Current Yield at TC = 1.9507%
I had a 1.35% Deere SU bond mature on 1/15/18.
D. Bought 2 EBAY 2.15% SU Bonds Maturing on 6/2/2020:
FINRA PAGE: Bond Detail
CREDIT RATINGS:
ISSUER: EBAY (EBAY)
EBAY Analyst Estimates
The Biggest Internet Stock Winners From Tax Reform | Benzinga
Bought at a Total Cost of 99.333
YTM at TC Then at 2.435%
Current Yield at TC = 2.1644%
Over the past several months, I have been lowering my duration risk for EBAY's senior unsecured debt.
I sold EBAY's exchange traded senior unsecured bond, EBAYL, at $26.67 last September. Item # # 2.A.
eBay Inc. 6% Senior Unsecured Notes due 2056
I sold last August 2 EBAY 2.6% SU bonds at 100.3 maturing on 7/15/22: Item # 3.C. (profit snapshot= $46.16)-Item # 1.B. Bought at a TC of 97.892
I still own 2 EBAY 2.2% SU bonds maturing on 8/1/19: Bond Detail I intend to hold those bonds until maturity. That 2 bond lot was bought on 12/19/16 at a total cost of 99.941.
E. Bought 2 Stryker 2% SU Bonds Maturing on 3/8/19:
FINRA Page: Bond Detail
Prospectus
Issuer: Stryker Corp. (SYK)
SYK Analyst Estimates
Stryker reports third quarter 2017 results
10-K (debt discussed at page 28)
Credit Ratings:
Moody's at Baa1
S & P at A
Bought at a Total Cost of 99.9
YTM at TC then at 2.086%
Current Yield at TC = 2.002%
F. ADDED 1 Treasury 1.5% Maturing on 2/28/19:
YTM At 1.823% (no commissions on treasury purchases)
I now own 3.
G. Bought 2 Duke Energy Florida LLC 1.85% First Mortgage Bonds Maturing on 1/15/20:
Finra Page: Bond Detail
Credit Ratings:
Bought at a Total Cost of 99.361
YTM at Total Cost Then at 2.174%
Current Yield at TC = 1.8619%
I also currently own Duke Energy Carolinas First Mortgage bonds and Duke Energy senior unsecured bonds.
I have sold 2 Duke Energy Carolina 2023 First Mortgage bonds:
Item # 6.A. Sold 2 Duke Carolina First Mortgage Bonds Maturing in 2023 at 101.4 (9/3/2017 Post)(profit snapshot= $42.24);
I have sold 2 Duke Energy 1.8% SU bonds maturing on 9/1/2021: Item 1.E. (sold at 98.23, netting a $23.91 profit/Bond Detail)
5. Pared VEIRX-Sold $1K at $81.57 (1/25/18):
Vanguard Equity Income Fund-Admiral (VEIRX)
I will sell $1K whenever I see the position value go over $51K. This is an automatic trade when I first notice that the value exceeds that amount.
Given the robust move in the stock market, there was only a few days since my last pare.
Item # 5 Sold $1K VEIRX at $79.92 (1/18/18 Post)(sold 1/16/18)
+$375.69 in 2018 Using Average Cost Method
Unrealized Gain as of 1/26/18: +$10,571.58
I am already close to another pare.
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.
FINRA Page: Bond Detail (prospectus linked)
Issuer: Goldman Sachs Group Inc. (GS)
GS Analyst Estimates
Credit Ratings:
Fitch Affirms Goldman Sachs' Long-Term IDR at 'A'; Outlook Stable
Bought at a Total Cost of 99.881
YTM at TC Then at 2.092%
Current Yield at 2%
I used the proceeds from this maturing CD to purchase this short term GS SU bond.
C. Bought 1 Deere 1.95% SU Bond Maturing on 3/4/19:
FINRA Page: Bond Detail (prospectus linked)
Credit Ratings:
Fitch Affirms Deere's IDR at 'A'; Outlook Stable
Issuer: Deere & Co. (DE)
DE Analyst Estimates
Bought at a Total Cost of 99.962
YTM at TC Then at 1.982%
Current Yield at TC = 1.9507%
I had a 1.35% Deere SU bond mature on 1/15/18.
D. Bought 2 EBAY 2.15% SU Bonds Maturing on 6/2/2020:
FINRA PAGE: Bond Detail
CREDIT RATINGS:
ISSUER: EBAY (EBAY)
EBAY Analyst Estimates
The Biggest Internet Stock Winners From Tax Reform | Benzinga
Bought at a Total Cost of 99.333
YTM at TC Then at 2.435%
Current Yield at TC = 2.1644%
Over the past several months, I have been lowering my duration risk for EBAY's senior unsecured debt.
I sold EBAY's exchange traded senior unsecured bond, EBAYL, at $26.67 last September. Item # # 2.A.
eBay Inc. 6% Senior Unsecured Notes due 2056
I sold last August 2 EBAY 2.6% SU bonds at 100.3 maturing on 7/15/22: Item # 3.C. (profit snapshot= $46.16)-Item # 1.B. Bought at a TC of 97.892
I still own 2 EBAY 2.2% SU bonds maturing on 8/1/19: Bond Detail I intend to hold those bonds until maturity. That 2 bond lot was bought on 12/19/16 at a total cost of 99.941.
E. Bought 2 Stryker 2% SU Bonds Maturing on 3/8/19:
FINRA Page: Bond Detail
Prospectus
Issuer: Stryker Corp. (SYK)
SYK Analyst Estimates
Stryker reports third quarter 2017 results
10-K (debt discussed at page 28)
Credit Ratings:
Moody's at Baa1
S & P at A
Bought at a Total Cost of 99.9
YTM at TC then at 2.086%
Current Yield at TC = 2.002%
F. ADDED 1 Treasury 1.5% Maturing on 2/28/19:
YTM At 1.823% (no commissions on treasury purchases)
G. Bought 2 Duke Energy Florida LLC 1.85% First Mortgage Bonds Maturing on 1/15/20:
Finra Page: Bond Detail
Credit Ratings:
Bought at a Total Cost of 99.361
YTM at Total Cost Then at 2.174%
Current Yield at TC = 1.8619%
I also currently own Duke Energy Carolinas First Mortgage bonds and Duke Energy senior unsecured bonds.
I have sold 2 Duke Energy Carolina 2023 First Mortgage bonds:
Item # 6.A. Sold 2 Duke Carolina First Mortgage Bonds Maturing in 2023 at 101.4 (9/3/2017 Post)(profit snapshot= $42.24);
I have sold 2 Duke Energy 1.8% SU bonds maturing on 9/1/2021: Item 1.E. (sold at 98.23, netting a $23.91 profit/Bond Detail)
5. Pared VEIRX-Sold $1K at $81.57 (1/25/18):
Vanguard Equity Income Fund-Admiral (VEIRX)
I will sell $1K whenever I see the position value go over $51K. This is an automatic trade when I first notice that the value exceeds that amount.
Given the robust move in the stock market, there was only a few days since my last pare.
Item # 5 Sold $1K VEIRX at $79.92 (1/18/18 Post)(sold 1/16/18)
+$375.69 in 2018 Using Average Cost Method
Unrealized Gain as of 1/26/18: +$10,571.58
I am already close to another pare.
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.
