Observations and Sample of Recent Trades: ELC, GJS, PYT, SNR

Economy: 

The Cleveland FED's Median CPI index rose .3% in March or at a 3% annualized rate. 

The Atlanta FED's Sticky-Price CPI index rose an annualized rate of 2.5% in March. 

University of Michigan consumer sentiment index slips to 3-month low on trade-war fears - MarketWatch

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Markets and Market Commentary:

Last Friday, there was a positive correlation in the VIX and SPX movements. 

S & P 500 2,656.30 -7.69 -0.29% 
VIX 17.41 -1.08 -5.84%  

Looks like China and Trump's tariffs will be a news item this week.  White House plans to maintain hard-line stance to push China trade concessions - MarketWatch; White House reportedly to threaten China with tech investment ban: CNBC

Trade war backfire: Steel tariff shrapnel hits U.S. farmers: Reuters

Why tighter credit condition may spell trouble for stocks - MarketWatch

U.S. corporate debt had risen to $6.2 trillion last month from $2.5 trillion in December 2008. A significant amount of that increase was used to fund stock buybacks.

UBS Sees New S&P 500 Highs in Six Months - Bloomberg

Treasury yield curve flattest in more than decade as rate hike expectations heat up - MarketWatch

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Trump: 

Comey book blasts Trump as ‘unethical’ liar who operates like a mob boss - MarketWatch (is that news? I will skip the book as nothing but old news);  James Comey Has a Story to Tell. It’s Very Persuasive. - The New York Times (book review)

Trump slams Comey as 'weak and untruthful slime ball'

Before Trump was elected, I did not think that it was even possible for a U.S. President to use this kind of language publicly. Maureen Dowd says we need an exorcist for "a demonic child in Washington splattering dark stinking bile, croaking gibberish, spewing vulgar personal attacks, lying to sow confusion, whining about the unfairness of the attempts of righteous men to compel the diabolical behavior and head-spinning outbursts to stop, who do you call?" She was not referring to Linda Blair in The Exorcist (1973) - IMDb

Trump decries ‘corrupt’ Russia investigation as pressures mount

Carl Bernstein: Trump presiding over cover-up 

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Trump has repeatedly claimed that he would never telegraph his military plans. A compilation of those statements can be found in this video.

This is a tweet from Trump telegraphing to the entire world that the U.S. will  strike Syria with missiles:  

  

I view that tweet to be a most disturbing coming from a U.S. President. 

It shows that Trump is as flippant as a small child about the use of force. 

Russia replied that it would shoot down any U.S. plane or ship that fires missiles into Syria that kill Russians. Russia will shoot down US missiles fired at Syria and retaliate against launch sites, says ambassador | The Independent 

The missiles were sent last Friday in a very limited strike. This was not a serious action and demonstrates an overall lack of any Syrian policy other than to keep Syrian refugees from entering the U.S. Syria’s war is still creating refugees. The US has all but slammed the door. - Vox; The U.S. Has Accepted Only 11 Syrian Refugees This Year-NPR Trumpsters would say that 11 is 11 too many. 

So Trump will never mention his military plans in advance. I am reminded of Trump's harangues about Obama playing golf, frequently at the Congressional Country Club that is near the White House. Trump would never play golf as President. He would have to give it up. Trump won't play golf as President. Believe me... - YouTube  

The 27 times Donald Trump tweeted about Barack Obama playing golf too much 

Trump could be on track to triple Obama's time on the golf course - CNN 

Donald Trump's huge golf hypocrisy - CNN 

Trump Spent Almost One-Third Of His Presidency At His Own Properties 

Tracking President Trump's Visits to Trump Properties

Trump Golf Count


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HHS official shared post saying 'forefathers' would have hung Obama, Clinton for treason (She also is a believer in Pizzagate conspiracy theory) 

FBI probing Michael Cohen's "personal business dealings" - CBS News

The GOP's Deputy Finance Chairman Elliott Broidy, who pled guilty in 2009 to making $1M in illegal gifts to NY state officials, resigned from that post after it was learned that Michael Cohen, Trump's lawyer, negotiated a $1.6M NDA agreement between Broidy and a former Playmate. 

I wonder whether Donald has made "gifts to politicians in exchange for contracts and other financial benefits bestowed on him. Donald Trump: Developer has thrived with government's generosity (May 2011 LA Times articles); A Trump Empire Built on Inside Connections and $885 Million in Tax Breaks - The New York Times

Keith M. Davidson, the lawyer representing that Playmate, also represented Stormy and the Playmate Karen McDougal. 

"Sources" told reporters that Cohen was paid $250,000 by Broidy. Trump lawyer brokered $1.6 million hush deal for top GOP fundraiser: WSJ 

After being exposed, Broidy apologized to his wife and admitted to everything. RNC deputy finance chair steps down after admitting Trump’s lawyer negotiated settlement between him and pregnant Playboy model - The Washington Post

Kentucky Gov. Matt Bevin (R): "I guarantee" a child was sexually assaulted at home during teacher protests - CBS News  Bevin is a favorite of the tea party who once spoke at a pro-cockfighting rally. Elected Kentuckys' Governor in 2015, Bevin was able to pass legislation into law that required the Kentucky Board of Education to develop rules for bible literacy and to teach bible classes in public schools. He vetoed legislation that would have required increases in public school spending.  

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1.  Synthetic Floaters:

A. ELIMINATED GJS: Sold 200 GJS at $21.08:

Profit Snapshots: +$483.44

IB Account 100 GJS +221.94

Schwab Account 100 GJS +$261.5

Item # 1: Bought Back Synthetic Floater GJS at $18.4 (IB Account)-Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 11/11/15 - South Gent | Seeking Alpha

Item # 1.B. Bought 50 GJS at $19.26-IB Account 

I can not find any discussion of the two fifty lot purchases in my Schwab taxable account. 

2 Year History 100 Shares Schwab Account:

Quote: Synthetic Fixed-Income Securities Inc. Floating Rate STRATS Series 2006-2 for Goldman Sachs (GJS)

Synthetic floaters, which trade like common stocks, are one category of  Exchange Traded Bonds.

GJS pays monthly distribution at .9% over the three month treasury bill rate with a 7.5% maximum coupon. Par value is $25.  

Prospectus
Underlying Bond-Finra 

I recently discussed this security and provided links to prior discussions here: Item # 2.B. (3/29/18) I have nothing to add to those prior discussions.

GJS Trading Profits To Date: $1,158.73 ($675.29 in prior trades)

Snapshots are in my gateway post for Trust Certificates. A Trust Certificate is a category of exchange traded bonds which is almost extinct now. Another category moving toward extinction is trust preferred. Baby bonds will be the category that survives. 

I intend to redirect the proceeds into one or more higher yielding REIT common stocks. Equity REIT stocks remain in either a correction or bear market depending on the stock. 

As previously discussing, I am always in a trading mode for synthetic floaters.

B. Eliminated PYT: Sold 50 at $22.03:

Two Year History This Account:

Quote: Merrill Lynch Depositor Inc. PreferredPLUS Floating Rate Callable TRUCs Series GSC-2 for Goldman Sachs Capital I 

Profit Snapshot: +$56.57

Item # 2 Bought Back 50 of the Synthetic Floater PYT at $20.9 (2/1/18 Post)(contains a more detailed discussion of this security)

Security: PYT makes quarterly interest payments at  the greater of a 3% coupon or .85% above the 3 month Libor rate applied to a $25 par value. There is a maximum coupon of 8%. PYT is the Trust Certificate form of legal ownership.  

Realized PYT Gains To Date: $1,090.45

Since PYT is a Trust Certificate, snapshot of round-trip trades can be found in my gateway post for TCs: Stocks, Bonds & Politics: Trust Certificates: New Gateway Post.

2. Pared SNR: Sold 139+ Shares at $8.28:

Profit Snapshot: +$154.44

QUOTE: New Senior Investment Group Inc. (SNR)

I still own 470 shares in other accounts. 

I thought that it was prudent to take some money off the table before SNR concludes and reports on its "strategic alternatives" evaluation referenced in the last earnings release: New Senior Announces Fourth Quarter and Full Year 2017 Results 

Sure, one result would be the sell of a company, possibly at a premium to the current price. Another result could be management internalization that would require a significant sum to be paid to the current external manager. That alternative could lead to a lower share price. BRG's share price was decimated after disclosing the cost of its management internalization with the price gradually sinking from around $12+ to $7+. Bluerock Residential Growth REIT (BRG) Announces Agreement to Internalize Management (8/4/2017)

BRG Closing Prices History 

8/3/2017 $12.7
8/4/17:    $10.55
8/5/17:    $  9.9
2/28/18:  $  7.38

Why would the price go down? BRG had to issue a boatload of common shares to the external manager that diluted existing shareholders. That is totally different from a REIT offering shares to the public and then using the proceeds to buy income producing real estate. Another way to fund the buyout is to do a cash buyout which requires the REIT to increase its debt and to use the proceeds to payoff the external manager rather than to buy income producing real estate. Both options leave existing shareholders worst off. Over time, and depending on the buyout price and the expenses saved through internalization, there could be a benefit to existing shareholders, but that will not occur over the short term. 

Most Recent Substantive Discussions: 

Item 2.B. Bought 10 SNR at $6.9 Used Commission Free Trade (2/15/18 Post) 

Item 4.A. Bought 50 SNR at $8.2 (11/9/17 Post)

Last Sell Discussions: 

Item # 4.A. Sold 100 SNR at $10.44 (8/7/17 Post)

Item # 6 Sold 100 SNR at $11.76 and Item # 7 Sold 50 SNR at $11.85: Update For Equity REIT Basket Strategy As Of 7/28/16 - South Gent | Seeking Alpha

South Gent's Comment Blog # 2 (noting a 50 share sell transaction at $12.3 on 9/16/16 in a Vanguard Roth IRA)

Realized Gains to Date:  $622.62 (very hard to generate)  

I would characterize SNR as a high risk REIT. SNR's dividend exceeds its funds available for distribution. If SNR is not acquired, a significant dividend cut would be the only prudent course to take.   

Closing Price Last Friday: SNR $8.58 +$0.10 +1.18% 
  

3. Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Bought 1 Virginia Electric Power 2.95% SU Bond Maturing on 1/15/22: 

FINRA Page: Bond Detail (prospectus linked)

Issuer: Wholly Owned Subsidiary of  Dominion Energy Inc. (D) who does NOT guarantee the notes

D Analyst Estimates 

Dominion Energy Announces Fourth-Quarter and Full-Year 2017 Earnings

Federal Trade Commission Grants Early Termination of Antitrust Waiting Period For Proposed Dominion Energy-SCANA Combination

Dominion Energy, SCANA Announce All-Stock Merger 

Dominion Energy Announces Pricing of Common Stock Offering Via Forward Sale

Virginia Electric has a higher credit rating than its parent. 

Page 55 Dominion's 2017 Annual Report

Credit Ratings: 

Bought at a Total Cost of 99.702

YTM at TC Then at 3.033%

Current Yield at TC = 2.9588%

B. Bought 2 Constellation Brands 2.7% SU Bonds Maturing on 5/9/22:

FINRA Page: Bond Detail (prospectus not linked)

Prospectus:

Issuer: Constellation Brands Inc. Cl A (STZ)
STZ Analyst Estimates
Constellation Brands | Portfolio - Beer, Wine and Spirits

Earnings Report Q/E 2/28/17: Exhibit

Annual Report (F/Y Ending 2/28/17)

Credit Ratings:

Since I view the common stock as clearly overvalued, and believe the company has too much debt, the prudent course of action would be to sell about $500M to $1B in stock to pay down the debt which is not going to happen. Instead, the company will use cash flow in part to repurchase shares, spending $1.04B for that purpose in the F/Y ending in February.

Constellation Brands Announces Full Redemption of 6.000% Senior Notes Due 2022

Bought at a Total Cost of  97.235 (with $4 Vanguard commission)
YTM at TC Then at 3.431%
Current Yield at TC = 2.7768%

C. Bought 1 Boston Properties 3.2% SU Bond Maturing on 1/25/25:

Finra Page: Bond Detail (prospectus not linked)
Prospectus

Issuer: Operating Entity for Boston Properties Inc. (BXP)

2017 4th Quarter Earnings Report
2017 Annual Report

Credit Ratings:

Bought at a Total Cost of 96.405
YTM at TC Then at 3.806%
Current Yield at TC = 3.3193%

4. Short Term Bond/CD Ladder Basket Strategy:

A. Bought 1 Treasury 1.125% Coupon Maturing on 1/15/19:
YTM = 1.993%

B. Bought 2 Morgan Stanley Bank 1.9% CDs Maturing on 10/19/18 (6 month CDs):

C.  Bought 2 Bank of China 1.6% CDs Maturing on 6/18/18:

5. Small Ball- Exchange Traded Baby Bonds:

Stocks, Bonds & Politics: Exchange Traded Baby Bonds (1/13/17)

Baby Bonds - South Gent | Seeking Alpha

EXCHANGE TRADED BONDS

An exchange traded bond is simply one that can be bought and sold in the stock market, so maybe a better description would be "Stock Exchange Traded Bonds".  

Unlike bonds traded in bond market, where the par value is $1,000 per bond, exchange traded bonds generally have $25 par values and are consequently more accessible to individual investors. 

When I buy a bond in the bond market, I have to pay the seller accrued interest and then I receive the semi-annual payment. Almost all $1K par value bonds traded in the bond market pay interest semi-annually, though there are a few that pay monthly or quarterly. This quirk then requires an accounting adjustment on Schedule B where accrued interest paid to the bond sellers are subtracted from the total interest reported by brokers on 1099s. 

An exchange traded bond trades flat, which simply means that whoever owns the bond on the ex-interest date receives the entire distribution, just like the owner of a common stock. Most pay interest quarterly although there have been a few that pay monthly. 

Exchange traded bonds are notorious for their asymmetric interest rate risk that substantially favors the issuer over the owner.  Those bonds generally allow the issuer to redeem at par value five years after an IPO. When interest rates are falling, the value of the bond will reflect the potential early call. Stated another way, the bond will not rise in price as much as one that can not be called or one that is subject to a punitive make whole provision for optional redemptions. The falling rate scenario also means that the bond will likely be taken away from the owner who will be left with proceeds to reinvest in lower yielding securities. 

The owner also bears the risk in a rising rate environment which would also be the case for a $1K par value bond traded in the bond market. In both cases, the issuer would be content to let the owners keep their bonds that are going down in value. Even when there is an optional redemption without penalty, the issuer has no financial interest in redeeming a bond that has a lower coupon than a new one that it could issue.  

I have discussed these issues for 10 years in this blog and elsewhere. Since there may be some new readers, I thought that I would give a brief synopsis of why I bought just 30 shares of exchange traded first mortgage bond. If the bond goes down in value for whatever reason, I have the option to buy a few more shares to average down which will increase my yield.   

A. Bought 30 ELC at $23.91-Used Commission Free Trade: 

Quote: Entergy Louisiana LLC Mortgage Bonds 4.875% Series due 2066 (ELC) 

PAR VALUE:  $25
Interest Payments: Quarterly at $.304688 per share
Yield at a $23.91 Total Cost Per Share = 5.14%   
Optional Call: On or after 9/1/2021 at par value plus accrued and unpaid interest
Maturity Date if Not Called: 9/1/2066 (OG will not be among the living)
Credit Ratings: A2/A
Prospectus 
Security: First Lien on substantially all Entergy Louisiana Assets 

Starting in October 2008, I started to trade Entergy Louisiana first mortgage bonds. My first purchase, formerly traded under the symbol EHL, was bought at $22.75 and had a 7.6% coupon. The maturity date was in 2032. Stocks, Bonds & Politics: Notable News 10 22 2008 & END OF DAY TRADES (IR, INTC, TE AND EHL) Needless to say, that one was called by Entergy Louisiana a long time ago. 

In fact, every Entergy Louisiana first mortgage that I have bought since that time, until this ELC purchase, was called by the issuer at par value. The issuer would finance the redemption by issuing a lower coupon first mortgage bond and would extend the maturity further out.  ELC now has a potential maturity date of 2066 and the lowest coupon since I started purchasing these first lien bonds. That is an example of what I mean by asymmetric interest rate risk in favor of the issuer when rates are falling.

Closing Price Last Friday: ELC $23.93 +$0.08 +0.33%
   
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.